Good afternoon to everyone. Welcome to Nagarro SE Q1 2024 earnings call. You should have received a copy of the earnings release for Nagarro SE'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 nagarro.com in the investor relations section. Representing Nagarro on today's call are Manas Human, Co-founder and Custodian of Entrepreneurship in the organization, and Gagan Bakshi, Custodian of Strategic Finance. Before I pass you over to Manas, 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 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. Nagarro is happy to partner with NetRoadshow for today's earnings call.
Let me briefly explain how you can raise your questions. If you would like to ask a question and have joined the call via Zoom, please press the raise hand icon on your screen. Alternatively, you can use the Q&A chat box to submit a question. If you have joined the call on the phone, please press star followed by one on your telephone keypad. When preparing to ask your question, please ensure that your line is unmuted locally. 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 2:30 P.M. CEST today. We would kindly ask you to stick to two questions. However, you may re-enter the queue. If there is time, we will come back to you.
With that, it is my pleasure to hand you over to Manas Human to begin.
Hello everyone, and welcome once more to 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+ other Nagarians 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 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, makes it much more responsive and involves everyone much more. Three, for senior people, we are expanding the bonus payout, the bonus component, all the way up 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 its 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 Margin 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 important tool for us in the long term, again, from an investor perspective.
Note that both of these concepts, the org bonus concept and the Margin Support Program, do not change the basic philosophy at Nagarro, which we hold very dear, which is that our business units are 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-over-year and 3.8% year-over-year in euro terms.
Compared to Q4 2023, the constant currency revenue growth was 8.7% QoQ and 7.6% QoQ 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 167 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. As expected, operating cash flows have improved greatly as growth has slowed.
You may 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 seriously, 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% QoQ in constant currency and growing 5.0% YoY 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 the 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 and more consultative in nature.
Our sales spend has shifted from salespeople outside the business units to more consultative selling from within the business units. In our past reporting, all our cost within the business units was cost of sales. So what was happening is that as our selling expenses moved 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 after conversations with our 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 cost of thought leaderships in terms of centers of excellence and various practices in the GBUs have been reclassified 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, and Industrial, which grew 15%.
Our most challenged industry was Management, Consulting, and Business Information, which degrew by 14%. In terms of the regions, the rest of the world grew fastest year-on-year at 13%, while the rest of Europe was slowest at -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 20th, 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. At this point, we do not see any reason to move our guidance in either direction. We will likely reevaluate the guidance at the end of quarter two. We talked above 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, and Industrial, closely followed by Retail and CPG. The weakest performing industries were the Management, Consulting, and 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 form of diversification. Our top five clients account for only 14% of our revenues for the quarter, and clients six to 10 account approximately for 10% of our revenues. We remain very, very diversified. In difficult times, diversification is a shield.
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 four client region segments: North America, Central Europe, rest of Europe, and Rest of the 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 BU-centric. Therefore, as was reported in our last annual report, Nagarro has changed its segment reporting structure from the four 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 and CPG industry and also by the Telecom, Media, and Entertainment industry, partly via acquisitions. That growth was countered by weakness in the Financial Services and Insurance industry and management consulting and business information. Moving on to Central Europe, which accounted for 29% of revenues, the stronger industries there were Automotive, Manufacturing, and Industrial, and Public, Nonprofit, and Education. The rest of the world accounted for 23% of our revenue in Q1, and its growth was led by Automotive, Manufacturing, and Industrial, and Financial Services and Insurance.
In the rest of Europe, industries under pressure were Horizontal Tech and Telecom, Media, and Entertainment, while the growth was on the side of Retail and 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.
Thank you, Manas. Hello, everyone. Let's first review the chart on the left, which shows the financial position on March 31st, 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. 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 31st was 1.4x. The company's liquidity position at the end of Q1 was comfortable, with a working capital of EUR 217.2 million. Now, onto our cash flows, which are shown in the second chart on the right-hand side. For the three-month period ended March 31st, 2024, our total cash flow was EUR 15.9 million, as against EUR 7 million for the comparable period last year. Operating cash flow for the three-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 by EUR 4.2 million. Days of sales outstanding, which are calculated based on the quarterly revenue and including both contract assets and trade receivables, improved slightly from 84 days at the end of 2023 to 80 days at the end of March 31st.
Cash flow from investing activities for this three-month period was an inflow of EUR 3 million, and it mainly consisted of redemption of a long-term fixed deposit of EUR 4.5 million and interest receipts of EUR 1.1 million. 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 a cash 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 three-month period.
