After the presentation, you will have the opportunity to ask any questions, which you can do either by raising your hand on Zoom or typing any questions into the Zoom Q&A box at the bottom of your Zoom screen. Participants who have joined on the telephone lines can also register their questions by pressing star followed by 1 on their telephone keypad. I would now like to turn the call over to our host, Michael Knapp. Please go ahead, Michael
Great, thanks, Emily, and good afternoon to everyone. Welcome to Nagarro SE's Retail Investors Call, following today's earnings release for the first half of 2025. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro, and I'm delighted to moderate today's call. You should have received a copy of the earnings release for Nagarro's second quarter 2025 results. If you have not received the release, you can find a copy along with today's presentation on the Investor Relations section of the Nagarro website. Manas Human, our Co-founder and Custodian of Entrepreneurship, and I will be representing Nagarro on today's call. Before I pass you over to Manas, I'd like to remind you that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risk 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-IFRS measures. As in our previous retail call, we will have a short presentation at the beginning and then move to the Q&A session where you can ask your questions. We 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 to follow up with any other unanswered calls. With that, it's my pleasure to hand you over to Manas.
Thanks, Michael, and everyone, thanks for joining the call and welcome. Today we're going to talk a bit about Q2 and about H1 2025. In general, we are making good progress in what is a relatively slow demand for IT services. In terms of operational efficiency, we are actually performing better than it seems. It's been currency fluctuations and impacts on the re-evaluations of internal loans and bank deposits that are masking some of the structural improvements that we have driven. We'll talk more about that in a bit. We're also going to talk a bit about the way forward for Nagarro. We are seeing a slight pickup in activity in topics like data and cloud and AI, and we also see some new investments. I think in general, our approach is that we just don't want to ride this growth of our subsector.
We want to, in fact, layer on new opportunities to accelerate this return to double-digit growth. To achieve this, we have talked earlier about some strategic initiatives and partnerships that are gaining momentum. I'll share updates on that shortly. We're also strengthening our governance, corporate governance, trying to be really good at everything we do. I'll talk a little bit more about that as well. Of course, we will take questions. Next slide, please. Yeah. Let's dive in. We continue to push forward despite the global situations, with moderate growth but strong operational performance. As I said, some of what we have done operationally has been obscured by foreign exchange movements.
Primarily, the pronounced weakening of the dollar against the euro has led to a re-evaluation of our loans and our deposits, and it's creating these non-cash accounting losses, which is impacting our bottom line and making it look that the company is not doing so well, even when the underlying business has actually improved over the year ago period. Meanwhile, we continue to have clients that are sticking with us. Clients with over EUR 1 million are now 188, and these are companies for whom we are all strategic. We want to continue to do more and more with them. We are also encouraged very much, and this is quite important, I think, to see that now more clients are comfortable with and have a clearer understanding of the benefits that they can achieve with AI.
This is leading to a ramp-up of our internal design activity, our internal reinvention of Nagarro activity, which we believe will start to contribute to our business later this year and in the years to come. Now, coming to quarter two results, we had revenue of EUR 252 million and an adjusted EBITDA of EUR 30.5 million, with an adjusted EBITDA margin of 12.1%. Gross margin reached up from 30.0% a year ago to 33.2% as we benefited from our productivity gains under the margin support program launched about a year, year and a half ago. The company displayed excellent operational efficiency in this first half year, and without the currency effect, you would have delivered adjusted EBITDA margins at the high end of our range.
However, because of these re-evaluation losses we talked about, we had an impact of EUR 18.0 million just from these re-evaluations, which is a huge number on adjusted EBITDA. We are exploring ways to mitigate these impacts in the future, although this currency movement is really massive and doesn't happen every day. Based on what we have delivered to date, as well as the current demand trends and the expected trajectory of the costs, we are fine-tuning our guidance for the full year. In January, we had projected our revenue for 2025 to be between EUR 1,020 million and EUR 1,080 million. Based on the then prevalent exchange rates, we now expect revenue to come in near the lower end of that guidance. We had targeted a gross margin in the region of 30%. We expect to maintain that. We had targeted adjusted EBITDA margin between 14.5% and 15.5%.
