Financial Performance and Risks - The company's operating results have experienced significant variability, and past results may not be indicative of future performance due to factors such as economic slowdown and inflation [37]. - Profitability could suffer if the company fails to maintain favorable pricing for its services, which are influenced by client demand and competitive pressures [39][41]. - Future growth forecasts are subject to significant uncertainty and may not materialize as expected, impacting the company's market opportunity [43]. - Economic conditions and geopolitical tensions may adversely affect client demand and project timelines, impacting revenue [69]. - The company experienced a slowdown in demand for services from clients in Europe due to a weakened economic outlook, impacting revenue and profitability [171]. - Increased inflation rates in the U.S. and Europe may adversely affect margins and profitability, as rising costs could not be passed on to clients [174]. - The ongoing geopolitical climate has significantly impacted financial results, with currency fluctuations affecting the company's operations [175]. - The company may face difficulties in obtaining debt or equity financing if equity and credit markets deteriorate due to political unrest or war [179]. Cybersecurity and Data Privacy - The company faces risks related to cybersecurity, including potential data breaches and ransomware attacks, which could disrupt operations and result in loss of sensitive information [45][46]. - The transition to a hybrid working model has increased risks to information technology systems and data security, as employees work from various locations [48]. - Security incidents could lead to significant costs, reputational damage, and loss of client trust, impacting revenue and operations [54]. - The company must comply with stringent data privacy laws, such as the EU GDPR, which impose severe penalties for non-compliance, including fines up to €20 million or 4% of annual global revenue [151]. - Data localization laws may hinder the company's ability to transfer personal data across borders, potentially disrupting operations and increasing regulatory exposure [153]. Client Dependency and Market Dynamics - The company is dependent on a limited number of industry verticals, and any decrease in demand for technology services in these verticals could adversely affect results [35]. - Payments clients accounted for 29.2%, 24.1%, and 18.7% of revenue for the fiscal years ended June 30, 2025, 2024, and 2023 respectively [64]. - The company's 10 largest clients represented 36.2%, 32.5%, and 32.8% of revenue for the fiscal years ended June 30, 2025, 2024, and 2023 respectively [66]. - Over the last five fiscal years, 90.7% of annual revenue came from clients who purchased services in the prior fiscal year [66]. - The ability to maintain long-term client relationships is uncertain due to clients' rights to terminate agreements with short notice [119]. Talent Management and Operational Efficiency - The company must attract and retain highly skilled IT professionals to maintain operational efficiency and service quality [35]. - The company has experienced a 15.2% attrition rate at the end of fiscal year 2025, up from 13.1% at the end of fiscal year 2023, exceeding the target of below 15% [92]. - Employee utilization rates are critical for profitability, and factors such as project transitions and demand forecasting significantly affect these rates [86]. - The company is dependent on attracting and retaining skilled IT professionals, particularly in regions with high competition for talent [91]. Regulatory and Compliance Challenges - The company relies on a strong brand and corporate reputation, which could be negatively affected by regulatory scrutiny and evolving ESG demands [36]. - Compliance with new laws and regulations may increase operational costs and litigation risks, impacting the company's financial condition [125]. - The company is subject to various anti-corruption laws, including the U.K. Bribery Act and the U.S. Foreign Corrupt Practices Act, which could increase compliance burdens [203]. - Legislative changes in the UK and EU could significantly impact the company's ability to provide outsourced services cost-effectively [123]. Acquisitions and Integration - The company may face challenges in integrating acquisitions, which could disrupt operations and strain resources [36]. - The company plans to continue pursuing acquisitions to enhance capabilities and geographic reach, but integration challenges may arise [102]. - The company may face challenges in integrating acquired businesses, which could delay anticipated benefits and harm financial results [105]. Technology and Innovation - The company uses AI tools in operations, which may present operational challenges and potential liability issues [71]. - The competitive landscape requires continuous innovation; failure to adapt to emerging technologies may result in client loss and reduced revenue [82]. - The adoption of agentic AI introduces significant risks, including potential unauthorized actions and liability exposure due to unanticipated actions taken by AI agents [72]. - The company has observed longer selling cycles for AI-based offerings, impacting financial performance due to clients' need for validation and preparation [84]. Legal and Intellectual Property Risks - The company indemnifies clients against potential intellectual property infringement claims, exposing it to significant financial liabilities [138]. - The company is subject to potential claims regarding intellectual property misappropriation, which could result in costly litigation and loss of rights [135]. - Risks associated with third-party content used in AI training could lead to intellectual property infringement claims against the company [74]. - The company may face challenges regarding the exclusive rights to software developed by current and former employees, which could lead to claims for additional compensation [140]. Financial Structure and Shareholder Rights - The company has an unsecured revolving credit facility amounting to £350.0 million, with £180.9 million outstanding as of June 30, 2025 [111]. - The trading price of the company's American Depositary Shares (ADSs) may be volatile and influenced by factors beyond its control, including market conditions and economic events [208]. - The rights of shareholders differ from those typically offered to U.S. corporation shareholders, governed by English law [223]. - Shareholders of American Depositary Shares (ADSs) have fewer rights than direct shareholders and must act through the depositary to exercise their rights [224].

