Information Services Group, Inc.

Hi, everyone, and welcome to the third quarter 2025 ISG Index Call. My name is Stanton Jones, and with me today is Steve Hall, partner and president, ISG EMEA, Nirmatha Darshan, chief business leader for ISG India, and Mark Smith, ISG chief software analyst. This is our 92nd consecutive ISG Index Call, so for those of you that have been joining us for many years, thank you for investing some of your time with ISG today. And for those of you that may be on your first index call, just some quick background. The ISG Index measures the overall health and growth of the technology industry, which includes both managed technology services and cloud-based software and infrastructure services. And we do this by tracking and analyzing annual contract value, or ACV, as a leading indicator of where revenues are likely to be in the future. So just think of ACV as bookings. Okay, so with that, Steve, I'll turn it over to you to kick us off.

Great, Stan. Thanks a lot. And welcome, everybody. 92nd consecutive quarters is great. So let's kind of take away sort of the five key takeaways from the year to date and sort of the quarter. So I would say, first of all, we really continue to see enterprise shifting towards cloud-first platforms. The as-a-service market, which includes infrastructure and software as a service, was up nearly 30%. deals tied to AI. So the hyperscalers really saw amazing growth, as we'll talk through later. SAS is also performing consistently well, though, and we saw growth across IT service management, collaboration, and analytics. So I think the key part is I think we're beyond the hype a little bit on AI, and it's really fundamental replatforming that we're seeing with organizations. On the managed services side, the growth was pretty sluggish. The Americas showed solid performance. It was up 15% year-to-date with really strong results in financial services, IPO, and engineering. But the global services market was essentially flat. And really, most of that drag came from Europe and Asia, where delayed decision-making continued to dominate the conversation. And across both regions, we're seeing deal scope, but just not close to date. Third, I would say deal activity. those deals in the sort of the 5 to 10 million ACV range are really going again. And that's really a good sign that transformation-led programs and more targeted modernization efforts are taking place and the return of some discretionary spend. One of the biggies this quarter was really the H-1B policy changes. And I think Offshore for offshore, likely accelerate moves towards automation, local hiring, and more diversified talent models. I'm going to talk about that more, but I think the key is clients will look to have more visa resilient delivery structures as they go forward. And finally, we can't have an index call without really talking about AI adoption. customer support specifically, but it is coming at the expense of some traditional BPO volumes. We're going to talk about this a little bit later, but we saw a big drop in BPO. Good news is we think the overall market is going to expand in this area because of new areas to grow into, but short-term is certainly having an impact with AI-infused backgrounds. But let's take a look at what's going on in the broader market. So in Q3, the global combined market continued its upward trajectory with solid performance across both Managed Services and SaaS. This quarter, again, reinforced what we've seen throughout the year. Priorities have shifted. Cloud, infrastructure, and AI-first strategies are really central to the spending. Year-to-date, as you can see, the combined market is up 18%. As-a-service is up 29%. of the volume now. The manning services of 1.5% was all based on the growth in the Americas, which was up 15% year-to-date. The good thing is that was really driven by growth in financial services, ITO, and engineering. And we're seeing a really healthy mix of large-scale renewals and smaller outcome-based awards coming back to the market, particularly in the U.S., But, you know, the bad part is that strength wasn't really global. EMEA and Asia remain soft. Deal flow weighed down by delayed decision-making and reduced discretionary investment. In Europe, we had energy costs, terrorist concerns, escalating geopolitical tensions, et cetera. Ukraine, NATO, political volatility in France, we can kind of go down that list. It just delays decision-making within the EMEA markets. Meanwhile, the as-a-service continued, as I said, 65% of the market. We're really seeing investments turn more to SaaS, continue to do cloud. Cloud growth is, again, really driven by everything that we're seeing on AI. Service management, collaboration tools, and analytics are really driving that market. So before we shift into the details on ITO and engineering, I do want to touch on the H-1B policies a little bit. So in late December, the U.S. administration introduced the $100,000 fee on each new H-1B visa. There was obviously a lot of dynamics going on at the beginning. That settled, but this was a significant policy shift with really immediate implications for the global delivery. The new fee effectively eliminates the cost advantage of using H-1B labor for lower-wage roles in the states, especially in support roles, QA, junior development, And going forward, we expect H-1B sponsorship to be concentrated on high-value senior roles where the ROI still holds up. But there was a lot of uncertainty that was implemented with it. There's a clause on national interest exemption, which remains loosely defined, making long-term planning difficult to do. It also adds risk to the overall talent strategies for organizations. An example of this is the lottery or high-end skills. So in the new system, these skills will be given four lottery tickets, the senior skills, while the lower-end or non-critical skills receive one. So you've got a higher probability, obviously, of being selected in the pool. Combined, we think that this is really going to skew the market towards high-end talent being awarded. Combine that with what's happening with sort of the the national interest exemption, we think those roles will primarily go to the big tech providers. The timing is also critical, though. Enterprises are already deep in automation and AI adoption, so we're likely to see a further acceleration of that trend, particularly in software development, testing, and support, where we already see automation and AI being very effective. So, in terms of who's impacted, who's not, I think, in general, the large lines on H-1Bs. So I think those firms are going to be okay, but what you'll see is higher offshore ratios, which will reduce that risk to H-1Bs, and their global delivery frameworks will have to adjust accordingly. Means likely more growth in Mexico, Colombia, potentially Canada, other areas as you go forward. Smaller Indian firms are also really less directive because they've really pulled back on the use of H-1Bs relying on lower cost offshore talent, but it does leave them more exposed to delivery disruptions if clients push for alternative models to be on site or other things. So you'll see some hiring in that space. I think the global tech firms and diversified service providers are more likely to shift towards offshore and nearshore. They're going to blend local hiring with increased use of AI and automation. Those tech firms are also likely to receive the national exemption. I think the one thing that we're missing in this whole conversation is the prevailing wage. So in general, the prevailing wage threshold is gaining traction. That's essentially saying that you've got to pay the prevailing wage in whatever city the client is as they go forward. So if that changes, even senior-level business hires could face higher cost barriers. This could further reshape the global talent, absolutely having more of an immediate impact on margins and growth there. So I think the bottom line here is the model is really evolving. We know some things. There's still a lot to figure out. It's not really going to take effect until April of 26. The announcement was for the October lottery, but there will be a lot of time for organizations to kind of manage and mitigate their risks as we go forward. So, Stan, why don't you take us through the ITO business?

