Good morning, everybody. Martin Sorrell, speaking at you from Chicago, and I'm joined by Mary Basterfield and Jean-Benoit Berty in London. I think Scott is in Singapore, Brady's in New York, and Wesley is in Mexico City. So with that as background, we're going to go into trading update. I think you have a copy of the presentation on the website. Mary will get into the detail on the numbers on the first quarter. Scott will then do a session on market momentum and client analysis, and they'll come back with a brief summary and outlook, and then we'll go into Q&A. So Mary, over to you.
Thank you, Martin. Good morning, and thank you for joining us today. Our first quarter performance was in line with our expectations. Net revenue of GBP 186 million decreased 15% reported, or 12% like for like. Operational EBITDA for the quarter was also in line with our expectations, reflecting both lower activity levels and the benefits of cost reductions made in 2023. We maintain our full-year guidance, and clients remain cautious in the near term as market uncertainty remains, but we are managing through this. At a practice level, we continue to expect: content to deliver an improvement in EBITDA and margin driven by cost reductions made last year, and data and digital media to perform in line with 2023 on both top and bottom line, with some margin improvement.
Technology Services has a more challenging outlook, and we expect both lower revenue and EBITDA following a reduction in activity with some key clients. We continue to maintain a disciplined approach to cost management, including headcount and discretionary costs, and a focus on utilization, billing, and pricing. Given the outlook for Technology Services, we continue to target a decrease in like-for-like group net revenue versus 2023, with a broadly similar level of operational EBITDA. The comparatives with 2023 will be tougher in the first half and ease in the second. We also expect 2024 to be heavily weighted to the second half, given our natural seasonality and expected improvement in end markets. Net debt at the end of March was GBP 206 million, or 2.2 times operational EBITDA. This is after GBP 10 million of contingent consideration payments in the first quarter.
We maintain our full-year net debt guidance of GBP 150 million-GBP 190 million. Moving to the next slide, let's take a look at first quarter net revenue by practice and region. My comments here are all on a like-for-like basis. Content net revenue was down 9% at GBP 116 million, with some growth within our scaled and portfolio clients, but ongoing lower demand from some technology clients. Content margin for the first quarter improved year on year as a result of the actions we took in 2023 to reduce costs. Changes to the leadership structure are now well established. Data and Digital Media net revenue was 9% lower at GBP 47 million, with less activity, especially in the activation and performance business lines. In Technology Services, net revenue decreased 28% due to lower activity from some key clients, as expected.
From a regional perspective, Net revenue in the Americas declined 12%, driven by Technology Services. The Americas accounted for 79% of the mix. EMEA was down 8%, reflecting lower activity in the Middle East, and APAC reduced 13% with slower demand in Australia. Overall, there's been a pickup in momentum compared to our 2023 exit rate. Net revenue in the first quarter was down 12% versus 15% for the fourth quarter. This is despite the slowdown in Technology Services and is most evident in Content, where the first quarter was down 9% compared to a decrease of 17% in the fourth. We have included information in the appendix on expected share count and invested capital, and we are happy to take any questions on these at your convenience. Thank you very much. I'll now hand over to Scott for the market and client update.
Thank you very much, Mary, and thank you everyone for joining. Good morning. So from a market perspective, if you look at our addressable markets, it is a contrasting picture. The digital media market's actually pretty healthy, with a strong end to 2023 and a good start to 2024. Growth is expected to moderate over the course of 2024, but the major platforms will still post double-digit growth this year. Obviously, that contrasts with our own performance so far, but we are still seeing caution from our clients, particularly those technology clients that Mary mentioned. And actually, if you look at Meta's Q1 results, their revenues were up 27%, very strong, but their sales and marketing expenses were down a further 16%, and we see similar trends across the industry. For tech services, this is a more difficult market, which slowed in 2023 and is flat in 2024.
We actually had a very strong 2023, so our comparables are very difficult, and the negative market trends have now caught up with us in 2024. Move to the next slide. As you'll see, most of our client categories were relatively stable in Q1, with technology still by far the main category, representing 43% of our revenue. We did see a decline in financial services, and that was largely driven by the decline in spend with one of our core clients in the tech services practice. We saw strong growth from our existing clients in auto and fashion, which saw us gain traction in those two categories. Next slide.
