With that, it is my pleasure to hand you over to Manas Fuloria to begin.
Thank you, Harry. And hello, everybody, and welcome to this Earnings Call for Q2 and H1. Thank you all for joining us. The headline news today is that Nagarro has had a fairly good quarter, given the circumstances, but we are still waiting for a proper recovery in the demand environment. Our Q1 numbers had indicated some hope for such a recovery. Q2 again indicates some hope, but the recovery is not fully here yet. All indications are that it is imminent, but when exactly it will arrive is difficult to predict. In the meantime, we continue to utilize this slow period to develop the company along various dimensions. We are happy to share that we continue to deliver high levels of client satisfaction, and consequently continue to expand our footprint and influence at our clients.
With this expanding scope, we feel well positioned to take advantage of the upcoming data-led and AI-led transformation that we believe will certainly take place across various industries in the years to come. We also continue to develop Nagarro qualitatively, deepening our leadership in various areas. I would just like to highlight one example today, the Life Sciences and Healthcare industry. Last week, the Everest Group put out a report on the life sciences digital services space, what they call the PEAK Matrix Assessment for Mid-Market Enterprises. For this report, they surveyed and analyzed 26 different companies, including Nagarro. It was a very rigorous process, like an audit, and as a result of this thorough analysis, the group has placed Nagarro in the top right of their assessment matrix as a leader in this space.
With respect to the vendor's vision and capability, which was one, a part of their assessment, which in their words translates to the ability to deliver successfully services in this area, they ranked Nagarro as the second among the 26 companies surveyed. This is a matter of great pride for the Life Sciences and Healthcare BU, but it's also not really a surprise. Our model of BU-led entrepreneurship and BU-led initiative continues to deliver such exceptional results. We see our BUs as engines of growth that will continue to push forward and develop Nagarro into one of the world's great companies. On to the key numbers. Revenue for quarter 2, 2024 was EUR 244 million, growing 2.1% QOQ in constant currency and growing 7.6% year-on-year in constant currency.
Just as in Q1, the gross margin number here, the 30% that you see, it needs some explanation, and you have to read it with the footnote. Since quarter one, we are presenting a revised method for calculation of gross margins, where cost of GBU management, cost of consultative sales within the BUs, cost of thought leadership at the COEs and in various practices in the BUs, they all have been reclassified to SG&A. Through 2024, through this year, we will continue to present the gross profit and margin with both the current and the previous method to allow for better year-on-year comparisons. So the gross margin for Q2 2024 was recorded at 25.6% under the previous method of reporting gross profit and at 30.0% under the new method. Adjusted EBITDA for the quarter was EUR 35.5 million.
Our top-performing industry on a year-on-year basis was Public, Nonprofit, and Education , which grew 40%, mainly because of easy comps from Q2 2023. Our most challenged industry was Management Consulting and Business Information , which degrew by 3.5%. In terms of the regions, Rest of the World grew fastest year-on-year at 11%, while Rest of Europe was in last place and degrew by 2.5%. We ended the quarter with a cash balance of EUR 121.4 million. The number of accounts generating over EUR 1 million in revenue over the trailing 12 months, a key metric for us because we tend to retain these accounts, was 184 at the end of June, up from just 168 a year ago.
Meanwhile, our Net Promoter Score in the Q2 customer satisfaction survey was 62, which is a very good number. Our last guidance for 2024, issued in February, on the twentieth of February, was for approximately EUR 1 billion revenue, constant currency, calculated, and 14% adjusted EBITDA margin. We have no guidance update at this time. As before, our diversification continues to shield us in this, rather complex environment. As mentioned in the previous slide, the best-performing industry on a year-on-year basis was Public, Nonprofit, and Education , and it was followed by Energy, Utilities, and Building Automation . The weakest performance was in Management Consulting and Business Information , as I just said, and then in Financial Services and Insurance , and the share of both of these industries in our revenues has dropped a little. We have remained low in terms of client concentration as always.
Our top five clients account for only 14% of our revenues for the quarter, and clients six to ten account for just 10% of our revenues. One observation here, since 2019, we have more than doubled in size, but our largest 10 clients made up only about a quarter of our revenue back then, and they make up only about a quarter of our revenue now. This shows that we have continued to grow our scale at each client quite proportionately as the company itself has scaled. For quarter two, North America accounted for 36% of revenue. The growth in the region was led by Retail and CPG and by Public, Nonprofit, and Education . Moving on to Central Europe, which accounted for 28% of revenues, the stronger industries were Public, Nonprofit, and Education , and Automotive, Manufacturing, and Industrial .
