Information Services Group(III) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The combined market is up 18% year to date, with as-a-service up 29% and managed services only up 1.5% [6][7] - Managed services in the Americas grew 15% year to date, while EMEA and Asia showed declines [4][7] - The BPO segment generated about $1.8 billion in ACV, down 16% year on year, with a year-to-date decline of 22% [18][19] Business Line Data and Key Metrics Changes - The ITO segment was down 2% year on year but up 5% year to date, with the Americas accounting for all growth [14] - Engineering services saw a significant increase, up nearly 60% year over year and 36% year to date [15] - The BPO segment has seen nine of the past eleven quarters with year-on-year declines, indicating a long-term decline [18][19] Market Data and Key Metrics Changes - The as-a-service market, which includes SaaS, is now over 65% of the total volume [6][7] - The Americas managed services segment was up 22% year over year, while EMEA was down 25% [31][32] - Asia-Pacific managed services generated $2.5 billion of ACV, down 26% versus 2024 [33] Company Strategy and Development Direction - The company is focusing on cloud-first platforms and AI-driven solutions, indicating a shift towards automation and local hiring due to new visa policies [5][10] - There is a notable shift towards technology-led solutions in BPO, blurring lines with ITO services [20] - The company anticipates a continued evolution in pricing models, particularly with the introduction of autonomous level pricing [27][30] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains uncertain, particularly in EMEA, but sees pockets of growth in the Americas [31][32] - The company expects continued strong demand for SaaS and hyperscalers, raising the forecast for as-a-service growth to 25% [58] - There is a recognition of the pressure on consumers and sectors like retail and automotive, which may impact discretionary spending [61][64] Other Important Information - The introduction of a $100,000 visa fee for H-1B visas is reshaping labor delivery strategies, leading to increased costs and complexity [5][10] - The engineering services segment is seeing larger deal sizes, with a 26% increase in average contract value year to date [16] Q&A Session Summary Question: What is the demand outlook for tariff-hit sectors like retail and autos? - Management indicated that while retail is under pressure, there are mixed signals regarding discretionary spending, particularly in cost optimization areas [61][62] Question: Will the increase in as-a-service outlook to 25% help revive demand for system integrators around SaaS implementation? - Management believes that the SaaS market is driving up demand for system integrators, particularly as organizations rationalize their infrastructure to be AI-ready [60] Question: Are there delays in decision-making due to the H-1B visa fee hike? - Management noted that while there was initial concern, clarity from the administration helped calm markets, and clients have not significantly slowed down [65]