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

Good morning and good afternoon to everyone on this Third Quarter 2022 ISG Global Index Call. I'm Aditya Buddhavarapu of Bank of America. I'd like to thank the team at ISG for their value work on the industry and for asking us at Bank of America to introduce this call today. ISG has been hosting these index calls in the technology services market for 20 years. The ISG advisers and analysts work with enterprise buyers and service providers, so they offer unique insight to key industry trends, which is critical as we navigate all of the unexpected events that can impact markets in an uncertain environment. I'll turn the call over to Stanton Jones, distinguished analyst at ISG.

Hi, everyone. With me today is Steve Hall, Partner and President of ISG EMEA; Kathy Rudy, Chief Data and Analytics Officer; and Namratha Dharshan, Research Director and Principal Analyst. As Aditya mentioned, we've been hosting the index call for 20 years now. That's 80 consecutive quarters. So just to give you a sense of how much this research program has grown over the years, we had 45 attendees on the first index call all the way back in 2002. And on this call today, we'll pass over 30,000 total attendees over the past 2 decades. So I'd like to recognize our incredible index team, both my teammate, you'll see here on the call today and especially those that have worked tirelessly behind the scenes to make this call happen rain or shine for 20 years now. So let's go ahead and jump into our analysis, Steve, over for The Big 3 thoughts on the quarter.

Great. Thanks a lot, Stanton. And again, congratulations to the entire team, 20 years of doing the index is absolutely phenomenal. So let's jump right into the Big 3. Let me start off and say demand is really at an all-time high. The number of awards in Q3 exceeded 650, and we've now seen 5 out of 6 quarters hit 600 awards per quarter. We'll easily smash the record for record activity this year. The award ACV in the quarter pulled back slightly, but remained above $9 billion for 5 consecutive quarters. The time was primarily due to the delays in decision-making, FX headwinds and some record high comparisons over the last 6 quarters. We did see some headwinds in the market, but we remain really optimistic on the overall deal flow. Second headline, margin pressure. We continue to see high inflation rates across most sectors with labor rates for the provider community increasing. You couple that with the return to travel and challenges, passing wage increases to clients, and we expect to see some heavier margin pressure on service providers which we believe will lead to more automation, more invasion and other productivities. I know Kathy and Namratha are going to provide more insights during the pricing discussion today. Finally, we're seeing delayed decision makings or more cautious decision making, I'd say, among our enterprise clients. We've seen some large deals delayed in this quarter and our discussions with service providers have validated the macro level concerns with these delays. The demand though still is at record levels, but I think defining that path forward is going to be critical for our enterprise clients. So if we take a look at the combined market ACV, it's risen steadily through 2022. We saw a slight pullback this quarter, again, primarily on FX weakness and continued pullback in the Chinese tech sector. The combined market ACV of $23 billion is down 3% from last year and the quarter-over-quarter ACV edged down 1%, almost all of which was due to FX weakness. Year-to-date, the combined market ACV of nearly $79 billion (sic) [ $71.8 billion ] is up 11.5%. The managed services market remains robust with another $9 billion quarter. It was flat year-on-year and then slipped 2% from the prior quarter, again primarily due to some timing of deals really driven by a strong summer holiday season. But the 661 contracts awarded in this quarter marks the 4th time in the past 5 quarters, but the number of awards came in above 600. There were 3 mega deals awarded in the quarter, the lowest number since 2Q '17. But again, we really think it was a timing issue, though, versus an overall decline in the number of large deals. The managed services ACV year-to-date hit an all-time high and more than $27.5 billion. This was a 6.2% increase over 2021. The as-a-service posted its first year-over-year decline since first quarter of 2015. The ACV of $14 billion this quarter dipped almost 3.6% year-over-year and was flat compared to the prior year. There does appear to be some pullback broadly across the SaaS market in multiple segments, and Stan is going to hit on that on some of the trends later in the call. We sell the overall as-a-service market though, delivered $44 billion of ACV year-to-date, and it's still up 15% compared to the same period in 2021. The as-a-service business now accounts for 61% of the global market ACV. So Kathy, you want to walk us through some of the pricing pressures that are going on in the market?

