Endava plc Q4 FY2025 earnings call

Management Statement and Operational Highlights

• AI Transition: Endava is transitioning to AI native, with over half of people using AI in projects. Examples include scaling an AI-driven document processing platform for a U.S. healthcare provider, developing an in-cabin driver identification prototype for a global automotive supplier, and exploring creator-artistic control with generative AI in partnership with a hyperscaler.
• Partnerships: Expanding partnerships with OpenAI, Google, AWS, and Microsoft. Joint initiatives with OpenAI include technical workshops, go-to-market collaboration, and client acquisitions. Partnership with Reed Exhibitions to support global technology operations.
• Delivery Model Shift: Introducing Endava Flow, a change delivery life cycle (CDLC) where intelligent software agents work with engineers, aiming for faster speed, quality, and cost savings. Internally, a program equips engineers with agentic coding tooling.
• Sustainability and Leadership: Published the We Care Sustainability Report for FY 2025. Leadership changes include John Cotterell assuming additional operational responsibilities, Alastair Lueckes joining as Chief Engagement Officer, and Rob Machin returning as Chief People Officer. Workforce adjusted to 11,479, a 5% decrease from prior year.

Segment Performance

• Quarterly (Q4 FY 2025): Revenue totaled £186,800,000, a 3.9% decrease from the prior year. In constant currency, revenue decreased 0.7%. Profit before tax was £3,800,000 vs a loss of £400,000 prior year. Adjusted PBT was £16,400,000 (+9.4% y-o-y). Revenue from 10 largest clients accounted for 37% of Q4 revenue. Geographically, North America was 38%, Europe 23%, UK 33%, rest of world 6%. Vertical segments: payments down 19%, banking and capital markets up 37.4%, insurance up 12.1%, TMT down 13.2%, mobility down 11.7%, healthcare up 103.8%.
• Fiscal Year 2025: Revenue totaled £772,300,000, a 4.3% increase from prior year. In constant currency, revenue increased 6.3%. Profit before tax was £24,100,000 vs £27,000,000 prior year. Adjusted PBT was £82,100,000 (-1.1% y-o-y). Revenue from 10 largest clients accounted for 36% of FY 2025 revenue. Geographically, North America up 21.9%, Europe down 5.5%, UK up 2.8%, rest of world down 29.7%. Vertical segments: same as Q4 with detailed changes.

Guidance

• Q1 Fiscal Year 2026: Revenue expected in range of £181,000,000 to £183,000,000 (constant currency decrease of 5-6% y-o-y). Adjusted diluted EPS expected in range of £0.17 to £0.19 per share.
• Full Fiscal Year 2026: Revenue expected in range of £750,000,000 to £765,000,000 (constant currency change of -1.5% to +0.5% y-o-y). Adjusted diluted EPS expected in range of £0.82 to £0.94 per share.
• Impacts: Investments in AI, reinstatement of bonus scheme impacting margins; tax rate shift and share buyback affecting EPS.

Risks

• Market Volatility: Short-term operating backdrop remains volatile with clients recalibrating spending timing.
• FX Impacts: Revenue affected by foreign exchange movements, e.g., North America revenue down 5.3% in Q4 due to FX.
• Pricing Model Risks: Uncertainty around outcome-based vs fixed-price pricing models, with risks managed but requiring rigorous understanding.
• Client Decision Delays: AI's fast-moving nature causing hesitation in client decision making for new programs.

Question and Answer

• Q: Bryan Bergin on 2026 growth guidance vs order book strength A: John Cotterell and Mark Thurston explain order book mix of renewal and new business, with new business ramping into revenue over time, e.g., large deals in Q4 with revenue ramping in H2 2026.
• Q: Jonathan Lee on client decline A: Mark Thurston states client numbers are trading, with net additions offset by lost clients, particularly small clients with prohibitive operating costs.
• Q: Antonio Jaramillo on OpenAI partnership economics A: John Cotterell describes the OpenAI partnership as key, joint go-to-market efforts with domain knowledge, driving deal flow but not separately carving out revenue contribution.
• Q: Nate Svensson on flexible pricing structures A: John Cotterell and Mark Thurston discuss outcome-based vs fixed-price models, emphasizing sensibly structured opportunities with minimum volumes underpinning contracts and upside from joint growth.
• Q: Maggie Nolan on Endava Flow and growth drivers A: John Cotterell explains Endava Flow as a big shift for enterprise AI adoption, with margin improvement long-term but short-term investment impact. Mark Thurston highlights North America growth, BCM sector strength, and RX deal impact in the back half.
• Q: Puneet Jain on AI impact on growth A: John Cotterell notes client decision making delayed by AI speed, but AI driving transformative conversations and expanded scopes of work, with clients investing in transformative systems using AI.