Hello and welcome to the Nagarro Q1 2025 earnings call. Thank you all for joining us today. At this time, I would like to turn the call over to Michael Knapp at Nagarro to begin. Please go ahead when you're ready.
Good afternoon, everyone, and welcome to Nagarro SE's Q1 2025 earnings call. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. I'm delighted to moderate today's call. You should have received a copy of the earnings release for Nagarro's First Quarter 2025 and Full Year 2024 results. If you have not received the press release, you can find a copy along with today's presentation in the Investor Relations section of nagarro.com. 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 and head of investor relations. Before I pass you over to Manas, I'd 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 again with NetRoadshow for today's earnings call. Let me briefly explain how you can raise your questions. If you have joined the call via Zoom, you can use the raise hand button on your Zoom toolbar. We will open your line for you to ask your question verbally. Those of you joining the call via Zoom can also submit written questions using the Q&A button also found on your Zoom toolbar. If you're dialing in over the phone today, please dial star followed by one on your telephone keypad to register a question. Please note that we will accept questions from sell-side analysts as well as institutional investors.
Nagarro's retail investors will have a chance to ask their questions in a separate call scheduled today at 2:30 P.M. CEST. We would kindly ask that you stick to two questions. However, you may re-enter the queue, and if there's time, we'll come back to you. With that, it is my pleasure to hand you over to Manas.
Thanks, Michael. Once again, everyone, welcome to this earnings call. The content we're going to present today is in three parts. The first part is regarding 2024. As you may know, we now have a new auditor, KPMG, and we have the first audited annual numbers from them. We shall talk about these in the first part. The second part is around Q1 2025. Q1 was, in fact, better than it looks, and I will explain how, mainly because of the increase in deferred revenue and some currency impact on adjusted EBITDA due to reevaluation of internal loans and bank deposits. We will also then explain why we are confirming a guidance for 2025 based on what we think is a strong enough Q1 and April. The third part of the presentation is regarding the way forward for Nagarro.
In Q1, we have seen a lot more RFPs, a lot more conversations around the topics of cloud, data, and AI, but just also in general, the investment in digital transformation appeared to be moving again. However, we are determined to not just depend on the growth of this subsector, the segment in which we operate. We are determined now to decouple our own trajectory from it and get back soon to our growth in the teens, at least. For that, we have a few strategic initiatives and partnerships which are gaining momentum, and I will share these with you. We also have some changes on the corporate side. We have our first-ever dividend. We have a quick report on where our buybacks stand, and we are happy to announce some new additions to the Supervisory Board. Of course, we will take questions as always.
Let's get into it. We start with 2024. We had already released the 2024 plans, but here are the audited numbers, almost identical to what we had released. Revenue was EUR 972 million, which implies a constant currency growth of 7.2%. Gross margin was 30.4%, while the adjusted EBITDA margin was better than expected at 15.2%, partly due to some currency gains. The highest growth was of the public nonprofit and education industry cluster at 27%, while horizontal tech continued to be pressured. Overall, the year demonstrated the resilience of both Nagarro's top line and its bottom line, despite a challenging environment for our digital engineering subsector. Also, for us, you know, the completion of this first audit by a Big Four, we think, you know, opens Nagarro and our stock to a whole new set of investors, which we really look forward to.
The one significant change we have had as part of the switch to another auditor is in the purchase price allocation methodology of our acquisitions. Let me pass this over to Gagan, who will walk you through these PPA changes. Gagan, over to you.
Thank you, Manas, and hello, everyone. We have been following the simplified purchase price allocation methodology for all our acquisitions, for which we capitalize the purchase price and then allocate it to intangible assets, tangible assets, and goodwill. Any remuneration-linked earnouts are expensed in a straight line over the earnout period. A detailed explanation of the new methodology and the changes is available in our 2024 annual report in section B3, page 60. In the interest of time, kindly allow me to touch on some summary points here. Firstly, for valuing intangible assets, we're now using the multi-period excess earnings method. This is an evaluation approach to assess the worth of intangible assets by considering their ability to generate future cash flows.
