Information Services Group, Inc. (III) Earnings Call Transcript & Summary

Thank you. I hope everyone is well. I'm Bryan Bergin, services and software analyst at Cowen, and I'm pleased to be hosting the Fourth Quarter Global ISG Index Call. ISG has hosted index call for over 20 years, and its role as a top adviser and influencer in global sourcing offers a unique view of the state of tech services and SaaS market buying, with a unique position between enterprise contracting buyers and tech solution providers. They offer unique perspective that we all appreciate, particularly in this uncertain environment. The format of this call is going to be a presentation of 4Q and 2022 contracting data and key trends into 2023 by Steve, Kathy, Stanton and Namratha. It will be open for Q&A at the end, which you can submit through the platform. I'll now turn the call over to Stanton Jones, distinguished analyst at ISG. Stanton?

Thank you, Bryan, and Happy New Year. With me today is Steve Hall, Partner and President of ISG EMEA; and Kathy Rudy, Chief Data and Analytics Officer; and Namratha Dharshan, Research Director and Principal Analyst. 2022 is a banner year for the sector. We saw unprecedented levels of demand for technology services, but at the same time, we saw unprecedented levels of disruption, especially on the supply side. And as we head into 2023, there are a lot of questions about how the current macroeconomic situation may impact the sector. So Steve, I'll turn it over to you to get us started.

Great. Well, thanks, Stanton. Let's go through the other top 3. So first, I would say, managed services ended the year really strong. Record bookings in 2022 is really setting up for healthy revenues in 2023. And I think as we'll highlight 2022, saw over 2,600 deals awarded, an ACV over $37 billion, both records that continue to highlight really the increased tech spending across most enterprises. Number two, I think the supply side constraints are normalizing. We saw reduced attrition. I think this is going to lead to more stabilization of the workforce. After 18 months of sort of record high attrition, rapid salary increases, I think we're truly seeing a return to normal levels. Less salary pressure going forward should ease up on some of the supply challenges that we've seen. And number three, you sort of set us Stanton yourself, economic headwinds are really shifting to tech spending. It's really not clear the major economies especially the U.S and the U.S. will dip into a recessionary territory. But we do see organizations really focusing on cost optimization versus discretionary spend, especially on unproven projects. I think we'll continue to see major projects go forward. We'll continue to see digital transformation projects go forward. But I think most of them are going to need to be self-funded or have a much shorter near-term ROI than in past years. So let's take a look at the global markets. So after peaking in the first quarter of 2022, the combined market ACV did slow down through the rest of the year. The nearly $23 billion in ACV for the fourth quarter was the lowest performance since the second quarter of 2021 when the world was really coming -- beginning to emerge from the pandemic. But let me put this in perspective. The decline though was really noted in the Infrastructure as a Service space and was really driven by a decline in the Chinese tech sector with the hyperscalers, which was down over $2 billion in 2022. When we normalize for the Chinese dip, the overall market was flat quarter-over-quarter and up 1.4% for the year. From a full year view, the combined market ACV finished 6.5% higher than 2021. But again, when we normalize for the impact of China, the ACV was actually up 14% and really much more in line with the annual growth rate seen in this sector over the last 5 years. The managed services ACV of $9.3 billion this quarter rose 2% over the prior quarter and marks the sixth consecutive quarter over $9 billion. Contract activity remained robust, increasing 14% over the prior year. The 6 mega deals signed this quarter matched the quarterly average over the past decade. And this quarter saw a shift from a preponderance of restructurings to a record number of new scope deals, which is great news for the market as well. For the full year, Managed Services posted record high ACV of $37 billion and a record high 2,645 awards, with 25 mega deals awarded this year. And that's really the most since 2019. 57% of the deals were less than $10 million in ACV, but this really only accounted for 26% of the total ACV that was awarded this year. We're seeing some reduction in deal duration. This is primarily driven by application deals and lower duration restructurings, but I think the overall market remains very healthy. The as-a-service ACV did fall to $13.6 billion this quarter, a 12% year-over-year decline and the second consecutive quarter with a year-over-year drop. Again, though, when we normalize for the Chinese dip, the overall asset service market was down only 1.2% quarter-over-quarter and was up 1.4% for the full year basis. Not as strong as what we've seen but not nearly as bad as the -- when we normalize for the Chinese issues. The as-a-service now accounts for 61% of the combined market ACV globally, which is about the same as last year. Now let's take a look at the supply challenge. Namratha, if you want to walk us through the talent challenges.

