Q3 2022 Information Services Group Inc Earnings Call

Good morning, and welcome everyone to the information services Group third quarter results Conference call. This call is being recorded and a replay will be available on isg's website within 24 hours.

I would like to turn the call over to Mr. Barry Holt because anything remarks introduction Mr. Holt. Please go ahead.

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 third quarter Conference call I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Bert Alfonso Executive Vice President and Chief Financial Officer.

Before we begin I'd like to read a forward looking statement. It's important to note that this communication may contain forward looking statements, which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guaranteed 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 statements contained in our form 8-K that was furnished last night 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, 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 Dot ISG dash, one dot com or the SEC's website at Www dot.

SEC Dot Gov.

Let me see undertakes no obligation to update or revise any forward looking statement to reflect subsequent events or circumstances. During this call. We will discuss 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 <unk>.

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 in addition, an additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP for the.

<unk> of all non-GAAP measures presented to the most closely.

The applicable GAAP measure please refer to our current report on form 8-K, which was filed last night with the SEC.

And now I'd like to turn the call over to Michael Connors Who'll be followed by Bert Alfonso Mike.

Thank you Barry and good morning, everyone.

Today, We will review, our third quarter and year to date performance our outlook for the fourth quarter our.

Our return of cash to shareholders in Q3, and our bolt on acquisition of change for growth a leading change management company.

ISG is a firm with good momentum as we enter Q4 and look ahead to 2023.

Demand remained strong for our digital services, our SaaS platforms, including government acts and ISG research. These.

These offerings in particular are driving a strong profitable mix of products and services that resulted in the highest EBITDA margin in our firm's history, 16% in the third quarter.

With the pandemic largely behind them enterprises in every industry remained focused on digital.

They are re imagining their businesses to deliver more value to their customers employees and shareholders.

That requires ongoing investment in cloud AI analytics, <unk>, and cyber and a trusted adviser to guide them.

The ongoing demand for digital is reflected in the underlying strength of our third quarter results.

We delivered $69 million in revenue.

$73 million in constant currency impacted by 540 basis points of FX.

We achieved nearly $11 million in EBITDA adjusted earnings of <unk> 14 per share and again, an EBITDA margin of 16%.

Recurring revenues reached $26 million.

Representing 37% of overall firm revenue.

With $78 million of recurring revenues year to date, we are on track to achieve the $100 million, we committed to in 2020.

We also saw a decline of about $1 million in Asia Pacific due to the timing of certain public sector engagements.

Elsewhere, Europe delivered operating growth of 13%.

And we expect another quarter of double digit growth in Q4, despite that macro environment.

Our Americas business, excluding automation grew 14% in the third quarter on the strength of our digital services and this region is also expected to have a robust Q4.

As was the case last quarter, our reported growth was impacted by the absence of a large automation deal in the U S that was completed last year.

The year over year impact was $5 million plus in Q3.

Our recurring revenues were up 10% on strong demand for our research and platform solutions.

Our Governor next platform in particular is performing very well with several major deals in the quarter with a combined $5 million.

As mentioned in the current environment. Our clients are pressing ahead with our digital initiatives.

We're also seeing an uptick in demand for our cost takeout services as some enterprises redoubled their efforts to stay lean and reinvest in digital.

We recently signed a major client to $1 million plus engagement focused exclusively on optimizing their cost structure.

<unk> savings of more than $100 million.

There are more such deals on the way.

Year to date ISG has delivered record revenues and profits and with a strong fourth quarter. We expect we are on track to deliver record full year revenue and profitability.

During the quarter, we invested in an additional 56 professionals focused on our higher growth digital and recurring revenue streams.

Burk will share more details on our financial performance for the third quarter and year to date a bit later.

From a client perspective, we served 625 clients in Q3 <unk>.

Including 65, new to ISG.

Up both from the prior year and quarter over quarter.

This bodes well for 2023.

Continuous digital transformation remains a business imperative.

ISG is ideally positioned to meet that need.

We continue to help our clients design their future operating state and.

And leverage the technology and services that will help them realize their objectives.

Now moving to shareholder returns.

Due to our successful ISG next operating model.