Sure, Steve. We received a lot of questions lately from both enterprises and providers on pricing. And as we've said on previous calls, we do see pricing power for in-demand based project work, but not at the same levels of increases for managed services more commodity-based services. This is creating some contrast in the market, which can be helpful for our enterprises obviously looking to optimize their costs, especially given the recent economic headwinds that Steve has reviewed with you. But it's also putting margin pressure on providers. Now it's important to keep in mind that in the provider industry, margin is not just about pricing. There's many other levers that impact the profitability and some are in their control and some are not. We decided to take a deeper look at what's happening with provider margins. And with the analysis, what we did is we looked at a weighted average year-on-year margin for a basket of 25 providers. This included ITO providers as well as BPO pure-play firms. Now when we look at the chart, it shows that the quarters prior Q3 2020, margins were on a flat or slightly slowing trend of between 2% and 4%. Now during the pandemic, margins skyrocketed. And as we've reviewed some of the reasons for that, our travel and related Visa spending dramatically declined. The bench was cleared, resource utilization increase, salary increases were paused. And in an uncertain world, attrition plummeted. Now you can see margin growth has slowed again in this time, below -- just slightly below levels from 2019. Now the next thing we decided to do was lay the weighted revenue line on the chart for the same 25 providers. This shows margin and revenue moved in concert until around Q2 of 2020. And then the margin and revenue increase -- both increased with revenue sometimes in the range of 17% increases. And now as we've discussed, we've seen unprecedented levels of demand. Again, still for digital transformational services as they become integral into driving top line growth, even given the slight market hesitation in some areas. So in our view, margin gains from 2020 and early 2021 have been lost, but let's not say lost. They're now back to or close to where they were in 2019. So more of a normalization. This seems like it's a good story. It shows that the gains during the pandemic were a little bit of a blip, and we're getting back to a more normal range. Now we don't comment on what will happen to margins going forward, but we will continue to take a look at it. But we are also sure that pricing declines in managed services, competition will continue to happen. So we will be looking at pricing, utilization, attrition against the total market and continue to report on it. Namratha is now going to take us through consideration is related to the delivery of services and the impact it may have on margin. Namratha, over to you.

Thank you, Kathy. The delivery organization, it's gone through its share of turbulence in the last few quarters. While there are tailwinds pushing things through. I think there are enough headwinds still posing a challenge to these organizations. That said, gradually things seem to be settling because our data indicates that the attrition is stabilizing on an annualized basis, half of the providers are decreasing accretion and nearly 30% of them showing signs of stabilizing. But attrition is still at elevated levels. Even the enterprises are facing attrition challenges, they're struggling to find the right skill sets. So now they're looking to partner with service providers to help fill in these gaps and then keep the projects moving. Now to meet the demand requirements, providers were aggressively hiring in the recent past, and several companies hire freshers and masses. But in current scenario with uncertainties prevailing in the market, most companies have drastically slowed down or paused hiring. Though there is a strong intent to hire companies are prioritizing and are into more focused hiring. Also, there's a renewed focus on training employees, especially the batches of freshers who are gradually becoming productive. Kathy, as you mentioned, there is enough pressure on the margins. No doubt wage inflation is a significant contributor because talent scarcity still persists in the market. Certain key skills come at a premium price, and most importantly, replacement costs are much higher. So now the focus is more on talent retention. Besides the error of great reshuffle is not completely over and is now prevalent amongst experienced talent. Also, there is a developing demand for nearshore and onshore talent, combination of these developing demands stand scarcity, companies are opening to hiring across borders to keep the debit strong and moving. So there are number factors that are impacting the provider margins. We will obviously continue to monitor the situation. With that, let me hand it over to Steve to walk us through the managed services trends. Steve, over to you.