Sure Steve. Thank you very much. As you rightly mentioned, after a few turbulent quarters, supply side constraints are starting to ease up. Attrition has stabilized. We are seeing hiring in the sector also returning to pre-pandemic levels. As you can see here, providers ramped up their hiring engines in a big way, for both entry-level and lateral hires. So much so that the employee growth peaked at over 26% in the third quarter of 2021. But like I mentioned, over the past 2 quarters, employee growth has returned to pre-pandemic levels, which is around 10% growth on an annualized basis. Now with the stabilization of the workforce, it is reasonable to expect to return to improve provider margins in 2023. Although a large part of the hiring and talent challenges are stabilizing, the industry is posed with newer challenges and skill requirements. The demand for specific skills like consulting skills, industry-specific knowledge, cybersecurity and data scientists remains high, and these skills continue to cost a premium. So providers that can hire and retain talent in these areas will be well positioned to capture a share of the demand we are projecting over the next several quarters. Also, as you mentioned, the industry is moving more towards cost optimization. The new edge deals demand for more optimized in other words, value-driven outcomes, which will not only have an impact on the skills that are needed, but also how they're priced. And speaking of pricing, Kathy, let me turn this over to you for an update on pricing trends.

Thanks, Namratha. Again, we don't see any significant pricing changes for Managed Services in the fourth quarter. But we do continue to see, as Namratha laid out, increase in demand for specific technology as well as industry-specific skills. And those are commanding higher pricing. Managed services continues to see optimized pricing due to continued efficiencies driven by productivity, utilization for new joiners, they're finally really starting to deliver automation, AI, process improvements and really less reliance on third-party subcontractors as attrition stabilizes. We are seeing some instances where providers are going out and asking for increase in pricing across the board. And what we've noticed about that is it's really for specialized deals where perhaps a provider had a larger volume of scope and has lost some of that scope over time and are feeling pressure on margin. Additionally, we've noticed that providers are delivering things that are not necessarily in their sweet spot, where they have driven efficiencies into those processes, they may be looking for some relief in those areas. But the market is competitive. We do see a trend where enterprises are increasingly willing to pay more as we've laid out for specific industry and technical expertise that's going to drive those fast outcomes to value for them. For example, we see that our data shows the lowest bidder is really not always the winner in a deal. So value-driven pay awards are being awarded. And organizations are being smart. They're buying smart and cautiously, but they still need to drive their digital initiatives and their digital transformations. So we do still see a lot of activity in the market, which implies growth and change to driving cost optimization programs that are optimizing that what they're receiving from the market versus cutting costs just for the cost cutting as it would bring. And again, there's competition. And now over to Steve to give us some insights on the global broader market.

From a global broader market on the managed services side, the global IPO ACV of $25.7 billion was down 3.8% year-over-year, but it was still the second best year ever. The number of awards of more than 1,700 was the highest ever. And from our perspective, there were several mega deals that were pushed into Q1 that if they would have signed in 2022, the ACV, it would have beat the 2021 ACV. Americas, from a regional perspective, America was down year-over-year. EMEA was flat, and Asia PAC grew by 3.6%. The ITO market continued to be led by the strength of ADM, really applications is driving it. It was up quarter-over-quarter, but down 2% for the full year. Applications now account for over 60% of the total ACV awarded in 2022. The infrastructure ACV of $10.3 billion continues to be challenged. The infrastructure ACV was down 29% on a quarter-over-quarter basis and down 7% on a full year basis. Only Asia PAC showed any growth in the infrastructure ACV perspective. BPO, though had an absolute banner year, records award, record ACV, the BPO market is truly being transformed with the industry-specific solutions, engineering really leading the charge there. The ACV was up 36%, best year ever with record-setting results in the Americas. Industry-specific BPO was up 50%, representing 30% now of the total BPO ACV. So just great numbers on the BPO side. Stanton, do you want to take us through the cloud and the as-a-service business?