While operating aspects-wise, we are right on target and actually doing well against the target. Because of the currency re-evaluations, we currently expect, based on the current currency rates, adjusted EBITDA margin to be between 13.5% and 14.5%. These re-evaluations are kind of one-time. If currency remains flat, then they will not recur in the subsequent quarters. Coming back to Q2, our best-performing industry cluster is management consulting and business information, while telecom, media, and entertainment are under pressure. Central Europe grew 9%. Lots of SAP work also in there. North America declined slightly, partly due to currency. Our NPS for the quarter was 66. We have 188 clients, which are an important part of our footprint. We have very little churn in this set. We have a few new members this year. We continue to drive this.
We expect to keep delighting these customers and doing more business with each one of them as we help them win in their markets. We remain diversified across industries, across clients, which enables us to deliver solid performance at good times, but also to deliver a de-risked performance at difficult times. It is also an offensive strategy because part of what we are bringing to our clients is the ability to create ecosystems for them, ecosystems that may cut across industries or cut across traditional ways of thinking and allow our partners and clients to explore whole new business models. For example, I will just talk about an example that's just from a couple of weeks ago. Nagarro has supported this launch of a fully autonomous, S-market grocery store concept by SAP and a well-known contract food service provider.
In less than three months, the team tells me two and a half months, Nagarro helped pull together half a dozen shopping hardware solutions, various SAP and other software products, including our own Navi platform for electronic shelf label integration in a retail setting, and to sort of build this whole new ecosystem concept. This is where Nagarro really shines. There are many more such examples. Our ability to execute complex ecosystem projects with speed and innovation around the world, whether in Waldorf or in Bengaluru, is what makes Nagarro really special. Anyway, coming back to the numbers, we have seen significant growth year-over-year in automotive, manufacturing, and industrial, and in management consulting and business information. We see a large opportunity in the digitization and intelligence of new intelligence in manufacturing and supply chains around the world, and especially in Europe.
If you see the latest Der Spiegel article about how AI might actually do special things in Europe, because AI in the U.S. is more geared towards consumer. AI in Germany, for example, may be much more geared towards manufacturing. I think that also holds true for Japan, by the way. I think you see that also in our own partnerships with Siemens and SAP and Advantech and others, that we are sort of also steering a little bit in this direction. We continue to see declines in our horizontal tech industry, which we have sort of kind of purposefully moved away from in the last 10 years. Our customer diversification still remains. Our top five clients represent only 15% of total revenue in Q2. Similarly, regional diversity of revenue has been critical for us and for stability and growth.
We also find in environments that are problematic economically, where you have heightened policy uncertainty and trade tensions, it really helps to have this diversification. We continue to see, for example, excellent traction in the Middle East, winning some new prestigious logos across public and private sectors. That is kind of what we also want to do with other regions. You know, as maybe some regions are slower, we are able to move faster in some other regions. In our last earnings call, I had said that we are determined to get growth back into double digits soon, regardless of how our industry subsector performs. We are now totally focused on that. We have, as I mentioned in the last call, some initiatives to layer on these lines of growth over the normal subsector growth. I can give you an update on some of these.
The first of these is Japan. In the last months, we have continued to develop our partnerships targeting Japan and targeting Japanese companies throughout the world. We are working with multiple partners and have several dozen distinct business opportunities, small ones, bigger ones. The groundwork is going very well. It is also reflecting in revenue increases that are fast, but from a tiny base, so it will take some time to get some impact. We want to do in Japan what we did in the Middle East, land and expand via organic and small inorganic moves potentially. As I said in the last call, Japan is one of the world's largest economies, largest IT markets. The economy is changing of late. The mindset of the large Japanese companies is advancing. Warren Buffett is investing. There is a digital debt coming due, and the country really wants to leverage AI.
All of this leads to a very exciting market. The second area was the German Mittelstand. I had mentioned that we work a lot with SAP in the German Mittelstand, but not so much in digital. That is starting to change, and that is also moving along fairly well. The third is Edge AI and IoT, rooted primarily, but not only in the partnership with Advantech that we had announced. Here again, we have a couple of dozen joint leads, and we are excited about what this partnership will mean for us next year onwards. What is not on the slide yet, but which is very important, is data engineering and AI.
