Participants

Laurence Madsen; Head of Investor Relations at ESG; Endava PLC

John Cotterell; Chief Executive Officer, Executive Director; Endava PLC

Mark Thurston; Chief Financial Officer, Executive Director; Endava PLC

Jamie Friedman; Analyst; Susquehanna

Jonathan Lee; Analyst; Guggenheim

Maggie Nolan; Analyst; William Blair

Brian Bergen; Analyst; TD Cowan

Bryan Keane; Analyst; Deutsche Bank

Jane Fawcett; Analyst; Morgan Stanley

Presentation

Operator

Good day and welcome to the Endava first quarter, fiscal year 2025 results conference call.
All participants will be in a listen-only mode.
Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then one on a touchtone phone to withdraw your question. Please press star. Then two.
Please note this event is being recorded.
I would now like to turn the conference over to Laurence Madsen, Head of Investor Relations at ESG. Please go ahead.

Laurence Madsen

Thank you. Good morning, everyone and welcome to Endava's first quarter of fiscal year 2025 conference call. As a reminder, this conference call is being recorded.
Joining me today are John Core and Dava Chief Executive Officer and Mark Gerson and Dava Chief Financial Officer. Before we begin a quick reminder to our listeners, our presentation and our accompanying remarks today include forward statements including but not limited to statements regarding our guidance for future fiscal year 2025 and for the full fiscal year 2025 the effect of headwinds facing our industry and business, our ability to capitalize on market opportunities and trends in our industry, including with respect to development with artificial intelligence, our addressable market, our expectations regarding the impact of our recent acquisition of Galaxy on our business amendments to our technology and offering demand from clients for our technology services. Our ability to create long term value for our clients, our people and our shareholders and our business strategy plans, operation and growth opportunities.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements and reported results should not be considered as an indication of future performance. Please note that these forward-looking statements made during this conference call speak only as of today's date and we undertake no obligation to update them to reflect subsequent events or circumstances other than to the extent required by law. For more information, please refer to the risk factors section of our annual report filed with the Securities and Exchange Commission on September 19th 2024.
Also during the call, we'll present both IFRS and non ifrs financial measures. While we believe the non ifrf financial measures provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS reconciliations of such non IFRS measures to the most directly comparable IFRS measures are included in today's specialties as well as the investor presentation. Both of which you can find on our investor relations site or on the sec website. A link to the replay of this call will also be available on our website with that. I'll turn the call over to John.

