Information Services Group, Inc.

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 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. You should also read ISG's annual report on Form 10K and any other relevant documents, including any amendments or supplements to these documents, filed with the SEC. You will be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking 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-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 in additional information and should not be considered an isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Barry Alfonto. 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 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 remains strong for our digital services, our SaaS platforms, including GovernX, and ISG Research. 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 remain focused on digital. They are reimagining their businesses to deliver more value to their customers, employees, and shareholders. That requires ongoing investment in cloud, AI, analytics, 5G, and cyber, and a trusted advisor 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 14 cents 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 a million dollars 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 America's 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 percent on strong demand for our research and platform solutions. Our GovernX platform in particular is performing very well, with several major deals in the quarter worth a combined $5 million. As mentioned, in the current environment, our clients are pressing ahead with their digital initiatives. We're also seeing an uptick in demand for our cost takeout services, as some enterprises redouble their efforts to stay lean and reinvest in digital. We recently signed a major client to a million-dollar-plus engagement focused exclusively on optimizing their cost structure, targeting 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 the 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. Bert 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, 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, and ISG is ideally positioned to meet that need. We continue to help our clients design their future operating state 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 million dollars 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, an award-winning company 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 involving people, process, and technology. This is the right time to invest in expanding our capabilities in 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 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 cybersecurity, 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, GovernX, network, and software advisory were also all up double digits. Key client engagements during the third quarter included Owens & Miner Medical, the State of Idaho, and Capri Holdings. During the quarter, we want a $3 million engagement to assess, standardize, and optimize the training programs of a major financial services technology provider. This represents another major client for our emerging training as a service offering. We also want a $2.3 million engagement to provide Govern-X vendor management services to a major distributor of pharmaceuticals and medical supplies. Turning to Europe, our Q3 revenues of $19 million were up 13 percent 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 GovernX network and software businesses. Key client engagements in Europe in the third quarter included Volkswagen, Munich Re, Dansk Bank, and Diageo. During the quarter, we expanded our business by $2 million with a major networking and telecom company. ISG is helping this client define 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 IT arm of Germany's Federal Ministry of Defense, and with BIT, 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 revenues 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 GovernX and Executive Insights platform solutions, ESG 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 inflation, supply chain disruptions, higher energy costs, geopolitical concerns, 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. Bert?

Well, thank you, Mike, and good morning, everyone. As Mike mentioned, ISG 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 last year. The 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 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 ISG Next operating model, which lowers our delivery costs, 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 11 cents per fully diluted share, up 26% versus net income of $4.4 million, or 9 cents per fully diluted share in the prior year. Third quarter adjusted net income was $7.2 million, or 14 cents per share on a fully diluted basis, up nearly 21% from adjusted net income of $5.9 million, or 12 cents per share diluted in the prior year's third quarter. Headcount as of September 30th, 2022, was 1,538, up 56 professionals, or 3.8%, versus the second quarter. 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 in a final payout related to our 2020 acquisition of Neurolify, 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 1.7 times a record low. Our average borrowing rate for the quarter was 3.6%, up from 1.9% 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. Well, to summarize, ISG 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 a 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 start 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 two. Our first question today comes from Joe Gomez from Noble Capital. Your line is now open.

Good morning. Thanks for taking the questions.

Good morning, Joe. How are you?

Good. So on the acquisition, Can you give us a little more detail or color in terms of financials, what you think the contribution here for change for growth could be, at least in the short term?

Yeah, so good question. So first of all, just to put it into context, why do 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 wrapper, if you will, around all of the change that is happening because of technology changes that are happening in these companies. So, A, we wanted to expand what we currently have, which is a strong enterprise change business even more. The growth, we think, will be 15% CAGRA over the next number of years. It will add about 25 to 30 new clients for ISG. They are focused in areas like consumer services, retail, automotive. And combined with ISG, we'll have about 75 plus people in the enterprise change area. So it gives you an idea of the scale of what is happening in a lot of these large enterprises. We provided a $3 million payment 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.

Joe, let me add just 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. So you ended the quarter with about, let's call it, 20 million of cash that was before this acquisition. I'm assuming, um, you know, 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? Uh, especially seeing as you've been pretty steady, uh, returning half of the shareholders here, um, you know, this year.

