Investors with an interest in Computers - IT Services stocks have likely encountered both Endava PLC Sponsored ADR (DAVA) and Epam (EPAM) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions ...

Group 1 - Endava Plc (NYSE: DAVA) has experienced a decline of over 45% in the last year, indicating significant market challenges [1] - The company's margins are tighter, and free cash flow has been significantly squeezed [1] - Revenue for Endava fell by approximately 7% at the end of FY2024, reflecting a downturn in performance [1] Group 2 - The narrative surrounding Endava suggests it is a mid-tier services firm struggling to maintain its position in the market [1]

Financial Data and Key Metrics Changes - Endava's revenue for Q2 FY2025 was £195.6 million, a 6.6% increase from £183.6 million in the same period last year. In constant currency, revenue increased by 9.1% [37] - Profit before tax for Q2 FY2025 was £2.5 million, down from £10.6 million in the same period last year. Adjusted profit before tax was £21.8 million, compared to £22.7 million in the prior year [38] - Adjusted diluted earnings per share was £0.30 for Q2 FY2025, consistent with the same period last year, and stronger than the previous guidance of £0.24 to £0.25 [39] Business Line Data and Key Metrics Changes - Revenue from the banking and capital markets sector grew by 43.6% over the past 12 months, indicating strong demand in this vertical [18] - Revenue from the payments vertical remains challenged, with larger clients reducing spend, while insurance continues to show strength [44] - Revenue from the company's 10 largest clients accounted for 36% of total revenue, up from 34% in the same period last year, with average spend per client increasing by 13% year-over-year [42] Market Data and Key Metrics Changes - North America accounted for 39% of revenue, with a growth of 32.7% year-over-year. Europe accounted for 24%, with a decline of 0.6%, while the UK grew by 1.3% [43] - The rest of the world saw a significant decline of 43.5%, attributed to several clients pulling back on projects [44] Company Strategy and Development Direction - The company is focusing on AI-led transformation, leveraging capabilities like Morpheus and Compass to drive client transformations [10] - A share buyback program totaling $100 million was announced to optimize capital allocation [14] - The integration of GalaxE is ongoing, with a focus on achieving operational excellence and cost optimization [34][95] Management's Comments on Operating Environment and Future Outlook - Management noted a fast-changing demand environment with a shift towards AI-driven models, which may lead to longer decision-making cycles [11] - There is increased caution among clients regarding spending, particularly in the UK and rest of the world, leading to project delays and ramp downs [48][84] - Guidance for Q3 FY2025 expects revenue between £198 million and £200 million, representing a constant currency growth of 13% to 14% year-over-year [49] Other Important Information - The company ended the quarter with 11,668 employees, a 1.1% increase from the same period last year, with a focus on recruiting in high-demand areas like AI and data [35] - A restructuring charge of £5.5 million was taken due to headcount reduction, aimed at improving efficiency ahead of the GalaxE integration [40][109] Q&A Session Summary Question: Insights on Q3 guidance and large deal conversion - Management discussed macro effects impacting guidance, with North America remaining strong while Europe showed mixed results. The banking and capital markets sector is expected to continue strong growth [57][58] Question: Client behavior and project delays - Management noted that clients are cautious, leading to delays and ramp downs, particularly in the UK and Asia Pacific regions [84][85] Question: GalaxE acquisition integration progress - Integration is progressing well, with financial systems set to be locked by the end of February. Further cost optimization opportunities are expected as the two organizations align [94][95] Question: Hiring pace and utilization rates - Management indicated that headcount will grow in Q4, with a focus on higher-value skills. Utilization rates are stable and expected to improve modestly [88][98] Question: Revenue realization and pricing conversations - Slight improvements in pricing were noted, with expectations for revenue per headcount to increase as larger deals are secured [115][116]

Core Viewpoint - Endava PLC reported quarterly earnings of $0.38 per share, exceeding the Zacks Consensus Estimate of $0.32 per share, and showing a slight increase from $0.37 per share a year ago, indicating an earnings surprise of 18.75% [1][2] Financial Performance - The company achieved revenues of $250.63 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.66% and up from $227.96 million year-over-year [2] - Over the last four quarters, Endava has exceeded consensus EPS estimates three times and topped revenue estimates two times [2] Stock Performance and Outlook - Endava shares have declined approximately 1.3% since the beginning of the year, while the S&P 500 has gained 4.5% [3] - The current consensus EPS estimate for the upcoming quarter is $0.38 on revenues of $256.16 million, and for the current fiscal year, it is $1.45 on revenues of $1.02 billion [7] Industry Context - The Computers - IT Services industry, to which Endava belongs, is currently ranked in the top 29% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5][6]

