Good morning to those of you joining from North America, good afternoon to those connecting from Europe, and good evening to those of you tuning in from Asia. On behalf of Nagarro SE, allow me to extend a warm welcome to you. You should have received a soft copy of the earnings release on Nagarro's third quarter 2022 results. If you have not received the press release, a soft copy of the release as well as of this presentation is available on nagarro.com in the investor relations section. With me on today's call are Manas, Co-Founder and Custodian of Entrepreneurship, and Gagan, Custodian of Strategic Finance. Before I pass you over to Manas, I would like to remind those listening that some of the comments which will be made on today's call may contain forward-looking statements.
These statements are subject to risks and uncertainties as described in the company's earnings release. Additionally, please also refer to the earnings release for the notice on reported results that are non-GAAP measures. Now it is my pleasure to hand you over to Manas.
Thanks, Maria, and welcome everyone. We are really glad to have you all with us. As you know, we have released some hours ago the results of our quarter three and the nine-month period from January to September 2022. On this call, we shall focus more on quarter three since we think you'll be interested a little more in those numbers. Now, Nagarro's growth story stretches back more than 25 years. As a newly listed company, we have had to introduce ourselves afresh to new stakeholders who naturally have had their fair share of doubts. Quarter three is our seventh full quarter after our spin off in December 2020.
I think with each successful quarter, we are proving that Nagarro's market positioning as a digital engineering leader, our distinctive organizational design, and our distinctive culture do come together quite nicely to deliver excellent operational results and also excellent financial results. Now getting to the numbers. Our quarter three year-on-year revenue growth was 63%. In constant currency, the year-on-year revenue growth was 50.9%. The gross margin came in at 30.4%, and the Adjusted EBITDA was 21.1% of revenue. Demand has continued to be fairly strong despite all the headwinds we are hearing about on the macroeconomic side and the geopolitical side. On the supply side, in many service regions, the wage inflation and attrition has started to come down. In fact, in India, our largest service region, they are almost back to traditional pre-COVID levels.
Still, the job market for top engineering talent continues to be fairly competitive, which is in fact a good sign of the health of the broader industry. In this last quarter, we added legal entities in Portugal and in Spain, which I was visiting last week. Globally, we have added 1,268 net new Nagarrians in quarter three, which number, as always, includes both lateral hires and hires fresh out of college. In the last months, some reports have raised concerns about Nagarro that, in our opinion, are not founded on solid grounds. I just would like to say that we are very comfortable and confident in both our corporate governance and in our financial situation. However, of course, wherever we find good ideas or helpful suggestions, we will embrace them and adopt them.
For example, there was a request in a previous analyst call for also sharing organic growth numbers. Today's report that was just released takes the first step in this direction, calculating Nagarro's nine-month year-on-year organic growth at 51.9%. More recently, there was also an analyst request for sharing organic growth net of foreign currency effects. This number could not make it to the report in time, but to put the considerable speculation at rest, I can share here that Nagarro's nine-month year-on-year organic growth net of currency effects is approximately 44%. You can expect to find this metric too in subsequent reports. Now moving on to more numbers for the quarter. Our revenue was up at EUR 229.8 million. The sequential quarter-on-quarter revenue growth was 9.44%.
Our fastest growing industry year-on-year was management consulting and business information, which grew 116% in revenues year on year. On the other hand, our slowest growing industry was telecom, media and entertainment, but even that wasn't too bad, growing revenue at 22%. Among the four segments that we have, the rest of the world segment grew most rapidly at 97% in terms of Q3 2022 versus Q3 2021. North America came in next at 86%, while the two Europe segments were relatively weaker, both just a little bit over 30%. This was partly due to currency movements, as you can guess, and also a function of where we were deploying our scarce resources as the U.S. dollar strengthened and remained strong against the euro.
You may remember that in quarter two, we had revamped our customer satisfaction survey format, which is our main non-financial KPI. We had tried to make it, the questions sharper and to elicit more actionable responses. The score you see here for Q3, 92.0%, is under the revised format. This is almost identical to the score in quarter two, which was 92.5%. Please note, though, that the CSAT scores from Q2 and Q3 are not comparable with the scores in previous quarters due to the change in the format of the survey. Our guidance for 2022, as updated about a month ago, was revenues of EUR 830 million, gross margin of about 37%, and an Adjusted EBITDA margin of about 15%.
October is holiday season in our largest service region, India, and many people take leaves which are difficult to predict. Now we have preliminary October numbers in, and based on October performance, we have upgraded our guidance for 2022 again today to a revenue of about EUR 850 million, gross margin of about 28%, and an Adjusted EBITDA margin of 16%. Now moving on. These are our results by industry. There's also, the right-hand side, you can see our client concentration. We monitor our exposure to different industries and our client concentration carefully. Both of these were quite comfortable in the quarter. Our top 10 clients made up only about a quarter of our revenues in quarter three. Moving on to our client regions. You know, our segments are our client regions.
