• Revenue: 195.1 million for the quarter ended September 30, 2024, a 3.5% increase year-over-year in constant currency.
• Profit Before Tax: 4.2 million for the quarter, down from 17.3 million in the prior year.
• Adjusted Profit Before Tax (PBT): 19.2 million, compared to 29.8 million in the prior year.
• Adjusted PBT Margin: 9.9% for the quarter, down from 15.8% in the prior year.
• Adjusted Diluted Earnings Per Share (EPS): 25p, compared to 39p in the prior year.
• Revenue from Top 10 Clients: 36% of total revenue, with an average spend increase to 7.1 million per client.
• Regional Revenue Distribution: North America 39%, Europe 25%, UK 31%, Rest of the World 5%.
• Revenue Growth by Region: North America up 32.5%, Europe up 2.7%, UK down 8.0%, Rest of the World down 42.8%.
• Vertical Revenue Performance: Payments down 25.5%, Banking and Capital Markets up 23.4%, Insurance up 14.5%, Healthcare up 201.6%.
• Free Cash Flow: 3.5 million for the quarter, down from 16 million in the prior year.
• Cash and Cash Equivalents: 52.8 million as of September 30, 2024.
• Borrowings: 132.6 million as of September 30, 2024.
• Capital Expenditure: 0.6% of revenue for the quarter.
• Q2 Fiscal Year 2025 Revenue Guidance: 195 million to 197 million, representing 8.5% to 9.5% growth in constant currency.
• Full Year Fiscal Year 2025 Revenue Guidance: 800 million to 810 million, representing 10.0% to 11.5% growth in constant currency.
• Full Year Fiscal Year 2025 Adjusted Diluted EPS Guidance: 112p to 117p per share.

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

Release Date: November 12, 2024

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

Positive Points

• Endava PLC (NYSE:DAVA) reported a 3.5% increase in revenue for the first quarter of fiscal year 2025, with a 5.2% increase in constant currency.
• The company is experiencing growth in new technologies, particularly in AI and core modernization, which are outpacing declines in traditional digital business.
• Endava PLC (NYSE:DAVA) has diversified its customer base across industries and geographies, enhancing its global delivery capability.
• The acquisition of Galaxy has strengthened Endava PLC (NYSE:DAVA)'s core modernization capabilities, providing a more secure and cost-effective path for clients.
• Strategic partnerships with companies like Mambu and Gocardless are expected to drive innovation and open new channels for growth in financial services and digital payment solutions.

Negative Points

• Profit before tax decreased significantly to 4.2 million pounds from 17.3 million pounds in the same period last year.
• Adjusted PBT margin dropped to 9.9% from 15.8% in the prior year, impacted by a decline in operating margins.
• Revenue from the UK and the rest of the world declined by 8.0% and 42.8% respectively, due to decreased spending in payments and banking sectors.
• The company is facing elongated decision-making processes from clients, making pipeline conversion more challenging.
• Headcount growth is expected to remain flat until well into the fiscal year, reflecting cautious hiring due to the current market environment.

Q & A Highlights

Q: Can you elaborate on the acceleration of new technologies outpacing the decline of traditional systems and why this is different from prior technology architectures? A: John Cotterell, CEO, explained that the digital shift now requires engaging with the core systems of enterprises, unlike previous shifts that focused on building capabilities around the core. This transformation involves larger programs that take longer to prepare and sign off, as they require deeper integration into the core systems.

Q: What are the underlying assumptions in your outlook regarding the macroeconomic landscape and client budgets? A: John Cotterell noted that the outlook assumes the macroeconomic environment remains largely unchanged, with clients continuing to prioritize spending and taking extended cycles for decision-making. The focus is on creating solid business cases for new technologies like AI and core modernization.

Q: How do larger, longer-term projects focused on core modernization differ from previous projects in terms of conversion timelines and margin profiles? A: John Cotterell stated that these projects have longer conversion times but are not expected to have different margin profiles. The approach involves using accelerators for better analytics and faster, cost-effective transitions, leveraging AI to understand and change complex legacy systems.

Q: Can you provide more insight into the performance and outlook for your top clients? A: Mark Thurston, CFO, mentioned stability in the largest client, a Galaxy client, and potential growth in one of the top payment clients. However, there is a slowdown expected in a media client due to an M&A transaction, impacting Q2 and the rest of the year.

Q: What is the current status of Gen AI projects moving into full-scale production, and how do contract structures compare to traditional work? A: John Cotterell noted a steady increase in Gen AI projects moving to production, though still from a small base. Currently, contracts are on a time and materials basis, but there is potential for outcome-based pricing as specific use cases are developed and rolled out across industries.

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