While the majority of our top 10 and top 50 clients did, in fact, show growth, we saw declines overall in the average size of these clients, which was driven largely by continued softness in technology clients and that specific large financial services client in tech services, which has reduced spend. Given our overall revenue decline of 17.1%, our top 10 clients declined slightly less, and our top 20 was in line, and our top 50 slightly more. When we look at the distribution of our clients via spend, you'll see we have seven clients spending above $5 million versus eight last year, with Mondelēz being the one which dropped down below that threshold.
On a positive note, over the course of 2023, we saw a significant decline in the number of clients in the lower GBP 0.1 million-GBP 1 million category, which tend to be project-based clients, local client relationships, and new business. This has stabilized in Q1, and we do see a healthy pipeline of pitches and wins, including Burger King, Panasonic, FanDuel, AliExpress, Decathlon, Santander, and ICBC, which should support our H2 weighted outlook. We're also excited to welcome Justin Billingsley as our new Chief Growth Officer, who will be focused on driving new business from existing and new clients. And with that, I'll hand over to Martin for the summary.
Okay, thanks, Mary, and thanks, Scott. So just on the slide on summary and outlook, just to reiterate that, Q1 trading was, as anticipated, as guided. It reflected continuing client caution, and a reduction in activity with some key clients, particularly in Technology Services. Q1 net revenue decreased by almost 12%, on a like-for-like basis. There was some sequential improvement within the quarter in the Content practice, which accounts for about two-thirds of the business. We maintain a very disciplined approach to managing our cost base, with continued, increasing focus on driving efficiency across the company as well as utilization and pricing and billability. The number of months in the company now is around 7,600, and that's about 13% down on Q1 of 2023, and 1% lower than our year-end figure of around 7,700.
Net debt, as Mary pointed out, was £206 million at the end of the quarter. That's after £10 million of combination payments, which were all paid out in Q1, and that really ends the significant combination payments, and our free cash flow is now free of any merger payments. Our targeted range of net debt for the year-end remains between £150 million and £190 million. As Scott mentioned, Justin Billingsley has joined us as Chief Growth Officer, focusing mainly on content and DDM, data and digital media. And we've continued to make considerable progress in the three areas of our ESG strategy around people fulfillment, around our responsibility to the world, and around one brand. We're capitalizing on our prominent AI positioning as clients start to experiment with and implement application across the five areas that we've identified.
Given the current outlook for technology services and wider market uncertainty, we maintain our targets of like-for-like net revenue growth down on the prior year for the full year, and a broadly similar level of operational EBITDA as 2023. Finally, we continue to remain confident in our strategy, in our business model, and in our talent, together with our scaled client relationships, which position us very well for growth in the longer term, with an emphasis on deploying our free cash flow to share-owner returns, which are now that all the significant merger payments are behind us. So with that update, over to you, operator, for questions, please.
Thank you, Sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched down to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, it is star one to ask a question. Now, the first question comes from Laura Metayer from Morgan Stanley. Please go ahead. Your line is open.
Good morning. Thank you for taking my question. Two questions from me, please. The first one is, so you said that Q1 came in line with your expectations. Just wanted to check, how the market environment has evolved since, since Q4. Has it evolved in a, in a better way than, than you thought? And also on the, on the new client wins that you mentioned would help, the H2 growth outlook. Is that better than you anticipated? What I'm trying to get to is, are you in a position today where you're, you know, more confident in your, in your full-year guidance, in the light of, you know, the client wins and the, and the market environment evolution in, in Q1? And the second question is, so Google announced, the postponement of the deprecation of third-party cookies.
Just wanted to get your thoughts on how you think that will impact your business. Thank you.
Okay. Well, I'll, I'll have a go at both and then, maybe Wes and, Brady can chip in, from a practice point of view. On, on Q4 versus last year versus Q1, I, I don't think it's changed significantly. Other than, I would say there's a significant amount of activity around, what we would term personalization at scale. So I think it, it's partly driven by AI, but it's, it's always been there. So, the personalization models, which are lower funnel performance-related, activation-related, sort of content engines or factories, I think are becoming, more and more important. And there are a significant number of clients looking, globally, not just in the US, but globally, maybe starting in the US and then spinning out globally at how they, implement AI-driven personalization and AI has accelerated it.
