Nagarro Stock

Good afternoon, everyone, and welcome to Nagarro SE's Q2 2026 Earnings Call. [Operator Instructions]

And with that, it is my pleasure to hand you over to Michael.

Great. Thank you, Adam, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our earnings release, you can find it as well as a copy of our half yearly statement and today's presentation in the Investor Relations section of nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship; and Prateek Aggarwal, our Chief Financial Officer.

Before we begin, please note that some of our statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our financial reports. Additionally, please refer to our half yearly statement for important information regarding non-IFRS measures.

And with that, I'm pleased to hand you over to Manas.

Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call.

Let me start this call by talking a few minutes about the topic of the day, AI. It is now becoming very clear that enterprise AI transformations will have to be anchored in excellent engineering. The challenge with AI, as we are hearing about every day, is to make it work consistently, dependably and safely across complex mission-critical environments, and that is primarily an engineering problem.

This is now becoming very obvious to our clients. So it is very exciting and very validating, if I may say so, that the capabilities that Nagarro has developed over the years and over decades are now an excellent fit for this new world. Nagarro brings deep engineering depth across data, AI, platforms and products. And on top of this engineering, we bring strong client intelligence and client context developed over long-term relationships with these clients that stretch over years and very often decades. And having worked so long in digital transformations at those clients, we bring the capability to navigate those clients to navigate the enterprise complexity across business, tech and operations.

We have always been helping clients go from strategy to execution. We work routinely with the world's leading consulting firms to bridge the gap between that strategic advice and the engineering execution. Hence, today, when our clients want to scale AI and create value with responsible guardrails and with safety and trust, we believe Nagarro is the right engineering partner for them. So beyond the results of the quarter just gone by, which we'll get into in a moment, this is the overall context that as we stand at the starting line of this AI revolution, we feel that Nagarro is a very strong contender.

Now with those introductory words, let's get into the quarter. There have been many exciting developments since the last earnings call. I will start with the most important among them, our potential combination with Persistent Systems. On June 26, Persistent and Nagarro signed a business combination agreement to form the Persistent Nagarro Group, a global leader in AI-led digital engineering.

Following up on that, on August 4, Persistent announced that the shareholders have approved the proposed acquisition of Nagarro SE in their AGM. Following the authorization by BaFin, Persistent's voluntary public takeover offer for all of Nagarro shares is now open. You can find the details of this offer at www.galaxy-offer.com. Please note that several mandatory regulatory approvals are still not in place and still awaited, and the teams are working hard to procure these.

Please also note that some hours ago, Nagarro's Management Board and Supervisory Board have issued the joint present statement on the voluntary public takeover offer, which supports and welcomes the offer as being in the best interest of Nagarro and recommends that the Nagarro shareholders accept this offer. This is just a gist of the joint reason statement. The entire joint reason statement can be found on our website. We will not be taking any questions here about the proposed combination on this call since the joint reason statement is out there in all its glorious detail, and we can't really add to it with our answers. So please bear with us on this. We will not be taking any questions. You are please invited to refer to the joint reason statement.

Moving on to other exciting developments in this quarter. Nagarro's quarterly NPS has hit an all-time high of 70. Our NPS has mostly stayed in the 60s, dropping below 60 only once. But to have it up at 70 for the first time is very gratifying. I would like to congratulate all my colleagues who are doing great work for all our clients and also thank our clients for their trust and collaboration that's delivering this joint success.

In 2026, Nagarro participated in the ISG Digital Engineering Services survey for midsized providers for the very first time, and we were ranked #1 globally in customer satisfaction and delivery execution, which got us the CX Star Performer Star of Excellence. Importantly, the Star of Excellence recognition is based on independent customer feedback, which makes it particularly meaningful and gratifying. So this is a high honor that correlates very nicely to the point above on our high NPS. In addition to the CX Star Performer recognition, we were recognized as a leader for Europe in the ISG Provider Lens.

Finally, we signed on many incredible new clients this quarter. These include an iconic global sporting event that takes place every 4 years. By the way, we also work with another iconic global sporting event that takes place every 4 years, but this one is a new client. One of the hottest -- it includes one of the hottest U.S. brands of running shoes and includes a leading European insurance group, a Middle Eastern government health services department, a leading U.S. roofing maker, a leading tiling and flooring maker from the Middle East, a leading auto company in Japan, an iconic apparel group in Australia and many others. In fact, even after the end of Q2, there have been many similarly exciting new client wins between July -- June 30 and today, but I will leave these for the next earnings call.

Now let's get into the quarter. I will turn my camera off so you can focus on the numbers. We delivered a decent financial performance in the first half of 2026, generating revenue of EUR 501 million, representing 4.2% constant currency growth year-over-year. Q1 was 6.5% constant currency growth, whereas Q2 was slower at 2.0% constant currency growth.

Comparing H1 2026 to H1 2025 across our top 5 countries, in constant currency, it is interesting that revenues have grown strongly in 3 of the 5 largest countries for us. In constant currency, revenues from the U.S. grew 9.0% from H1 2025 to H1 2026, India revenues grew 14.7% in this same period and UAE, the Emirates revenues grew 16.8%. But revenues from Germany declined 3.8% and Austria declined 5.0% due to a couple of specific client and engagement context. We see these Germany and Austria scale downs as temporary and are working to reverse them.

Overall, what we are seeing is that the broader demand environment for digital services remains muted as the clients still work through and think through the implications of AI on digital build. Against that muted demand scenario, our results demonstrate the strength of our customer relationships and the power of diversification.

Gross margin exceeded 32% in Q2 with a healthy mix of business, strong delivery execution and ongoing operational discipline across the organization. At the same time, adjusted EBITDA margin reached 15.0% in Q2 2026, although assisted by some FX movements. We see still large, significant low-hanging opportunities to improve sustainable profitability through improved utilization and streamlining investments. We now have a new CFO. We are working on those and expect to see results by Q4.

Customer engagement and satisfaction, of course, remain key indicators of the health of our business, and we continue to see encouraging results in this area. As I just mentioned, our customer satisfaction metrics are excellent. Our CSAT score of 93.2 and an NPS of 70. These underscore the trust our clients place in us and the value they see in our partnership. We believe that these customer outcomes are a direct reflection of our strategy with people, our culture and our commitment to delivering measurable business impact. The number of clients generating more than EUR 1 million of revenue in the trailing 12 months increased to 184, up from 179 in the first quarter.

With that, Prateek, would you like to discuss the balance sheet and cash flows? Prateek, if you're speaking, you're on mute. Go ahead, please.

Yes, sure. Sorry. I would be happy to. The chart on the left shows our financial position as at June 30, 2026. The financial liabilities were EUR 310.5 million and lease liability were EUR 67.4 million. Our cash balance remained strong at EUR 131.3 million, in fact, grew versus the previous -- in the last 6 months, implying net liabilities of EUR 246.6 million and a net leverage ratio of 1.7x. The company's liquidity position at the end of the 6-month period was comfortable with working capital of EUR 236.2 million, which of course, includes EUR 131 million of cash.

Total cash flows for the 6-month period ended June 30, show a total cash inflow of EUR 4.6 million versus an outflow of EUR 57.7 million for the comparable period last year. Operating cash flow, OCF, was -- for Q2 was EUR 29.8 million. For the 6-month period, OCF was EUR 29.5 million, decreasing by EUR 12.9 million from EUR 42.4 million in H1 of 2025. This was primarily due to pending collections from some clients, which we are confident of collecting in Q3. The first 1.5 months of Q3 have already been very productive, and we are promised very good numbers for the quarter -- upcoming quarter.

Working capital was also impacted by increased payments related to trade payables and statutory dues as compared to H1 2025. Days sales outstanding increased from 85 days at June 30, 2025, to 86 days at the end of June '26, which we are confident of bringing down in Q3, as I mentioned earlier. As you all know, we calculate DSO based on quarterly revenues and include both contract assets and trade receivables.

Cash flow from investing activities for the current 6-month period was an outflow of EUR 2.9 million, and CapEx was just EUR 1 million, less than 1% of the 6-month revenue, reflecting our asset-light model. Cash outflow from financing activities for the current 6-month period was EUR 22.1 million as compared to EUR 95.8 million in H1 last year. Cash outflows decreased mainly due to a decrease in the purchase of treasury shares amounting to EUR 47.8 million and a decrease in net repayment of bank loans of EUR 23.9 million.

With that, I'll hand the call back to Manas.

Thanks, Prateek. Before we conclude and before we go to Q&A, I'd like to leave you with a few thoughts on why I'm so excited about the future. We believe that this potential combination of Persistent and Nagarro represents a unique opportunity to create a truly differentiated global leader in AI-led digital engineering.

The strategic logic is very compelling. We have laid out in public the complementarities in terms of geographical presence, the complementarities in terms of industry footprints and the complementarities in terms of our offerings as well. And even beyond that -- while these complementarities are very important, even beyond that, what is equally important is that this combination will bring together 2 organizations that share similar ethical values, a strong heritage in engineering and a long-term commitment to clients and associates around the world.

So that's what is very, very exciting for us. But meanwhile, regardless of that process and regardless of those outcomes, Nagarro remains fully focused on serving our clients and executing our strategy for transformation, growth and leadership in this new AI world. Thank you for your continued support, your engagement and your confidence in us.

And with that, we can now transition to Q&A. As I mentioned before, we will not be taking any questions related to the potential business combination with Persistent. Over to you, Adam.

[Operator Instructions] And our first question today will come from Martin Comtesse from Jefferies.

Yes. So I just wanted to touch quickly on the respective regions. I can see that -- and you mentioned that Germany, in particular, stood up as a negative in the second quarter, but also in the first half, while the U.S. accelerated. Can you just point out as specific topics or reasons why that is? Or is it really just a geographical difference in terms of how early cyclical the markets are? And in that regard, maybe also touch on the status quo of your initiative with German Mittelstand, but also maybe with Japan as a new focus area because that's been quite a highlight in the past.

And the second question would be on pricing. Can you mention how pricing has evolved since your debates evolve much more around AI and how you work that into your offering in the tender process?

Thanks, Martin. Thanks for the question. So our results in Germany are affected by the planned ramp down of some SAP projects, so -- among other things. So I think it's a little bit temporary and not necessarily structural. On the other hand, in the U.S., especially our management consulting-related work is increasing. And this is, again, tying back to what I just said about the link between strategy and engineering execution. I think we do that very well, and that is actually playing out well in the U.S. as companies are trying to move faster on AI.

In terms of the Mittelstand, I think our progress has been strong in the SAP space. Beyond SAP, we have had some progress, but it's still been not moving the needle as much as you would like it to. In Japan, I think we have started to increase our footprint, our head count, our number of clients. But again, like Europe, it's a geography where progresses takes time and takes the building of trust and relationships. So we, again, have some work ahead of us.

Coming to pricing with AI, of course, the models are still evolving. When it comes to fixed bids and long-term engagements, clients are expecting the productivity gains of AI to be factored into those long-term models. That is not a very large part of our business, I must say. And in the time and expense part of our business, there's a lot of room to design it in different ways, and you must have heard about it from all the industry players. And we see a large variety of different plays there. But in general, the pricing pressure is less on the time and expense side of things. In fact, we don't feel it as much there at all.

The next question comes from Yannik Siering from MPCM.

Great. The first one would be on the margin bridge of your guidance. I mean Q2 improved quite a bit. You hit already the 15%. Could you maybe provide some color on how much of the Q2 step-up is related to this non-repeat of last year's, I think it was around EUR 18 million FX revaluation losses compared to really genuine utilization, SG&A leverage and then also what underlying margin we should carry forward into H2? That would be the first one.

And the second question would be on the organic demand. Organic growth decelerated quite a bit in Q2. Could you talk about the drivers of the slowdown, maybe also about your pipeline, where book-to-bill is right now and if your weaker verticals are stabilizing or if they are still deteriorating?

Thanks, Yannik. Maybe I'll take the revenue one first, and then we can go back to -- go to Prateek for the margin bridge. So in terms of the revenue side, as you can see from the numbers I just talked about, the weakness is coming from the German and Austrian markets, where it's linked to a few clients where we've had either planned project ends or there's been some temporary cutbacks. But we expect that to be fixed in the coming quarters.

As far as the pipeline is concerned, the pipeline remains kind of stable. I think that we continue to see weakness in the horizontal tech part, but that's an increasingly smaller part of our business. While the other parts are -- there are other parts like the Management Consulting segment, which is doing well and Auto and Manufacturing and Industrial is also doing reasonably well. So I think you see a spread in that. We don't have a formal book-to-bill -- booking or pipeline number that we share, and we don't share book-to-bill, et cetera, numbers. But in general, the pipeline looks just reasonable.

But I will just hand it over to Yannik -- to Prateek for the margin bridge to guidance.

Sure, Manas. Yannik, as you know and you would have seen if you've been tracking us, that there are some large moving around numbers on 2 scores. One is the share purchase, ESOP, the cash settled ESOPs that we have. And depending on how the share price moves in any quarter, those numbers have been impacting the P&L.

The second one, which you already referred to is the ForEx line items, and there are at least 3 or 4 different types of ForEx line items, some related to the intercompany loan that we have between SE and the Inc. part of our businesses or legal entities and the mark-to-market and so on and so forth. So while they were individually large items individually, but at the aggregate level, they more or less -- the difference was not more than EUR 3-odd million as far as the numbers go.

So that is the -- I mean, there are some numbers which are affecting the P&L, obviously, because our costs have gone up in the last 1 year, et cetera. But overall, without that 15% is something which is not grossly because of these moving elements. The ForEx, which you talked about has certainly given a positive impact. But at the same time, as you would have seen, there is EUR 10 million of adjustments this quarter, and the largest one of them is EUR 8.1 million, which is basically because of the share price going up and the cash settled calculation that are there as per Black Scholes model, et cetera, based on the last day share price has given that EUR 8.1 million hit. So that's more or less nullifying the benefit of the ForEx. Hope that helps.

[Operator Instructions] We have no further questions. So I'll hand the call back to the management team for any closing comments.

Well, thank you, Adam, and thank you, everyone, for joining us today and for your questions and participation. We appreciate your interest in Nagarro, and we look forward to connecting with you again soon.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Good morning, good afternoon, good evening to everyone. This is Sandeep Kalra, joining from Munich, along with my colleagues, Saurabh and Vinit. And we are here to share with you an exciting news about a potential acquisition that we have announced and which is the combination of Persistent and Nagarro to form the AI-led digital engineering powerhouse. Before I start, I'll hand over to Anand for his initial comments. Anand?

Yes. Thank you, Sandeep. Welcome to all of you for being here on a Sunday morning. We are very excited to announce a major step in the life of Persistent, a company we started about 36 years back. And we are very delighted to announce this great partnership with Nagarro. As you will observe and we look at -- when we look at the rest of the slides today and know about Nagarro, it seems like this partnership was made in heaven. We are so aligned in terms of our thinking, in terms of how we look at customers, our employees, our culture and our engineering DNA that we couldn't have chosen a better partner in this journey as we move ahead. This partnership would be very valuable to all our customers who will see a scaled partner who is able to deliver globally across in various areas of interest, especially AI and the new technologies that are coming up.