Yes. Excellent insights, Kathy and Namratha. I think we're going to continue to be under a lot of different pressure. So it's good to see how the market responding. So let's jump in and take a look at the global broader market on the managed services side. So on this quarter, we're really going to take a year-to-date view, and let's start with the ITO sector. So through the first 9 months of 2022, ITO globally accrued more than $19 billion in ACV. This is 2% shy of the record-breaking amount in the 9-month total in 2021, where you can see a very healthy market. A pickup in the third quarter really offsets some site declines that we saw in the first 2 quarters of the year. ADM continued to be on a record-breaking pace. It now accounts for 60% of the total ITO deal flow and ACV. The ACV for the infrastructure deals was up slightly in Q3 but remains 8% down year-over-year with all 3 regions really reporting a pullback on a year-to-date basis in the infrastructure space. The BPO market though just had its best 9-month performance, it posted an ACV of over $8.3 billion, which was a 32% spike over last year. The robust first half of 2022, more than made up for a slight dip in Q3, and we saw a record 640 BPO contracts signed year-to-date. Several of the largest sectors have really large -- have really lots of large gains. Industry-specific BPO rocketed 71% over 2021 numbers, most of that activity came from the Americas as enterprise is really heavily invested in strong data and analytics capabilities. The Engineering segment continued its risk pace. Its ACV rose 19% year-over-year to $1.8 billion with EMEA particularly active in this area. Contact Center BPO and digital customer experience also rebounded with an ACV of $1.6 billion and the highest really since 2015. And BPO activity in the financial services sector really doubled in year-to-date and energy and travel transportation also registered nice gains. So we're seeing good, broad growth in the BPO space across all markets. So Stan, do you want to walk us through the as-a-service space.

Thanks, Steve. Let's start with Infrastructure as-a-service. Year-to-date ACV was up 18%, but that's actually the lowest growth rate for IaaS, since we started reporting on this segment back in 2015. And the slowdown in growth here is primarily being driven by the big 4 Chinese hyperscalers. They've seen an exodus of some key customers. There was a major data breach last quarter. And of course, we have the macroeconomic impact of the strong dollar. On the other hand, the Big 3 U.S. hyperscalers, AWS, Azure and Google have really carried the IaaS segment so far this year. However, as we discussed on the insider a few weeks ago, we do see growth slowing there as well. AWS has exposure to retail, which has been under a lot of pressure lately. Google has exposure to ad tech, and Microsoft has exposure to enterprise tech spending, which as Steve mentioned, is becoming more cautious. Okay. Let's take a look at Software as a Service now. ACV was up 7% year-to-date. But like IaaS, that's the lowest growth rate we've seen since 2015, and we see some interesting trends emerging in the SaaS sector. As you can see on this chart, we see a bifurcation happening this year. Some of the SaaS stalwarts like CRM and collaboration have been declining ACV year-to-date, while other areas like IT service management, HCM analytics and BI have seen ACV growth of over 30% year-to-date. So given that we're starting to see some more cautious enterprise decision-making, we think one of the sectors this change in sentiment is hitting first as with some of the big SaaS vendors. SaaS implementations are getting bigger and more complicated as many vendors move beyond their traditional beachheads. So this slowdown in SaaS could continue as enterprises become more cautious in their spending. Okay. So let's take a look at our leader board now. As a reminder, our rankings are based on annual contract value over the trailing 12 months and providers are listed in alphabetical order. And if you're interested in the regional leaderboard, you can access those at index.isg-one.com. So we saw very little turnover in the 3 largest categories, though each category had at least one new entrant. In The Big 15, Deloitte signed a considerable amount of applications related work the healthcare and manufacturing sectors. In The Building 15, Amdocs returned to the leaderboard. They provide software and services in the communication and media sectors and the Breakthrough 15, French ER&D firm ALTEN made its debut. And it's one of the firms that's really benefited from the surge in engineering activity that Steve earlier. The Booming 15 category saw 5 new or returning entrants. Among them are Persistent Systems, a product engineering firm focused in the financial services, healthcare and high-tech sectors and IT service provider Coforge, who signed multiple awards in the financial services and transportation sectors. Okay. So let's jump into our regional updates. Kathy, over to you for an update on the Americas.

Thanks, Stanton. The Americas market continues to contract a bit. Once again, it's combined market ACV posted a quarter-on-quarter decline. Although it's ACV of about $12.5 billion, edged up 1% year-on-year, it is down 2% from the prior quarter year-on-year. Quarterly declines are rare in the Americas, and this back-to-back slump was the first since the mid-2016. Now year-to-date ACV of $38 billion reflects growth of 19% over the last year. That's smaller than in 2021, but it's better than 12% to 14% range of prior years. Managed services quarterly ACV stayed above the $4.5 billion mark for the 5th consecutive quarter. Still, that marks an 11% year-on-year drop, although it was against a very difficult compare. The managed services sector has been on a strong growth trajectory of about 25% per quarter with the number of contracts exceeding 300 for the 7th quarter in a row, a sign of a very healthy market. Year-to-date ACV of more than $14 billion was the highest ever at this point in the year in the Americas with the number of contracts awarded up 8% from the prior year. As-a-service ACV of nearly $8 billion represents 9% year-on-year growth, but a 2% dip from the prior quarter. The best of the 3 regions, but it is far below the 40% average growth rate of the previous 5 quarters. Year-to-date as-a-service ACV topped $24 billion and its growth rate of 29% year-on-year is the highest since 2018. As-a-service ACV now accounts for 63% of the combined market in the Americas. Now I'll hand it over to Steve and he'll give us the update on EMEA.