John Cotterell

Thank you, Lawrence and good morning everyone. Thank you for joining us for our first quarter, fiscal year 2025 earnings call. We're pleased with our first quarter results which beat our guide and showed top line growth quarter on quarter as well as year on year as we discussed on our last earnings call, we believe our market is exhibiting the characteristics of a significant digital shift.
This is visible in the slowdown of more traditional digital business alongside the acceleration of new, mainly A I and core modernization driven growth.
Whilst this growth has emerged from a smaller base, we believe that the acceleration is beginning to outpace the areas of decline.
I will add that this shift seems to differ from others. The markets have experienced over the years.
The A I imperative to transform the core comes with a plethora of exciting opportunities revolutionizing the digital experience as we know it, we believe that our experience and expertise in digital transformation A I and core modernization make us the ideal partner for customers in this new disruptive wave.
Additionally, we believe the size of the market we address is expanded by the shift where quite excitingly, we are no longer focused on solutions built predominantly around the core. But in fact need to engage directly with the core itself from through to production what we are calling the digital shift.
We believe our business is well set up for these new growth areas. Whilst reducing concentrations, our focus on A I is continuing to establish leading edge propositions to solve real business challenges. And our acquisition of Galaxy has enhanced our core modernization capability, adding pasted IP which provides clients with a more secure and cost effective path to their digital future.
These capabilities give us access to larger more complex transformation programs with a powerful proprietary set of accelerators providing us with a compelling sales offering.
Alongside this, we've diversified our customer footprint across industries and geographies and globalized our delivery capability.
We believe these changes strategically position us to meet the growing demand for the digital shift. And this morning, I will outline our progress across each of these priorities and look forward to showcasing some of our latest technology offerings at our investor day tomorrow and hope you can join our webcast first, our business winning activities, we continue to focus on building larger strategic partnerships with customers. As a key lever for future growth, we have increased the size of the largest opportunities we are seeing over the last few years regularly. Bidding on and winning deals valued at 100 million sterling and higher.
As a result of the shift in the market, we are also having more conversations with our customers about addressing the largest enterprise challenges.
I'm pleased to share that in recent months, we secured the strategic deals with clients in various verticals and regions. Highlighting our continued business diversification.
A few examples of these include a multiyear agreement with Aer lingus to support them with their digital transformation ambitions from specialist strategic advisory work to businesswise migration and implementation programs.
Then there is our work with a leading mining company and also several large and longer term commitments with big insurance in order to derisk their modernization programs.
I'm also happy to announce our progressing partnerships across the market to open up new channels and leverage relationships.
Today we announced a partnership with Esoft, the provider of a low code platform with which to develop business critical applications.
ASOF continues to focus on product innovation. Endava will provide implementation support and drive stronger customer relationships to help scale their platforms impact.
We also recently formed a strategic partnership with Mambu to drive innovation in the financial services sector through cloud banking technology.
In a nutshell, the partnership aims to help financial institutions modernize their core systems, accelerate time to market and enhance customer experiences.
This collaboration will empower banks and fintechs to adopt flexible scalable and AP I driven solutions, enabling them to stay competitive in an evolving digital landscape while meeting regulatory requirements efficiently.
And finally, we recently signed a strategic partnership with Gocardless, aimed at enhancing digital payment solutions for businesses globally. Simply put through this partnership, businesses can expect to streamline payment processes, reduce costs and improve cash flow management.
The partnership will focus on delivering innovative scalable solutions that meet the growing demand for seamless real time payment experiences.
Moving on to technology and A I in particular, based on the results of our recent sponsored IDC info brief titled the next wave of Digital Transformation. In the era of the A I powered Digital shift, 60% of CEOS consider deploying A I machine learning and generative A I to be their top modernization and transformation initiative making it the leading priority for this group.
But to truly harness A I's transformative potential organizations must ensure that this technology is embedded deep within their core systems, which is why modernizing our clients' core infrastructure is a key pillar of our long term strategy.
So let's turn to core modernization.
We do not view it as just a behind the scenes upgrade. It's the critical foundation enabling the adoption of cutting edge technologies to drive future growth from A I and automation to advanced analytics without modern flexible and scalable systems. Businesses simply can't take full advantage of these innovations.
The core modernization is a holistic approach to transforming platforms that have historically resisted change or been overlooked in transformation efforts.
The same IDC research found that 49% of firms attribute overspending of digital infrastructure to the cost of maintaining legacy systems which just underscores the urgent need to modernize the greater operational efficiency.
When we work with clients to modernize their core systems, we aim to develop those relationships into long term partnerships where we can continue to help them thrive in a rapidly changing landscape.
In short core modernization empowers us to deliver innovation at scale.
Setting the stage for future growth and transformation through our data X capabilities, we design and accelerate our clients' change agendas seamlessly integrating these innovations with our foundational capabilities to drive a lasting impact.
It's about equipping organizations with the ability to implement and optimize next gen technologies without being held back by outdated systems.
So what does this innovation look like in action?
The cornerstone of our modernization approach is an in depth analysis of legacy technology assets.
This analysis is supported by our own IP in the form of A I enabled accelerators which are designed to reduce disruption and vastly increase the speed and accuracy of delivery. They offer a tailored unique approach that analyzes each customer's situation thereby facilitating our ability to develop deploy and integrate impactful solutions.