We were able to return nearly $7 million to our shareholders this quarter.

Comprised of nearly $5 million in share repurchases and $2 million of dividends.

We also reduced our debt by another $1 million during the quarter driving our gross debt ratio.

To a new low.

Now I would like to brief you on our latest acquisition change for growth and award winning companies specializing in transformational change for enterprises.

Founded in 2017 change for growth offers market, leading solutions and expertise to ensure the success of large scale business transformations.

Bobbing people process and technology.

This is the right time to invest in expanding our capabilities and organizational change management or OCM.

We estimate demand for such services will grow at a compound annual rate of 15% over the next five years as companies continuously invest in large scale digital initiatives that.

That require employee buy in to be successful.

Change for growth is the perfect complement to our existing ISG enterprise change business.

It strengthens our core OCM business.

And brings additional capabilities to the table.

Including a change management digital platform.

That allows clients to track the progress and health of their transformations.

In short we are creating a new global powerhouse in change management.

Turning to our regions the Americas delivered $42 million of revenue in the quarter.

Down 2% versus the prior year.

As mentioned, excluding automation, the Americas delivered 14% growth on the strength of our digital offerings, including cyber security network and analytics.

During Q3, we saw double digit growth in our media Health Sciences energy utilities and insurance industry verticals.

And among our services research govern X network.

And software Advisory were also all up double digits.

Key client engagements during the third quarter included Owens <unk> minor medical the state of Idaho, and Capri Holdings.

During the quarter, we won a $3 million engagement to SaaS standardize and optimize the training programs are a major financial services technology provider.

This represents another major client for our emerging training as a service offering.

We also won a $2 $3 million engagement to provide govern X vendor management services too.

To a major distributor of pharmaceuticals and medical supplies.

Turning to Europe , our Q3 revenues of $19 million were up 13% in constant currency over last year.

For the quarter Europe delivered double digit revenue growth in our public sector consumer services and manufacturing industry verticals.

And in our Governor <unk> network and software businesses.

Key client engagements in Europe in the third quarter included Bulks wagon, Munich re <unk> bank and <unk>.

During the quarter, we expanded our business by $2 million with a major networking and telecom company.

ISG is helping this client defined and optimize their Iot offerings.

And is providing strategic planning for their future business state.

We also secured major wins with two public sector clients in our Doc region.

BWI, which is the arm of Germany's federal Ministry of Defense.

And with VIP, the Swiss Federal office of information technology systems and telecommunications.

These multi year engagements combined are worth over $5 million.

Now turning to Asia Pacific, Our Q3 revenues of $7 million were down 3% in constant currency from last year.

Due to some timing issues on government contracts.

Asia Pacific has been a strong performer this year with year to date revenue is up 20% in constant currency and we expect growth to continue.

In the last quarter, we saw double digit growth in our insurance and media verticals.

Key clients in the quarter included the insurance company Bupa Shipping Company Global Express and insurance Australia Group.

We continue to expand our relationship with the Australian arm of a leading global insurance company growing our business with this client by $1 million in the third quarter alone.

We are supporting this client with our government acts and executive insights platform solutions.

<unk> strategy and implementation organizational change management and cost optimization services.

Now, let me turn to guidance.

We see continued strong demand for our services as enterprises remain in a state of continuous digital transformation to defend and grow their market position.

We are also mindful of the economic factors that could impact our clients, including.

Including inflation supply chain disruptions higher energy cost geopolitical concerns and.

And talent shortages.

Taking both demand and the macro factors into account, we continue to target record revenue and profits for the full year.

For the fourth quarter, we are targeting revenues of between 70 and $72 million.

And this includes a negative FX impact built in of approximately 500 basis points.

And adjusted EBITDA between 10 and $11 million.

You will note that our fourth quarter revenues are expected to be higher than our third quarter revenues, despite the FX impact, reflecting a stronger demand environment.

So with that let me turn the call over to Bert who will summarize our financial results.

Well, thank you, Mike and good morning, everyone.

As Mike mentioned ISC continues to have momentum in the market with a solid third quarter, adding to our strong year to date financial results.

Revenues for the third quarter were $68 8 million down 3% on a reported basis and up 2% on a constant currency basis compared with the third quarter of last year.

