Q3 2024 Information Services Group Inc Earnings Call

Operator: Good morning and welcome everyone to the Information Services Group third quarter 2024 conference call. This call is being recorded and a replay will be available on ISG's website within 24 hours.

Good morning, and welcome everyone to the information services Group third quarter 2024 conference call.

This call is being recorded and a replay will be available on isg's website within 24 hours.

Operator: Now, I'd like to turn the call over to Mr. Barry Holt for his opening remarks and. Mr. Holt, please go ahead.

Speaker Change: Now I'd like to turn the call over to Mr. Barry Holt for opening remarks and introductions. Mr. Holt. Please go ahead.

Barry Holt: Thank you, operator.

Barry Holt: 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 Michael Sherrick, Executive Vice President and Chief Financial Officer.

Barry Holt: Hello, good morning. My name is Barry Holt. I'm a senior communications executive at ISG.

Barry Holt: 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 Michael Sherrick, Executive Vice President and Chief Financial 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 guaranteed a future result 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 8K that was furnished last night to the SEC and the Risk Factors section in ISG's Form 10K covering full-year results.

Barry Holt: Before we begin I'd like to read a forward looking statement 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 guaranteed of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially.

Barry Holt: Really from those anticipated.

For 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 last night to the SEC and the risk factors section in Isg's Form 10-K, covering full year results.

Barry Holt: You should also read ISG's annual report on Form 10-K 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.

Barry Holt: You should also read Isg's annual report on Form 10-K, 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 Dot I S. G dash, one dot com or the Sec's website at www.

Barry Holt: Dot FCC dot Gov.

Barry Holt: Iced tea 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 be.

Barry Holt: 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. 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.

Barry Holt: Valuate 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.

Barry Holt: For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the FCC.

Barry Holt: With gap with.

Barry Holt: 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 last night with the SEC.

Michael Connors: And now I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Thank you, Barry, and good morning, everyone. Today we will review our Q3 results, including our strong close to the quarter. The recent sale of our automation unit and our planned use of proceeds and our outlook for Q4 and the demand environment heading into 2025. ISG Close Q3 Strong delivering revenues of $61 million and EBITDA of $7 million, both at the top of our expectations. Our profitability improved sequentially over the second quarter, with our adjusted EBITDA margin up 50 basis points and operating income up 18%.

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

Barry Holt: Mike.

Thank you Barry and good morning, everyone.

Barry Holt: Today, We will review, our Q3 results, including our strong close to the quarter.

Barry Holt: The recent sale of our automation unit and our planned use of proceeds.

Barry Holt: And our outlook for Q4, and the demand environment heading into 2025.

Barry Holt: IFC close Q3 strong delivering revenues of $61 million and EBITDA of $7 million, both at the top of our expectations.

Barry Holt: Our profitability improved sequentially over the second quarter with our adjusted EBITA margin up 50 basis points and operating income up 18%.

Michael Connors: Among the drivers of our improved profitability was our higher margin revenue mix. Including our recurring revenue. which represent 45% of our firm-wide total, up 175 basis points from the same period last year. Also contributing to our profitability increase was our record productivity, as measured by utilization, which reached a third quarter high of 77%, up 400 basis points over the prior year. With our disciplined operating approach, we have delivered record utilization two quarters in a row. Our focus is on operational excellence, also as reflected in our strong cash flow from operations in the quarter, nearly $9 million.

Barry Holt: Among the drivers of our improved profitability was our higher margin revenue mix, including our recurring revenues, which represent 45% of our firm wide total.

Barry Holt: 175 basis points from the same period last year.

Barry Holt: Also contributing to our profitability increase was our record productivity as measured by utilization, which reached a third quarter high of 77% up 400 basis points over the prior year.

Barry Holt: With our disciplined operating approach, we have delivered record utilization two quarters in a row.

Barry Holt: Our focus is on operational excellence also is reflected in our strong cash flow from operations in the quarter nearly $9 million.

Michael Connors: compared with 3.2 million last year. In terms of demand, we are seeing both continued improvement in the U.S. market, along with momentum in our strategic investment areas, advisory platforms, AI, and research. One aspect of improvement is highlighted by the deal flow in our ISG Tango digital sourcing platform. More than $5 billion of contract value is now flowing through this platform, up 25% from Q2. Innovations like ISG Tango and our recurring revenue streams. along with the sale of our lower margin automation unit will be key to driving our EBITDA margins in 2025. We anticipate further acceleration in our pipeline beginning in early 2025 in the U.S.

Barry Holt: Paired with $3 2 million last year.

Barry Holt: In terms of demand we are seeing both continued improvement in the U S market along with momentum in our strategic investment areas advisory platforms AI and research.

Barry Holt: One aspect of improvement as highlighted by the deal flow in our ISG Tango digital sourcing platform.

Barry Holt: More than $5 billion of contract value is now flowing through this platform up 25% from Q2.

Barry Holt: Innovations like ISG tango and our recurring revenue streams.

Barry Holt: Along with the sale of our lower margin automation unit.

Barry Holt: We will be key to driving our EBITDA margins in 2025.

Michael Connors: As the economy continues to improve and as our strategic bets on advisory, AI, and software continue to pay off. Leveraging our strong cash flow generation in the quarter, we paid down $8 million or about 10% of our debt. Right after the end of Q3, on October 1, we completed the all cash sale of our automation unit to UST for $27 million. The sale of this business further strengthened our balance sheet, giving us deeper pockets to continue investing in our core growth initiatives and greater flexibility to enhance shareholder returns over time. Over the next few quarters, we expect to reduce our debt to the lower end of our debt ratio target.

Barry Holt: Acceleration in our pipeline, beginning in early 2025 in the US, as the economy continues to improve, and as our strategic bets on advisory AI and software continue to pay off.

Barry Holt: Leveraging our strong cash flow generation in the quarter, we paid down $8 million or about 10% of our debt.

Barry Holt: Right after the end of Q3, on October 1, we completed the all cash sale of our automation unit to UST for $27 million.

Barry Holt: The sale of this business further strengthened our balance sheet giving us deeper pockets to continue investing in our core growth initiatives and greater flexibility to enhance shareholder returns over time.

Michael Connors: And we expect to accelerate our share repurchase. Meanwhile, we will continue to invest in our business to tap into market growth waves, foremost among them AI. One need look no further than our recent first ever AI Summit held in London to see the high level of interest in AI. The event was oversubscribed in our best attended conference of the year. We see AI lifting client demand across multiple fronts. but none more immediately than helping our clients take advantage of modernized AI-driven technology services. that have the potential to reduce costs by 30 to 60 percent. With ISG's leadership in sourcing and contracting, the surge in AI demand is moving the market exactly into our sweet spot.