The Rest of the World accounted for 23% of our revenue. In the quarter, growth was led by Automotive, Manufacturing, and Industrial , and Energy, Utilities, and Building Automation . In Rest of Europe , 13%, the industry most under pressure was Telecom, Media, and Entertainment , while Public, Nonprofit, and Education showed the most growth. In terms of people, our headcount increased marginally by 33 this quarter to 18,301, of which 16,772 were professionals in engineering. Now, I'll hand over to Gagan to say a few words on our financial position at the end of the quarter.
Thank you, Manas. Hello, everyone. The chart on the left shows the financial position on June 30, 2024. We reported financial liabilities of EUR 284.6 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 121.4 million, our net leverage was EUR 209.9 million. Given our LTM Adjusted EBITDA of EUR 140.4 million, our net leverage ratio at June 30 was 1.5x. The company's liquidity position at the end of Q2 was comfortable, with a working capital of EUR 236.9 million. Now, a few words on our cash flows.
For the six-month period ended June 30, 2024, our total cash flow was EUR 8.8 million, as against negative EUR 16.2 million for the comparable period last year. Operating cash flow for the six-month period ended June was EUR 27.6 million, as against EUR 15.4 million for the comparable period last year, which is an increase of EUR 12.2 million. The main contributor was an increase in EBITDA by EUR 10.7 million, from EUR 58.1 million in H1 2023, to EUR 68.8 million in H1 2024. Further, we were able to reduce the utilization of funds under the factoring program by EUR 7.3 million during H1 2024.
Days of Sales Outstanding, calculated based on the quarterly revenue and including both contract assets and trade receivables, have increased slightly from 84 days at the end of 2023 to 87 days at June 30, 2024. Cash flows from investing activities for the six-month period ended June was an outflow of EUR 5.1 million, mainly due to payment of EUR 8.7 million to meet contractual payment obligations from older acquisitions, which was offset by an inflow from maturity of a fixed deposit of EUR 4.5 million. For the comparable period last year, i.e., H1 2023, cash outflow from investing activities was EUR 50.4 million. CapEx came in at EUR 2.9 million, which is only about 0.6% of the revenues for this six-month period.
Finally, cash outflow from financing activities for the six-month period ended June was EUR 13.7 million, as against a cash inflow of EUR 18.8 million in the comparable period last year. This cash outflow of EUR 13.7 million was primarily from lease payments of EUR 11.9 million, interest payments of EUR 9 million, and repayment of bank loans of EUR 3.7 million, offset by cash inflow from bank loans of EUR 11 million. With this, I hand over back to Manas. Thank you, all.
Thanks, Gagan. That is, in fact, the end of our presentation. We can now move to Q&A. So I'll request Net Roadshow to open up the floor for questions.
Yes, of course. If you have joined the call via Zoom and you would like to ask a question, please use the Raise Hand button on your Zoom toolbar. For written questions, please use the Q&A button, also found on your Zoom toolbar. And if you are dialing in over the phone today, please dial star followed by one on your telephone keypad to enter the queue for questions. And we will just pause for a moment to assemble our roster of questions. Our first question today is from the line of Andreas Wolf of Warburg Research. Please go ahead, your line will be open.
... Hi, thank you for taking my question. Hi, Manas. Hi, Gagan. Congratulations on the 4% organic constant currency growth rate in Q4, Q2. I have a question on personnel expenses. If you look on the sequential development of the number of employees, so that was +33. The personnel expense, however, grew by, if I'm correct, EUR 10 million. Could you provide more insight on the development inside personnel expenses? And then, following the first look on the results, I was quite positively impressed with the development in Q2. Surprised, however, that the share price reacted negatively, and some investors pointed towards somewhat higher working capital, and that it is basically the same amount as revenue growth, more or less.
Could you also provide some insight on project developments here that might be causing this parallel development? Thank you.
Andreas, thanks, and thanks for the feedback on the results. Quick answers to your two questions. On personnel expenses, we of course continue to have people go through appraisal cycles and increment cycles, and that is potentially a big part of the increase in the personnel expenses. You know, typically, we are able to adjust this with the increase in billing rates over time, and we expect that this will happen in the same way in the future. The second question on the working capital, there is no systematic, you know, change in the nature of our working capital. Every quarter, there is some noise based on, you know, which invoices we were able to collect on, and stuff like that.
I think there is no fundamental change in the nature of our business with respect to working capital. Thank you, Andreas.
