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

Good morning, good afternoon or good evening to everyone on this second quarter 2023 ISG Global Index Call. I'm Apurva Prasad of HDFC Securities. And I thank -- I'd like to thank the team at ISG for their valued work on the industry and for asking us at HDFC to introduce this call today. ISG has been hosting these index calls in the managed services and as-a-service markets for nearly 20 years. ISG works with both enterprise buyers and service providers. So they offer unique insights to key industry trends. With that, I'll now turn the call over to Stanton Jones, a distinguished analyst at ISG.

Apurva, and hi, everyone. With me today is Steve Hall, Partner and President of ISG EMEA; Kathy Rudy, Chief Data and Analytics Officer; and Namratha Dharshan, Chief Business Leader for ISG India. We have over 1,000 service providers, investors and, of course, our enterprise clients registered for the call today. So let's jump right into our big 3 thoughts from the quarter. Steve, over to you.

Great. Thanks, Stanton. So big 3 thoughts. Number one, huge. Managed services ACV surpasses $10 billion for the first time ever, really driven by record results in both IT outsourcing and the EMEA markets. We continue to see really strong demand for cost optimization, both in the awards ISG's advising and in the broader market data we're analyzing. The strength in the managed service market is running contrary to the some of the current forecasts from the global service providers. We continue to see weakness in project-based work that managed services long-term contracts with an ACV greater than $5 million, really remain robust. And we'll talk about this more later in the call. Number two, we've seen a significant rise in global capability centers over the last several quarters. Namratha is going to talk about this, but historically, captive operations have really been focused on labor arbitrage to deliver internal support services. That's really changing. Enterprises are increasingly using captives to build internal capabilities, especially in areas like product engineering. And number three, you guessed it, my favorite topic, generative AI. We're really starting to see the impact of generative AI on solutions and service provider investments. Kathy is going to have a whole section on this later, but we expect to see significant productivity improvements and investments in AI solutions as the market evolves. So let's take a look at the global broader market. The combined market is facing challenges and experiencing a steady decline in value. From its peak at over $26 billion in the first quarter of 2022, it's fallen below $23 billion. In fact, this quarter marked the third consecutive quarter of year-over-year decline with a 9% drop compared to the previous year. The decline is primarily due to the decelerated demand for cloud services compared to the pandemic period. We should see the pandemic effect eased to provide easier compares, though, in the coming quarters. So looking at the first half of 2023, the combined markets experienced a significant decline of 9.5% compared to the same period last year. This was the lowest first half performance since we added the as-a-service market in 2015. Most of the decline, though, was associated with the weakness of hyperscalers in both the U.S. and China. Positive note, managed services shown remarkable resiliency really against a lot of market fluctuations. Second quarter '23 reached an all-time high, surpassing $10 billion quarterly ACV for the first time ever. Year-over-year, managed services ACV increased by 6%, and it's maintained positive year-over-year growth in 10 out of the 11 quarters. Cost optimization, though, continues to be the major driver in the market. The global ACV for renewals and extensions was flat quarter-over-quarter but up 24% year-to-date and represented over 40% of the managed services ACV. Again, Stanton is going to provide some details on this later in the call. So during the first half of 2023, the managed services segment saw ACV of $19.9 billion and that was up 3.6% versus the first half of 2022. We also saw over 1,400 deals in the broader market, and that is up 2% over the first half. Both numbers, the ACV and the first half, were record-setting performances. On that deal activity, 10 of them were mega deals, representing over $1.7 billion of ACV. Again, there really is a disparity between the guidance provided by the global GSIs on their earnings reports and the actual spend in managed services. While the GSIs have reported a slowdown in discretionary spend categories, like product engineering, app development, we're actually seeing an increase in managed services deals with strong demand. This suggests that the impact on the overall [ tech spend ] slowdown is more pronounced for those GSIs with a portfolio heavily focused on project or discretionary base work. So if we jump over to the as-a-service market, it's really had some notable challenges. Its ACV has steadily declined since peaking above $16 billion in the first quarter of 2022, and it's reached its lowest level really since the second quarter of 2021. This quarter marked the third consecutive quarterly decline with an 18% year-over-year drop. In fact, this was the worst year-over-year decline we've seen since the tracking of this market began in 2015. So to summarize, combined market declined quarter-over-quarter while managed services showed really positive year-over-year growth and record-breaking performances in terms of ACV and contract awards. So let's move on to the second part of the quarter. Namratha, what is happening with the global capability centers?