Barry Holt: Meanwhile, we will continue to invest in our business to tap into market growth waves, foremost among them AI.

Barry Holt: One need look no further than our recent first ever AI summit held in London to see the high level of interest in AI. The event was oversubscribed in our best attended conference of the year.

We see AI lifting client demand across multiple fronts.

Barry Holt: But none more immediately than helping our clients take advantage of modernized, AI-driven technology services that have the potential to reduce costs by 30 to 60 percent.

Barry Holt: With ISG's leadership in sourcing and contracting, the surge in AI demand is moving the market exactly into our sweet spot.

Michael Connors: An additional growth lever is our more holistic approach to addressing the large software economy through a combination of research, advisory, and training as a service. This effort opens up a broader lane of revenue as we engage our clients. and it's a natural path to deepen our market. Overall, with a solid pipeline, higher productivity. Seizing New Opportunities, Being Driven by AI. along with our expansion into the mid-market made possible by our groundbreaking ISG Tango platform.

Barry Holt: An additional growth lever is our more holistic approach to addressing the large software economy through a combination of research, advisory, and training as a service.

Barry Holt: This effort opens up a broader lane of revenue as we engage our clients.

And it's a natural path to deepen our market influence.

Barry Holt: Overall, with a solid pipeline, higher productivity, and seizing new opportunities being driven by AI.

Michael Connors: and our growing research capability, we are optimistic about our prospects heading into 2025.

Michael Connors: With that, let me turn to our region. Revenues were relatively stable quarter over quarter in the Americas, a good sign. On a reported basis, we did face a difficult compare with a record Q3 last year. Reported revenues in the Americas were $40 million, up slightly sequentially, down 5% versus the prior year. During the quarter, we saw double-digit growth in our consumer services and manufacturing industry verticals and in research. Key client engagements during the third quarter included Carnival, Agco, Lockheed Martin, and McDonald's. During the quarter, ISG expanded its relationship with a large U.S. equipment manufacturer. Our engagement began with cost optimization and moved into a large-scale technology and HR sourcing.

With that, let me turn to our regions.

Barry Holt: Revenues were relatively stable, quarter over quarter in the Americas, a good sign.

Barry Holt: On a reported basis, we did face a difficult compare with a record Q3 last year.

Barry Holt: Reported revenues in the Americas were $40 million, up slightly sequentially, down 5% versus the prior year. During the quarter, we saw double-digit growth in our consumer services and manufacturing industry verticals and in research.

Barry Holt: Key client engagements during the third quarter included Carnival, Agco, Lockheed Martin, and McDonald's.

Barry Holt: During the quarter, ISG expanded its relationship with a large U.S. equipment manufacturer.

Barry Holt: Our engagement began with cost optimization and moved into a large-scale technology and HR sourcing.

Michael Connors: driving nearly $2 million in revenue from this client. We are also advising a major U.S. health care provider on an engagement to modernize their supplier ecosystem. which drove nearly $1 million of additional revenue in the quarter. ISG also is advising a leading travel and leisure company on a multi-million dollar long-term infrastructure strategy and sourcing engagement. In the third quarter, we added nearly $1 million in additional revenue here to support an important sustainability initiative. In the area of AI, ISG is engaged with a very large CPG manufacturer to bring to market the largest AI and data sourcing agreement in the Americas this year, one that we believe will set the standard for all future AI sourcing deals.

driving nearly $2 million in revenue from this client.

Barry Holt: We are also advising a major U.S. health care provider on an engagement to modernize their supplier ecosystem.

Barry Holt: which drove nearly $1 million of additional revenue in the quarter.

Barry Holt: ISG also is advising a leading travel and leisure company on a multi-million dollar long-term infrastructure strategy and sourcing engagement.

Barry Holt: In the third quarter, we added nearly $1 million in additional revenue here to support an important sustainability initiative.

Barry Holt: In the area of AI, ISG is engaged with a very large CPG manufacturer to bring to market the largest AI and data sourcing agreement in the Americas this year, one that we believe will set the standard for all future AI sourcing deals.

Michael Connors: And this is a seven-figure engagement for ISG.

Michael Connors: Turning to Europe, the European market remains challenging for discretionary tech spending. Q3 revenues of $16 million were led by double-digit growth in our energy and utilities industry verdict. Key client engagements in Europe in the third quarter included BASF, Excite, and KCOM. During the quarter, ISG worked with two European clients on separate engagements worth more than $1.2 million. One was with a leading chemical company to provide sourcing advisory for their network, data center, and workplace services. including the implementation of an industrial 5G ecosystem. And the other was a cost optimization initiative with a PE-owned UK telecom company to radically transform its cost base ahead of a potential sale.

And this is a seven-figure engagement for ISG.

Barry Holt: Turning to Europe, the European market remains challenging for discretionary tech spending. Q3 revenues of $16 million were led by double-digit growth in our energy and utilities industry verticals.

Barry Holt: Key client engagements in Europe in the third quarter included BASF, Excite, and KCOM.

Barry Holt: During the quarter ISG worked with two European clients on separate engagements worth more than 1.2 million dollars.

Barry Holt: One was with a leading chemical company to provide sourcing advisory for their network, data center, and workplace services.

including the implementation of an industrial 5G ecosystem.

Barry Holt: And the other was a cost optimization initiative with a PE-owned UK telecom company to radically transform its cost base ahead of a potential sale.

Michael Connors: In AI specific sourcing, we are working with one of the world's leading energy companies. to develop new AI and data governance structure. that will be used to train large language models and create the company's long-term data strategy. We expect this early work to grow into a multi-million dollar engagement over time.

Barry Holt: In AI-specific sourcing, we are working with one of the world's leading energy companies.

Barry Holt: to develop new AI and data governance structures that will be used to train large language models and create the company's long-term data strategies.

Barry Holt: We expect this early work to grow into a multi-million dollar engagement over time.

Michael Connors: Now, turning to Asia-Pacific, we had Q3 revenues of $5 million, down $2.3 million from last year, as our Australian government work still has not returned to previous levels. During the quarter, Asia-Pacific delivered double-digit revenue growth in our consumer services, energy, utilities, and health sciences industry verdict. Key clients in the quarter included the Australian utilities company AGL Energy, drinks and hospitality company Endeavor Group, and life sciences company Cogstate.

Speaker Change: Now, turning to Asia-Pacific, we had Q3 revenues of $5 million, down $2.3 million from last year, as our Australian government work still has not returned to previous levels.

Speaker Change: During the quarter, Asia-Pacific delivered double-digit revenue growth in our consumer services, energy, utilities, and health sciences industry verticals.