Currency negatively impacted reported revenues by $4 million versus the prior year.

In the Americas reported revenues were $42 2 million down 2% versus the prior year impacted by the completion of a large automation engagement.

In Europe revenues were $19 3 million down 4% on a reported basis and up 13% in constant currency and.

And in Asia Pacific revenues were $7 3 million.

Down, 10% reported and 3% in constant currency.

Third quarter, adjusted EBITDA was $10 7 million up 5% from last year, resulting in an EBITDA margin of 15, 6% up 120 basis points compared with the prior year's third quarter.

In constant currency adjusted EBITDA was up 12% in Q3 and up 20% year to date.

Our <unk> operating model, which lowers our delivery cost contributed to a 300 basis point improvement in our gross margin in the quarter and a 220 basis point improvement year to date.

Third quarter operating income increased 2% to $7 4 million compared with $7 3 million in the prior year.

Net income for the quarter was $5 6 million or <unk> 11 per fully diluted share up 26% versus net income of $4 4 million or <unk> <unk> per fully diluted share in the prior year.

Third quarter adjusted net income was $7 2 million or <unk> 14 per share on a fully diluted basis up nearly 21% from adjusted net income of $5 9 million or <unk> 12 per share diluted in the prior year's third quarter.

Head count as of September 32022 was 538.

56 professionals or three 8% versus the second quarter and.

And as Mike mentioned earlier, we added resources in anticipation of future growth.

Consulting utilization for the third quarter was 72% down 310 basis points versus the prior year impacted by our additional hiring.

Our balance sheet continues to have the strength and flexibility to support our business over the long term.

For the quarter net cash provided by operations was neutral impacted by higher accounts receivable higher prepaid expenses and lower taxes payable and we ended the quarter with $19 7 million of cash.

During the third quarter, ISG returned approximately $6 $8 million to shareholders, including share buybacks of $4 $8 million and dividends of $2 million.

Our next quarterly dividend will be payable on December 19th to shareholders of record as of December 5th.

In addition, we paid $1 million and a final payout related to our 2022 2020 acquisition of neurology.

And we also paid down $1 $1 million of debt lowering our debt balance to $73 1 million and our debt to EBITDA ratio to one seven times a record low.

Our average borrowing rate for the quarter was three 6% up from one 9% last year and we ended the quarter with $47 9 million shares outstanding.

Mike will now share some concluding remarks before we go to the Q&A back to you Mike.

Thank you Bert will the summarized ISC delivered a solid third quarter, leading to our best first nine months ever.

Our Q3 recurring revenues were up double digits.

Putting us on pace to reach our commitment of $100 million for the full year.

We've navigated the FX headwinds and other market challenges to deliver double digit operating growth in Europe .

And double digits in the Americas, excluding the automation.

Our disciplined operating approach resulted in the highest ever EBITDA margin in our firm's history.

And we returned $7 million to our shareholders in the quarter.

We see our momentum continuing and expect to deliver even better results in the fourth quarter ending the year with record revenue and profits.

Longer term, we are excited about our acquisition of change for growth as it strengthens our transformation capabilities.

And will allow us to better capitalize on our growing change management market.

As always we are focused on creating shareholder value for the long term and we are steadfast in our mission to deliver operational excellence to our clients.

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

Thank you we will now ask about today's Q&A session. If you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by <unk>.

Our first question today comes from Joe Gomes from Noble capital. Your line is now open.

Good morning, Thanks for taking the questions. Good morning, Joe how are you.

So on the acquisition.

Can you give us a little more detail or color in terms of financials.

And what you pay what you think the contribution here.

Our change for growth could be at least in the short term.

Yes. So good question. So first of all just to put it into context, why we did it.

We are in the middle of lots of digital and business transformations and that is where the hot market is and one of the things. We continually are asked is how we can help them put up a wrap or if you will around all of the change that is happening because of technology changes that are happy.

Turning in these companies.

So we wanted to expand what we currently have which is a strong enterprise change business, even more the growth, we think will be 15% CAGR over the next number of years.

It will add about 25 to 30, new clients for ISG.

Our focus in areas like consumer services retail automotive.