Thank you, Steve. In the last 12 months, ISG has seen a significant increase in the discussions around the development of captive operations. Historically, as you mentioned, captive operations have focused on using labor arbitrage, especially on non-revenue-generating internal services in the areas like IT, HR and finance. However, over time, with all the changes in the technology requirements, the skill developments, captives have evolved to be more strategic centers like global engineering centers or innovation centers or even center of -- centers of excellence. India, one of the most popular captive destinations has nearly 1,600 global captive centers and has grown 60% since the financial year of 2015. Now let's look at it from an enterprise angle. Cost clearly plays a vital role in driving captive growth. And our data on cost optimization has shown that more than 70% of the organizations state that reducing cost is important for their organization's strategic direction. But there are also other developing factors in addition to costs that are driving this increased demand for captives. Firstly, the digital transformation priorities continue to remain high. The demand for talent and specific skills in the areas of product engineering and customer experience remain. For example, in the recently announced Danske Bank and Infosys deal that was advised by ISG, Danske Bank is looking to accelerate its digital agenda by modernizing technology infrastructure and enabling better customer experiences. Secondly, companies are exploring newer markets for multiple reasons: talent acquisition, achieving cost optimization goals at scale and also to lead its concentration in 1 location. Thirdly, as these centers emerge as strategic centers, they're fostering more global roles, and that's helping companies address their diversity and inclusion strategy. Now on the provider side, growth in captives opens up multiple opportunities. One to, of course, collaborate with enterprises to help and build captives along with their location strategy and talent recruitment. Secondly, to implement digital solutions and to help then centers of excellence. And in some cases, where enterprises are struggling to scale operational efficiencies or underperforming functions, service providers also have an opportunity to take over such captives to help the enterprises. Like we mentioned earlier, we believe much of this recent demand for captive centers is driven by more focus on building products and improving CX. Now we are increasingly seeing that the enterprises want to retain these skills, and we expect this demand to continue. But it's also important to recognize the fact that demand for talent is even more crucial now but -- because both enterprises and service providers will likely to tap into the same talent pool. For instance, let's take the generative AI, the new talk of the town, and talent hunt in this space will significantly increase. On that note, Kathy, let me hand it over to you for this happening topic.

Thanks, Namratha. We've received questions from client service providers, investors about generative AI, which is different from AI and that you can not only learn judge and predict and repeat actions, but digest, suggest, create and recreate, which is in an instant has opened a whole new world of transformational possibilities. Enterprise clients want to know how to get started and what are common use cases for generative AI in their industry. Providers are asking, what are clients asking for? Do our offerings resonate in the market? And investors are asking, how would this change the sector? And how will it create new markets? And how will it affect pricing and business models? We're seeing some great use cases in the market, and we're on the way. A few examples are in e-commerce, such as Shopify using generative AI to generate product descriptions and content; pharma with Navidea who released a drug discovery cloud service to advance and speed up drug discovery, protein engineering and research; and Bloomberg, launching a $50 billion parameter model to support financial tasks using natural language processing. Lastly, we expect to see entertainment and media generation using AI to create content. Service providers have also announced generative AI offerings. Cognizant launched Neuro to help companies responsibly deploy Generative AI. TCS created a partnership with Google, leveraging its PaLM large language model, and HCL announced partnerships with Microsoft focused on Azure open AI services. We shift to see what impacts we're seeing in the market as we advise our clients. Honestly, nothing concrete yet. But we are hearing promises of significant productivity improvements, upwards of 50%, which is exciting. But keep in mind, these are just promises, and we're not seeing any impact in proposals, business cases or pricing yet. Examples of where we expect to see significant productivity improvements are in application development and maintenance, leveraging tools such as GitHub Copilot, Amazon CodeWhisperer to develop functionality faster. And in IT operations, for faster resolution on issues and problems and in contact centers integrating contextual and conversational conversations and smart agent assistance. However, there are still issues of data usage, data security and privacy, near and dear to my heart, that haven't been addressed at scale that will impact widespread rollout. Generative AI technology poised -- is poised to make a large impact on the market, and my team and I are closely tracking this space, and we'll continue to provide insights on future index calls. Let's jump back to our demand analysis. Stanton, back over to you.