Speaker Change: Key clients in the quarter included the Australian utilities company, AGL Energy, drinks and hospitality company, Endeavor Group, and life sciences company, Cogstate.

Michael Connors: Now, let me turn to guidance. As I mentioned earlier, we are seeing positive signs of recovery and demand for technology services in the United States. And at the same time, we're clearly well positioned to leverage the key market growth drivers of AI software and mid-market expansion. For the fourth quarter, we are targeting revenues of between $57 and $58 million, and adjusted EBITDA between $6 and $7 million. Our guidance reflects the expectation that growth will return to the Americas in Q4, with Europe's return to growth following in a few quarters. We remain confident in our long-term strategy and we're ready to capitalize on new business opportunities as growth returns in 2025.

Now let me turn to guidance.

Speaker Change: As I mentioned earlier, we are seeing positive signs of recovery in demand for technology services in the United States, and at the same time, we're clearly well positioned to leverage the key market growth drivers of AI software and mid-market expansion.

Speaker Change: For the fourth quarter, we are targeting revenues of between $57 and $58 million, and adjusted EBITDA between $6 and $7 million.

Speaker Change: Our guidance reflects the expectation that growth will return to the Americas in Q4, with Europe's return to growth following in a few quarters.

Speaker Change: We remain confident in our long-term strategy and we're ready to capitalize on new business opportunities as growth returns in 2025.

Michael Sherrick: So with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael?

Speaker Change: So, with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael? Thank you, Mike. And good morning, everyone. Revenues for the third quarter were $61.3 million, down 15% on a difficult compare with the third quarter last year. Currency had a modest $300,000 positive impact on recorded revenues.

Michael Sherrick: Thank you, Mike.

Michael Sherrick: And good morning, everyone. Revenues for the third quarter were $61.3 million, down 15% on a difficult compare with the third quarter last year. Currency had a modest $300,000 positive impact on recorded revenues. In the Americas, reported revenues were $40.1 million, down 5% versus the prior year. In Europe, revenues were $16.2 million, down 27%, and in Asia Pacific, revenues were $4.9 million, down 32% versus the prior year. Third quarter adjusted EBITDA with $7.1 million, down from $10.6 million in the year-ago period, resulting in an EBITDA margin of 11.6%, as compared with 14.8% in the year-ago quarter.

Speaker Change: In the Americas, reported revenues were $40.1 million, down 5% versus the prior year. In Europe, revenues were $16.2 million, down 27%, and in Asia-Pacific, revenues were $4.9 million, down 32% versus the prior year.

Speaker Change: Third quarter adjusted EBITDA with $7.1 million, down from $10.6 million in the year-ago period, resulting in an EBITDA margin of 11.6 percent, as compared with 14.8 percent in the year-ago quarter. Importantly, EBITDA margin continued to improve, up 50 basis points quarter-on-quarter.

Michael Sherrick: Importantly, EBITDA margin continued to improve, up 50 basis points quarter-on-quarter. ISG had a third quarter operating income of $4.3 million as compared with operating income of $6.2 million in the prior year period. Our reported net income for the quarter was $1.1 million, or $0.02 per fully diluted share, compared with net income of $3.2 million, or $0.06 per fully diluted share in the prior year. Third quarter adjusted net income was $2.5 million, or $0.05 per share, on a fully diluted basis, compared with adjusted net income of $5.7 million, or $0.11 per fully diluted share in the prior year's third quarter.

Speaker Change: The ISG had a third quarter operating income of $4.3 million as compared with operating income of $6.2 million in the prior year period.

Speaker Change: Our reported net income for the quarter was $1.1 million or $0.02 per fully diluted share compared with net income of $3.2 million or $0.06 per fully diluted share in the prior year.

Speaker Change: Third quarter adjusted net income was $2.5 million or $0.05 per share on a fully diluted basis.

Transcription by Transcription Outsourcing, LLC.

Michael Sherrick: I would note, in the quarter, both our gap and adjusted tax rates were higher than expected, as a result of the tax treatment of certain transaction-related expenses associated with the automation development. Our headcount as of September 30, 2024 was 1,467, down 83 positions compared with the prior year, and down 30 positions compared with the second year. For the quarter, consulting utilization was a record 77% of 400 basis points as compared to 73% in the prior year. Net cash provided by operations for the quarter was a very strong $8.8 million, as compared to $3.2 million a year ago.

Speaker Change: I would note, in the quarter, both our GAAP and adjusted tax rates were higher than expected as a result of the tax treatment of certain transaction-related expenses associated with the automation divestiture.

Speaker Change: For the quarter, consulting utilization was a record 77% of 400 basis points as compared to 73% in the prior year.

Speaker Change: Net cash provided by operations for the quarter was a very strong $8.8 million, as compared to $3.2 million a year ago. We ended the quarter with cash of $9.7 million, down from $11.8 million at the end of the second quarter.

Michael Sherrick: We ended the quarter with cash of $9.7 million, down from $11.8 million at the end of the second quarter. During the third quarter, we reduced debt by $8 million.

Michael Sherrick: paid dividends of $2.3 million, and repurchased $800,000 of Our next quarterly dividend will be paid on December 20th to shareholders of record as of December 3rd. And at quarter end, we had approximately $20 million remaining on our share purchase authorization. We ended the third quarter with a debt balance of $66.2 million, down $13 million from the end of last year. and down $8 million from the second quarter. Our average borrowing rate for the quarter was 7.3%, up from 6.8% last year. And our fully diluted shares outstanding for 3Q24 were $50.3 million.

Speaker Change: During the third quarter, we reduced debt by $8 million, paid dividends of $2.3 million, and repurchased $800,000 of stock.

Speaker Change: Our next quarterly dividend will be paid on December 20th to shareholders of record as of December 3rd. And at quarter end, we had approximately $20 million remaining on our share purchase authorization.

Speaker Change: We ended the third quarter with a debt balance of $66.2 million, down $13 million from the end of last year, and down $8 million from the second quarter.

Speaker Change: Our average borrowing rate for the quarter was 7.3%, up from 6.8% last year, and our fully diluted shares outstanding for 3Q24 were $50.3 million.

Michael Sherrick: Overall, our balance sheet continues to provide us with the flexibility to support our business over the long term.

Speaker Change: Overall, our balance sheet continues to provide us with the flexibility to sort support our business over the long term.