Essentially, we estimate the current value of these expected future cash flows and create a probabilistic estimate of the expected payout while considering factors such as risk, volatility, and time value. Secondly, we are now employing Monte Carlo simulation to estimate the fair value of such earnouts. This model accounts for uncertainty and variability in the financial projections by modeling thousands of possible future scenarios. Finally, the remuneration-linked portion of the earnout, it is not being capitalized as part of purchase price, but now considered as short-term employee benefit and expensed on the undiscounted amount to be paid for that earnout year. Now let us turn on to the next slide to see summary changes from these adjustments and reclass on the 2023 financial statements. On the 2023 balance sheet, we are showing a few select items that were adjusted.
On the asset side, after application of the methodologies discussed on the previous slide, intangibles increased by EUR 13 million and goodwill decreased by EUR 26 million. On the liability side, the current liabilities were adjusted downwards by EUR 3.8 million, and this was mainly due to a decrease in the current liabilities from acquisitions. On the non-current liability side, there was an increase of EUR 0.7 million, and this was due to a EUR 2.7 million decrease in long-term liabilities from acquisitions and offset by a EUR 3.4 million increase in deferred tax liabilities. Overall, the total liabilities decreased by EUR 3.1 million. On the income statement side, there was no change in either revenues or the adjusted EBITDA.
The key change was in the other operating income, which was reduced by EUR 2.9 million, and this is attributable to one transaction where we had recognized profit from purchase price adjustment as other operating income, and this entry has now been reversed. Along with minor adjustments to D&A, this has resulted in a decrease in net profit by nearly EUR 3 million. This adjustment is now reflected in the equity section of the balance sheet at the bottom half of the slide, which, along with a decrease of EUR 8.1 million in the profit carried forward, leads to a net adjustment of negative EUR 10.7 million. Finally, on the cash flow statement, the earnout expenses of about EUR 2 million relating to two acquisitions were adjusted against cash flow from operations instead of cash flow from investing. However, there was no change in the overall cash flow for the year.
With this, I turn over the presentation to Manas to discuss the results for Q1 2025.
Thanks, Gagan. Coming to Q1, we have revenue of EUR 247 million and an adjusted EBITDA of EUR 30.2 million, which is an adjusted EBITDA margin of 12.2%. The performance is, in fact, a little better than it looks for a couple of reasons. One, we have a few million of deferred revenue from this quarter, increase in deferred revenue in this quarter. What we call deferred revenue is when we have done the work, but the contracting is not completed, often because the client is in a hurry to move forward. This is not at all unusual in our business. Our deferred revenue was about EUR 2 million at year-end, but we ended Q1 with a deferred revenue of about EUR 5.5 million. The delta is an amount that would bolster both the top line and would drop directly to the bottom line.
We also had negative currency effects on adjusted EBITDA in Q1. The change in exchange rates led to a EUR 5 million, roughly EUR 5 million negative impact on adjusted EBITDA. EUR 4 million of that due to reevaluation of intercompany loans and roughly EUR 1 million from reevaluation of money in our banks. Taken together, Q1 was stronger than the numbers would indicate. Based on the demand evolution that we have seen so far and also the trajectory of our costs, we do not need to make any changes to our guidance, and it stays in place. We are also seeing more activity in the market.
I think that with GenAI, there was a bit of a shock, a little bit of a paralysis due to the newness of the technology and fears of the technology, but also the lack of clarity of what it might deliver and what it might mean to corporate IT. I think we are now past that stage. It's a maturing technology now, and the IT services action, I think, has begun. In many industries, the activity is picking up around cloud, data, and AI, which these three we see at Nagarro go hand in hand the way we look at things. Also, there's a pickup in edge computing, which we will talk a little bit about later. I think that in general, once we have the first gold standard implementations of the AI transformation in any industry, we expect to see a lot more action in that industry.
I think we are at the cusp of some larger, more confident steps by companies on their IT. Coming back to Q1, our best-performing industry cluster is management consulting and business information, while horizontal tech continues to be under pressure. We have diversified away from the horizontal tech sector over the year, so that's a positive. Another positive is we are beginning to see signs of life in the sector again, so our fingers remain crossed. Central Europe grew 8%, while North America held steady in Q1 year-on-year. Our NPS for the quarter was a wonderful 69, but I would caution you to read the fine print. We have changed a little bit of the policy around the surveys that we put out. We always used to have a policy to not send surveys out to very, very small clients.