Thanks, Kathy. So as we typically do at the midpoint of the year, we're going to focus most of this next analysis on the half year results. So let's start with IT outsourcing or ITO. It had its best first half ever with $14.6 billion of ACV. And as you can see here, that's up 13% versus the first half of 2022. And we also set a record for the number of awards in the first half. There were over 1,000 ITO awards over 5 million of ACV. And as we've discussed at length over the past year or so, applications outsourcing continues to be very strong. There was almost $10 billion of apps ACV awarded in the first half, and that's up 22%. And just for some perspective here, AVM was almost 70% of the total ITO award value in the first half. Five years ago, that number was under 50%. On the other hand, infrastructure outsourcing continues to be under pressure. It's down 8% year-to-date and down 10% on its 5-year average, as enterprises continue to move more and more applications to the cloud. Okay. Let's pivot now to BPO. As you can see here, there were over $5 billion of ACV generated in the first half, and that was actually the third most BPO ACV ever generated. But unfortunately, we're comparing that to the best first half ever for BPO in the first half of 2022, and that's why it's down 16% year-to-date. And this difficult compare, of course, spilled into some of the BPO subsegments. As you can see here, industry-specific BPO generated $1.5 billion of ACV, but that was down over 30% year-to-date, again, against a record-setting 2022. And the same can be said for engineering. There was over $1 billion of ACV awarded in the first half, but that was down 7% year-to-date, and most of that decline came from the Americas. So one of the areas that we flagged on our weekly newsletter a couple of months ago was around the growth of extension and renewal ACV. There was over $4 billion of extension and renewal ACV in the first quarter and that trend continued in the second quarter with another $4 billion of ACV. So what that means is that extension and renewal ACV represented over 40% of all the ACV in the first half of 2023, the other 60% coming from new scope awards. And as Steve mentioned earlier, we think it's cost optimization that's really driving this buying behavior, basically an increased focus on extending and renewing agreements rather than buying new. And that, in turn, means it's a critical time for incumbents as enterprises are focused on using existing relationships to optimize their costs. That said, we do expect new scope to start to make a rebound in the second half of the year, given what we're seeing in our own pipeline. Okay. So let's take a look at demand on a regional level. Kathy, back over to you for an update on the Americas.

Great. Thanks, Stanton. Now looking at the first half of 2023, the managed services segment in the Americas was down 3.5% versus the first half of 2022. Almost all of that decline was due to softness in the banking industry, which was down 20% year-to-date. That said, the number of mega deals at the half-year mark are elevated. Nine mega deals were awarded in the first half of 2023, and that was up 29% versus a year ago. In fact, we haven't seen this mega deal activity in the first half since 2010. Overall, the sense in the Americas is there's one foot on the gas and one foot on the brake. But we're seeing an improvement in market engagement over the last 30 days with market activity focused on, as Steve mentioned, cost optimization and sourcing for savings to protect earnings. Steve, over to you for an update on EMEA.

Thanks, Kathy. The managed services market in EMEA performed exceptionally well this quarter, with an ACV over $4.5 billion, up 15% year-over-year. This was the largest quarterly ACV ever recorded in EMEA. There were 5 mega awards this quarter and over 280 contracts, which was an 8% increase compared to the previous year. With cost optimization top of mind, Kathy, as you said though, we saw an increase in the number of renewals and extension in the quarter. And as Stanton also mentioned earlier, extensions or renewal activity was strong in the first half. In Europe, for example, the restructuring ACV represented 44% of the total ACV and was up 34% year-to-date and up 65% from its 5-year average. We do expect the balance of new scope and restructuring to return to normal over the next several quarters. This has really given the insights that we have on our pipeline and what we see in the market from service providers as well. So in terms of regional performance, the U.K. and DACH markets stood out with notable year-to-date growth rates of 50% and 16%, respectively. The U.K. has been consistent now with 2 consecutive quarters exceeding $1 billion in ACV. Benelux and the Nordics are also up year-to-date with strong deal flow in both markets. Though down slightly quarter-over-quarter, France delivered another $1 billion of ACV in the first half of 2023. So Namratha, how about Asia Pac?

Thank you, Steve. Several trends. Managed services demand in APAC continues to be strong, as enterprises use the IT services sector to access talent and to help them optimize cost through technology modernization. And you can see that demand reflected in the results from Asia Pacific this quarter. The region generated over $1 billion in ACV, which is up 30% year-on-year. It was the sixth quarter in the last couple of years where ACV exceeded the $800 million mark, and there were 2 mega deals awarded in quarter 2. Both new scope and renewable ACV finished strong. And on a half year basis, managed services was up 47% versus first half of 2022. Most of that growth came from ANZ, India and China. Steve, I'll hand it over to you for the industry update.

