Nagarro SE ($NA9)

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 Manus 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 Manus.

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 conservation 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 the 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, strategic advisory of the front end for AI consummation 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 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 intra-group 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 at 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 have still to welcome colleagues from all the acquisitions as well as their clients to the Nagarro family. We are also very happy to have our first ever CFO, I'm very pleased to introduce Prateek Agarwal, who's 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 environment. He has a wonderful track record in financial management, operational discipline and capital markets engagement. Prateek 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, Data brakes, 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 care. 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 margin 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 32.7% 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 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 CXO-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 virus 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 our clients' strategic priorities and then exceeding their expectations, we ensure that our services remain both indispensable and embedded within their long-term AI transformation road maps. We continue to believe that our client relationships, our deep client relationships represent our most valuable long-term assets. Coming to governance. 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 on the top 5% of participating companies globally, awarding a score of 79 kind of gold metal. I n addition, ISS ESG upgraded another 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 approved 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 a 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 listed here as important steps in our continued evolution towards the more institutionalized governance framework fully aligned with 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 it is 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?

Yes, 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. Now 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 you 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 basis. 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, data breaks, Snowflake, open AI, cursor, SAP, Atlassian and Salesforce. And I know I'm leaving some out, but we have a lot -- 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 of clients. So together, these partnerships are really important for us and 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% and 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 and prevention. The result was faster decision-making, improved efficiency and greater resilience. Finally, our supply chain example as a leading -- 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 on 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 the clients give us a lot of confidence that we are on the right track to deliver the 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 a 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 let 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 client 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. Karla, could you please do that?

[Operator Instructions] And our first question comes from [indiscernible] from MPCM.

Great. I would -- 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's 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. 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 idea or any idea that you can give us what dig 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.

Thanks and 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're 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's 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 midsized 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 hard name for us.

And as we have no further audio questions, I will hand back over to you, Michael, for the chatbox question.

Thanks, Karla. We have a number of written questions. First question comes from Sergei at Aguaja 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. Sergei, so what we're 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 at KI topics is far advanced from where it was 6 months ago. And what was -- 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 and SDLC. But the idea of AI and core workflows at the enterprise level is now really not so much, if topic, not even a when topic, but a 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 going. 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 genic programming. Is this having an impact on your sales? Or do you expect it to have a near or medium-term impact?

This, of course, large productivity impacts that I 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 have seen in enterprise environment brownfield environment. This is much less than in greenfield or homogeneous environment. There's also the aspect of all the reinvention that has to be done in terms of company's internal organizational and workflow 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's 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 enabled or AI transformed is now much higher. I think of it like the Internet, right? You would think the business put up on a website and it was on the Internet. And you can 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. 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 where the opportunity is for services companies.

Our next question comes from Alejandra Esteban at True Value. 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?

Hi 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 up to speed with the fundamentals of the company. to take more, yes, a better judge view of capital allocation. So I would not comment on the part of share buyback. 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 Sudanshu Maru at Vitus. 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 we -- 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 article and forecast how this will go. But as I said, we expect enterprise products, some enterprise products to be converted into services and build 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 one -- 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, Manuel. 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 and DLC 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 prospect, 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 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.

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. 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 is a very senior person from a Japanese trading house in the very office that I'm 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 a 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 future to pursue Japan and Japan Inc. around the world more aggressively.

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 long-standing 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 in 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 if you want to be close partners with our clients through their transformation deal with this.

Thank you, Manas. 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 levels are about that AI transformation and advisory for it to percolate to 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 attracting 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 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 that this internal organization, we have really solved for some of this. Why it will take 18 months is because we are now capacity constrained. So we've gone from being a little bit demand constraint 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.

Got it. And the next question is about cash collections or collections, do you think there's 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 bucketed 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 throw 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 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.