We had a threshold below which we would not send surveys. We have raised that a little bit because clients and client teams were really protesting having to fill out these forms every three months, given the size of these tiny projects. We still have over 75% coverage of our revenue, and the coverage of revenue has moved only slightly. You can read more about this change in the Q1 report. Going to the next slide, this is about diversification. We always put this slide and say this diversification is our shield. We are very diversified across industries and clients, and you will see that this diversification across industries has really helped us stay strong when one or two industries are not doing well.
It is also an offensive strategy because part of what we bring to our clients is this ability to create ecosystems around them, ecosystems that cut across industries. Our clients may be really champions in their own industry, but in today's interconnected world, when they need to really connect with other industries, that's what we bring to them, and that's what we can offer to them beyond the regular engineering that we do. For example, you know, we may work for the automotive industry, but the excitement is perhaps where automotive intersects with banking or automotive intersects with insurance or with travel or with entertainment or with lifestyle or with manufacturing. That's a value addition to our clients, and it really helps us immeasurably to have this broad footprint. It also helps us sell with our clients rather than just sell to them.
I'm going to take an example for the last few months of selling with our clients. One of the companies that we are selling quite overtly and explicitly with is Siemens. In the last few months, we helped sell with Siemens into the Saudi Arabian new car EV company called Ceer Motors, which is a really big Saudi Arabia story right now. This was a success that got Nagarro to be really featured by Siemens in the Transform MENA event and at other events in Dubai, at Hanover, and so on. I think this comes from our cross-industry diversification because we are able to connect the dots between automotive and in more manufacturing, for example, in this case. We are building the muscle for more such partnering and joint selling around the world.
We are also diversified by region, you know, and we have talked a lot about this. It is again defensive and offensive, and the same Ceer story is also a regional diversification story. We could be useful for Siemens in Ceer because we were already in the Middle East with the acquisition of Farabi some years ago, and we were already in South Saudi Arabia with our entrepreneurial efforts. Many of our clients today are multinationals, and they want us to follow them around the globe and to also support them around the globe. This approach helps, you know, in many ways. It is also a bit of a hedge against, you know, economic changes at the national level. It is also a hedge, a natural hedge against currency movements. This is very, very powerful for us.
Gagan, can you say a few words now to the balance sheet and cash flows and capital allocation?
Thank you, Manas. The familiar chart on the left shows our financial position at March 31, 2025. Financial liabilities were EUR 302.5 million and lease liabilities at EUR 66.7 million. Cash balance remained strong at EUR 162.2 million, implying a net leverage of EUR 206.9 million and a net leverage ratio of 1.5x. The company's liquidity position at the end of the three-month period was comparable, with a working capital of EUR 244.5 million. Onto the right-hand side, cash flows for the three-month period ended March 31 show a total cash outflow of EUR 31.3 million versus an inflow of nearly EUR 16 million for the comparable period last year. The operating cash flow for the current three-month period was a strong EUR 29.8 million. We had better collections from U.S. public sector receivables, which was partially offset by an increase in income taxes.
Days of sales outstanding improved from 88 days at the end of last year to 81 days at the end of March. Kindly note that we calculate DSO based on quarterly revenues, and we include both contract assets and trade receivables. Cash flow from investing activities for this three-month period was an outflow of EUR 2.7 million, mainly due to a small increase in PP&E by EUR 2.3 million, investment in a fixed deposit of EUR 1.3 million and offset by interest receipts of nearly EUR 1 million. CapEx at EUR 2.3 million continues to stay small. Cash outflow from financing activities for this three-month period was EUR 58.4 million, which was attributable to net repayment of loans of EUR 25.8 million, interest payments of EUR 5 million, lease payments of EUR 5.7 million, and EUR 21.9 million that we have spent on share buybacks as of March 31.
