Endava(US:DAVA)2025-09-04 13:00Financial 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]