Sure, thanks, Steve. So as a reminder, ITO includes areas like applications development and maintenance and infrastructure managed services network and cybersecurity. So in the third quarter, the ITO segment was down 2% year on year. However, as you can see here on a year to date basis, it was up 5%. And year to date this segment of the markets on pace for a record number of awards. And turning to award type. 19 of the 22 mega awards that have been awarded year to date are ITO awards. And we think that's a signal that we continue to see strong preference for bundling technology scope in order to drive scale and cost savings. And I'll talk a little bit more about mega deals here in just a minute. So the Americas accounted for all of the ITO growth so far in 2025 through nine months. The Americas ITO ACV is up 25%. and EMEA is down 11%. And as you can see on the right-hand side of the slide here, by functional area, ADM was up 3% year-to-date, and infrastructure was up 12% year-to-date, and much of that was based on strength and data center activity. Okay, let's move on to our second service line, which is engineering services. So in the third quarter, engineering services was up nearly 60% year-over-year, And on a year-to-date basis, it's up 36%. Large multinational providers like DXC, HDL Tech, Infosys, TCS, and Wipro are driving much of this growth. As a collective, these large providers have won nearly half of the engineering awards in 2025 and more than 40% of the ACV. So as you may recall, we started splitting engineering out from BPO at the beginning of this year. And one of the reasons we did that is that we believe engineering is starting to scale based on a couple of factors. Number one, the average contract value of an engineering services deals is up 26% year to date. So the deals are getting bigger. And number two, historically, much of the activity in this segment was in the smallest deal category, but that's changing as well. Year to date, the number of deals in the $10 to $40 million ACV range is up 14%. So we think this is a signal that deals in this space are starting to scale beyond smaller projects, and the success of the larger players is partly responsible for this dynamic. And finally, as you can see on the right-hand side of the slide here, is the distribution of engineering annual contract value. Nearly 70% of the ACV in this segment is split between software engineering services, so think about things like customer-facing products and commercial software platforms, and embedded engineering. So here, think about things like control units, firmware, and processors inside of physical devices. Okay, let's go ahead and move on to our final service line, BPO. Namratha, over to you.