As long time listeners know, this is my favorite chart. We did update it this quarter to really reflect the first half results and there was some pullback in most verticals. But in context, this was really given the record results that we saw in the first half of 2022. First half of 2023 was the second best period on record in the managed services sector, with most of the decline that you see really coming from the Infrastructure as a Service space and the continued weakness in the IPO space. But let's take a look at 2 of the larger sectors. In the first half of the year, the BFSI vertical, which includes banking, financial services and insurance, dropped to 23% of the combined market. The sector declined 10.5% year-to-date. And as Kathy mentioned, the Americas Bank Managed Services business in banking was down 20%, while EMEA region grew by 4%. BFSI still prevents -- presents great opportunity though. It remains the largest consumer of technology across all markets and represents 30% of the managed services markets. Financial service organizations continue to struggle with legacy systems and technical debt, providing ongoing optimization and growth opportunities for SIs. The U.S. regional banking crisis also introduced uncertainty in Q2, which further delayed decision-making. The stress test, though, that were passed by the major banks reduced some of these concerns. The challenges with interest rates and potential loan defaults will continue to weigh on the market for the next several quarters. Looking at the telecom and media sector, which also roughly accounts for about 9.5% of the combined market ACV of $4.4 billion was down 20% versus first half. The managed service market was flat year-to-date, while the as-a-service declined over 11% in the first half. The telco sector continues to go through a multiyear technology-driven investment cycle, really centered around the secular trends in 5G, network automation and digital modernization to the cloud. In the near term, enterprises are under pressure as we've seen corporate restructurings, head count reductions and slowing down our projects. So with telco, continue to think about cost optimization. Now let's focus on looking at the cloud demand. Stanton, over to you.

Thanks, Steve. So as we've discussed on the past few calls, Infrastructure as a Service bookings continue to be under pressure. And you can see this reflected in the year-over-year ACV growth of the Big 3 hyperscalers. As you can see here, AWS, Microsoft and Google saw a first half ACV decline of 20%. Prior to this year, the Big 3 hyperscalers averaged over 50% first half growth. So to be clear, there's still a massive amount of cloud adoption and migration happening at the enterprise level. It's just that, that adoption and migration has slowed, and it slowed for a couple of reasons. Number one, much of that migration work is now focused on big, complex industry-specific applications, and those just take time to modernize. And second, we're obviously in a difficult macroeconomic climate, which means enterprises are focused on getting the most that they can from their existing public cloud relationships. The good news for the sector is that many of these large public cloud framework agreements that enterprises signed post pandemic are starting to come up for renewal. So as an example, ISG just finished advising the largest public cloud deal ever in EMEA, and we believe that there are more of these large agreements on the horizon. So like Infrastructure as a Service, Software as a Service bookings continue to be under pressure as well. Sales cycles have lengthened. There's pressure on deal sizes and a lot more scrutiny at both the CIO and CFO levels around SaaS agreements. And you can see that reflected in the SaaS results here. Our ISG SaaS basket produced $7.8 billion of ACV in the first half, and that was down 6% year-to-date. That's the lowest growth rate for the SaaS segment since we started tracking this all the way back in 2015. By app category, you can see here, collaboration is up 18% against a softer comparison from the first half of last year, while HCM is up 4% year-to-date against a much more difficult comparison. On the other hand, CRM and ERP are both down year-to-date versus the same time period last year. So in our view, the slowdown in SaaS is really about the fact that enterprises are concerned about the unpredictability in the market and are therefore just being extremely cautious with discretionary spending, as Steve mentioned. So the demand is still very much there for SaaS. But if it's not going to help the company grow revenue or improve customer experience, there's going to be a lot more scrutiny around these purchases. Okay. Now let's turn over to our leaderboard. Namratha, over to you.

Thank you, Stanton. All right. Moving on to the leader boards. As a reminder, providers are listed in alphabetical order, and positioning is based on annual contract value signed over the past 12 months. The company is new to the list are denoted with an asterisk and also a reminder that the regional leaderboards can be accessed on the ISG website. As usual, we saw very little turnover in the big 15 leaderboard. Some notable awards this quarter were large applications development and maintenance deal between Infosys and BP. A 5-year workplace and application services relationship between Cognizant and Nike. And a 5-year SAP relationship between IBM and Diageo. In the building 15, almost 1/3 of the list is new. CGI rejoined the leaderboard with a notable win at TD Bank. We're also seeing some BPO providers like [ Elite ] and Concentrix join the leaderboard. And finally, network provider, BT made its debut on the Building 15 as well. Moving to the Breakthrough 15, contact center providers, TTEC and Atento joined the group, along with Reply and TELUS International. Engineering firm, Alton Group joined the list and Persistent Systems makes its debut after recently passing $1 billion in revenue. And the Booming 15 category, German IT services provider, adesso and Swedish network provider, Eltel, also made it to the list for the first time. And with that, let's wrap our call with the forecasts. Steve, over to you.

