Endava(US:DAVA)2025-09-05 13:10Summary of Endava (DAVA) Conference Call Company Overview - Company: Endava (DAVA) - Event: Citi Tech Conference - Date: September 05, 2025 Industry Insights - IT Services Demand: The IT services industry has experienced cycles of demand, with a significant boost post-COVID leading to increased technology spending. However, there has been a recent shift towards more cautious spending as enterprises seek to control budgets more effectively [5][6] - Digital Transformation: The digital transformation wave that began post-COVID is now seeing a pull-forward effect, leading to a hiatus similar to the early 2000s [6][7] - AI Impact: The introduction of AI, particularly Generative AI, is creating uncertainty in the market. While some believe it may reduce the need for IT services, Endava sees it as an opportunity for increased demand as clients require deeper integration of AI into their core systems [11][12][15] Financial Performance - Recent Deals: Endava closed five large deals in Q3 and eight in Q4, marking the largest order book ever closed, although this momentum is not yet reflected in revenue [17][59] - Revenue Guidance: The company anticipates a decline of 5% to 6% in Q1 on a constant currency basis, with a flat outlook for the full year. Approximately 70% of revenues are contracted and committed, up from 60% the previous year [53][54] - Large Deals Definition: Large deals are defined as those over $5 million, with some reaching up to $100 million [25] Client Behavior and Market Trends - Client Spending: The top 10 clients account for 37% of total revenue, up from 32%, indicating a focus on larger clients [36] - Geographic Trends: North America shows good momentum despite a sequential decline due to FX movements. The UK and Europe are experiencing bumpy trends, particularly in payments, which are under pressure [38][39] - Sector Performance: The payments sector is facing margin pressure due to new competitors and a shift in traditional players towards M&A rather than technology investment [41][43] Strategic Shifts - Focus on Larger Clients: Endava is trimming its long tail of smaller clients to focus on larger, more profitable accounts [35] - Outcome-Based Pricing: The company is shifting towards more outcome-based pricing models, moving away from time-and-materials (T&M) structures, with 23% of business now outcome-based, up from 17% a year ago [50][49] - AI Integration: Endava is investing in AI to enhance productivity and revenue per head, expecting a gradual increase in headcount as they recruit graduates and specialists in data and AI [52][48] Partnerships and Future Outlook - Partnership Development: Endava is focusing on building partnerships with hyperscalers and LLM providers, aiming for these partnerships to contribute 25% to 30% of business in the next five years, up from below 5% currently [72][73] - Investment in AI: The company is investing in AI capabilities, which is expected to drive higher revenues and margins over the next two to three years [49][62] Conclusion - Endava is navigating a complex IT services landscape marked by cautious client spending and the transformative potential of AI. The company is strategically focusing on larger clients, shifting pricing models, and enhancing partnerships to position itself for future growth.