Group 1 - The long-term growth outlook for Endava PLC (NYSE: DAVA) remains strong, with attractive upside potential if expectations are met [1] - The author emphasizes a diverse investment approach, incorporating fundamental, technical, and momentum investing strategies to enhance the investment process [1] Group 2 - There are no disclosed positions in any of the companies mentioned, indicating a neutral stance on potential conflicts of interest [2] - The article reflects the author's personal opinions and is not influenced by compensation from any company [2]

Core Viewpoint - Endava PLC has experienced a significant decline in stock price due to disappointing financial results, despite previously beating analysts' expectations on the bottom line [2][5]. Company Overview - Endava PLC (NYSE:DAVA) is a technology company focused on providing digital transformation services to improve business operations through technology solutions [1]. - The company competes with major tech service providers such as Accenture and Cognizant [1]. Stock Performance - Endava's stock price has dropped by 30.81% this week, following a 14.7% increase in August [2][5]. - The stock has fallen 32.1% from the end of last Friday's trading session to Thursday's market close, currently priced at $10.15, with a slight increase of 1.76% or $0.18 today [3][5]. - Over the past year, the stock has reached a high of $34.94 and a low of $9.84, with a current market capitalization of approximately $593.1 million [4]. Financial Results - The decline in stock price is attributed to disappointing fourth-quarter 2025 financial results, which have led to a decrease in investor confidence [2][5]. - Despite past success in growing cash flow from fiscal years 2021 through 2023, recent results have not met investor expectations, contributing to the stock's decline [4].

Core Insights - Endava reported mixed results for Q4, with earnings per share of 32 cents exceeding the analyst consensus estimate of 16 cents, while quarterly sales of $249.310 million fell short of the consensus estimate of $249.950 million [1] - For FY2026, Endava projects adjusted EPS between $1.11 and $1.27, significantly higher than the market estimate of 85 cents, and anticipates sales in the range of $1.013 billion to $1.033 billion, slightly above the analyst estimate of $1.020 billion [2] - The company emphasized its strategic focus on AI, noting that over half of its employees are now utilizing AI in projects, and it has achieved its highest ever quarterly order book, although it remains cautious due to a volatile operating environment [3] Stock Performance and Analyst Ratings - Endava's shares increased by 0.8% to $10.05 following the earnings announcement [4] - Analysts have adjusted their price targets for Endava, with Needham maintaining a Buy rating but lowering the target from $20 to $12, Morgan Stanley maintaining an Equal-Weight rating and reducing the target from $17 to $11, and Guggenheim also maintaining a Buy rating while lowering the target from $20 to $18 [6]

Industry Overview - The IT services demand environment has experienced various cycles over the years, with significant changes influenced by market conditions and technological advancements [1] - The digital transformation wave, which began after the initial downturn in the early 2000s, has been a major driver of growth for the industry over the past two decades [2] Company Insights - Endava has been a key player in the IT services sector, successfully navigating through different market phases since its inception [2] - The company capitalized on increased technology spending that emerged following the COVID-19 pandemic, marking a significant boost in demand for IT services [3]

Core Insights - Endava plc (NYSE:DAVA) is a British tech consultancy that specializes in modernizing IT systems for large corporations, but it has faced significant challenges in the stock market, with shares dropping over 30% and stock value plummeting by more than 80% since early 2024 due to guidance that did not meet investor expectations [1][6] Financial Performance - On September 4, 2025, DAVA reported earnings per share of $0.329, surpassing the estimated $0.32, and achieved revenue of approximately $256.3 million, significantly exceeding the estimated $184 million [2] - Despite the positive earnings surprise, the company's revenue decreased by 4% year over year, and its workforce was reduced by 5%, indicating challenges in maintaining consistent growth [2][6] - The company set its full-year fiscal 2026 revenue and earnings targets below expectations, despite the positive earnings report [3][6] Valuation Metrics - DAVA has a price-to-earnings (P/E) ratio of approximately 24.05, indicating the price investors are willing to pay for each dollar of earnings [4] - The price-to-sales ratio stands at about 0.56, suggesting that the market values the company's sales at just over half of its current market price [4] - The enterprise value to sales ratio is approximately 0.71, reflecting the company's total valuation relative to its sales [4] Financial Stability - DAVA maintains a relatively low level of debt compared to its equity, with a debt-to-equity ratio of about 0.29, indicating financial stability [5][6] - The current ratio is approximately 2.18, suggesting good short-term financial health [5][6]