So I would say that's the main feature that we've seen in Q1 this year. And related to, it's related to your second question around deprecation of third-party cookies. I think it's the second or third time that Google have postponed the deprecation of third-party cookies. I think originally it started around January of 2000. So that was when I think initially just before, well, just at the time that COVID was happening, they announced a timetable. I think that was the second blog they pushed out, announcing the deprecation of third-party cookies over a two-year period. And here we are in 2024, and it's still continuing. I think the end of the year was a Y2K moment. Many clients were not prepared for deprecation by December the 31st of this year.
I think there was a sigh of relief when it was postponed, actually, because pooling all the data into one platform or as close as you can get to one platform was becoming more and more important. As to whether it, I think this whole focus on third-party cookies and deprecation has been helpful to our data business and our digital media business. And it continues to be an area of major focus and I think concern for clients as to their ability to do it. Having said that, I mean, Wes, Brady, do you want to comment at all on how you see Q1 versus Q4, and any differences? Let's start with content and then go on to tech services.
Well, I think sort of looking at the numbers year-over-year, Q4, Q1, we're definitely seeing a better landscape. I would say new business pipeline is healthier. Decision-making cycles are faster. I also think there's a general sense that there's pretty fundamental change in the air. I think it's igniting maybe a bit more of an urgency around what to do with the marketing org., and so Martin's point, the idea of personalization at scale, close to real-time, high in context, that's always been the force of digital advertising. And as an industry, both on the client side and the agency side, we've sort of tried to solve that with manual labor alone. But that hasn't really worked to the level that content is now a necessity. So I think AI has sort of opened that conversation back up again.
I actually think the idea of personalization targeting was a little less prevalent the last few years because I think most marketers have given up on the scale that's needed. So I think that's driving sort of a reinvigoration of that space, which plays decently into our reputation and expertise and sort of existing cases. So that would be my current take on it.
Brady?
Thank you.
I think that we see CIOs and CTOs continue to hedge bets regarding the impact of AI on their core tech stacks. So less aggressive focus on transformation and large-scale investment, more of a focus on cost reduction and investment in continued workforces. I think our perspective today is that our core clients need support and guidance. And we're seeing lots of activity at the top of the consulting and the strategy side of the funnel. I think 2024 will continue to be a challenging year for the sector. But there is a lot of positive signs that decisions will start to be made and bets will start to be placed in the back half of the year leading into 2025.
In terms of, just very briefly, the cookie-less shift, I think Google's Privacy Sandbox is a really interesting alternative that I think is gaining traction. If you look at market share, Chrome about 65% of market share. Safari is about 20%. I think the Privacy Sandbox will be a really interesting alternative that will both satisfy regulators but also provide the kind of upside that marketers and agencies need from a traceability and trackability perspective. So I think we should continue to watch that space. Does that answer your question, Laura?
Yeah, that's great. Thank you very much.
Okay. Next, please.
Thank you. Our next question comes from Adrien de Saint Hilaire from Bank of America.
Yes. Good morning, everyone. Thank you for, for making yourself available. So, I've got a, a few questions, please. So, can you elaborate a bit on what was the drag from tech clients in, in Q1 and how much you expect for, for the balance of the year from that category, specifically? Secondly, it's not, of course, a, a big business of yours, but I, I saw some articles talking about a bit of a return of the controversy around agencies being involved in, in principal media buying. Do you think that's a storm in a teacup, or do you think we'll go back to, like, the, the sort of dark days of 2017 when this, this caused a lot of controversy in, in the industry?
And then the third question is, again, some press articles talking about a potential return of M&A in the space, IPG being cited as potential takeout target, WPP looking to dispose of certain assets. Is that your view that 2024 will be a return of, like, M&A in the space? And how do you think your position to address these? Thank you.