All the employees should see a very good advantage of having a similar company with scale across the world and the ability to work together as an engineering team at scale. The partners should see also a similar benefit. I'm very delighted to say that the shareholders also should see benefit in this arrangement and the agreement that we have for the group. All the Nagarro shareholders, we will see an immediate return on their share price. And also, I believe that as we build a scalable and a scaled company over the next few years, Persistent shareholders will also see long-term benefits of being invested in a partner who is at scale, up with new technologies and has global presence and customers across the world.

I must complete the fact that we have also found similar alignment in terms of our commitment to environment, society and some of the community work that we do at Persistent, and we have seen similar trends with Nagarro. So we're looking forward to being a very, sort of, globally leading group across all which will be useful and beneficial to all stakeholders. I'll stop here, and I think let's get to the point. And if there are questions, we'll take more.

Thank you, Anand. And as you would have also noticed, we had another announcement that we did over the weekend. This is regarding a strategic long-term agreement that we have signed with an existing global technology leader headquartered in the U.S., an existing big customer for us. So let me first start with that announcement and the implication for us, and then I'll dig deeper into the Nagarro transaction that we have announced. So from this deal perspective, this is a net new deal, which will add roughly about $125 million plus on an annual basis. And overall, for the period of the contract, it will be roughly about $650 million plus over 6.5 years.

This is a true testimony to the relationship and to what we have delivered for this customer over the years. It talks about our engineering prowess, the deep domain expertise and the belief that using AI, we would be able to deliver even better in the years to come. This, in our investors' mind, should cement the growth that we have seen in Persistent for the last several years and should continue our 24-quarter streak of growth for times to come. With this, I will move on to the other announcement that we have, which is in line with our stated M&A strategy.

You would have heard us, whether it is me, Vinit, Anand, Saurabh, others, talk about our M&A strategy, clearly stating, if we were to do a scaled acquisition, that would be aimed at expanding our footprint in Europe. That has been an ambition for us for times that the last several years. And today is an exciting part of that journey where we have sincerely found a partner, which is very, very complementary to us. This is not a consolidation play. This is an expansion play for us, bringing together, as Anand rightly pointed out, people, capabilities, markets, which are all complementary to us and very much aligned to the direction in which we want to take our company and make a company to last for many, many decades to come.

Now in terms of the combination, what does this combination mean for us? We are calling it the Persistent-Nagarro Group. The two companies have very strong brand name in respective markets. Bringing the group together, we will be 46,000-plus team members globally spread across 40-plus countries. It will be a $2.9 billion plus powerhouse, focused on forward-looking technologies and will also have an addition of complementary verticals, capabilities, provide career path to our joint employees. And the transaction, as you will hear later in this presentation, it is very accretive to both the shareholders, the existing shareholders of the Nagarro Group and the existing shareholders of Persistent. We will talk about how we intend creating disproportionate value for our shareholders in line with what we have done in the past.

Now just to go over the strategic priorities that we have set for Persistent over the years. We've always said we want to be the best technology services firm, not a general purpose IT services firm, a technology services firm with forward-looking capabilities, whether it was digital engineering, cloud in the past and now AI in the current times and for the times to come, building on the tenets of the digital side that we had. We have always said we will go deeper and broader into the service lines, add to the verticals as we go along, but first go deeper into the existing verticals, expand in Europe and also from a nearshore perspective, have European delivery presence. And we will talk about how with this announcement, we tick off each one of these boxes and even more with the combination coming through.

Now let me talk a little bit more in detail on all this. For all of us, just to refresh who we are as Persistent and for some of the Nagarro shareholders who may be joining this call today, Persistent today is roughly a $1.654 billion entity from an FY '26 perspective. From a run rate perspective, we are more than $1.7 billion. We are focused on AI-led platform-driven digital engineering. We have grown very well over the last several years, whether it is from the time we went IPO, we have grown at about 17-plus percent CAGR compounded annual growth rate. And for the last 5 years, we are happy to say we are among the top as far as the growth is concerned in our industry. We have grown at roughly about 23.9% for the last 5 years from a compounded annual growth rate perspective.

And while we have done that, we have meaningfully expanded our margins. Today, our margins stand at roughly 15.6%, and the PAT margin stands at about 12.6% -- being a public company, the market cap is another indicator of the confidence of the capital markets. Today, we stand at about $8.1 billion in terms of market cap. All of this is backed up by 27,500 of our team members across 21 countries. Predominantly, if you look at it, and this is, again, a thing that we will talk about how it is relevant in the current context, significant amount of our revenue comes from the U.S./North America, roughly 81% plus. Europe has been roughly about 8% to 8.5% of our revenues. And even in terms of our team members, roughly about 3,000 of us are in North America and 300-plus are in Europe, 200 plus are in the rest of the world.

Now if we look at similar footprint, if I was to go ahead, Nagarro today is roughly EUR 1 billion organization, which translates into roughly $1.14 billion from a trailing 12-month perspective. They have grown very well if we look at the 5-year revenue CAGR, which is 18.4%. The revenue growth in constant currency has been decent for the last 3 years, but has taken a small hit compared to what they've done over the last 5 years. Now if we were to look at their margins, they are today at 13.9% in terms of EBITDA margins. This is for the Persistent shareholders so that they understand what we are kind of integrating into Persistent going ahead.

Nagarro is headquartered out of Munich, Germany. They have a very seasoned management Board. The founders, Manas and Vikram have been with the organization from the beginning. They are complemented by Annette, who has been there in the organization for 6-plus years; and Prateek Aggarwal, who has been a seasoned CFO from an Indian listed perspective, he recently joined their management Board. Roughly 18,500 professionals. So while they are -- they're heavily focused on Europe and a significant part of their revenues come from Europe, culturally, and this is a very important point because usually, the biggest challenge in any kind of merger and acquisition is the integration part.

So while they are a European headquartered European revenue-focused company, they have a fairly good cultural mix between India, Europe corridor and the rest of the world. 13,500 of the team members in Nagarro today reside in India, 1,500-plus reside in the rest of the world. So from a cultural perspective, they are already a very heterogeneous company into a homogeneous Nagarro. So from that perspective, we believe we have found the right fit because even from an integration perspective, it would be an easier integration than having a pure-play onshore European kind of an organization. Here, the founders come from a different origin. Management is diverse. People are diverse. Having said that, they understand how to live well culturally with each other. And that's one of the biggest reasons why we were in addition to the customer base, in addition to the technology progress, very enthusiastic about this combination.

Now if we look at it from an overall perspective, the partnerships that they have, the partnerships like SAP, where they do work with SAP, both on the product engineering for SAP, including some of the forward-looking work that we may talk about as we go along. And they are a very key implementation partner for SAP, whereas our ERP progress is not necessarily at a scale. So this is -- these kind of additions are fairly important for us. Similarly, from an OpenAI perspective, they are one of the few organizations which are accredited resellers to OpenAI, and they have a forward deployed engineering practice around OpenAI. So from that perspective as well, whether it is capabilities on ERP, which are important if you are trying to do end-to-end kind of transformation and the complementarity that you will see in the next few slides, there is significant value in this. And just to reinforce one more time, this is not a cost consolidation. This is not a consolidation of management. This is complementarity, and there is enough and more for every one of us to do globally in this merger.

Now from a perspective of overall statistics. We talked about this before, $2.9 billion, 40-plus countries, 46,000-plus team members. And if you look at the quote below from Pari Natarajan, who is the CEO and Co-Founder of Zinnov, a well-respected firm in our marketplace. Even people like him see this as a fairly rare combination, purpose-built for the future and something that can be built to last and can deliver significant value to customers, employees and shareholders.

Now let's dig deeper into some of the statistics and why we are so excited about this combination. So if you look at Persistent in North America, as I said before, we have a dominant market share as far as our own revenues are concerned coming from North America, roughly about 81% plus. In terms of employee footprint, we have 3,100 plus of our team members there. Whereas if you look at Nagarro, Nagarro is only 35% of their revenues in North America and roughly 500 of the team members there.

And now if you look at the combination, similarly, I could go through Europe and so on. But the fact is today, if we combine these two organizations, North America for the combined organization becomes 62% Europe becomes 22%. Rest of the world, which includes places like Australia, Singapore, Japan, Israel and others become roughly about 16%. So not only do we get revenue diversification, we get talent diversification, we get scaled nearshore centers in Europe from this acquisition/merger. And we also -- if you look at the vertical side of the house, -- from our perspective from Persistent, we have a dominant share coming from TMT, BFSI and HLS, whereas with Nagarro, we add a significant might in industrial, consumer and a fledgling business in public sector.

One other thing one should know, this also gives us an entry into Middle East, where today, Persistent footprint is minimalistic and Nagarro has a fairly decent practice across various industry verticals within Middle East. So it's a pretty good mix of Europe, Middle East, Japan, Israel and other places, which gives us enough and more addressable market to expand, whether vertical-wise, geography, service lines and more.

Now how does it position us globally? We would, as a combination, look to be the second largest digital engineering player globally, seventh largest in terms of technology services company from an India-listed landscape. And if I may say so, if we are able to bring our track record of growing consistently over the last several years, the operational rigor that we have put together, the capabilities we have put together, combine these two into two organizations, the amount of synergies we can drive from a revenue perspective would place us at the best of the value creation for our shareholders going ahead.

Now just to summarize here, if you were to look at this, combination for the Persistent-Nagarro Group, not only we become a leading AI-led engineering powerhouse, we have a new dimension of scale. And why is scale important? A number of you may be thinking in today's day and age, why have bigger scale? It's not about scale for the size -- for the sake of scale. It is where does the scale come? And why is it important? This basically brings scale, which is an additive to Persistent and to Nagarro in different geographies, in different verticals. And let's say, we are dealing with a large customer putting out a large bid. The geographical presence across the globe is significantly important. And that is what gives us the seat to the table and right to win in the larger bids going ahead with this potent combination.

Coming to the capabilities, I've talked about this before. We believe the capabilities, whether it is our digital engineering capabilities, whether it is the ERP addition, whether it is the forward-looking and the most important AI-led things. I talked about the OpenAI part from Nagarro. Similarly, we have partnerships with Anthropic, we have partnerships with other leading hyperscalers and so on. Bringing all of this together, our capabilities on AI forward deployed engineering become impeccable and possibly much bigger than any of the sized players who are general purpose IT services, technology players in our world.

From a revenue diversification. Now this also from a geopolitical perspective is a fairly good balance. And also keep in mind, from an AI perspective as well, if we can work with the leading companies in the West Coast of the U.S., where literally everything that anyone talks is AI, and we can serve those demanding customers, we can bring it to the rest of the U.S. and North America, North American markets, are usually ahead of the European markets in adopting technology. So if we can bring that tenets to Europe, we can get an unfair share of the market share in European markets and grow Nagarro big time in the years to come. Similarly, on the cultural fit and which is very important from the integration perspective, whether it is the entrepreneurial culture of the two organizations, the engineering first culture, whether it is the India, U.S., Europe, India corridor. And even in the times to come, the collaboration with -- between countries like Germany, India, broader Europe and India, a lot of these will play very nicely into us being able to integrate.

And in integration, this is, again, as I said before, we are not looking at huge amount of people coming from Persistent in Europe taking over leadership responsibilities. In fact, it will be the other way around. Increasingly, the team in Nagarro will play a bigger role in their strength areas, whether geographically, vertically and so on. So from that perspective, the discussions between the two management teams are very encouraging, and we are very confident. Obviously, it will be a planned execution of integration over a period of time. And usually, these things have to slow-oll. Usually, these things will take time to create value, but we are very confident of doing it the right way now.

Now let me go back to our priorities and how does this fit in. Now with the Nagarro group coming in with Persistent and the overall Persistent-Nagarro Group, if you were to look at it, we create an impeccable set of forward-looking capabilities, creating a company built to last. We have service lines diversification. We add ERP from their side, CX from our side. We augment the verticals. Many of you have asked us in earning calls before, do we need additional verticals to scale our aspiration to -- scale to the aspiration of $5 billion that we have by FY '31.

We get that as well at a nice scale. We add to the European business. We live to our dream of having European business at 15% plus. In fact, it's a very nice combination, which gets us to 22% in Europe. It adds nearshore delivery presence. And as I said before, it gives us a Japan presence, our Middle East presence, a presence in some other parts of the world where we are not there. And also adds to us a small embedded software practice, which if we were to do these acquisitions as sum of parts, we would have had to pay far more and integrating would have been a very difficult job.

So with that, let's come to the video from Manas, who is the CEO and Co-Founder of Nagarro, and let's hear him out on the combination.

Nagarro is an engineering-first company, much like Persistent. And in that, the two companies share a very common culture. And at Nagarro, we believe that we should not be running to where the ball is, but where the ball is going to be. And with this in mind, many years ago, we designed the company around digital transformation, optimizing it for digital transformation work. And we were able to ride that wave of growth for many years. And today, we are designing the company and moving the company for the -- preparing the company for the AI transformation wave, and we really look forward to riding that wave of growth.

And in this riding and capturing this wave of growth, the partnership with Persistent is extremely exciting because if you sat down with a pen and paper to design the complementarities -- the ideal complementarities, you may not be doing as good a job as we just have -- happen to have with Persistent, which is by a sheer stroke of luck. So across industries, there are these complementarities across geographies, across service lines, even partnerships, we're very complementary. And so we really look forward to making this all work out and actually riding this wave of growth with this whole AI transformation in the next years to come.

So now with that, we are very excited about this whole thing. We believe this could be a game changer for all the shareholders, whether it is the existing shareholders of Nagarro who will be exiting, they get a reasonably good premium from the persistent shareholder perspective. We can rest assured we just expanded our horizons from an addressable market perspective, geography, accounts and so on. We are confident of bringing our rigor, our joint capabilities, et cetera, to growth for the combined organization. For our clients, we just became an even more relevant player at a global footprint for our partners, they have even more incentive to work with the forward-looking scaled Persistent. And for our employees, both sides, it means broader, bigger ambitions, possibilities, opportunities and that way, more reasons to stick with the organization for longer.

With that, I'll hand over to Vinit to explain the transaction details and come back later for summarizing and answering questions. Vinit, over to you.

Thank you, Sandeep. Good morning, good afternoon, good evening to everyone, and thanks for joining this call. Just let me walk you through in terms of the transaction details. Persistent has agreed to acquire 100% of the Nagarro shares at an enterprise value of EUR 1.27 billion based on EUR 81 per share in cash, a premium of 140% to the undistributed closing price -- undisturbed closing price on June 25, '26 and 94% to the 3-month volume weighted average price. Transaction values Nagarro at 1.27x the enterprise value to the revenue and 9.12x enterprise value to the EBITDA, and I will walk you through in the next slide the details about it.

It has already secured 21% stake in Nagarro via share purchase agreement from the major shareholder. Management Board has already expressed their interest to tender their shares into the open offer. Both Nagarro Boards fully support the transaction and have signed a Business Combination Agreement. Persistent extends the voluntary public takeover offer to all the outstanding shares at the same price of EUR 81 per share in cash. And we have put a minimum acceptance threshold for this open offer at 50% plus 1 share.