Sure. Thanks, Steve. So we've talked a lot about the deceleration in cloud over the past few months, and you can see that reflected in the Infrastructure as a Service results. IaaS generated $42 billion in ACV for the full year, that's 8% growth year-over-year, and that's the slowest growth since we started tracking this segment. But as Steve mentioned, a significant portion of that slowdown is really coming from the tech sector in China, which has been under tremendous pressure lately. So if you take out the impact of the big 5 Chinese hyperscalers, IaaS would be up 28% as you can see here. However, even though annual growth is strong, quarterly IaaS growth is slowing, and you can see that reflected in the quarter-over-quarter growth for the big 3 U.S. hyperscalers here. It's really becoming clear that they overhired during the pandemic and now they're adjusting their operational expenses to fit today's macro conditions. Now we don't see this slowdown significantly impacting service providers in the near term, mainly because enterprises have a huge backlog of applications they need to rationalize and get on to cloud. So let's move to Software as a Service. It's also decelerating. The $15.4 billion in ACV for the full year represents 5% growth over the prior year. And like IaaS, we can see many providers in the space adjusting their cost structure to reflect the slowdown in demand. By category, IT service management, HCM and analytics were all up significantly on an ACV basis, while content management, collaboration and CRM were all down on the full year. Even with the slowdown, we're watching another key trend emerge in the SaaS sector, and that's the top 10 SaaS firms in our coverage universe continue to grow at a slower pace than the overall market. Our data indicates that an increasing number of SaaS firms are growing to scale and are carving market share. And as you can see here, the number of $1 billion-plus SaaS firms has grown by almost 20% over year-over-year. So in our view that unlike Infrastructure-as-a-Service, Software-as-a-Service continues to democratize. And we think this is going to create more consulting and systems integration opportunities for service providers that choose to specialize or even acquire skills in these emerging areas. Okay. So let's take a look now at our leaderboard. And as a reminder, our provider rankings are based on ACV booked on the trailing 12 months and providers are categorized by revenue and are listed in alphabetical order. And as a reminder, also, if you're interested in the regional leaderboard, you can access those at index.isg-one.com. If you haven't visited the site before, just hit the red register button when you get there. Okay. In the as-a-service category, Oracle joined the big 15 segment due to a strong showing in both Software as a Service and Infrastructure as a Service over the past year. For example, it's working with Irish Bank Permanent TSB to help it transform its data center and consolidate multiple systems. And late this quarter, Microsoft struck a deal with the London Stock Exchange, part of a 10-year partnership that will migrate data from the U.S. and U.K. exchanges to Microsoft's cloud. And staying in the big 15 category, but on the managed services side, Wipro signed a number of awards, including a 5-year application managed services agreement with Mazda Motors in Europe. And in our Building 15 category, you'll now see LTI Mindtree here as it started operating as a combined entity in the fourth quarter. And we had several new entrants in the breakthrough and booming 15 categories. One of those is KPIT. They won a $100 million-plus contract with Renault and KPIT is deploying more than 600 engineers at the French automaker. Okay. Let's now take a look at demand by region. So Kathy, over to you for an update on the Americas.

Great. Much like the global combined market ACV in the Americas combined market has slowed after peaking in the first quarter, with combined market value of $12.3 billion. The Americas market has posted 3 consecutive quarters of sequential decline. This is the first time we've seen this in the index history. The Q4 decline was led by a slow in the Infrastructure as a Service space and limited growth in managed services. Managed service ACV of $4.5 billion this quarter marks the sixth consecutive quarter with a similar result. New scope awards of $3.3 billion in ACV was a new record. Though managed services ACV overall remains solid, the year-on-year compares each quarter become more difficult, mainly due to the performance of quarters in 2021. For the full year, Managed services ACV of $18.7 billion and more than 1,300 contracts represents new records in both spaces. After rising above the $8 billion mark for the first couple of quarters this year, as-a-service ACV fell to $7.9 billion. That's a 1.4% year-on-year gain, but a 20 -- 2%, sorry, dip quarter-on-quarter. ACV for the full year climbed to nearly $32 billion. That's a 21% increase, which, while lower than the annual growth rate in 2021 is keeping in line with pre-pandemic growth. And as-a-service now accounts for 63% of the combined market ACV in the Americas. With that, I'll turn it over to Steve to give you an update on EMEA.