Yeah, I'd say that over the last five months, to your point, we've put cash to work in a number of ways. Certainly our return to shareholders has been very active, both in dividends and as well as share buyback. And so we aim to be able to do that continuously over time. We did mention in the second quarter we had a tax payment where we actually paid two years of taxes, particularly in some of our European affiliates 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 a one-time higher tax payment than we would typically expect. And then here in the third quarter, We've seen a little bit more on the accounts receivable side. And while our receivables continue to be 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 prepaids on some licenses and the like. But, you know, we feel comfortable with the balance that we have today. We also anticipate to be able to continue to generate strong cash going forward. And then, you know, we will, you know, continue to seek opportunities such as change for growth where we can make bullfine acquisitions where it makes sense for us to, you know, to add to our business inorganically. So, No concerns in that respect.

Okay. Good. I just wanted to switch gears here for a second to the automation business. A couple years ago, there was a lot of big excitement on the RPA business. Thought there was going to be a huge driver here. They were talking forecasts of 30% to 50% growth rates. I just wanted to, Michael, get your thoughts on that business today, where it is, kind of its growth rate today, and where you see that business kind of growing over the next couple of years.

Okay, look, 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 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 UiPath, 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 I think we believe that automation is still a very viable area for us, and 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 we move forward into 2023, that the automation business is 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, it's here to stay, and it will continue to mature continuously.

Thanks for that insight. And one last one for me, if I may, just, you know, kind of get a little update on how the return to in-person events is going. I see some of the other, in other industries, some of the in-person events just have not really come back from, you know, to the pre-COVID level. So just trying to get a part of the idea of, you know, your guys' response to that and how you see it going today.

So good question. First of all, we are back to in-person events. In the quarter, we had a very successful client sourcing event held down in Dallas, Texas. We had an event held over in 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 are 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 it back, I think, in 2023 will be the macro environment and decisions that clients might make in terms of travel and those kinds of things, and we'll 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 Mark Riddick from Sidoti. Your line is now open.

Oh, good morning. Good morning, Mark. Good morning, Mark.

So you had quite a lot of activity in the quarter despite macroeconomic concerns, which is certainly pleasant to see. I was wondering if you could talk a little bit about the bump-up in headcount through the end of the third quarter, and maybe sort of give us some thoughts as to, first of all, if that's something that continued into the fourth quarter and how that maybe plays into some of the growth that you're pursuing, some of the things that you see ahead of those hires, as well as maybe just maybe some thoughts on talent availability and obviously inflation and stuff like that.

Okay, Mark, good question. So look, we added over 50 in the quarter net. If you look at second quarter, we also grew. And we made a decision to kind of grab talent in the market while others were, I would say, some were pausing. And we had an opportunity to kind of go out and get incremental talent, and we made the decision And 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's the turnover part, and then there's the recruiting part. And at both ends, our attrition rates remain kind of at a steady state over the last five years. It was even better, as you know, in 2020 with the first year of the COVID thing. But our turnover rate still is at very low industry standards. Think about it in the 12% range. This is outside of India. And so we don't have a leaky boat that way. So we have a great, I think we think we have a great way that 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 team. 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 that 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. Mark, you will know that we are We are ones that kind of don't go 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 you'll see much of that in Q4, if that helps, Mark.

It does, and one of the reasons why I asked the question the way I did it, I guess, is because I was sort of wondering if you're getting the sense that there's some shakeout of talent more recently from competitors or the like that maybe you might not have seen earlier in the year, maybe just due to sort of the things that you've seen from others. and or maybe the benefit or help that, you know, with the ISG next model that you now have as far as making ISG an even more desirable place to land, maybe relative to what it was a few years ago. I mean, does that, any of that, any of that enter into the picture?

Yeah, first of all, good observations, Mark. 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 the work-life balance is a lot more. If I didn't really want to have to travel 50%, 60% of the time in the past, and I can travel 20% of the time or less, It does make it attractive, 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 you're seeing with the pricing dynamic. And maybe if you could talk a little bit about maybe some 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, you know, be a little more aggressive, whereas some areas where, you know, you might not be able to. Just maybe to sort of share your thoughts on the pricing dynamic that you're seeing out there.