Thank you, Stanton. In the third quarter, the BPO segment generated about $1.8 billion in ACV, and that was down 16% year-on-year. We've not seen a single quarter of growth in 2025 compared to 2024. And in fact, nine of the past 11 quarters, BPO segment has now seen year-on-year declines, showing signs of long-term decline in this space. However, BPO did see a sequential gain of 8%. It was the second straight quarter where BPO has stabilized and seen quarter on quarter growth. Year to date, BPO ACV is down 22% in comparison to 2024. Let's look at the functional areas. We saw broad based weakness. The largest segment industry specific BPO generated about ACV of $1.9 billion. That was down 17% year to date. The second largest functional area, customer experience, saw ACV of $1.2 billion, which is down 13% year-to-date. Now, given the decline in ACV in the last several quarters, we also conducted revenue analysis of the top 50 BPO players. And as you can see here, more than half of the companies of the top 50 have an organic growth rate of less than 3%. While there are some providers with more than 3% growth, but that's largely due to some of the acquisitions that have happened in this space. Now, given the BPO ACV decline and slow growth in revenue, let's take a look at what is really impacting this industry. The BPO market seems to be in a reset mode, and several factors are actually contributing to the changes that are happening in this market. There's a marked shift towards technology-led solutions in BPO that includes data, AI, and engineering services, and that is increasingly blurring the lines between BPO and ITO services. As the nature of BPO engagements are changing to more technology driven, providers are notably focused on repositioning and enhancing their technology capabilities, either organically or through M&As. For example, as highlighted during the previous quarter, Capgemini and WNS was one such acquisition where we see high synergies between BPO and IT services. Another example is Genpact acquiring exponential data to strengthen their data and AI capabilities with a deep focus on design and engineering. Obviously, this change is also pushing the BPO providers to make a significant shift in hiring patterns. BPO players are now focused on hiring for specialized skills such as AI, data science, and platform engineering skills. Another trend that we have highlighted for the last few quarters is how AI is not only enabling new efficiencies with some of the prominent use cases in BPO, but we've also started to see how it is disrupting the traditional revenue streams. and finally providers are under revenue pressure not just because of these rapid shifts but also because we see some enterprises are hesitant to commit to large-scale BPO transformation and instead choosing FTE-led engagements until they see the real impact of AI. Now despite all these shifts in the market at ISG we continue to see strong pockets of BPO work and we are currently advising some very large BPO deal activities including several that will likely come to the market with over a billion of TCV. Now, as we said earlier, we do see significant levels of pricing pressure, both on BPO and ITO due to both intense competition as well as AI. But to understand this deeper, I'll hand it over to Steve to walk us through some of the emerging pricing models. Steve, over to you.

Great. Thanks a lot, Namratha. And I think that last point is critical that you said. We really do see a lot of activity in our pipelines. But more importantly, on the BPO side, I think we've got to look at the integration with GBS, shared services, GCCs, and sort of this whole confluence of how organizations and enterprise think about delivering services in sort of this agentic age. But let me jump over and really talk do that through resource units, what we call RUs. For example, in the infrastructure space, one of the most common resource units is a server image. So historically, that resource unit would be around $20 at the start of the contract, and then after two years, it would decline by around 10%, so the cost would be $18. What we're seeing recently is that is double. So in the case of a server RU, it now costs $6 that out across the number of virtual instances and views, you can really see how that kind of collapses. We're seeing that across really all of the IT and ADM powers, especially in areas that we haven't seen before, like security, almost tripling compared to historical trends. So we think this is really a combination of two things. Number one, the market is incredibly competitive right now. So some growth you can absolutely bet the service providers are betting on the investments in AI and others to drive that. I think across the board, everyone is looking at the impact of agentic and saying what can they do and being very aggressive in their forward pricing. So AI is already having an impact. We're seeing that built in. market. So one of the things that we want to highlight today is really what we're calling autonomous level pricing. So autonomy level pricing is essentially focused on where we think the market is going with pricing around AI. There's been a ton of debate who gets the net benefit, how do you maybe price on tokens, how do we think of services as software, lots of different components. What we think is really happening is a new pricing component that's still based on the RU, doesn't replace the RU, but it's really starting to align with how service providers and clients think of the market and the state of the capabilities of the market. So many of the proposed pricing models just weren't really aligned with the values due to the economics of the services. Our autonomous level pricing really addresses this by aligning the level of automation with enterprise goals and, quite frankly, regulatory frameworks, which are evolving rapidly. So as you can see here, we've got five levels. Level zero is really fully manual, and level one is assisted. So you can think of level one as a software developer using Gen A or develop code. Same way with BPO, you may get some information, help answer a question, write an email, do those types of things at level zero and level one. Level two and three are agents actually executing that task. So, but you've got a human in the loop and pricing is controlled based upon the degree of the human in the loop that you want. Now, in many cases, healthcare, financial services, anything in the regulatory, even things such as So this sort of controls. At level four, economy level four, the work is really fully autonomous and only governed by policies and audits. So you can quickly see how the price could change based upon what level of economy. And if you're fully agents, instead of saying, well, we want agent or digital labor, we're really pricing on the improvements that we get based across that. So why do we do this? see significant cost reductions as the economy level rises. Providers can continue to maintain margin by not overcommitting up front so that it eliminates their risk. It allows the variability so prices can flex based on the real execution behavior, not assumptions. If a client decides that it's too risky to go to level three and they want to stay at level two, the prices will reflect that. It's consistent. help drive it, so we're anchoring on something that's well-known in the industry, clients, service providers, which means we can benchmark it, compare, and really drive things through. It also really aligns the center. It's safely advancing economy, not buyers capturing too much savings, service providers capturing too much savings, waiting for the maturity. It's actually well aligned with where the market is. It's risk-inverse, which means it balances the risk with it. You've got defined tiers. At each tier, you've got governance roles, making the risk very explicit. And it really is proportional. You can map levels to it. You can do service level agreements. You can allocate the risk. You can really do that. And it's not arbitrary. It's not arbitrary with the pricing of agents or how we think about token counts or how we think about the use of tentative or or agentic on driving token counts. So we're working through this process now with multiple service providers. It is being integrated into deals now, especially some large BPO deals. And I'll say we're confident and hopeful that this approach is really going to bridge the gap between the manual processes and really tomorrow's autonomous one. So with that, I'll leave this slide up just a second. If you take a photo of this, They'll give you the QR code. We really put everything in to explain sort of the whole pricing methodology, what we're thinking through in our state of enterprise AI report. I encourage you to download it. Give you just a second to grab the QR code, and it will take you directly to the ISG website where you can download it. And we expect a lot of conversation on this. So we're standing over to you, and let's go through the regions.