Well, first, congratulations to everybody that's on the leaderboard and especially those that were new or changed categories. It's a great reflection on the growth of the market. So as we reflect on the first half of 2023, the managed services segment really achieved record bookings, really demonstrating the resilience in what is a very uneven tech market right now. Continue to see record high demand in both deal flow and ACV. The late decision-making, though, is really the major challenge we faced in the managed services segment in first half. Clients focused on cost optimization, approval levels were elevated, deal cycles lengthened and discretionary work was stalled. The focus on cost optimization, though, did lead to an increase in restructuring deals with over $8 billion of restructuring ACV awarded in the first half. If we look at the SaaS market, though, enterprises are also facing cost optimization measures there. The SaaS market began declining earlier than the IS market and is expected to recover sooner and the top-performing firms in the SaaS market have capitalized on acquisitions and cross-selling to a large customer base. In contrast, though, the hyperscalers face market challenges across the board. The Big 3 grappled with macro difficulties. But you know what, as we look at it, and Kathy mentioned, I think generative AI is really going to present a promising future. Every SaaS provider is going to integrate Gen AI to their services. Every hyperscaler is going to embed into their offerings, which will increase overall cloud consumption. And I think we'll see copilots and other activities really fuel that end of the market. If we look at the macro landscape, though, there's still some factors that give right the both of caution and some optimism. Inflationary pressures remain, though we've seen inflation come down in the U.S., remain a bit stubborn in other parts of the world, but we're seeing the central banks take aggressive actions. We have tightening credit, and we continue to have an economic slowdown in both the China and the Euro zone, all of which are raising concerns. As we said, though, the U.S. economy remains strong with upper revisions in the GDP, a robust labor market, and we do see moderating inflation. While some anticipated market pullback, others believe this recessionary talk won't really materialize. And again, this incredible excitement around Gen AI is really transforming the potential labs to the positive sentiment. So managed services, we really see increased demand with a really strong pipeline for the back half of the year. Assuming that the banking sector recovers, which we fully believe it will, we're going to keep our forecast for managed services at 5% growth for the year. Given the challenges in the Infrastructure as a Service market, though, we aren't going to [ root ] downward revise our 2023 revenue forecast downward to 11.5% instead of the 15% that we were originally projecting. Well, this brings us to the end of the formal call. We'll now open it up for questions. Please type your questions in the comments on the bottom of the screen. Apurva, would you like to start with the questions?

N Absolutely. Thanks, Steve, and great presentation team. So my first question on the demand environment, it's actually multiple part here. What I'm trying to understand is, can there be a disconnect between the ACV performance? And you did refer to holding on to that 5% growth in the managed services. But can there be a disconnect between the ACV performance and the growth rate of service providers as long-term contracts are broken into multiple shorter projects due to the uncertainty? And also, there seems to be bigger leakage between bookings and project ramp. So shouldn't the leakage be lower also as the share of renewals and extensions are higher in the overall mix? So essentially, what I'm trying to get to is, what is the kind of spend that is getting prioritized by enterprises? So I know there are 2, 3 parts to this, but your thoughts here, please?

Yes, Apurva, I think it's the core of the whole call, quite frankly. I think as we were looking through everything, there was clearly -- appear to be a disconnect between what we saw in the data the rapid growth or the strong growth within managed services and clearly, the earnings report and some of the things that have happened in the quarter. I think it comes down to a couple of things. One, as we mentioned, there was certainly delayed decision-making in the first part of the quarter. So April and May were slower. We saw it really pick up sort of in June, and that sort of had some impact on maybe even some of the deal flow in Q2, but it's certainly positive for Q3. But I think the biggest cause of the disconnect is probably the impact of discretionary spending. So throughout the first 6 months, we've really seen a pullback in discretionary spending for organizations as they really focus for cost optimization. So if you think of a managed services deal, it can even impact that because there's always a discretionary spend component, if you will, of large managed services. Think of the difference between application maintenance and application dev and the types of projects or even in the IT space, IT projects are added on. All of that was suppressed, and there was a big suppression on that. So I think we're seeing that lift. I think we're seeing that shift. Certainly, with some of the demand that we see, I would expect on the back half to see much more alignment between what we see on the ACV, TCV side and what carries through on the -- their earnings.

