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

Welcome to the Third Quarter 2024 ISG Global Index Call. I'm Sumeet Jain with CLSA, and I'd like to thank the team at ISG for their valued work on the industry and for asking us to introduce this call today. ISG has been hosting these index calls on the IT and business services industry for more than 20 years. ISG influences $200 billion of technology spending each year, giving them deep insights into the industry as well as key changes in enterprise demand. I will turn the call over to Stanton Jones, Distinguished Analyst at ISG.

Thanks, Sumeet, and hi, everyone. With me today is Steve Hall, President of EMEA and ISG Chief AI Officer; Kathy Rudy, Chief Data and Analytics Officer; and Dave Menninger, Executive Director of ISG Software Research. This is our 88th consecutive index call. So whether you've been joining us for all of these years or are new to the call today, thank you for investing some of your time with us today as we give you ISG's point of view on the health and growth of the IT and business services industry. Steve, I'll turn it over to you for a level set on the market.

Great. Well, thanks, Stanton, and it's great to start the 88th call. So, there was a lot of good news to report this quarter. I think, overall, we had much more positives than negatives in the IT and business services industry and we're continuing to recover from an uncertain macroeconomic environment. The industry saw a large deal activity return in the third quarter, as well as an increase in new outsourcing activity. This uptick was really based on a 5% increase in the deal sizes under $40 million ACV. So we saw nice growth, especially in that mid-market. IaaS bookings continued to gain strength as cloud migration started to pick back up. And as we all know, AI project work continued to accelerate as enterprises focused on use cases that drove efficiency and productivity. Areas of weakness, though, still exists. The banking and financial services sector, which makes up more than a quarter of the market activity, continues to be under pressure, especially in the Americas and EMEA. And Kathy will walk us through this a little later in the call. The SaaS recovery is also taking longer due to a shift towards consumption-based usage of software, which is putting some pressure on the SaaS providers. Most of the GenAI cases also aren't fully in production yet. So, enterprises are in this situation where they're transitioning, integrating AI, and really being able to modernize and update their data strategies. From a macro perspective, recent rate cuts by both the Fed and the ECB has sparked optimism with the IT and business services industries for a more positive 2025. An easing rate environment will be particularly crucial for the BFSI sector. Stan, do you want to go in through a deeper dive on the global demand?

Sure. Thanks, Steve. So, we'll start with the combined market first. And as a reminder, this is the combination of the managed services market and the as-a-service market, which we believe provides the best representation of the overall health of the IT and business services sector. So the global combined market had its best quarter ever at $26.7 billion of annual contract value, or ACV. This is only the second time ever that it surpassed $26 billion. It was also up 7% over last quarter, which is a great sign for the industry because the last several quarters have seen low single-digit quarter-over-quarter growth. As you can see here, on a year-to-date basis, the global combined market is up 8.5%. Moving on to managed services. It also had its best quarter ever. ACV of $10.9 billion was up 5% year-over-year. The managed services market continues to be very resilient. 15 of the last 17 quarters have seen year-over-year growth. Mega awards or awards with $100 million or more of annual contract value were strong in the third quarter after a pretty slow start in the first quarter. Deal durations are also up across the board, an indication that transformation is prevalent in many outsourcing awards today. New scope awards also recorded their best quarter ever, which could be an indicator of easing pressure on discretionary spending. And year-to-date, the managed services market is up 1.3%. The as-a-service segment continues to accelerate, primarily due to growth in Infrastructure as a Service. The $15.8 billion of ACV from Q3 was up 23% year-over-year. And that's the best year-over-year growth since early 2022. And year-to-date, the as-a-service segment is up 14%. Let's do a deeper dive on managed services and we'll start with ITO, which includes infrastructure and applications outsourcing. On a year-to-date basis, ITO ACV of $22.7 billion is flat. Europe and Asia were both strong here, while the Americas, the largest ITO market, saw an 8% decline compared to a year ago. From a functional perspective, applications development and maintenance, or ADM, was solid in the third quarter. ACV was up 5% year-over-year. However, first half weakness here means that ADM is down 6% year-to-date. So, we published a number of points here recently on the impact of generative AI on ADM, including a new edition of our State of GenAI Report. So, we think the impact of GenAI will be quite significant, especially in areas like coding and testing, which will have a big impact, we believe, on the overall market. So, I encourage you to download the report. It's available on the ISG homepage. Another key trend we want to highlight here is the continued surge in deals bundling applications with infrastructure. Enterprises are increasingly sourcing applications and infrastructure together in support of a product-aligned operating model, and providers are also doing more deal shaping than ever. And as a result, year-to-date ACV here is up 20%. Infrastructure outsourcing that does not include applications was up 10% year-to-date. However, the increase here is really more reflective of a softer comparison to 2023. Okay. Let's take now a look at business process outsourcing. So the BPO segment had its second best result ever through 3 quarters. ACV of $8.4 billion was up 4.5%. BPO in EMEA and Asia Pacific are both up. However, the Americas, which accounts for over half of global BPO activity was down 5% year-to-date. By functional area, industry-specific BPO, which includes outsourcing services specific to industries like banking and healthcare was up 15% year-to-date. Though strong, the results are still below the record setting pace of 2022. Engineering services was up 22% year-to-date. The $2 billion of ACV signed here was the best result ever, and most of that growth came from the EMEA region. We continue to see a surge of engineering deals in the market and believe the segment will continue to expand. As we've discussed recently on the Index Insider, AI and automation continue to positively impact productivity in business operations, which is driving down deal sizes, especially in areas like customer experience and F&A. And we continue to see strong activity in the GBS and GCC markets, as well as organizations seek out new operating models to drive efficiencies. Okay. Let's take a look at demand on a regional level. Kathy, over to you.

