Good morning. I am Hans-Petter Mellerud, the CEO and founder of Zalaris. Joining me today for this webcast presentation of Zalaris Q1 2025 results is our CFO, Gunnar Manum. We are using Teams for this purpose and hope that you will find it informative and engaging. You can use the Q&A function to ask questions, which we will answer at the end of the presentation. Please note that the presentation is being recorded. You can access the recording in the investors' section of our website. First, we'll look at some of the highlights of the quarter. As we mark our 25th anniversary, I'm proud to be here wearing the Team Zalaris jersey and share Zalaris' first quarter results for 2025, another remarkable milestone in our journey.
In Q1 2025, Team Zalaris achieved its seventh consecutive quarter of record-breaking revenues, reaching NOK 370 million, a strong 16.2% increase compared to the same period last year. We are now on the verge of becoming a NOK 1.5 billion company, achieving this milestone 12 months ahead of the target set during our capital markets day in September 2023. I will outline our updated growth targets in the upcoming outlook section. Our EBIT reached NOK 52.1 million, representing 14.1% of revenue, and a 45% increase from NOK 34.8 million in Q1 of the previous year. Operating cash flow also saw a significant boost, reaching NOK 22 million up from NOK 7 million in the same period last year. For the 2024 fiscal year, the board has proposed a dividend of NOK 0.90 per share, subject to the approval of the annual general meeting scheduled for the end of May.
While deal signings in managed services started slowly, a significant Nordic payroll agreement covering 3,500 employees was finalized shortly after quarter end, and we expect another one to land soon. The sales pipeline remains strong, with both expansions from existing clients and interest from new names. We remain optimistic about achieving our 2025 sales targets. Consulting sales performance is on budget for the year. We've secured contract extensions with both existing clients, spanning public and private sectors, and have also brought in new customers. As a general rule, we will no longer disclose customer names to reduce cybersecurity risks and protect confidential financial details. However, we will continue issuing anonymous press releases for significant deals to maintain transparency to you. Managed services revenue increased 19.4% year-over-year, or 16.2% when adjusted for currency effects, reflecting continued strength in our core offering.
We achieved a net revenue retention of 101% year on year in constant currency, even with some customer churn, underscoring how our existing clients continue to expand both geographically and functionally within our platform. Growth was broad-based across all regions in local currency. DACH grew 27%, Northern Europe 13%, U.K. and Ireland 6%. Let's look at professional services, now renamed consulting. Revenue in Zalaris Consulting increased by 6.8% year- over- year, or 3.9% when adjusted for currency effects. This growth was primarily driven by stronger sales in the APAC region and Poland, partially offset by the tapering of a large consulting engagement in the U.K. A significant portion of Zalaris Consulting's capacity is currently being leveraged to support our managed services business, particularly in implementation of new customers through transformation projects and execution of change orders, with notable activity in Germany.
With this, I hand over to our CFO, Gunnar, who will take you through the financial part of the presentation.
Thank you, Hans-Petter. This slide highlights a 16% revenue increase for the quarter year on year, showing a strong performance also in constant. The revenue for the first quarter was NOK 370 million, an increase year on year of 13% when measured in constant currency. Revenue managed services grew by 19%, while Zalaris Consulting grew by 7%. The increase in Zalaris Consulting is primarily due to increased sales in APAC and Poland, partly offset by the partial completion of a large consultancy project in the U.K., as just mentioned by Hans-Petter. The growth in APAC was approximately 17%. Additionally, significant consulting resources, particularly in Germany, are still being allocated to implementing new customers and managing change orders within managed services, reducing the external revenue capacity in Zalaris Consulting. Net retention in managed services was 101% for the quarter.
Looking ahead, we continue to have strong revenue visibility through 2025 and 2026, with a projected revenue increase of more than 14% compared to full year 2024. The chart illustrates our anticipated growth based on signed contracts. The total net annual recurring revenue from these contracts is NOK 81 million. The top graph illustrates the annual run rate for recurring revenue for managed services as of Q1 of NOK 984 million. Additionally, NOK 81 million net new annual revenue from signed contracts and expansions is expected to have a full effect from end Q1 2026. The bottom graph shows the estimated timing of this additional revenue. In addition to the estimated recurring revenue from managed services, we have change orders totaling approximately 12% of recurring revenue, and the revenue from Zalaris Consulting for the last four months of NOK 345 million.