And combined with <unk>.

ISG will have about 75 plus people in the enterprise change areas. So it gives you an idea of the scale of what is happening in a lot of these large enterprises.

We.

We provided a $3 million.

<unk> upon closing.

And the team at change for growth will have an opportunity to earn additional on performance targets that are set for 2024 and 2025.

That's as much as we're going to deliver on that bit Joe.

So let me add a couple of thoughts.

Overall, just to give you a perspective on size, it's sort of 2% to 3% of our revenues going into next year, but we do expect it to be accretive.

In year, one 2023.

Okay. Thanks for that insight.

Okay.

So you ended the quarter.

With about this.

Let's call it $20 million of cash that was before this acquisition I'm assuming.

That's down from when you started or ended last year at about $48 million of cash I mean, how comfortable are you.

At the cash level today.

So you've been pretty steady.

Turning to capital to shareholders here.

This year.

Yes, I would say that over.

Over the last.

Nine months to your point we've.

We put cash to work on a number of ways.

Certainly our return to shareholders has been very active.

Both in dividends.

And.

As well as our share buyback and.

And so we aimed to be able to do that.

<unk> see over time.

We did mentioned in the second quarter, we had a.

A tax payment, where we actually paid two years of taxes, particularly in some of our European affiliates.

With.

With the deferrals that were granted.

By some of the European governments, particularly in Germany, where we're highly profitable.

In the second quarter, and so that was that was a one time higher tax payments than we would typically typically expect.

And then in the here in the third quarter, we've seen when we've seen a little bit more on the accounts receivable side.

And while our receivables continue to be quite.

Quite up to date.

We are seeing a bit of stretching by some of our clients just around quarter end and to put it in perspective.

It really is more of a window dressing because we see those receivables.

The collections at about twice the rate of the week before the closing so no concerns about collections, but certainly a bit of window dressing there.

And as well, we've got some higher prepays on some licenses and the like but but but we feel comfortable with the.

The balance that we have today, we also anticipate to be able to continue to generate strong cash going forward.

And.

And then we will continue to seek opportunities such as change for growth, where we can make bolt on acquisitions, where it makes sense for us.

<unk>.

To add to our business Inorganically so.

No concerns in that respect.

Okay.

Good just wanted to switch gears here for a second.

Automation business.

A couple of years ago, there was a lot of big excitement on that on that.

The Rps business.

I thought it was going to be a huge driver in here they were talking forecast of 30% to 50% growth rates.

Wanted to Michael get your thoughts on that business today, where it is kind of its growth rate today, and where you see that.

That business kind of growing over the next couple of years.

Okay look good good question.

I don't want the kind of large.

Deal that we did with this major entertainment company to kind of distort how we feel about automation. We would have we would do that deal again to help one of our large clients.

But I think this space, it's highly competitive now I would say more so than it was two years ago.

As the major three or four software providers with UI path.

Automation anywhere blue Prism nice, there's a few others.

All are beating each other up in the marketplace. So it's added some competitive pressures there but.

But I think we believe that automation as is.

Is still a very viable.

<unk> is a very viable area for us and we continue to be.

We continue to be bullish on it I think certain areas like call centers are red Hot.

The public sector is increasing.

And we just believe that as.

As we move forward into 2023 that the automation business.

As still a key part of the overall digital strategy.

So I would say in terms of how we feel about it as an entity and as a value for the firm.

I would say, we kind of need to see how the market unfolds here in the next 12 months or so but automation is here its here to stay and it will continue to mature.

Thanks for that insight and one last one for me if I may.

And kind of get a little update on how the.

Return to in person events is going to see some of the other.

And other industry. So the in person events, just have not really come back.

To the pre COVID-19 level, so just trying to get at.

My idea.

Your guys response to that and how you see it going today.

So a good question first of all we are back to in person events in the quarter, we had a very.

Successful.

Sourcing of client a sourcing event held down in Dallas, Texas, we.

We had an event held over in <unk>.

Munich, where I was on smart manufacturing.

So it is coming back it's not quite back in terms of its total volume pre pandemic.

But we're going to have a very good year in ISG events, this year and as we emerge into 2023.

I would say that I think events are back.