So just coming on to the valuation part of it, whichever the offer price is at EUR 81 per share. The outstanding shares, which are excluding the treasury shares is around 12.4 million that translates into an equity value of EUR 1 billion. Then there is a net debt of around -- the reported net debt of around EUR 267 million, and that translates into the enterprise value of EUR 1.27 billion. That's how the calculation on the enterprise valuation rise. And if you look at the revenue multiples or the EBITDA multiples based on the calendar year '25 revenue that has been -- revenue and EBITDA that has been declared or the other consensus in terms of what are the calendar year '26 guidance, all fit within the number what I already talked about. Rather, if you go with the calendar year guidance on the upper end, the multiples from the EBITDA perspective dropped down to around 7.73. So we believe this is a very, very fair and attractive valuation that is being paid both for the Nagarro shareholders and the asset that we are acquiring for us.

Let me get on to a little bit on the financing part of it. This will be completely funded through a committed bridge financing from Barclays. The interest rate is going to be EURIBOR plus a margin of 175 to 250 basis points. At this point of time, that translates into somewhere in the range of around 4.1% to 4.8%. The requirement will be a little bit few months later. That's why we have given this as a range. The leverage, that is the net debt over the combined EBITDA is going to be 1.9x to 2.5x based on how much will be the open offer acceptance. So at 50% plus 1 share to 100%, it is expected to reduce down to 1x by financial year 2030. The total amount of facility, committed bridge financing facility of EUR 1.4 billion includes the refinancing of Nagarro's existing debt if required. And Persistent Systems Limited, which is the parent entity, will provide a corporate guarantee of EUR (sic) [ 1.54 ] billion, and it will also include any outstanding accrued interest in addition to the bridge facility of EUR 1.4 billion.

Goodwill and amortization -- goodwill and other intangibles put together. So we are anticipating it will be roughly around 70% goodwill and 30% other intangibles, and those other intangibles will be amortized over a period of 8 years. The transaction is expected to be cash EPS accretive as well as reported EPS accretive in year 1, if you remove the transaction expenses that will be incurred in the first year. Revenue and cost synergies to be detailed post the regulatory approvals.

From -- just from a time line perspective, on 26th June 2026, we announced the offer for the voluntary public takeover. In the next 4 weeks, we'll be filing our documents with the regulatory authority, BaFin here in Germany, and they will take around 10 working days to two weeks' time frame for us to get back and clear the offer document. After that, we'll launch the voluntary public offer. It will be there for -- acceentance period will be there for a period of four weeks. We can have an additional acceptance period of two weeks further. The persistent Annual General Meeting is expected by -- in the last week of July, and we expect our -- we intend to put forward the transaction for shareholders' approval in the same Annual General Meeting. And based on the current anticipation of various regulatory approvals that are expected, we expect this transaction to close sometime towards the Q4 of calendar year 2026 or early Q1 of calendar year 2027.

With that, I will hand it over back to Sandeep to summarize.

Thank you. Thank you, Vinit. So we -- if we were to summarize this, between the large deal that we have announced and the transaction that we are announcing for Nagarro acquisition, we are very confident, first about maintaining our growth in the existing persistent part of it. We are confident that we are having a right partner for the combination for creating the company, which will be sustaining the same revenue growth momentum for times to come, creating a unique capability from a customer perspective. We are excited about this journey, and we look forward to your support in this journey together.

So with that, we will stop and we look forward to the questions from our investors.

[Operator Instructions] The first question is from Kumar Rakesh.

My first question was around the books of Nagarro. So have you done any incremental due diligence on the books of Nagarro? And are we confident that all the issues related to their books are behind? And related to that is the acquisition multiple as well that it looks like it's premium compared to some of the peers, especially in Europe, who are trading at, given the growth profile of the business, what has been the rationale behind the valuation multiple as well?

Sure. So as far as the books of Nagarro are concerned, I think you are referring to the BaFin queries that they have got over the years. So they have got two set of queries. One was related to the time that they basically were carved out of Allgeier. The second is about how they have taken the accounting principles and so on. And we have done the diligence on both. We are confident that those issues are more answering BaFin rather than any issues that have any impact on the company's performance or any of the practices being followed by the company and so on. So we are fairly convinced we have had a legal tax diligence, and we have appropriate responses from the management and good reasons to believe nothing to worry.

Now in terms of the premium, obviously, when you're looking at the premium, it is about -- if you compare these companies, the growth profile or where the stock prices were over the last 1 year, last 3 years, we believe we have paid a reasonable premium for a control transaction. And from a perspective of integration, this would be a much better integration than having just another company in Europe. And if you want to compare this transaction, you should also compare to the private transactions that are happening in a controlled manner. So from our perspective, we believe it is not about buying cheap. It is about buying the right asset. It is about having the right management team capabilities, which can help us build for the future. So it's a value acquisition for us. It is a very complementary acquisition for us, and we are convinced about the value we are paying and about the value we can create for our shareholders.

My second question was you spoke about that the ERP and CX capability, which you -- two companies bring together, but there's a lot of service line capabilities, which are very similar between the two companies. So beyond the industry and geographical expansion, is there any cross-selling opportunities as well sizable that we can look forward to?

Yes. So if you look at it, you are right. From a service line perspective, it is ERP, it is CX, it is -- and they have a very strong consulting practice as well. They have -- now if you look at a vertical side of it, there are complementary verticals. So we don't have a scaled industrial vertical. We don't have a scaled consumer vertical. We don't have a presence in public sector. We don't have today the ability to service our customers globally in different parts of Europe, for example, scaled presence in Germany, Italy, France, Switzerland, Spain and Turkey and so on and so forth. So there are many vectors, which are meaningful vectors in terms of synergies, whether verticals, geographic presence, capabilities and so on. So we are very enthusiastic about this, and we sincerely believe we can scale the combined entity very well over the next several years.

The next question is from Ravi Menon.

Congrats on the deal. So first of all, you talked about the management team. So are these guys staying on? And do you have a certain earn-out and other factors for a certain period of time?

Yes. So management team is absolutely committed to staying on. And the European laws work slightly different than the things work in America and India, et cetera. Since the management team is -- part of the management team is also an investor in the company. These incentives, et cetera, we have to be very compliant to the minimum pricing regulations, et cetera. So at the same time, there are enough and more commitments from both sides. And the good part, Ravi, from that perspective is we are complementary as we talked multiple times even for the last question, whether it's vertical, geography, capabilities, et cetera. Our presence in Europe is minimalistic. Our presence in many other countries outside of Europe, like Middle East that they are in. So we will look to their leadership to take on more with time. And so there is no reason for anyone to be unhappy in this. And yes, wherever required, as we integrate, we'll put the right incentive plans in place like we have in Persistent for our senior management. And we are confident of the teams working together based on the diligence that we have done.

Nagarro had really good growth until quite recently. So -- and especially in automotive manufacturing, now that's started picking up. So can you talk a bit about the type of clients and the sort of work that Nagarro does in this segment?

Yes. So I have to be -- we are in the process of the transaction. We have to take all the regulatory approvals and so on. So I have to be at a high level at this point in time. But at a high level, if you look at it, they count some of the largest automotive manufacturers here. But automotive is not necessarily the biggest segment for them. It is a broader industrial segment. They have a very good partnership, for example, with Siemens, where they do both the product engineering for them, they also do significant go-to-market implementations for Siemens and similar players. If you travel in Lufthansa Airlines, they have done a significant amount of work for Lufthansa. They have done a significant amount of work for SAP for SAP itself.

So for example, the next-generation work that is being showcased by customer -- by SAP in their customer briefing centers in India or otherwise, a significant part Nagarro has a role to play. So the kind of work that they do is cutting edge, whether it is in industrial, consumer, even some parts of travel transportation and so on. So we pretty much see this as a vector that we can also take to our side. And so from that perspective, they are not necessarily -- if I may put it straightforward, if one is thinking about automotive slowdown and so on, that's a small part of their revenue. And where they work also is more on the digital side.

And the segments that have declined for them, the horizontal tech, energy utilities, telecom, travel segments, some of these have been quite sharp declines. And are there any structural issues in any parts of the portfolio, especially horizontal tech, which seems to have been declining over the last few years?

No. So Ravi, I'll put it this way. I don't think at an Uber level, and I don't want to go into the structural part of every vertical. I'm currently running Persistent, and I would rather have Nagarro, CEO comment on all the verticals. But from an Uber perspective, if you look at it, they have on a constant currency, grown more than 5% even in these environments. And keep in mind, if I may say so, they were distracted for some time when they were taking a transaction to take Nagarro private in the last year, and you can do your own search on that. And we believe that with this behind this whole transaction thing behind Nagarro and with the single-minded focus of the management of Persistent and Nagarro on growth, we are very confident of bringing this back to an industry-leading growth. Obviously, it has to be in the context of Europe and other geographies. And so from that perspective, we have no reason to believe any of those slowdowns that you're talking about should impact it.

And do you see any cost synergies yourself the combined merged entity you think will operate at slightly lower margins than Persistent currently does?

So look, the combined entity, even today, if you look at their margins, their margins in the last quarter are reasonably good. Now in the combined entity, our ambition would be, yes, there would be cost synergies, but our ambition is to put that back significant part in growth-related initiatives and expansion initiatives. Having said that, we do not believe that the combined entity will be at any significant lower margins than what Persistent has today. And if you look at our track record, we have brought our margins over the last several years up significantly. And two companies at this scale, there will always be cost synergies, which can enable us despite the investments that we talk about. So long answer, but to summarize, we believe we can maintain the margins and better them.

The next question is from Vikas.

Congrats on winning the large deal and this acquisition. So I mean, the strategic logic is sound, geography, vertical diversification, scale, multiple arbitrage. But my first question is Nagarro revenue has been flat for two years now and with margin pressure. What gives us confidence that this is a turnaround asset? And obviously, when I also look at the stock price from the peak, it's down 85% from 212 levels. How do we think we can help the business recover?

Yes. So see, stock price and business are related. But at the same time, stock price is business fundamentals multiplied by the multiple that you get in a geography. So I'll just leave it there. You are, as investors, much better experts at this. Now if I look at the revenue growth, if you look at Nagarro itself, they have, in the past, grown very well. And for various reasons, whether it's management distraction in the take-private transaction that they worked on or other reasons, there may have been some hiccup.

If you look at our own track record of Persistent, we have grown from the time we went IPO at about 17.5% plus CAGR. If you look at the last 5 years, in an industry where others have not grown, we have grown disproportionately. From our last 5-year CAGR perspective, we are at 23.9%. If we bring in the technical capabilities and the rigor of a persistent into the joint entity, and we work together well, we are very confident of the growth that we can bring to the joint entity.

Now obviously, the other part is most of these integrations -- most of the acquisitions have an integration issue that can derail them. As I said before, culturally, we believe the company has a beautiful culture where while they are local, they are global. They have significant presence in countries like India and otherwise in many other countries. So there is already a significant amount of integration from a cultural perspective that exists in the company. That takes one big thorn out of this acquisition.

If it was a pure-play European company with no footprint in countries like India where we have a significant footprint as well, that would have been a little harder boulder to push up the hill. So if the integration is something that is a little easier, if the management in that company's entrepreneurial, we were founded by Anand, the similar cultures exist. Technology-wise, somebody pointed out earlier, some part of the basic ethos of service lines, et cetera, are common. So it is a lesser problem on the integration side, more on the expansion side. And so we are confident. And obviously, time will tell, but we are confident we'll bring the growth into the asset, and we'll maintain the margins.

Sandeep, also one clarification on the margin. And especially if I look at the EBIT margin, I thought for Nagarro, it's high single digits versus we were doing around 15%, 16%. So I thought the value accretion seems to be contingent on lifting Nagarro's margins. But I think you made one statement that it's -- I mean, margins are the same. Can you just clarify on that point?

Yes. So Vikas, in the sake of time, I would request you to read their financials and even the presentation that we'll share, their margins on EBIT side are not single digit. Their margins on the EBIT side are 13.9% plus and so on. So I would sincerely request you to review their financials and even the release that we will do.

The next question is from Karan Uppal.

Just a question on Nagarro's financials on CY '21 and '22. The overall growth seems to be pretty high. How much of that was organic during that period?

So Vinit, do you want to address that?

No. So they did have a couple of acquisitions at that point of time, which have basically increased the numbers. Again, those numbers are available in public domain, have a look at it. The point is we have looked at it more as a combined entity that existed on calendar year '25 and Q4 of -- sorry, Q1 of calendar year '26 basis. And right now, they don't have any material -- all of that is -- all the growth that is being factored in is all organic from our perspective.

Got it. Second question is on the vertical performance. Sandeep, you have touched upon this a bit. So automotive, manufacturing and industrial seems to be pretty consistent in terms of growth, but other verticals seem to be quite volatile. So what changes would you like to make in the combined entity so that the performance is quite consistent like the we -- like the way we observe in Persistent?

Yes. So look, we have just announced the transaction. I wouldn't want to stretch the envelope by saying we have all the answers to your questions in terms of what changes we would make and so on and so forth. I think the fair thing to say would be, have we done the diligence at the level that we are comfortable in each of these, whether it is the verticals, whether it is the geographies, whether it is overall the operations to be able to say we have a draft plan. I don't think it is a time to share that plan right now.

We still have to wait for the regulatory approvals, whether it is the RBI approval, whether it is the regulatory approvals in various countries, including here in Germany. So there will be a time where we will share a value creation plan, but I think we have to let the time go by when we have the regulatory approvals before we kind of jump the gun. But from the diligence, we have a value creation hypothesis that we have presented to our Board to get the approval for this transaction.

Just a last question to Vinit. Vinit, how much interest cost one should bake in once the transaction is over from, let's say, assuming FY '28 basis?

Yes. We see, at this point of time, one of the critical part that we need to get it is how much is the acceptance that comes up in the open offer. And as a result of that, how much debt we'll have to look at it. The good part is that both Persistent and Nagarro are good in terms of their cash generation. So our intent is basically to see some of these money -- some of these loans are repaid to the cash generation that will be happening over a period of time. So in the next couple of months, you will get a lot of answers in terms of let's see how much we get as a part of the open offer, how much we are able to generate as -- we maintain our cash generation, and we should be able to reduce down. The good part, entirely debt-driven transactions on our assumptions, and we are pretty confident that we'll be able to service the debt, become cash EPS accretive from year 1 and remove the transactional expenses, even the reported EPS should be positive from year 1.

The next question is from Nitin Padmanabhan.

Congrats on the transaction. I had a couple of questions. So one is, if you look at Nagarro's distribution of verticals and average size of the clients, they are much smaller -- significantly smaller than what it would be for Persistent. We have sort of scaled clients pretty well. And there also is sort of a long tail. So just wanted your thoughts on how we would sort of address that? And do you think that could be a risk to growth from an overall combined entity perspective. So that's one.

Two, how are you thinking about sort of being able to sort of extract value out of that? And would you need to invest more from a GTM perspective within those accounts or let go of some of those tail accounts? So that's the part of the first question, I'll ask the next one after this.