Cash flow from financing activities for the three-month period ended March was EUR 13 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 three 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.
Thank you, Gagan. That's the end of our presentation. We can now move to Q&A. So, Rekha, 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.
Thank you. We will now begin the question and answer session. If you would like to ask a question and you have joined the call via Zoom, please press the raise hand icon on your screen. Alternatively, you can use the Q&A chat box to submit a question. If you have joined us on the phone lines, please press star followed by one on your telephone keypad. When preparing to ask your question, please ensure that your line is unmuted locally. As a reminder, we would kindly like to ask you to stick to two questions. If you had any further, please re-enter the queue. If there's time, we'll come back. We have a question from Adrian Pehl from Stifel on Zoom.
Yes. Hi, everybody. Can you hear me?
Yes, we can.
Very good.
Hi, Adrian.
Hi. Good to see you and hear you. Actually, I limit myself indeed to two. 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 a better utilization of your engineers here, or maybe could describe a little bit because you said, obviously, that the attrition rate is going back to 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 for, let's say, return of growth to some degree?
The 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 bit more competitive price. So that might mean that a bit of business that you are 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 in industry in general within this respect? Thank you.
Thanks, Adrian. Let me address the two questions. I think some of the reduction that we had in Q1 was sort of carryover from the initiatives that we had started taking last year. As of now, we are into a hiring mode, and we have over 1,000 positions open for hiring. 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. It's not a specific initiative, but it's part of the regular trimming of the company, which occurs quite 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 Mittelstand clients, for example, who definitely want to work in Germany, for example. But you also have 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.
Thank you. We have the next question from Andreas Wolf of Warburg Research. Your line is now open.
Hello, Andreas.
Hello, Andreas. Could you please ensure your line is unmuted locally?
Hi. Can you hear me? Hi.
Yes, we can hear you on. Hi.
Okay. I was just asked to unmute myself, but I was already. 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've referred to quite frequently in the past. So if we look at the +7% in EUR 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 project 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 priced very attractively right now.
Some are 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 capital allocation. Is it more geared towards M&A, or do you share the view? Thank you.
Thank you, Andreas. So in terms of the sequential revenue development, it is a good number. As I said, 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 are being 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 some months ago. But I would downplay the sequential QoQ 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 I can only reiterate our general philosophy, which is that we are a growth-oriented company, and we continue to look for M&A targets that might be interesting. But we do want to keep all our options open, and we have flexed our muscles 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.
Okay. Thank you.
Thank you, Andreas. Thank you.
A quick follow-up, Manas, if I may, regarding Q1 sequential growth and the general market environment. Do we already see a shift in the mindset of clients? So are they willing to start more projects? Or is it still more the behavior that clients are driving only as fast as the site allows them? Thank you.
Thanks, Andreas. So I think that we have always been having some clients who are still scaling up and some clients that 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 are waiting for is for the ones that are 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 are starting to see that happen, but maybe it's still too early to call it a big trend.
Okay. That's helpful. Thank you.
I know it's difficult. I'm speaking a little bit without being super precise, but I think if you have learned anything in the last few quarters, it's very difficult to predict how the sentiment of the broader economy is. And we all play in 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 hares when the going is very good, but also can perform 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.
Thank you, Manas.
Thank you, Andreas.
Thank you, Andreas. We now have a text question from Pedro Leon Garcia from Galileo 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 Nagarro compared to some peers?
So that's a great question, Pedro. And hi, 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 a region or turning of a vertical 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 2021 and 2022 as well, when you're 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 necessarily as a trend within our business. Thanks, Pedro, for the question.
Thank you. We now have Bryan Bergin with TD Securities asking, "Based on your conversations with senior leaders at clients, is there something in common they are awaiting before restarting to spend more broadly? Does it differ by region?
Hi, 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 may not 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 that there is 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 unexpected places like France, we're seeing our French clients grow and get new clients in France. So I think that it's not necessarily a 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 waiting for to restart their spend, I really don't know. I'm sorry to say. I really don't know. Some people are spending, and others are a little bit slower off the blocks. That's kind of what we see.
Thank you.
Yeah. Thanks, Bryan.
We have a phone line question from Nicolas David of Oddo BHF.
Yes. Hi, Manas. Hi again. Can you hear me well?
Yes. Hi, Nicolas. How are you?