This results in an estimated future annual revenue of minimum NOK 1.54 billion, based on the average currency rates in the first quarter. Now, this slide shows a record high adjusted EBIT for the quarter, reflecting the increased revenue and operational improvements achieved, particularly in Germany. The German EBIT improvement initiative communicated in the second quarter last year is having a positive effect. The first quarter adjusted EBIT was NOK 51.1 million, an increase of 50% year on year, with an adjusted EBIT margin of 14.1%, up from 10.9% last year. The adjusted EBIT for managed services was NOK 54.7 million, which was NOK 22.3 million more than last year, mainly due to the factors just mentioned. The adjusted EBIT for Zalaris Consulting was NOK 8.6 million, NOK 0.7 million lower than last year. The positive contribution from higher revenue was offset by marginally higher allocation of regional overhead costs.
The condensed profit and loss slide provides a detailed overview of our financial performance, highlighting our key cost components. The increase in license cost is attributed to high revenue from our payroll and HR solutions and was marginally lower than last year as a percentage of revenue. Revenue per employee in constant currency grew by approximately 11% year on year. However, the significant revenue growth led to a year-on-year increase of 19 FTEs, contributing to higher personnel expenses. A majority of the new FTEs has come from nearshore and offshore locations, and personnel expenses as a percentage of revenue decreased by two percentage points. The reduction was partly due to lower share-based payments cost compared to previous year. Other operating expenses decreased by two percentage points as a share of revenue year on year.
However, total cost rose due to increased use of external payroll partners for global payroll deliveries, external hosting, and costs incurred on the strategic process. This was partly offset by a reduction in the use of external consultants. The EBIT was NOK 41.7 million for the quarter, compared to NOK 32.5 million last year. The EBIT last year included a gain on sale of assets of NOK 10.5 million. An unrealized currency gain of NOK 14.5 million related to the euro-denominated bond loan resulted in net financial income of NOK 1.2 million, compared to a net financial expense of NOK 23.9 million last year, which included an unrealized currency loss of NOK 11.4 million. Net profit for the period was NOK 32.2 million, compared to NOK 6.4 million last year. Our operating cash flow for the quarter was positive, showing a year-on-year increase of NOK 14 million to reach NOK 22 million.
The chart illustrates the growth in our cash balance from the previous quarter, which increased by NOK 6 million. While earnings rose, this was partially offset by an increase in net working capital, primarily due to timing effects expected to be reversed in the second quarter. The net interest-bearing debt as of 31 March was reduced by NOK 22 million during the quarter to NOK 226 million, which converged to a leverage measured by the net interest-bearing debt divided by adjusted EBITDA of less than one. The reduction in net interest-bearing debt was partly due to the appreciation of NOK against euro, reducing the value of the bond loan. Now, that concludes the financial section, and Hans-Petter will now present our outlook.
Thank you, Gunnar. Let's now turn to our positive outlook for Zalaris, even as we navigate a landscape shaped by macroeconomic uncertainty. The year 2025 brings a complex global environment marked by increasing macroeconomic uncertainty and volatility. In this context, businesses are seeking stability, efficiency, and trusted partnerships more than ever. Our business model, rooted in long-term contracts and the delivery of essential services that is a foundation for staying in business, like payroll, offers exactly that. This foundation ensures reliability and continuity even in unpredictable times. Our value proposition, centered on cost efficiency and strategic flexibility, is especially compelling during recessionary or uncertain economic periods, as clients seek ways to optimize operations without compromising on quality or compliance. Experience from previous crises and downturns has shown that such periods often prompt customers to initiate cost reduction and strategic transformation initiatives, leading to increased demand for outsourcing-based business models.
As a European provider, we deliver services that are hosted within Europe and underpinned by European values, including data privacy, regulatory alignment, and cultural proximity, an increasingly important differentiator for our clients across the region. In early 2024, we launched a strategic initiative to define our roadmap for leveraging artificial intelligence, with the twin goals of driving customer-facing innovation and enhancing internal operational efficiency. This has resulted in high internal engagement among our consultants and developers that already result in tangible improvements for our customers. To date, we have lowered system implementation costs, improved user experience in our Travel Expense Solution through AI-based processing of traveler seats, and improved responsiveness and usability of our help desk interface. Both existing and new customers like what they see.
As an active participant in the SAP ecosystem, we are rapidly adopting AI-driven capabilities delivered by SAP into our SuccessFactors-based solutions, positioning ourselves at the forefront of next-generation HR and payroll technology. Looking ahead, AI will play a central role in accelerating project delivery, streamlining operations, unlocking new time-saving innovations, and in developing new products and services, delivering measurable benefits to both our customers and employees. As outlined at our Capital Markets Day in the fall of 2023, we set an annual growth target of 10%, with a goal of reaching a total run rate revenue of NOK 1.5 billion by 2026. Encouragingly, based on our recent quarterly performance, we are well ahead of schedule and on track to achieve this milestone already now in 2025. The majority of our growth continues to come from Managed Services, where the revenue composition is evolving more favorably than anticipated.