Sure. So Nitin, very well said. In fact, that's a good opportunity for us. So if you look at the story of Persistent, even we have moved up the value chain. Today, if we look at it, the top 4 customers or top 5 customers, the average, let's say, for the top 4 is more than $100 million. And if you ask us, 3, 4 years back when we used to do our investor meetings, people would ask, would we have the ability to have a $100 million-plus account. And today, we have at least two which are $100 million plus, third is reaching there very soon and so on. So this is actually an opportunity for us. The logos, the quality of logos is very good.

One thing that I will also say this, there are only single-digit overlap of customers at any value. So from that perspective, there are less than 10 customers where we have any significant overlap. And there also, we are working in different parts of the organization. Now if you have 180 logos, which are $1 million plus, and they are very good quality and the highest customer may be less than $50 million, if we bring the tenets of a persistent, if we bring together the minds to be able to mine those customers, we actually don't need to hunt any other logo. So from that perspective, there is a significant amount of opportunity on the table. And if we are able to bring the service lines together, take it globally to the customers, we are very enthused both sides about the potential that exists in mining this.

Now are there -- is there a possibility of tail accounts being rationalized? There's always a possibility, and we'll look into that as well. That should release the SG&A to be able to invest where we need to. So from overall perspective, look, the 2 companies put together have more than 350 -- $1 million-plus accounts. The quality of their accounts are pretty good. Ability to mine that will decide how much we are able to scale even further. And overall, we think there's a significant amount of untapped potential in those accounts that can be value accretive. Now your next question.

Yes. The next one was on the delivery side of things. 68% of their revenue is time and material. And in the context of cannibalization with AI and all of that, how are you thinking about that in the context of Nagarro? That was the second.

And finally, I think their free cash flow seems almost double that of PAT. Obviously, there's interest cost there, but interest is below the line. So how sustainable is your free cash flow? How are you thinking about that in terms of being able to -- if I assume the whole debt, it's around almost $41 million of debt repayment, I mean, interest costs. So just in that context, that was the second question there -- third question, sorry. Yes.

Yes. So I'll first have Vinit answer the other questions and then I'll come back.

Yes. See, look at it. At the end of the day, even from a Persistent perspective, we have made improvements over a period of time in terms of generating our operating cash flow, coming out with different models in terms of how to fund the CapEx, et cetera. So our intent is, over a period of time, we will bring the best of the practices into the combined organization and try to improve the cash flow, ensure that the debt is serviced within the cash flows that are being generated. And we have moved away from a lot of CapEx model to an OpEx model of working -- funding our working capital. A lot of these things will help us in terms of supporting our cash flow and ensuring that we remain in the positive and comfortable zone.

Right. So I'll come to the first part, the T&M business being 65% and so on. So let's dig a little deeper into what companies like Persistent and Nagarro do. we are not comparable to some of the largest peers we have, and they are good companies. The bigger peers are not bad companies, they're good companies. But a significant part of their work is support-related, managed services or support-related T&M work and so on and so forth.

Now when we look at Nagarro and Persistent, we are more into the build side of it, whether it is the digital engineering side of it, more and more AI-led digital engineering. And these at times don't lend themselves to the fixed bid [ managed ] services kind of constructs. So while they may be T&M, while it may be a T&M leveraging AI tools or at times where, for example, some deals we may be able to do on business outcomes, the T&M model is not dead at least for the next few years, it will increasingly go down, and that's what they are also doing. So I would not worry too much about that. I'm pretty reasonably sure based on the diligence that we have done and the kind of top customers, what the work they do, what we have understood, we are comfortable with this. And over a period of time, this will -- these business models will evolve wherever they have to evolve. And that's the same thing applicable for Persistent or anybody else as well.

Now hopefully, that answers you. And I go back -- I want to go back to Vikas Ahuja. Vikas, I want to make sure I give you the right data points. So the EBIT for CY '25 for Nagarro is 10.9%. For Q1 CY '26, it is 12.1%. And they recently brought on a CFO. For the longest period of time, they had run the CFO organization, not necessarily in the most regimented ways. We have good reasons to believe that this will improve. And there are many tenets that we have seen, which we don't want to discuss on this call as we build the integration plans, as we build the synergy plans, we are confident of taking their margins up, working closely with them. So...

Sandeep, you missed the cannibalization part of the question. On your assessment of cannibalization of revenue with AI for them in their context?

So look, the same thing applies for Persistent as well. So I want to answer it at a Uber level, and thanks for reminding me on that. So if you look at cannibalization, even today, we are cannibalizing as Persistent our own revenues. And the way we are doing this is we are adopting tools, and we are building our own IP. So for example, the SASVA platform that we have, it can do end-to-end engineering. It also showcases to the world whether they use SASVA or not, whether we use Anthropic or OpenAI or whatever. So we are able to get more business. So the point is if we are able to disrupt ourselves, cannibalize ourselves, we are winning more business. And the fact that we won the large deal is also on the back of the entire AI thing that we are basically saying we can do more for less or for the same amount, we can do far more. So I wouldn't be that worried. The -- is the cannibalization going to reduce the T&M revenue for the scope of work that they do currently? Yes.

Now the secret to the whole thing would be, are you able to win disproportionately? Are you able to move the capability needle much faster than the bigger organizations? And that's what our entire strategy has been in Persistent, and that's what these people, if you look at Manas' video as well, he was referring to that, and that's what we will continue to build. So win more business while cannibalizing the existing share. And we are -- both companies put together $2.9 billion, much smaller than many bigger peers, much more than the market. We are confident despite the cannibalization, we'll continue to grow. And as I said, even the large deal cements the growth for Persistent for this year. Hopefully, that answers.

The next question is from Abhishek Bhandari.

I had three questions, two on the deal, the M&A and one on the large deal. I'll start with the M&A. So in one of the points in the press release, you have mentioned Persistent does not intend to enter into a domination and/or profit loss transfer agreement. Does this mean Nagarro run as an independent company for two years without integrating into Persistent after the closure?

Yes. So the way it will work is we will have -- depending on the acceptance this thing, and we are assuming we'll be successful, given we already have 21%, given we already have management commitment for their shares, and reasonably good confidence that we will be able to get to the level we want to. With that, we will have the ability to work with the management team to be able to bring the change. Obviously, they are running the company. We are the shareholders and controlling shareholders. We'll run the company with them.

We'll, over a period of the next two years, look at where we can do the squeeze out. And we are in no hurry to do the squeeze out. We can do the squeeze out at the right period of time. Ultimately, it will become one entity going ahead. But we will have the agreements in place to drive synergies and be able to make impactful change in their decision-making, working with them. That is the way we are looking at it. And that's the way mature transactions in the European public to private transactions work.

Got it. My second question is on the financing options you had the entire cash flow to buy the shareholders. When you're acquiring such a large company, which is almost 2/3 of the current size, as a risk mitigation strategy, do you think doing some kind of a cash plus share swap would have been a better strategy to reduce your risk and also have more skin in the game from the company holders who are entering into this transaction?

Yes. So very good question, Abhishek. So the thing is this. This is not a private equity asset that we can do an easy share swap and stuff like that, that many of our peers may have looked at. In a public to private transaction, the dynamics are different, especially in places like Germany, and we have gone into enough details with the lawyers and bankers on this. Having said that, there is a significant amount of inbound interest even in the last 24 hours that we have from private equity and other people in the market. We may look at that over a period of time at the asset level, not at the persistent level. We don't intend doing any QIP, just to be clear for everyone. We don't intend diluting our stake at this point in time. We may look at if there is a merit in deleveraging by having a private equity or some other participation at the asset level, those options are open. No decision is taken. Right now, our decision is to go solo. We are confident we have the Barclays financing commitment. The interest rates are pretty favorable and our combined EBITDA supports the entire transaction. Options are open.

Last question is on the large deal on the usual business what we have. Congrats on that. If you could share more details around what exactly you're going to do with your top tech accounts on this project? Any kind of time line around the ramp-up of this particular $650 (sic) [ million ]. You mentioned $125 million ACV should we assume from Q2 itself? And are there any margin implications of such large projects? Like is it a consolidation project for you? Or is it scope expansion on the work what you're doing?

Yes. So we will not talk about the customer name. We are under NDAs not to disclose the customer names, et cetera, and that's not a good practice. Having said that, this is a net new business. This is not -- there's not much ramp-up required in this because this may also have employee transitions and so on. And from that perspective, we are responsible for end-to-end product engineering and product support for a significant portfolio of products globally that should give you the confidence. And yes, it will be accretive revenue margin from Q2 onwards. And from that perspective, margins are fairly healthy. It is not necessarily large deals like this don't come at the margins at the company average, but a company is always a sum of parts. This is at a fairly healthy margin, and we are pretty happy with the deal.

The next question is from Kawaljeet Saluja.

Yes, Sandeep, congratulations on the two deals. My question is just a short one for Vinit. Vinit, can you just walk us through the EPS accretion math on a GAAP basis in the first year itself? Now the math I'm doing unless and until you assume some margin expansion. It's difficult to get to that EPS accretion. So if you can just help us with that. And the second thing is that the debt that you are raising is the interest expense, a tax deductible expense as such?

So what we said is from a cash perspective, so first of all, what we are right now anticipating is a 70:30 split in terms of the goodwill and intangibles. The intangibles will be amortizable over a period of 8 years. The interest rate, as I said, $1 billion-plus acquisition and debt will cost us roughly anywhere between 4.1% to 4.5% sort of interest rate at this point of time.

Number two, if you look at -- when we say cash EPS accretive, it is basically because if you remove the amortization expenses, et cetera, all put together, it's cash accretive for us. Even when you look at from a reported perspective, what we are saying is if you remove the onetime expenses that will be incurred as a result of the transaction expenses, et cetera, those one-offs, if you remove and look at it, it will be even reported basis, EPS accretive for us.

Okay. The second question is for Sandeep. Sandeep, I know you have multiple times you have said that there are significant synergies and growth will be a focus. But I just had a -- just let me just ask this again that when you do such a large acquisition, the size of the organization increases. And in your case, there's a complexity of a two-year complete integration plan as well before you squeeze out the minorities. So how do you ensure that the growth engine keeps on going? I think investors are fairly comfortable, all of us are fairly comfortable with the persistent part of the growth story, but something which is growing at 3%, 4%, how do you bump up the growth of the combined entity to that persistent level growth rate?

Yes. So if I may humbly say so, look, any company goes through its own phases. There are times when the growth slows down. Even in Persistent, we have had a few years where our growth was not necessarily at the clip that we are today. And we have done our diligence. We have done the diligence on how they go to market, what their structures are, what are the low-hanging fruits? How do we structurally while we wait for the full combination to happen, work with them. And we are pretty reasonably confident based on the diligence and the kind of chemistry we have developed with their management teams and the kind of low-hanging fruit that we see that we will be able to do that.

Second, putting the right contracts in place to drive synergies even while we run the two companies publicly as one company owned by us fully and as one company where we have full control and one company where we have control over the shares, and we have management working with us. So we are fairly convinced we can execute to this and our track record ourselves should show our capability to do that. Now we have to be cognizant of time. We are already at 9:02. If there is one last question we can take, we will take, and we will be looking forward to meeting our investors on a one-to-one meeting, and we can follow up with any of you in those meetings as well. So one last question, Vandit, if you can take, we'll try to close the thing. Kawal, we'll follow up with you after this call as well.

Sure. The last question is from Vibhor Singhal.

I hope I'm audible. So Sandeep, I think the business logic and all is very well explained. I won't take much of a time. I'm just looking for a couple of transactional details from Vinit. So Vinit, I'm just trying to draw out the decision tree here. The press release says that we are -- we have basically understanding of 21% stake from the existing promoters. And our transaction is basically subject to the fulfillment of 50% acceptance plus 1 share. So just trying to play out the different scenarios, not necessarily which of them will [ 55% ].

If we acquire, let's say, 21% stake and whatever stake that we have commitment to, but if there is less than 50%, let's say, acceptance from the open offer, what does that happen? Does that transaction go null and void? If we acquire 50% plus 1 share, then -- but let's say, whatever number we reach to 60% or 70%, then how does this happen? And eventually is the target to take this company public? And would that happen after the DPLTA comes into force? And how will be the time line of that proceed?

So look at it, 21% is something which we already got a share purchase agreement. As we said that the management also has expressed their intent to offer their shares into the open tender offer. And that roughly is in the range of around 13%, 14%. So that takes us closer to around 35%. There are certain other stake -- other shareholders who have also expressed their interest that we have a confident that between 35% to 40%, it is more or less committed.

Number two, we are paying a reasonably good premium to the existing share price. That gives us a confidence that we should be able to get easily above the 50% part of it. Now our interest will be to go as close as possible to the 100% part of it. So that helps us in terms of the integration and getting the squeeze out much easier. So that will be something which we'll watch out. But 50%, I think so we are pretty close. We don't anticipate any reason why we should not be able to get the 50% part of it. Obviously, we have a lot of bankers and et cetera, who have advised on this. And based on the shareholding pattern that we are privy to, we are pretty confident that this should not be a challenge for us.

Got it. And just one last part on that. Post 50%, are the rules pretty much like Indian open offer? It is the majority of minority that have to agree and then basically, the company can be taken private? Or is there a different threshold to eventually acquire 100% stake in the company?

Yes. It's pretty much on the same lines. There are a few local things that need to be taken care of. But yes, with 50%, we get a good amount of control over the Supervisory Board and then a lot of things should be possible to be integrated with the help of the management.

Vibhor, before we can also answer all these questions subsequently in a good level of detail. So I can speak to you and...

So we are at 9:05. We'll just summarize the call, and we'll make sure that we end in time. We are a little above. So from our perspective, the summary for all of you is with the momentum that we are seeing in our current business, despite the headwinds or tailwinds that various people may see, we are confident of our growth journey in Persistent. With this particular transaction, we are confident of building our next together. We are confident of the integration. We are confident of what we have seen in terms of industry verticals, service lines, management commitment. We believe we have the right chemistry, and we believe the asset gives us the ability to build the next generation of Persistent, add value to our customers, shareholders and employees at a larger scale. With that, we will stop. Thank you very much for your time today, and we will be in touch for further updates. Vandit, if you can close the call.

Thank you very much. Thank you very much to the Persistent management team. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's conference. Thank you for joining us, and you may now disconnect your lines and exit the webinar. Thank you.

Good afternoon, everyone, and welcome to Nagarro SE's Q1 2026 Earnings Call. [Operator Instructions] With that, it is my pleasure to hand over to Michael.

Great. Thank you, Carla, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q1 2026 earnings release, you can find it as well as a copy of our quarterly statement and today's presentation in the Investor Relations section at nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter.

Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our financial reports. Additionally, please refer to the quarterly statement for important information regarding non-IFRS measures. With that, I'm pleased to hand you over to Manas.

Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. My main message today is that we are seeing a positive response from clients to our Fluidic Intelligence approach. As I mentioned during our last earnings call, this approach is all about unlocking the intelligence that already exists across organizations in people, teams and departments, but often remains trapped in silos throughout the organization.

Now as our clients advance their digital transformation journeys into AI transformation journeys, existing workflows are being fundamentally rethought and redesigned for an Agentic world. This is driving increased demand for partners like Nagarro who combine domain and client-specific expertise with strong capabilities in AI and data. Nagarro has long been recognized for our engineering excellence and our deep understanding of client context, which remains a key reason why clients choose to work with us year after year.