Okay. So, on tech clients, and Brady can fill this out if necessary. I mean, as we signaled in the announcement, and in fact, talked about it in the context of last year's full-year results, and just point out that this time last year, tech services was up 57% in Q1 of last year. So if you look at the two-year stack, it's still up about 25%-30%. Just having said that, I mean, it's principally about round one client in particular at tech services, and that's the primary, primary drag on it. Although there are, I think it's probably a little bit less than we thought it was going to be and probably improving a little bit as we go through the year. So Brady can add to that when I've, when we're finished trying to respond to the other two.
On agency principal buying, we don't do that. But the interesting thing about what you just asked is that it seems to be a different situation to 2016. What has actually been written about by analysts, and I'm thinking about Brian Wieser in particular, as he pointed out recently that principal buying might explain what's been happening at some of the holding companies, I guess three in particular that have significant principal buying. When you look at the difference between revenue and net revenue and might explain some of the differences there. And Brian even suggested that there were open contractual negotiations between those holding companies and clients, as to what proportion of any media billings or any media wins would be assigned to principal buying.
So the difference, I think, Adrien, between now and 2016, and I remember at WPP, Owen Gottlieb used to say it was transparency, transparent untransparency. He would say the WPP was transparent about the fact that they were being untransparent. But the difference is that this time around, these agreements seem to be much more open in terms of knowledge and implementation. And as I said, Brian seemed to suggest that in the course of media planning and buying negotiations, the client that was an open book and an open understanding as to what proportion of any media billings might be assigned to principal buying. He even went as far as to suggest that there was some discounting of creative output by the holding companies to allow that percentage of the principal media buying to be undertaken.
So I think it is different to 2016 and the A&A inquiry that you referred to and the subsequent activities, which didn't result in anything at the end of the day, to be fair, but caused a lot of controversy at the time. On the final area of M&A, I think it depends on what happens on interest rates. I think we've had two central banks that have cut rates. I think it was Switzerland and Sweden, I think just a day or so ago, that cut rates. It's the first cuts we've seen in the Bank of England. We kept it where it was. They may go next month in the ECB thereafter. We may get some cuts in America later on in the year. But I think M&A activity will be dependent on that. There's a lot of dry powder, clearly, in PE firms.
There has been some activity. There was Perficient yesterday or the day before yesterday with EQT. There was Kin + Carta, which was, originally was at APAX and then went to Valiant, I think it was. So there has been some activity in the sector and there, there is, I think a fair amount of sort of fishing activity at the moment. We just talking about ourselves for a minute, you know, we have to get our margins right. You know, our margins last year were around 10, 10%, 10%-11%. So we have to get our margins right. And we've said that our long-term margins objective is 20%. So we have to get our house in order, first, I think, before we embark on any, any significant activity.
I think the likelihood just of finally trying to close out and answer to your question is I think there will be more activity, but to some extent it'll be dependent on what happens in the capital markets, with interest rates. But there is increased activity as we've seen. Brady, do you want to add anything on tech clients and what you see? I think you touched on it a little bit in what your response to the question on Q1, but do you want to say any more?
Sure. Just to build on what you shared, largely related to changing macroeconomic situation with one key client, under particular pressure due to the interest rate environment, and also potential headwinds in the adtech ecosystem as well with potential legislation that will impact their business. I think the good news is, you know, the long-term cycle always has dips and curves. And we've seen this before. We'll see it again. I think for us, the key is really top of funnel, and ensuring that we've got the right presence in market, in collaboration with our sister pillars, to sell the end-to-end full suite of capabilities. And I think that's where the upside really sits, across the board for. Okay. Operator. Next one.
Julien Roch of Barclays. Please go ahead. Your line is open.
Yes. Good morning, everybody. First question, for Mary, I guess. As there's no M&A impact this year, what will be the impact of FX on the full-year exchange rate stays the same? Second question on AI. You recently said the company continues to capitalize on its strong AI positioning within multiple exploratory, and I think that's the keyword, assignments as client experiments. So on AI, you know, it's supposed to be a growth engine for a lot of people, but it looks like you talk about exploration experiments. So can we have a sense of how much of your either revenue or net sales were based on AI services in Q1? And then coming back on tech clients, Brady said that he was expecting activities to pick up in the second half, with impact on 2025.