The seven Modernization Accelerators range from Kronos and Ray which focus on software assessments to morpheus orogenic A I Accelerator.
The sweep also includes tools for dependency mapping, predictive analysis capabilities and optimizing data center environments which clients have told us are unique features and which enables more efficient low risk accelerated transformation programs.
And by leveraging next generation technologies, we believe we can deliver even greater value to our clients, pushing the boundaries of what's possible with the goal of delivering sustainable growth, these accelerators and the others that we offer in specific verticals totaling more than 20 overall really come into their own. When underpinned by our core competencies in data A I and digital product strategy and management.
A big focus for us right now is supporting clients as they transition their A I use cases from proof of concept to operating in production. So we have front row seats when seeing the value that our A I systems provide to our clients.
An example for a preeminent London market insurer, we deployed an A I system that monitors the huge volume of incoming sufficients and politely declines the ones that don't suit our client's business model.
The system makes the decision based on whether it is the wrong type of product or if it may sway the whole portfolio.
Another interesting use case is one where we developed an A I system for a personal lines insurer, offering car and home insurance products in the UK.
We worked on their claims transformation program to increase the number of online self reported customer claims after an accident from the first notification of loss A I was used to ensure that the claimant would never need to repeat information. Even if the case was escalated, claims handling is a major cost area for insurers. So this program had an important value proposition before our system went live, around 14% of their customers claims were self reported online.
A year after I go live this adult to about 28% and it keeps increasing.
Then there is the US asset tracking company facing a demanding environment where precise real time tracking of physical assets was essential challenges emerged around accurately pinpointing and recording asset locations. So leveraging a customized A I model integrated with an IOT solution, we automated the geomarking process. This eliminated the need for manual data entry, enhanced accuracy and provided the client with a seamless tracking experience.
And finally, a manufacturer of intelligence glasses requires greater levels of accuracy when users issue voice commands to help resolve the problem. A large language model or Ln BASED solution was deployed to enhance the user experience. When a user speaks to the device, the model maps natural language to the commands supported by the device. If the user words do not match predefined commands, the A I model generates an appropriate response.
The device is capable of processing both user speech and images providing a comprehensive and intuitive interaction experience.
As you can see, it's an exciting time for us. These deployed A I use cases represent just a small subset of the solutions we've been creating and deploying for clients switching gears now and moving on to galaxy integration is progressing with a focus on both commercial alignment and the goal of achieving operational excellence.
We are concentrating on our cross selling efforts and recently leveraged our nearshore teams to support a major us pharmaceutical retailer with their international assets demonstrating our global reach and industry insights.
Additionally, we broadened the scope of services offered to a longstanding galaxy healthcare client. Now working to elevate their data strategy and reinforcing our commitment to delivering transformative outcomes in healthcare.
I mentioned earlier that we have globalized our delivery capability to expand on that. We are excited to have been able to open up new areas of client spend with our delivery footprint in India.
Our presence in this region gives us the ability to offer global coverage across time zones and access to a diverse and skilled team, essential elements in large scale engagements.
As India is often a strategic location in our client's technology delivery plan. We're already seeing a new level of engagement with potential customers including strategic bids that would previously have been out of our reach.
Our first net new success in the region was our selection as the preferred technology partner for a global capital markets organization.
This perfectly illustrates the benefits from our new India footprint.
Our India delivery qualified us to engage with the customer, but the services will require delivery, not just from India, but also Central Europe and Latam as well as both A I and core modernization capabilities.
Building on this momentum, we're progressing with further opportunities across payments and retail and are actively collaborating with existing customers to design optimal best shoring solutions.
Now, moving on to our people, we ended the quarter with 11,821 endowments on board which represents a 0.5% increase from the same period last year.
Looking forward and based on the current environment, we are prioritizing recruitment in high demand areas such as around the domains of data A I and cloud with our people in mind. I would like to focus on an area that is very important to us in Darwin, which is mental health.
We are committed to creating an environment where everyone feels empowered to take care of their well being.
And our endowments can find support and guidance through the employee assistance program and our dedicated wellbeing champions to mark the world's mental health day. This October, we are offered a masterclass and workshops, offering practical tools and strategies to navig life's ups and downs with confidence.
We also joined the global Celebration of customer experience Day. Recognizing the positive impact it creates for our organization, our people and our clients. In October, our engineering days took center stage featuring three days of live talks streamed from Bucharest, Montevideo and Melbourne. These global sessions were led by our top engineers exploring key topics that resonate across our business and the wider industry. Today, local and regional events followed, fostering collaboration among our teams as we continue to transform how we envision and engage with technology.
In closing, I'd like to take this opportunity to thank all endowments for their commitment and determination as we are navigating the challenges of the digital shift, but also discovering the new opportunities it brings, we will continue to manage the business for the long term, maintaining our culture and organizational health and creating exciting technological solutions that empower our clients to thrive in this next wave of A I driven digital transformation.
Now I'll hand over to mark who will walk you through our quarterly financial results and offer guidance for the upcoming quarter. And remainder of the fiscal year.