Revenue Performance - Q4 FY2025 revenue decreased by 3.9% year on year to £186.8 million, with a constant currency decrease of 0.7%[6] - FY2025 revenue increased by 4.3% year on year to £772.3 million, with a constant currency increase of 6.3%[3] - Revenue for the twelve months ended June 30, 2025, increased to £772,255,000, representing a growth of 4.3% compared to £740,756,000 in 2024[34] - Endava expects Q1 FY2026 revenue to be between £181.0 million and £183.0 million, representing a constant currency decrease of 5.0% to 6.0% year on year[15] - For FY2026, revenue is expected to range from £750.0 million to £765.0 million, indicating a constant currency change of between (1.5)% and 0.5% year on year[16] Earnings and Profitability - Diluted EPS for Q4 FY2025 was £0.02, compared to a loss of £(0.03) in the prior year[10] - Adjusted diluted EPS for FY2025 was £1.13, slightly up from £1.12 in the prior year[10] - Operating profit rose significantly to £31,507,000 from £20,140,000, reflecting a 56% increase year-over-year[34] - Adjusted profit before tax for the twelve months ended June 30, 2025, was £82,121,000, slightly down from £82,955,000 in 2024[39] - Basic earnings per share (EPS) improved to £0.36 for the twelve months ended June 30, 2025, compared to £0.29 in 2024[35] Client and Customer Metrics - The number of clients generating over £1 million in revenue decreased to 133 from 146 year on year[13] - Top 10 clients accounted for 37% of Q4 FY2025 revenue, up from 34% in the same period last year[13] - The percentage of revenue from the top 10 customers increased to 36% for the twelve months ended June 30, 2025, compared to 32% in 2024[44] - North America accounted for 38% of total revenue for the twelve months ended June 30, 2025, up from 33% in 2024[44] - Revenue from the Banking and Capital Markets sector increased to 20% in 2025, compared to 15% in 2024[44] Cash and Assets - As of June 30, 2025, cash and cash equivalents were £59.3 million, down from £62.4 million a year earlier[11] - Cash and cash equivalents at the end of the period were £59,345,000, a decrease from £62,358,000 in the previous year[37] - Total assets decreased to £935,771,000 as of June 30, 2025, from £1,008,956,000 in 2024, primarily due to a reduction in goodwill and intangible assets[36] Expenses and Compensation - Total share-based compensation expense for the twelve months ended June 30, 2025, was £32,045,000, a decrease of 7.4% from £34,678,000 in 2024[42] - Selling, general and administrative expenses related to share-based compensation rose to £9,261,000 in 2025, an increase of 5.5% from £8,776,000 in 2024[42] - Depreciation and amortization for the twelve months ended June 30, 2025, totaled £44,941,000, an increase of 15.2% from £38,941,000 in 2024[43] - Direct cost of sales for depreciation and amortization was £20,381,000 for the twelve months ended June 30, 2025, slightly down from £20,532,000 in 2024[43] Employee Metrics - The company had a closing number of total employees of 11,479 as of June 30, 2025, down from 12,085 in 2024, reflecting a reduction of 5.0%[44] - The average operational employees decreased to 10,403 for the twelve months ended June 30, 2025, from 10,587 in 2024[44] Other Financial Metrics - The company reported a net cash from operating activities of £52,773,000 for the twelve months ended June 30, 2025, down from £54,392,000 in 2024[41] - The company reported a total comprehensive expense of £19,164,000 for the year attributable to equity holders, compared to a comprehensive income of £14,081,000 in 2024[34] - The company experienced a foreign exchange impact of 2.0% on revenue growth, leading to a constant currency revenue growth rate of 6.3%[38] - The company repurchased 6,722,491 American Depositary Shares for $111.2 million as of August 29, 2025[19]

Group 1 - Endava (NYSE: DAVA) is a founder-led company in the IT services industry, characterized as a high-quality company with an 80% upside potential from current levels [1] - The current trading valuation of Endava reflects cyclical macroeconomic challenges rather than its long-term growth prospects [1] - The analysis focuses on identifying winners and losers in industries where corporate strategy plays a crucial role, emphasizing market structure, competitive positioning, and strategic catalysts [1]