The only thing that will hold us back I think in 2023 will be the macro environment and decisions that clients might make in terms of travel in those kinds of things and we will keep an eye on it.

But it is definitely emerging back at a pretty good pace.

Great. Thanks for that I'll get back in queue.

Thanks, Joe.

Our next question today comes from Marc Riddick from Sidoti. Your line is now open.

Hi, good morning.

Good morning, Mark Good morning, Mark.

So you had a quite a lot of activity in the quarter. Despite macroeconomic concerns which is certainly pleasant.

Pleasant to see I was wondering if you could talk a little bit about the.

The bump up in head count through the end of the third quarter, and maybe sort of give us.

Some thoughts as to first of all if thats something that continued into the fourth quarter and how that may be pleased.

The growth that you are pursuing some of the things that you see ahead windows.

Those hires as well as maybe just maybe some thoughts on talent availability, and obviously inflation and stuff like that.

Okay Mark good good question. So look we we added.

Over 50 in the in the quarter net if you look at second quarter, we also grow.

And we made a decision to kind of grab <unk>.

<unk> in the market, while others were I would say some more pausing.

And we had an opportunity to.

To kind of go out and get incremental talent and we made the decision to do so.

In terms of our ability to attract talent, we've always had a business model.

That has allowed us to have a very good talent pipeline and I think we've discussed before there's kind of two ends of this there is the turnover part and then there is the recruiting part and on both ends are our attrition rates remain kind of at a steady state over the last five.

Five years.

Was even better as you know in 2020 with the first year of the Covid thing, but our turnover rates still is at very low industry standards think about it.

12% range this is outside of India.

And so we don't have a leaky boat that way so.

So we have a great I think we think we are a great way that an environment to kind of attract people and keep them a combination of the work that we do the clients that we serve and the combination of using stock and cash.

As incentives for our teams. So we jumped ahead here, because we think with cloud and cyber and modernizing technology and then all of the change that's occurring with clients.

We were we were we were going to go ahead and take advantage of what we thought was a nice talent market and jump ahead, which is a little unusual.

You will know that we are we are ones that kind of don't go out too far ahead, we try to match up the revenue with the expense as close as we possibly can but we decided to take advantage of what we think was a good market.

For us to attract talent I don't see that same level continuing into the fourth quarter, because with holidays, and Thanksgiving and Christmas and so forth you don't get as much productivity. So we tend to to want to move our hires into Q1. So I don't think youll see much of that in Q4, if that helps mark.

Sure.

It does and one of the reasons why we ask.

The question the way I did it I guess.

Sort of wondering if youre getting the sense that there is some some some shakeout of talent more recently from competitors.

Like.

But maybe you might not have seen earlier in the year, maybe just do this.

I think what you're seeing from others and or maybe the.

The benefit or help that.

ISG next model that you know.

<unk> is making.

Even more desirable place to land maybe relative to what was a few years ago. I mean does that any of that any of that entry into the picture first.

First of all good observations, Marc I would say both number one yes, we felt like there was some pausing going on in other areas of other companies and we wanted to take advantage of that which we have done and second of all I think our ISG next model is more attractive today why because of the work.

Life balances a lot more if I didn't really want to have to travel a 50% 60% of the time in the past and I can travel 20% of the time or less it does make it attractive or more attractive today. So I would say, it's a combination of both factors Mark.

Okay, Great and then I wanted to.

Move over to maybe some of the things that youre seeing with the pricing dynamic and maybe if you could talk a little bit about maybe some key practice areas, where or just at least in general how you're feeling about the pricing environment, and maybe where there might be some areas, where you can be a little more aggressive where in some areas.

Not be able to just maybe just sort of share your thoughts on the pricing dynamic that you're seeing.

Yes, I think the pricing.

Is on the I would call it the higher demand, so I'll say digital services and our recurring revenue as we have good.

Pricing power.

I would say on broader areas like just I'll call. It more general rapid cost take out.

Because of the topic at hand for a particular enterprise.

The pricing is a little more sensitive and you can imagine that if im.

Looking to take out $100 million of cost out of an enterprise.