Mark Thurston

And strong revenue totaled 195.1 million pounds for three months ended September 30th 24 compared to 188.4 million pounds in the same period in the prior year, representing a 3.5% increase in constant currency. Our revenues increased 5.2% from the same period in the prior year.
The contrary revenue is up 2% in constant currency on the previous quarter.
Profit before tax for the three months ended. September 30th 2024 is 4.2 million pounds compared to 17.3 million pounds in the same period in the prior year.
Our adjusted PBT for the three months end, September 30th 2024 is 19.2 million pounds compared to 29.8 million pounds for the same period in the prior year.
Our adjusted PBT margin was 9.9% for the three months as of September 30th 2024 compared to 15.8% the same period in the prior year before tax. And the just the PBT were impacted by decline in operating marches.
As I said last quarter, we expect these margins to improve from current level in future periods. Following the integration of Galaxy and the business optimization initiatives we only took during fiscal 2024 our adjusted diluted earning per share was 25p. The three months ended September 30th 2024 calculated on 59.4 million shares as compared to 39p. The same period in the prior year calculated on 58.4 million shares.
Revenue from our 10 largest clients accounts for 36% of revenue for the three months ended September 30th 2024 compared to 35% for the same period. Last fiscal year.
The average spend per client from our 10 largest clients increased from 6.5 million pounds 7.1 million pounds to the three months ended September 30th 2024 as compared to the three months ended September 30th 23 representing an 8% year over year increase in the three months ended September 30th 2024 North America accounted for 39% of revenue Europe for 25%. The UK for 31%. While the rest of the world accounted for 5%.
Revenue from North America grew 32.5% for the three months ended September 30th 2024 over the same period last fiscal year, comparing the same periods, revenue from Europe grew 2.7%. The UK declined 8.0% and the rest of the world declined. 42.8% North America was boost, boosted by the contribution of the galaxy business. While the decrease in the UK is mainly due due to an decrease in payments and the rest of the world is due mainly to work out in banking and capital markets and insurance. Vertical revenue from payments declined 25.5% for the three months ended, September 30th 2024 over the same period last fiscal year and accounted for 20% of total revenue.
Comparing the same periods. Revenue from banking and capital markets grew 23.4% and accounted for 70% of total working revenue from insurance. Grew 14.5% to 9% of total revenue revenue from T&T declined by 4.5% and accounted for 21% of total revenue revenue from mobility declined 14.3% and accounted for 9% of total revenue revenue from healthcare which starting this quarter will be reported as a separate vertical rather than being included in our other vertical, grew 201.6% with the acquisition of Galaxy and accounted for 12% of revenue from other grew 3.0% and accounted for 12% of total revenue regarding payments. The decrease was mainly driven by lower spend by a few clients in that vertical compared to the prior year.
However, on a sequential basis, revenue from payments increased by 2.1%.
Our objective free cash flow was 3.5 million pounds. The three months ended September 30th 2024 compared to 16 million pounds during the same period last fiscal year, our cash and cash equivalents at the end of the period to 52.8 million pounds. September 30th 2024 compared to 62.4 million pounds at June 30th 2024.
Our borrowings totaled 132.6 million pounds at September 30th 2024 compared to 144.8 million pounds at June 30th 2024 capital expenditure for the three months ended September 30th 20 24% of revenue was 0.6% compared to 0.4% in the same period last fiscal year.
Now, moving on to our outlook, our guidance for Q2 fiscal year 2025 is as follows.
The data expects revenues to be in the range of 195 million pounds to 197 million pounds representing constant currency revenue growth of between 8.5% and 9.5% on a year over year basis.
Endava expects adjusted diluted EPS to be in a range of 24 to 25 P per share.
Our guidance for full year fiscal year 2025 is as follows and expects revenue to be in the range of 800 million pounds to 810 million pounds. Representing constant currency revenue increase between 10.0% and 11.5% on a year over year basis.
And Dava expects adjusted diluted PS to be in a range of 112 to 117 P per share.
This above guidance for Q2 fiscal year 2025 and the full fiscal year 2025 assumes the exchange rates on October 31st 2024 and the exchange rate is GBP1 to $1.30 and 1.19. EUR this completely self prepared comments operator, we are now ready to open the line.