Thanks, Stan. Let's start with the Americas. The managed services market in the Americas continues to be under pressure. The $5.2 billion generated in the quarter was down 15% year-on-year. This is the second consecutive quarter with fewer than 350 contract awards, a slowdown from the prior 6 quarters where the market surpassed this number. On a year-to-date basis, the Americas is down 7%. As we wrote in the Insider a few weeks ago, the lack of large deals in the BFSI sector is a major contributor to the year-to-date weakness. That said, on the ground with clients in the Americas, we're seeing growing demand for transformational sourcing, with a focus on savings gained from transformation to meet client cost optimization goals. Let's look at EMEA, which is showing more signs of recovery than the Americas. EMEA had its best quarter ever in terms of ACV and number of contracts awarded. The $4.9 billion of ACV awarded in the quarter was up 35% year-on-year. Deal volumes are up significantly as well, especially in the DACH region. The DACH region ACV was heavily influenced by one client that was awarded a series of mega deals over an 8-year period. When we normalize the data for these deals, EMEA was up 2% to date. ISG advised on 3 of the mega deals this quarter. In addition, we saw a mega deal in the Netherlands in the utility segment, won by a consortium led by CGI and Accenture. And Accenture signed a large deal with AWS and SAP at their long-term client, Sainsbury. Regionally, the U.K. posted its seventh consecutive $1 billion-plus quarter, and the DACH segment generated $2 billion in awards, making it the best quarter ever, trailing only the fourth quarter of 2020. Year-to-date in 2024, EMEA's managed services segment achieved $12.8 billion in ACV, or up 8% compared to 2023. 12 mega deals were awarded year-to-date, up 33%, although the ACV from those deals is still lagging by 4%. The BFI (sic) [ BFSI ] sector in EMEA faced significant challenges, mirroring a shortfall in the Americas. Let's close out with Asia Pacific. After 2 consecutive quarters of $1 billion plus in ACV, Asia's ACV normalized to $800 million during the quarter, which is up 17% year-on-year. Smaller deals and contract volume drove the growth. On a year-to-date basis, ACV of $3.2 billion was up 24%. Smaller markets like China and Japan saw triple-digit growth and Southeast Asia is up 67% year-to-date. However, the largest markets, ANZ and India struggled throughout the year. On the ground with clients in the ANZ region, we're seeing enterprises being cautious with a strong focus in ERP, driven largely by increased demand for SAP S/4HANA upgrades. Okay. Now, let's take a look at industry demand. Let's start off with BFSI managed services, which, as you can see, are down 11% to date. As we've discussed, BFSI makes up 25% of the ACV in the sector. So its performance has a significant impact on the IT and business services industry. A lack of large deal activity in the Americas and in EMEA has been the major factor. On a trailing 12-month basis, deals over $50 billion in ACV have fallen under $3 billion for 2 quarters in a row. On the ground with large banks, we're seeing continued focus on realization of transformation programs. In some cases, we're seeing them scale back on new IT service awards and instead focus on extending and renewing existing agreements. We believe there's a good chance that BFSI spending will rebound in 2025 based on the Fed's most recent rate reduction. We've conducted some interesting research on the topic that we'll publish in the Index Insider in a few weeks, keep an eye out for it. Other industries are performing quite well. Take the consumer sector, which you can see here, has ACV up 13% year-to-date. Retail has been the main driver, with ACV up 13% year-to-date. It's important to remember that inflation is having a big impact on consumers, and consumer discretionary budgets continue to be under significant pressure even as inflation comes down. On the ground for our clients, we're seeing, just like the other areas, a strong focus on cost optimization as well, specifically around SAP and mainframe modernization. Additionally, BPO activity has picked up in this sector. And finally, the manufacturing sector has performed well in 2024. ACV is up 11% year-to-date, with much of that growth coming from the Americas, where ACV is up 28% year-to-date. On the ground with clients, we're seeing a continued focus on cost optimization as manufacturing firms manage through continued labor and wage pressure. We're also continuing to see a significant amount of interest in sourcing from mid-market manufacturing firms. And with that, back to Stan with an update on cloud demand.