EMEA's combined market ACV topped $7 billion for the sixth consecutive quarter. However, the region saw growth rates fall slightly both year-over-year and quarter-over-quarter. The full year view shows stronger growth. The ACV of over $30 billion rose 11% over the prior year and really brings us back to the pre-pandemic levels of 2019. The Managed Services ACV of $3.4 billion this quarter [indiscernible] the fourth quarter string -- the fourth quarter string of ACV above $3.5 billion, EMEA 3.5% or 3% year-over-year decline was the only quarter in 2022 to fall in the red. As it did in 2021, Managed Services finished the year on a little bit of a weaker note. For the full year ACV of $14.9 billion really reflects a 6% increase, a high really not seen since 2011 with over 1,000 deals closed during the year, which is really a record. Now if we take a look from a region or a country view, the EMEA market really continues to be led by the U.K. Doc, in France. So Managed services ACV in the U.K. was up 1.2% for the full year despite a weaker second half compared to first half 2022 in the second half of 2021. Doc managed services ACV posted annual growth rates of 12%, but it was really powered by an exceptionally strong second half that was up 36% against the same period in 2021. France was flat on a year-over-year basis, but continue to deliver over $2.1 billion of ACV for the past 2 years, which is a record as well. The as-a-service ACV of $3.8 billion in other quarter, continued to run of 6 consecutive quarters above $3.5 billion. However, it's barely noticeable year-over-year growth of 0.5% was really the slowest growth rate since first quarter of 2015. Given that the growth in the prior quarter was 5.5%, the as-a-service business seems to be slowing down a little bit in EMEA. For the full year, as-a-service generated $15.2 billion of ACV, up 17% over prior year, although that is half the growth rate of the prior year, but it is in line with pre-pandemic growth rates of 2019. The as-a-service business now makes up 51% of the combined market ACV. Namratha, you want to walk us through Asia Pac?

Sure. Thank you, Steve. As we mentioned earlier, the tech sector in China continues to have an outsized impact on overall Asia Pacific region. It's the primary reason for some of these double-digit declines you will see here. For the fourth quarter, combined market ACV was down over 30% year-on-year, the third straight quarterly decline of 30% or more. But if you were to take out the impact of Chinese hyperscalers, the combined market would have been up 10%. Now turning to Managed Services segment. It had the second best quarter ever with ACV of $1.3 billion, which is up over 20% year-on-year. Almost 100 contracts were signed in the quarter, which was a record. It was also the second best quarter for new scope awards. On a full year basis, in Asia Pacific, both ACV and number of deals reached new highs, with ACV up 9% for the year. Southeast Asia and India drove most of the growth in the region. ANZ also had $1 billion-plus year finished strong in the fourth quarter. Now looking at some of the subsegments. It was the best year for financial services ACV, which now accounts for over 35% of the market. Applications had its second best year and BPO finished strong with nearly $1 billion in ACV for the year. On that note, Stanton, over to you for the industry updates.

Thanks, Namratha. So as a reminder here, we're going to look at changes in demand measured by year-over-year changes in annual contract value by industry. So let's start with BFSI, the largest industry in our sector by ACV. For the full year, combined market generated over $20 billion in ACV. That's an all-time high. And as you can see here, up 13% year-over-year. and BFSI Managed Services grew by 14% year-over-year, and most of that growth came from the Americas. Inflation was and unfortunately, still is a red hot topic and historically, health care companies tend to do well in this environment. So for the full year, health care and pharma combined market generated almost $9 billion of ACV and that was up 13% versus 2021. We also saw travel bounce back in 2022. So it's no surprise. This sector performed well last year. Combined market ACV was up 13% year-over-year. And finally, energy is another vertical that advanced last year. There was $5.6 billion in combined market ACV. That was up 6% versus 2021, primarily led by strength in the Americas. Okay. Steve, back over to you to close this out with the forecast.