While on the topic of share buybacks, it's a good segue to the next slide. Our focus for capital allocation has always been to maximize stakeholder value. Our share buybacks are proceeding, and we have already bought back 556,000 shares as of May 9. We have announced a new dividend policy and will propose a dividend of EUR 1 per share at the AGM. We will continue to make acquisitions and try to ramp up the pace in the coming quarters. With this, I turn over to Manas to further discuss ongoing growth initiatives.
Thanks, Gagan. As I said before, we are determined to get revenue growth back into the teens soon, regardless of how the industry sector performs. For this, we have laid out some initiatives that we will layer on that will add on a few different lines of growth over and above our regular industry-level growth. The first of these is actually Japan. We have invested a lot in Japan over the last year. We have a new global business unit focused on Japan, a new COE focused on helping other BUs work in Japan, and not just Japan, but Japan Inc. That is, companies in Japan, but also Japanese companies worldwide, companies out of Japan. If you may have noticed that some months ago, we announced a strategic global partnership with one of the major Japanese trading houses.
Our intent is to develop this partnership and other partnerships for Japan Inc. to deepen them, to broaden them, to do a lot more with that. Japan is one of the world's largest economies. It has a lot of digital debt that is coming due. It has a lot of new currents and new energy in the economy. The mindset of Japanese companies is changing, and there's just a big intent to leverage AI. There's a feeling that the digital board was perhaps missed, and maybe the data and AI board should be caught up too. All of this leads to a very exciting opportunity for Nagarro. We now have some great leaders focused on this market, and the new global business unit is called the Zen BU, and we will be updating you more about this in the coming months. The second topic is Edge AI.
This is rooted in the partnership that we announced recently with Advantech, this leader in industrial computing based out of Taiwan. AI is obviously everywhere. Everybody's talking about AI, but a lot of AI will not happen on the cloud, but will happen on the edge for reasons of latency or efficiency or privacy, data sovereignty, and so on. Edge computing and edge AI are projected to grow dramatically in the next few years. We have clients that we are selling software to, and we will be able to sell them combined hardware and software solutions with more edge compute and more edge AI. That's the opportunity from our perspective. Advantech is a leader in edge computing hardware, and they have hundreds of salespeople and many, many, you know, channel partners all around the globe.
Nagarro is a leader in software, and we plan to get together to do a lot more. Next week, I'm in Taiwan again for Computex, where we will jointly put forward the vision that we have together to help build Advantech's own software platforms, but also to create intelligent edge AI solutions for their clients and for our clients. This is the second area that we are going to invest in to decouple our growth trajectory from that of the broader industry. The third is the German Mittelstand. We work a lot for the Mittelstand via the SAP business unit, but we have unfortunately not been able to really penetrate the Mittelstand from the rest of the digital engineering side of our business.
What we understand as the reason is that our business units each have been a little bit wary of investing significant amounts in this one particular country because they have targets all over the world. What we have done is to create a separate business unit focused on the Mittelstand called the Hidden Champions Business Unit. We believe that as a German-listed company, as a company, one of the larger German services companies, we should have a right to win in the Mittelstand. This is the third layer of growth that we would like to drive digital engineering for the German Mittelstand. I mean, again, we have a few great clients there. We have some great traction there, but we could do just a lot, lot more. These are three of the major initiatives that we have listed here.
Apart from these growth initiatives, we're also working to improve the value that we are delivering to our existing clients. As you know, we have nearly 186, I think is the number, one plus million EUR clients. And we want to increase the value that we deliver to them and increase the business that we get from them. We have a few more initiatives that we have listed here. Some of these initiatives are much more centralized than they've been in the past. We have talked a lot about a decentralized approach with our business units driving their strategy. We have some more centralization because we are now confident that the organization design is much more stable. We are investing more centrally in CXO relationship building around the world, but particularly in the US. We have many, many senior hires there.
