Nagarro SE (NRROF), a global leader in digital product engineering and technology solutions, reported steady growth in its first quarter of 2024 earnings call. The company showcased a constant currency revenue growth of 5.0% year-over-year, reaching EUR 238 million. With a robust cash balance of EUR 126.5 million and an adjusted EBITDA of EUR 39 million, Nagarro emphasized its commitment to profitability and diversification across industries and regions. The company's restructured segment reporting and the introduction of new programs aimed at enhancing organizational efficiency were also key highlights of the call.
Key Takeaways
- Q1 revenue reached EUR 238 million with a 5.0% YoY growth in constant currency.
- Gross margin stood at 30.9%, and adjusted EBITDA was EUR 39 million.
- Nagarro aims for approximately EUR 1 billion in revenue for 2024.
- The company announced a change in segment reporting to a single operating segment, though regional revenues will still be disclosed.
- North America contributed 36% of revenues, Central Europe 29%, Rest of World 23%, and Rest of Europe saw varied performance.
- Headcount decreased by 145, totaling 18,268 employees, with 16,798 in engineering roles.
- Financial liabilities were reported at EUR 273.2 million and lease liabilities at EUR 46.7 million.
- Q1 cash flow was positive, with EUR 15.9 million in total, including EUR 25.9 million from operating activities.
- Nagarro highlighted its ability to navigate economic fluctuations and the growing demand for digital transformation across various industries.
Company Outlook
- Nagarro is focused on achieving its 2024 revenue guidance of approximately EUR 1 billion.
- The company remains committed to diversifying its client base across multiple industries and regions, including the Middle East and France.
- Positive developments are seen in industries that previously underinvested in digital transformation.
- Nagarro expects pricing power to improve in 2024 compared to the previous year.
Bearish Highlights
- The company noted weakness in the Financial Services & Insurance industry in North America.
- Nagarro cautioned against overemphasizing the sequential revenue growth in Q1.
- The complexity of enterprise systems and data-related challenges may slow AI adoption.
Bullish Highlights
- Growth was noted in North America, particularly in the Retail & CPG and Telecom, Media & Entertainment industries.
- Central Europe showed strong performance in the Automotive, Manufacturing & Industrial, and public nonprofit education sectors.
- The company believes AI adoption will gradually increase over the next few years, despite current challenges.
Misses
- The company experienced a slight reduction in headcount, with a decrease of 145 employees.
Q&A Highlights
- Nagarro has open positions for various skills, predominantly for senior roles.
- While AI is seen as an opportunity for productivity improvements, there are challenges related to security, accuracy, privacy, and intellectual property.
- Some large clients have strict rules about AI usage, which may delay its integration into projects.
- Nagarro is building products on Net Roadshow, a platform they've been developing for years, and anticipates modest AI adoption increases.
In conclusion, Nagarro SE's Q1 2024 earnings call revealed a company on a steady growth trajectory, with a clear focus on profitability and strategic diversification. Despite certain industry-specific challenges and a cautious approach to AI integration, the company maintains a positive outlook for the year ahead, backed by strong financials and a commitment to innovation in the digital transformation space.
Full transcript - None (NGRRF) Q1 2024:
Adrian Pehl - Stifel:
Andreas Wolf - Warburg Research:
Nicolas David - ODDO BHF:
Operator: Good afternoon to everyone. Welcome to Nagarro SE Q1 2024 Earnings Call. You should have received a copy of the earnings release for Nagarro's first quarter 2024 results. If you have not received the press release, a copy of the release as well as this presentation is available on nagaro.com, in the Inter Relations section. Representing Nagarro on today's call are, Manas Human, Cofounder and [indiscernible] finance. Before I pass you over to Manas Human, I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are [indiscernible] earnings release. Additionally, please also refer to the earnings release for the most reported results that are non-GAAP measures. Nagarro is happy to partner with Net Roadshow for today's earnings call. Let me briefly explain how you can raise your questions. [Operator Instructions] Please note that we will accept questions from sell-side analysts as well as institutional investors. Nagarro's retail investors will have the chance to ask their questions in a separate call scheduled at 14:30 CST today. [Operator Instructions] With that, it is my pleasure to hand you over to Manas Human to begin.