Great. Thanks, Stanton. Well, clearly, with all the macroeconomic conditions, we've given the forecast a lot of thought this quarter. And we got a couple of factors here. 2022 started off really hot. ACV was up across the tech sector. But as you noted, we started seeing cracks on our July call, particularly in the SaaS discretionary space. And those cracks have only deepened. By October, the weakness had really seeped into the Infrastructure as a Service market. As we said, this is partly due to China's regulatory issues, zero COVID policy, et cetera. But we did see the big 3 hyperscalers also begin to struggle and their growth rate started to pull back a little bit. Managed Services, on the other hand, generated 4 consecutive quarters above $9 billion in ACV. We saw record set in BPO, especially in engineering and industry specific. The Americas and EMEA turned in record highs for managed services and Asia PAC had its second best year ever. So we're getting a lot of conflicting pieces. The ITO market slipped 4%. You could argue against tougher compares, but the ADM ACV or the ACV held steady each quarter, but the legacy infrastructure really dropped 7%. So 2022 had a lot of cross currents, many caused by the macro environment. So looking ahead to 2023, I think we see some positive news. First, I think the central banks are coming to the end of their high interest rates. We're likely to see a couple more, but I think they're taking a bit of a pause, make sure that we understand what the impact is on inflation. We don't expect them to pivot, but I think with the economy should recover, I think most economists right now see a pass sort of from inflation from 9% to sort of 3.5% by June. That really appears to be a clearer path now. China is reopening. The U.S. dollar is off substantially from its recent highs. Technology is the most currency exposed sector, with 60% of its revenues come from outside the U.S. So they are more exposed to the FX fluctuations. But again, I think the dollar is starting to stabilize. Supply chain is starting to normalize with China reopening, so that's better. Manufacturing should be in a better shape, anything on the consumer side. Enterprise spending has not really been significantly cut and we don't really see further cuts or really improvements that's going to change their spending levels by the second half of the year. So as-a-service is probably the one concern. They are dealing with tech access. They're going to go through reductions in workforce. That's going to help their margins kind of get them profitable, but it's really got to compete with and compensate for some of the softening demands and rebalancing that we have. So given the softening demand, cost corrections that we're doing, the market technicals and forecast. I think our forecast for the as-a-service market in 2023 is going to be 17%, which is well below the growth forecast for the past several years. As for Managed Services, we're really seeing a reprioritization spend. We aren't seeing major project cancellations. We're continuing to see sort of digital transformation activities go forward. But we do see sort of a focus on cost optimization that should really provide some favorable tailwinds to the Managed Services market. So I think you'll see a continued trend for shorter durations of contracts. Attrition should stabilize, the labor market should stabilize. So I think given all of these factors, I think we'll see a 5% growth rate for the Managed Services in 2023. Now historically, this is still in really strong territory for Managed Services. Last year, we were 5.7%; this year, we're 2023, we're projecting 5%. So I think we're still in good territory for the growth of that business. So with that, let's go to questions. We'll now open it up. Please type your question or comments on the right side of the screen. Bryan, would you like to start the questions?

Yes, sure, Steve. Thank you all for that detail. I'd say I think I'm more optimistic you on the services front than many would expect given the current backdrop. I think to start, if we could just begin with maybe a high level 2023 budget behavior question. So I'm curious if you're seeing any enterprises delay their IT budgeting cycles, just amid this uncertainty. Do you think this year is any different than what you've seen in past years as it relates to that timing? And anything you would just call out there differences by geography or industry?

Do you want me to take that one, Stanton?

Sure.

Sure. Yes. So I think, in general, Bryan, no. I think we see increase in tech spending, though we're seeing a reprioritization of that. As Kathy mentioned, I think cost optimization is going to be a really big play this year. And I think the cost optimization is going to look at how can we better rethink through our spend to continue to invest in the new areas that we need. So if we look at the IT sector, for example, you're likely to see probably growth in Managed Services as we talked about and a little bit of pullback on some spending in some other areas, but it's really just optimizing their cost. I think the engineering side, the industry-specific BPO side are going to continue to accelerate as we think through that space. There's just good signals, good demand from our standpoint across the board on that. From a regional standpoint, clearly, Europe is in worse shape than the Americas from a broader economic standpoint. I think the energy issues, they're starting to stabilize have caused people to make sure that they're being smart going into 2023 budgets. That being said though, we're still seeing really strong demand across Europe. I think the U.S. is in a bit of a better shape from an energy standpoint and some of the pullback. It's interesting because when I look -- we talk a lot about the layoffs that are happening in the tech sector. Those layoffs are happening, though, after almost a 400% to 600% increase in FTEs over the last 5 years. So you're talking about coming down off a really large number as we've seen this massive hiring over 2020, 2021 even through 2022. So we're, quite frankly, not seeing the same signals on the demand side, and we see spending across enterprise is still continuing.

Okay. Maybe just -- you're talking to a moderation in the as-a-service market and your forecast there, yet your view on managed service is a bit more optimistic and stable there. Can you talk about why that might be and why that as-a-service weakness isn't necessarily seeping into the managed services side just yet?

Yes. You want to take that one, Stan, do you want me to continue?

Yes, I'll take first a bit, Bryan. So kind of as we talked about on the earlier today, I think it's important to keep in mind, and we did show this on one of the previous slides, definitely seeing a slowdown in ACV growth on the Infrastructure as a Service side, pretty significant slowdown, as you saw from the data. I think it's important to keep in mind the -- and we talked about this a lot over the past, how much the service providers and GSIs, how much of their pipelines are linked to the hyperscalers. But what has happened is, if you think about when cloud really started taking off in enterprise 2015, 2016, especially post pandemic, many enterprises made really big bets and investments on moving workloads to these hyperscale clouds. I think that drove a lot of that growth that we saw on the hyperscale side, and we would call that like a framework agreement, a commitment that over 3 years, we're going to move x amount of volume to those platforms. That said, what many enterprises are not finding is after -- because we're past sort of that easy phase of cloud. Now we're in the heavy lifting phase. Now we're getting the big heavy industry applications, mainframe, it's hard to get those applications moved. And so in our view, the GSIs and the enterprises have a mountain of applications to rationalize and get moved, and it's going to take time to get there. Is it as fast as the hyperscalers want it to go? No, it's not. And so -- but there's also other reasons for a slowdown and it's kind of specific to each hyperscaler. That's why, broadly, we're not as concerned about the potential impact on the short-term slowdown on the hyperscale side as it might impact the global GSIs. Steve, I don't know if you have...