Thank you, and our next question, apologies for the delay, is a written question submitted by A. García Estalés of MoraBanc. And the first question is: "In H1, you finished with a 15.5% adjusted EBITDA margin. Based on your guidance of 14%, do you assume a deterioration of EBITDA margin in Q3 and Q4 to arrive at 14% global EBITDA margins? Based on your revenue guidance, is it fair to assume more growth in the upcoming quarters? What are the seasonality on Nagarro revenues?" Thank you.
Thank you very much for the question. Let me answer the questions, and let me answer them one by one. So, in terms of our EBITDA trajectory in the coming quarters, we are taking the line that we will end the year at, you know, at something around 14%. And this has got to do also with increases in, you know, in our wage costs and some lack of visibility into how the revenue side will develop, both in terms of utilizing the excess capacity that we have in the company today and in terms of billing rate increases. So, we are sticking to that 14% number. In terms of revenue guidance, we have, in general, seasonality of weaker Q4s because of fewer working days.
But we are hopeful that there will be a continuing trend of a gradual increase of the base from quarter to quarter, you know, the per day base from quarter to quarter. But it's of course difficult to predict in an environment where a single week of market upheaval can really, you know, just reset everyone's view on how the economy is progressing. But at the moment, that's where we stand. Thank you for your questions.
Thank you, and our next question is another written question from Stefano Grasso of Vantage Pte. Ltd. , who asks: "Congratulations on the consistent results. Can you speak to the cyclicality of Nagarro's business versus the general economy? Sorry, Nagarro's business versus the general economy. We are expecting a slowdown or recession in the next quarters. How would this affect Nagarro? How confident are you that the business will turn around countercyclically? Thank you.
Thanks for the question. It's. I would say that, in general, the performance of the company does depend on the larger economy, but it's fairly robust on the downside. And when the economy bounces back, it is usually very quick to bounce back, as we have seen in all past slowdowns and recessions. And I believe we are in the middle of a slowdown right now, in pretty much every respect. So but I think that's how we see it. We expect us to have resilience on the downside and quick bounce back on the upside with the economy. Thanks for the question, Steven.
Thank you. As a reminder, if you would like to ask a question and you've joined the call via Zoom, please use the Raise Hand button or the Q&A button for written questions, and please dial star one if you're joining us over the phone. Please note that any retail investor questions will be answered on the retail call, which is scheduled to begin at 2:30 P.M. CEST. As a final reminder, for any further questions, please use the Raise Hand button via Zoom or the Q&A button for written questions, and you can dial star one if you're joining us over the phone. We'll just pause a moment for any further questions. We have a follow-up question here from the line of Andreas Wolf again from, my apologies. Do go ahead, your line is now open.
Hi, can you hear me?
Yes, Andreas.
Oh, great.
We can.
I'll take the opportunity to ask two more questions. So, one would be on AI. Manas, could you update us on your initiatives in this field, whether you're developing any new tools that might be beneficial for Nagarro and efficiency going forward? And the second is on pricing out there in the market. So apparently many IT service providers have difficulties with utilization, et cetera. You are feeling some price increases as you alluded to. You're observing them, so maybe you could also comment on pricing in the current environment. Obviously, there will be a need to increase prices, but it doesn't seem to be the right environment for that right now. Thank you.
First, thanks for the questions, Andreas. Maybe I start with the second question first. I think there is some pressure on price increases, so it's not as easy to increase prices today as it was maybe in 2021 or 2022. But for us, we feel it's much more due to the circumstances of the client rather than the competition. So we don't feel, or internally, we don't have the conversation that we are in a very competitive price cutting environment. It's more based on client budgets and what they can afford to do and what they want to do with the money that they are willing to spend. So that's on price.
On AI, you know, we have talked a lot about what we were trying to do, and I think some of that still continues, and all of that still continues. There's not very much new from the last quarter, but we are working on all aspects of it. So we are working on the client side on, you know, getting the data ready for AI, which is a very big topic. You know, we had announced a couple of years ago that we were working with Dublin Airport, for example. So we are working at taking that example and working with other airports. We're working in pretty much every industry, there is an effort to try to bring more data to bear. So that's a big part of that effort.
And then on the AI side, whether it be you're trying to create better experiences for customers, whether it's been it's better forecasting, better pricing of energy, or pricing of tickets, or pretty much every topic that where human intelligence is used or has been used, AI is getting more and more used. So I think that that's on the client side. There's also, of course, a lot that we are doing internally to see where we can use AI for added efficiency and also to bring, you know, more flexibility. We call it the Fluidic Enterprise.