Manas Human: Hello, everyone, and welcome once more for this earnings call for Nagarro for Q1 2024. It is a pleasure to represent, on this call, my senior Nagarro colleagues, many of whom you can see in this wonderful photograph, and also the 18,000-plus other Nagarrians all around the world. Since our listing in 2020, we, at Nagarro, have proven time and again that the company is a great long-term asset. You have seen how the company could grow super fast in really good times. And now you can also see how it is steady during times that are otherwise quite challenging for our industry and for our peer group. This performance in good times and in tough times is, in our humble opinion, not an accident. We are always designing and redesigning this organization to maximize value creation in the long term. And that's pretty much all I do personally. So with this long-term lens, we are just not reacting to situations, we are designing for the future. In recent months, the focus of our design has led us to create a couple of new programs to automatically or semi automatically drive a basic level of profitability, which is reflected in these Q1 results. We have earlier talked about how, last year, we created an organizational bonus, or org bonus concept, where the org bonus payout is linked to the adjusted EBITDA that is realized. This concept has evolved further in this quarter along with a few dimensions. So one, we had earlier rolled out the org bonus to a few countries. We are now rolling it out gradually to other countries as well. And this will be a globally shared concept across the entire Nagarro world. Two, we are converting it into a quarterly thing, where adjusted EBITDA will be evaluated every quarter for the payment of the bonus. Making it quarterly, we believe, is much more responsive and involves everyone much more. Three, for senior people, we are expanding the bonus payout, the bonus component, to 20% for senior people. Since these people are the ones who are making the decisions that can impact that KPI. With all of this, we have actually built the org bonus into a powerful concept and have created, we think, a valuable tool for the long term that will sort of auto-steer the company towards delivering a basic adjusted EBITDA. This is a very important development from an investor point of view. Another similarly impactful program, with roots last year, is the formal margin support program, which is also relatively new. In general, at Nagarro, finance does not interfere with the working of the global business units. However, now under the model support program, if the business units do not meet a certain minimum margin target for some months, they go into the margin support program. The first stage of this program is self-driven, and there's no real intervention. But if the margin deficit continues, there is an escalation and the business unit goes into the second stage of the program, which is a little bit more interventionist. While we still continue to refine this program, the early results have been very good, and I'm hopeful that this, too, will become a very good tool for us in the long term, again, from an investor perspective. Note that both of these concepts, the org bonus concept and the marginal support program, do not change the basic philosophy at Nagarro, which we pulled very clear, which is that our business units are our primary pillars -- the primary pillars of the company, quite autonomous and the rest of the company is there to serve these business units. But even while keeping this philosophy, these concepts add some guardrails, add some auto-correction for profitability to that basic philosophy. Sorry for spending so much time on profitability. But for us, it is the big story of the day. But anyway, we can move on to the other points now. From a demand perspective, demand continues to remain steady. Our constant currency revenue growth in Q1 2024, was 5.0% year-on-year and 3.8% year-on-year in euro terms. Compared to Q4 2023, the constant currency revenue growth was 8.7% Q-o-Q and 7.6% Q-o-Q in euro terms. We are excited to retain across the board the trust and full engagement of our clients. Accounts generating over EUR 1 million in revenue over the trailing 12 months rose to 181 at the end of March, up from just 160 a year ago. We are very happy about that because this is the platform on which we can predicate future growth for Nagarro. Meanwhile, our Net Promoter Score in Q1 was 66%, which again is an excellent number. Coming to cash conversion, when we were growing very fast in 2021 and 2022, there was commentary about poor cash conversion. As we said back then, cash conversion for Nagarro is mostly a simple arithmetical function of the growth rate. And as expected, operating cash flows moved greatly as growth has slowed. We also have read that our MSCI ESG rating improved from B to BB. We continue to align our various ESG initiatives better with the rating agencies. And to improve tracking and reporting, we are taking ESG reporting [indiscernible] and it is showing results, and we believe it will continue to show results. Now on from here to the key numbers for Q1 2024. Revenue for Q1 was EUR 238 million, growing 8.7% Q-o-Q in constant currency and growing 5.0% Y-o-Y in constant currency, as we just spoke about. The next number, the 30.9%, the gross margin number, needs some explanation and you have to read it with the footnote on this slide. As we have mentioned a few times earlier, our whole