More recently, we have made significant investments to strengthen our CXO level consulting capabilities as we evolve towards a more advisory-led approach. This combination of strategic advisory on the front end for AI transformation, coupled with strong engineering execution in the client context, positions us well to become a leading partner in this new era. We now see ourselves no longer as a digital engineering leader, but as a leader in AI transformation and engineering.

We are already seeing tangible examples of the value we can deliver to our clients with AI, a few of which I will touch on shortly. Simultaneously, we have restructured our organization to better enable our own rapid change, that is along this advisory-led dimension that I've just described, but also along the growth dimension, which is essentially putting in place a classical powerful sales and growth structure.

We have cut down the number of business units from around 20 to just 10. We have created a growth-oriented incentive structure. We are enhancing regional GTM sales and account management. We are scaling partnership management. We are engaging with advisers to push into large deals. We are hiring growth leaders from Tier 1 peers and so on.

That said, we are still at an early stage in realizing the benefits of the initiatives and capabilities we are putting in place. Over time, we expect these initiatives to translate into sustainably higher growth rates. The results for 2025 demonstrated the resilience of our operating model during a period of subdued demand for IT services. Our teams delivered solid outcomes for our clients while maintaining a sharp focus on operational discipline.

The results underscore the stability of our customer base and the strong confidence our long-standing clients place in us. Our underlying performance remained largely aligned with our expectations when taking into account the impact of foreign currency fluctuations during the year.

If we were to use the exchange rates prevailing at the time of our initial 2025 guidance, the full year revenue would be approximately at the midpoint of our EUR 1.02 billion to EUR 1.08 billion range. Adjusted EBITDA, excluding the EUR 15.5 million unrealized ForEx impact on intragroup loans would be approximately EUR 153.7 million, placing us towards the higher end of our guided adjusted EBITDA margin range of 14.5% to 15.5%.

So overall, the company continues to perform well in this cautious, but stable demand environment. We were pleased to complete 4 acquisitions in 2025 with 2 announced later in the year, Charles Hudson and Inaho. Charles Hudson is a Massachusetts, U.S.-based technology services firm known for quality engineering for the digital commerce and retail sectors. Inaho Digital Solutions is a boutique IT services provider, specialized in modernizing legacy applications and digital transformation in Japan and for Japanese clients worldwide. We are thrilled to welcome colleagues from all the acquisitions as well as their clients to the Nagarro family.

We're also very happy to have our first ever CFO. I'm very pleased to introduce Prateek Aggarwal, who is listening in on this call as CFO and member of the Management Board. Prateek brings more than 2 decades of finance leadership experience in tech and IT services. He has held very senior roles in global listed companies in multi-country and culturally diverse operating environments. He has a wonderful track record in financial management, operational discipline and capital markets engagement. Prateek will, of course, play a much larger role in subsequent earnings calls and in shaping the direction of the company.

We have also been actively expanding our partnerships with leading players in AI transformation, including AWS, Databricks, OpenAI, Cursor, CARTO. I'll talk more about the importance of these partnerships in a bit. We are confident that as we continue to execute our strategy, the market will eventually recognize the sustainable value that we are building here.

Digging deeper into the Q1 numbers, we reported revenue that grew over 6% year-on-year in constant currency. This growth is tracking largely in line with our 2026 guidance. We remain focused on controlling what we can control and our emphasis on operational discipline continues to yield results. Our Q1 gross margins came in at 31.2%, which is 60 basis points better than the year ago period as we focus on targeted initiatives for margin expansion, including the margin support program that we have spoken about, which continues to optimize resource allocation, improve utilization rates and drive efficiencies across the organization.

Our Q1 adjusted EBITDA margins were 12.6%, which improved year-on-year, but it's below our target for 2026, mostly due to the fewer number of working days in Q1. Please note that the EBITDA margin was 15.6%, but includes a large share-based payment benefit, which we are adjusting for. Altogether, we are maintaining the guidance we provided in March.

Beyond the financial metrics, our long-term focus on delivering superior client experiences remains the primary driver of our sustained success characterized by intimate partnerships, continuous innovation with our clients and measurable outcomes. Our CSAT score was 92.7% and NPS remained healthy at 65%. Accounts that generate more than EUR 1 million dipped slightly to 179 as several implementation-led programs were successfully completed with many converting into stable recurring managed services engagements.

We have previously articulated our strategy of up across together to capture the AI opportunity, and we are already making tangible progress along all 3 dimensions. We are moving up the value chain, complementing our engineering strength with CSO level AI advisory where we are already seeing traction with some clients. This is now a key KPI across the company.

We are expanding across regions and accounts, enabling our industry teams to capture global opportunities more effectively. And we are working together more seamlessly, simplifying our structure, strengthening cross-selling and reducing duplication, particularly in our AI efforts. We are now streamlined, as I said, into just 10 business units, 6 vertical BUs and 4 capability BUs, 2 of these capability BUs called AI in Change and AI in Run are fully focused on capturing the AI opportunity. Overall, this leaner, more aligned structure is going to be a key enabler of our next phase of growth.

By deeply understanding the client's strategic priorities and then exceeding their expectations, we ensure that our services remain both indispensable and embedded within the long-term AI transformation road maps. We continue to believe that our client relationships -- our deep client relationships represent our most valuable long-term asset.

Coming to governance. You know, I showed you a similar slide during our Q3 call to highlight that we have taken a number of actions over the past several quarters to address investor concerns, improve corporate governance and enhance financial reporting and transparency. I want to highlight some of the additional items we have completed on our list. We recently shared an update on our progress across leading global sustainability indices with marked year-on-year improvement across key benchmarks backed by stronger underlying governance systems and more comprehensive transparent public disclosures.

I mentioned this in Q3, EcoVadis placed Nagarro among the top 5% of participating companies globally, awarding a score of 79 and a Gold Medal. In addition, ISS ESG upgraded Nagarro to a C+ rating with prime status and our S&P Global score rose to 52 in 2025, reflecting continued progress on the sustainability agenda. Finally, our MSCI rating improved to BBB in 2025, while our CDP rating advanced to B.

Improvement across these benchmarks reflects just a more disciplined and structured approach to sustainability across our business. Also, we announced in March that the Supervisory Board's independent investigation into prior allegations was completed. That process was highly rigorous and comprehensive and the conclusions are very clear. None of the allegations were substantiated and no evidence of fraud or misconduct was found.

At the same time, the process did provide valuable insight into areas where we can further strengthen our structures, processes and documentation, and we are already addressing these areas, including enhancements to our finance, accounting and risk functions and a strengthened Supervisory Board and Audit Committee.

And of course, again, and perhaps most exciting, we are very pleased to welcome Prateek as the new colleague, CFO and member of the Management Board. Now we view all of these items here as important steps in our continued evolution towards a more institutionalized governance framework, fully aligned with the expectation of global capital markets and as a foundation for building long-term investor confidence.

Our customer diversification across industries continues to provide both growth and stability. At the same time, we are now using the consolidation of BUs to increase our focus on some specific subsectors and offerings while deprecating others. Simultaneously, with the involvement of management consultants and new hires, we are developing improved playbooks and growth motions. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in the industry, but also in Nagarro's evolutionary journey.

Our diversification extends to geographies as well. The U.S. and Germany remain extremely important markets for us. The Middle East has been a nice addition to growth in the last few years. Yet because of this diversification, we have the resilience to weather the current geopolitical challenges in the Middle East without major impact. Michael, do you want to now maybe discuss the balance sheet and cash flows?

Absolutely, Manas. The chart on the left shows our financial position at March 31, 2026. Our financial liabilities were EUR 310.9 million and lease liabilities were EUR 69.2 million. Our cash balance remains strong at EUR 112.6 million, implying net liabilities of EUR 267.5 million and a net leverage ratio of 1.9x. The company's liquidity position at the end of the 3-month period was comfortable with working capital of EUR 232.7 million.

Cash flows for the 3-month period ended March 31 showed total cash outflow of EUR 13.5 million versus an outflow of EUR 23.6 million for the comparable period in the prior year. Operating cash outflow for the current 3-month period decreased to EUR 0.3 million versus EUR 37.5 million inflow for the comparable period last year. This was primarily due to an increase in working capital amounting to EUR 32.4 million.

In Q1 of 2025, operating cash flows benefited from higher collections of U.S. public service receivables. And additionally, Q1 2026 operating cash flows were negatively affected by EUR 12 million due to a decrease in noncash income and expenses when compared to Q1 of '25. These negative effects were partially offset by higher EBIT of EUR 5.9 million and a decrease in income tax payments of EUR 1.3 million.

Days of sales outstanding increased from 82 days at the end of the year of 2025 to 86 days at the end of March 2026. Kindly note, we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 3-month period was an outflow of EUR 1 million and CapEx was EUR 1 million, less than 1% of our 3-month revenue, reflecting our asset-light model.

Cash outflow from financing activities for the current 3-month period was EUR 12.2 million and compared to EUR 58.4 million in Q1 of 2025. Cash outflows decreased in Q1 '26, mainly due to a decrease in net repayment of bank loans of EUR 25.2 million and the decrease in the purchase price of treasury shares, which totaled EUR 19.6 million. And with that, I'll turn the call back to Manas.

Thanks, Michael. Maybe we talk a little bit more about the business before we go into Q&A. I wanted to spend a moment discussing the importance of partnerships for us in this new environment as well as the success that we are seeing in growing our partner base. One of the advantages of the simpler internal organization that we are now building is the ability to be more concentrated and deliberate in leveraging partners. Partnerships with leading players across the AI ecosystem are a critical enabler of our growth strategy.

Collaborations with platforms like AWS, Databricks, Snowflake, OpenAI, Cursor, SAP, Atlassian and Salesforce, and I know I'm leaving some out, but we have a lot of many, many more. These allow us to combine best-in-class technology products with our own engineering and domain expertise. This positions us to deliver end-to-end AI transformation for our clients from the strategy and data foundations to application, workflow, integration and ongoing operations.

And just as important, these partnerships give us early access to innovation, but they also allow us to give our own feedback into product road maps. They allow us to strengthen our credibility with clients and they also expand our ability to drive impactful and scalable outcomes at clients. So together, these partnerships are really important for us and they're amplifying our relevance in an increasingly AI-driven services market.

Now we spent a lot of time discussing Fluidic Intelligence at a high level. So I wanted to drill down a bit to provide you with 3 concrete examples of how this is delivering quantifiable results for our clients. I'm going to keep the client names anonymous, but I just want to give you a sense of the kind of work that we are doing.

First, an example of client experience, leading to better client acquisition. For a leading European luxury car manufacturer, we have transformed the customer journey by unifying riders, dealers and data into a single adaptive system. We began this as a short-term rental platform with limited conversion, but redesigned it end-to-end into a scalable and intelligent customer acquisition engine. The result was a 35% increase in new customer acquisition, demonstrating how AI-enabled platforms can drive meaningful business impact by just combining technology, data, customer experience and domain expertise.

Next, manufacturing example. For one of Asia's largest manufacturers, we reduced unplanned downtime by 30% by transforming how their manufacturing operations were run. By connecting machines, IoT systems and operational data into a single adaptive intelligent ecosystem, we were able to shift from reactive maintenance to real-time prediction prevention. The result was faster decision-making, improved efficiency and greater resilience.

Finally, a supply chain example at a leading -- one of the world's leading global CPG companies, we elevated end-to-end sales and operations planning by moving from static periodic forecasting to a dynamic real-time model. By building workflows that could combine AI-driven forecasting with human judgment, we transformed this sort of S&OP process into a continuous decision system improving accuracy and accelerating cross-functional alignment. The result was a 20% improvement in planning performance, demonstrating how AI applied practically can drive this dynamic responsive decision-making to deliver measurable business impact.

So now when you look at the numbers, 35%, 30%, 20%, these are not small numbers that we are talking about. And as you can see, adopting AI at scale to deliver such numbers in different parts of the value chain is going to be a competitive imperative for our clients. And we, as a company, are aligning to capitalize on this.

As I mentioned earlier, we are at the very early stages of realizing the full benefits of these initiatives and changes that we are putting in place internally. But our projects and engagements and conversations with our clients give us a lot of confidence that we are on the right track to deliver this sort of value to our clients and thus be a winner in this new AI transformation journey.

So just to summarize before we go to Q&A, our strong engineering DNA that is well known and our deep understanding of client context with long client relationships, it continues to reinforce our right to win in this evolving environment, particularly as we see more examples of enterprise challenges arising from poorly executed AI initiatives.

At the same time, our industry expertise, our regional footprint and expertise, combined with our lean small teams approach is enabling us to deliver increasingly impactful advisory-led transformation for our clients. I do believe that AI transformation will ultimately follow a similar trajectory to digital transformation. But this time around, we are of the scale that we can position ourselves to play a more strategic role at the highest levels of our clients' organizations. Again, while it's still early days, the direction is clear, and we are executing with focus, confidence and conviction. And with that, can we now transition to the Q&A. Carla, could you please do that?

[Operator Instructions] And our first question comes from Yannik Siering with MPCM.

I will take them one by one, if that's fine. So the first one is on Q1 demand and the growth bridge. So you framed it as being in line with expectations. Question being, what level of constant currency organic growth would you need in the remainder of the year to land in the middle of the guidance? And what are you seeing in your pipeline and maybe also in the book-to-bill, now in early Q2 already that points you to be confident for the full year guidance?

And the second one is on the margins. So adjusted EBITDA margin was 12.6% in Q1. The midpoint of your guidance is obviously a little bit higher. Maybe you could walk us through the bridge here between utilization. You mentioned this one is a bit better. Maybe also pricing, again, here, what makes you confident on the guidance?

And then the last one, maybe a little bit difficult, but on AI revenues and on the quantification of those, do you have any idea or any idea that you can give us what the trajectory here is and how the path to a little bit more material contribution would look like if this is completely organic or if you need some M&A to become more relevant in this space, that would be helpful.

Good afternoon to you as well. So let me try to answer these questions one by one. Looking into the start of Q2, our pipeline and early numbers from April look good, so which gives us confidence to continue on our guidance. In terms of constant currency growth and the bridge, I think that's more of a mathematical thing that can be derived fairly easily. I won't hazard a guess with our calculator and some time. So -- but that can be more or less derived.

In terms of margin, the quarter 1 and quarter 4 are -- have typically fewer working days because of the holidays and a shorter February month and things like that. So the bridge to the full year guidance is largely around the working days, although there is some buffer in terms of utilization that is possible. But at the moment, we don't think we would need to use that, but the working days itself should be -- should suffice.

When it comes to AI revenues and quantification, it's -- the lines between AI and not AI are somewhat blurry because there's AI in the delivery of services, there's AI in the creating of point solutions, there's AI in the embedded in larger platforms that we are building. And I think AI is everywhere in some ways. So we are not separating out the numbers in any sense. The KPI that we are going to track from this year on is -- and this is more internal, but it's just like trying to get a seat at the very top table for AI transformation at our clients.

And this, I think, is a number that which internally we are focused on. And we are making good progress on this in clients, which are both small and midsize, but also some of the very largest clients. So there's still a lot of work to do, but we are seeing that we have a right to be at the table much more than we did, for example, for digital transformation, which is very, very heartening for us.