EMEA's combined market ACV of $7.6 billion continue to set new benchmarks with 3 consecutive quarters now of record highs. Though we saw some pullback on our quarter-over-quarter basis, it was really due to the FX headwinds that we saw in August and September. So year-to-date, the combined market ACV of nearly $23 billion rose more than 15% over 2021 and was really almost 3x the growth rate of the 5% to 6% growth rate that we saw in 2019 and 2020. So really a healthy market here. The EMEA managed services sector continued to record deal volume with over 280 deals awarded in Q3. The ACV remained in the $3.8 billion territory now for 3 consecutive quarters. And though the market was down 3% on a quarter-over-quarter basis, again, based on timing and the FX headwinds we've discussed, over 200 basis points of that quarter-over-quarter decline was FX with really the shifts in the euro and the pound, again, kind of going in that August, September period. DACH produced a $1 billion quarter, which was up triple digits year-over-year. The U.K. snapped its string of consecutive $1 billion quarters at [ 3 ], but it's still up 15% on a year-to-date basis. And year-to-date managed services ACV of $11.5 billion rose 9% from the prior year. We saw over 798 contracts signed, the most in any 3-quarter period in EMEA. The as-a-service ACV also grew exceeding $3.5 billion for the fifth quarter in a row, it's $3.8 billion in ACV marks a 5% growth year-over-year and a 1% rise quarter-over-quarter. EMEA was the only region to post gains on both a year-over-year and a quarter-over-quarter basis. The year-to-date ACV of $11.5 billion was up 23% over the prior year. And as-a-service now makes up half of the combined market in the ACV region. Namratha, do you want to walk us through Asia Pacific?

Thank you, Steve. Combined market ACV in Asia Pacific was just over $3 billion this quarter, that was down 29% year-on-year, but up 3% quarter-on-quarter. Year-to-date ACV was just -- was down 14% from last year, the steepest decline since 2015. That said, managed services ACV this quarter was up 17% year-on-year, but down 11% sequentially. India and Southeast Asia markets was strong this quarter, while Japan, China pulled back and the number of awards in this region dropped 12% year-on-year. On a year-to-date basis, managed services ACV of $2 billion was up 2% over the prior year. More than 75% of that ACV came from new scope awards, the most ever for that sector and on a year-to-date basis, number of awards also reached a new high. As-a-service, ACV fell below the $3 billion quarterly benchmark for the first time in the last 5 quarters, which was a 37% year-on-year decline, which is a similar result to what happened in the second quarter. A big part of the decline is due to the fact that Chinese tech companies have suffered a lot during 2022 given the intense regulatory environment and country's Zero-COVID policy. And finally, year-to-date basis, as-a-service generated over $8.5 billion in ACV, and that was down 17% from 2021. Stanton, let me hand it over to you for the industry trends.

Thanks, Namratha. So as usual, we're looking at these industry results on a year-to-date basis. So let's start with financial services, which makes up around 1/4 of the total market ACV. The BFSI combined market generated almost $16 billion in ACV. That's an all-time high, and that was up 23% over 2021. BFSI managed services ACV was up 29% from last year, and most of that growth came from the Americas and Asia Pacific, while as-a-service was up 18% year-to-date. So the market forces that are at play right now have complex and sometimes countervailing impacts in the financial services sector. But on the whole, we see BFSI firms focusing on transforming financial services operations. So things like lending, core banking and mortgage processing, using a combination of managed services platforms, fintech partnerships and internal reengineering. Manufacturing, the second largest consumer of technology services generated $12 billion in ACV, and that was up 14% over 2021. Managed services was up 8% year-to-date, primarily due to growth in EMEA and as-a-service was up 19% year-to-date. One of the reasons for growth in managed services is that we're seeing strong recent demand for cost optimization in manufacturing. And in Europe, a lot of that focus in -- optimization is focused on waste reduction and energy conservation. And an interesting trend we're tracking in the U.S. is that we see more mid-market firms outsourcing in order to increase speed and reduce technical debt. So that's it for our industry update. Steve, I'll turn it back over to you to close us out with a forecast.

