Good morning, and welcome everyone to the Information Services Group Third Quarter Conference Call. This call is being recorded, and a replay will be available on ISG's website within 24 hours. Now, I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Holt, please go ahead.

Thank you, operator. Hello, and good morning. My name is Barry Holt. I'm the Senior Communications Executive. I'd like to welcome everyone to ISG third quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive; and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements, which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8-K that was furnished last night to the SEC and the Risk Factors section in ISG's Form 10-K covering full year results. You should also read ISG's annual report on Form 10-K and any other relevant documents, including any amendments or supplements 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-one.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the Company's financial results between periods and provides for greater transparency of key measures used to evaluate the Company's performance. The non-GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8-K, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike?

Well, thank you Barry, and good morning, everyone. Today, we will focus on four areas. First, our record third quarter revenues, including our fast-growing recurring revenue streams. Second, our acquisition of Ventana Research. Third, our Gen AI engagements and a view of this emerging market. And fourth an update on the demand environment. ISG delivered its best top line performance ever in the third quarter with revenues of $72 million. Through the first nine months of the year we generated a record $225 million in revenue up nearly 7% on an operating basis. Performance in the third quarter was driven by strong double-digit growth in Europe and in our recurring revenue streams. Clients are increasingly focused on leveraging technology to improve customer experience and reduce operating costs, a traditional sweet spot for ISG and this is reflected in our strong pipeline. With that said, client decision-making right now is slower than usual and spending is being stretched over longer periods of time as clients weigh the impacts of the macro environment and rising geopolitical concerns. We expect the pace of spending on large-scale transformations to pick up again in the New Year when demand is likely to increase. In the meantime, clients are focused on cost optimization and making targeted digital investments that will help them prepare for the next wave of growth. During the third quarter, our ISG net operating model and disciplined approach to operating efficiency allowed us to improve our firm-wide EBITDA margins by 120 basis points quarter-over-quarter. Our team execution remains stellar. We also achieved 19% growth in our recurring revenue streams in the third quarter, driven by an increase in our multiyear contracts and our investments in proprietary platforms and research. For the first nine months recurring revenues were up 22% to $95 million and…

Thank you, Mike, and good morning, everyone. As Mike mentioned, ISG delivered record third quarter revenues. Revenues for the third quarter were $71.8 million, up 4% compared with the third quarter of last year. In the Americas, reported revenues were $42.5 million, up 1% versus the prior year. In Europe, revenues were $22.1 million, up 14% versus the prior year. And in Asia Pacific, revenues were $7.2 million, down $100,000 versus the prior year. Third quarter adjusted EBITDA was $10.6 million, down modestly from the prior year period, resulting in an EBITDA margin of 14.8%, up 120 basis points quarter-on-quarter and down 80 basis points compared with the prior year's third quarter. Third quarter operating income was $6.2 million, compared with $7.4 million in the prior year. Our net income for the quarter was $3.2 million or $0.06 per fully diluted share, as compared with net income of $5.6 million or $0.11 per fully diluted share in the prior year. On an adjusted basis, third quarter net income was $5.7 million or $0.11 per fully diluted share compared with adjusted net income of $7.2 million or $0.14 per fully diluted share in the prior year's third quarter. As of September 30, headcount was 1,550, down 47 professionals versus the prior quarter. Our consulting utilization continued to increase coming in at 73% for the third quarter, up nearly 100 basis points year-on-year. Our balance sheet remains solid and continues to have the strength and flexibility to support our business over the long term. For the quarter, net cash generated from operations was $3.2 million or a positive swing of $3.5 million from a year ago. We ended the quarter with $18.7 million of cash, down modestly from $19.6 million at the end of the second quarter. We ended the third quarter with total debt of $79.2 million unchanged from Q2. Importantly, we are comfortable with our debt-to-EBITDA ratio which remains at 1.8x. On average, our average borrowing rate for the quarter was 6.8%, up from 3.6% last year and we ended the quarter with 48.8 million shares outstanding. During the third quarter, ISG paid dividends totaling $2.3 million and repurchased nearly $1 million of shares. Our next quarterly dividend will be payable on December 20 to shareholders of record on December 5. And with that, I will turn it back to Mike to share some concluding remarks before we go to Q&A. Mike?