Great. Thanks, Steve. So let's start out with the Americas. So America's managed services segment was up 22% year-over-year, and that's the best year-over-year growth rate since 2023. Mega deal activity, as I mentioned earlier, was really strong in the Americas this quarter as well. We'll talk about even more here in just a minute. Year-to-date, ACV in the Americas was up 15%, and that's on the back of the most ever contracts awarded year-to-date in this region. So the good news here is that even though the macro continues to be very uncertain, tech services spending has not only stabilized in the U.S., but we actually see pockets where it's starting to expand. Moving to EMEA, the story is quite different. As Steve mentioned, energy costs, tariff concerns, and geopolitical tensions are leading to lots of business uncertainty, which is having a downstream impact on tech services spending. Managed services ACV in EMEA was down 25% year-over-year. Seven of the past 12 quarters have seen negative year-over-year declines in EMEA, so it's been a very uneven market over the past three years. Regionally in EMEA in the third quarter, the Nordics was actually up triple digits, and Southern Europe was up nearly 30%. That said, the larger regions were all down. So, for example, DAC was down 60%, France was down 30%, and the U.K. was down 7%. And that has a really big impact because, just as a reminder, the U.K. is the largest market in EMEA. So that continued quarterly weakness in EMEA is leading to the overall region being down 8%, as you can see here. In closing out with Asia Pacific, year-to-date managed services has generated $2.5 billion of ACV, and that's down 26% versus 2024. Most of the larger markets in this region have trended negative this year, and ZED is down 31% year-to-date, and Japan's down 26%. That said, the region's second-largest market, which is India, was up 5% year-to-date. And I'd say on the ground in this region, we've actually seen a slower pickup of AI-enabled services and the associated operating cost reductions that they can provide. But we are starting to see a pickup here as clients look to reassess their incumbent relationships and take advantage of these new opportunities. Okay, before we jump into our industry update, let's take a little deeper dive into what's happening in the Americas. so as steve mentioned earlier we're seeing large deal activity remain strong but what's different today is that we're seeing a return of smaller discretionary deals however what's important to note here is that this change is almost exclusively happening in the americas as you can see here the number of deals with an acv between five and nine million is up fifteen percent compared to this point last year in the americas On the quarter, the number of these small deals is up almost 50%. So we think that's a potential signal that we're starting to see a loosening of discretionary spending in the Americas. But this loosening is not happening in Europe. As you can see here, the number of small deals here today in EMEA is down 26%. And on the quarter, they're down almost 40%. So this is also one of the data points we use to indicate that discretionary spending remains tight in this region. And on the right-hand side of the chart, you can see what's happening with ACV in mega deals, which are awards with an ACV of $100 billion or more. Mega deal ACV in the Americas is up nearly 60% year-to-date, while in EMEA it's almost the exact opposite story. Mega deal ACV is down 40% compared to this point last year. So these are two of the data points that we're using to measure the health and the growth of these two regions and an indicator why we believe we're starting to see a return to growth in the Americas while EMEA remains sluggish. Okay, let's take a look at our industries. And as we did last quarter, we're just going to focus on a few industries here. However, as usual, the full industry results are available in the appendix and on the ISG website. So let's start with BFSI. Over the past few quarters, we've talked a lot about the weakness in this sector and how that's impacted the overall industry. The great news here is that it is recovering, and as you can see here, it's up 8% year-to-date. That said, recovery is not even. The FSI sector remains weak and immediate. It's down 12%, but in the Americas, it's up over 30%. And on the ground with clients, we continue to see a lot of work around mainframe to cloud modernization and middle office transformation through a combination of process and technology transformation. Okay, let's move to energy, which had its best quarter ever with $1.4 billion of ACV. And unlike BFSI, energy is strong in both the Americas and in EMEA. Year-to-date, the sector is up 23%. And on the ground, the clients were continuing to see very strong demand around SAP modernization and transformation. And finally, in retail and CPG, we continue to see a lot of weakness here, as you can see on the far right-hand side of the chart. On the quarter, CPG had its lowest ACV results since 2022, while retail was down nearly 40%. And year-to-date, the combined retail and CPG sector was down 18%, with much of that weakness coming from EMEA. As we mentioned last quarter, the sector remains obviously under a ton of pressure, given the trade uncertainty we've seen over the past nine months. That said, we do want to note that this is actually one of the areas where inside of ISG, as Namratha mentioned, we actually are seeing a significant amount of BPO-related work specifically focused on cost optimization through transforming and modernizing GBS functions to take advantage of much of the scale and technology that Steve mentioned earlier. Okay, so let's go ahead and shift gears and move to our as-a-service update. Mark, over to you.