As you can see, as compared to the previous year, the rest of the world and North America have been taking share away from Europe, which is largely due to direct effects or also indirect effects as we steer our resources to where the currencies are stronger, and perhaps also somewhat due to the geopolitical situation and economic conditions of these different regions. Here's a quick slide on segment performance. I will just leave it on there for a few seconds. I think we have covered most of this already and no need to get into the details of this slide. Now, moving on to the balance sheet and cash topics. Gagan will now walk us through this slide. Just note it is built around the nine-month period from January to September, rather than the quarter. Over to you, Gagan.
Thank you, Manas, and hello, everyone. You have just heard about our strong Q3 as well as our revised upward guidance for FY 2022. To support our rapid growth, our focus is to maintain a balanced net leverage position while ensuring adequate liquidity. Let's look at the left-hand chart on the slide. For the nine months ended September 30th, 2022, we had financial liabilities of EUR 216.6 million. This amount consists of our syndicated credit facility, various working capital facilities, bank loans, and liabilities from factoring. Our lease liabilities were EUR 60.8 million, and with a positive cash balance of EUR 89.8 million. Our net leverage stood at EUR 187.6 million as of September 30th.
Given our LTM EBITDA of about EUR 138 million, our new net leverage ratio was 1.4x. This compares to a much higher net leverage of 2.1x at December 31st last year. Also, during September, we successfully refinanced our syndicated credit facility with better terms, including a larger facility size and a longer tenor. We believe our refinancing gives us the additional flexibility for potential future financing needs created by our strong growth and acquisition strategy. The company's liquidity position at the end of nine months, 2022 was comfortable. Now on to our cash flows. In the right-hand chart, for the nine-month period ended September 2022, our total cash flow was - EUR 7.3 million against - EUR 0.8 million for the comparable period in 2021.
The nine months total cash flows were negative, primarily due to expenses related to various acquisitions. Now let's dig a bit deeper. Our operating cash flow for the nine-month period ended 2022 was EUR 45.5 million compared to EUR 21.1 million in the comparable period in 2021. This was primarily on the back of our rapid growth year-to-date. This growth also led to an increase in trade receivables by EUR 75.4 million. Offset, though, by a decrease in contract assets by EUR 3.8 million and from funds received from factoring of EUR 13.5 million. We look at accounts receivables and contract assets together. In general, some of the increase is attributable to certain public sector customers. For one such large customer group, the key reason was a change in their internal invoicing procedures.
Cash flow from investing activities in the nine-month period ended 2022 was EUR 42 million as compared to a cash outflow of EUR 6.7 million in the comparable period in 2021. The outflow was mainly due to the payment of acquisition obligations of EUR 39.1 million, and these primarily consisted of contractual payment obligations related to recent acquisitions, which are Ripe Concepts and Techno, as well as older acquisitions. We also reported a CapEx of approximately EUR 3 million, which is less than 0.5% of our revenues. Cash flow from financing activities for the nine-month period ended 2022 was EUR 10.8 million, as compared to EUR 15.2 million in the comparable period in 2021.
Major items of cash outflow in the current nine-month period were lease payments of EUR 17.1 million and interest payments of EUR 4.9 million, offset by increase in bank loans by EUR 11.2 million. On September 27th, earlier this year, we had announced our intention to initiate an approved program of buyback of up to 115,000 shares, subject to a EUR 10 million limit. We're pleased to say that the share buyback was carried out between September 30th and October 31st. Now, for the purpose of the current financials, at September 30th, 3,300 shares had been bought back, and the corresponding outflow of EUR 293,000 is reflected in the financing section of the nine-month cash flow statement.
The buyback program has since been completed, and a total of 103,867 shares, corresponding to 0.75% of our current nominal share capital, were bought for the approved amount. Overall, with another solid performance in Q3, our nine-month financials for 2022 reflect our strong organic growth and our continued commitment to M&A. With this, I hand over back to Manas. Thank you all.
Thank you, Gagan. Moving on. You know, our guidance for 2022, you have seen this already, so it's not new, now. Just to repeat, EUR 50 million revenue, 28% gross margin, Adjusted EBITDA 16% of revenue. With just a couple of months to go till the end of the year, we expect to come in very close to these numbers. Now, as we get towards the end of this presentation, here's a reminder on the investment highlights for Nagarro that we had shown at the time of the spin-off back in December 2020. I just like to bring this up each time, because if you go down the list line by line, we are trying to show how we are playing to our promise. Our positioning is very strong. Our client base continues to get richer.
