Endava Plc Q1 FY2025 earnings call

• Digital shift: Market is seeing slowdown in traditional digital business and acceleration of AI and core modernization-driven growth. Endava believes its expertise in digital transformation, AI, and core modernization positions it well for this shift.
• Business winning activities: Focus on large strategic partnerships, secured deals with various clients, and formed partnerships with Usoft, Mambu, and GoCardless.
• Technology and AI: 60% of CEOs consider deploying AI, machine learning, and generative AI as top modernization initiative. Endava's core modernization with AI-enabled accelerators and Dava.X capabilities to drive innovation.
• GalaxE integration: Progressing with commercial alignment and operational excellence, expanding services to clients, and leveraging nearshore teams.
• Global delivery capability: Expansion in India, with new areas of client spend opened, and qualified as preferred technology partner for a global capital markets organization.
• People: Ended the quarter with 11,821 employees, prioritizing recruitment in high-demand areas like data, AI, and cloud, and focusing on mental health with employee assistance programs and well-being initiatives.

Endava's revenue for the three months ended September 30th, 2024 was GBP195.1 million, a 3.5% increase from the prior year. In constant currency, revenue grew 5.2% y-o-y. Sequentially, revenue was up 2% in constant currency. North America accounted for 39% of revenue, growing 32.5% y-o-y. Europe was 25% of revenue, growing 2.7% y-o-y. The UK was 31% of revenue, declining 8.0% y-o-y. The rest of the world was 5% of revenue, declining 42.8% y-o-y. Payments revenue was 20% of total revenue, declining 25.5% y-o-y. Banking and Capital Markets revenue was 70% of total revenue, growing 23.4% y-o-y. Insurance revenue was 9% of total revenue, growing 14.5% y-o-y. TMT revenue was 21% of total revenue, declining 4.5% y-o-y. Mobility revenue was 9% of total revenue, declining 14.3% y-o-y. Healthcare revenue, starting this quarter as a separate vertical, was 12% of revenue, growing 201.6% y-o-y due to the GalaxE acquisition. Other revenue was 12% of total revenue, growing 3.0% y-o-y.

• Q2 fiscal year 2025: Expected revenue in the range of GBP195 million to GBP197 million, representing constant currency revenue growth of between 8.5% and 9.5% y-o-y. Adjusted diluted EPS expected in the range of GBP0.24 to GBP0.25 per share.
• Full fiscal year 2025: Expected revenue in the range of GBP800 million to GBP810 million, representing constant currency revenue increase between 10.0% and 11.5% y-o-y. Adjusted diluted EPS expected in the range of GBP1.12 to GBP1.17 per share.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including industry headwinds, ability to capitalize on market opportunities, impact of acquisitions, demand from clients, competition, currency fluctuations, and integration challenges.

Q: Jamie Friedman asked about the acceleration of new technologies outpacing decline and how it's different from prior architectures.

A: John Cotterell explained it's about the digital shift where previously work was around the outside of clients' core systems, but now AI requires getting into the core, making larger programs with longer preparatory work.

Q: Jonathan Lee inquired about underlying assumptions in the outlook and confidence in sequential revenue growth acceleration.

A: John Cotterell and Mark Thurston discussed client decision-making processes, pipeline growth, and enhanced capabilities from GalaxE acquisition contributing to confidence.

Q: Maggie Nolan asked about larger, longer-term core modernization projects' differences.

A: John Cotterell stated longer conversion times but no margin reduction due to accelerator-enabled approach and AI use. Mark Thurston discussed adjusted PBT margin improvements in the second half.

Q: Zach Ajzenman asked about top client performance and GenAI projects.

A: Mark Thurston and John Cotterell spoke about stable top client performance and GenAI projects moving to outcome-based pricing over time.

Q: Bryan Keane asked about GenAI revenue percentage and acquisition contribution.

A: Mark Thurston said AI is embedded in solutions but not a standalone revenue percentage, and acquisition contribution expected to be 13% in Q2.

Q: James Faucette asked about project size, competition, and visibility.

A: John Cotterell discussed project sizes, competition mixed, and cautious hiring approach due to elongated decision-making.