Summary of Endava (DAVA) Conference Call Company Overview - **Company**: Endava (DAVA) - **Event**: Citi Tech Conference - **Date**: September 05, 2025 Industry Insights - **IT Services Demand**: The IT services industry has experienced cycles of demand, with a significant boost post-COVID leading to increased technology spending. However, there has been a recent shift towards more cautious spending as enterprises seek to control budgets more effectively [5][6] - **Digital Transformation**: The digital transformation wave that began post-COVID is now seeing a pull-forward effect, leading to a hiatus similar to the early 2000s [6][7] - **AI Impact**: The introduction of AI, particularly Generative AI, is creating uncertainty in the market. While some believe it may reduce the need for IT services, Endava sees it as an opportunity for increased demand as clients require deeper integration of AI into their core systems [11][12][15] Financial Performance - **Recent Deals**: Endava closed five large deals in Q3 and eight in Q4, marking the largest order book ever closed, although this momentum is not yet reflected in revenue [17][59] - **Revenue Guidance**: The company anticipates a decline of 5% to 6% in Q1 on a constant currency basis, with a flat outlook for the full year. Approximately 70% of revenues are contracted and committed, up from 60% the previous year [53][54] - **Large Deals Definition**: Large deals are defined as those over $5 million, with some reaching up to $100 million [25] Client Behavior and Market Trends - **Client Spending**: The top 10 clients account for 37% of total revenue, up from 32%, indicating a focus on larger clients [36] - **Geographic Trends**: North America shows good momentum despite a sequential decline due to FX movements. The UK and Europe are experiencing bumpy trends, particularly in payments, which are under pressure [38][39] - **Sector Performance**: The payments sector is facing margin pressure due to new competitors and a shift in traditional players towards M&A rather than technology investment [41][43] Strategic Shifts - **Focus on Larger Clients**: Endava is trimming its long tail of smaller clients to focus on larger, more profitable accounts [35] - **Outcome-Based Pricing**: The company is shifting towards more outcome-based pricing models, moving away from time-and-materials (T&M) structures, with 23% of business now outcome-based, up from 17% a year ago [50][49] - **AI Integration**: Endava is investing in AI to enhance productivity and revenue per head, expecting a gradual increase in headcount as they recruit graduates and specialists in data and AI [52][48] Partnerships and Future Outlook - **Partnership Development**: Endava is focusing on building partnerships with hyperscalers and LLM providers, aiming for these partnerships to contribute 25% to 30% of business in the next five years, up from below 5% currently [72][73] - **Investment in AI**: The company is investing in AI capabilities, which is expected to drive higher revenues and margins over the next two to three years [49][62] Conclusion - Endava is navigating a complex IT services landscape marked by cautious client spending and the transformative potential of AI. The company is strategically focusing on larger clients, shifting pricing models, and enhancing partnerships to position itself for future growth.

Core Viewpoint - Endava's disappointing fourth-quarter 2025 financial results have led to a significant drop in its stock price, despite beating analysts' bottom-line expectations [4][6]. Financial Performance - Endava reported adjusted free cash flow (FCF) of 82.7 million British pounds in fiscal 2021, which increased to 107.2 million British pounds in fiscal 2022 and 111.5 million British pounds in fiscal 2023. However, FCF declined to 58.4 million British pounds in fiscal 2024 and further decreased to 48.7 million British pounds in fiscal 2025 [5]. - The company's revenue for fiscal 2025 was 772.3 million British pounds, but management projects sales to decline to between 750 million British pounds and 765 million British pounds for fiscal 2026 [6]. Market Reaction - Following the release of the financial results, Endava's shares dropped 32.1% from the end of last Friday's trading session through Thursday's market close [2]. - Despite a 14.7% increase in August, the stock has faced a negative start in September due to investor concerns over declining cash flow and the company's guidance for the upcoming fiscal year [1][4]. Management's Outlook - CEO John Cotterell highlighted that the company ended the quarter with its "highest ever quarterly order book," suggesting potential for future growth despite current investor disappointment [7][8].

Core Viewpoint - Endava PLC reported quarterly earnings of $0.31 per share, missing the Zacks Consensus Estimate of $0.32 per share, but showing an increase from $0.28 per share a year ago, indicating a -3.12% earnings surprise [1][2] Financial Performance - The company posted revenues of $239.41 million for the quarter ended June 2025, which was 4.22% below the Zacks Consensus Estimate and a decrease from $245.3 million year-over-year [2] - Over the last four quarters, Endava has surpassed consensus EPS estimates three times, but has only topped consensus revenue estimates once [2] Stock Performance - Endava shares have declined approximately 53.5% since the beginning of the year, contrasting with the S&P 500's gain of 9.6% [3] - The current Zacks Rank for Endava is 4 (Sell), indicating expectations of underperformance in the near future [6] Future Outlook - The consensus EPS estimate for the upcoming quarter is $0.38 on revenues of $252.72 million, and for the current fiscal year, it is $1.56 on revenues of $1.02 billion [7] - The outlook for the Computers - IT Services industry, where Endava operates, is currently in the bottom 39% of Zacks industries, which may negatively impact stock performance [8]