Our organization design and culture continues to evolve and be a differentiator and continues to demonstrate its great power. Of course, we have growth in the last line. Growth is key for us. It feels great to be one of the fastest growing companies in our industry. When we say growth, we don't mean quarter by quarter growth necessarily, but rather we are out to build a company that lasts and grows for decades. Finally, you know, with just that in mind, before we get to the Q&A, you know, I would just like to put this picture up there. About 10 days ago, most of the members of the senior management team met up in Dubai for what we call our Conflux event.
We were also joined by the members of the Glass Window Diversity Program. Since we started having these Confluxes, we have sort of grown 10x in the last eight, roughly eight years. The energy in this leadership circle was really intense, and it continues to be the ambition to build over the next decade, one of the world's truly great technology companies.
We came away with the idea to shoot for 10-20-30, aiming one day to be a $10 billion company in revenue with 20% Adjusted EBITDA margin and 30% organic growth. I would like to caution this is not guidance for sure. This is not even a formal medium-term target, but these are the numbers that we do throw around all the time internally, and I thought I'd share them with you also. We will now take questions, and for this, I will hand the call back to the operator.
All right. Let's take the first couple of questions coming from Adrian Pehl. I will read those out one by one. Let's take the first one. Can you explain what you did when you speak about reclassification of contract assets, receivables, and give us the amount for Q3?
Gagan, do you wanna take that or should I take that? Let me take it. I can take it. You know, we have policies for the classification of contract assets and receivables. You know, we have sort of these preliminary numbers that we give out every quarter, and we have sort of just taken a closer look at them and refined them to get them a bit more closer to the IFRS 15 numbers. I don't have the exact quantities out for you right now. Maybe Gagan can add more color to that if you have it.
I think you've mentioned that correctly, that some of the contract assets, the way we look at it, and the way the rules permit can be reclassified into accounts receivable if the only thing outstanding is the invoicing that has to be done. In those cases, we are free to recognize them as accounts receivable. We've recognized that policy earlier. We have followed the policy of being extremely conservative about how we do it. You know, this is within the accounting principles that we are following.
Maria, the next question.
What was the amount for the net FX effect likely positively influencing your Adjusted EBITDA in Q3?
I don't have the number off the top of my head, and we can get back to you, Adrian, with that if you need so. We don't typically do FX effects on EBITDA. We just do them on the revenue.
All right. Your implicit Q4 EBITDA outlook calls for high single-digit percentage margin. This is very conservative versus nine months. Any reason why you apply caution?
Yeah. Our Q4s is typically stressed by having two months where you have a lot of holidays. You have holidays in India in October because of Diwali. Many have holidays in December because of Christmas in other parts of the world and in India. That's the reason why revenues and EBITDA are less elusive or less strong in Q4 typically for us.
Okay. The next questions are coming from Andreas Wolf, Warburg Research. Congratulations on Q3. It appears that major parts of the unbilled revenues was billed Q3 versus Q2. What are typical payment terms for such receivables?
Our payment terms are, you know, we don't call out any particular category of payment terms. I mean, you have the payment terms, which you can calculate from our days of sales outstanding, which we don't report, but you all have seen those numbers. You know, we don't have any particular number. We can't address that number here, I'm afraid.
Okay. The next question from Andreas: Do you get requests from, for example, U.S. or European IT service companies or software companies to support them with regards to developer capacity provision, and how do you handle these requests?
I cannot say for sure that there is no IT services company business that we do, but probably there's very, very little. Once in a while, maybe on a specific topic that we also want to get some experience on, we might potentially work with an IT services company, but it's very, very rare. It's much more likely that we work with management consulting companies to be the technology partner for them.
All right. The final question from Andreas: In terms of capital allocation, what is your view on buying back more shares versus M&A? It appears that listed companies are currently valued at lower multiples versus private companies.
Andreas, we leave our options open. We would perhaps not want to stick our neck out and say something here. We leave both options open. Of course, M&A continues to be important for us, but it's been very good for us to try out and create the first pass of this buyback because it gives us. It's a muscle that you need to exercise, and we need to know that it exists. We retain the ability to play different moves when required, right? But we don't have any definite plans on either track.
All right. We have another question on the receivables from Adrian Pehl. From the statements you made in the report, should we assume your public customers are late payers? Do you see any receivable risks?
No, we don't see any receivable risks. We have public companies that are. I mean, one is, I've mentioned before, there's a particular public sector cluster of customers in the U.S., which has a very complex cycle which goes through multiple offices. It's not a receivable risk at all. It's just the fact that the process takes very long, right? We have been working with this customer for a very, very long time and, we are in extremely good shape with the client and, yeah, there's no risk at all. I mean, we do make provisions for receivables risk. Historically, we have hardly ever had to use any of that. Our receivables quality is usually very, very good.