Great. So typically, our third quarter calls focus on year-to-date numbers, but with the amount of change recently. I really want to kind of give a perspective on both third quarter and the year-to-date. So as we said, the managed services ACV was up 6% year-to-date, but the third quarter was down 1% year-over-year. ADM activity has reached record highs, while the legacy infrastructure is down 8% year-to-date, and that kind of imbalance weighed down the overall ITO markets. BPO, a little slower than Q3, rose 32% year-to-date due -- primarily due to industry-specific BPO in the Americas and engineering in Europe, which has hit new highs. But you know what, the calculus for as-a-service has really shifted. We expected quite a bit of turbulence in the coming 6 to 9 months. As Stanton, you mentioned and Namratha, we had the difficulties in China with the Infrastructure as a Service market, The Big 3 hyperscalers are cooling down a little bit, and we expect a little bit of softness in the Software as a Service space. Overall market is up 7% year-to-date, but it did decline 12% year-on-year in the third quarter. The macroeconomic environment really continues to be a concern, particularly with the impact of energy costs and the continued supply chain disruptions, which are key drivers to the inflationary pressures we're under. It's clear that central banks will continue to raise interest rates to get inflation under control. That's going to increase the borrowing cost and eventually, it's going to suppress consumer demand. I think the varied responses by the central banks across the globe has also led the strengthening of the dollar, which puts further pressure on the global environment. And though demand is at record levels, enterprises continue to amaze us with their resiliency there has to be a slowdown given the level of inflation that we're at right now. So given the overall strength of the market, we are maintaining our forecast of 3.5% growth in the managed services segment for the year. And as for the future of IaaS, we expect The Big 3 hyperscalers and even Oracle to outperform as they've been doing. The weakness though on the SaaS market and Asia PAC will impact the overall market growth. So we're lowering our forecast for the as-a-service from 18% to 10.5%. So with that, let's open it up for Q&A. Aditya, I'll turn it over to you and your team to kick us off.

Great. Thanks, Stanton, Steve, Namratha and Kathy for that presentation, very useful and interesting insights there. Maybe a few questions on the back of that. You clearly show -- mentioned that demand has been strong year-to-date. How are there, I guess, a few pockets where you are seeing some signs of caution from clients. So could you maybe just give us a sense of where those more areas of questions are coming in from your conversations? And sort of how should we think about maybe any diversion in trends there?

Yes. Thanks a lot, that it. First of all, you're absolutely right. The demand has been just on a record pace. As we talk about it, we've got 4 out of 5 quarters with over 600 contract awards, which we've never seen. So there's absolutely record activity in the managed services. And the ACV, as we talked about, though, it dipped a little bit, it's still been steadily in that $9 billion range and is really set new heights as well. We keep talking about it that the comparisons are top because last year was so strong. But quite frankly, we're staying in that same area as we see. If we see any weakness, I think it's on the larger deals that are more transformative and a slowdown in the decision-making as we see. We -- there's so many macroeconomic headwinds right now that we've talked about. I think we all understand what those are. We're not seeing those really impact the enterprise spend though, the way that we would have expected quite frankly again, with demand high. I think it's just some delayed decision-making. So I think, I hate to say lumpy quarters, but I think what we're going to see is little variability between the quarters depending on where enterprise clients are in their cycles. But overall, we continue to be very optimistic on what we see in the market. I think most of the service providers that we talk to in all of the conversations that we have also are being a bit cautious on the demand just given some of the slowdowns, but we're not seeing any particular industry or any particular piece of work that's changing. I think those big trends that have been driving the market for the -- really the last 3 years, AI, cloud, apps, engineering, industry-specific BPO are really continuing.

That's great. I guess just following up on that as well. I mean, if I think about macro-pressures nearly building up towards the end -- into the end of next -- this year and into next year. How do you think enterprises are going to prioritize spending, which areas do you think are more critical than have to be done even in a weaker environment versus something we look to push towards later years?