We are developing world-class capabilities in some horizontal topics that cut across business units like the supply chain. Incidentally, you know, I'm a supply chain person. On a board, we have Vishal Gaur, who's a supply chain professor. We have our new country partner for the U.S. as a supply chain expert. You know, we have a lot of supply chain expertise, but we have not really put it out as an offering. You know, we have been making forecasting software or inventory management, warehouse management, and other software, but to put it together as a consulting expertise, we are finally doing that. We have now, among the CTOs of the organization, declared one person to be the lead CTO, who is also our AI leader, Anurag Sahai, who will coordinate the company-wide investments in AI platforms.
This is to speed up the work and to eliminate redundancy in the efforts across business units, again, to centralize it a little bit, right? Without changing the org design, we are actually trying to add some of that economies of scale that we maybe had been missing earlier because we were prioritizing stability and a different kind of entrepreneurial energy. Now that we feel that we have it established, we are sort of moving the dial back a little bit in the other direction. All of this was for the clients, but you know, outside that, not for our clients, but in line with some of this centralization, we also plan to hire our first custodian of finance in the organization, our CFO, this year. Again, we feel that, you know, the org design is stable enough that we can start to optimize it.
All right, so we also, as you may have seen in the press release, we have proposed some changes to the Supervisory Board. As you know, Carl Georg Dürschmidt had resigned from the chair position for personal reasons. He's happy to return to the board, but not as chair. At the AGM, you know, we will be proposing him again as a member of the board. We also have three other great candidates, great people, great leaders that we are proposing to the AGM to join the Supervisory Board. You may have already checked them up, but each one of them is a star in his own right. Martin Enderle has been at one point the CEO of Scout24, very successful, and for many years till recently, the chair of the Supervisory Board of Delivery Hero, which is a company several times Nagarro's size.
We also have Hans -Paul Bürkner, who has been a global CEO at BCG for many years. He has been chairman of BCG for many years and chairman emeritus. He has been the first non-American chair of a big consulting firm. I'm very excited to have the chance to learn from him. We have Jack Clemons, who has been global CEO, CFO of Bata , global CEO of Bata , which is a leading shoe company, and has also been on many other boards. I like this very much. He has been the chair of the Risk and Audit Committee of the World Wide Fund for Nature, WWF, right? Again, an incredible guy. Plus, of course, we have George, who you already know very well.
We are very excited to get all this experience and credibility to the supervisory board and look forward to work with them to get Nagarro to the next level by becoming an excellent company on every front, right? That is what we are trying to achieve. With that, we can transition now to Q&A. Yeah.
Great. Thank you, Manas. Again, if you have joined the call via Zoom and you'd like to ask a quick question, please use the raise hand button on your Zoom toolbar. For written questions, please use the Q&A button also found in your Zoom toolbar. If you're dialing in over the phone today, please dial star followed by one on your telephone keypad to enter the queue for questions. We'll just pause for a moment to assemble our roster of questions. Just to reiterate the instructions, if you've joined Zoom, you can raise your hand on the Zoom toolbar or use the Q&A button found on your Zoom toolbar. Great. Our next question comes from Andreas Wolf from Warburg.
Hi everyone. Thank you for taking my question. It seems like you can hear me well. I have the following questions. Manas, following the process with the change in the auditor, could you also share with us the measures you are taking in order to change the revenue recognition? What has changed? Obviously, this was also a topic within the recent process. You highlighted M&A. In which areas are you looking for targets? Could you also talk about their size? I guess it will remain smaller bolt-ons. Might this impact your share repurchase program as well or share purchase program? Could you please also comment on the procedures that are in place to screen the targets before onboarding them? That would be very helpful. Thank you.
Sure. Let me answer the thanks, Andreas, first for the questions. In terms of revenue recognition, I think the topic was that in certain parts of the company, and particularly in one particular part of the company, we have much more complex contracts than we have in the rest of the company. The requirement was to just follow, you know, just to categorize the types of contracts into many more categories than what we have traditionally followed. That led to, you know, just this increase in the workload, you know, at a late stage. I think that in terms of the impact that has had, that has not had as much of a large impact in terms of numbers. It's more of a process topic where we just need to step the process up.