Thanks, Kathy. So let's start with Infrastructure as a Service. So it appears that the cloud recovery is in full swing. In the third quarter, Infrastructure as a Service generated $11.9 billion of ACV, which was up 30% year-over-year. And that's the best result for this segment of the market since the first quarter of 2022. The big 3 hyperscalers: AWS, Google and Microsoft, make up 75% of the ACV in our Infrastructure as a Service segment and they fared even better this quarter. Their ACV was up nearly 50% year-over-year. So, we think this growth has legs because nearly 40% of enterprises plan on increasing IaaS consumption over the next 12 months. We think most of this is due to increasing cloud migrations as well as demand for AI. And the AI component is really important here because it's going to make the management of cloud infrastructure even more complex, especially in areas like model training. So, this is another good sign for managed services providers. However, a word of caution here, nearly 50% of enterprises plan on consolidating their cloud managed services providers over the next 12 months. So while enterprises plan on using more cloud and more AI in the cloud, they also plan on using fewer providers to manage it. Okay. Let's move on to software-as-a-service. So the SaaS market is not recovering as quickly as Infrastructure as a Service. SaaS ACV was up 5% year-over-year, but was flat quarter-over-quarter. So, we think the shift towards consumption-based pricing in SaaS in a cost-constrained environment is part of the reason for the slower recovery here. That said, the top 10 SaaS firms have performed better than the overall SaaS market. As you can see here, ACV for the top 10 is up 8% year-over-year. And this is a big turnaround from a year ago where the top 10 were down 4% year-over-year. So while new SaaS players are entering the market, large incumbents do hold a significant advantage here. They benefit from having pre-approved contracts inside of procurement and legal departments, giving them an edge as enterprises look to consolidate budgets and reduce the number of software providers they use. We do think that SaaS demand will continue to rebound. And like cloud, AI is the reason. As you'll hear from Dave here in just a minute, we're projecting spending on GenAI to increase significantly in 2025. And, of course, SaaS providers want a big chunk of that new spending. So, they're rapidly adding generative AI features into their platforms. However, as we discussed last quarter, turning on these AI features is not going to be like turning on a light switch. In many cases, enterprises are going to need to modernize their business applications in order to get access to these new AI capabilities, which could mean a new upgrade cycle for the IT and business services industry in 2025. Okay. Dave, over to you for more on AI.