Summary of Endava's Conference Call Company Overview - **Company**: Endava - **Industry**: IT Services and Digital Transformation - **Key Personnel**: CEO John Cotterell, CFO Mark Thurston - **Company History**: Founded in February 2000, recently celebrated its 20th anniversary [3][4] Core Service Offerings - Endava specializes in digital transformation services, focusing on ideation to production with multidisciplinary teams [4][5] - The company has evolved through various technology waves, including mobile, cloud, and currently AI [5][6] Market Position and Growth - Historically, Endava has experienced organic growth rates of 20% to 30% annually [5] - The company is currently facing challenges due to the fundamental shift brought by AI, impacting discretionary spending [6][9] AI Implementation and Challenges - The implementation of AI in enterprise environments is a significant focus, with clients requiring robust engineering solutions to avoid issues like hallucinations in AI outputs [10][11] - Business cases for AI have improved as processing costs decrease, making them more viable for clients [12][13] - Legacy systems pose challenges for effective AI implementation, but AI can assist in modernizing these systems [14][15] Deal Dynamics - There is an increase in the number and size of large deals, driven by extended ideation phases with clients [18][19] - The ideation phase for AI projects has lengthened to over a year, compared to 3-6 months during previous digital transformation waves [21][22] - Clients are learning to navigate the complexities of AI integration, which is expected to lead to a more regular cadence of deal closures [19][27] Sector Performance - **Banking and Capital Markets (BCM)**: Strong growth driven by core modernization and payments capabilities [28][29] - **Insurance**: Steady growth in the low double digits, with a focus on data and AI-driven solutions [30][32] - **Payments**: Experienced a significant reduction in revenue due to client spend pullbacks, but is expected to stabilize [35][36] - **Healthcare**: Growth opportunities are emerging, particularly in core modernization and AI integration following the Galaxy acquisition [36][39] Galaxy Acquisition - The integration of Galaxy has progressed smoothly, enhancing Endava's capabilities in healthcare and expanding its market reach [42][43] - The acquisition has allowed Endava to leverage AI tools for better client service and operational efficiency [38][39] Internal AI Utilization - Endava aims to be "AI native," with all employees using AI tools like ChatGPT to enhance productivity [48][49] - The company anticipates significant productivity gains from AI, which may lead to increased demand for services rather than cannibalization of existing models [50][53] Conclusion - Endava is navigating a transformative period marked by AI integration and evolving client needs, with a focus on maintaining growth through modernization and innovative service offerings [54][55]

Summary of Endava's Conference Call Company Overview - **Company**: Endava - **Industry**: IT Services, specifically focusing on digital transformation and AI integration Key Points and Arguments 1. **Market Shift**: Endava has been a leader in digital transformation for the past 20 years, but the advent of AI, particularly with ChatGPT, has initiated a new phase termed the "digital shift" [5][4][3] 2. **AI Integration**: The company emphasizes the importance of integrating AI into both customer-facing solutions and internal processes, which requires addressing legacy systems [7][8][6] 3. **Complexity of AI**: The engineering challenges associated with AI, such as hallucinations and regulatory compliance, have made implementation more complex than anticipated [9][8] 4. **Core Modernization**: Endava has acquired Galaxy, which provides tools for understanding and modernizing legacy code, crucial for successful AI integration [12][13] 5. **Diversification**: Since its IPO in 2018, Endava has diversified its client base across various industries and geographies, moving beyond its initial concentration in payments and financial services [14][15][16] 6. **Revenue Trends**: The company is experiencing a transition in revenue generation from traditional digital transformation projects to larger AI-enabled deals, which has caused a temporary flattening in business growth [17][18] 7. **Pipeline Development**: Endava is focused on closing larger deals, which are expected to drive future growth, despite current macroeconomic challenges [18][17] 8. **AI Skills Development**: The company has established centers of excellence to enhance AI skills among its workforce, which is essential for adapting to the new market demands [22][23] 9. **Client Engagement**: While many clients are still hesitant to adopt AI solutions, Endava is working to integrate AI into its daily operations to improve productivity [26][27] 10. **Market Opportunities**: Significant growth is anticipated in the banking