Yeah, I think the pricing is on the, I would call it the higher demand. So I'll say digital services and our recurring revenue is we have good pricing power. I would say on broader areas like just I would call it more general rapid cost takeout, because of the topic at hand for a particular enterprise, the pricing is a little more sensitive. And you can imagine that if I'm looking to take out $100 million of cost out of an enterprise, you know, they'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 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 bird but i was sort of curious as to the um the tax rate was lower than than we thought it would be uh you did mention uh uh some tax commentary in your in your remarks i was wondering if you could sort of uh shine a little bit more of a light on that thank you yeah we saw two two factors and it was lower than we anticipated the predominant factor was more of a mix uh where we had uh you know lower

profitability in some of our higher tax jurisdictions, primarily outside of the U.S. 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 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 were still anticipating, you know, a bit of strong demand in Europe. So, you know, we're looking at a tax rate, you know, versus sort of the 18 or so percent that we had in the third quarter back up, you know, toward 30 percent, perhaps a point or two above that. But we were pleasantly surprised with the tax rate and the mix that we had in Q3.

Great, and then last one for me. I'm sorry I asked a lot of questions, but the last one for me, I wanted to go back to the change for growth acquisition. Maybe can you talk a little bit about their geographic footprint and maybe the opportunity to expand either geographically or by industry vehicle? Thank you.

So good, yes, good question. So they are primarily U.S. They have a bit in the U.K. We actually are working on a joint project large enterprise possibility over in the UK as we speak. I think what 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 it. 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 of benefit immediately on how we will take that and scale that. The second area is they 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 that's 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 group, Beth Thomas, is a fantastic executive and coupled with coupled with Randy Gohagan, who was the founder of TracePoint that we acquired in 2016 that has tripled in size since we did it. Those two together, along with a full team of people in 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 Colacchio from Barrington Research. Please go ahead.

Yeah, good morning, Mike. Nice quarter.

Morning, Ben.

Morning, Ben. Curious, your overall sales pipeline, given the economic backdrop, did the overall sales pipeline grow sequentially?

Yes, and the growth is a different mix at the moment then. So all of our digital services, recurring revenues continue, the pipeline continues to strengthen. The other area that's, I'll call it newer in terms of volume level, is our whole cost optimization. A lot of it 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 that category would have been in the past, Vince.

So as part of your, you know, first of all, big picture, do you feel like your labor mix is in a good position for the type of demand you're 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 after the hires, primarily in the digital services areas. You know, 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 mentioned earlier, Vince, 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 character, but we did it because we see the talent available that others have paused. Our ISG Next model is even more attractive to talent, and so we jumped on all of that, plus this enterprise change acquisition, Ben.

Remind us when the automation deal stops being a comp for the Americas. And do you have other deals of a similar size that may provide a tough comp next year?

Yeah, the answer is no to the last point. And then on the automation, we had it was $3 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 the runoff is then. It's over in the fourth quarter in terms of that particular deal. But we factored that $2 million 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 of your geographies?

No, we're keeping an eye on it. We know from past history. that sometimes clients will do an abrupt change to an engagement. They'll either want to slow it dramatically and buy themselves a quarter or something. We're not seeing that. I think if we see it, the first place we'll 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 Storms from StoneGate Securities. Please go ahead.

Good morning, gentlemen, and thank you for taking my call. Just kind of wanted to touch on the Asian Pacific market. Morning. Thank you. Would you be able to give a little more color on the Asia-Pacific market and kind of what the story is there?

Yeah. First, the Asia-Pacific market, very good market for us. I mean, through the first nine months, it's up 20%. The third quarter was simply some pausing in some of our government work in Canberra that we anticipated starting earlier than it did. Subsequent to the quarter, we have just signed a large multi-million dollar deal with the Australian Taxation Office. that will kick in here in the fourth quarter, not for the full quarter, but probably half the quarter, that we actually anticipated happening in Q3. It just took longer with 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 that you're bringing on, what's kind of the J curve with bringing them up to speed and starting to see some of that headcount revenue go back up, starting to see some of those costs be realized and the direct costs and expenses for advisors, that kind of thing?

That's a good question. The productivity on this is probably in terms of our utilization, it probably impacted at around 250 basis points in the quarter. get them up to speed. So you figure you've 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 had 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 50% waiver translating to your income statement?

Well, first of all, I'd say it's at firm or higher EBITDA margin business. because we categorize it inside kind of a lot of our digital work, and digital work for us has 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 at or higher than the overall firm EBITDA margins. 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 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.