Thanks, Stan. It should come as no surprise that enterprises intend to increase their AI investments. Our buyer behavior research shows that spending on generative AI initiatives is anticipated to increase by 50% in 2025. We estimate that will translate into nearly 7% of IT spending by the end of 2025. What's justifying this increased spend? Enterprises expect to capture a significant share of the anticipated ROI in 2025. So, a lot are banking on the successful deployment of these use cases, which tend to focus primarily on increasing efficiency and profitability in areas like customer experience, testing and workflow. That said, very few GenAI initiatives are in production today, only 15%. Nearly 80% are still in testing or pilot mode, and of that, around 10% are still in the evaluation phase. One of the challenges of getting these use cases into production is that most enterprises are not data ready, meaning having data that is clean, well organized and compliant with regulatory standards. AI is nothing without data, and data is nothing if you can't put it to use. The lack of data readiness can impede the ability to get these use cases up and running and for them to show value. As enterprises recognize this gap in their data readiness, it's leading to growth of data platforms and services to help with implementation and management of them. We see several converging trends creating the market for data platforms. The collection and management of unstructured data, which has been exacerbated by the advent of GenAI, led to growing use of object stores and gave rise to data lakes. But relational technology is still the foundation of much of the data processing market. Consequently, demand for data warehouses also grew. Inevitably, these 2 worlds collided and some coined the intersection of these 2 technologies as data lakehouses. A broader vendor-neutral term, which we prefer is data platforms. In addition, massively parallel processing architectures needed to handle the growing data volumes are driving hardware consumption via cloud services, either IaaS or SaaS. So, all the major data platform vendors created cloud-based offerings. They also recognize that AI is driving large amounts of consumption, so nearly all have added AI capabilities to their platforms. The result is a set of cloud-native data and AI platforms. This ramp-up in data platforms has, of course, led to more and new types of services to implement and manage them. For example, in our forthcoming ISG Provider Lens on analytics and AI services, we've identified 3 primary types of data services; data science and AI services, including identifying business use cases and developing, implementing and deploying enterprise-wide AI projects at scale; data modernization services, including assessment, modernization road maps, data migration services and complying with regulations such as GDPR and advanced BI and reporting modernization services, including integrating and implementing sophisticated BI tools to create interactive dashboards for strategic decision-making. In our view, this collection of services will likely emerge into a new tower for the services industry as each of these areas mature and as demand for AI continues to grow. Think of these areas as emerging data tower like we think about ADM, infrastructure or BPO today. We're seeing this pattern on the ground with several clients today. In fact, 50% of enterprises we surveyed recently are using a service provider to support one or more of these areas, with much of these services focused on data management and analysis. The challenge for providers here is that the most common reason enterprises cite for not using a provider is that they want to build these capabilities in-house. That may be aspirational, however. As I mentioned a few quarters ago, enterprises indicate they don't have the AI talent they need, and they cite these skills as the most difficult to hire and retain. In our most recent study, more than half, 56%, reported they don't have the expertise and skills they need to adopt AI. Let's stay on the AI topic and talk about how we see it impacting provider growth. Steve, over to you?

Great. Thanks, Dave, and very insightful. Well, the service provider revenue from AI projects continues to increase. In Q3, we are reporting $15.2 billion of revenue on a trailing 12-months basis, which is up 42%. AI revenue is based on the service providers that report bookings or revenue on earnings calls. We now see 24 service providers reporting revenue, which provides a pretty strong base for our analysis. We've also seen 2 distinct categories of growth. The first, we'll call it The Super 7. These are service providers with the most AI revenue to date and then The Top 5 Under 5. These are the top service providers under $5 billion of revenue. AI-related projects in these categories now account for 5% of the total revenue for SIs. While this may seem small, the growth is very promising, and we think it will still take 2 years to 3 years to see a substantial revenue from pure-play AI projects. The growth of AI is also covering the revenue gap in traditional services, though. In early 2023, the revenue gap due to GenAI was minimal. But as we progress into 2024, the top 10 firms would have seen negative 1.4% revenue growth without AI. And in the past 2 quarters, that revenue growth has exceeded 600 basis points each quarter, indicating that AI is already making a significant contribution to the quarterly year-over-year growth with these providers, and that's even in the early stages of adoption. So as the AI market matures, the metrics for analysis are improving. It's allowing for clear discussions and early leaders to really understand how AI is driving their revenue contributions and probably more importantly, the industry-specific use cases that will carry us to the future. In 2025, we expect the focus to shift towards scaling smaller AI use cases into larger, more effective programs in many of the areas that Dave discussed earlier. So, Stan, let's take a look at that leaderboard.