Michael Connors: With that, I will now turn it back to Mike who will share concluding remarks before we go to Q&A. Thank you, Michael. To summarize, we delivered revenue and adjusted EBITDA at the high end of our expectation. Our profitability improved sequentially and our productivity reached a record Q3 high. We delivered strong operating cash flow, nearly three times higher than last year. And we reduced our debt by 10%. We successfully executed on our strategy to divest our automation unit, monetizing this asset and strengthening our balance sheet to improve shareholder returns over time. With an improving demand environment, we are confident our operating model and product and service portfolio, including ISG Tango, AI, cost optimization, and our recurring revenues positions us well for success in 2025 and beyond.

Speaker Change: With that, I will now turn it back to Mike, who will share concluding remarks before we go to Q&A.

Mike: Thank you, Michael. To summarize, we delivered revenue and adjusted EBITDA at the high end of our expectations.

Speaker Change: Our profitability improved sequentially and our productivity reached a record Q3 high.

Speaker Change: We delivered strong operating cash flow, nearly three times higher than last year.

And we reduced our debt by 10%.

Speaker Change: We successfully executed on our strategy to divest our automation unit, monetizing this asset and strengthening our balance sheet to improve shareholder returns over time.

Speaker Change: With an improving demand environment, we are confident our operating model and product and service portfolio, including ISG Tango, AI, cost optimization, and our recurring revenue streams.

positions us well for success in 2025 and beyond.

Michael Connors: 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 each of our clients.

Speaker Change: 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 each of our clients. So thank you very much for calling in this morning, and now let me turn the session over to our operator for your questions.

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

Operator: Thank you.

Operator: Today's question and answer session will be conducted electronically. If you'd like to ask a question, you can do so by pressing star and one on your telephone keypad. If you find that your question has been answered and you would like to remove yourself from the queue, you may do so by pressing the pound sign. And again, if you would like to ask a question, you can do so by pressing the star and number one on your touch screen. We'll pause a moment to allow any questions.

Speaker Change: Thank you. Today's question and answer session will be conducted electronically. If you'd like to ask a question, you can do so by pressing star and one on your telephone keypad.

Speaker Change: If you find that your question has been answered and you would like to remove yourself from the queue, you may do so by pressing the pound sign. And again, if you would like to ask a question, you can do so by pressing the star and number 1 on your touchtone keypad. We'll pause a moment to allow any questions into the queue.

Joe Gomes: Our first question comes from the line of Joe Gomes with Noble Capital Markets, your line. Good morning. Morning, Joe. Good morning.

Speaker Change: Our first question comes from the line of Joe Gomes with Noble Capital Markets. Your line is open.

Joe Gomes: So, Michael, I wonder if you could just kind of...

Good morning. Morning, Joe.

Michael Connors: Square a circle for me a little bit here. You talk about, you know, you're seeing improving demand, utilizations at record levels. but the revenue is looking at going down sequentially three, third quarter to fourth quarter. Just trying to get a better handle of why that's occurring.

So, Michael, I wonder if you could just kind of...

Speaker Change: Square a circle for me a little bit here. You talk about, you know, you're seeing improving demand, utilizations at record levels.

Speaker Change: But the revenue is looking at going down sequentially third quarter to fourth quarter.

Speaker Change: So it's trying to get a better handle of why that's occurring.

Michael Connors: Okay. So, Joe, it's not going down.

Michael Connors: You have to take into consideration the fourth quarter, you may recall, we will have no automation in that quarter. So, that number is, think about it, is around between $7 and $8 million. So, that comes out of the equation in the fourth quarter. So, when you think about it that way, we are not going down. We are actually moving up the stream there. So, don't forget about that.

Speaker Change: Okay, so Joe, it's not going down that you have to take into consideration the fourth quarter. You may recall we will have no automation in that quarter.

Speaker Change: So that that number is think about it as around between seven and eight million dollars

Speaker Change: So that comes out of the equation in the fourth quarter, so when you think about it that way, we are not going down. We are actually moving up the stream there, so don't forget about that.

Joe Gomes: Okay, thank you for that. Appreciate, appreciate that.

Okay, thank you for that. I appreciate that.

Joe Gomes: Sorry about that. It just caught my eye here. No worries.

Thank you.

Speaker Change: Sorry about that. It just caught my eye here. No worries.

Michael Connors: So you talked about Tango and you got some nice increase in the revenue under that, the contract revenue under that. And one of the things you had talked about in the past was attracting the middle market companies. And you mentioned on the call, I think last time you said there was about 25% of the then $4 billion. Is that continuing to grow, the midsize percentage there? Yes, well, the midsize is continuing to grow. The percentage is around the same at the moment, but it's off of 5 billion now instead of 4, we're up 25%.

part about that so

Speaker Change: You talked about, you know, Tango, and you get some nice increase in the revenue under that, you know, the contract revenue under that.

Speaker Change: And one of the things you had talked about in the past was attracting, you know, the middle market companies, and you mentioned on the call, I think, last time you said there was about 25% of the then $4 billion. Is that continuing to grow, the mid-sized percentage there?

Speaker Change: Yes, well the midsize is continuing to grow. The percentage is around the same at the moment, but it's off of 5 billion now instead of 4, we're up 25% and I think what you will see is 2025.

Michael Connors: And I think what you will see is 2025 is where we think the big thrust will be in the mid market for us because the mid market, we're just getting started with that. So we see a good acceleration next year on that. So the mid market is definitely there for us. It's for the most part white space, and we plan to be very aggressive in that in 2025 and 2026. So it's a good start with about 25% coming from mid market, which we really didn't have before.

Speaker Change: is where we think the big thrust will be in the mid market for us, because the mid market, we're just getting started with that. So we see a good acceleration next year on that. So

Speaker Change: The mid-market is definitely there for us. It's for the most part white space, and we plan to be very aggressive in that in 2025 and 2026. So it's a good start with about 25 percent coming from mid-market, which we really didn't have before.

Joe Gomes: Okay, and then one more for me, if I may, I mean, given where the stock is today, and Proceeds, you know, from the automation sale.

Speaker Change: Okay and then one more for me if I may, I mean given where the stock is today and the proceeds you know from the automation sale

Michael Sherrick: Would it make sense to be a little more aggressive in the stock repurchase program?

Michael Sherrick: Hey Joe, it's Michael Sherrick. So look, I think a couple things. One, you know, I think in his remarks, Mike outlined how we will use the cash proceeds, debt, investments in the business, and share buyback. I think he also mentioned that we would expect to be more aggressive on the buyback. So I'm not going to, you know, share our plan and what we plan to do, but obviously we see where the stock is and, you know, we know that we've had a nice reset to our capital and balance sheet position.