Great. Thank you, Michael, and welcome again to our team. To summarize, despite a slower spending environment, ISG delivered its best revenue performance in the third quarter with revenues of $72 million. We delivered 19% growth in recurring revenues and 14% growth in Europe. We just expanded our recurring revenue growth engine with the acquisition of Ventana Research, a move that will accelerate the growth of our ISG research business and we believe generate additional advisory opportunities in the robust software segment. Looking ahead, our pipeline remains strong and we will navigate the slower pace of client spending over the next several months. But it is clear, cost optimization and all things digital including generative AI are top of mind for clients and in the sweet spot for ISG. Our longer-term objectives remain. Deliver $150 million in recurring revenues and increase our EBITDA margin to 17% by the end of 2025. 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. Today’s question-and-answer session will be conducted electronically. [Operator Instructions] And we'll go first to Dave Storms at Stonegate Capital Markets.

Good morning.

Good morning, Dave.

Congrats on the quarter and top line revenue it looks great. I just wanted to start with Ventana. Hopefully, you can give us a little more color on what that integration process and the time line to get them up to speed looks like. And additionally, if there's any all ready if there's any overlap that's already seen between your customer base and theirs.

Great. Okay. Thanks very much. Well, look, Ventana Research was sole sourced by ISG. We have known about them for some time and sometimes timing works out great. We were looking for an asset that had great reputation in the software industry and had a team of analysts that people respected and Ventana Research met that criteria for us. They have -- we have over 40 clients all of which are all brand new to ISG. Our client base tends to be on the managed services side and not on the software vendor side. And this opens up all new incremental opportunities for ISG, including recurring revenues. The other thing that this does is that we have a software advisory business today. That business is a consulting group that goes into enterprises assesses what they currently have in terms of software. Think about it as Salesforce as an example or ServiceNow. And we look at their spending we look at the benchmarks and we help them identify opportunities to either get more efficient, more effective and make sure that their usage matches up to the cost. This allows us to also now look on the vendor software side and opens up new opportunities for us not only to sell all in research to the software vendors, but we believe opens up new consulting opportunities. So this was white space for us. There's very little overlap. I think literally only four or five clients were revenue-producing clients of ours versus Ventana. And just one point. I think we have a great track record on the research side. We acquired a company a few years back called Experton that was based in Germany. That business was small it's a couple of million dollars and we used that engine over in Germany to build it out into a global business that is now considered our ISG Provider Lens business IPL and the size of that business is six times or seven times the size of the asset that we bought. We think Ventana Research over time can be like that for us. Hopefully that answered that Dave.

Understood. No, that's very helpful. Thank you. And then are the cost optimization it looks like that's really starting to take hold. Can you just kind of walk us through how much of that may be temporary response and how much of that expects to be sturdy going forward?

So I would call it in a normalized environment will represent about 30% of our pipeline 25% 30%. Today that pipeline is more like 45%. And the reason of course is I think the environment, we're now seeing more intense pressure on CIOs and others to think about things a little more cautiously. So the cost optimization is everything from modernizing applications and taking costs out to either drop it to earnings per share or still in many cases to use it to help with some of their growth initiatives whether that's around the user experience or in other areas. So cost optimization think about it in the kind of 40% plus now in our pipeline and normalize maybe 25%. So it gives you an idea of the magnitude of the interest in the market on the optimization side.

Understood. Thank you for taking my questions and good luck on the fourth quarter.

Thank you, Dave.

We'll move next to Marc Riddick at Sidoti.

Hi. Good morning.

Hey, good morning, Marc.

So I wanted to touch -- and congratulations on the acquisition. I was wondering if you could touch a little bit on sort of maybe, what this does for your acquisition appetite going forward and maybe you could sort of bring us up to speed on maybe what you're seeing out there as to availability and valuations underling?

So good question. So from our standpoint, our pipeline we are focused on everything around the digital arena or recurring revenues. That's kind of where we are focusing our M&A, efforts. We have a terrific track record of being able to bring assets into the firm and scale them using the channels that we have. So look I think the overall market is a little more I'll call it, realistic to balance between buyer and seller in terms of values. But like all of our deals most of ours are sole sourced. So ours are relationship driven. And when you have relationship-driven assets they take a bit longer to go from beginning to end. But our appetite still remains the same in those areas to complement our overall business. So we think that's in pretty good shape. I think the second part of your question, I think was around the demand environment. Was that the second question, Marc?