context has changed over the years. Our method of selling in recent times has become more consultative in nature. Our sales spend has shifted from sales people outside the business units to more consultative selling from within the business units. In our past reporting, all our cost of business units was cost of sales. So what is happening is that as they're selling expenses move from outside the BUs to within the BUs, our cost of revenue kept increasing and gave an appearance of reducing gross margins and changes in our basic structure of our cost basis. So last year, we engaged a top management consulting firm to evaluate our cost classification relative to other IT services companies. Based on their inputs and in conversations with -- after conversation with the auditors, from this quarter onwards, we are presenting a revised method for calculation of gross margins, wherein cost of GBU management cost of consultative sales within the business units, and the costs of thought leadership in terms of centers of excellence and various practices in the GBUs, have classified to SG&A. There's more detail in the Q1 report. For now, we will continue to present the gross profit and gross margin with both the previous method and the current method to allow better comparisons with past data. So taking this number up again, 30.9%, the gross margin for Q1 2024 was recorded at 26.8% under the previous method of reporting gross profit and at 30.9% under the new method. Adjusted EBITDA was EUR 39 million. Our top-performing industry on a year-on-year basis was Automotive, Manufacturing & Industrial, which grew 15%. Our most challenged industry was Management, Consulting & Business Information, which de-grew by 14%. In terms of the regions, the rest of the world grew fastest year-on-year, while the rest of Europe was lowest at minus 6%. This is one place where our strategy of diversification has helped us. We ended the quarter with a cash balance of EUR 126.5 million. Our guidance for 2024, which was issued on February 20, was for approximately EUR 1 billion revenue in constant currency terms, and a gross margin of 27% under the previous method, which translates to about 31% gross margin under the new method, and 14% adjusted EBITDA margin. And this, we do not see any reason to move our guidance in either direction. We will likely reevaluate the guidance at the end of quarter 2. We talked a lot of diversification across regions. We also remain committed to diversification across industries. Since we believe that the convergence of technology and the expectations of user experience, and the creation of multi-industry ecosystems, are breaking down the traditional industry silos. Still, we do continue to measure our performance by industry, by vertical. As mentioned in the previous slide, the best-performing industry on a year-on-year basis was Automotive, Manufacturing & Industrial, closely followed by Retail & CPG. The weakest performing industries where the Management, Consulting & Business Information, and also Horizontal Tech, which has been under some pressure for some time. We have also remained low in terms of client concentration, another diversification. Our top 5 clients account for only 14% of our revenues for the quarter, and clients 6 to 10 account approximately for 10% of our revenues. We remain very, very diversified. In difficult times, diversification is a shield. And I think this is another reason why from an investment perspective, it makes the NA9 share a valuable long-term asset. As you are aware, we have been reporting our financial information based on 4 client region segments, North America, Central Europe, Rest of Europe and Rest of World. However, over time, with the increasing maturity and coverage geographically of the global business units, the segmentation by client regions has begun to play a diminishing role. At one time, our acquisitions used to be from a regional perspective, now even our M&A is mostly EU-centric. Therefore, as was reported in our last annual report, Nagarro has changed its segment reporting structure from the 4 client region segments to a single operating and reportable segment to align it with how we see the company internally and how we steer the company internally. We will continue, however, to report revenue figures by region to give you more detail on how the company is performing in different regions of the world. For Q1, North America accounted for 36% of the revenues. The growth in North America was led by the Retail & CPG industry, also by the Telecom, Media & Entertainment industry, partly via acquisitions. But that growth was [indiscernible] by weakness in the Financial Services & Insurance industry, Management, Consulting & Business Information. Moving on to Central Europe, which accounted for 29% of revenues, the stronger industries there were Automotive, Manufacturing & Industrial, and public nonprofit education. Rest of World accounted for 23% of our revenue in Q1, and its growth was led by Automotive, Manufacturing & Industrial, and Financial Services & Insurance. In the Rest of Europe, industries under pressure were Horizontal Tech and Telecom, Media & Entertainment, while the growth was on the side of Retail & CPG. In terms of people, our headcount reduced further by 145 net this quarter to 18,268, of which 16,798 are professionals in engineering. Now with that, I will hand over to Gagan to say a few words on our financial position at the end of the quarter. Over to you, Gagan.
