Information Services Group Inc. Q4 FY2025 earnings call

All right, welcome to the fourth quarter 2025 ISG Global Index Call. ISG has been hosting these index calls for over 20 years and influences 200 billion of technology spending. 2025 marked a shift in the market with Americas leading growth, EMEA showing renewed momentum. The global combined market had strong fourth quarter and full-year growth. Managed services had mixed performance with some regional differences. Engineering was a fast-growing segment. BPO had a good Q4 but was down for the year. SaaS and IaaS delivered strong results. AI is a dominant driver. Steve Hall introduced the call and others joined to discuss segments. Namratha Patel talked about BPO, Cathy Kudlicka- about regional updates, Mark Smith about SaaS and IaaS, Alex Bacher about IT budget study findings.

The global combined market reached new all-time highs in the fourth quarter, generating 34.3 billion in ACV, up 16% year-over-year, and full-year growth was 18% adding nearly 19 billion in incremental ACV. Managed services: In Q4, ITO segment generated 7.8 billion in ACV, down 6% year-over-year; full-year IPO market generated 32.5 billion in ACV, up 2.4%. Americas led managed services growth in 2025 with 23.5 billion in ACV, up 9%. EMEA managed services ACV in Q4 was 4.6 billion, up 19% year-over-year, but full-year was down 1.4%. Asia Pacific managed services ACV in Q4 was 849 million, down 36% year-over-year, full-year down 27%. Engineering segment: Q4 generated 918 million in ACV, up 28% year-over-year; full-year 3.6 billion in ACV, up 35%. EMEA led engineering with ER&D spend up 86% for the year. BPO segment: Q4 generated over 2 billion in ACV, up 13% year-on-year; full-year down 14% with 7.3 billion in ACV. SaaS segment: Q4 generated 4.9 billion in ACV, up 6% year-over-year; full-year 19.3 billion in ACV, up 16%. IaaS segment: Q4 generated over 18 billion in ACV, up 32% year-over-year; full-year 64.7 billion in ACV, up 33%.

Forecast for 2026 managed services growth is 2.1%, while as-a-service is forecasted at 20%, supported by continued cloud migration, AI adoption, cybersecurity investments, and platform-led consumptions. Managed services growth expected to remain modest, as-a-service to see strong growth.

Q: Brian asks about managed services market forecast for 2026 vs 2025.

A: Steve Hall mentions deal volume hitting record highs, financial services expected to be stronger, BPO to be a rising star, and engineering to accelerate, leading to 2.1% growth for 2026.

Q: Brian asks about contracting push and pull.

A: Steve Hall and Kathy Rudy discuss maturity in AI adoption, confidence in productivity gains, procurement teams stepping up, and different pricing models.

Q: Alex is asked about reason for increasing deal durations despite fast moving AI market.

A: Alex says organizations extend durations to smooth transformation costs and due to organizational change management needs.

Q: Namratha is asked about BPO growth and hiring.

A: Namratha says AI has opened opportunities, domain-led transformation, industry-specific BPO is growing, and there's a slight uptick in fresher hiring with focus on reskilling.

Q: Question about GCCs in global delivery models.

A: Namratha and Alex say demand for GCCs is rising, often not included in managed services ACVs tracked but increasing overall spend.

Q: Mark is asked about HCM software demand environment.

A: Mark says HCM had a rebound in Q4 2025 but was down for the year, and there are questions about reinventing AI agents and pricing models.

Q: Kathy is asked about pricing models for transformation.

A: Kathy says there's confusion between old FTE thinking and new value/outcome-based models, and advisory can help sort out what's valuable.

Q: Alex is asked about hesitancy in investing in Gen AI.

A: Alex says most AI use cases need to be in production for value, organizations are realistic about expectations, and focusing on measurable areas like sales.