Yes. No, I think that's right, Stanton. And I think, Bryan, at the high level, everybody is -- the infrastructure business continues to slow down. We've talked about that for a number of quarters. You saw a further decline this year. I think that's going to continue. That's being offset in the market by the high level of apps and engineering that's going forward. And those sectors are growing much faster than what the infrastructure is declining. And that's part of why our forecast is a little lower even though we see good demand because we know that's going to continue to come down. As we think about that, I think it's also going to be impacted by the energy prices because you're going to see people try to shutter data centers, get rid of those costs and move them in because their energy bills are going up so high. I think it's going to be impacted by ESG initiatives, especially as we refocus on ESG and rethink through that in 2023 and beyond. Because just, quite frankly, the cloud is -- it tends to be -- in most cases, it tends to have lower CO2 emissions than internal data centers. They tend to be much more efficient. You can control your workloads much better. So there's a couple of mega trends that are out there that are going to continue to push how we think about it, which will continue to put pressure on the infrastructure side of the Managed Services business.

Okay. And then, Bryan, just to follow up on that because we're really kind of focused on infrastructure, not as much on SaaS, which we also said is decelerating. That's obviously just a broad slowdown in tech, in general, lots of different reasons for that. The impact there on the GSI side, I think, is going to be a little bit different because those tend to be more project-based systems integration-type work of going in and implementing one of those platforms or one of the modules of those platforms. Could we see some slowdown there for firms that have a big exposure on the consulting and systems integration side linked to a specific platform that we see that slowdown on? Yes, absolutely. But then it's also -- it's very much of a cross current market as a lot of what Steve talked about, we saw some real winners this year on the SaaS side, IT service management, HCM do cover analytics. But we also saw some decline. So I think it very much depends on the SaaS side on the unique platform and the degree to which the GSI has made a bet either through M&A or hiring on that particular platform and space. So I think it's going to be a mixed message this year.

Just on the last point, Stanton, you mentioned some areas of strength within SaaS for the year. I know you mentioned service management, HCM and analytics. Was that still the case in the fourth quarter?

Yes. So yes, very much so at least on the -- very much so on the HCM side. I'm going to spend -- when you get to the next question, I'm going to look at our data, and I'll answer you on analytics management. But yes, on the HR side, yes, we saw a very and this actually, there was another question coming in here broadly around HR SaaS and around HR outsourcing, which both really had a very strong year for HR. I think some of that is going to be driven by -- Namratha talked about this, just this exceptionally tight labor market, a lot of focus on recruiting and retaining talent, internal workforce experience, many of the SaaS firms focused there. Of course, a lot of focus on cost takeout. As I look at some of our -- we're actually running our annual HCM technology and service delivery survey as we speak. We're going to publish those results. We've been doing that for a number of years, very popular survey. 60% of respondents, which is up about 10%, expect to increase their use of outsourcing. So that would be more on the HRO side. So a strong year all around on the tech and outsourcing side for HR.

Okay. Okay. Last one for me. On the digital engineering market, when you think about pricing specifically there, are you seeing clients become any more sensitive to the price increments as you think about 2023 versus what you saw in 2022?

I'll take a stab at that one, Bryan. I think you're going to see it being flat. I mean, in most areas, and again, with digital engineering, there's kind of 2 phases. One is very specific to a -- the engineering is a specific product or service that they're building out for the external market versus digitizing some internal services. And those skills are typically software engineering skills. Those, I think, will remain flat. If you're looking for more specialized skills in ways that you might go out to monetize that product or service, you might be paying a little bit more, but you're paying more for a specialized skill. So I think it will be a tale of 2 things. If it's just software engineering services. Those are going to probably remain flat. Specialized skills, once again, as we've said, will command higher pricing. But as I always like to say, the market is competitive. So you have to really think about how you're putting those deals together.

Okay. Understood. Thank you, Kathy, and thank you all. I'll drop back in the queue now.