We believe that not just us, but all our clients will start to use data and AI to become better internally, and thus be able to offer better services to their customers and better partnerships to their partners and so on. So there's a lot of that thinking, both at the high level, philosophical level, and then drilling it down into what does that mean for enterprise architecture? What does it mean for data architecture, and so on? So there's a lot of traction, and that's what is actually the exciting part of being where we are today. Even if the revenue numbers are not very exciting, the conversations are still very exciting.
That's why I say we feel very well-positioned to take advantage of this transformation, which we can see is imminent, is really imminent.
Thank you.
Thanks for the question. Thank you.
Thank you. Our next question is a written question submitted by Graham Bencke of Amati Global Investors, who asks: "You mentioned the impact from underutilized software engineers, but we have an increased small head count this quarter. Does this suggest you have reached a comfortable cost level given the outlook and current activity levels? Thank you.
I did not fully understand this question. The small heads count? I... Oh, oh-
Sorry.
Increased. Yeah, sorry. Yeah, yeah, if you just repeat the question one more time. Thank you.
Certainly. Sorry. My apologies. The question is as follows: You mentioned the impact from underutilized software engineers, but we have an increased, in brackets, small, headcount this quarter. Does this suggest you have reached a comfortable cost level, given the outlook and current activity levels? Thank you.
Thanks, Graham, for the question. Actually, the context is quite complex because, you know, while we like to see a lot of our engineering as being able to be deployed across technologies even, but even across countries, there are certain reasons why our clients are rejigging their exposure to certain countries, for example, geopolitical reasons. So we have increased headcount in countries which are deemed to be a little bit more risky from geopolitical reasons. We see that we have an increased interest in more senior engineering colleagues, rather than people who are really at the start of their careers. Because a lot of our programs or projects are not necessarily scaling so fast that you can add, you know, younger resources to them. So there is some of that.
Then there are technologies that are hotter than other technologies. So as a whole, you have the mismatch to some extent of what you have in terms of engineering capability and what you need at this particular point in time. And a bunch of this is related to this slowdown, and a bunch of it is related to the geopolitics of the current environment. So there is definitely room to control the cost basis. That's the short answer. Thank you for the question, Graham.
Thank you. And our next question today is from the line of - sorry, it's a written question submitted by Sudhanshu Maru of Vadis, who asks, "Why do you feel less optimistic about demand that you referred to as recovery is still imminent today compared to the last quarter? What has changed that you have changed your tone? Thank you.
I think it's psychological. I think for all practical purposes, this quarter was – was a more positive quarter than last quarter. But somehow the end of last year, I think there was a psychological belief that across the industry, the following year, that is this year, 2024, would be when everything would turn around dramatically, and that has not happened. So I think I'm more optimistic, or I'm more comfortable, I should say, this quarter than I was last quarter. But the optimism of a sharp turnaround just around the corner is perhaps a little bit subdued. And thanks for the question.
That's great. Thank you. Our next question is a written question submitted by Liana Abraham of RBI, who asks, "I see the company was able to build up EUR 121 million cash on balance. How much cash on balance is needed for the company's operations? Thank you.
Gagan, would you like to answer that?
Our working capital is EUR 236.9. So, that should give you some sense of how we sort of look at this. Does that answer your question? Sorry, it was a written one, is it? Okay.
Yes, that's right.
Okay.
As a final reminder, if you would like to ask a question and you have joined us via Zoom, you can use the Q&A button for written questions, and you can also use the raise hand button to ask your question verbally. If you're dialing in over the phone, please dial star one now for any final questions. Okay, we have a follow-up question here from the line of Andreas Wolf. Please go ahead and unmute locally. Your line will be opened.
Thank you. One follow-up, Manas, on the prospects for H2. Could you also comment on the pipeline? So just taking H1 times two will not exactly get us to the EUR 1 billion. Is there anything else that we should bear in mind when looking at H2? I know it's a number of additional working days that we have in H2. Anything else that we should bear in mind when looking at H2? Thank you.
So I think that our guidance always has a certain margin of error on either side, right? And, and we are always trying to predict the future, and that's part of what is at play. But also, you know, we are looking at how we are exiting the quarter, and on the basis of that, we're just not issuing any guidance at the moment. Thanks, Andreas.
Thank you, and we have no further questions in the queue, so this will bring us to the end of the Q&A, and I would like to hand back to Manas for any closing remarks.
Thank you, Harry. And thanks, everyone, for joining us, and thanks for supporting Nagarro. We continue to believe in the real potential that the company has, even though this is a slow environment. So please, continue supporting us. Thank you very much.
Thank you, everyone. This will conclude Nagarro SE's H1 2024 Earnings Call.