Endava(US:DAVA)2025-12-09 16:02Summary of Endava FY Conference Call (December 09, 2025) Company Overview - Company: Endava (NYSE:DAVA) - Industry: Digital Engineering - Global Workforce: Over 11,000 professionals - Operational Base: Central Europe with growing presence in APAC through both inorganic and organic means [1] Key Insights and Arguments Market Conditions and Internal Changes - The industry has faced volatility over the past two to three years, influenced by macroeconomic factors such as high interest rates, which have suppressed discretionary IT spending [5][6] - Corporates have shifted focus towards internal AI experimentation, diverting funds from external innovation projects [6] - Endava has invested in AI and developed its own AI methodology, positioning itself for future demand as corporates seek tangible returns on their AI investments [6][7] Demand and Business Performance - Demand for larger deals (over GBP 10 million) has been slow due to client decision-making delays, partly attributed to AI-related considerations [11] - Recent trends indicate a firming demand for larger deals, with a more predictable cadence expected in 2026 [12] - The company has seen a 50% reduction in revenue from the payments sector over the past two to three years, but conversations in this area are becoming more robust [15] Fiscal Year 2026 Guidance - Endava's guidance for fiscal 2026 includes a cautious optimism, with a focus on large deals contributing significantly to revenue [27][29] - The company has a contracted and committed pipeline at approximately 81%, which is higher than historical averages [29] AI and Endava Flow - Endava is transitioning to an AI-native business model with the introduction of Endava Flow, which aims to enhance productivity significantly [34][36] - The methodology is still in the rollout phase, with expectations for it to contribute to revenue growth and margin enhancement in fiscal years 2027 and 2028 [36][50] - The company anticipates a shift from time and material contracts to more outcome-based pricing models as AI adoption increases [35][50] Pricing and Margin Recovery - Endava has maintained pricing discipline despite market pressures, with stable day rates and a focus on recovering margins through operational leverage and the adoption of Endava Flow [48][50] - The company aims to improve gross margins from approximately 30% to 35% and adjusted PBT margins to around 15% in the future [51] Additional Important Points - The company has faced challenges in forecasting large deal timings, which has affected visibility and guidance [8][11] - There is a cautious approach to pipeline conversion, with skepticism applied to ensure realistic expectations [29] - The impact of geopolitical factors and tariffs has been acknowledged, but the company is adapting to the new normal in decision-making processes [19][20] This summary encapsulates the key points discussed during the Endava FY Conference Call, highlighting the company's strategic focus, market conditions, and future outlook.