Question and Answer Session

Operator

We will now begin the question and answer session to ask a question. You may press star then one on your touchtone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys.
If at any time, your question has been addressed and you would like to withdraw your question. Please press star then two at this time, we will pause momentarily to assemble our roster.
The first question today comes from Jamie Friedman with Susquehanna. Please go ahead.

Jamie Friedman

Hi, good morning. Good afternoon.
I wanted to ask John. I was intrigued by your prepared remarks, especially the opening commentary about the acceleration of the new technologies. Now outpacing the decline of the deluxe. But you went on to say that this is different from prior technology architectures in your view. I was just hoping you could elaborate that like if you can help unpack, how bad is the bad stuff, how fast is the good stuff and why this is different this time?

John Cotterell

Yeah, thanks Jamie and good question.
I mean, this is around the digital shift that I was highlighting in my opening remarks.
Where if you look, if you look at the previous 20 years of our business, we were largely building digital capabilities around the outside of clients core systems.
And you know, the shifts that were going on remained around the outside, the need of A I to get into the data, the workflows, the processes that sit at the heart of the enterprise means that you can't in this new era, just build around the outside, but you actually need to get into the core and do a lot of the transformation work on the core.
And so that's the difference that I was picking out and the the impact on us is that as clients get into engaging with those questions, they, they are larger programs because it's, it's not a case of creating some product capability largely around the outside of the core, but actually a deeper program of work that goes into the core and transforms it.
And that's not an easy program. So the larger programs, clients taking longer to do the preparatory work on it and to do the sign off on it.
So that's the shift and picture if you like that, that we're setting in which we are negotiating our way through at the moment.

Jamie Friedman

Great. Thank you for the call, John, I'll drop back in the queue.

John Cotterell

Thanks man.

Operator

The next question comes from Jonathan Lee with Guggenheim. Please go ahead.

Jonathan Lee

Great. Thanks for taking our question and tremendous to see the relative stability in the outlook here. Can you provide an update around your underlying assumptions in your outlook across the macroeconomic landscape and client budgets and where you'd expect the potential for maybe growth, acceleration versus deceleration based on what you see in your pipeline today.