Speaker Change: Hey Joe, it's Michael Sherrick. So look, I think a couple things. One, you know, I think in his remarks, Mike outlined how we will use the cash proceeds

Speaker Change: Mike Connors, Alex Bakker, Kathy Rudy, Bryan Bergin, Michael Sherrick, Barry Holt, Rishi Jhunjhunwala, Namratha Dharshan, Steven Hall, Stanton Jones, David Menninger, Unknown Executive

Michael Sherrick: I would also note that obviously as a result of the transaction, we were not in the market active in the third quarter. And so we would clearly expect that that would change as we move forward.

Speaker Change: At a nice reset to our capital and balance sheet position. I would also note that obviously as a result of the transaction, we were not in the market active in the third quarter. And so we clearly expect that that would change as we move forward.

Joe Gomes: Great.

Joe Gomes: Thanks for taking my questions. I'll get back in queue. Thanks, Joe.

Speaker Change: Okay, great. Thanks for taking my questions. I'll get back in queue. Thanks, Joe.

Vincent Colicchio: Our next question comes from the line of Vincent Colicchio with Barrington Research.

Vincent Colicchio: Your line is open. Yeah, good morning, Mike. Good morning.

Speaker Change: Our next question comes from the line of Vincent Colicchio with Barrington Research. Your line is open.

Michael Connors: So what the expectation that America's improves in early 25, I assume sales cycles will need to improve as well. Any signs of that happening as of yet? Yes, I think we'll see it starting in the fourth quarter, Vince, in the U.S.

Vincent Colicchio: Good morning. So with the expectation that America improves in early 2025, I assume sales cycles will need to improve as well. Any signs of that happening as of yet?

Speaker Change: Yes, I think we'll see it starting in the fourth quarter, Vince, in the U.S. We see, I think also, with the uncertainty of the elections.

Michael Connors: We see, I think also with the uncertainty of the elections being kind of lifted, when there's more certainty, regardless of what the outcome of the election was, there's more clarity. And our sense is that will be a good thing as we move into 2025, as companies will be able to take that uncertainty off the table, they'll have clarity about where things are moving. And we're hoping that that also drives a bit more business confidence. We see it in our pipeline, and we see it with some loosening up, and we're going to see it starting in the U.S., and I think you'll see it starting in the fourth quarter.

Speaker Change: being kind of lifted. When there's more certainty, regardless of what the outcome of the election was, there's more clarity.

Speaker Change: We'll be able to take that uncertainty off the table, they'll have clarity about where things are moving, and we're hoping that that also drives a bit more business confidence. We see it in our pipeline, and we see it with some loosening up, and we're going to see it starting in the U.S., and I think you'll see it starting in the fourth quarter.

Michael Connors: Okay, thanks for that. And then when demand returns, do you see it as more of a wave or a steady flow for the Americas and then later for Europe? I think what we'll see, and I don't want to predict percentages, but we have a guidance that we always give, which is to target over time high single-digit growth. I think we'll be able to see something beyond that in the Americas for 2025. And I think Europe will be following.

Speaker Change: Okay, thanks for that. And then when demand returns, do you see it as more of a wave or a steady flow for the Americas and then later for Europe?

Speaker Change: I think what we'll see, and I don't want to predict percentages, but I, you know, we have a

Speaker Change: guidance that we always give, which is to target over time high single digit growth.

Speaker Change: I think we'll be able to see something beyond that in the Americas for 2025.

Michael Connors: I think Europe's going to be a few quarters behind, because that environment is much different than the U.S. in terms of the buying environment with all of the issues in the European theater. But I definitely believe that the U.S. is going to, you're going to see a big uptick in the U.S. business as we move through 2025.

Speaker Change: And I think Europe will be following. I think Europe's gonna be a few quarters behind because that environment is much different than the U.S. in terms of the buying environment with all of the issues in the European theater.

Speaker Change: But I definitely believe that the U.S. is going to, you're going to see a big uptick in the U.S. business as we move through 2025, Vince.

Michael Connors: And with all the issues around AI, do you feel that there's been sufficient alleviation of that that we'll see, you know, you'll see decent revenue from AI next year? Yes, I mean, again, AI is going to move and evolve, and it's going to, you know, accelerate over time. But we have a number of AI engagements. But again, I would say even the largest companies we're dealing with, one of the largest energy companies in the world, and even they are moving at a pace that you might say is slow, but I think it's slow because everyone is still kind of experimenting on what all this means, what are the governance guidelines and guardrails and so forth.

Speaker Change: And with all the issues around AI, do you feel that there's been sufficient alleviation of that, that we'll see, you know, you'll see decent revenue from AI next year?

Vincent Colicchio: Yes, I mean again, AI is going to move and evolve and it's going to, you know, accelerate over time.

Vincent Colicchio: But we have a number of AI engagements. But again, I would say even the largest companies, we're dealing with one of the largest energy companies in the world, and even they are moving at a pace that you might say is slow, but I think it's.

Vincent Colicchio: Slow because everyone is still kind of experimenting on what all this means. What are the governance guidelines and guardrails and so forth?

Michael Connors: But yes, we definitely see our AI revenue accelerating in 2025. But likely 2026 would be the bigger number just because of the momentum and different enterprise companies and how fast they move. There's a lot of talk on it. There's a lot of, you know, noise on it. But we are working inside a large of the largest companies in the world and the pace is what you'd expect. It's measured, it's thoughtful, and they want to see how this evolves.

Vincent Colicchio: But yes, we definitely see our AI revenue accelerating in 2025.

Vincent Colicchio: But likely 2026 would be the bigger number just because of the momentum and different enterprise companies and how fast they move. There's a lot of talk on it. There's a lot of...

Vincent Colicchio: You know, noise on it, but we are working inside a large of the largest companies in the world, and the pace is what you'd expect. It's measured, it's thoughtful, and they want to see how this evolves. I will say one other thing.

Michael Connors: I will say one other thing. On almost all now of our sourcing engagements that are running through Tango, AI is a component at each transaction that our clients want us to help them with when they're thinking about technology companies to source to, the Accentures, the IBM, the Capgemini. So it is a component. At the moment, it's a smaller piece, but it's going to gain momentum over the next couple of years because we think that the savings that can happen for our clients will be significant, just like labor arbitrage was 10, 15 years ago with the India operations going there.

Vincent Colicchio: on almost all now of our sourcing engagements that are running through Tango.

Vincent Colicchio: A.I. is a component at each transaction that our clients want us to help them with when they're thinking about technology companies.

Vincent Colicchio: to source to the Accenture's, the IBM's, the Capgemini's. So it is a component at the moment, it's a smaller piece, but it's going to gain momentum over the next couple of years.

Vincent Colicchio: because we think that the savings that can happen for our clients will be significant, just like labor arbitrage was 10, 15 years ago with the India operations going there. So it'll evolve like that is our expectation, Vince.

Michael Connors: So it'll evolve like that is our expectation.