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Revenue Performance - Revenue for Q2 FY2025 was £195.6 million, an increase of 6.6% compared to £183.6 million in the same period in the prior year[4]. - Revenue increase at constant currency was 9.1% for Q2 FY2025[4]. - Revenue for the six months ended December 31, 2024, increased to £390,641,000, representing a growth of 5.0% compared to £371,973,000 in the same period of 2023[32]. - The revenue growth rate at constant currency for the six months ended December 31, 2024, was 7.0%, compared to a decline of 4.5% in the same period of 2023[37]. - Endava expects revenue for Q3 FY2025 to be in the range of £198.0 million to £200.0 million, representing a constant currency revenue increase of between 13.0% and 14.0% year over year[10]. - Full Fiscal Year 2025 revenue is expected to be in the range of £795.0 million to £800.0 million, representing a constant currency revenue increase of between 8.5% and 9.0% year over year[11]. Profitability - Profit before tax for Q2 FY2025 was £2.5 million, compared to £10.6 million in the same period in the prior year[4]. - Adjusted profit before tax for Q2 FY2025 was £21.8 million, or 11.2% of revenue, compared to £22.7 million, or 12.4% of revenue, in the same period in the prior year[4]. - Profit before tax for the six months ended December 31, 2024, decreased to £6,717,000 from £27,918,000 in the same period of 2023[38]. - Adjusted profit before tax for the six months ended December 31, 2024, was £41,067,000, down from £52,538,000 in the same period of 2023[38]. Earnings Per Share - Diluted EPS for Q2 FY2025 was £0.11, compared to £0.14 in the prior comparative period[4]. - Basic earnings per share (EPS) for the three months ended December 31, 2024, was £0.12, compared to £0.14 in the same period of 2023[33]. Client Metrics - As of December 31, 2024, the number of clients with over £1 million in revenue was 141, down from 150 clients at December 31, 2023[8]. - The number of clients generating over £1 million in revenue over the last 12 months decreased to 141 from 150, a decline of 6%[43]. - Top 10 clients accounted for 36% of revenue in Q2 FY2025, compared to 34% in the same period in the prior year[8]. Sector Performance - Revenue from North America increased to 39% of total revenue, up from 31% in the previous year, showing an 8 percentage point increase[43]. - The percentage of revenue from the Banking and Capital Markets sector rose to 18% in the six months ended December 31, 2024, compared to 14% in 2023, marking a 4 percentage point increase[43]. - Revenue from the Healthcare sector increased significantly to 12% in the six months ended December 31, 2024, compared to 4% in the same period last year, a growth of 8 percentage points[43]. - The percentage of revenue from the Payments sector decreased to 19% from 27% year-over-year, a decline of 8 percentage points[43]. - The geographic split of revenue from Europe remained relatively stable at 24% compared to 25% in the previous year[43]. Financial Position - Total assets as of December 31, 2024, were £980,594,000, a decrease from £1,013,891,000 as of June 30, 2024[35]. - Net cash from operating activities for the six months ended December 31, 2024, was £36,422,000, down from £51,623,000 in the same period of 2023[36]. - Adjusted free cash flow for the six months ended December 31, 2024, was £35,161,000, compared to £49,626,000 in the same period of 2023[40]. - The company reported a total comprehensive loss of £4,715,000 for the six months ended December 31, 2024, compared to a total comprehensive income of £22,582,000 in the same period of 2023[32]. Expenses - Selling, general and administrative expenses for the three months ended December 31, 2024, increased to £6,823,000 from £4,489,000 in 2023, reflecting a 52.0% increase[42]. - Total depreciation and amortisation expenses for the six months ended December 31, 2024, increased to £24,133,000 from £18,761,000 in 2023, representing a 28.5% increase[42]. Employee Metrics - The closing number of total employees as of December 31, 2024, was 11,668, up from 11,539 in 2023, indicating a growth of 1.1%[43]. Capital Allocation - Endava announced a $100 million share repurchase program to optimize capital allocation[2]. Financial Restatement - The company restated its financials to reflect the final acquisition accounting for DEK and Mudbath, impacting the overall financial presentation[44].