Scott highlighted Meta plus 27% revenue minus 15% marketing. But, you know, it seems to be that the reason that the tech clients are cutting is they're all focusing on investing on AI. And until they've done that, they're not going to spend. Now that could, couldn't that take more than you know, the current weakness? And couldn't we see some weakness in the second half and overspilling into 2025? So what you know, what makes you confident that, like, you know, all the other agencies, you're calling a tech rebound in the second half? Okay. I wouldn't say we're calling a tech rebound, Julian. I think we're saying things will relatively improve, but we'll get into that. Forex, Mary, do you want to cover that?
Yeah, sure. Good morning, Julian. Based on where the dollar to which we have most exposure is hovering at the moment, we don't see any impact on our full-year outlook. As we've said, I think in previous years, the movement of the dollar of about 1 cent would equate to about GBP 5 million on the top line in net revenue and about GBP 1.5 million in terms of EBITDA. But our expectations are based on the rate roughly where it is at the moment. Does that answer your question, Julian?
Yes.
Okay. Thank you.
Just turning to the second question on AI, I'm asked ways to weigh in, but just before he does, I think we've seen clients starting to explore, as we said in the release. I mean, there've been audits, workshops. We haven't got a figure for you, Julian, as to how much of net sales in the first quarter were AI-driven. And it's quite difficult to define because you could say that a lot of the conversations we have or a lot of the pitches that we have or presentations we have have AI at their core. I think it's fair to say that everything includes AI, at least in its initial. But I would say it's we're still in the exploratory phase. And we'll come back to your third question.
Wes, do you want to say a little bit about what you see happening on the AI front and what clients are doing?
Yeah, I think it's so to your point, we're not, AI isn't a siloed offering, although there are parts of our offering that are purely focused on AI. We do a sizable amount of AI consultancy work. And if you look at our pipelines, AI consultancy pipeline, 20% of that pipeline is AI work and AI consultancy. And if you look across our different go-to-markets and practices, you'll see anywhere between 10%-20% of our current pipeline is 100% there just purely because of an AI component. The reality is that we have positioned ourselves as leader in the space. We've moved quicker than I think our cohort. And AI sits in every part of our offering. So if you look at our different teams, our studio team is, I would say, best in class when it comes to AI go-to-markets, our social team, our experiences team.
So we, we can give you 10%-20% pipeline purely AI, but I would say it's, yeah, there isn't a conversation we're having with clients where AI isn't a meaningful part of it.
Yeah. Just to emphasize that point, Julian, you could say that every personalization at scale discussion we have is AI-driven. So you're getting into real it's a bit like people used to say about digital or still say about digital is what is digital and what is not. And everything in a way is digitally related. On the third question about the second half, I mean, clearly what happened last year, not with every tech client, but with many, and I'm not talking about tech services. I'm talking about tech clients. So it's the 44%-43% of our revenues come from tech clients. Clearly, last year, some of those tech clients cut. I mean, Scott referenced Meta's figure, which they publish.
Google, I think actually Google's advertising and marketing spend last year on their P&L was pretty stable, but I think their agency fees were down significantly as a whole last year. So they did cut. The question is, having cut to that level, are they going to stay where they are or increase? And I think our sense is that as we go through the year, the comparatives get easier. I mean, Scott, do you want to say any more about the analysis? I mean, you follow this quite carefully. Do you want to say any more about what you've seen?
Yeah, I think you've covered it. I think that the tech companies cut quite heavily last year, that they're still cut really in the second half more intensely. And we're seeing still some pressure on that in Q1. But I think, you know, others are saying they're seeing green shoots. I don't think we are seeing green shoots, but we are expecting it to stabilize over the course of the year.
Okay. Is that all right, Julian?
Yeah. Thank you very much.
Okay.
We will now take our next question.
Yeah, go ahead.
We will now take our next question from Steve Liechti from DB Numis. Please go ahead.
Yeah. Morning, everybody. So just a couple left, actually. One, I just thought, Jean-Benoît, he's now a month into the job. He's out of the honeymoon period. If he can give us any views in terms of what he's seeing now he's in place and, and what he's up to, that, that would be fantastic. And then the second question is, is just in terms of view on the second quarter. I mean, obviously we're down double digits in the first quarter like-for-like, and you've maintained your full-year guidance. But just a little bit more color on, on what you're thinking on the second quarter relative to the first quarter, please. Thank you very much.