[Operator Instructions] And as we have no further audio questions, I will hand back over to you, Michael, for the text questions.

Thanks, Carla. We have a number of written questions. First question comes from Sergi at Aguja Capital. And the question is, how would you characterize overall client demand today versus 3 to 6 months ago? Where are you seeing improvement? Or where is it worsening in discretionary spending or decision-making cycles across your customer base?

Sure. Sergi, so what we are seeing is that I think the overall demand environment remains fairly similar to 6 months ago. But what has changed is that the degree of engagement on enterprise-level AI -- Agent AI topics is far advanced from where it was 6 months ago. And what was -- you know, initial pilots of AI were around simpler topics like voice AI or contact center AI or document management, and document -- knowledge optimization AI or AI in SDLC. But the idea of AI in core workflows at the enterprise level is now really not so much if topic, not even a when topic, but how topic.

And those conversations and those projects, they bode very well for the industry, I think, because they will be fairly comprehensive and complex once they get growing. So that's kind of where we are on that. So it's more the nature has changed, rather than the volume per se.

Thanks, Manas. The next question is, can you elaborate on recent advances about AI Agentic programming? Is this having an impact on your sales? Or do you expect it to have a near or medium-term impact?

So this -- there's, of course, large productivity impacts that AI will bring to the industry. And I think this is a question that probably everyone is talking about, and I can just give you 3, 4 or 5 different views on it. So I mean, I think there will definitely be increased productivity. The question is what the level of productivity will be, which we've seen in enterprise environments or brownfield environments, this is much less than in greenfield or homogeneous environments.

There's also the aspect of all the reinvention that has to be done in terms of company's internal organizational and workflows and systems and processes, which is room for new services work. There is also the question of maybe third-party SaaS products or software products being displaced by custom-built software. Someone may decide not to buy another or renew their license for CRMs or ERPs or many of the other products that they use and instead build something out custom. So there is that aspect.

There is -- so there are various different, I think, impacts on the industry. But -- and some of them are positive, maybe clients pulling in their road maps, clients wanting to do more because the bar for being AI-enabled or AI transformed is now much higher. I think of it like the Internet, right? You would think the business put up a website and it was on the Internet. And it didn't really stop at that, and you ended up doing a lot more with that.

So I think that in general, the services business, of course, has a lot of change, but there's a lot of work that still has to be done. Every hotel chain, every transport operator, every hospital operator, every pharma company, every single business has to figure out like the examples I gave, how in maybe 15, 20, 30 different parts of their organization, they use AI and they do it all in a secure orchestrated way. And that's what the opportunity is for services companies.

Thanks for that Manas. Our next question comes from Alejandro Estebaranz at True Value. He says, hello and congratulations on the quarter, especially in a challenging environment. It seems that investors believe that repurchasing shares at current valuation levels could create significant shareholder value, especially considering that the market appears to be valuing Nagarro as a declining business, while quarter after quarter, the company continues to grow and generate value. How does management currently view the opportunity for share buybacks and the company's current valuation?

Alejandro, thanks for the question. The company believes that the current valuation does not reflect, of course, the value of the company. But as we now have a CFO, which investors have long suggested, we are waiting for Prateek to come on -- come up to speed with the fundamentals of the company to take a more -- yes, a better judged view of capital allocation. So I would not comment on the part of share buybacks. But of course, all the alternatives are open at this time while we wait for Prateek to come up to speed.

Thanks, Manas. The next question comes from [indiscernible] Question is, if AI improves developer productivity by 30% to 40%, how does Nagarro ensure its top line grows rather than shrinks? And then the second part is, could you provide more color on a shrinking number of clients generating more than EUR 1 million?

Yes, sure. So as I said, there are all these different factors and the timing of these factors is not very clear, right? So -- but we expect, and that's what we are seeing as of now that while we are using AI with many of our clients, what they are doing is basically pulling in their backlog. They are actually adding more work. So we don't see that reduction in the work that we are getting, and -- even when they are achieving significant increases in productivity.

So again, I don't want to be an oracle and forecast how this will go. But as I said, we expect enterprise products -- some enterprise products to be converted into services and builds -- custom builds, we expect the companies to be doing more with AI. We expect there to be a lot of work to unify data and to put in enterprise class structures around AI, which is really an evolving field and which most of our clients do not have the internal capacity to manage on their own because this is a really rapidly evolving field.

And we have the advantage of having a large number of experts with a lot of exposure to the best-in-class partners, best-in-class moves across different industries. So we can really help our clients with these transitions. That's why we don't expect business to contract.

The second part of the question was around the ones -- yes, the contracting number of clients over 1 million. A large number of that -- a large percentage of that is roll-off of large implementations that have just wound down. And we don't expect that to be a trend. This is just a batch of implementations that have gone into managed services and the overall health of the pipeline of over 1 million clients remains very much intact.

Thanks, Manas. Next question is, what are the expected impacts to EBITDA and revenue targets in your Fluidic Intelligence business that you're currently executing?

Great question, Michael. So at the moment, we are -- the Fluidic Intelligence business, we are seeing it in different layers. We have an advisory layer. We have a layer of solutioning. We have a layer of accelerators, which we call Fluidic Forge and then we have a layer of AI in SDLC and Fluidic teams. And so there are different layers.

And I suspect that over time, there will be different movements in these layers with respect to EBITDA and growth, et cetera. But at the moment, our expectation is that the advisory aspect, which perhaps you're referring to, is going to remain a very small part of our overall revenues. And so not very meaningful. We do expect to cover costs on that, but it's not necessarily a very meaningful part of our EBITDA or revenue.

I must say that in some of the early engagements where we are completely steering the AI journey for our clients, including some where we even have requests to put in interim CTOs, for example, I think that if you start to become that important for your clients, you have more pricing power. But again, I don't want to make any sweeping generalizations at this point.

Thanks, Manas. The next question is around M&A opportunities. Are you seeing prices coming down? And maybe what does the pipeline look for 2026?

So thanks. I just want to say that, again, reiterate that capital allocation is a topic which is now our CFO's topic. But -- so in terms of pipeline or future, I will not say much. But in terms of pricing, I think that there is -- there are modest reductions, but not very significant reductions. Yes. But the pipeline, we do have, as always, some interesting opportunities, but I think we will defer to our new CFO for the final pull of the trigger in these cases.

Got it. Thanks, Manas. The next question focuses on Japan and particularly the market in 2026. We've talked in the past that we thought this was a good opportunity. Wondering how that's going.

So we are in double-digit millions with Japan, but it's a bit slower than expected. Actually, today, there's a very senior person from a Japanese trading house in the very office that I am in, and I was with them earlier in the day. So the efforts to build these partnerships that can drive more rapid growth in Japan are ongoing. There are some nice lighthouse customers in manufacturing, in SAP, in AWS and other cloud areas and some AI-based work.

And there's some nice interesting examples, but the volumes are not there yet. These are -- it's like probably a slower burn than we expected, but it's still very much part of our future to pursue Japan and Japan Inc. around the world more aggressively.

Okay. The next question is, how do you manage to increase your revenue weight in automotive given the sector crisis, especially in Germany?

That's a good question. I think that there are 2 or 3 parts to it. One is that we have longstanding relationships with some auto manufacturers where we are able to be part of their newer initiatives. I was again with the recency bias just a few hours ago meeting another -- a very large auto company around their Agentic AI for finance marketplace working financing marketplaces. So there's a lot of work of that type, which is all new.

There is also a type of customer that is relatively new. We work with car companies that are in the electric mobility space or our sovereign government pushed car companies in the Middle East, for example. And in these car companies, which are being set up from scratch, we have the chance to work with them on different parts of their ecosystem from digital, of course, but also manufacturing, product life cycle management, IoT and things like that.

And finally, with more established car companies, our focus is more on the distribution, on sales, on digital, consumer, in-car experiences and so on, which continues to be an area of differentiation and focus. And if you look at the real competitors of the space, like, for example, the Chinese car companies, the kind of digital work they're doing within the car or outside the car is a key part of their appeal. And there's, I think, lasting demand in these areas.

So yes, I mean, the industry itself is, of course, facing headwinds in some countries, but there is still a lot to be done. And we want to be close partners with our clients through their transformation to deal with this.

The next question is, how much time do you need to turn the company from an engineering-focused company to your more strategic approach that you outlined?

So that's a good question. I think that the answer lies in the degree of change. I think already at many of our key clients, the conversations at the top level are about that AI transformation advisory. For it to percolate through our entire client base will be at least 18 months. But we are -- as I said, it's a quarter-by-quarter KPI that we are tracking now. And we expect to get really some traction. We're getting traction with European retailers, global CPG companies, with auto, with all kinds of companies. And it's just a matter of scaling it up.

And I'd say just a matter. But once that -- once it's clear that where the capability exists, which is now a lot of it is in our AI and change business unit, it's more simple to tap into by client teams. It's simpler to deliver. And I think with this internal organization, we have really solved for some of this. Why I say it will take 18 months is because we are now capacity constrained. So we have gone from being a little bit demand constrained to being capacity constrained, which is a good problem to have. So we are really hiring all out in these areas to support that change.

Thanks for that, Manas. The next question is regarding adjusted EBITDA, a little below expectations in Q1. What's the plan to get back to guidance of 14.5% to 15.5% for the year?

I'll go back, Michael, to the answer I gave to the first question -- first caller, which is that it's a working days thing. Q2, Q3 have larger working days, plus we have some utilization levers, and we feel comfortable about being in line with the guidance.

And then maybe if you could provide an update on the German Mittelstand that we've talked about, what's the traction been like there?

Good question. So the traction on the Mittelstand has been reasonable. I think we have -- I would characterize it as, again, a double-digit million kind of impact of the moves we have made, but it's not been as scaled as we had expected. In our new reorganization, we have more firepower in the business unit, which is industrial, which is called Industrial, more firepower in Germany in the industrial BU to do more with the Mittelstand. But yes, it's been a moderate success, but not a great success.

And the next question is about cash collections or collections. Do you think they're a structural issue for the company? There's some concern about the ability to convert EBITDA into real cash flow.

So I mean, we've been really buffeted around for the last -- since we went public by our U.S. public sector collections, which tend to be very lumpy. And that's something that we are continuously trying to manage. Even in this quarter, the public sector -- U.S. public sector collections have thrown us off. On the positive side, we have not -- we have always been able to get that money in finally. So there is no risk to the money. But from a cash perspective, it's quite lumpy. We again have -- I'm sorry to put so much on the shoulders of Prateek, but we have a new CFO, and I'm sure he's going to take a look -- a closer look into it and talk more about it in subsequent calls.

Thank you for that, Manas. I'm not seeing additional questions. I want to thank everyone for your questions and participation today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon.

Thank you all very much. Have a good day.

Thank you, everyone. This concludes today's Nagarro's Q1 2026 Earnings Call. You may now disconnect your lines. Thank you.

Good afternoon, everyone, and thank you for joining us today for Nagarro SE's Q3 9 Months 2025 Earnings Call. [Operator Instructions] With that, it's my pleasure to hand you over to Michael.

Great. Thank you, Sami, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q3 2025 earnings release, you can find it as well as a copy of today's presentation in the Investor Relations section at nagarro.com.

Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter. Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our earnings release. Additionally, please refer to the release for important information regarding non-IFRS measures.

And with that, I'm pleased to hand you over to Manas.

Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. We are taking a slightly different approach this quarter and hosting just 1 combined call so that we can expand on our prepared remarks a little and still have time to address your questions.

We'll start by briefly highlighting our strong Q3 results, but perhaps even more importantly, underscoring the important and sustained actions we have been taking to address investor concerns, improve corporate governance and enhance our financial reporting and transparency.

I also want to discuss how we have set the stage to drive better shareholder returns through improved execution and a disciplined capital allocation strategy. The operational changes we have made are already driving measurable improvements in our results, which perhaps have been overshadowed a bit at this time by a subdued demand environment and FX noise, but we believe we are still at the very early stages of showing the benefits from some of these new initiatives and processes that we have put in place, especially on the sales execution side.

I'd also like to talk more about the future and in particular, about our vision of Fluidic Intelligence. We would like to explain that to you. We are promising our clients significant productivity improvements by unlocking the intelligence that already exists within their organizations. We are removing barriers for our clients between their people, their data, their decisions, creating low-friction enterprises that adapt faster and execute with clarity.

And I'm excited to say that we're already seeing a very positive response from our clients around this promise, this theme of productivity improvements, and we will present an example of this. And finally, we'll be happy to take your questions.

Now we are pleased with our execution in Q3, which demonstrates the strength and resilience of our business model despite all the ongoing macroeconomic challenges. Our teams delivered exceptional service to our clients, and we focused intently on operational discipline. During Q3, our revenue growth accelerated and is tracking to the guidance we provided last quarter. This is a testament to the stability of our customer base and the confidence our loyal customers place in us.

Importantly, we're also seeing significant outperformance in profitability. Both our gross margin and adjusted EBITDA margin are ahead of expectations, reflecting the positive impact of the efficiency measures that we have implemented. In fact, the adjusted EBITDA margin of over 17% is the highest level we have seen since 2022. This margin expansion positions us well to generate strong earnings and cash flow moving forward.

Over the past few quarters, we have prioritized making fundamental structural improvements to the way we operate. To that end, we have taken a number of decisive actions to improve corporate governance, financial reporting and transparency. We're already seeing tangible improvements in our internal process and operations.

I'll talk more about this shortly. But these changes are not simply about meeting regulatory requirements. They're about building a world-class company about strengthening the foundation of trust and operational excellence that will support our growth ambitions for years to come. Our success is directly linked to our client success, and we are intensifying our efforts to deliver quantifiable business impact to help them win in their markets.

We are actively showing clients how we drive significant measurable improvements to their businesses. We aren't just selling hours. We are pitching outcomes. And importantly, clients are responding. The quality of our relationships is improving, evidenced by the increase in client satisfaction scores and a strong pipeline of new high-value contracts. This focus on value creation ensures that our services remain essential and deeply embedded in our clients' strategic initiatives.

Finally, in line with our disciplined approach to capital allocation, we remain committed to enhancing shareholder returns. We are pleased to announce that we are extinguishing approximately 75% of our treasury shares. We're also buying back EUR 20 million worth of stock. We believe there's a clear disconnect between the current share price and the intrinsic value of our share.

The current share price even after today's jump does not reflect our strong financial performance, our expanding margins and improving operational structure. We believe the buyback program is one of several tools we are using to deploy capital, while signaling our confidence in the company's long-term outlook. We are confident that as we continue to execute on our strategy, the market will recognize the sustainable value that Nagarro has been building and in fact, has been building for a couple of decades now.

Digging a little deeper into the numbers, we are pleased to report that our Q3 revenue growth reached 9.4% year-over-year at constant currency. This solid performance in a subdued demand environment keeps us on track with the revenue guidance we provided earlier.

Turning to profitability. Our focus on operational discipline continues to yield impressive results. Our Q3 gross margins came in at 33.1%, which is over 300 basis points better than the guidance that we have provided. This significant outperformance is a direct consequence of our increased focus on margin expansion through targeted initiatives, including the successful implementation of the margin support program that we have earlier talked about. This program has optimized resource allocation, improved utilization rates and driven efficiencies across our organization.

