Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nagarro SE (NGRRF, Financial) reported a revenue growth of 7.6% year-on-year in constant currency for Q2 2024.
- The company achieved a high Net Promoter Score of 62 in the Q2 customer satisfaction survey, indicating strong client satisfaction.
- Nagarro SE (NGRRF) was recognized as a leader in the life sciences digital services space by the Everest Group's PEAK Matrix Assessment.
- The number of accounts generating over EUR1 million in revenue increased to 184, up from 168 a year ago.
- The company ended the quarter with a healthy cash balance of EUR121.4 million, reflecting a strong liquidity position.
Negative Points
- The demand recovery anticipated by Nagarro SE (NGRRF) has not fully materialized, creating uncertainty about future growth.
- The management consulting and business information industry segment experienced a decline of 3.5% year-on-year.
- Rest of Europe saw a revenue decline of 2.5%, indicating regional challenges.
- Days of sales outstanding increased slightly from 84 days at the end of 2023 to 87 days at June 30, 2024, suggesting slower collections.
- The company faces challenges in increasing billing rates due to client budget constraints, impacting potential revenue growth.
Q & A Highlights
Q: Can you provide more insight on the development inside personnel expenses and the impact of higher working capital on project development?
A: Personnel expenses increased due to appraisal and increment cycles, which we typically adjust with billing rate increases over time. Regarding working capital, there is no systematic change; fluctuations are due to invoice collections and do not indicate a fundamental change in our business nature.
Q: With a 15.5% adjusted EBITDA margin in H1, do you expect a deterioration in Q3 and Q4 to meet the 14% guidance? What about revenue growth and seasonality?
A: We aim to end the year around a 14% EBITDA margin due to wage cost increases and revenue visibility challenges. While Q4 typically has fewer working days, we hope for a gradual increase in the revenue base, though market conditions remain unpredictable.
Q: How does Nagarro's business cyclicality compare to the general economy, especially with a potential slowdown or recession?
A: Our performance is linked to the economy but is robust during downturns and quick to recover during upturns. We are currently in a slowdown, but historically, we have shown resilience and quick recovery.
Q: Can you update us on AI initiatives and the current pricing environment in the market?
A: We continue to work on AI, focusing on data readiness and client-side applications across industries. Pricing increases are challenging due to client budget constraints rather than competitive pressure. We are not in a price-cutting environment but are mindful of client affordability.
Q: With an increased headcount despite underutilized engineers, have you reached a comfortable cost level given the outlook?
A: The headcount increase is due to geopolitical considerations and demand for senior engineers. There is a mismatch between current engineering capabilities and market needs, influenced by the slowdown and geopolitical factors. We see room to control costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