and capital markets sector, which has already seen a 40% increase in activity over the past year [38][39] 11. **Automotive Sector Challenges**: The automotive industry is currently facing tariff challenges, which have slowed down technology investments, but recovery is expected within three to six months [41][42] 12. **Margin Goals**: Endava aims to improve its gross margins by shifting towards outcome-based contracts, which will allow for better margin capture compared to traditional time and materials contracts [45][46] 13. **Payments Industry**: The company continues to see growth opportunities in the payments sector, particularly as investments shift from payment processors to large banks [48][49] Additional Important Content - **AI's Role in Agile Delivery**: The integration of AI is expected to significantly enhance agile delivery processes, allowing for faster iterations and improved project outcomes [28][29] - **Revenue Composition Changes**: The structure of large deals is evolving, with a focus on immediate revenue generation rather than gradual scaling [32][33] - **Predictability of Large Deals**: There is increased uncertainty in predicting the timing of large deals due to macroeconomic factors and technological complexities [34][36] This summary encapsulates the key insights from Endava's conference call, highlighting the company's strategic focus on AI integration, market diversification, and the evolving landscape of client engagement and revenue generation.

Financial Data and Key Metrics Changes - The company anticipated modest sequential growth but observed a flattening trend in demand, particularly in North America and the UK, leading to a downward revision of guidance in Q4 [9][10][13] - The company reported that the pipeline for larger deals has elongated, affecting revenue recognition and overall growth expectations [12][15] Business Line Data and Key Metrics Changes - The focus has shifted towards larger deals, which require longer durations and have been more challenging to predict in terms of timing and conversion [17][19] - The company has seen a mix of new and existing clients engaging in larger deals, with a notable emphasis on financial services and healthcare sectors [26][28] Market Data and Key Metrics Changes - There has been a noticeable weakness in demand from North America, particularly in banking, capital markets, and healthcare sectors, attributed to macroeconomic uncertainties [10][11] - The company has experienced a slower conversion rate of deals in the pipeline, with expectations that many will not contribute meaningfully until FY 2026 [28][29] Company Strategy and Development Direction - The company is focusing on core modernization and leveraging AI to enhance service delivery, which is seen as a critical area for future growth [19][58] - The acquisition of Galaxy is aimed at diversifying capabilities and entering the North American healthcare market, which aligns with the company's strategic goals [44][46] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about high uncertainty in the macroeconomic environment affecting client decision-making, particularly regarding large deals [35][36] - Despite current challenges, management believes that the demand for engineering solutions will return, driven by the need for clients to maintain competitive advantages [39][40] Other Important Information - The company has maintained stable pricing despite competitive pressures, emphasizing the importance of not sacrificing margins [41][42] - Integration of the Galaxy acquisition is progressing well, with no significant surprises reported post-integration [48][49] Q&A Session Summary Question: What is the current demand for Gen AI in client engagements? - Demand for Gen AI is increasing, moving from pilot projects to production, but it remains small and clients are cautious in their approach [56] Question: How is the company addressing potential cannibalization risks due to AI? - Management believes that technology enables faster and more efficient processes, and the focus will be on delivering high-quality engineered products while capturing margins [64]

Core View - Globant (GLOB) experienced a significant stock decline of 30% following a modest earnings miss and lowered guidance, indicating potential challenges in its operational performance [1] Company Analysis - The recent performance of Globant mirrors that of Endava (DAVA), suggesting a broader trend or issue within the sector [1] - The analyst emphasizes the importance of experience in understanding diverse business models and market dynamics, which can be crucial for evaluating companies like Globant [1] Industry Context - The analyst's extensive background includes analyzing various industries such as airlines, oil, retail, mining, fintech, and e-commerce, highlighting the interconnectedness of these sectors and their macroeconomic influences [1] - Historical crises, including the dot-com bubble and the COVID-19 pandemic, have shaped the current investment landscape, affecting companies like Globant and their market strategies [1]