Thanks so much, Stanton. During the third quarter, the SAS segment generated $4.8 billion in ACV and was up 18% year-over-year. The 18% year-over-year growth accelerated 730 basis points from last quarter's year-over-year growth rate, and this represented the fourth straight quarter of double-digit gains. And as you can see here in the first three quarters and year-to-date, SAS is up 16% to $14.4 billion. The segment has quietly outperformed expectations with AI viewed as a strategic enhancement that augments rather than replaces enterprise software. The complexity of enterprise systems spanning security, compliance, integrations makes full AI disruption unlikely, and generative AI is instead boosting productivity through agentic capabilities. While some envision LLMs generating custom software on demand, Most users won't abandon established tools simply to avoid subscription costs. Each of the regional markets contributed to the growth, with EMEA leading the gains with nearly 22% upside. Asia was also up significantly at 20% year-to-date. The Americas advanced 13%, but has still slightly lagged the highs established in 2022, but represents 60% of the market. Now let's talk about the SaaS trends. Overall, the top 10 SaaS providers posted 17% year-to-date growth, which has slightly outperformed the broader SaaS market index. The largest SaaS leaders remain confident in strong adoption and usage of their enhanced and new AI offerings, which revenue expected to follow as these offerings scale within their broader businesses. First, AI including data, analytics, and platforms had a 24% ACV year-to-date growth with continuous evolution of data software with infused gen AI and agentic AI support. This category is a billion-dollar-plus ACB segment that has also exhibited strong performance year-to-date in 2025. After a flattish performance in 2024, this year the segment is up 24% year-to-date growth as companies such as Databricks, MongoDB, and Snowflake have outperformed the broader SaaS market. Second, the front office application segment in CRM had only a 1% year-to-date growth with enterprises, again, making small investments to existing and new soft riders in this category. Commerce software underperformed, being down 3% year-to-date on an ACV basis. And in the quarter, ServiceNow announced its market entry to CRM, expanding its focus on customer service and building on top of its CPQ acquisition of Logic.io. Third, the middle office application segment saw 23% ACV year-to-date growth with collaboration, content, and project management categories, but back office ERP only had a 6% ACV year-to-date growth, cooling in 2025 compared to prior years, as software purchases are not a challenge with migrations, including SAP's continued push to get customers for stepping into S4 HANA. I will note that HCM is down 18% ACV year-to-date decline, but did grow 19% quarter-to-quarter, showing some early signals for ACV growth recovery. Fourth, IT platforms like ITSM had a 55% ACV year-to-date growth, led by ServiceNow, with newly announced entrant Salesforce, who is expansion in this very established category, and a trend as mega-soft providers expand into peer categories. Last, we've also observed very high growth in the collaboration segment, and it saw 50% ACV growth year-to-date driven by conversational AI and Gen AI tools. Our ISD Buyer's Guide on Collaborative and Conversational AI found providers like Zoom as a temporary and a leader. As AI increases, advances, SaaS, and many avenues, software vendors face pressure to adopt consumption-based pricing. though the transition is proving difficult and many advancing to value and outcome-based methods. This evolution mirrors past shifts in pricing models and highlights software potential vulnerability to structural change driven by AI efficiency gains. And as referenced by Steve earlier, the changes in pricing models will continue into 2026. Now let's talk about infrastructure as a service. On the quarter, we finally saw a broad-based growth return, while hyperscalers kept posting triple-digit AI revenue gains. And as we look towards 2026, we're watching weather supply constraints start to ease. They're ramping CapEx for AI and cloud, more servers, more data centers, and in this early phase, scale is a differentiator. The largest players with the most enterprise cloud consolidation and sovereign cloud wins, where control of GPUs, power, and land will set the price, pace, and the M&A agenda. So let's talk about the top trends in this segment. First, continued growth in infrastructure service across cloud and cyber with 33% ACV year-to-date growth and regional with Americas at 42% and EMEA at 50% are finding continued demand for broad range of compute needs, including AI. Second, the big three hyperscalers, AWS, Microsoft, Azure, and Google Cloud are seeing strong demand with ACV up 42% year-to-date. Growth is still accelerating and Azure is outpacing AWS despite AWS's larger base. If recent quarterly growth rates persist, Azure could catch and surpass AWS in quarterly revenue around 2027. So we're watching for the inflection point where their shares converge. The reference to big three is expanding to big four to include Oracle, where its RPO is 455 billion, which is up 359% year over year. versus 41% in 4Q FY25, driven by four multi-billion dollar deals with three customers and more pending that could push past $500 billion. Third, enterprise demand for digital sovereignty is pushing EU-specific and global hypersetters to invest, though sovereign cloud controls are still maturing and most enterprise spend is early. SAP's recent steps expanding with Delos Cloud on Microsoft Azure for the public sector and partnering with Schwartz Digit for broader EU needs shows how providers are balancing risk and opportunity. ISE's buyer's guide rates Google, Microsoft, and Oracle as leaders with an exemplary rating. Fourth, U.S. data centers are an AI compute arms race. Hyperscalers are pouring record CapEx and inking big partnership deals to build multi-gigawatt campuses that can meet future AI demand in the U.S. and worldwide. Last but critical and beyond cloud is cybersecurity and is still growing a strong double-digit clip with Palo Alto Network's CrowdStrike and SentinelOne expanding. Palo Alto Network's $25 billion cyber deal that was announced underscores the fast-moving consolidation as fragmented cyber categories converge, echoing themes from our ISD cybersecurity buyer's guide. Now let's talk about vertical industries. Our new software report results for as a service across vertical industries examines the health of these essential intersection with enterprises. All the industry segments grew by more than 20% ACV year-to-date growth. While BFSI represents 19% of ACV, I will highlight the top three fastest growing industries. So let's examine a healthcare industry that represents 10% of the overall revenue. It was up 29% year-to-date, and a breakout of infrastructure service up 34%. Significant new expansion of healthcare clouds and applications like that of Microsoft with new Dragon co-pilot, Oracle's AI-driven Oracle Health EHR, and Salesforce's Einstein co-pilot health actions are examples. For retail and CPG that represents 15% of ACV, it was up 32% year-to-date, with a breakout of SaaS of up 18%. The combination of these two industries is finding new growth innovation from the likes of Snowfix Retail and CPG Cloud, Microsoft Cloud for Retail, and Oracle's Retail Merchandising Cloud are just examples of these investments. For business services that represent 16% of ACV, it was up 36% year-to-date, with breakout and infrastructure service up 40% year-to-date. The overall business services industries have been early adopters to a wide range of AI and application-related SaaS, and efforts by ServiceNow and its GenTik and GenAI Now Assist and Workday with its advancing AI platform are focused on the service industries. And as noted, each of these highlight industries overall have continued quarterly growth across multiple years. The investments into verticalization of SaaS and even tailored infrastructure are using latest cloud computing-based applications, now infused with AI, has been advancing substantively. Software writers like Nice, Oracle, and Salesforce have been investing through R&D with new industry offerings to capture the mind for more specific needs of enterprises. Okay, let's now move on to our leaderboard. Namratha, over to you.