Thank you.

Marc Riddick: Our next question comes from the line of Marc Riddick with Sidoti.

Thank you.

Marc Riddick: Your line is open. Hey, good morning, Mike. Good morning, Mike.

Speaker Change: Our next question comes from the line of Mark Riddick with Sidoti. Your line is opened.

Michael Sherrick: Morning, Marc. So I wonder if, actually, why don't we start with, where did we end on headcount for the quarter? I might have missed that. Yeah. You might have missed it. Hold on. I've got it right here. 1,467.

Good morning, Mike. Good morning, Mike.

Good morning, Mark.

Speaker Change: So, I wonder if you, actually, why don't we start with, where did we end on head count for the quarter?

Speaker Change: I might have missed that. Yeah, you might have missed it. Hold on. I've got it right here.

1,467.

Michael Sherrick: And is that before or after the asset sale? That is before. So the asset sale will reduce that by about 115 in the fourth quarter. Because that was yeah, that was October 1, right?

And is that before or after the asset sale?

Speaker Change: That is before. So the asset sale will reduce that by about 115 in the fourth quarter. Because that was October 1st, right?

Marc Riddick: Yeah, I think. Okay, perfect.

Michael Sherrick: Um, I want to shift gears. So we, you know, we see the, you know, debt reduction there already as well. Is there any sort of general sort of target that you're you're looking at, given the the industry and environment, you know, and rate cuts that we've just gotten and, and the like? Is there sort of a target leverage that you're looking at going forward? Yes, the range, and I think we may have mentioned this during our early October call with the sale, our kind of guided range is that our debt to EBITDA ratio will be somewhere between two and two and a half times.

Yeah, I think. Okay, perfect.

Speaker Change: I want to shift gears. So we, you know, we see the debt reduction there already as well. Is there any sort of general sort of target that you're looking at given the industry environment, you know, and rate cuts that we've just gotten and the like? Is there sort of a target leverage that you're looking at going forward?

Michael Sherrick: Historically, over our 17 years, we've averaged 2.7. And I think we talked about our view is that as we move kind of toward the end of the first quarter, we'll be at the low end of that range. And of course, that will help free up a lot of other cash. And that's why we're talking about the acceleration of our share buyback. So that's how we think about it.

Historically, over our 17 years, we've averaged 2.7.

And I think we talked about our our.

Speaker Change: Our view is that as we move kind of toward the end of the first quarter, we'll be at the low end of that range. And of course, that will help free up a lot of other cash. And that's why we're talking about the acceleration of our share buyback. So that's how we think about it.

Michael Connors: Okay, great. And that leads me to another area. Do you have any updated thoughts as to what you're seeing in the potential acquisition pipeline? Are there some things that you might want to target to sort of add to the service offerings? Or how should we think about maybe what's out there and what valuation looks like at this point? Yeah. So, yes, we are active, as we always have been. We are aggressively looking at ways that we can accelerate growth in a smart way. We look for things that will drive our recurring revenues or will drive our digital or AI capabilities.

Speaker Change: Okay, great. And that leads me to another area. Do you have any updated thoughts as to what you're seeing in the potential acquisition pipeline? Are there some things that you might want to target to sort of add to the service offerings? Or how should we think about maybe what's out there and what valuation looks like at this point?

Yeah.

Speaker Change: So, yes, we are active as we always have been. We are...

Speaker Change: You know aggressively looking at ways that we can accelerate growth in a in a smart way We look for things that will drive our recurring revenues or will drive our digital or AI Capabilities that's kind of the focus area for us

Michael Connors: That's kind of the focus area for us. And, you know, there are assets in the market that are looking for potential homes. And, you know, we are in those kind of look and see and discussions that always take time. So, yeah, there are assets there. And I think there are deals that can be made at a reasonable level that we're very disciplined in what we pay. And we do it, as you know, in a combination of some cash and stock and some earn out. And so that model has worked extremely well for us. And we'll continue to look for things that make sense for us, Mark.

Speaker Change: And, you know, there are assets in the market that are looking for potential homes. And, you know, we are in those.

Speaker Change: kind of look and see and discussions that always take time. So yeah, there are assets there. And I think

Speaker Change: There are deals that can be made at a reasonable level that we're very disciplined in what we pay, and we do it, as you know, in a combination of some cash and stock and some earn-out. So that model has worked extremely well for us.

Michael Connors: But I think the market out there is not too bad at the moment.

Speaker Change: And we'll continue to look for things that make sense for us, Mark. But I think the market out there is not too bad at the moment.

Michael Connors: Okay, great. And then I know in the past, we've talked about some activities from clients that are, you know, offensive versus defensive, cost savings driven versus growth driven, things of the like. I was wondering if you could sort of with what you're seeing in the pipeline and what you're positive on for the beginning of next year, do you get the sense that we're shifting toward more of a growth driven offensive nature in the in the projects and things in the pipeline that that you're hearing and dealing with with clients?

Speaker Change: Okay, great. And then I know in the past we've talked about some...

Speaker Change: Offensive versus defensive, cost savings driven versus growth driven, things of the like. I was wondering if you could sort of, with what you're seeing in the pipeline and what you're positive on for the beginning of next year, do you get the sense that we're shifting toward more of a growth-driven, offensive nature in the projects and things in the pipeline that you're hearing and dealing with with clients?

Michael Connors: Yeah, I think at the moment, I would say it hasn't shifted. But I think it's still very heavy on cost optimization. But I think with the whole situation with the election being settled, so that creates clarity, our sense is with our pipeline, we have a lot of transformation things in the pipeline. And as we kind of move into 25, and business confidence improves, our sense is that that will be unleashed.

Speaker Change: Yeah, I think at the moment, I would say it hasn't shifted. But I think it's still very heavy on on cost optimization. But I think with the whole situation with the election being settled, so that creates clarity.

Speaker Change: Our sense is with our pipeline, we have a lot of transformation things in the pipeline. And as we kind of move into 25 and business confidence improves, our sense is that that will be unleashed. At what pace, not sure. Certainly

Michael Connors: At what pace? Not sure. Certainly, the US is going to be unleashed faster. And that's why we're quite bullish on the US market right now, as we think the momentum will begin in the fourth quarter and move through 2025. So I think it will get to be a more balanced between transformation and optimization as we move to the second half of next year. But I think you're going to begin to see some of that in in the US and the next couple of quarters.

The U.S. is going to be unleashed faster.

Speaker Change: And that's why we're quite bullish on the U.S. market right now as we think the momentum will begin in the fourth quarter and move through 2025. So I think it will get to be more balanced between transformation and optimization as we move to the second half of next year.