Of course, now we have, you know, started to work on this elevated process level, and that will be the way we carry forward, right? It is a one-time, I think, change in the way we sort of, you know, run our process. When it comes to M&A targets, you know, we are looking at, we still keep our approach at being as looking at companies, you know, typically it is between EUR 5 million and EUR 50 million is what we typically look at in terms of revenue. Now, we are not changing that, although we say that opportunistically we might do something bigger, but at the moment we are just exactly where we were in terms of strategy. You know, we will not see any impact of the spend on these targets to our share buyback program. We do not expect that.
In terms of procedures to screen for targets, I think we have had always, you know, due diligence being conducted by reputed agencies and so on. All of that is fairly good. Of course, we will maybe take some of the, you know, suggestions into consideration that we may raise, we may obtain. By and large, you know, we have had a fairly robust process. The challenge has been with purchase price allocation, which is slightly different, right? I think that overall, we feel pretty good about where we are at the end of this audit.
Great. Thank you for the insight, Manas. One follow-up, if I may. It is on the Q1 stock option P&L impact. Obviously, there was a positive adjustment last year and a negative this year. Maybe I missed the explanation of this. Could you elaborate on this topic, Manas? I guess it is related to the share price or the share buyback as well, but that would be helpful. Thank you.
I think it's related to the share price and maybe Gagan, if you can add a few more words to it, but it's related to the share price at the end of the period.
That would be correct, Manas.
Okay. Thank you.
Thank you. Our next question will come from Nicolas David from ODDO. Please continue, sir.
Thank you for taking my question. First one is, yes, following up on this adjustment, I mean, I'm struggling to understand really what is at stake here. I mean, isn't it the purpose of adjusting the EBITDA to adjust for this kind of variation? If it's the case, I mean, evolution of adjusted EBITDA shouldn't be impacted by this kind of evolution. In any case, still regarding EBITDA, even adjusting for that, you have a decline in the EBITDA and EBITDA margin. I understand that last year was quite good, maybe exceptional, but is there any other elements driving down your profitability in Q1? We see also that the gross margin is down. Is it mainly stuff like calendar effect, or did you have also a higher bench due to slowdown in growth? That would be the main first question regarding EBITDA.
Then second, what makes you so confident to see a growth acceleration in the coming quarter? Is it linked to the initiative you just highlighted earlier in the call, or is it linked to something else? You alluded to the different revenue. Is it because it is going to provide revenue? I mean, any color about that would be helpful. The last topic would be more generally on the U.S. market. We have seen a slowdown in Q1. What do you expect for the following quarters? Regarding horizontal tech, which is probably mainly in the U.S., we have seen some of your peers rebounding nicely on this vertical. Why do you think you are struggling to do better right now in this vertical? Thank you.
Nicolas, thanks for the questions, and I'll take them one by one. In terms of the adjusted EBITDA, you know, we typically do not adjust for certain lines of currency because we have historically felt that currency is part of our usual working. In this case, we have at least some parts of that we do not adjust for. This intercompany loans and adjustment for the stuff that we have on our balance sheets in terms of bank deposits, etc., we do not adjust for it. We have the same sort of question whether we should adjust for it or not. I hear your point. In terms of, you know, the Q1 adjusted EBITDA margin, I will just say a few things, right?
If you actually add the three-odd, three-four million of increase in deferred revenue, which would fall to the bottom line, if you add the fact that there is a, you know, there is this currency adjustment, currency impact, again, of EUR 5 million-plus, then I think we have a fairly good place. We are at a fairly good place. And, you know, together, it is not about the bench increasing. We do not see that. It is just, I think it is driven mostly by these two topics. When we look at the entire year, you know, we do have some impact on these initiatives, but the real impact for these initiatives will actually be in the next year. It will take some time to ramp up. I mean, this year, it will be just a few million each.
What I think that is more interesting is that in general, we are seeing that we are starting to get supply constrained, which is a happy place to be. There is a lot of focus and a lot of angst about, you know, hiring fast. That is a little bit the mode that we are in. Again, we have seen many ups and downs, so I do not want to be, you know, super excited too early, but we are at the moment supply constrained and hiring is under pressure. Coming to the third part about U.S. markets, yes, we are also seeing the rebound in horizontal tech. You know, we have had a couple of things impacting horizontal tech.