As I said earlier, we're very encouraged to see that our clients now have a clearer view of the benefits that they can achieve through AI and a better idea of how they can de-risk the challenges that AI poses. As an engineering forward firm that is just not too big, not too small, I feel that we have an excellent chance at success in this new phase of transformation at our clients. We are big enough to have a seat at the table, and small enough and engineering-focused enough to be able to give the confidence that we can drive this forward in a humanistic pilot and expand in a sensible, cost-efficient way. We are redesigning our offerings, therefore. We are redesigning our positioning. We are redesigning how we work internally for this next phase so that we can contribute.
We can have this new era, we can launch this new era for the company and have this data engineering and AI contribute much more meaningfully to our revenue in the rest of the year and in the years to come. We will talk more about this in our coming earnings calls, I'm sure. Michael, with this, could you please hop in and say some words about the balance sheet and cash flows?
Sure, thanks, Manas. The chart on the left here shows our financial position at the end of June 30, 2025. Financial liabilities were EUR 300.7 million, and lease liabilities were at EUR 66.9 million. Cash balance remains strong at EUR 121.8 million, implying net liabilities of EUR 245.8 million and a net leverage ratio of 1.8 times. The company's liquidity position at the end of the six-month period was comfortable with working capital of EUR 206.9 million. For cash flows for six months ended June 30, 2025, we show total cash outflow of EUR 74 million versus an inflow of EUR 8.8 million for the comparable period last year. Our operating cash flow for the six-month period decreased slightly to EUR 26.1 million versus EUR 27.6 million for the comparable period last year. This was primarily due to the increase in payment of income taxes of EUR 8.7 million and other non-cash incomes and expenses of EUR 9.1 million.
Our day sales outstandings improved from 88 days at the end of the year of 2024 to 85 days at the end of June. You can note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. For cash flow from investing activities for the six-month period, we saw an outflow of EUR 4.3 million. CapEx was EUR 3.7 million, which is less than 1% of our six-month revenue, and that continues to reflect our asset-light approach. For cash outflow from financing activities for the six-month period, it was EUR 95.8 million, mainly due to the purchase of treasury shares amounting to EUR 50.1 million. We also had a net repayment of bank loans of EUR 24.9 million, lease payments of EUR 11.3 million, and an interest payment of EUR 9.6 million.
If we move on to our capital allocation initiatives that are designed to create shareholder value, we bought back a total of approximately 684,000 shares as of June 30, 2025, for a total of EUR 50.1 million. We also announced a dividend of $1 per share, which amounted to EUR 12.6 million, or 13.1% of our 2024 EBIT. This was declared during our annual meeting, which was held on June 30, 2025. As Manas noted earlier, we also announced in April the business transfer of Notion Edge France, which was an SAP Gold Partner that specializes in SAP customer experience. This expands our offerings to key players in retail, CPG, manufacturing, as well as in other sectors in France. We expect to continue to make acquisitions in the coming quarters as well. With that, I will hand the call back to Manas.
Thanks, Michael. As you all know, in the last AGM, we had three new members join our Supervisory Board. I just would like to say a few words about the roles that they are playing and the subcommittees that we have set up. Martin Enderle, who's Chair, was still recently Chair of the Supervisory Board at Delivery Hero, and he's also now the Chair of our Nomination and Remuneration Committee. Hans-Paul Bürkner, who has been global CEO, Chairman, and Chairman Emeritus of BCG, is now Chair of the Strategy Committee and an excellent sparring partner with us on the reinvention I talked about, Nagarro's reinvention. Jack Clemens, who has been global CEO at Varta and has been on various other boards, including being Chair of the Audit and Risk Committee of the Worldwide Fund for Nature, is now Chair of our Audit Committee.
We have had a couple of board meetings. We've had some committee meetings after the AGM, and I'm just very happy with all the discussions and ideas and experience, the wealth of experience that these members, as well as the existing members, earlier, the previous members of the board, are contributing. We have a lot of energy and momentum on this side. We are also in the late stages of our search for a Custodian of Finance for the organization, our CFO, and we will talk more about that when we have concrete news. That's that for the wrap-up and update for Q2 2025. We will now transition to the Q&A.