Thanks, Mark. As a reminder, providers are listed in alphabetical order and positioning is based on annual contract value signed over the past 12 months. The companies new to the list are denoted with an asterisk and a reminder that the regional leaderboards can be accessed on the ISG website. Now let's start with the managed services leaderboard. In the largest group, we continue to see minimal changes in the leaderboard with the top companies maintaining their strong positions. Several of the leaders we would like to call out in the big 15 would be Accenture, who's working alongside Microsoft at Nationwide Building Society to transform their cybersecurity operations. Accenture is also working alongside another partner and this time AWS at NatWest on a five-year deal to consolidate its customer data streams into a single bank-wide data platform that's enabled by AI. We'll also highlight Capgemini who signed a multi-year agreement with Aptiv to provide IT support, infrastructure, and digital operations services. Capgemini also won a contract with Danish firm GN Group to transform its retail vertical chain, implement Salesforce global order management system designed to streamline order processing and enhance customer experience across their 100 plus markets globally. Moving to Building 15, we'd also like to call out LTI Mindtree's recent seven-year $450 million ISG Advice contract with Archer Daniels Midland, a global food processing and commodities trading company. The agreement involves LTI Mindtree implementing an AI-powered operating model to manage ADM's IT infrastructure, application management, and cybersecurity services to enhance efficiency and support global growth. In the Breakthrough 15 group, Chinese-based provider Newsoft joined the leaderboard on the strength of a large four-year deal to become the designated supplier of smart cockpit domain controllers of a Chinese automaker. Newsoft counts Geely, Chang'an Automobile Group, FAW Group and GSE Group among its large car-making clients. You will also see ER&D provider L&T Technology Services who announced an agreement with Tyson Cripps Steering to establish the software development center in Pune in India. The new center highlights LGTB's expertise in mobility segment dedicated to developing safety critical software for advanced steering technologies while supporting Tyson Cripps global engineering expansion. And finally, in the booming 15, we highlight several new entrants to the leaderboard. First up, Swedish customer engagement provider Transcom Worldwide, which has won deals at PayPal, Samsung, BNP Paribas, and Teletubbies. Tata Technologies joined the leaderboard as well. They are an ER&D leader that provides full range of solutions from concept to production for manufacturers in automotive, aerospace, and heavy machinery industries. Congratulations to all the leaders. Mark, over to you to cover the Azure Service Leaders.