Okay, thanks, Manas. The fifth question from Adrian. On 2023, you mentioned to see a slowdown. Should we see this just as a normalization of growth while organic growth was elevated around COVID towards levels of more than 30% in the market and just coming back to 15%-20% now in the sense of a normalization?
You know, we have yet to release a guidance for 2023, but in general, we believe that there will be the sort of return to more normal rates of growth, which for us, we have always been in the 20%-30% category, at least when we were a smaller company. We will have our more formal guidance. I would not say 15%-20%. I think that, typically, we have, at least historically, we've been at higher than 20%. Let's see. You know, we are waiting for our clients to finish their budgeting and, as they do that, we will have more of a sense of what the next year will look like.
I can definitely say that even in the last couple of months, we are feeling more optimistic. Things are looking up from where they were. I mean, we were, we had not much visibility a couple of months ago, but it's clearly better now.
Okay, let's move on. Two questions received from Nicolas David. There are three ones. Let me start with the first one. Did you benefit from any exceptional positive item explaining the very high level of EBITDA in Q3? What are the drivers of this profitability improvement versus last year?
No, I mean, no particular item. You know, there is of course some favorable currency movements. Wage inflation has slowed, attrition has slowed. We have some rate increases from the past that are flowing through. But no single item that really stands out. Yeah. It's just showing that the, you know, we've also been of course a bit more careful as time has gone by, and things have been becoming a bit more normal, I think, than the wild days that we saw on the talent side some months ago.
Second question from Nicolas. Your full year 2022 EBITDA guidance implies an EBITDA of only approximately EUR 20 million in Q4 at best, i.e., 10% of sales. Why do you expect such a drop in profitability?
Nicola, as I just mentioned, you know, Q4 is a difficult quarter for us because we have almost the same fixed costs, but we have fewer days to realize revenue on. That's because of the holidays in October and December, and that's why we are sort of using this sort of estimate for our Adjusted EBITDA for Q4.
Okay. The third question: Do you already see or do you expect a material impact from the tougher environment for U.S. internet platforms?
From which platforms? Sorry? From?
From U.S. internet platforms.
No, it doesn't affect us so much. We have no clients there, or at least no significant clients there, at least not the big ones, right? We don't see that affecting us. Maria, you're on mute, I think. Sorry. You were saying something?
Yeah. I will just move ahead if it's all right.
Sure.
Yeah. Great. The next questions are coming from Martin Comtesse from Jefferies . Can you help us understand your perception of growth in 2023? What signals do you get from your clients, and do you expect budget cuts or push-outs or a continuation of growth?
Martin Comtesse, unfortunately, it's a bit early for us to predict 2023. In general, we are seeing that barring some clients, there's still the urge and imperative to build out the kinds of solutions that Nagarro delivers. While I see this as a, you know, sort of return to more normal times, I think there's still a strong growth driver for this sector, at least this, you know, digital engineering part, right? I really can't give a number right at the moment, but we do expect that growth will continue. We also see that, by the way, when you look at other services companies and their forecast for next year, it's showing growth. I can't give any numbers, unfortunately, at this time.
Okay, we have a question from Martin Comtesse. In terms of cash conversion, I see an improvement in Q3. In a more normal growth year, what do you think the operating cash conversion from EBITDA or net income should be?
I would dodge that question, but I think in general, you know, we are a living company, and we have the granularity, you know. Sometimes you have a particular thing that's tied up and it hasn't been paid, like a public sector payment, right? So you will see some of those impacts. I think the best way for us to predict where we will be is to look at where we have been in the past, averaged out over some quarters, because there's always some sort of a noise from quarter to quarter. Of course, as you're growing very fast and, you know, you also have different effects of that. I would hesitate to put a number out there for our target cash conversion.
Okay. We have a follow-up question from Adrian, which is the last question on this call. Europe, including rest of Europe, has seen the steepest increase in the gross profit in Q3. Could you please add some color on what the background was?
The way the gross profit is calculated among our segments is rather complicated, and it sort of reflects more an internal apportionment of costs. I would not read too much into that quarter by quarter. I think that, you know, what we are trying to do is obviously to channel our resources into the most profitable sort of projects and you may see some of the impact of that, right? I think that I would not really read too much into that or to imply any sort of predictability into the future on that.
Okay. Thanks a lot, Manas. You can conclude the call.
Oh, sure. Let me maybe just a few words. You know, I think that we are in a good place as a company and you know, heading to deliver great solutions and with a great team and great culture. The numbers are sort of reflecting that. You know, we may not be you know, the most sophisticated. Some of these I mean, some people have pointed out things that we can do better at investor relations, and we will try to do that. At the same time, I think the takeaway for you, I think, should be, this is a very, very solid company, and we will keep meeting every quarter and we will keep revisiting this topic. Thanks, Maria, for hosting the questions. Thank you all for joining us.
Thank you, everyone.