Core Insights - Endava PLC reported quarterly earnings of $0.43 per share, exceeding the Zacks Consensus Estimate of $0.38 per share, and showing an increase from $0.28 per share a year ago, resulting in an earnings surprise of 13.16% [1] - The company posted revenues of $245.33 million for the quarter ended March 2025, which was 3.02% below the Zacks Consensus Estimate, compared to $221.14 million in the same quarter last year [2] - Endava shares have declined approximately 30.7% year-to-date, contrasting with the S&P 500's slight gain of 0.1% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.44, with projected revenues of $261.18 million, and for the current fiscal year, the EPS estimate is $1.49 on revenues of $1.02 billion [7] - The estimate revisions trend for Endava is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Context - The Computers - IT Services industry, to which Endava belongs, is currently ranked in the top 39% of over 250 Zacks industries, suggesting that companies in the top half tend to outperform those in the bottom half by more than 2 to 1 [8] - Another company in the same industry, Wix.com, is expected to report quarterly earnings of $1.66 per share, reflecting a year-over-year increase of 28.7%, with revenues anticipated to be $471.78 million, up 12.4% from the previous year [9][10]

Financial Data and Key Metrics Changes - Endava's revenue totaled £194.8 million for the three months ended March 31, 2025, representing an 11.7% increase compared to £174.4 million in the same period last year [27] - Adjusted profit before tax (PBT) for the same period was £24.6 million, up from £15.5 million year-over-year, with an adjusted PBT margin of 12.6% compared to 8.9% [28] - Adjusted diluted earnings per share (EPS) was £0.34, exceeding the guidance of £0.31 to £0.32 [28] Business Line Data and Key Metrics Changes - Revenue from the 10 largest clients accounted for 39% of total revenue, up from 34% year-over-year, with average spend per client increasing from £5.9 million to £7.5 million, a 28% year-over-year increase [29] - North America accounted for 37% of revenue, with a growth of 37.1% year-over-year, while Europe declined by 10.4% and the UK grew by 13.2% [29] Market Data and Key Metrics Changes - The weakening of the U.S. Dollar negatively impacted revenue growth, contributing to a 3% sequential decline in Q4 [33] - North America experienced a slowdown in deal conversions, particularly in mobility and healthcare sectors, while Europe performed as expected [33] Company Strategy and Development Direction - The company is focusing on closing large deals in its pipeline, which are crucial for revenue growth, and is increasing its share buyback authorization by an additional $50 million [9][10] - Partnerships with OpenAI and Google are being formalized to enhance solutions and strengthen the company's value proposition [10][11] Management's Comments on Operating Environment and Future Outlook - Management noted that the business environment is evolving rapidly, with clients showing inconsistent behavior and a slowdown in signing large contracts due to macroeconomic uncertainties [7][8] - The company expects revenue for Q4 fiscal year 2025 to be in the range of £186 million to £188 million, reflecting a constant currency revenue change of between minus 10% year-over-year [34] Other Important Information - Adjusted free cash flow was £17.5 million for the three months ended March 31, 2025, compared to £2.2 million in the same period last year [30] - The company has repurchased approximately 2 million ADSs for $39.7 million as of April 30, 2025, with $60.3 million remaining for additional repurchases [30][31] Q&A Session Summary Question: Challenges related to execution and client demand - Management indicated that internal changes have strengthened client conversations, and while there are delays in closing deals, the pipeline is building with 24 larger deals compared to 21 previously [38][41] Question: Workforce optimization and forecasting - The workforce is shifting towards higher value skills in AI, data, and cloud, with attrition increasing due to this transition [43] Question: Pricing dynamics in the current environment - Pricing