Gagan Bakshi: Thank you, Manas Hello, everyone. Let's first review the chart on the left, which shows the financial position on March 31, 2024. We reported financial liabilities of EUR 273.2 million, which consists of our syndicated credit facility, various working capital facilities, bank loans and liabilities from factoring. Our lease liabilities stood at EUR 46.7 million. And with a healthy cash balance of EUR 126.5 million, our net leverage was EUR 193.4 million. Given our LTM adjusted EBITDA of EUR 133.9 million, our net leverage ratio at March 31 was 1.4x. The company's liquidity position at the end of Q1 was comfortable, with a working capital of EUR 27.2 million. Now on to our cash flows, which are shown in the second chart on the right-hand side. For the 3 months period ended March 31, 2024, total cash flow was EUR 15.9 million as against EUR 7 million comparable period last year. Operating cash flow for the 3-month period ended March was EUR 25.9 million as against EUR 17 million for the comparable period last year. We reduced the utilization of funds under our factoring program EUR 4.2 million. These are sales outstanding, which are calculated based on the quarterly revenue, and including both contract assets and trade receivables, improved slightly from 80 days at the end of 2023 to 80 days at the end of March 31. Cash flow from investing activities for this 3-month period was an inflow of EUR 3 million mainly consisted of redemption of a long-term fixed deposit of EUR 4.5 million and interest received of 1.1 million. And these were offset by payment of acquisition obligations of EUR 1.1 million and CapEx of EUR 1.5 million. Comparably, for Q1 2023, there was an outflow of EUR 7.5 million, which was mainly due to payments for acquisitions. As just mentioned, CapEx was EUR 1.5 million, which is only about 0.6% of the revenues for this 3-month period. Cash flow from financing activities for the 3 months period ended March was EUR 14 million as against a cash outflow of EUR 2.5 million in the comparable period last year. These cash outflows for the current quarter were mainly from 3 items: lease payments of EUR 6 million, interest payments of EUR 4.5 million and net repayment of bank loans of EUR 2.6 million. With this, I hand over back to Manas. Thanks.
Manas Human: Thank you, Gagan. That's the end of our presentation. We can now move to Q&A. So Brice, maybe you can, once again, remind everyone of what they need to do to ask questions. Or if you already have a list of questions, you can get going right away.
Operator: [Operator Instructions] We have a question from Adrian Pehl for Stifel.
Adrian Pehl: Can you hear me?
Manas Human: Yes, we can.
Adrian Pehl: Very good. Actually, I'll limit myself indeed to 2. First of all, on the, let's say, complex of headcount development, let me just ask you. I mean, there was not that much in terms of adjustment what you did in the first quarter. At the same time, it looks like that you have lowered freelancer capacities to some degree. So I was wondering if that was kind of a deliberate move towards better utilization of your engineers here? Or maybe you could describe a little bit, because you said obviously that the attrition rate is going normal, how do you see the current development on headcount. And actually, the relatively low number of reduction, should we see that as a function that you are preparing yourself or, let's say, a return of growth to some degree? And a second question is on some industry trends that I picked up here and there. It sounded like that some corporates are indeed trying to look for a good consultant quality, but let's say at a more competitive price. So that might mean a bit of business that you're doing is indeed moving to India or, let's say, with the help of Indian resources. Is that something that you could confirm? Or how do you see trends anemia stream in general within this respect?