Yes. So this is a brilliant question because I think there's a lot of aspects to it. I would say, first of all, anything that's really associated with driving top line and the whole digital transformation that's taking place in organizations is going to continue. So if we look at sector after sector, banking is moving all about customer experience and digital experience. We know what's happening in manufacturing, really driving both EV autonomous, decarbonization. Those 2 sectors account for about 60% of the total ACV that's awarded on an annual basis in the market just under -- sort of just under 60%. Those 2 still have some very strong growth ahead of it and really a lot of key cycles that are driving that forward. So I think that's really optimistic. I think we'll continue to see really a big push for cloud transformation. So you'll see GSIs that are supporting that. You'll see continued spend there. We may see some pullback on S/4HANA or other big large transformation efforts, where there's not a solid business case yet. But I think that's going to be a short-term. I think, again, we've got some energy issues, which are driving a lot of the inflation. The inflation issues are certainly driving some of the FX and the different things that the central banks are having to do. You read most of the news, you sort of think that, that's going to calm down sort of March, April timeframe, be much lower going into the back half of next year. So I think it's only just a couple of quarters that if there is a slowdown a bit on demand, it's just going to be in those areas where there's not a solid business case on it right now. Kathy, I know you've looked at this as well. Any insights from you?

I think you implied this, Steve, but cost optimization, any activity that really has a quick time to value we've seen being accelerated and it's in all areas. It really just depends on, as you said, that business case. But if there's shorter timelines, 1- to 2-year return, we're seeing those deals move. But otherwise, if it's a larger deal, and there is some hesitation in that -- in those areas just as you've indicated.

Yes. Understood. And again, I think on the similar lines, if you -- in your presentation, you spoke about the trends in different regions. Again, there's a bit of a divergence you're seeing there. So based on your [ calculations ], how do you think that might evolve. I think over the last week, you saw TCS [indiscernible] were talking about some weakness in Europe, for example. So you think any diverging trends by geography as well?

Yes. I mean I think the concern in Europe has to do both with the situation in Ukraine and certainly the energy challenges over here. So I was in London yesterday. I'm in Germany today. We're at sort of EUR 1.80 a liter, right? So as you go into the winter, and you're sort of EUR 1.80 or GBP 1.70 to do it, that's a big chunk out of the consumer end and the business right. So that is absolutely going to shift some dollars to the different areas of the thing, which is why Kathy and all of us really talk about cost optimization going there. And I don't think there's one industry that's safe from that, right? I think we're all going to see that pull back. So I think if it's anything, there's a little bit going on there. FX is having a major impact. So anybody that reports in USD with a large part of their business in Europe is, you've seen it, everybody is reporting on a constant currency basis, and you've seen that. So I think seeing 600, 700, maybe 800 basis points impact because of FX is probably not going to be that much out of the realm of possibility. I mean when I look into next year, I think the euro is going to remain on parity with the dollar. I think when I looked earlier today, I think it was at $0.97. I think the pound and the yield is still having big issues, but I think the pound will probably settle around $1.12. But that's down significantly from how most of us planned the year at, $1.30, $1.40 and the drag on that. So -- and that drag impacts enterprise clients as well on the spend. So I think it's again the macro versus any sort of systemic things that are going on in the broader market.

Great. Thanks, Steve. One of the interesting things I found in the slides was you talked about the -- how different sectors or end markets are doing. Financial services has been really strong, I guess, understandable. But retail, I mean, a little bit surprising to see that down quite significantly at 29%. So I was wondering, is that -- is there anything specific there? Maybe just a few contracts being delayed? Or is it something more of a product demand issue there?

Yes. Stan, do you want to take that one? I know that's always my favorite slide, but...

I took at this time, yes. So I think obviously, the retail sector has been hit very hard of late. I think you've probably seen a lot of a significant amount of excess inventory that retail change needs release. And that's why, at least in the United States, we have the pre, pre, and now even the pre Black Friday sales happening here in the U.S. in order to move a lot of that inventory. So I think ultimately, that sector has been under a lot of pressure lately, and I think probably will continue to be so. And I think that's why you're seeing some of those numbers reflected there.

Great. That's very useful. Maybe one more from my side before I turn it over to some of my colleagues. I think this might be one more for Kathy and Namratha. You did talk about the sort of impact of base inflation and on margins and in general hiring landscape. So how is that looking now for some of these traders compared to maybe see at the beginning of the year? Is there more or less pressure to find the right people and keep the people they have and keep the people they already have?

Kathy, do you want to go first and then maybe I can take the hiring portion.