John Cotterell

Good morning, Jonathan.
And so the broad picture that we have in our outlook is based on the macro and the current situation are largely remaining unchanged.
And you know, the the processes that clients are going through in terms of thinking about where to prioritize their spend and the time it's taking them to do that following similar extended cycles as they go through that, you know, there are, there are still higher standards that CFOS are setting in terms of the financial returns of the investments that they're making than, than used to be the case during COVID and post COVID period.
And you know, expectations of solid business cases that are going on at the same time, these are new technologies A I the approaches to core modernization that we're bringing and so on.
So the creating the business cases that have the solidity are, are challenged from a technical point of view and we're putting a lot of work into helping our clients get to the bottom of that and get their cases to stand up.
So the second part of your question that that essentially is what's driving the ups and downs as there's a shift from the more traditional digital transformation work built around the outside of the core towards larger programs that are taking longer, sign off that go into the core and indeed our core modernization approach. And so, you know, as we look forward, we are, we are balancing the ups and downs in that shift in client spend and the time that it takes them to make those decisions.

Jonathan Lee

Thanks for that detail. And just as a follow up your your outlook contemplates sequential revenue growth acceleration in the back half of your fiscal year, you know what in your customer conversations gives you that confidence and visibility into your ability to achieve that. And how do we balance that with the sequentially lower head count we saw in the quarter.

John Cotterell

So let me, let me cover some of the customer conversations and then Mark can give some of the numbers that go alongside that. So the customer conversations as, as I touched on in the last two conversations have all been around clients making those large transformative decisions and some of those are underway and that gives us some confidence that those programs will ramp up over the next eight months or so through to the end of our fiscal and others are still in pipelines. So subject to the uncertainties that business that is still to be closed has, but nonetheless, we can see a few of those shaping up quite nicely and they are large programs and can make a solid impact on us.
Mark. Do you want.

Mark Thurston

To have? I haven't much to add to what John said. I mean, the pipeline continues to grow since the last call in September.
It's balanced across the geos and verticals. We're seeing larger potential deal opportunities. I think some of this is also coming from our enhanced capability through the galaxy acquisition. So the core modernization topic John touched on and we're getting incremental interest basically, basically because of our presence, you know, in India. So that is opening, you know, opportunities up for us. And you put all of that together, it underpins that sort of confidence that we have in those sequential growth.

John Cotterell

In the second half.

Jonathan Lee

Great color there. Thanks guys.

Mark Thurston

Thanks. All.

Operator

The next question comes from Maggie Nolan with William Blair. Please go ahead.

Maggie Nolan

Thank you. You've, you've sort of alluded to this in a couple of different ways, but maybe I'll just ask explicitly if you could comment on, you know, these larger longer term projects.
You know, ones that are focused on core modernization slightly different than what you've done in the past. Do they have different conversion timelines, ramp timelines margin profiles? Any other aspects that you would flag that are different from what endava you know, typically saw previously?

John Cotterell

Yeah, I think the big difference is the longer conversion times. We're not expecting the margin profiles to look different.
And you know, it is very much our approach to this is an accelerator enabled approach that enables us to get very good analytics on these complex legacy calls that clients have. And, and we all need to recognize they've left these alone as long as they can because of the complexity of understanding them, because many of the people who are involved in building them are no longer around in the businesses and so on.
So good analytics on understanding these co that gives a more assured transformation program and then you get a faster and more cost effective transition than the sort of historic traditional approaches that people have used.
And we're using a I very much as part of that to deepen those routes, to understanding what the core does and to speeding up the process of changing it once you've got your arms around it.
So, because it's different to the historic ways in which other organizations have tackled core modernization, we don't expect it to be margin reducing.
But actually, you know, to operate to a similar dynamic that we had with digital transformation over the past 20 years. And the added value of the approach and the economic benefits to the clients, you know, being an ability to protect our margins as we go through that.

Maggie Nolan

That's helpful. Thank you. And then Mark maybe could you, is there any more insight you could give into the trajectory of the adjusted P BT margin over the course of the fiscal year? Is that a, you know, second half phenomenon later in the year and then as well as the kind of the magnitude of the improvement as we think about things like the cost efficiency program integration, you know, revenue trajectory. Thank you.