Thanks, Dharmaratha. In the Big 15, we continue to also see minimal changes in the leaderboard, with the top software companies maintaining their strong positions as hyperscaler providers, dominating the growth, and including Oracle, as I mentioned earlier. In the Building 15, we saw a couple of new SaaS writers join the leaderboard. Here's an example with AppLoving and Autodesk. AppLoving develops software and solutions for mobile app monetization and marketing. In the Breakthrough 15 group, this quarter our leaderboard is popular with data center provider 21VNET, who has moved up to the booming 15, including OVH. You also see well-known soft providers such as Databricks, Palantir, and Zscaler. Databricks also signed a Series K term sheet at over a $100 billion valuation, surpassed a $4 billion run rate with a $1 billion plus AI run rate. Finally, in the booming 15, CyberArk joined the leaderboard, and they are a cybersecurity company that provides an identity security platform to secure and manage the credentials and access privileges of all identities. The announced $25 billion acquisition by Palo Alto Network to close in 2026 will bring new potential and a tipping point for future M&A activities. Congratulations to all leaders, and now over to you, Steve.

Hey, thanks a lot, Mark. I think as everybody knows, So managed services up 1.5% globally. All of that growth really on the Americas, as we discussed, which was up 15%, really led by the recovery of BFSI, which was up 30%. So good news there. I think on the SaaS side, Mark, you did a great job really covering that. We're seeing ongoing strong demand, both for hyperscalers and SaaS. The market is up 33%. So if we think about what that means for the forecast, we're going to hold our forecast for remaining services at 1.3% for the full year. The Americas is going to have to continue to carry the weight of that, but we expect Q4 to remain challenged, especially in EMEA. So we just don't see room to raise our full year forecast on that. We are going to raise our forecast, though, for as-a-service another 400%. You will see the increase there. Again, that will go from 21 to 25%. With that, I want to thank everybody and submit. Would you like to start with questions?

Sure, Steve. Thanks a lot, team, for the insightful presentation. So my first question is around the demand outlook. I mean, obviously, you have maintained your managed services outlook at 1.3%, but wanted to understand, you know, the tariff hit sectors like retail, autos. When are you expecting the discretionary demand to revive back in those sectors? And secondly, you know, your increase in other services outlook to 25%. Will that help to revive demand for system integrators around SaaS implementation?

Yeah, let me take the last one first and actually have Mark answer that, because I think the SaaS market is driving up, and I do think we see greater opportunities for SIs, and that's clearly in the case with SAP. But, Mark, any comments on that?

Yeah, no, the demand curve, I think, as we've seen in the SAS segment, has definitely been driven by a lot of the let's call it the Gen AI and AI platforms. And we're just starting to see a better pickup in the core application segment. As I noted, you know, ERP is up 6%. And I think as many organizations are trying to rationalize their infrastructure to be AI ready, that's going to require more services work. And we're already beginning to see those indicators.

Yeah, and so you mentioned CPG and retail. I mean, as we showed in the data, it's down significantly. Retail had its worst quarter in, I think, three years. That said, as I mentioned, on a deal activity basis for ISG, That's super busy right now, and especially around cost optimization focus for back, middle, and even starting to get into some front office area like marketing, marketing automation, fulfillment, those kinds of areas. So there are definitely mixed signals there, but I also think – The consumer is just under a tremendous amount of pressure, in my opinion. No macroeconomists, but in the U.S. specifically, I can speak to that. The U.S. consumer is under a lot of pressure. I think the automotive sector is under a lot of pressure, and I think it's going to get worse. And so you could argue that bodes well for the services sector as more companies need to focus on cost optimization. That's what we're seeing. But in some cases, we're just not seeing it reflected in the bookings.

