• Revenue: GBP195.6 million for the three months ending December 31, 2024, a 6.6% increase from the prior year.
• Constant Currency Revenue Growth: 9.1% increase from the same period in the prior year.
• Profit Before Tax: GBP2.5 million for the three months ending December 31, 2024, compared to GBP10.6 million in the prior year.
• Adjusted Profit Before Tax (PBT): GBP21.8 million, with an adjusted PBT margin of 11.2%.
• Adjusted Diluted Earnings Per Share (EPS): 30p for the three months ended December 31, 2024.
• Adjusted Free Cash Flow: GBP31.6 million for the three months ended December 31, 2024.
• Cash and Cash Equivalents: GBP60.1 million as of December 31, 2024.
• Borrowings: GBP123.7 million as of December 31, 2024.
• Capital Expenditure: 0.2% of revenue for the three months ended December 31, 2024.
• Revenue from Top 10 Clients: 36% of total revenue for the three months ending December 31, 2024.
• Regional Revenue Distribution: North America 39%, Europe 24%, UK 32%, Rest of the World 5%.
• Share Repurchase Program: $100 million, subject to shareholder approval.
• Guidance for Q3 Fiscal Year 2025: Revenue expected between GBP198 million to GBP200 million; adjusted diluted EPS between 31p to 32p.
• Full Year Fiscal Year 2025 Guidance: Revenue expected between GBP795 million to GBP800 million; adjusted diluted EPS between 120p to 123p.

• Warning! GuruFocus has detected 6 Warning Signs with DAVA.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Endava PLC (NYSE:DAVA) reported a 6.6% increase in revenue for the quarter, with a 9.1% increase in constant currency, indicating strong financial performance.
• The company announced its first share buyback program totaling $100 million, demonstrating a commitment to optimizing capital allocation.
• Endava PLC (NYSE:DAVA) is experiencing strong growth in the banking and capital markets sector, with a 43.6% increase over the past 12 months.
• The company is leveraging AI-enabled capabilities like Morpheus and Compass to accelerate client transformations, contributing to a solid pipeline of opportunities.
• Client satisfaction remains high, with 92% of clients likely to recommend Endava PLC (NYSE:DAVA) and 90% likely to repurchase services.

Negative Points

• Profit before tax decreased significantly to GBP2.5 million from GBP10.6 million in the same period last year, indicating a decline in profitability.
• The adjusted PBT margin decreased to 11.2% from 12.4% in the prior year, reflecting margin pressure.
• Endava PLC (NYSE:DAVA) is facing challenges in the payments vertical, with some larger clients reducing spend.
• The company has seen increased softness in the UK and Rest of World regions due to a worsening macroeconomic environment, leading to unplanned project ramp downs and delays.
• Revenue from Europe and the Rest of the World declined, with Europe down 0.6% and the Rest of the World down 43.5%, indicating regional challenges.

Q & A Highlights

Q: Can you provide more details on the assumptions behind the Q3 guidance and the expected acceleration in Q4? A: Mark Thurston, CFO, explained that North America remains strong, while the UK and Rest of the World show negative trends due to macroeconomic factors. Banking and capital markets are strong, but TMT and mobility are weakening. John Cotterell, CEO, added that large deals, particularly in core modernization, have longer sales cycles but are expected to drive growth in Q4.

Q: Could you elaborate on the behavior of top clients, especially in healthcare and payments sectors? A: John Cotterell, CEO, noted that healthcare clients, particularly those from the Galaxy acquisition, are showing strong growth due to core modernization projects. In contrast, the payments sector is experiencing a slow decline, although demand for payments capabilities remains strong within the banking and capital markets segment.

Q: What visibility do you have into 2025 budgets, and how are clients responding to the current economic environment? A: John Cotterell, CEO, mentioned that clients are still finalizing budgets, with some reshuffling to accommodate new opportunities in AI-driven core modernization. This reflects a shift towards discretionary spending that drives significant organizational change.

Q: Are you engaging in pricing discussions due to spending pullbacks, and how is pricing trending? A: John Cotterell, CEO, stated that pricing is slowly improving, driven by inflation recovery and productivity gains from outcome-based deals. The focus on core modernization and the use of accelerators are expected to enhance efficiency and pricing.

Q: How is the integration of the Galaxy acquisition progressing, and what impact is it having on profitability? A: Mark Thurston, CFO, reported that the integration is well underway, with systems expected to be fully integrated by the end of the month. Initial cost optimizations have focused on G&A, with further opportunities anticipated as the integration progresses, potentially improving profitability into FY26.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.