Mark Thurston

So I mean, the EPS guide for Q2 can tell that the adjusted P BT outlook is, is broadly in line with Q1, I think we see the improvements come through in the second half, partially through sort of Q3, but mainly Q4 when we complete our integration from systems perspective and process perspective with galaxy which is scheduled for, you know, the end of February. So there's still heavy investment going on in the integration activities in Q2 and Q3. And then that abates somewhat when we get into Q4 where, you know, adjusted P BT margins move up to, you know, the sort of 13%-14% or so.
So we we should be exiting this fiscal year And a much.
Improved sort of run rate Outlook.

Maggie Nolan

Thank you.

Operator

Thanks Matt.
The next question comes from Brian Bergen with TD Cowan. Please go ahead.

Brian Bergen

I think this is Zach Aizenman on for Brian Bergen. First question we had was on top client performance. It was encouraging to see the TOP10 cohort better sequentially again here. But just given some of the variability seen over the past year with some of the top accounts, can you just speak to what's embedded in the fiscal '25 outlook and and maybe provide more insight into the latest sentiment with some of these key accounts relative to what was seen earlier this calendar year?

Mark Thurston

Yes, I think on the previous call, we said that our largest client was a galaxy client. We expect stability there.
Our next couple of clients are in the payment sort of space and we're seeing stability there as well. And indeed, we may see a little bit of growth in one of them in the second half. The rest of the client group looks pretty stable. We do have a slowdown in a media client where there's been an M&A transaction which we're expecting to ramp down quite quickly. So that will impact Q2 and the balance of the year, but.

John Cotterell

The rest of the clients.

Mark Thurston

Look stable and in fact, it looks like it will grow quite nicely.
That's good to hear.

John Cotterell

And our follow up on gen A I.

Brian Bergen

Any notable change in the number of projects that are now progressing into full scale production mode and, and for programs that are moving forward, can you compare and contrast contract structures, pricing productivity commitments, anything along those lines relative to more of the traditional work that you've done in the past?

John Cotterell

Yes. So there is, there is a step up in projects that are going into production.
I would caution that it's not huge in the context of the number of projects that inva does, but it is a steady increase from a small base.
And you know, it's good to see those many proof of concepts, some of them starting to convert into production assignments and start to see the benefits being delivered to clients. I mean, this is something we've been doing for a while. You'll have picked up in the opening remarks that a couple of those have been in place for over a year. And you know, so it's, it's, it's not ramping from nothing completely new but the gen a space as it is picking up speed is moving up from a contracting point of view.
We expect that over time and we're talking two or three years here that the shape of the contractual discussions will begin to move towards more outcome based high pricing. However today it is, it is all on A T&M basis and there is, there is still too much learning to be done both by us and by our clients in terms of what can be done with gen A I to actually be turning that into outcome based pricing.
But we do believe that there will be opportunity, you know, particularly as we as we get specific use cases nailed and we can roll them into multiple clients across an industry that are actually moving to an outcome based mechanism will become part of our process around general, very helpful color. Thank you.

Brian Bergen

Thank you.

Operator

The next question comes from Bryan Keane with Deutsche Bank. Please go ahead.

Bryan Keane

Yeah, hi. Thanks for taking my questions. Can you guys quantify the percent of revenue now coming from Gen A I and then mark any update on pricing on the contracts of what you're seeing in the market.

Mark Thurston

I mean, pricing overall just remains stable, still competitive with budget pressures, but we're not seeing price erosion or meaningful price erosion based on, you know, average measures of, you know, the rate per workday.
I think the A I piece we're not tending to look at it that way because again, I think we think about providing solutions for clients using the various technologies. And obviously A I is a sort of strong component of BTIC embedded in most of the solutions that we are, we are offering to clients. But we don't look at it as like this is a percentage of, you know, the opportunities that are on the slate that include A I think A I is in all of them to a varying sort of degree.
So it's, it's a figure that I can give you.