Right. Right.

So on the demand environment, I think there's, two things here very interesting for us. Our pipeline is as strong today as it was in January, it's very strong. And it's strong around optimization and digital work. The difference we see right now is the timing and the pace that clients are willing to move. So what might have taken us three or four months to complete, clients are stretching those things out to six or seven months. Sometimes when clients would say let's get started on November 1. They say you know what we're going to wait. We'll start in January. So there's a little bit of a pace that has slowed down and I think it has to deal with everybody kind of weighing how this economy is going to impact their particular business. So the appetite on transformation remains. The pace in which to execute is a bit slower. That's how we would describe it. And I would describe it that way globally.

Okay. That’s very helpful. And then the last thing for me, I was wondering are you seeing much in the way of a differentiated behaviour by client industry verticals? Or is it pretty much across the board? Thanks.

Yeah. No. Good question on the different industry segments. We do see it a bit differently. Some are a little more distressed or planning for a little more distress. Some I would call it in the mid-market to lower market consumer type spending. Luxury side seems to still be moving at a pretty good clip. And so when you look at kind of the different -- we kind of do a quadrant study of the industries each quarter for ourselves. And it kind of varies between what certain industry segments need to do to specialize. So using the retail side kind of mid-market and under, they are looking to rip out cost quickly. And then you have kind of the other side on the banking financial institutions are still in transformational stage and so they are looking to do a lot of that work. We're also seeing a slowdown a little bit on the Health Sciences area. And because of that the cost optimization becomes a bit more important for them. Manufacturing has picked up. I mean it grew for us 9% in that vertical during the quarter. So they are picking it up on the transformation side. But I would say the consumer side of things and energy for that matter are both in the optimization stage. So it varies a little bit by industry.

Very helpful. Thank you, Michael. Congratulations.

Yeah. Thanks Marc.

We'll go next to Michael Mathison at Singular Research.

Good morning. Hey, guys, congratulations on the quarter especially in light of this macro environment.

Thanks Michael.

Thanks.

Good. I noted that you dropped 47% professionals versus the prior quarter. I wonder if you could fill us in on your utilization rate for your consultants in Q3 and how Q4 looks.

Yeah. Michael, do you want to take that one?

Yeah. I'll take that. So our utilization as I think we highlighted in Q3, it was 72.5%. So we were up about 80bps year-on-year. As we look at the fourth quarter, I wouldn't expect to see a big change there even with some of the seasonality. We're looking to hold at those levels. And I think again we have room for upside as we head into 2024, assuming we start to see some of the macro rebound as we get into the first part of the year.

Terrific. Thank you for that. My second question and then I'll leave it at two is a little bit more theoretical and forward-looking just around your dividend policy going forward. You're paying a much higher dividend than the rest of the market. And now cash is much more expensive. Your cost of financing went up about 300 bps. Going forward, have you thought of slowing down the dividend increases and paying down some of the debt?

So, look, Michael good question. I think, I would not look at the yield with today's stock price too much if I were you, because clearly our stock is down as a lot of small caps are. But we will be back to you in the second quarter on our views of what the next dividend will be. But it likely is not going to be at the same percentage rate, because it's small numbers. But our intention is to grow our dividend each year. But we'll be back to you in the second quarter on that Michael.

Okay, great. Well, thank you again.

Thank you.

We'll take our next question from Vincent Colicchio at Barrington Research.

Good one, Mike.

Good morning, Vincent.

So curious what gives you confidence that sales cycles will improve going into 2024

Based on our discussions with our clients and the pipeline that we have, we put the two together and we feel like this is simply for us anyway this is a pacing of our clients primarily around the digital and the digital transformation side. The cost optimization continues at a good clip, but the transformation is being paced at a longer period than normal. But based on our discussions, I think they're wanting to get through the year. They want to see how the turn of the year is. But all indications for us is that as we get into the new year whether that's in month one or month three, it will look a little bit different based on what we can see in our pipeline.

And the Ventana acquisition, what has been their historical growth? Has it been fairly healthy?

Yes. I mean, think about our recurring revenue growth has been double digits now for some time. Ventana also the same way. But importantly what we think it does is it opens up a whole new set of client base 40 new clients that we do not have in the ISG franchise today. And what we can do with those 40 clients over the next year or two, we think is very quite healthy. So there's a lot of reasons why we were interested. And importantly Mark Smith, the CEO very well respected in the industry and he has a team of a couple of dozen analysts that we are very strong on.

