Information Services Group, Inc.

All right, welcome to the fourth quarter 2025 ISG Global Index Call. I'm Brian Bergen with TD Cowen, and I'd like to thank the team at ISG for their value work in the industry and for asking us to host this call today. ISG has been hosting these index calls on the IT and business services industry for more than 20 years and influences 200 billion of technology spending each year, which gives them deep insights into the industry as well as key changes in enterprise demand. So we always appreciate their insights, and particularly amid everyday uncertainty that we have today. Right now, I'd like to turn the call over to Steve Hall, Chief AI Officer at ISG, to get into all the detail here today. Steve?

Awesome. Thank you, Brian, and Happy New Year to you. And welcome, everybody, to the 93rd consecutive ISG Index Call. With me today, we have Kathy Rudy, who's the partner and Chief Data Analytics Officer at ISG, Namratha Darshan, who is our Chief Business Leader for ISG India, Mark Smith, who's our Chief Software Analyst, and Alex Bacher, who's our Distinguished Analyst at ISG. So again, welcome 93rd ISG Index. We're so excited to host it. Welcome so many friends back. But for those of you that may be on the, this is your first call, just some quick background. The ISG Index measures the overall health and growth of the technology industry, which includes both managed services, services, and cloud-based software and infrastructure services. So we do this by tracking and analyzing annual contract value. or what I'll refer to as ACV, as really the leading indicator revenues are likely to be in the future. So think of ACV as a bit of bookings. So let's go ahead and take a look at the market. So 2025 closed. year for the market overall, but more importantly, it marked a clear shift in where the market is coming from and how enterprises are buying. The Americas led the market growth in 2025. The region crossed $23 billion in managed services ACV for the first time that supported strong IPO activity and a rebound in BFSI and continued momentum in infrastructure. While the fourth quarter softened a bit, full-year performance confirms that America remains the anchor of global growth. EMEA showcased renewed momentum with ACB up 20% for engineering, cloud demand accelerated, and deal sizes expanded. While the four-year managed services in EMEA is roughly flat, the strong Q4 suggests stabilization and improving confidence heading into 2026. Total contract value increased meaningfully as deal durations extended and clients committed longer-term programs. PCV for the year was up 17%. Mega deal counts declined, but activity shifted towards large sub-mega deals. So think of that sort of in the 80 to 100 million range and multi-year multi-tower engagements. Engineering services emerged as one of the cleanest growth signals. ER&D grew 35% year-over-year with larger deal sizes, more global scope, and strong momentum in EMEA. Finally, AI is now a dominant driver, not a future theme. Hyperscaler growth accelerated sharply, infrastructure service delivered another record year, and SaaS demand held up well in the platforms tied to infrastructure, analytics, IT service management, and collaboration. If we take a look at the global broader market, in the fourth quarter, the global combined market reached new all-time highs, closing in on a strong year for the industry overall. During the quarter, the combined market generated 34.3 billion in ACV, up 16% year-over-year, and marking the fourth consecutive quarter above 30 billion. For the full year, the combined market grew 18% versus 2024, adding nearly 19 billion in incremental ACV, which is the strongest annual growth we've seen since 2021. And as we've discussed throughout the year, that growth was really being driven by the as-a-service space. In 2025, the as-a-service space grew 29 percent globally, while managed services grew at the forecasted 1.3 percent. SAS now accounts for 66 percent of the total combined market ACV, continuing a steady shift towards cloud, software, and consumption-based services. Within the software service, infrastructure as a service remained the largest growth driver. Investments in cloud infrastructure continues to be fueled by AI workloads, data platform expansion, and enterprise cloud modernization. SAS also delivered solid performance in 2025 with growth areas across collaboration, IT service management, analytics, and cybersecurity, but we did see a different story with managed services. While managed services remains large in resilience, growth was constrained in 2025 by fewer mega deals, volatility and smaller discretionary awards, and continued pricing pressure. The fourth quarter reflected some of that unevenness with managed services dipping slightly from Q4 2024 year over year, even though the full year finished still in positive territory. So if we take a look at the managed services TCV, the managed services growth was constrained in 2025. There are some positive signals for the segment that sometimes flies under the radar, and that's really the long-term impact and the growth that we see in the TCV. Deal durations are up 12% on average. Every deal size span we track, except for the mega awards, we saw durations increase in 2025. So even though ACB is largely flat in 2025 with durations up, it means that the total contract value is up as well. And one of the key reasons this is happening is because we see more transformation happening on deals. So in order to get the 30, 40, or 50% savings that we talked about, Enterprises are changing how work gets done when they outsource. That means transformation and transformation projects take time. And we're seeing that reflected in the deal flow. So let me go over the managed services. As a reminder, our managed services IPO space includes applications, development and maintenance, infrastructure, managed services, network and cybersecurity. In the fourth quarter, the ITO segment generated $7.8 billion in ACV, down 6% year-over-year, and this marked the second consecutive quarter of the year-over-year decline, something we really hadn't seen since 2022. When you look at the full year, though, the picture is much more constructive. For the full year, the IPO market generated 32.5 billion in ACB, up 2.4% versus 2024, finishing the year at really a record high. The number of awards was already a record year with almost 2,100 IPO contracts signed. IPO making over 100 million declined in 2025, but that shift was more than an offset by the strong growth in the 80 to 100 million segment with ACV up roughly 130% year to date in that sector. In total, there were 43 deals over $80 million in 2025, up from 36 in 2024. And many of these transactions landed just below the mega deal cutoff. So rather than representing sort of a decline in the mega deals, we just saw a little bit on the lower end of that as we go forward. By region, the growth was concentrated entirely in the Americas. The Americas generated 18.3 billion in ITO ACV in 2025, which was up 15 percent over the year. In contrast, EMEA finished the year down 5 percent, and Asia-Pac declined by almost 30 percent. Looking to industry verticals, several sectors posted strong gains. Energy and healthcare and pharma were both up by more than 30 percent in 2025. Financial services finished up modestly, but they did add for most of the overall growth in the ITO market. On the downside, manufacturing, telecom, retail, CPG all declined. And finally, if we look at the functional area, performance was mixed. ADM finished slightly up year over year, but remained below its 2024 peak. Infrastructure outperformed, generating $9.1 billion in ACV, up 2.3%, marking a second consecutive year of growth. We also continue to see strength in bundled ADM and infrastructure work, which is up 13% in 2025. Let's take a look now at our engineering segment. So the engineering services include software engineering, embedded engineering, mechanical engineering, manufacturing engineering, and network engineering. In the fourth quarter, the engineering space generated 918 million in ACV, which was up 28% year over year. This marked the fourth consecutive quarter above 800 million, continuing what has been a very strong year for the sector. Looking at the full year, engineering was the fastest growing segment in the market. For 2025, engineering generated 3.6 billion in ACV, up 35% versus 2024. And growth was driven primarily by large integrated multinational providers, including HCL Tech, TCS, Infosys, DXC, and WibPro. As a group, these providers captured 51% of the total engineering space and 44% of all engineering deals during the year. We're seeing some clear signs also that engineering deals are scaling. The average ACB per engineering deal increased by 21%, rising from $12.3 million in 2024 to $14.9 million in 2025. In addition, deals with ACB greater than $20 million represented almost 17.5% of the overall engineering awards in 2025, which was up over 12.5% from a year ago. Regionally, EMEA really led the engineering services this year. The ER&D spend in EMEA was up 86% for the year, with every quarter exceeding $300 million. This is a level that hasn't been reached prior to 2025. The Americas was pretty stable, finishing up 8% year-over-year, with annual ACV remaining in a relatively tight range. By industry, engineering posted really strong gains across several sectors, including transportation, telecom, manufacturing, and energy, all of which set record ACV levels in 2025. By scope, software engineering remained the largest category, accounting for over 40% of the ACB, and finished the year up 17%. Embedded engineering, though, was the fastest-growing segment, up by 60%, while mechanical, manufacturing, and networks still grew by at least 25%. So engineering services in 2025 continue to scale both in size and strategic importance with larger, more complex, and more global programs. So, let's turn it over now to Namratha and go through BPO.