Our Q3 adjusted EBITDA margins were over 17%, which is above the high end of our guidance range. These strong margins are a clear highlight of our quarter and underscore our deliberately improved operational efficiency and our ability to translate top line growth into meaningful bottom line results for our shareholders. And all in all, we are maintaining the guidance we provided last time. But when you look at our tracking to our guidance for 2025, please also keep in mind the significant headwind presented all year by foreign exchange rates, especially the conversion between dollars and euro. To put this in perspective, if we were to adjust our revenue for the full 9 months to account for the foreign exchange impacts from the dollar and euro, our revenue would be approximately EUR 719 million, which would have placed us right near the midpoint of the initial 2025 full year guidance that we had issued back in January '23.

Further, as you will see on the next slide, if currency exchange rates have not moved, our adjusted EBITDA would also have been at or above the midpoint of the initial 2025 full year guidance we issued in January. This ability to deliver what we promised at the start of the year despite the highly volatile environment, underscores the fundamental strength of Nagarro's business and the fundamental strength of Nagarro's positioning in the market and the fundamental strength of our relationships with our clients.

Beyond these financial metrics, our long-term focus on delivering a superior client experience remains the primary driver of our sustained success, our commitment to our intimate partnership, innovation and measurable outcomes for our clients. By deeply understanding their strategic challenges and exceeding their expectations, we ensure that our services remain indispensable and embedded in the long-term digital transformation road maps.

We believe the quality of our client relationships is our most valuable long-term asset. We believe that we can double our revenues well within this decade simply by doing more for the 187 clients we already have today that generate more than EUR 1 million in revenue each with us.

We have lost connection to Manas, please bear with me regaining connection.

Coming out of this -- let me just talk again on the slide, and I hope, I'm not repeating my words too much. I want to take a few minutes to provide a clearer view of our underlying profitability. We recognize that our reported adjusted EBITDA figures for recent quarters have been significantly impacted by fluctuations in foreign exchange rates, specifically related to noncash impacts on loans between different companies within the Nagarro Group.

Here, I want to highlight what our adjusted EBITDA margins might have looked like for the past 3 quarters, if we had corrected for this FX impact on intercompany loans, the resulting adjusted margins would have been materially higher and more representative of our sustained and resilient operational efficiency.

We believe that this adjusted view provides a better picture of the fundamental robust earnings power of our business than the numbers that we have reported. This is also tangible evidence that the margin discipline we have been driving throughout the business is taking hold. We have now started to work similarly to elevate our sales execution. We are confident that as we continue to embed these operational improvements, the strength and stability of our business will shine through regardless of market conditions.

Now as you know, we have taken a number of actions over the past several quarters to address investor concerns to improve our corporate governance and enhance our financial reporting and transparency. I want to highlight some of these by putting them all on one page. First, KPMG was appointed as Nagarro's external auditor. KPMG approved the 2024 annual financial statements without qualification, hopefully putting to rest many of the allegations that have been made against the company since we have been public.

Working with the Tier 1 auditor has also led to enhanced reporting and disclosures, including how we account for purchase price allocation for deals and a combined management report that aligns to the specific broad topics defined by GAS 20. Then we developed new programs to drive a basic level of profitability across our business units and introduced an expanded bonus component for senior people, linking compensation directly to the company's margin performance. And now we are expanding that incentive linked to growth.

Then we added 3 new members to the Supervisory Board with outstanding backgrounds as leaders at global companies. Martin Enderle is an experienced Chairman. Jack Clemens is an excellent Chair for the Audit Committee, and that's having an impact. And then Hans-Paul Bürkner has been an excellent mentor, a sparring partner for me in his role as the Chair of the Strategy Committee, and all of this change has been fantastic.

Next, we have outlined a commitment to a disciplined capital allocation policy that included share buybacks, dividends and M&A. We have done all of these. We bought back EUR 52 million worth of stock to date. We intend to buy back another EUR 20 million as we announced this morning. We also paid out a EUR 12.6 million dividend and continue to pursue smaller tuck-in acquisitions. We are on track to announce soon a very small, but meaningful acquisition in the Japan, India tech services corridor. So that's that.

And then we have some more good news this week, just a couple of days ago, our sustainability commitment was validated by an EcoVadis Gold Star rating, which is up from bronze that we had. This places our sustainability management system in the top 5% of assessed companies. And I would like to congratulate the Nagarro team that worked on this. We continue to uphold our dedication to becoming a more sustainable organization through ambitious science-aligned climate targets following the science-based target initiative.

We have run a CFO search process and should have good news for you soon on that front. And finally, Nagarro has been developed from the first day on strong principles of ethics and full regulatory compliance. But in order to ensure that even in the decades to come, we are continuing to maintain the highest standards of integrity, compliance and operational resilience, we are further enhancing our processes and governance frameworks across the organization.

Now our customer diversification across industries continues to provide both growth and stability. But in the meantime, there has been an evolution in our thinking given the tighter market conditions that have now persisted for a couple of years. We are going to be a bit more deliberate about targeted growth and more deliberate about where we place our bets.

We're going to give a little extra emphasis in terms of sales efforts, where we have the right to win in those verticals and topics where we feel we can go big. While we do this, we continue to explore meaningfully our big secular growth opportunities that we have outlined in past calls in Japan and for Japan Inc. around the world.

German Mittelstand in hardware and IoT and now in a fledgling way in the supply chain. We are developing playbooks around many of these topics and are improving our discipline around these. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in Nagarro's evolutionary journey.

Just a few words on our geographies. You know that our diversification extends to geographies as well. The U.S. and Germany remain of top importance for us. The Middle East has been a nice addition to growth in the last few years. We fully expect Japan to play this role in the coming years.

Michael, with that, do you want to now discuss the balance sheet and cash flows?

Absolutely, Manas. Thanks. The chart on the left shows our financial position at September 30, 2025. Financial liabilities were EUR 301.2 million and lease liabilities were EUR 70.8 million. Our cash balance remained strong at EUR 129.4 million, implying net liabilities of EUR 242.6 million, which leads to a net leverage ratio of 1.7x.

The company's liquidity position at the end of the 9-month period was comfortable with working capital of EUR 223.5 million. In the interim consolidated statement of cash flows for 9 months of 2025, Nagarro has included the unrealized loss on intra-group loans within the Nagarro Group of EUR 15.8 million that was formerly under other noncash income and expenses into net cash flow from operating activities.

And this is leading to a positive impact on it and a corresponding decrease in effects of exchange rate changes in cash and cash equivalents. For Q1 and first half 2025, this reclassification has a positive impact on net cash inflow from operating activities with a corresponding negative impact and effects of exchange rate changes on cash and cash equivalents of EUR 7.4 million and EUR 15.9 million, respectively. The numbers for comparable periods in 2024 are not material.

Overall, there's no change in cash and cash equivalents and total changes in cash and cash equivalents in the statement of cash flows for Q1 and the first half of 2025. Cash flow for the 9-month period ended September showed a total cash outflow of EUR 49.2 million versus an inflow of EUR 33.1 million for the comparable period last year.

Operating cash flow for the current 9-month period increased to EUR 77.1 million versus EUR 64.9 million for the comparable period last year. This was primarily due to other noncash incomes and expenses of EUR 7.2 million. Days of sales outstanding improved from 88 days at year-end 2024 to 85 days at the end of September.

Kindly note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 9-month period was an outflow of EUR 8.9 million, and CapEx was EUR 6.1 million. That's less than 1% of 9-month revenue, which reflects our asset-light model.

Cash outflow from financing activities for the current 9-month period was EUR 117.4 million, mainly due to purchase of treasury shares amounting to EUR 50.1 million, net repayment of bank loans of EUR 24.3 million, lease payments of EUR 16.6 million, interest payments of EUR 13.8 million and the dividend paid during the period amounting to EUR 12.6 million.

Turning to our capital allocation initiatives, which are designed to create shareholder value. We bought back a total of 684,000 shares that amounts to EUR 50.1 million. And we are pleased to announce this morning that we're continuing the buyback program and intend to acquire up to EUR 20 million worth of shares.

In addition, we plan to redeem approximately 75% of the roughly 1.1 million treasury shares currently held to enable further share buybacks and adjust capital levels to appropriate levels for the company's business needs. We announced and paid a dividend of EUR 1 per share amounting to EUR 12.6 million or 13.1% of 2024 EBIT. This was declared during our AGM in June, and we expect to sustain our dividend policy of distributing between 10% and 20% of our EBIT annually.

Our inorganic growth strategy remains highly disciplined, and it's focused on synergistic tuck-in opportunities rather than large transformative M&A. These smaller strategic acquisitions are crucial for filling specific technological, geographical and client-specific gaps. And we believe this measured approach ensures rapid integration, minimizes operational disruption and provides a clear path to immediately enhance our service portfolio and deepen client value.

And with that, I'll hand it back to Manas.

Thank you, Michael. Now we spent the first half of this call talking about all the good work we have done in the recent past. I would like to shift gears and look towards the future a bit.

We believe that in the next few years, every company in every industry will have to find significant double-digit productivity gains. Competition around this will heat up. A company without a clear path to realizing these productivity gains with AI will be lost. It will be a bit like a consumer company without a website in the '90s or 2000s or today, a consumer company without a social media presence. So this productivity movement is a big transformation ahead of us that will cut across each and every industry.

Now as you know, Nagarro has been a big proponent of agile, and we have helped a large number of our corporate clients make the move to agile. In the next years, we're going to help them make the move to what we call Fluidic Intelligence.

Let me spend a few minutes explaining what we see as Fluidic Intelligence. When we say Fluidic Intelligence at Nagarro, we are describing a fundamental shift in how individuals, technology and enterprises will operate in the age of AI. It's a deep rethinking of how human judgment and machine capability will come together to create step change outcomes. So let's start with individuals and take the example just of engineering and software engineering.

So there's a big revolution ongoing in the software front, as you know, where engineers are no longer just writing code. They're orchestrating entire systems alongside AI assistants and agents. They're debugging complex distributed systems faster. They're exploring architectural options that they may not have considered otherwise and shipping micro services in days instead of weeks.

But the real shift is that the nature of work has changed. The engineer is now the decision maker, the strategic decision maker setting direction, applying judgment, teaching the AI what good looks like in that project's context. And the result is a seamless and fluid collaboration between the human engineering nutrition and the AI capability. And we believe that this is the way the future will work and all individuals and teams that are not working this way will be simply too slow to compete.

And this is what we call Fluidic Intelligence at the individual or small teams level. But if you look then beyond this at technology inside large enterprises, most organizations sit on 10, 20, 50 years of operational knowledge. Much of it is scrapped in systems that only some experts understand or it's in the head of -- heads of managers or experts or buried in some spreadsheets or logs. And when an issue takes place, whether it's a quality issue, supply chain issue or whatever, the disruption just has to trigger teams spending days piecing together this tribal knowledge from here and there to diagnose what's going on.

With Fluidic Intelligence, AI can surface the right insight at exactly the right moment by understanding every bit of adjustment, anomaly, recovery pattern that's stored across the enterprise historically. So the real unlock isn't just data, it's the accessible contextualized decision-making knowledge. And this is the technological dimension of Fluidic Intelligence.

And it goes beyond technology to the enterprise itself. Most organizations are like cities that grew organically. They are built with a certain old context in mind, the departments that don't talk to each other, they work in silos. They have independent objectives, independent incentives, independent budgets, workflows create friction and information moves slowly. And even a simple change to a simple topic may take weeks or months and may require many changes to many systems.

And in this friction-free future enterprise that we see powered by Fluidic Intelligence, that same scenario is intelligently orchestrated end-to-end in minutes or hours, pulling context on the right systems, checking constraints, routing decisions to the right humans, automating everything else.

So Fluidic Intelligence for us in some is at one level, human AI collaboration, at one level, the knowledge fluidity across different technology platforms. And the third is like the friction free flow at the enterprise across departments. And we think it's the architecture of how the next generation of intelligent organizations will operate.

Now given Nagarro's own context of not only being an agile software engineering company, but trying to build an agile company, given our deep engineering expertise, given our history of engaging with clients on the agile transformations and other complex and challenging cultural topics, I think this is work we are uniquely positioned to deliver.

Now in a minute, I'll show an example of what Fluidic Intelligence looks like in practice because it's the best way to understand it is to actually see an example. But first, a few words on how we are going to deliver it using special intellectual property that we have developed. What we are doing is we have, in the past several months, centralized our IT investments that used to exist in the BU silos.

We have consolidated them all these AI accelerators and platforms into a portfolio that we call the Fluidic Forge. At a high level, it includes 4 streams of activity broadly. The first is the operational intelligence to run the business where work actually happens. This is a front line with orders and fulfillment and exceptions and incidents, and you want to bring predictability to the messiest part of operations, which is this.

The second is more around decision planning intelligence. This is where strategy and map come together to improve the business. The third is around the technology integration and orchestration across the ERP, CRM, order management, warehouse management, finance, HR and whether it's legacy mainframes or the latest data platforms by using agents that work across systems and inside every workflow.

And the final pillar is the modernization of the mission-critical core of data across legacy mainframes as well as data platforms. So this vision is about what an organization needs to do to move to this new world. It's not about small pilots in some corner, but rather about transforming the enterprise end-to-end.

And we feel that Nagarro is just the right size. We are big enough and embedded enough at our clients to take on such transformational work, but we are also technical enough and agile enough to work on every little piece that needs to come together for this transformation at our clients.

Now let's take a real-world example of how this transformation is achieved. And this example is the example of Dublin Airport and of modernizing Dublin Airports operations. And I believe most of us would be frequent travelers, frequent air travelers, so we will be able to relate to this example.

Dublin Airport is Ireland's national Gateway and the 12th largest airport in Europe. It handles over 30 million passengers annually. It operates in a highly dynamic system with thousands of different processes with interdependent, airside logistics coordination, retail management, security, ground transportation and so on. And every decision impacts passenger experience, safety and operational agility.

Now despite its evidence and the scale of the airport, it has faced frequent disruptions and challenges in decision-making. Data critical decision-making is scattered across silo systems, baggage handling, for example, passenger information, for example, gate management, air traffic control, ground operations and many more.

And this fragmentation resulted in delayed awareness, reactive operations and inefficiencies. And a lot of the operational intelligence of the airport was not in the systems, but facet knowledge held by experienced staff insights that were not captured or shared across teams. And to manage this complexity as the airport plan to scale, it needed to evolve into a Fluidic system, where data decisions and intelligence flow seamlessly across teams and technologies.

So this is what Nagarro did. We came in, mapped the airport as a single connected system. We revealed the fragmentation across these different operational and decision-making layers. We identified these critical knowledge assets and key friction points that were limiting the agility and cross-functional decision-making such as challenges with operational command visibility and unified control into flight operations, passenger operations, the limited ability to anticipate passenger flows or peak loads or queue congestion and not being able to drive retail and other non-aeronautical revenue and leaving money on the table and not being able to optimize the utilization of pavement and assets stands, taxiways, runway users and so on.

