Endava(DAVA)2025-02-20 16:46Financial 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]