Namratha Patel Thank you, Steve. BPO includes back office processes like finance and accounting, HR procurement, facilities management, supply chain, and front office process like customer engagement. It was one of the best quarters for BPO in two years, where this segment has generated over $2 billion in ACV, and that was up 13% year-on-year. The ACV growth in BPO segment this quarter was largely driven by Americas and EMEA, where Americas was up 13% year-on-year, while EMEA was up 25% year-on-year. On the functional side, the industry-specific BPO was up 17%, along with improvements in finance and accounting and HR. However, the facilities management was the strongest, with over 40% growth. On a full year basis, the BPO was down by 14% annually and generated about $7.3 billion in ACV. All three regions were down. America's was down nearly 13%, posting its lowest annual BPO ACV since 2020, and EMEA performance was better, but finishing down by 8.6%. While there was broad-based weakness across industries, particularly in BFSI, travel, and manufacturing, Down by double digits, energy and healthcare finished strong, where energy posted a growth of 17.5%, while healthcare was up 7%. In 2025, most of the functional segments were under pressure. On an annual basis, facilities management is the only segment to have posted growth, generating more than $1.5 billion in ACV. That was up 21%. Largest functional area industry-specific BPO was down 11% annually and customer engagement declined 14%. So while the fourth quarter showed signs of stabilization, on an annual basis, the BPO segment was down. The BPO market continues to be in a reset mode. with growth increasingly uneven and concentrated in specific functions and industries. But we anticipate that the market is going to improve, particularly the industry-specific BPO will be a key growth contributor as the market is shifting heavily towards this segment. Also, as we mentioned during our last index call, ISG's pipeline indicates growth potential this year for this particular segment. With that, handing it over to Cathy for regional updates.