Manas Human: Thanks, Adrian, and let me address the 2 questions. So I think some of the reduction that we had in Q1 was a sort of carryover from the initiatives that we began taking last year. As of now, we are into a hiring mode and we have thousand positions open for hiring. So you are right that the gears have shifted somewhat. I'm not saying that there's a complete turnaround, but the gears have definitely shifted. In terms of the reduction of contractors, that is something that we are constantly balancing. So it's not a specific initiative, but it's part of the regular [indiscernible] of the company, which occurs automatically across the company. Industry trends, I think that I cannot speak for our peers, but from our perspective, we believe that there is always a lot of demand or at least interest in good quality talent from all over the world. And we don't see any large shifts in our business from one country to the other. We see different kinds of clients having different kinds of portfolios of their services that they want to drive. You have Mittlestand clients, for example, who definitely want to work in German, for example. But you have also all kinds of clients, actually. So there is no such trend that we can attest to from within our own experience. Thanks, Adrian, for those questions.
Operator: We now have the next question from Andreas Wolf of Warburg Research.
Andreas Wolf: Can you hear me?
Manas Human: Yes, we can.
Andreas Wolf: Okay. If we look at the sequential revenue development, it seems like we are back on the growth path, and that's a metric that you referred to quite frequently in the past. So if you look at the plus 7% in euro terms, is it a figure that we can basically take as an indicator for future revenue development? Or were there special effects when comparing Q1 to Q4, for example, project completions or product starts that would be helpful to be able to better assess the future development? And then it's obvious that many investors find the share price very attractively right now. So so I'm wondering whether you would -- or you are thinking about capital allocation in a way that you would confirm this view. Or maybe you could share your thoughts with regard to allocation, is it geared towards M&A or do you share review?
Manas Human: Thank you, Andreas. So in terms of the sequential revenue development, it is a good number. As I said in the -- or as we sort of indicated towards the end of last year, the Q4 is always an unusual number. It's always got some provisions that have been reversed. It's always got fewer working days. So I would not really go totally by what Q4 to Q1 has shown. And it's still early in the year. But I do think that, as I said earlier, the gears have shifted. It's still not clear that we are at a tipping point right away, but things do look different from what they looked somewhat. So -- but I would downplay the sequential Q-o-Q a bit. I mean I would not at least highlight it too much. When it comes to the share price and capital allocation, I think our general -- I can only reiterate our general philosophy, which is that we are a growth-oriented company and we continue to look for main targets that might be interesting. But we do want to keep all our options open, and we have flexed our muscles on in different ways to make sure we have built that capability. But as of now, I cannot speak more than that. Just a general philosophy is to be focused on growth, but we keep all options open.
Andreas Wolf: And a quick follow-up, Manas, if I may, regarding Q1 sequential growth and the general marketing environment. Do we already see a shift in the mindset of clients? So are there willing to start more projects? Or is it still more the behavior that clients are driving only as fast as the site allows them?
Manas Human: Thanks, Andreas. So I think that we have always been having some clients who are still scaling up and some clients are scaling back a bit, so the net is evening out. So it's not that all the clients were in deep freeze mode. I think what we're waiting for is for the one scaling up to be significantly more in number and more in the amount of scale up than the ones who are scaling back. I think we're starting to see that happen, but maybe it's still too early to call it a big trend. I know it's difficult I'm speaking a little bit without being super precise. But I think if you've learned anything in the last few quarters is it's very difficult to predict how the sentiment of the broader economy is and we all the broader economy. I think the larger point I'm trying to drive today is that we have, I think, proven ourselves a company that can run with the hairs when the going is very good, but it also can performed reasonably well when the times are tough. I think that is the broad outline. The quarter-on-quarter is far more difficult to predict, I think.