We're going to be a lot more watchful as to what it would cost to make that happen. So I think it's kind of a tale of kind of to two groups one the higher demand digital services recurring revenue streams.

Is very solid for us and I think the other is more competitive.

Okay, Great and then I guess this one is probably more for a bright but I was sort of curious as to the.

The tax rate was lower than we thought it would be you did mentioned.

Some tax commentary in your in your remarks I was wonder if you could.

John a little bit more of a light on that thank you. Yeah. We sold two factors and it was lower than we anticipated the predominant factor was more of a mix.

Where we had.

Lower.

Profitability in some of our higher tax jurisdictions, primarily outside of the U S.

With with the faster growth that you saw in recurring revenues.

At 10%.

We do more of that business as well.

In the U S, even though even though we do we.

We do quite a bit in the European market. So the predominant factor was mix.

We had a couple of discrete items, but I would say that mix is the predominant factor.

We don't see quite as much of that in the fourth quarter as we are still anticipating a.

A bit of strong.

Demand in Europe . So we're looking at a tax rate versus sort of the 18 or so percent that we hadn't in the third quarter backup.

Back up towards 30%, perhaps a point or two above that but we were pleasantly surprised with the with the tax rate and the mix that we had in Q3.

Great and then last one from me I am sorry to ask a lot of questions, but the last one for me I wanted to go back to the the change for growth acquisitions. Maybe you can can you talk a little bit about.

Their geographic footprint, and maybe the opportunity to expand either geographically or by industry. So good yes. Good questions. So they are primarily U S.

They have a bit in the U K.

We actually are working on a joint.

<unk>.

Large enterprise possibility over in the UK as we speak I think what this brings.

This brings to US is a couple of things number one they have a digital platform they call Atlas.

And frankly, we did not have that we had been actually out in the market looking to buy a digital platform for enterprise change. So one of the assets that comes with this business is this platform called Atlas, which allows clients and those that are engaged in the process to measure.

Progress kind of the health of the change program, you kind of document and it's all digitized.

And we are going to take that and put that into all of our change management clients. Beginning in 2023. So that's one area that is.

Our benefit immediately on how we will take that and scale that the second area is there are very strong in consumer services and in retail in particular both of those areas.

And we were lighter in those areas as it relates to our change management credentials. Both of those areas are going through major transformation think about with the consumer spending recession noise. All of those kinds of companies are going through what they can do to kind of make it more efficient.

As they enter more recessionary times that usually means technology to help them that usually means disruption disruption causes pain. Among the employee population and then they need to manage that pain in some way in a process thats.

Formalized around change management and that is how we've looked at this asset and how we're thinking about scaling it I will add one other thing the leader of this grow best Thomas.

It is a fantastic executive and coupled with.

And coupled with Randy go Hagen, who was the founder of trace point that we acquired in 2016.

That has tripled in size since we did at those two together along with a full team of people and enterprise change are going to be a real force out in the marketplace. So we're very pleased with the leadership and the team around that leadership as well.

Very helpful. Thank you very much.

Thanks Mark.

Our next question is from Vincent Colicchio from Barrington Research. Please go ahead.

Yes.

Yes, good morning, Mike Nice quarter.

Good morning, Vince Good morning, Mitch.

I'm curious.

Your overall sales pipeline.

Given the slowing.

The economic backdrop.

Overall sales pipeline growth sequentially.

Yes, the in the growth is a different mix at the moment Vince So all of our digital services recurring revenues continue the pipeline continues to strengthen the other area that that's I'll call. It newer in terms of volume level is our whole call.

Cost optimization, a lot of what we call rapid cost takeout.

That is also a hot topic amongst certain enterprises that may be struggling a little bit or anticipating struggling in consumer spending.

And so that pipeline is also building at a more rapid pace than.

And then that category would have been in the past events.

So it was part of your.

First of all Big picture do you feel like your labor mix is.

In a good position for the type of demand youre likely to see if we all wish ourselves into a meaningful recession next year as we seem to be trying to do and.

Is that part of why you hired 56 people this quarter and.

Did this deal.

Yes, I would say that.

We think we have a good mix. We also think that we have surgically targeted what we think will be the growth areas over the next year or so.

That's why we went out to the hires primarily in the digital services areas think about cloud.