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Core Insights - The article discusses the features and benefits of Ian's Insider Corner, an investment group led by Ian Bezek, which provides access to stock initiation reports, market updates, and direct communication with the analyst [1]. Group 1 - Ian Bezek has a decade of experience as a hedge fund analyst and has conducted extensive research in Latin American markets, focusing on countries like Mexico, Colombia, and Chile [2]. - The investment group emphasizes high-quality compounders and growth stocks available at reasonable prices in both the US and other developed markets [2].

Investment Thesis - The analyst reiterates a buy rating for Endava PLC (NYSE: DAVA), expecting growth acceleration as the macroeconomic environment improves [1] Analyst Background - The analyst is an individual investor focused on managing personal capital accumulated over the years [1] - The analyst employs a diversified investment approach, including fundamental investing, technical investing, and momentum investing [1] - The analyst uses Seeking Alpha as a platform to track investment ideas and connect with like-minded investors [1] Disclosure - The analyst has no stock, option, or derivative positions in the mentioned companies and no plans to initiate such positions within the next 72 hours [2] - The article expresses the analyst's personal opinions and is not compensated by any company mentioned [2] - Seeking Alpha's disclosure emphasizes that past performance does not guarantee future results and that the platform is not a licensed securities dealer, broker, or investment adviser [3]

Financial Data and Key Metrics Changes - Endava's revenue for Q1 FY2025 was GBP195.1 million, a 3.5% increase from GBP188.4 million in the same period last year, with a 5.2% increase in constant currency [33] - Profit before tax for the quarter was GBP4.2 million, down from GBP17.3 million year-over-year, while adjusted profit before tax was GBP19.2 million compared to GBP29.8 million in the prior year [34] - Adjusted diluted earnings per share was GBP0.25, down from GBP0.39 in the same period last year [35] Business Line Data and Key Metrics Changes - Revenue from payments declined by 25.5%, accounting for 20% of total revenue, while revenue from banking and capital markets grew by 23.4%, making up 70% of total revenue [37] - Healthcare revenue, reported separately for the first time, grew by 201.6% due to the acquisition of GalaxE, accounting for 12% of total revenue [38] - Revenue from insurance grew by 14.5%, while revenue from TMT and mobility declined by 4.5% and 14.3%, respectively [37] Market Data and Key Metrics Changes - North America accounted for 39% of revenue, with a growth of 32.5% year-over-year, while Europe grew by 2.7% and the UK declined by 8% [36] - The rest of the world saw a significant decline of 42.8%, primarily due to slowdowns in banking and capital markets and insurance verticals [36] Company Strategy and Development Direction - The company is focusing on larger strategic partnerships and has been successful in securing multi-year agreements with clients across various sectors [12][13] - The acquisition of GalaxE is enhancing core modernization capabilities, allowing the company to engage in larger transformation programs [10] - The company is positioning itself to capitalize on the digital shift driven by AI and core modernization, aiming to provide innovative solutions to clients [9][10] Management's Comments on Operating Environment and Future Outlook - Management noted that the market is experiencing a significant digital shift, with new technologies outpacing traditional digital business [8] - The outlook is based on the macroeconomic landscape remaining stable, with clients taking longer to prioritize their spending [46] - The company expects revenue growth acceleration in the second half of the fiscal year, driven by large transformative projects [48] Other Important Information - The company ended the quarter with 11,821 employees, a 0.5% increase from the previous year, focusing on recruitment in high-demand areas like data, AI, and cloud [28] - The company is committed to mental health initiatives and employee well-being, offering support programs and workshops [29] Q&A Session Summary Question: Can you elaborate on the acceleration of new technologies? - Management explained that the digital shift requires deeper transformation of core systems rather than building around them, leading to larger and longer programs [42][44] Question: What are the underlying assumptions in your outlook? - The outlook is based on stable macroeconomic conditions, with clients taking longer to make spending decisions, particularly for larger programs [46][47] Question: How do you see the conversion timelines for larger projects? - Management indicated that conversion times are longer due to the complexity of core systems, but they expect to maintain margin profiles through an accelerator-enabled approach [51][52] Question: What is the sentiment with top clients? - The sentiment is stable among top clients, with some expected growth, although there is a slowdown in media clients due to M&A activity [56] Question: Any updates on GenAI projects moving to production? - There has been a steady increase in projects moving to production, but it remains a small base; contracting is currently on a time and materials basis [59] Question: What is the contribution of the GalaxE acquisition? - The acquisition is expected to contribute 13% to reported revenue for Q2, consistent with Q1 [62]