Operator: We now have a text question from Pedro Leon Garcia from Galia Capital asking, "Are you noticing a bigger demand on average for Indian engineers in comparison with more expensive geographies as your peers are reporting? What else could explain a better performance from Nagao compared to some peers?"
Manas Human: So -- and that's a great question, Pedro, and thanks for the question. So basically, I think that what is working in our favor is the fact that we are quite diversified and quite, let's say, high-value digital provider. So I think that we have constantly tried to diversify ourselves, as we talked about earlier, in terms of client regions, in terms of verticals, in terms of clients. So we have not been caught on the wrong foot by the turning of our region or turning of a word or turning of a client. So I think that's kind of what I would say is the big headline. Now in terms of what do we see as where the demand is, I think that we see demand is typically quite flexible when the business is really, really good. So in '21 and '22 as well, where we are scaling up very rapidly, we found it easier to scale up in India with the large number of people that we were able to hire in India. And possibly in tough times also, there may be the -- I mean, some clients may be more interested in more India-based services or Sri Lanka based services or Philippines-based services. But just as I answered before, I don't really see that trend in our business. We do have demand for our engineers and engineering colleagues from all over the world. So it's not really a trend that we see, Pedro. I know that you are referring to some of our peers who are reporting that, but I don't see that as a necessarily the trend within our business. Thanks, Pedro, for the question.
Operator: We now have Bryan Bergin with TD Securities asking, "Based on your conversations with senior leaders, our clients, is there something in common they are awaiting before restarting to spend more broadly? Does it differ by region?"
Manas Human: Bryan, good to have you on the call. I think that what we are seeing -- and again, this is very anecdotal. And I don't think we should extrapolate this. It's sort of based more on my personal pattern recognition, which cannot be very, very good. But what we see is that a number of industries which have not been as aggressive in the past with digital transformation are the ones that are still moving. And they see the promise of AI. They see that it needs to be underlaid with a lot of data work. And they realize it's a bit of a gap between where they could be and where they are today. And I think that's generally very positive for us. We see that the rest of the world continues to be an interesting area for us. The Middle East is strong. Asia is strong. But even in other places like France, we're seeing our French clients grow and get new clients in France. So I think that there is not necessarily very clear trend one way or the other, but I think there are green shoots everywhere. In terms of your more precise question about what are people looking forward to restart their spend, I really don't know. I'm sorry to say I really don't know. It's -- some people are spending and others are a little bit slower off the blocks. That's kind of what we see.
Operator: We have a phone line question from Nicolas David of ODDO Bhf.
Nicolas David: Can you hear me well?
Manas Human: Yes, Nicolas.
Nicolas David: Great. I would like to come back quickly on the Q-on-Q sequence in Q4 and now in Q1. And maybe the region which is most volatile, which has been the most rate recently, which is Rest of Europe, which has been pretty weak in Q4 and now back to the volume of revenue, which is equal to Q3 last year, how we should read that? Is it because of some delays in recognition of revenue last year in Q4, ramp-up of contract as a rundown? So any color about that and what we should expect for the coming quarters. And also, still on this aspect, I want to touch about calendar. Because Q1 was supposed to be quite headwinds for you in terms of calendar effect, with Easter being placed in the wrong timing for Q1. And despite that, you realized a good growth and a good margin. So can you comment on that? And also regarding the current month, could you highlight maybe some exceptional items which helped in Q1? Or is it a kind of a good underlying performance?