Financial Data and Key Metrics Changes - Endava's revenue for Q4 FY2025 was £186.8 million, a decrease of 3.9% compared to £194.4 million in the same period last year. In constant currency, revenue decreased by 0.7% [30] - Profit before tax for Q4 FY2025 was £3.8 million, compared to a loss of £0.4 million in the same period last year. Adjusted profit before tax (PBT) was £16.4 million, up from £14.9 million [30] - Adjusted PBT margin for Q4 FY2025 was 8.8%, compared to 7.7% in the same period last year [31] - For the fiscal year ended June 30, 2025, revenue totaled £772.3 million, a 4.3% increase from £740.8 million in the previous fiscal year [35] Business Line Data and Key Metrics Changes - Revenue from the 10 largest clients accounted for 37% of total revenue in Q4 FY2025, up from 34% in the same period last year. Average spend per client from these clients increased from £6.7 million to £6.9 million [31] - In FY2025, revenue from North America increased by 21.9%, while Europe decreased by 5.5% due to challenges in the payments and TMT verticals [38] - The healthcare sector saw a significant increase of 103.8% in revenue, primarily due to the Galaxy acquisition [40] Market Data and Key Metrics Changes - North America accounted for 38% of revenue in Q4 FY2025, Europe for 23%, the UK for 33%, and the rest of the world for 6% [31] - Revenue from North America decreased by 5.3% in Q4 FY2025, while revenue from Europe declined by 13.1% [32] - The UK market grew by 5.9%, while the rest of the world saw a decline of 5.8% [32] Company Strategy and Development Direction - The company is transitioning to become AI native, focusing on evolving its delivery model and forming new alliances to enhance its technology offerings [7][8] - Endava is expanding its partnerships, particularly with OpenAI, to strengthen its technical capabilities and drive new client acquisitions [13][15] - The introduction of flexible pricing structures, including transaction-based models, is aimed at aligning with client needs while managing associated risks [21][76] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the short-term operating backdrop, noting that many clients are recalibrating their spending [9] - The company expects revenue for Q1 FY2026 to be between £181 million and £183 million, representing a constant currency decrease of 5% to 6% year-over-year [42] - Management highlighted that the current economic environment is causing delays in client decision-making, impacting growth [99] Other Important Information - Endava's adjusted free cash flow was negative £4 million for Q4 FY2025, impacted by delayed payments due to improved terms for a key client [33] - The company reported a decrease in headcount by 5% year-over-year, with a focus on recruitment in high-demand areas such as data, AI, and cloud [28] Q&A Session Summary Question: How to reconcile 2026 growth guidance with strong order book commentary? - Management indicated that the order book includes both renewal work and new business, with some new projects taking time to ramp up into revenue [45][46] Question: Can you provide details on margin projections? - Management explained that reinstating bonuses and investing in AI will impact adjusted PBT margins, projecting a decrease of about 3% in FY2026 [49][50] Question: What is the impact of client number decline? - The decline in client numbers is attributed to the loss of small clients, while net additions in other segments remain positive [54][56] Question: What are the expectations for sequential growth after Q1? - Management expressed confidence in achieving sequential growth, supported by a higher proportion of contracted and committed revenue compared to the previous year [72][73] Question: How does the shift to flexible pricing structures impact financial outlook? - Management views flexible pricing as an opportunity, with structured contracts that secure minimum volumes while allowing for upside as new products are developed [76][78]

Financial Performance - Endava's revenue for FY25 was £772.3 million[65] - The revenue growth rate at constant currency was 24%[98] - Adjusted profit before tax for FY25 was £82.1 million[71] - Adjusted free cash flow for FY25 was £48.7 million[94] - The top 10 clients accounted for 37% of total revenue in Q4 FY25[78] Client Metrics - Endava had 619 clients in Q4 FY25[75] - The number of clients with revenue greater than £1 million was 133 in Q4 FY25[75] - The average spend from top 10 clients was £6870 thousand in Q4 FY25[82] - The average spend from remaining clients was £265 thousand in Q4 FY25[84] Workforce - Endava had 11,479 global employees as of June 30, 2025, a 50% decrease from Q4 FY24[41]