Speaker Change: But I think you're going to begin to see some of that in the U.S. in the next couple of quarters.

Marc Riddick: Okay, great. Thank you very much. Yep.

Dave Storms: Thank you, Marc. Our next question comes from the line of Dave Storms with Stonegate. Your line is open.

Okay, great. Thank you very much. Yep. Thank you, Mark.

Speaker Change: Our next question comes from the line of Dave Storms with Stonegate. Your line is open.

Dave Storms: Good morning. I just wanted to kind of start with the pipeline. Are there any segments that you're seeing that you would expect to monetize? And Marcus moved to Pasadena for the salon. Recovery. I'm sorry, I'm sorry, we lost you for a second. Can you just say it one more time? Yeah, just with regards to the pipeline, are there any segments that you'd expect to monetize the quickest, just for them being, you know, maybe a little more recovered? Maybe they move... you know, per their end markets and anything. Yeah, okay.

Good morning.

Good morning.

Speaker Change: Just wanted to kind of start with the pipeline. Are there any segments that you're seeing that you would expect to monetize the quickest, maybe just because end markets moved the fastest or furthest along and maybe a recovery, anything like that?

Speaker Change: I'm sorry, I'm sorry, we lost you for a second. Can you just say it one more time?

Speaker Change: Yeah, just with regards to the pipeline, are there any segments that you would expect to monetize the quickest, just for them being, you know, maybe a little more recovered?

Maybe they moved.

further, and anything like that.

Michael Connors: Maybe I'll take it by industry for a second then, Dave. You know, both the consumer and the manufacturing segment is moving pipeline-wise at a very aggressive pace. Both of those are double digits or near double digits in terms of growing.

Dave Storms: Yeah, OK. Maybe I'll take it by industry for a second then, Dave.

Michael Connors: I think we will see one of the areas that has been stagnated really all during this kind of slowdown in the tech sector has been the BFSI segment. So the banking and the insurance segments, if you will, have been slow. Both of those have been almost double digit down for a number of quarters in the industry and certainly with us. But manufacturing is hot, consumer is hot. We think the whole energy and utility sector is about ready to explode. We've got lots going on there, as you know. AI is driving the utilities business into a whole different stratosphere in terms of what will be needed in terms of those capabilities.

Dave Storms: I think we will see one of the areas that has been stagnated really all during this kind of slowdown in the tech sector has been the BFSI segment, so the banking and the

Dave Storms: You know insurance segments, if you will, have been slow. Both of those have been, you know, almost double digit down for a number of quarters in the industry and certainly with us.

But manufacturing's hot, consumer's hot.

Dave Storms: We think the whole energy and utility sector is about ready to explode. We've got lots going on there, as you know.

A.I. is driving the utilities business.

Dave Storms: into a whole different stratosphere in terms of what will be needed in terms of

Michael Connors: So we're getting a lot more work in the energy and utilities areas as well.

Dave Storms: of those capabilities. So we're getting a lot more work in the energy and utilities areas as well.

Michael Connors: And then I think with private equity having sat on the sidelines quite a bit, with this uncertainty beginning to clear, with interest rates beginning to come down, there's a lot of money on the sidelines. So our private equity channel, we would expect in 2025 to also accelerate with some speed as PE begins to take and put their money to work at maybe a faster clip than they have in the last year or so.

Dave Storms: And then I think with private equity having sat on the sidelines quite a bit.

Dave Storms: With this uncertainty beginning to clear, with interest rates beginning to come down, there's a lot of money on the sidelines.

Dave Storms: So our private equity channel, we would expect in 2025 to also accelerate with some speed as PE begins to take and use their, put their money to work at maybe a faster clip than they have in the last year or so.

Dave Storms: Does that help? Yeah, absolutely. Thank you.

Michael Sherrick: Um, and then my second question, just with the utilization being high, you know, with the pipeline being strong, how do you see headcount? Yeah, so David, it's Michael. I think as I said to Marc, one, in Q4, we'll see the automation resources come out. which is about 115 people. And I think, you know, from that point forward, you know, our additions, right, will be, you know, again, opportunistic based on those opportunities and, you know, everything obviously will have a, from a skill set standpoint, a large focus on, you know, folks with the AI skill set and so forth.

Is that helpful?

Speaker Change: Yeah, absolutely. Thank you. And then my second question, just with the utilization being high, you know, the pipeline being strong, how do you see headcount moving forward?

Speaker Change: Yeah, so David, it's Michael. I think as I said to Mark, one, in Q4, we'll see the automation resources come out.

Speaker Change: which is about a hundred and call it 15 people. And then I think, you know, from that point forward, where, you know, our, our additions.

Speaker Change: We'll be, you know, again, opportunistic based on those opportunities and, you know, everything obviously will have a, from a skill set standpoint, a large focus on, you know, folks with the AI skill set and so forth.

Michael Sherrick: But I think that you'll see us be opportunistic so that we can manage growth and the utilization, which I think will be important for us as we get back to a growth position in 2025. Thank you.

Speaker Change: But I think that you'll see us be opportunistic so that we can manage growth and the utilization, which I think will be important for us as we get back to a growth position in 2025.

Dave Storms: And then just one more for me, if I could.

Michael Connors: Now that you're a month past the automation sale, as you're looking at your portfolio, are there any other parts of the portfolio that you think could be candidates by being added or by subtraction? No. I mean, I think, as we have discussed really over a number of quarters, that the automation unit, when we formed it, we built it purposefully into a box so that it could be lifted out and monetized. And of course, that's what we ended up doing. But we like our assets and we like the growth prospects of those assets. And we like all of the organic innovations that we have done with things like Tango and GovernX, and a lot of our research areas and our pro benchmark capabilities, which is the high price subscription for benchmarking that we have on subscription.

Speaker Change: Thank you. And then just one more for me, if I could. Now that you're a month past the automation sale, as you're looking at your portfolio, are there any other parts of the portfolio that you think could be candidates by being added by subtraction?

Speaker Change: No, I mean, I think as we have discussed really over a number of quarters that the automation unit when we formed it.

Speaker Change: We built it purposefully into a box so that it could be lifted out and monetized, and of course that's what we ended up doing. But we like our assets, and we like the growth prospects of those assets.

Speaker Change: And we like all of the organic innovations that we have done with things like Tango and GovernX.

Speaker Change: and a lot of our research areas and our pro-benchmark capabilities, which is the high-priced subscription for benchmarking that we have on subscriptions. We like all of that. So we feel pretty good about the portfolio and where it's headed for 2025, Dave.

Michael Connors: So we like all of that. So we feel pretty good about the portfolio and where it's headed for 2025, Dave.

Dave Storms: Thanks for taking my questions and good luck in the fourth quarter.

