Endava (NYSE:DAVA) Q1 2026 Earnings Call November 11, 2025 08:00 AM ET Company ParticipantsMark Thurston - CFO and DirectorJohn Cotterell - Founder, CEO, and DirectorPuneet Jain - Associate of Equity ResearchLaurence Madsen - Head of Investor RelationsBryan Bergin - Managing DirectorAntonio Jaramillo - Equity Research Senior AssociateJonathan Lee - MD of Equity ResearchConference Call ParticipantsMaggie Nolan - Research Analyst of Technology, Media, and CommunicationsNate Svensson - Director and Senior Equi ...

Financial Data and Key Metrics Changes - Endava's revenue for Q1 FY2026 was GBP 178.2 million, an 8.6% decrease from GBP 195.1 million in the same period last year, with a constant currency decrease of 7.3% [22][23] - Loss before tax for the quarter was GBP 8.5 million, compared to a profit of GBP 4.2 million in the prior year [23] - Adjusted profit before tax (PBT) was GBP 9.9 million, down from GBP 19.2 million year-over-year, with an adjusted PBT margin of 5.5% compared to 9.9% [23] - Adjusted diluted earnings per share were GBP 0.15, down from GBP 0.25 in the same period last year [23] Business Line Data and Key Metrics Changes - Revenue from the 10 largest clients accounted for 36% of total revenue, consistent with the previous year, but average spend per client decreased from GBP 7.1 million to GBP 6.4 million, a 9.9% year-over-year decline [23][24] - North America contributed 42% of revenue, Europe 24%, the U.K. 28%, and the rest of the world 6%, with North America seeing a 1% decrease in revenue [24][25] - Revenue from Europe declined by 12.8%, primarily due to weakness in the TNT and mobility verticals, while the U.K. saw a 17.9% decrease [25] Market Data and Key Metrics Changes - The unexpected client credit impacted performance but was offset by the reclassification of a large payments client from the U.K. to North America [24][25] - The rest of the world saw a revenue increase of 9% [25] Company Strategy and Development Direction - The company is focusing on AI-native transformation, with a strategic shift towards embedding AI throughout technology stacks and operating models [17][39] - Endava's DARVA Flow framework is designed to enhance delivery efficiency and productivity through AI integration [17][19] - The company aims to secure more outcome-based deals to improve margins and client benefits [41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in transitioning business models and delivery approaches amid the AI wave, emphasizing a commitment to becoming AI-native [39][41] - The company anticipates a gradual recovery in the latter half of the fiscal year, supported by large strategic deals [55] Other Important Information - Endava's cash and cash equivalents at the end of the period totaled GBP 47.2 million, down from GBP 59.3 million at the end of the previous quarter [25] - The company repurchased 7.1 million ADSs for $115.9 million under its share repurchase program [26] Q&A Session Summary Question: Details on the unexpected client credit - Management indicated the credit was procedural and not related to remediation work, impacting revenue guidance [30][31] Question: Demand and pipeline conversion - Pipeline conversion was lower than anticipated, with about 50% conversion against the high end and 80% against the low end [32] Question: Client churn levels - There was no unusual increase in client churn, and the credit was from an ongoing relationship [33] Question: Productivity gains from Endava Flow - The company is seeing productivity improvements of 20-30% from AI applications and significant gains from DARVA Flow [34][35] Question: Strategy to navigate changes - The focus is on accelerating the shift to AI-native models, with a current revenue split of 24% outcome-based and 76% time and materials [39][40] Question: Confidence in large deals - Three large deals are signed and committed, contributing to expected revenue growth in the second half [45] Question: Capital allocation priorities - The company continues to balance investments in AI with share buybacks, anticipating margin impacts from these investments [47] Question: Headcount strategy - The increase in headcount is due to the DARVA Flow Academy, targeting AI-native leaders and graduates [51]