Thanks, Steve. As a reminder, providers are listed in alphabetical order and positioning on this leaderboard is based on annual contract value or ACV signed over the past 12 months. The companies new to the leaderboard are denoted with an asterisk and also a reminder that the regional leaderboards for the Americas, EMEA and Asia Pacific are available on the ISG website under Research, ISG Index. Okay. Let's start out with The Big 15 Group. In the U.K., Sainsbury's is partnering with Accenture, AWS and SAP, as Kathy mentioned, to modernize its legacy systems. And Accenture is also expanding its partnership with Unilever, focused on boosting productivity using generative AI. Hitachi Construction Machinery chose Oracle Cloud Infrastructure, or OCI, as the platform for its business systems, and Panasonic Information Systems has also adopted OCI as the cloud database infrastructure for their in-house systems as part of its modernization efforts. In The Building 15 group, Genpact signed a deal with ALDI retail operations in the U.S. and Australia, focused on technology platforms like S/4HANA and ServiceNow. And Computacenter was awarded a 6-year $1.3 billion ITO award, leveraging most of their service lines. In The Breakthrough 15 Group, L&T Technology Services signed a long-term framework agreement with Shell. The agreement provides engineering services, data governance and procurement and project management services for Shell's global assets. And finally, in The Booming 15, Zensar established a new Global Capability Center or GCC in Hyderabad with Old Mutual Technology. Zensar has been working with Old Mutual since 2016, and this hub will be part of its multi-year IT transformation strategy. Okay. Steve, back over to you to close us out with a forecast.

Great. Thank you, Stanton. So to summarize, the managed services sector continues to grow with its best quarter ever and 8 consecutive quarters over $10 billion of ACV. EMEA particularly performed well this quarter, driven by the U.K., Germany and engineering services. If there's concern though, it's still with the BFSI sector. It continues to struggle globally with the ACV down over 10% year-to-date, as Kathy discussed. In the IaaS segment, hyperscalers has seen strong growth, fueled by AI and cloud migration, while the SaaS market is consolidating as enterprises focus on fewer vendors and shift to consumption-based models. At a global level, recent interest rates cuts by the Fed and ECB are expected to boost IT spending, especially in the BFSI, though our models are still dependent on future rate cuts for us to have more confidence of that BFSI spending coming back. The 2024 revenue forecast remains at 14% for the as-a-service market and 2% for managed services, with stronger growth expected in 2025. That leads us to the end. You can enter your questions in the chat. And Sumeet, I'll turn the call back over to you to kick off the Q&A.

Yes. Hi. Thanks, team, for the insightful presentation. So maybe first question around the BFSI. I think that's the most discussed topic in the recent earnings calls of all the Indian IT companies. And if you look at TCS and HCL results in the last one week, both have shown a recovery in that vertical with an improvement in demand commentary by almost all the other Indian IT companies as well. But that clearly doesn't match with the color what ISG has laid out where BFSI ACV activity is still quite muted, and you are not seeing a recovery in this quarter either. So, just want to understand the disconnect between these 2.