One is the general direction of horizontal tech, and one has been our exposure to horizontal tech out of China because a lot of our horizontal tech was serviced from China, and that has changed because of geopolitical reasons where companies are pulling out of China. I think we should start to see a rebound in coming quarters. We have a lot of interesting conversations going. Yeah, it is actually better than it may seem to be from just the read of the Q1 numbers. Thanks, Nicolas.
Thank you, Manas.
Great. Thank you. Our next question is a written question coming from Derek Markan from Bernstein. The question is, can you explain again why your organic sales growth at constant currency and without M&A in Q1 of 2025 was much lower than Q4 of 2024? Was that a deviation compared to your budget significant or not? Excluding the impact of FX that you already indicated.
Yeah. You know, we have a lot of projects that are always coming in and out. There is always some fluctuation in our quarter-to-quarter numbers. I would also like to add, because I just remembered this, that from Nikolas' last question, Q1 has the least number of weighted working days across the year, right? That is another reason why the year is not just the multiplication of four times Q1. Yeah, I mean, we do have some of these project-level impacts, but overall, we feel good about the year in general, I mean, through the end of the year. Thanks, Derek.
Great. Thanks, Manas. Our next question will come from Lukas Spang at Tigris. Please proceed with your question.
Yes. Hi, Gagan. Hi, Manas. Two questions from my side. The first question is related to Q1 start. Can you share a little bit color on how April and May so far was in terms of the revenue development or in general the business? The second one is also as a follow-up question to the US. There is a lot of rumors or trash about the public spending in the U.S. The first part of the question is, can you give us an indication how big this public sector business in the U.S. is and what is the current sentiment in this area? Thanks.
Great, great. Let me start with the second one first, Lucas. Thanks for the questions. We are quite lucky that our exposure to the public sector in the U.S., which is quite significant, is at the state level. The largest is the city of New York. It is actually not even at the state level, at the city level. It is quite insulated from federal spending at the moment. That is the first part of the answer. We do not have any fears. I think we have almost negligible federal projects in the U.S. The second thing is that, or to your first question, April and May so far appear to be in line with our projections. It is not a rapid ramp-up. I think if we are able to get our hiring right, we should see the ramp-up in Q3.
At the moment, it's more of a steady sort of progression from Q1. That's how I would characterize it. Thanks. Thanks, Lucas.
Thanks.
Thank you. Our next question comes from Sergey Swadis from Agwaha Capital. It's actually a text question. In 2022, 60% of the revenue was audited by globally recognized auditing firms. Now that KPMG is the auditor for the consolidated group, can you provide an update on that number in terms of subsidiaries' auditors?
Sergey, and I wouldn't have it on the top of my head, but you can find it in the annual report. My guess is that the revenue has increased significantly. Again, I think the annual report is the right place to look for it because I don't have it at the top of my head.
Thanks, Manas. Our next question comes from Alexander Zienkowicz from MWB Research. Please proceed with your question. Alexander, if you're there, please proceed with your question.
Hi. Can you hear me now?
Yes, we can, Alexander. Hi.
I'm sorry. Sorry if I have missed it regarding your strategic growth initiatives. Can you give us a sense of the expected timeline for these to start contributing to revenue or bookings? Thanks.
I think this year we will see some impact from these, which would be, but just a few million from each of these is what we expect. Next year, we expect a lot more. Each of these in itself is something that can bring, you know, in our minds, like a three-digit million annual run rate to the company and each one of these. That is kind of what we are targeting. That is kind of what we are working on with our partners in two of the three to try to define a path towards, right? The timeline is not this year. I think this year it is just a minor impact. Next year would be much more significant.
Okay. Got it. Very helpful. Thanks.
Thank you, Alexander.
Thanks.
Great. There are no additional calls at this time.
Okay, great. Thank you. Thank you all very much for joining this call. Thank you for your support, as always. I look forward to speaking with you either in the next call or in some other forum. Thank you very much. Goodbye.
Great. Thank you, everyone. This concludes Nagarro's Q1 2025 earnings call. Thank you for joining us. You may now disconnect your lines.