Based on my first question, it seems like you can have some organic growth maybe low, but organic growth next year. Just curious if you could help what Ventana could add to that in percentage terms?

Well, I think about it, you should think about it in the 100 to 150 basis points.

Okay. That's very helpful. And your pipeline you said is as strong as it was in January. So that's a very good sign obviously. Wondering if there's been -- in the pipeline, any cancellations or it's just purely delays?

Ours are delays. We haven't had anybody stop us, but we have had stretch this out. We've had some things move to start Phase 2 into January versus November. So that's what we are seeing. So that's why we're pretty confident on 2024. We'll see how the pace moves. But with the demand environment and our pipeline the way it is, we feel good about 2024.

And then one last question. Are you seeing any changes in pricing pressures or better term negotiations right now given the environment?

That's a good question. I think pricing is a little stronger, not stronger in terms of price but stronger in terms of negotiation. Again in this environment I think everybody wants to get a deal. And so I would say pricing is not we don't have the premium pricing capacity at the moment that we might have had before this macro took hold Vince.

Thanks, Mike.

Thank you. Good to talk to you.

Yes, agreed.

And next we'll move to Joe Gomes at NOBLE Capital Markets.

Hi. Good morning, guys. This is Josh Zoepfel for Joe Gomes.

Hey, Josh.

I want to say congrats on the Ventana acquisition. I kind of wanted to just talk about that real quick obviously. I just want to see if you guys can provide any color just on the terms of the acquisition and you guys have been talking to clients just regarding any crossover services you guys mentioned in the call.

Yes. So look like we do in all of our acquisitions we paid a little bit of cash upfront and then an earn out over time with a little bit of stock. The cash upfront think about it was not large. Think about it in the $1 million range. But the crossover is what is very exciting for us. As I mentioned earlier they bring over 40 brand-new clients to ISG, we had zero revenue with. These are all big names in the software industry. So not only will we be able to inform them with a broader array of research products and services, but we are able to bring the whole portfolio of ISG products and services to these large companies because there's relationships there. So as I mentioned earlier I think over the next couple of years this could benefit us tremendously with these new client assets.

Okay. Great. And just kind of looking at the new operating income net income. Obviously revenue came down a little bit lower than guidance and the operating income is -- that income were kind of down year-over-year. Can you guys just kind of provide a little bit of color on the how that came to be?

Yes. I mean to your point, we saw a squeeze as we went down the operating income. The biggest piece is the shift in the direct costs that you see which were I think up about $3 million on a year-on-year basis with some severance in that number in the operating income number of about $700,000 that wasn't there last year which is one of the bigger impacts. Those are really the two biggest things to get you down to the operating income level.

Okay. Great. And then lastly just looking at the Asia Pacific segment you were talking about these double-digit growth here earlier in the year but now it's down this quarter and it's kind of flat in the second quarter. Can you just kind of provide a little more detail about what kind of happening in that market?

Yes. Look, I think, our Asia Pacific market is a great market for us. And I've said this I think over the last few years at times there'll be a little peaks and valleys and it's driven primarily by government spending at its pace. I mean we just won a very large contract with the Australian Taxation Office they call it ATO. A great example of that. Those things can start accelerate or delay and this one is delayed by a few months. So they were up 3% on an operating basis. We do have some FX headwind in that market and we expect that to still have a headwind during the fourth quarter. But that overall market for us is normally kind of a double-digit driver of growth over time and we see no reason that can't continue in 2024 and beyond.

Okay. That’s it from. Congrats, guys.

Thanks, Josh.

And I'm showing no further questions. I'll turn the call back to Mike Connors for his closing remarks.

Well, look let me close by saying thank you to all of our professionals worldwide for their dedication to our clients and for working together as a global team to deliver our record third quarter revenues. I also want to extend a warm welcome to Mark Smith and all of our new colleagues from Ventana Research. Our people have a passion for delivering the best advice and support to our clients as they continue their digital journeys and I cannot be more proud of them. And thanks to all of you on the call today for your continued support and confidence in our firm. Have a great rest of the day.

This does conclude today's teleconference. You may disconnect at any time.