Manas Human: Thanks, Nicolas. So we do have a little bit of a benefit from currency, which you will see in our -- in the report. But in general, I think that what we are seeing is a gradual pickup and a gradual trimming of costs, both coming to sort of bear on Q1. And we don't see this as a fluke quarter at all but as a base for the rest of the year. Again, we don't know how the rest will develop, but this is a solid base. And Q4, as I mentioned, it's a little bit unusual because of the fewer working days and a couple of other things. But it's not about projects being ramped down and ramped up again, et cetera. But a lot of the [indiscernible] a number of days off towards the end of the year and also to have us take this days off because they can't really work with us closely during those days. And we also have holidays in many different countries. We have Diwali, we have Christmas, we have other religious festivals. So I think that it's just that I'm just trying to caution a little bit between comparing Q4 to Q1 very dramatically. But in general, I think that we think Q1 is -- are decent numbers and nothing exceptional about them. We hope to build on that in the remaining quarters of the year.
Nicolas David: When you mentioned holidays, is it just -- and the lack of rolling to that, is it because you can't see a client because you're not working? Or is it because it's delaying sometimes the milestone and the delivery and just more about the way you recognize revenue on project? Or it's really on time and material mechanical days to bill?
Manas Human: Yes. So think quarters of our revenue is actually the time and expense, right? So that's our biggest impact. And from month to month, if you have 1 extra working day, depending on the geography, it does make a difference, right? So if you have 20 working days or 21, that's 5 extra percent of revenue in the time setting. So I think that it's not going to do with -- I mean, there must be maybe some impact of milestones and things like that. But since that is a relatively small part of our business, in our mental model, the bigger effect is from just time and expense working.
Operator: We now have a follow-up question from Adrian Pehl with Stifel.
Adrian Pehl: Actually, I was just wondering if you could speak a little bit about the developments throughout the quarter. So should we assume that -- we saw a bit more demand and a brighter situation as you were referring to a little bit from -- versus the past month. So do we have a better exit on the quarter that makes you a little bit optimistic? And the second question is on pricing in general. I mean it's maybe too early to say that a bit of pricing power return. But on the other hand, the previous quarters in 2023 were probably associated with some pricing pressure, and you may see the first, let's say, green shoots of returning to you. So any comment on that would be would be helpful.
Manas Human: Thanks, Adrian. Let me start with the second part first. I think it is really difficult to discuss pricing, but I will not be surprised if the pricing power is better this year than last year. I think the tone last year, if you go back to May 2023, was there was just a lot more blood in the ocean, and it was considerably darker. I'm mixing metaphors here. But it was -- but things a bit better now, right? And you see that everywhere. You see that the turnover of people. So attrition is back to normal levels, right, so -- or close to normal levels. So that means the market is moving. And I know that there's also some bad news in the industry. But I think that the kind of work that we do may actually, if you are lucky, come back in a different way or come back earlier than, and people may be more in demand and there may be more work than in the broader IT industry. So I think pricing power, I would not be surprised if it does better in 2024 than in 2023. In terms of exit rate from the quarter, I would not like to comment because that's getting very, very granular. But as I said, we don't think look Q1 fluked. We think that we think that we have a strong base to build on for the rest of the year.
Adrian Pehl: Maybe as a follow-up on general demand patterns and taking into account that you usually have a, let's call it, kind of budget for new client wins. But where do you see acceleration taking place, is it kind of on your logic key accounts? Is it kind of mid-tier accounts? New client wins? Or projects from new addresses that are coming to you in that sense? Or how should we look at this?
Manas Human: I think it's mixed. And we still have a few clients that are being very careful about their spend. We just have a few more other clients who are being a little bit more aggressive about spend. So I think it's not -- it's got to -- it's a mix between client context. As I said, some clients in industries that have underinvested in the past. It could be a regional, like the Middle East. It could be vertical in terms of verticals that are investing forward. It could be where Nagarro has built more strengths in recent years. So it's a mix. It's not easy for me to simplify that and say that it's precisely this. It's a mix. And I think we're comfortable treating it as a mix for now.
Operator: We have a text question from Sujan Zimura from [indiscernible] asking, "Is there -- is the prospective headcount increase reflected from the 1,000 opened positions for a specific type of skills, such as AI? Additionally, any thoughts on AI as opportunity or threat?"