Yes. Absolutely. I'll take that one, Stanton. Thank you, Sumeet. Great seeing you as well. I think the challenge in BFSI is still just weakness across the globe with it. So as other service providers take a look at what their impact is and what they're doing, as an overall industry, it's still, as Kathy said, down 11%, still some big challenges that we go there. I think we are seeing signs of recovery. But as we said, I think it's really going to drive and depend on interest rates coming down a bit more. The correlation is just really high there. I think when we break down retail, capital markets, insurance, et cetera, you see little pockets. I think insurance is probably a little healthier right now than retail banking, but I do think we've got a bit of time. Hopefully, rates come down a little bit in November, we will probably start seeing a bit of growth Q1, Q2 again in the BFSI sector. I'll say, though, from a broader market standpoint, it's probably one to 2 quarters before it will actually go through all the reporting because you'll see spend turn back on, but then you'll see strategies initiated thoughts coming through, and it will take a couple of quarters for that to wind through. Kathy, anything you want to add on that?

Sorry. Coming off mute. No, I think you covered it, Steve. It will be interesting to see where the banking sector recovers and when it recovers. And I know Stanton has been really tracking that closely.

Yes. Sumeet, just from a technical perspective, we talked about a little bit this on the pre-call. Just from a technical perspective, really, a lot of the pressure in BFSI has been specifically in banking and then on large deals. So, we published something a couple of weeks ago. If you look at deals with $50 million of ACV or greater on a trailing 12-month basis, that's been under $3 billion for now 2 consecutive quarters in a row. So, that's really where a lot of it -- just from a market technicals perspective, that's where a lot of that pressure is large deal activity within banks and then on the ground, as Kathy talked about, a lot of focus on realizing value inside of existing transformation programs. So, that's where a lot of that pressure is coming from. And then in a couple of weeks, we'll publish something a little bit more detail on what we think 2025 could potentially look like depending on further rate cuts.

Got it. No, that's helpful. And maybe can I just extrapolate that? I mean, is it that some IT companies, maybe of Indian heritage are actually gaining market share in BFSI vertical in the last few quarters, whereas the global IT vendors like Capgemini or Accenture, which have actually not showed any improvement, are actually losing some market share? Could that be the trend out here on the ground?

Steve, do you want to take that?

Yes. I would say everybody's exposure to this sector, Sumeet, is a little bit different as we go through, both their percent of the market that they have and what their overall exposure is to it, right? I think if I look at HCL and TCS, who you mentioned, they both have really strong BFSI businesses. They did well last quarter in those sectors. Some of their clients have extended. They've certainly won some deals, which has been pretty good. Overall, the market is down, so it would be easy to say they're probably winning market share from others, at least in this quarter. But the suppressed demand is really the more concerning piece. And once we see that demand come back, I suspect those high tides are going to rise all the boats, if you will, in that sector as we go forward. You've heard us talk about it on previous calls, but it's typically 30% of the market. So if you have 30% of the market being down 11%, it's really hard for the rest of the market to pick that up. And that's why you're seeing growth, good numbers, don't get us wrong, but not the growth that we could expect with all the other macro environment issues that are going on.

Right. No, that really makes sense. So, maybe moving over to the order booking trend. I mean, if we look at the Accenture's managed services order book for the last 2, 3 quarters, that has shown a significant improvement, which is actually not the case with the large Indian IT vendors like TCS, Infosys, HCL and Wipro. So it's been almost a year since they last reported mega deals of more than $1 billion to $1.5 billion in TCV. So even if I look at your managed services deal ACV in U.S., it is down 15% this quarter and 5% year-to-date. So, clearly, I guess, in U.S., there is a bit more pressure compared to Europe or EMEA. So, just want to understand, is it that the Indian IT vendors not announcing these large mega deals as to something going into the U.S. elections where the large enterprises in U.S. do not want to be seeming like doing IT outsourcing and moving jobs to offshore locations.