We're seeing a higher share of high-quality recurring revenue from long-term contracts, typically ranging from five to seven years in duration. Over the past two years, our average annual growth rate has been approximately 18% or 14% when adjusted for currency effects. This sustained growth has largely been driven by both increased revenue from existing customers and new contracts within managed services. Given our current trajectory, we have set new targets. We now aim to reach NOK 2 billion in revenue by 2028, with an EBIT margin of 13%-15%. While some competitors already achieve margins beyond this level, our priority is to first ensure consistent delivery within this target range before setting more ambitious profitability goals.
Our strategy for continued growth remains anchored in our core service offerings, including multi-country or global payroll for the mid-market, our evolving HR services and global capability-centered product lines, and a comprehensive suite of SAP consulting services now functioning increasingly as a global business unit. To support this, we are refining our go-to-market approach with a more clearly defined land and expand strategy aimed at scaling both within existing accounts and across new geographies. We believe growth will be fueled by a combination of upselling new services to existing clients, expanding geographic reach with the goal of establishing operations in all G20 countries, and full market coverage in Western Europe as the first step, and maximizing utilization of our existing capacity and infrastructure to unlock greater incremental margins.
Currently, our Q1 annualized revenue is nearing NOK 1.5 billion, and we have over NOK 80 million in contract recurring revenue and net of churn already secured for delivery over the next 12 months. Based on current trends and assuming churn stays within historical bounds, we remain confident in sustaining our growth trajectory. Looking forward, we expect to drive further improvements through AI adoption and in application automation, with the goal of fully automating payroll to significantly improve gross margins, continued X-shoring initiatives to further enhance cost efficiency, and benefits from scale and productivity gains. If we deliver on our NOK 2 billion revenue target, our EBIT ambitions of 13%-15% would translate to an EBIT in the range of NOK 260-NOK 300 million. With ongoing transformation and technology-driven enhancements, we see the potential to surpass this EBIT margin range over time. Let me sum up.
Q1 has marked the beginning of another remarkable year for Zalaris. With NOK 370 million revenue for the quarter, we are now almost NOK 1.5 billion in annualized revenue and delivered a solid 14% EBIT for the quarter. With this strong momentum, we continue our growth ambitions, setting a new target of reaching NOK 2 billion in revenue by 2028, with an EBIT margin of 13%-15% equivalent to an EBIT of between NOK 260 million and NOK 300 million. Cash generation remains strong, and the board of directors will propose a dividend of NOK 0.90 per share at the upcoming annual general meeting. Our strategic review process is continuing, backed by significant operational improvements and a strong share price performance since the announcement. The board is taking a measured and thoughtful approach to evaluating strategic initiatives.
We expect, as we said also in our last presentation, to conclude the process by the end of Q2, that is this quarter that we're currently in, and shareholders will be updated as soon as further information becomes available. As we celebrate our 25th anniversary, we couldn't have asked for a better way to mark the occasion than again deliver the best results ever. A heartfelt thank you to all my colleagues in Team Zalaris, all our valued customers, and partners for your continued trust and support on this journey. As the title of the latest Zalaris Norseman film so rightly states, Team Zalaris are unstoppable. Thank you for joining us today. Stay active, and we now welcome your questions.
Okay, Hans-Petter. One question here. Since new signings have been low in managed services in Q1, do you see any slowdown in the market?
No, we do not see a slowdown in the market. With the type of deals that we are selling, it is quite normal that signings and conclusions of those are delayed from time to time. Our pipeline looks great, and we are confident that we will continue our growth journey, reaching our target growth of 10% annually.
Now, has customer behavior changed since the tariffs were announced early this month? Do you expect any longer sales cycles?
We can't say that we have seen a change, but in general, we see, and that includes ourselves as well, that we're all somewhat more careful on adding more costs to our P&L. I think we might see some longer decision-making cycles, particularly on new projects, that is consulting projects, but still also there, the pipeline looks strong. As also mentioned in our My Outlook section, we think and see in general that when the customers are in, for more to say, troubled times, the likelihood that they go to outsourcing-based models to reduce costs and have more operational flexibility is good. We think it's in general good for business.
Now, can you add any more flavor to the strategic review other than what you mentioned?
No, at this point, I cannot. Unfortunately.
That is it, really.
Okay, good. Again, thank you so much for joining. If you have any questions, feel free to contact us at ir@zalaris.com, and we will be there and do our utmost to respond to those as soon as we can. In the meantime, we will do our utmost to continue the journey for our next quarter. Thanks again, and again, stay active.