Manas Human: Thanks, Sujan. So the house open positions are across a number of different competencies, including AI, but not mostly AI. There are a lot of senior positions that are being hired for. Given the nature of the work, I think when you start new projects or you work with new clients, you tend to hire more and require more senior people, as compared to when you're just growing the velocity in existing projects, right? So I think that's one thing you can say about the profile of the positions that are open for hiring, that it's typically a higher seniority profile than our average hiring. And some of it is AI, some of it is data, but not necessarily the majority of it. In terms of AI, I think by now, there is a lot of there's a lot of understanding across the industry players about what AI means to us. So I think if I summarize it, I would say that there is sort of an understanding that, like similar ways of productivity improvement that have passed over the IT industry in the last 2 or 3 decades, AI will also contribute maybe 20% to 40% productivity improvements to this industry. But given all the challenges around security, accuracy, privacy, intellectual property, et cetera, this bump in productivity will be spread out over a few years. And now we actually struggle with the opposite problem that most of our clients, at least the large clients, are not quite eager to let us play with AI projects. They, in fact, want to -- many of them put such strict rules that it actually prohibits us from using AI anywhere near their work. So I think that's going to take a couple of years to get work. It's already been 1.5 years since this big GPT sort of revolution, and we are not very far along in that process. Eventually, it will come. But we believe that the complexity of enterprise systems, especially in the enterprise space, the productivity gains will be moderate. And the complexity of the enterprise landscape with a large number of different kinds of applications, a large number of different stakeholders inside each company, and when you talk of ecosystems, multiple stakeholders outside the company as well, regulators and regulation, privacy, et cetera, all of this will take a long time to really work out. So we expect that the AI [indiscernible] increases will be modest and budgets will not go down. That's our belief. Budges will continue to rise because companies will want to do more with technology. On the other side, I think that -- just as this is a relatively muted effect, I think the other side will also be a muted slow growth effect. I think it's easy to add AI solutions at certain parts of the organization. But what a lot of organizations are discovering is that they need more attention to the data side. So we have seen the pickup in data topics in recent quarters and recent years. But the AI side is still the GenAI side, especially. I mean, AI, by itself, we've been doing a bunch of different projects for some several years now. But on the GenAI side, it's still early days. It's still a simple solutions and not very fundamental, except for in certain niche areas. That's kind of how we see it. We see it as a bit of a wash. But we do think that the broader idea of digital transformation will now be assisted by AI rather than being dominated by AI. But what we at Nagarro have tried to do is that we have tried to combine it, the idea of AI, with this idea of the fluidic enterprise. And what this means is that just like we believe that at Nagarro has made a lot of effort trying to make sure we are very fluidic and agile and shape-shifting, if you will, we want to use AI to deliver that to our clients. So we want them to be more responsive. Also more efficient, but also more responsive, more intimate with our clients, more creative, more sustainable. So human-centric way. So I think that the framework for how you do this, using cloud, using data, using AI, using APIs, using just the whole vision for the enterprise, the fluidic enterprise, is what we are trying to drive. And I think that AI then is a tool towards this vision rather than being an end in itself. That's kind of how we see it. Thanks for the question.
Operator: That does conclude our question-and-answer session. And I would like to hand it back to Manas for final remarks.
Manas Human: Okay. Thanks, Rica. I just would like to thank everybody for joining this call. And I have one announcement, which is a little unusual. This call was posted on Net Roadshow, which is a leader in its space. And Nagarro has been building their platforms and products for many, many years. And we have shifted to Net Roadshow, and we were lucky that their leadership has allowed us to say this on air. But it's one of the places where our software that Nagarro writes touches your lives. You probably touch our software at some point or the other, to your daily life, and this is one of those. But anyway, thanks for joining this earnings call, and have a good rest of the day. Bye-bye.
Gagan Bakshi: Thank you, everyone.
Operator: Thank you all for joining. I can confirm that does conclude Nagarro's Q1 2024 Earnings Call, you may now disconnect from the call.
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