That's a brilliant question because this goes on to the political motivations are announcing or not announcing deals. I would say, in general, we're very confident with the data that we have. And we've got a very broad view of the market from multiple data sources and deals, both that we advise or announced, unannounced, et cetera. So, I don't think that's suppressing the market. Though I would suspect there's probably corporations that haven't signed mega deals until the election goes forward as well. So, that's some of the normal delay. I think, again, if you look at the overall market, and I did some analysis on the mega deals, we always look at mega deals in this market really more for bragging rights, quite frankly, than anything. When you look at the impact on mega deals over the overall market, they've really gone down tremendously in their impact. The early days, let's take the period sort of 2004 to 2014, mega deals accounted for up to 25% of the total market award. Today, they're sort of almost under 10%, call it, 9% to 12% is really where they're at. So the impact of mega deals aren't as high. But, man, it's fun to be on the cover saying you signed a new $1 billion deal with whomever, right? And so there's some bragging rights for all of us as we go through that. Same way, there's bragging rights for ISG on the number of mega deals that we advised on. I think we did a little over 30% or 40% of the mega deals that were advised in this quarter. But they don't really move the market in the same way. If I looked at it, 2004 to 2014, there were 9 years where the mega deals were over 30 mega deals a year. And most of them were in the mid-30s, some a couple of years, 40 deals. But there was a lot of first-gen mega deals during that period. If you look 2014 to 2024, there's really only 3 years where you had over 30 mega deals. But the overall market has grown tremendously in that period. So it's interesting. I get the excitement about mega deals, but it's not really the driver of the markets. I think there are so many other things as we see the spend come from industry-specific BPO, from engineering, from AI, there's a lot of other factors that are actually more positive influences on the market than mega deals right now. Stan, I know you've looked at this as well, but any other insight?

Yes. I was just going to say, Sumeet, just again, a reminder for a mega deal, the way ISG defines $100 million of ACV or greater. Just as a comparison, I'm just looking at our data right now, we're actually pretty close to last year. Last year was the best year in a decade for mega awards. On terms of account, we've got 23 year-to-date. There were 26 year-to-date the same period last year. So on an account basis, the difference is ACV. Year-to-date, we're at about $3.2 billion. Last year was $4.7 billion. So as Steve said, like the overall impact is coming down. They still meet that mega deal threshold criteria, but the overall impact on the sector is decreasing, but volume is definitely up compared to historically.

Right, right, right. No, makes sense. Makes sense. So maybe moving over to the IaaS activity. I think that IaaS deal activity improving for the last 4 quarters is clearly reflected in the improvement in hyperscalers revenue growth as well. But we are not seeing any broad pickup in the IT services industry per se. I just want to understand where is the disconnect between the 2? Or is it that IT service companies are also seeing a material growth on the IaaS deployment?

Yes. I can take a first stab at that, and I'll hand it off to Dave to talk more about what's happening in Infrastructure as a Service. So, yes, you're right, Sumeet, as I'm looking at our data, Infrastructure as a Service ACV up 30% year-to-date -- I'm sorry, year-over-year and 50% for the Big 3. A couple of things. So, we think that there's a couple of drivers there. That's an increase in starting to pick up an increase on cloud migrations, which may have a big impact on service providers' top line revenue and also just underlying demand for AI-related services. The signals are quite strong. So as we said in the presentation, about 40% of enterprises plan on increasing their Infrastructure as a Service consumption over the next 12 months. It's a big change from where we were a year or 2 ago when most of the focus was on consolidation. The risk there is that about half of enterprises feel like they're planning on consolidating the number of managed services providers that they use. There's always a -- and we probably talk about this on every call. There's always this sort of push to consolidate and whether that actually comes to fruition or not, we have to wait and see. So the signals are demand is up, I think, primarily focused on cloud migration and AI and a plan to increase consumption. But that's going to take time to hit provider pipelines, especially the AI-related work as we just talked about. Most of that work is pretty small and is still in prototyping phase. Only about maybe 10% to 15% fully in production today. So, we view Infrastructure as a Service as a very strong indicator and it's a great sign for the sector, but it just takes time. It's going to take time for that to hit provider pipelines. Dave, I don't know if there's anything else you want to add in terms of Infrastructure as a Service AI side.

Yes. It's -- if you think about it, there are 2 things that are challenges in the AI-related workloads. Anything related to GPUs, right, getting your hands on GPUs is a challenge. You go to your IaaS provider, that becomes a lot easier. The other thing is volume, right? The volume of data that's being processed requires a large number of nodes and trying to do that on your own, in your own data center, on-premises is a much bigger lift than just using an IaaS provider, right? So, I think both of those things are going to drive demand for IaaS workloads.