Thank you. As a reminder for all participants, if you would like to ask a question today, you may do so either by raising your hand if you have joined via Zoom. You may also type any questions into the Zoom Q&A chat box. For those of you who have joined on the telephone lines, please press star and then one on your telephone keypad. Over to you, Michael.
Great. We'll pause for just a moment while we compile our questions. Emily, I'm not seeing any questions at this time. Can you confirm on your end?
I can see certain questions. Should I just, how do you want to do this?
I can read the questions. The first question comes from.
Let me just read the questions and then answer them. I can just do that. I have them open in front of me. I can just answer that. We have 10 minutes, so let me just make good use of the time. There are a couple of questions around buybacks and why we are not doing buybacks, even when the share price is relatively low. I'll just say this, that we remain prepared for buybacks, but we have certain covenants with our banks around our equity positions. With all the fluctuation of these currencies, we're trying to be a little bit, play a little bit on the safe side because currencies could really fluctuate some more. It's just that we continue to keep that as part of the policy, and that is something that we keep looking at, opportunities to buy back shares.
Michael, are you now back on the questions, or if that's for Maria, either of you?
Yeah, I'm still not seeing the questions, but bear with me. Okay, I now have them as well. Okay, why don't we move on to Andreas, who asks, could you please elaborate on what drove the substantial improvement in gross margins? Is this tied to internal efficiency projects or only one-off? Should we expect the same level of gross margin in the coming quarters?
It is tied to structural improvements in the way we work. I think that we are not promising that we will exceed our guidance on gross margin, but in general, we are comfortable with the guidance that we have. The reason we say that we are not guiding above it, above the original guidance, is because we want to have the flexibility to reinvest where required in the areas of data engineering and AI. What we can say is that our margin support program has really gotten our business units trying to trim the fat, if you will, and improve utilizations. I think we are doing a lot better now. This is not a one-off result. It's something that we expect to persist in general. The trend in general should persist, but we may reinvest some of that back in some work within the BUs on AI and data engineering.
Next question, please.
Great. Next question comes from Alejandro, who asked, in addition to a question about the buyback, will we add a CFO role in the company? It was announced last quarter.
Yes, I think I mentioned it briefly, but we are in that search phase, and we should have someone in the next months. We are working on it.
Great. Our next question comes from Girard, who asks, how do you explain that some days ago, EPAM posted its results, updating its guidance up, while Nagarro is saying it would reach the low side of guidance as well, decreasing the EBITDA margin?
I'm really happy to hear the EPAM news because it has a certain meaning for the industry when EPAM declares this. EPAM has gone through a tough time because of the Ukraine exposure and many other aspects. It's really good to hear that news. I would not comment on it because I don't, I'm not very familiar with EPAM's year-on-year situation on EPAM's guidance, where the guidance was originally. In general, I think it ties in well to what we are also seeing, that engineering-forward companies may have a chance to really ride this data engineering and AI wave. Yeah, it's exciting.
Great. Another piece of Girard's question is, some months ago, there was a piece of news saying that Nagarro leases an office in Gurgaon, their global capability center. Total size is 706,000 sqf t, expected 3,000 employees. What's your perspective on building in India?
On building versus leasing or just in general, let me answer both parts, right? In general, we have not bought, except for occasional, very early on, occasional small purchases that we have made or things that have come to us through acquisitions. In general, we have just leased our infrastructure in India, which allows us to move out to newer offices when the offices become dated and older. We are able to negotiate really good rates with our landlords because of the way we operate. Anyway, it's far more, one can take bets on the real estate market, but that's not our sweet spot. We prefer to just lease these buildings. This news article about this large office comes many years after that office was actually spoken for. It's a bit surprising. I think some journalists just saw the data and put that news up.
This office is a very important part of our telling the Nagarro story to clients and partners. In the last weeks, we had the Senior Vice President of Partnerships for Siemens, for example, here. We had the work for Qualcomm. We had the Head of Automotive and Industrial Business for Qualcomm. We are waiting for the Advantech people. We have a new Siemens lab. We have labs for many other partners that we work with. Pretty much every day of the week and every week of the month, we have someone or the other visiting us from around the world. It's really a place where we get a chance to showcase Nagarro's capabilities, especially in India, to our clients. That's kind of what we use this office for. Of course, we also have lots of people, thousands of people in the region.