Okay. J.B., do you want to jump in or J.B.B., just to distinguish you from the other J.B.?
So yes, six weeks in. I am even more excited about the business, the talent pool across the company, the breadth of capabilities that we have, the innovative work that we do for our list of clients. I feel optimistic. We continue to work on simplifying our operating model, on accelerating our transformation. Really this year, the focus is on the internal aspect of our business in terms of, Sir Martin said, efficiency, duplication, billing, billability, utilization. So really, looking at how we run our business day to day, how we engage with our clients, how we scope and resource and price the work we do. A lot of good work has already been done. So it's a run question of focusing our minds and our efforts in areas that really matter the most.
So I feel very positive that over the course of the next few months and years, we will achieve our margin target, which is, as Sir Martin said, 20%. And we hope that over the next few months and years, we'll be able to show that progress.
Can I have one follow-up, on, on that?
Yeah, go ahead.
Sorry.
Go ahead.
Just in terms of headcount, you say you're down 1% relative to the year-end headcount number. Do you need to cut more headcount, do you think, given you know what you're doing in terms of simplification and stuff like that? Or are you kind of at the right level now with the business that you see for the full year? Or do we need more headcount reduction? Just any sort of color you can give us there. Thanks.
Yeah. If we yeah, go ahead. J.B.
So part of our focus is to understand the type of talent that we need and where. So we have embarked on what we call a hub strategy to look at where we need to be from an onshore, nearshore, and offshore model. And therefore, we'll continue to drive that model. So, in terms of number of people, depending on how we do it from a top-line perspective, the number may not reduce, but I think the mix of people we have and where they are will evolve.
Yeah. I mean, if you look at the budgets for this year, there actually are budgeting a slight increase. So I think probably the answer to question, as JB indicated, is it's sort of stabilizing at this level. It depends to some extent on what happens from a new business activity point of view. And there is a lot going on at the moment, as Wes mentioned, particularly in the content area and particularly around personalization at scale. So it really depends on what happens in that. But I would say it's towards the stable end. Does that cover your first question, Steve?
Perfect. Yeah. Thanks, yeah. Perfect. Thanks.
On the second, I think we stick where we are, which is, you know, we've said what we did in the first quarter. We said we've maintained our guidance for the year. We'll see as we go on through the year what happens. We've said we're very second-half weighted as normal. Is there anything else you want to add to that, Mary?
Yeah. I mean, I would say for Q2, we do expect a similar net revenue trajectory to what we've seen in Q1. And therefore, we'll be down for the half year. And given what we've seen in Technology Services, this is expected to show to some extent in the EBITDA, with then a stronger second-half and second-half weighting, which will support the full-year numbers as the comparatives ease and help that trajectory.
Great. No, thank you.
Okay, Steve.
Thank you. As a reminder, to ask a question, please signal by pressing star one. Our next question comes from Tom Sherwood from Citi. Please go ahead.
Yes. Good morning. Tom here from Citi. Thank you for the presentation and for taking the questions. Three, if it's okay. The first one, slightly surprised to see Americas' overall weaker than Europe. I was wondering whether you could just unpack that a little bit. I presume it's probably a second derivative of, sort of, exposure by capability and in particular, tech services.
Yeah. I think right. I think we can answer that. It's really driven by tech services, what happened, as Brady explained in relation to his client, the main major client at tech services. That would explain that.
Perfect. Is there any massive difference between sort of North and South America in terms of trend? But once again, maybe that's the same question again.
Well, I would say it's more affected North America because of tech services than it affected South America. Remember, just in relation to JB's answer, South America tend to be more of the hubs. So a lot of the work that gets done in South America, particularly in Argentina, for example, or Colombia, is hub work. So the answer is it would be primarily in North America.
Okay. Perfect. Second question. I, you know, I know it's probably frustrating to, to focus on this, but when we listen to, for example, Stagwell talking about their pipeline being 50% higher than it was this time last year, I know there will be differences in terms of exposure, and there will, you know, there's a difference between pipeline and revenue. But I'm just wondering whether you're just not, you're simply not seeing that or whether it's a function of different exposures, or maybe it's just, you know, you'd rather wait and actually see sort of revenue inflect before shouting from the rooftops about it.