Got it. And just staying on the macro and the demand side, do you see any change in enterprise response to the macro with easing inflation and probably interest rates peaking, as budgets for transformation can actually be constrained in that kind of an environment, which seems to be easy. So can there be a pent-up element that could get released perhaps end 2023 as some of this deal activity of the deferred deals don't end up getting canceled and we end up seeing some resource mobilization perhaps towards the end of the year?

Yes. I think one of the biggest challenges on the market, quite frankly, has been not knowing, right? There's been this sense that the central banks are going to respond. They've been fairly aggressive on managing inflation. But at the same time, the labor markets have been quite robust, right, which is a bit of a split of what we typically see. And I think for the first 3 to 4 months and maybe even going back 6 months of last year, we were always trying to talk ourselves into a recession a bit, which was obviously causing a lot of organizations to pull back on what they spend, hunkered down a little bit, make sure they can hit their earnings, their capabilities as they go forward. What I'm seeing is a lot of that talk is subsiding. I think there's more sense of growth, which I think is going to be positive for the tech spend, obviously, as we go forward. As Kathy mentioned, there's a lot of momentum associated with generative AI, which is adding some upward spend to the market. We're seeing that spend come in with the service -- or with the enterprise clients and service providers in the form of investments. So I think there is this overall more sense of optimism in the market as we see the back half of the year. Again, with strong demand, that's really positive, we see some of the things really breakthrough on the discretionary side. And quite frankly, as you listened to the call this morning or this afternoon, it was really focused a lot on some of the weakness in BFS. And as we've always said, BFS is about 30% of the market. We expect that to return on the second half as well. Much better results had BFS just been flat quarter-over-quarter and year-over-year. And so we expect that to bounce back. And given the high -- the record numbers that we saw with BFS being down, gives us a little optimistic uplift, if you will, as we look at the back half.

Yes. Apurva, just a little bit more flavor on that on the -- Steve mentioned the BFSI impact, as you said, that's 30% of the ACV. I think it's important to keep -- kind of keep in mind what happened this quarter, a couple of things. Number one, there were quite a number of executives moving in between the banking sector that slowed decisions down as folks get to their new firm. And then we also saw a pretty significant increase in the second quarter around approval thresholds -- sorry, decrease in approval thresholds. So I think we've talked a lot about BFSI over the last year. A lot of that transformational spending happening more kind of in the financial services operations space or more in the middle office. Still very much there, it just slowed in the second quarter. We think a lot of the -- because of the executive moves and then the pull down in approval thresholds. And as Steve mentioned, we do believe that that's going to improve.

Got it. And just on, Stanton, to your point of this movement in senior leadership, this [indiscernible] that we have seen with service providers, do you think the competitive intensity for the industry can go up? And do you see impact on pricing and rate card because of these changes?

Yes. And just to clarify though, when I was giving you that example, I was actually talking about on the enterprise side movement in the banking execs and that kind of slowed down decision-making. But to your point, there's also a lot of movement happening on the service provider side as well. as we -- we've talked about this a lot. This is just an exceptionally competitive market with some incredibly strong executive talent at the C level, and that is moving. We see a lot of those strategies being put in place now. I would say it's too early to tell what that potential impact is on pricing and how those executive level changes could potentially impact pricing. From our perspective, I would say, we haven't seen any significant impact yet.

Got it. And on the delivery and execution side, so are the challenges on the execution lower for service providers now? So earlier, there was the talent shortage, you had higher wage inflation, higher turnover, higher demand. And now there is still talent shortage, but much lower wage inflation and as well as turnover in demand. So how does all of this stack up from an operational standpoint?

Yes, absolutely. I can take a stab at that, and the team can jump in with anything they want to as well. So definitely, the supply side challenges that were pretty extraordinary last year, frankly, have, on the whole, really resolved themselves. We've talked a lot about the fact that attrition has come down, as has hiring, of course, but the degree to which we were seeing those challenges with our enterprise clients in terms of their reporting back around the turnover that they're seeing on their accounts, sometimes upwards of 50%. And then, of course, the associated attrition-related challenges for service providers. I personally think that sort of first quarter and second quarter, we've kind of hit an inflection point. We've stabilized and we're sort of back to where we were pre-pandemic. So in my view, on that side, on the supply side, no news is good news.