Great. Thank you for taking my question. I would like to come back quickly on the QoQ sequence in Q4 and now in Q1 and maybe the region which is the most volatile which has been the most volatile recently is Rest of Europe, which has been pretty weak in Q4 and now back to a volume of revenue which is equal to the Q3 last year. How should we read that? Is it because of some delays in recognition of revenue last year in Q4? Is it a ramp-up of contract or a ramp-down? So any color about that and what we should expect for the coming quarters. Also still on this aspect, I want to touch about the calendar because Q1 was supposed to be quite a headwind for you in terms of calendar effect with Easter being placed in the wrong timing for Q1.
Despite that, you realized a good QoQ growth and a good margin. Can you comment on that? Also regarding the current margin, could you highlight maybe some exceptional item which helped in Q1, or is it kind of a good underlying performance? Thank you.
Thanks, Nicolas. So we do have a little bit of a benefit from currency, which you will see 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 of the year 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, etc.
But a lot of our clients take a number of days off towards the end of the year and also want to have us take 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 are decent numbers and nothing exceptional about them. We hope to build on that in the remaining quarters of the year.
All right. When you mentioned holidays.
Thanks, Nicholas.
Holidays. And when you mentioned holidays, is it just in the lack of revenue linked to that? Is it because you can't be the client because you are 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? Mechanically, you have less days to build.
Yeah. So three-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 one 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 of revenue in the time and expense 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.
That's fair. Thank you, Manas, and good luck for the Q2.
Thank you, Nicolas.
We now have a follow-up question from Adrian Pehl with Stifel.
Yes. Thanks for having me again, 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 rate on a 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 a bit of power returning to you. So any comment on that would be helpful.
Thanks, Adrian. Let me start with the second part first. I think it is early 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 are a bit better now, right? And you see that everywhere. You see that in the turnover of people. So attrition is back to normal levels, right, or close to normal levels. So that means the market is moving.
And I know that there is also some bad news in the industry, but I think that the kind of work that we do may actually, if we 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 Q1 is a fluke. We think that we have a strong base to build on for the rest of the year.
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 larger key accounts? Is it kind of mid-key accounts? Is it new client wins or projects from new addresses that are coming to you in that sense, or how should we look at this?
It's mixed. I think it's mixed. And you still have a few clients that are being very careful about their spend. You just have a few other clients who are being a little bit more aggressive about spend. So I think it's got to do with it's a mix between client context, as I said, some clients and industries that have underinvested in the past. It could be 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 strength 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.
All right. Jumping back into the queue. Thank you.
Thank you, Adrian.
Thank you. We have a text question from Sudhanshoo Maroo from Veddis asking, "Is the prospective headcount increase reflected from the 1,000 open positions for a specific type of skill such as AI? Additionally, any thoughts on AI as opportunity or threat?
So thanks, Sudhanshoo. So the 1,000 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 better 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 waves of productivity improvement that have passed over the IT industry in the last two or three decades, AI will also contribute maybe 20%-40% productivity improvements to this industry. But given all the challenges around security, accuracy, privacy, intellectual property, etc., this bump in productivity will be spread out over a few years. As of now, we actually struggle with the opposite problem that most of our clients, at least the larger clients, are not quite eager to let us play with AI in their projects.
They, in fact, want too many of them to 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 worked through. And it's already been a year and a half 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 landscapes with a large number of different kinds of applications, 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, etc., all of this will take a long time to really work out.
So we expect that the AI per capita increases will be modest, and budgets will not go down. That's our belief. Budgets 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 their 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 several years now. But on the GenAI side, it's still early days.
It's still 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 the idea of AI with this idea of the fluidic enterprise. And what this means is that just like we believe that at Nagarro, we spend 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 their clients, more creative, more sustainable, so in a 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, Sudhanshoo.
Thank you. That does conclude our question and answer session. I would like to hand it back to Manas for any final remarks.
Oh, okay. Thanks, Rekha. I just would like to thank everybody for joining this call. I have one announcement which is a little unusual. This call was hosted on NetRoadshow, which is a leader in its space. Nagarro has been building their platforms and products for many, many years. We have shifted to NetRoadshow. We were lucky that their leadership has allowed us to say this on air. But it's one of the places where software that Nagarro writes touches your lives. You probably touch our software at some point or the other through your daily life. This is one of those. But anyway, thanks for joining this earnings call, and have a good rest of the day. Bye-bye. Thank you, everyone.
Thank you all for joining. I can confirm that does conclude Nagarro's Q1 2024 earnings call. You may now disconnect from the call.