Well, I think Wes talked about pipeline, in content and said it was stronger than we saw in Q4 of last year. I mean, Brady, do you want to talk about your pipeline, what you see?
Sure. Certainly. So, coming out of the back half of last year, we've made significant strides in terms of the top of the funnel. The deal cycle, which is good to see, increased volume coming in at the top. Our deal cycles tend to be quite elongated, 6-8 months, on average from first contact to close. So the activity at the top of the funnel doesn't really start to have a significant impact on revenue immediately. It takes time. That being said, we are pushing a lot of volume into the top of the funnel, which is great. And that's as a result of the investments that we're making and our growth function, inside of the technology services ecosystem. I think still too early to call the timing of the impact, but there is positive long-term indicators.
In my opinion, it's really a question of how fast deals accelerate over the finish line. As I said before, there's still a lot of CIOs and CTOs that are hedging their bets. They're exploring. They're learning, but hesitant to make large-scale commitments until some of the dust settles around AI and its implications on businesses and in particular on software development. I think there is a perception that there should be savings that drop to the bottom line, and that it is, I think, still too early to actually clearly define and articulate. And it is uncertain right now, you know, where and how fast that impact will actually drive into software development budgets.
Yeah. I mean, the specific example you quoted, Tom, you referred to 50% increase in pipeline. But as I recall it, in the first quarter, net revenues were down there. So I'm not quite sure what the relevance of pipeline is if revenues are still falling. So what we've seen is strengthened pipeline coming through, but I don't think we would go as far as, putting those sort of numbers on it.
Got it. Got it. Got it. And then the final question I mean, you continue to give us that split between larger clients and smaller clients, which I think is very, very useful. I'm still interested in how you budget with smaller clients who are perhaps more likely to be binary in their decision-making. They're either going to spend, you know, or not going to spend at all. So I suppose the question is, and maybe this is for Mary and JB, but are you budgeting the costs associated with servicing smaller clients as if they do spend, but budgeting revenue as if they don't? Is that how we should think about how you set that full-year expectation?
Yeah. Mary, do you want to try and cover the smaller clients, the smaller local and regional?
Yeah, of course. Thank you. So, so we budget based on a set of expectations in terms of revenue delivery, and we manage our cost base in the budget against that. So then what's important for us as we go through the year is that we balance the cost base against the revenue as we see it coming in. And that's particularly important that we're really agile, where we have this project-based work. Now, given what we saw in 2023, where we saw in some instances a significant decrease in the revenue coming from these smaller clients, a fair amount of the work that we did in terms of right-sizing the organization was related to that area. And we see a much more stable picture emerging in Q1, for this, this revenue and this the behavior of these clients.
It's about managing agilely and balancing the cost against the revenue as we go through the year.
JB, do you want to add anything to that?
One aspect and it's, it's really a focus across the whole business is to increase the predictability of how we run our business. Part of that is understanding both the revenue and the cost side and, and to be a lot more proactive rather than interactive.
Would it be fair to say, in general, if you did have those smaller clients sort of turn sort of project flow back on, you know, it may not be a massive sort of incremental revenue relative to the size of the whole group, but that should have relatively decent drop-through if it does happen?
Yeah. I think that I think that's a fair, a fair comment. I mean, the reverse is also true, as we've seen, is that last year, you know, we indicated and I think it's true when you look at the figures for the first quarter of this year, maybe not as true as it was last year. But with scale, what we call scale or portfolio or Whopper or opportunities, that those clients continue to be more resilient and where and putting it crudely, the froth has gone out of the market, to your point. And if the froth returns to the market, I mean, if we see more significant growth, that that will be reflected in the area you're talking about. So the marginal projects will, will come back and will drop through to the bottom line in a more a more significant way.
I think that's fair to say.
Perfect. Thank you very much.
Thank you, Tom.
Thank you. Thank you. As there are no further questions at this time, I'd like to hand the call back over to Sir Martin for any closing remarks. Over to you, Sir.
Thanks. Thanks very much, Aubury. Well, thank you for joining us for Q1. We have our next call with the Americas, later on in a few hours' time. But thank you for joining us, and we'll see you at the half-year presentation. Thank you.