Speaker Change: Understood. Thanks for taking my questions and good luck in the fourth quarter. Thank you.

Christopher Sakai: Our next question comes from Chris Sakai with Singular, your line is open. Yes, good morning. I'm in for Gaussi.

Speaker Change: Our next question comes from Chris Sakai with Singular. Your line is open.

Christopher Sakai: You've mentioned that America's region is performing better than other geographies, particularly Europe. Could you provide more insight into the specific challenges you're facing in Europe and Asia-Pacific? Could we provide, I'm sorry I lost the last part of it, provide more insight into what was that?

Chris Sakai: You've mentioned that America's region is performing better than other geographies, particularly Europe. Could you provide more insight into the specific challenges you're facing in Europe and Asia-Pacific?

Speaker Change: Could we provide, I'm sorry I lost the last part of it, provide more insight into what was that?

Michael Connors: The specific challenges you're facing in Europe and Asia.

Michael Connors: Yeah, let me take the Asia-Pacific region first. That's really driven by the Australian government spending. There's an election coming up in the middle to early next year in Australia. That's normally a slowdown in government spending. We see that as government spending goes, our growth goes. And as that begins to come back, I think we will see Asia-Pacific back to its normal kind of double-digit type growth. But that's likely not to happen until after the elections next year. So that's what the dynamic is in that region.

The specific challenges you're facing in Europe and Asia.

Speaker Change: Yeah, to let me say take the Asia-Pacific region first. That's really driven by the Australian government spending

Speaker Change: There's an election coming up in the middle to early next year in Australia. That's normally a slowdown in government spending, we see that.

Speaker Change: As government spending goes, our growth goes, and as that begins to come back, I think we will see Asia-Pacific.

Speaker Change: Back to its normal kind of double-digit type growth, but that's likely not to happen until after the elections next year. So that's what is

Michael Connors: Over in Europe, I mean, Europe just continues to have a very difficult discretionary spending environment all around in France, Germany, UK. And we will just weather that discretionary spend kind of slowdown, I think, for probably a couple more quarters. We're well-positioned with the largest companies in Europe as our client base. But we will be working with them and are working with them with large automotive companies over there doing big cost optimization programs. We're involved in them. But we expect that to be a couple of quarters behind the return to growth from the U.S.

Speaker Change: That's what the dynamic is in that region. Over in Europe...

Speaker Change: I mean, Europe just continues to have a very difficult discretionary spending environment.

in Europe as our client base.

Speaker Change: But we will be working with them and are working with them with large automotive companies over there doing big cost optimization programs, we're involved in them. But we expect that to be a couple of quarters behind the return to growth from the U.S.

Michael Connors: And how is the adoption of ISG Tango progressing in these regions? Yeah, so it's going well. I mean, we don't break it down by region, but each region, everybody, all the sourcing is going through our ISG Tango. It's growing fast. As you know, we're up to a little over $5 billion of value now on that asset, up about 25% from the second quarter. So it's moving around rapidly. What we expect as we get more and more on the platform is that also will help our overall margin expansion that we're looking to do as an ISG firm.

Speaker Change: And how is the adoption of ISG TANGO progressing in these regions?

Speaker Change: Yeah, so it's it's going well. I mean, it's we don't break it down by region But each region everybody all the sourcing is going through our ISG Tango

Speaker Change: It's growing fast. As you know, we're up to a little over $5 billion.

Speaker Change: So, it's moving around rapidly. What we expect is we get more and more on the platform.

Speaker Change: is that also will help our overall margin expansion that we're looking to do as an ISG firm. So that will be a contributor to the expansion of our margins in 25 and 26.

Michael Connors: So that will be a contributor to the expansion of our margins in 2025 and 2026. So yes, it's all going through in each region through the Tango platform.

Speaker Change: So, yes, it's all going through in each region through the Tango platform.

Michael Connors: Okay, thanks. And then considering the maturation of the sourcing advisory market, how do you plan to maintain or grow this segment? Well, we grow it every year. We're number one in the world. We believe we have over 50% of the market share, and by innovations such as ISG Tango, every large corporation in the world, you see them in our client base. We have 75 of the largest 100 firms in the world that are doing sourcing with us, and they've done it on many generations, but they work with us because we have data.

Speaker Change: Okay, thanks. And then considering the maturation of the sourcing advisory market, how do you plan to maintain or grow this segment?

Speaker Change: Well, we grow it every year. We're number one in the world. We believe we have over 50% of the market share.

and by innovations such as ISG Tango.

Speaker Change: Every large corporation in the world you see them in our client base. We have 75 of the largest 100 firms in the world that are doing sourcing with us and they've done it on many generations.

Michael Connors: We know what we're doing because we've done it for so many years, but importantly, we have the competitive intelligence, the pricing, the performance, and the relationships with all of the provider ecosystem that we can bring great value to an enterprise on sourcing, whether they've done it once, none, or four times, and that's our, if you will, our superpower, and we continue to have a great market position and lead the world in this area, and we will continue to preserve and grow that position. Okay, great. Thanks for the answer.

Speaker Change: But they work with us because we have data we know what we're we know what we're doing because we've done it for so many Years, but importantly we have the competitive intelligence the pricing the performance

Speaker Change: And the relationships with all of the provider ecosystem that we can bring great value to an enterprise on sourcing, whether they've done it once.

Speaker Change: None, or four times. And that's our, if you will, our superpower, and we continue to have a great market position and lead the world in this area, and we will continue to preserve and grow that position.

Michael Connors: You bet. Thank you.

Okay, great. Thanks for the answers.

Operator: And I'm showing no further questions at this time.

You bet. Thank you.

Michael Connors: I'll turn the call back over to Mike Connors for Well, thank you. Let me close by saying thank you to all our professionals worldwide for our continuing progress and for their collaboration and unwavering dedication. to our clients in driving our long term success. Our people all over the world have a passion for delivering the best advice and support to our clients as they continue their transformations in both uncertain times and in the better times ahead. 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.

Unknown Speaker

Speaker Change: And I'm showing no further questions at this time. I'll turn the call back over to Mike Connors for closing remarks.

Mike Connors: Well, thank you. Let me close by saying thank you to all our professionals worldwide for our continuing progress and for their collaboration and unwavering dedication.

to our clients in driving our long-term success.

Mike Connors: Our people all over the world have a passion for delivering the best advice and support to our clients.

Mike Connors: As they continue their transformations in both uncertain times and in the better times ahead. 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.

Operator: Have a great rest of the day.

Operator: This does conclude today's teleconference. You may now disconnect at.

Speaker Change: This does conclude today's teleconference. You may now disconnect at this time.