Great. Thanks, Manas. Next question comes from Mufasa Capital. This is related to the buyback, but maybe a slightly different angle, which is, why give much allocation to M&A when the business is already well diversified? You're cutting headcount and trading at a low valuation.
Yes, so I think you may have misinterpreted the comment Michael made in the last call. I mean, we are not necessarily going to go out and buy. The cash is not necessarily going to be deployed for a large acquisition. It could be, but it's not necessary that we are, I don't think Michael meant to indicate that's what we are steering for. As I said earlier, the buyback is a little bit on hold because of the currency fluctuations and the impact it has on the equity position of the group and the bank covenants and so on. A little bit cautious around that as well. Yeah, we're not rushing into large M&A deals just for the sake of doing them, for sure.
Great. Thanks, Manas. Another question from Girard, follow-up question. Congratulations for attracting talent from Boston Consulting Group. Sounds exciting. What are the main initiatives that he is undertaking?
The main thing is strategy, right? Strategy is an interesting topic. It has multiple aspects. I think that the aspect that is really interesting right now is how do you reinvent a company? Hans-Paul joined BCG, and I may get these numbers wrong, so don't quote me on these, but I think he joined BCG when it was a very small firm, like a few tens of millions or a couple of hundred million. He became CEO, if I remember correctly, when it was about $1 billion. He took it to $8 billion in revenue, and it's now like many times that even. He has the experience of seeing a very global organization, very partner-driven, one partner, one vote kind of organization, and trying to see how with clients around the world in different verticals, in different functions, how to get these to work together.
I would say we have some experience of our own as well in this, but it's really good to have a sparring partner who has not only seen this within BCG, but has also seen it in many, has seen different challenges, different strategy challenges in different firms that he has advised, right? There's a lot of that that we can learn from, as also his indefatigable energy and enthusiasm. He's leading the strategy part is the short answer, but there's a lot more to it.
Great. Thanks for that, Manas. Next question comes from Alejandro. He asks, are you seeing more ramp-up in the larger, medium, or small projects? Also, how is the pipeline evolving compared to last year?
We don't talk much about pipeline because a lot of our work is very intimate with our clients. We are basically in TNM kind of context with them. We are working on stuff that's evolving rapidly. It's not fixed bids. It's not the typical kind of sales pipeline. Our fixed bids and periodic kind of payments work accounts for roughly a third of our total revenue, not more than that. We don't think of pipeline in the traditional sense, but we are seeing action on all sides. It's not very clear it is any particular side which is dominating. We are trying to also, in clients where we have had historically a purely digital engineering kind of expertise and reputation, we're also trying to bring our other services there, like managed services.
We just won a reasonably large contract with a logistics provider, for example, in the managed services space, where for many, many years we had just been a digital player, and there were other large companies in the managed services space. At the same time, in other places, like in the German Mittelstand, as I talked about, we're trying to move from the large SAP projects to more digital work. All kinds of stuff is happening. In general, the strategy that we are taking is we're calling it Up, Across, and Together. Up is, we've talked about this before. Up is more into the boardroom, trying to be in the sort of strategic reinvention of our clients as they take up data and AI and the impact it can have on them, which, as I said before, is much more clear today than it was some months ago.
Across is, at our clients, trying to do more at each and trying to, and that requires the together part, which is really the teaming that is required across BUs, across regions, across central functions to try to make this all work. I think we have our fundamental approach fairly clear. With this reinvention that I talked about around data engineering and AI, our branding and our go-to-market will be sharpened. We have, I think, the skill sets and the capabilities and the IP that is being generated and the partnerships to sort of provide the platform for that next phase. Sorry, a long answer. I went over time.
No problem. I'm sure the audience appreciates the detail there. Because there are a number of additional questions and we're at time, I would encourage you to just shoot your questions directly to me, michael.knapp@nagarro.com, and I will take these additional questions as they come in. Apologies that we didn't get to everyone, but thank you so much, Manas, for the time. I want to thank everybody for joining us today on Nagarro SE's Retail Investors Call. This concludes our call.
Thank you very much. Have a good day.