Modernizing technology cyber customer experience and then the enterprise change because of all the transformation, that's where we have invested.

And as I had mentioned earlier events and you will know this having followed us for some time, we're pretty conservative on bringing people in and trying to match. It with revenue. So we went a little out of.

A little out of character.

But we did it because we see the talent available that others have pause.

Our ISG next model is even more attractive.

<unk> talent and so we jumped on all of that plus this enterprise change acquisition Vince.

Remind us when the automation deal stops being a comp for the Americas.

Do you have other deals of similar size that may provide a tough comp next year.

The answer is no to the last point and then on the automation.

We had.

It was three or $4 million in Q2, it was $5 million a little bit more than $5 million in Q3. It goes to $2 million in Q4, we factored all that in.

And that's in the run off is then it's over it's over in the fourth quarter.

In terms of that particular deal, but we factor that $2 million into the into the guidance.

And then last question for me any changes in sales cycles or any other signs of.

Impacts from the economy in any way.

Any of your geographies.

No we're keeping an eye on it we know from past history.

That's sometimes clients will do an abrupt change to a an engagement.

Well, you don't want to slow dramatically and buy themselves a quarter or something we've not seeing that I think if we see it in the first place we will see it is in Europe .

But as you can see with the growth rates that we have there.

We're not seeing it yet.

But we're keeping an eye on it and we would anticipate in 2023 that there might be a few of those and we'll keep an eye on it but that's kind of where it sits at the moment.

Thanks, Mike.

Thank you Vince.

Our final question today comes from David Stones.

<unk>. Please go ahead.

Yeah.

<unk> and gentlemen, thank you for taking my call.

Just kind of want to pretty much on inherent in the Asia Pacific market Martin. Thank you.

Would you.

You guys would be able to give a little more color on it.

The Asia Pacific market.

Kind of what.

What the story is there.

First the Asia Pacific market very good market for us.

Through the first nine months its up 20%.

The third quarter was simply some pausing in some of our government work in Canberra.

We have just signed a large multimillion dollar deal with the Australian taxation office.

That will kick in here in the fourth quarter.

Not for the full quarter, but probably have a quarter that we actually anticipated happening in Q3 just took longer.

The government on this particular, one so no issues in Asia Pacific, It's a great region. We expect it to continue its growth pattern as it has over the last few years.

Perfect. Thank you and then.

Switching gears with all the new employees.

Youre, bringing on what's kind of the J curve with bringing them up to speed and starting to see some of that head count revenue go back up starting to see some of those costs.

<unk> realized in the direct cost and expenses for advisors that kind of thing.

No. It's a good good question the productivity on this is we're probably in terms of our utilization that probably impacted it around 250 basis points in the quarter to get them up to speed. So you figure you got about a quarter out we should start seeing some of that come back.

In Q4, and certainly in Q1, so that would be kind of the timeline on that David.

Perfect. Thank you and then just one more for me with the change for growth.

You mentioned the 15%.

Continuous annual growth rate. They are expecting I know you also mentioned that it's a fairly small part of your revenues for now but kind of how do you see that 15% CAGR.

Translating to your income statement.

Well first of all I would say it's a.

It's a it's at firm or higher.

EBITDA margin business, because we categorize it inside kind of a lot of our digital work in digital work for US has some some strength in terms of its margin and pricing capabilities. So our overall view of this particular business is that it's going to generate.

It's going to generate at or higher than the overall firm EBITDA margins. That's that's what this business can do.

That's perfect. Thank you very much.

Okay. Thank you David Thanks, David.

There are no further questions at this time I will now refer you back to Mike Connors for closing remarks.

Okay, well look let me just close by saying I want to first thank all of our professionals worldwide for their continued dedication to our clients and for working together as a global team to achieve our record nine month performance.

Our people have a passion for delivering the best advice and support to our clients.

As they continue their digital journeys and also to navigate the macro environment and I could not be.

Prouder of them and thanks to all of you on the call for your continued support and confidence in our firm have a great rest of the day.

That concludes today's ISG third quarter results Conference call you May now disconnect your line.

Okay.

Okay.

Sure.

Sure.

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Okay.