remains competitive, but average day rates are stable, with some larger deals requiring concessions to secure [51][52] Question: Growth by geography and project types - North America is facing challenges primarily due to FX headwinds, while demand for AI, data, and cloud projects remains strong [54][56] Question: Utilization rates and EPS guidance - Utilization in Q3 was about 72%, expected to remain stable in Q4, with FX impacts significantly affecting EPS guidance [88][90] Question: Integration benefits from Galaxy acquisition - Most integration benefits have been factored into guidance, with further operational efficiencies expected in FY 2026 [91][92] Question: Engagements around Gen AI - The company is seeing traction in Gen AI and scaling opportunities, with a shift towards AI-enabled product capabilities [96][99]

Financial Data and Key Metrics Changes - Endava's revenue for Q3 FY2025 was £194.8 million, an increase of 11.7% compared to £174.4 million in the same period last year, with a constant currency increase of 12.4% [28] - Profit before tax for the quarter was £13.6 million, compared to a loss of £0.5 million in the same period last year [28] - Adjusted profit before tax was £24.6 million, up from £15.5 million year-over-year, with an adjusted PBT margin of 12.6% compared to 8.9% [29] - Adjusted diluted earnings per share were £0.34, exceeding guidance of £0.31 to £0.32 [29] - Adjusted free cash flow was £17.5 million, significantly higher than £2.2 million in the same period last year [31] Business Line Data and Key Metrics Changes - Revenue from the top 10 clients accounted for 39% of total revenue, up from 34% year-over-year, with average spend per client increasing by 28% [30] - North America contributed 37% of revenue, Europe 22%, the UK 35%, and the rest of the world 6% [30] - Revenue from North America grew by 37.1%, while Europe saw a decline of 10.4%, the UK grew by 13.2%, and the rest of the world declined by 16% [30] Market Data and Key Metrics Changes - The weakening of the U.S. Dollar negatively impacted revenue growth, contributing a 3% decline in Q4 [33] - North America experienced a slowdown in deal conversions, particularly in mobility and healthcare sectors [33] - The UK faced headwinds, while Europe performed as expected [33] Company Strategy and Development Direction - The company is focusing on closing large deals in the pipeline, which are crucial for revenue growth [41] - Endava plans to increase share buyback authorization by an additional $50 million as a capital allocation strategy [9] - The company is enhancing partnerships to strengthen its value proposition, including collaborations with OpenAI and Google [10][11] Management's Comments on Operating Environment and Future Outlook - Management noted a challenging business environment with inconsistent client behavior and a slowdown in signing large contracts [6][7] - The pipeline of large opportunities is growing, but conversion into signed deals is slower than anticipated [9] - Guidance for Q4 FY2025 expects revenue between £186 million to £188 million, reflecting a constant currency decline of 10% year-over-year [34] Other Important Information - The company has repurchased approximately 2 million ADSs for $39.7 million as of April 30, 2025, with $60.3 million remaining for additional repurchases [31][32] - The workforce increased by 3.1% year-over-year, with a focus on recruiting in high-demand areas like data, AI, and cloud [26] Q&A Session Summary Question: Challenges related to execution and client demand - Management acknowledged challenges in closing large deals due to external factors but noted internal changes have strengthened client conversations [38][39] Question: Workforce optimization and forecasting - The company is experiencing a shift in skill requirements, with a focus on AI, data, and cloud, leading to some attrition but confident in staffing capabilities [44] Question: Pricing dynamics in the current environment - Pricing remains competitive, with average day rates stable, although larger deals may involve concessions [52][53] Question: Growth by geography and project types - North America is facing challenges primarily due to FX headwinds and a slowdown in larger deal conversions, while AI and cloud projects are seeing demand [56][57] Question: Utilization rates and EPS guidance - Utilization rates were around 72% in Q3, expected to remain stable in Q4, with EPS impacted by FX and revenue compression [89] Question: Integration benefits from Galaxy acquisition - Most integration benefits have been factored into guidance, with further operational efficiencies expected in FY2026 [92]