So the last point on that is, you know, retail is a really small part of the overall managed services market. We know the brands really well, and we get excited about the brands, but it's got a very – it's got a small impact, really less than 5% of the overall global market with it. So it's really the FSI manufacturing energy that drives

That's very helpful and secondly wanted to check around you know post the H1B visa fee hike. Are you seeing any sort of delay in the decision making out there across the clients maybe because of operational hurdles or how to plan around the H1B visa resource? So anything picking up from ground in the last 20 days?

Yeah, you know, that Saturday was one of the busiest Saturdays of my life from the time it was announced on the Friday night and I was in Europe and the Saturday morning and all the calls from both friends and colleagues and clients and reporters. We have not seen clients slow down to the extent that we thought that they could because I think there was a lot of clarity by Monday morning. And I think with the White House coming out and clarifying things sort of Saturday afternoon US time helped kind of calm the markets down quite a bit. And I think what we see right now is a little wait and see. We understand the direction that the administration wants to go. So we think we can mitigate that risk. Over the weekend, as you know, because I know you were working just as hard as I was, it was a bit crazy. You know, especially the lotteries going on now, decisions in April, that's when the first payments will go through. We'll have a much better perspective of what's going. My only concern, quite frankly, is still when the wage comes down, that whatever percentage under market in certain cities, and those have to be raised immediately, that will absolutely have an impact on margins. And it's unlikely that... So that would be my immediate concern as I look into Q4 and early Q1.

I think maybe the last question I can squeeze in in terms of the Hire Act. I mean, it was introduced in September. the halting of international relocation of employment. So anything you are hearing, any scare among the clients as to, or among the GCC activity as to how that can play out, although a lot of uncertainties are there, whether it can get cleared or it requires a congressional approval, but anything you are hearing on the ground?

Yes, Sumit, I would say I was actually just in, I think a lot of that higher act, Sumit, is going to be focused in the customer experience space. I was actually just in the Philippines. I got back a couple of weeks ago as I was speaking at the IBPAP event around GCCs and what we see happening in GCCs. That came up a couple of times, but it didn't seem to be from given the degree to which a lot of that customer experience activity emanates out of the Philippines. Not a huge concern. I have not talked to a single client that's brought it up. So to me, I would say, no, not a significant concern.

Great.

Okay. Sumit, thank you. Thank you. And you want to open up the questions more broadly? Sure. Thanks, Sumit. Yeah, we've got time for a couple of questions. Let's just keep them brief. So, Nimrata, I'll come to you first. There's a question around M&A or is IT BPO convergence leading to more M&A?

Yeah, I think when we highlighted the WNS and Capgemini mergers and acquisition last quarter, we did say that this could be a signal to the market in terms of M&A sort of picking up, though it may not be at the same size and scale. But I think they're still seeing a lot of active M&A that is happening in the IT and BPO. But that's largely also focused on M&A. some of the capability investments in enhancing all the AI and platform engineering capabilities. And some of the CX in the front office space, also we saw a lot of mergers and acquisitions, though some were more focused on some of the acquisition of specialized skills, some were also focused on strengthening their scale presence in the market, given the high competition that is also kind of increasing. But I think at this stage, I would say predominantly most of the companies in the BPO segment are focused on enhancing their data and AI capabilities. And the second segment where we are actually seeing is more around industry-specific capabilities. We have highlighted that industry-specific BPO is one of the largest segment and functional area under BPO. And we see that is quite actively picking up where providers are investing in broadening and strengthening their industry-specific capabilities.

Okay. Thanks, Amratha. Okay. We've got time for one more question, Steve. We've got a number of questions coming in about what we think 2026 is going to look like. So what do we think?

Yeah. Everybody wants to know. Everybody wants to know. I get it. You know, listen, we're coming out of a very – growth of BFSI, the continued growth in Americas. I think some of that will translate into Europe as well. And I think this is clearly a case where, you know, the high tides are going to rise all boats, if you will, because I think we're going to see so much more spend in other areas, both as Mark went through with infrastructure as SAS, what that means for SIs. So I'll say roughly, I think we'll be in the mid threes for growth. I won't put the data on it yet, but I think we'll be in the mid threes on where it will be for growth, which will be good for the industry and, you know, further some of the stability and the growth that we have.

Super. Thanks, Steve. Okay, we're going to go ahead and close out the call. Sumit, as always, a huge thanks to you and your team for hosting the call today. As a reminder, you can access a copy of the slides that you just saw, which includes the regional leaderboards on the ISG website. Don't forget to download the State of Enterprise AI Adoption, the report that Steve talked about. And we thank you very much for joining us today, and we'll see you on the fourth quarter and full year 2025 call in January. Thanks.