Bryan Keane

Got it. And March is hoping to get the acquisition contribution for the quarter and what you're expecting for fiscal year '25.

Mark Thurston

So as a percentage of reporter revenue for Q2, we expect the contribution to be 13% as it was in Q1 and the proportion of the M&A for the full year remains unchanged from the previous guide.

Bryan Keane

Okay, thanks so Much.
Thanks for that. Thank you.

Operator

As a reminder. If you would like to ask a question, please press star then one to join the question queue.
The next question comes from Jane Fawcett with Morgan Stanley. Please go ahead.

Jane Fawcett

Hey, good morning. Thanks for these details. I wanted to just follow up on question in terms of the project size and, and conversion time. What does that entail or what should we take from that? In terms of the amount of competition there are for these projects. Is that also different? And you know, as you're looking at these longer time to conversion, how should we think about the change in visibility as we go out beyond kind of your your current forecast horizon?

John Cotterell

So the the project sizes, as I touched on in the opening remarks and earlier are larger. Of course, one of the challenges to work through with clients is to set them a road map where they can, whilst they can see the overall size, they can actually break the deliverables down into more bite sized chunks with business benefits aligned with that. So that so that we turn it into an incremental improvement approach and it still hits the longer conversion time that I've been touching on because of the need for that overall framework and the client confidence about the road map that they have.
But then once we start moving into pulling off bite size chunks, then the program gets traction and starts to move forward.
The competition question is mixed, I think sometimes yes, we do see higher levels of competition but other times it, it follows the traditional business winning approach that we've had over the last 25 years where we've been working with a client around the art of the possible doing proof of concepts, whether at the A I end or at the core modernization end to show them what can be achieved alongside the road map planning and then actually start to see that pull off without, without going through an RFP or a large scale process. So it falls into both categories. We do see a little bit more of the competition and the RFP process on some of the large programs but not exclusively.

Jane Fawcett

Got it, got it. And then just on touching on the, the visibility point, I mean, it seems like is, is this improving your visibility, I guess beyond this fiscal year and into next. And, and when should we, and this following up a little bit on Jonathan's question, like, how should we be thinking about the the pace of hiring or, or net head count over the course of the rest of this fiscal year.

Mark Thurston

The sort of elongated decision making makes judgments on pipeline conversion more challenging than it has been. So we're adopting a cautious approach to that, I think as we're approaching, you know, the turn of the calendar year budgets are being set and again, we're exerting sort of caution around our assumptions around pipeline conversion there and how that sort of manifests itself in terms of head count growth is that we don't anticipate any sort.

John Cotterell

Of significant ramp.

Mark Thurston

Up.

John Cotterell

In head.

Mark Thurston

Count until we get well into, you know, beyond Q3, really, we are recruiting though, I have to say we are focused on certain skills which are high demand, so data A I and cloud, but they are just topping up skills for work that we can.

John Cotterell

See here and now.

Jane Fawcett

That's great. Thanks for all the color.

John Cotterell

Excellent.

Operator

This concludes our question and answer session. I would like to turn the conference back over to John Cottrell for closing remarks.

John Cotterell

Thank you and thank you all for joining us today. As I mentioned in my prepared remarks, we believe the market continues to exhibit characteristics of a significant digital shift and that's visible in the slowdown of more traditional digital business alongside the acceleration of new meaning A I and core modernization, driven growth.
And we believe that our experience and expertise in digital transformation A I and core modernization make us the ideal partner for customers in this new disruptive wave.
Additionally, as a result of the digital shift and our work into the core, we believe we can now offer services to a wider range of potential clients.
I look forward to our investor day tomorrow. I hope some of you can join us and to our next earnings call in February. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.