And we use the Fluidic Forge AI accelerator that I just talked about to address these friction points, creating this sort of connected intelligence and predictive control and optimization with measurable business outcomes. Now I won't go into the details, but the airport has now much more data streaming, real-time event-driven dashboards, AI models for flow prediction, for congestion alerts.

And these are integrating all kinds of data, like weather data or airline schedules or how people are coming through security and so on. There's agent-based modeling for dynamic workforce planning. There's a digital twin of airfield operations, there's AI maintenance schedulers and so on. So -- and the outcomes are, of course, how -- everything is optimized, how airlines use the airport, how the revenue and yield from retail locations is optimized, efficiency and ground handling, better experiences for passengers.

And if you think about it, it's also going to drive better regulatory compliance and also agility to respond to things that may happen in the environment, which all comes from this unified data fabric with intelligence sitting on top of it. And this collaboration with Dublin Airport is not a one-off thing. It continues as the airport expands its AI native capabilities from passenger flow forecasting and retail intelligence and so on to sustainability analytics and other new frontiers setting this global benchmark for frictionless airports of the future.

So in this example, we talk about how we brought Fluidic Intelligence to this airport, to Dublin Airport. But from the vantage point of where Nagarro sits, we have like hundreds of such clients. We have this opportunity to deliver similar results on data and AI to many great clients across various industries.

And as you know, we are privileged to work with some of the world's most recognized and forward-thinking companies, companies that are not just leading their industries today, but actually reimagining what the future will look like across how we live, how we move, how we work, how we bank, how we connect and so on. And these are loyal clients. These are not just one-off partnerships. These are loyal clients who work with us year after year. They include, for example, 3 of the top luxury car manufacturers, 3 of the top 5 global leaders in industrial automation, 5 of the leading global retailers, 2 of the top 3 global hotel groups, 2 of the leading global cities.

And then there are these niches like half -- almost half the top banks in the Middle East. 3 of the top 4 management consulting companies and so on. I could just go on and on, right? So there's a huge base of loyal clients where we can bring these capabilities to them. And with these clients, we will work towards the future, we work towards inventing what comes next.

And with that sort of like a little bit of framing of where we sit and to speak into how we see Nagarro evolving into the future, maybe we transition to the Q&A. Maybe the operator can switch to Q&A.

Our first audio question comes from Nicolas David from ODDO BHF.

I have a few questions. The first one is regarding the overrun environment. Manas you said that the demand is still soft. But I understand that this comment is more on a 9-month basis because, I mean, you showed a pretty good Q3, both on a year-on-year basis, but also on a quarter-on-quarter trend. So did you see, nevertheless, an improvement in the trend recently? And how do you see Q4? Do you see further improvement? Or are you worried about potential big furlough by the end of the year? So my first question would be around the overall environment.

And regarding that, also, could you comment please on the pricing environment. Some of your competitors have been mentioning further pricing pressure be it linked or not to the AI evolution? And my last question is regarding the profitability. So if we take the midrange of your annual guidance, it implies a 14% EBITDA margin.

Excluding the write-off of your intercompany loan, it would be like 15.8%. Is this profitable level sustainable for the next years? Or do you need some investment? Or is that something that could push downwards the margin for the next year?

Thank you, Nicolas, for these questions, and I'll take them one by one. I think that the demand environment is still soft, but I think the degree of clarity and confidence that now exists about where AI is going to take us, has not been there for a long time. So it's difficult to predict how the quarters will look, but I think the 3-year, 5-year horizon is really bullish now, I would even say bullish because the transformation is here.

I think we had this period when the technology had been introduced. There were lots of questions about whether it would be capable enough to bring about changes, how it would impact the IT services sector and so on. I think these questions are by and large, behind us. I think there is a fair amount of tangibility into how the future will look.

Q4 is a quarter with fewer working days typically. So there is some of that. And again, I would not want to predict quarters, but I think that in general, the outlook is bullish. In terms of pricing pressure, I think there's pricing pressure in large multiyear deals because there's some doubt about where the productivity improvements will take us. But I think that in general, Nagarro's business is still majority T&M business, and we don't see that much pricing pressure there as maybe in multiyear managed services deals.

Finally, in terms of profitability, I think a couple of years ago, we had said that we believe that when we spun off the company, we said that 15% adjusted EBITDA was our target. And a few years later, we said 18% is where we want to gradually get to, I think that's where our target is. I think that we will need to make some more investments, but we also see still a lot of opportunities to rationalize our costs and to pool our resources and make more targeted bets.

So I think that we will -- we do expect profitability to keep improving in the years to come.

And if I may, regarding the outlook, you mentioned more the AI visibility driving the demand. It's you really believe that it's really technology and AI, which has been driving up and down. It's even more than the macro itself? Or macro has still an important role to play. And if so, what is your view regarding the macro? Is it really unchanged there or slightly better?

That's a great question, Nicolas. I think that there have been periods in this -- in the last few years, where the macro has played a role but in general, I think technology is seen as a must invest, when it becomes critical to competition. And I think we are entering a phase where it will become a must invest when it comes to productivity improvements.

That's why I'm very bullish about this. I don't think that companies will pare back their budgets only to spend more money in terms of reduced productivity. So I think the technology changes will prompt the macro. That's my personal reading.

Our next question comes from Fabio Holsch from M.M. Warburg.

Starting with maybe can you confirm that the sequential margin improvement now in Q3 was mainly driven by FX in the other operating results compared to Q1 and Q2? And then how we should think about FX revaluation risk going forward? That's my first question.

And then second question, can you comment on what drove the decision to redeem the 75% of treasury shares now? And how aggressive you plan to be with the EUR 20 million buyback?

Sure. So the margin improvement is -- I mean, it's a secular trend. The underlying margin improvement with the reported adjusted EBITDA margin because we don't correct for this revaluation of intracompany loans, it has shown a weakness in the first 2 quarters, but with the adjustment, you can see that there's a secular trend of being over 15% and now in a 17% range.

So I think that the revaluation risk remains because if the dollar drops dramatically to -- against the euro, then the adjusted EBITDA margin that we declare will be affected. On the other hand, if it rises, it will be affected. But I think we're also going to be talking to our auditor about potentially restating our adjusted EBITDA to account for this intracompany loan topic because we think it's not -- we think it's distracting and doesn't fully reflect the operations of the business.

So that's that. I think in general, the margin improvement is not predicated on FX. It's actually the underlying effect is really about all the operational efficiency that we're working towards. On the redeeming the 75%, we keep looking at our balance sheet from time to time and monitoring it and seeing what's best.

And at the moment, we have I mean, currently, we have decided to redeem 75%. And the share buyback, I think we have certain regulatory, I think how much we can buy on any single day, but we will be trying to buy this EUR 20 million as soon as possible.

Okay, perfect. And if I may squeeze in 1 more. Can you elaborate on your growth plans and Fluidic Intelligence, how that is concentrated in the specific verticals or geographies, which ones you maybe prioritize?

So we are actually in the middle of a strategic review, and we will have more clarity by the beginning of next year. But in general, we -- if you look back over the last years, we have seen that the U.S. and Germany continue to be our largest market. And we see excitement across the Middle East and Japan. So I think these are the markets where we have the real focus.

And outside that, in terms of verticals, we are doing very well in industrial, and we're doing well in retail and CPG, life sciences. So there are a few verticals that we can easily see that are bucking the trend and then there are some verticals which are really big for us and really important, like banking, for example, or automotive, to some extent, even if they are not doing very, very well at this particular moment.

So I think that in general, we are -- we have already started to shift away from some of the verticals that we used to report like horizontal tech. I think from -- for the last 5 years, we've been kind of shifting away from that. But there may be a few others that we decide at least not to invest too much in. It's not that we shut down accounts or anything like that. I think it's just that we don't want to be -- we want to be playing in a tight market where we have a very good chance of winning. And that's the philosophy going forward.

So the company has been a very entrepreneurially driven company, but we also have the ability, I believe, to be strong and to take decisive decisions centrally to steer it in certain directions, and that's kind of what we have been kind of playing out in the last few months.

[Operator Instructions] And I'd now like to hand over to Michael for text questions.

Great. Thanks, Sami. So first question, Manas. Congratulations on strong quarterly results and clarity of the presentation, wanted to ask about the recent significant reduction in equity through the cancellation of treasury shares. Can you elaborate on the strategic objective behind this move? And how we should interpret it in the context of your future capital allocation policy?

Well, I think it's just -- thanks, Michael. I think it's just an assessment of the levels of capital needed to run the company, and that's the reason for the exhibition of the shares. And our capital allocation policy continues along the lines of what we have described before, we will take a good look at it as the new CFO in place and come out with a fresh update.

But at the moment, this is our -- we are on track with our -- we're in line with the current capital allocation policy. I don't see this as a departure.

Great. Thanks, Manas. The next question is in 2 parts. First is can you please elaborate on your strong expense control, noting that your SG&A declined by EUR 12 million sequentially.

And then secondly, can you explain what changes were made to the stock compensation and incentive plan, which was called out as EUR 11.5 million in your quarterly report. Were those related in any way or discrete items?

So on the first, I think the main change that we have made is to try to push towards a certain minimum margin in every business unit. And what this has led to has been streamlining of the spend that we have in practices, which are mainly sales and presales oriented.

I think that when we spun off in 2020, our target was that we were aim for 15% EBITDA and really invest in practices and capabilities to drive a global footprint across different industries. Because that was the nature of the situation, we found ourselves beautifully placed to ride the wave of digital transformation, and we felt that we should take full advantage of that wave to build out as many footprints as possible across different industries and different verticals, different offerings.

And what this is, is a little bit more of a rationalization. It's also a realization and recognition that the AI revolution is going to be a lot more common to different industries. So it's better to invest in a central way than in all these different practices across the BU. So that's the main theme.

On the stock compensation and incentive side, my guess is that's coming from just revaluation based on stock options, et cetera, but I'm not totally sure maybe we can reconnect separately and go over that line item.

Great. Next question is a 3-parter. Do you have any visibility on returning to double-digit growth in 2026? And then what free cash flow conversion target do you have for the coming quarters? And do you have an estimated net debt level by year-end?

Sure. So we don't like to predict the short-term future. It's always more difficult and volatile -- but I think that double-digit growth in the medium term is absolutely where we need to be at. And we don't know, when it will come, but the company is just gearing up to ensure that no matter what the market conditions, we are able to deliver that.

And that's the first part. It involves a lot of different changes that we are making to the way we run our business units, but also the way we run our different geographies and the way we run key accounts and the playbooks we use and how sales is organized. But that's definitely something in our future.

In terms of FCF, we are not -- we don't talk to set targets because the faster you grow, the more your cash flow suffers. So we are really focused more on growth and margins rather than FCF.

And in terms of net debt level, we have obviously an outer bound that we have always declared of 3x adjusted EBITDA, but typically, we like to steer at the 2x EBITDA level to keep that as a -- and maybe go up a little bit beyond that. But 3x is the outer bound. We don't expect the net debt level to change.

I mean, let me not give a prediction for the year-end, but that's a general approach to stay around the 2x mark. Or rather, actually also a question of how much cash you want to keep. And typically, we're trying to keep between EUR 100 million to EUR 125 million of cash across our different offices. So that's kind of where we kind of end up with the net debt.

Great. Thanks for that, Manas. Next question would be you're seeing big tax implications that the dividend payment had this year? Are you exploring ways to improve this?

Yes, we have been obsolete transferring cash that was at different parts of the organization upstream towards the [ SE ] and there have been some tax implications of that. And yes, we are definitely working on how to reduce those and normalize those in the years to come.

Okay. The next question is the current narrative for the sector seems to be that AI could disrupt the IT sector, implying clients are focusing most on their budgets, most of their budgets on hyperscalers, meaning that could be less for companies like Nagarro. Could you please share your view on this?

No, I don't think that's the right way to think about it personally. I think that if you want to use more compute and do more things with technology, you need to know what you are doing, right?

So the challenge is not in -- it's not just a question of harnessing more chips. But as each one of us knows enterprises are horribly complex. And the example of Dublin Airport totally is one example that we all can relate to, but I think we see similar frictions in every experience that we have, whether it's on a hospital chain or insurance or banking or there are all these different frictions that we have or in cities and governments and so on.

And I think the opportunity to actually drive change with AI and with what we call Fluidic Intelligence, is going to be dependent a lot on the people who get it done, who have done this many other companies, and they can bring it to you and they can tell you how it's done, what works, what doesn't work, and that can actually design it in a way that doesn't lock you in as a customer, that keeps you flexible to jump on the next wave of innovation that happens.

So I don't at all believe that IT services is -- or the IT services sector is going to be depressed. I think it has good room to grow. There's, of course, intermediate adjustments that we have been seeing in the last couple of years. But I don't think that this -- I'm very excited about the medium-term outlook for the sector.

Okay. The next question is, should we expect the head count to keep on rising in the following quarters?

We try to -- again, I'm always very wary of giving predictions. I think we do -- personally, I would say, I guess, head count will keep rising gradually. But it's a lot more about what we do with people than the number of people that are deployed. So there is a big change to retrain, to improve the productivity, the people we already have and then to choose a different kind of person when you are hiring.

So for example, in India, our fresher hiring, which we hire the most people fresh from colleges has now moved to the AI business unit so that the people that we are hiring are all AI native. And we see that there is a whole new level of capabilities that people like that can bring.

So I think it's a reorientation of how people are added to a company, but I don't think it's an end of people growth. We do expect the growth to be a bit more conservative in the next few quarters, but maybe picking up after that.

Perfect. Thanks for that. The next question is what impact will the potential higher act in America have on your business?

At the moment, we don't expect any significant impact, but we keep waiting and watching. We don't expect any significant impact.

Okay. And the next question is how much growth is expected to come as a percent of revenues from joint ventures in Japan? And when will we start to see them contributing to revenue?

That's an interesting question. So whether it's joint ventures or partnerships, I think we are going to have like double-digit millions next year. And hopefully triple-digit millions by -- in a 2 years, right? So we have a very strong pipeline. It's -- as you know, the Japan is a complicated environment to work in because there are cultural nuances, there are language topics.

And that's why the acquisition that I just mentioned briefly is important because it allows us to work with -- work globally with the language trained workforce, for example. So I think we're putting the pieces in place, and we have the pipeline, and we expect it to take off in the next year or 2, but I must say that at this moment, we probably have already a 3-digit number of leads and opportunity for separate projects that we are looking at.

Great. And the final question is around conversations with your clients for 2026 digital transformation spending, how are those evolving so far? I know it's still early and companies are finalizing their 2026 budgets. But according to conversations so far, they are still conservative? Or do they look more optimistic about ramping up projects next year?

I think that in general, it is better than it's unit for the last few years. But I won't say that spring is here and summer can't be far behind. I think that it is definitely a stronger base than we are projecting out than we have had in any of the last few year ends, but let's wait and see. I don't want to be -- go out on the limb and forecast a recovery, but it does look better than it has been in the last years.

Great. Well, thanks for your feedback on those points, Manas. I want to thank everyone for joining us today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon.

Thank you very much.

Thank you, everyone. This now concludes Nagarro's Q3 2025 earnings call. You may now disconnect your lines.