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]