Endava plc Q1 FY2026 earnings call

• AI-related engagements: AI anchors many clients' technology roadmaps, with various projects from proof of concept to enterprise-wide rollouts. Examples include work for a U.S. healthcare provider, financial compliance tech provider, retail pharmacy chain, global energy and utilities provider, and e-learning company, showing productivity gains and efficiency improvements.
• Partnerships: Expanding partnerships with OpenAI, Google Cloud, and Salesforce. Enrolled engineers in OpenAI's certification program, have joint go-to-market with OpenAI, increased Gemini enterprise projects with Google Cloud, and invest in AgenTik AI with Salesforce.
• Large strategic deals: Secured a multiyear $100,000,000 deal with a leading payments company, deepened engagement with Convex, and extended partnership with Toyota Racing Development.
• Delivery model evolution: Dava Flow, an AI native change delivery life cycle, with phases Signal, Explore, Govern, and Evolve. Teams are being trained in Dava Flow.
• Headcount: Ended the quarter with 11,636 employees, deepening AI talent pool, with DARVAx Academy hiring 470 across nine locations and Tech Fest event with new hires addressing client challenges.

Endava's revenue for the first quarter of fiscal year 2026 was £178,200,000, a decrease of 8.6% compared to the same period in the prior year. In constant currency, revenue decreased by 7.3%. Revenue from the 10 largest clients accounted for 36% of total revenue. North America contributed 42% of revenue, Europe 24%, the UK 28%, and the rest of the world 6%. Revenue from North America decreased by 1% year-over-year, Europe declined 12.8%, the UK decreased 17.9%, and the rest of the world increased 9%.

• Q2 fiscal year 2026: Revenue expected to be in the range of £179,000,000 to £182,000,000, representing a constant currency decrease of 8-7% year-over-year. Adjusted diluted EPS expected to be in the range of £0.15 to £0.17 per share.
• Full fiscal year 2026: Revenue expected to be in the range of £735,000,000 to £752,000,000, representing a constant currency decrease of 4.5-2.5% year-over-year. Adjusted diluted EPS expected to be in the range of £0.80 to £0.88 per share.

• Unexpected client credit: An unexpected credit to a client arose post-last earnings call, impacting first-quarter performance.
• Pipeline conversion: Lower conversion of certain non-large strategic pipeline opportunities into revenue, leading to reassessment of pipeline conversion assumptions.
• Margin impact: Strategic pivot to AI native models has margin implications due to friction in skill shifts and investment in new capabilities.
• Macro uncertainties: Broader market and economic conditions could impact client demand and pipeline conversion.

Q: Can you share more detail on the unexpected client credit that weighed on performance?

A: It was unexpected, arrived after guiding last quarter, not related to remediating work, and if it hadn't happened, would have been near the bottom of revenue guide and mid-range for EPS.

Q: On demand and pipeline conversion, is it a demand issue or commercial responsibility changes?

A: Pipeline conversion was not as high as anticipated, with a prudent review leading to downgrading of guide, offset by big wins. Non-strategic deal pipeline conversion assumptions were revised.

Q: Any client churn at unusual levels?

A: No growth in client churn, the client with the credit is ongoing and not in decline, it's a conservative view on non-large deal pipeline conversion.

Q: How quantifying Brexit productivity gains from Dava Flow?

A: Dava Flow takes AI shift further, with productivity improvements in 5-10 times range, illustrated by large payments deal accelerating transformation for the client.

Q: Strategy to navigate business model, delivery approach, and AI wave challenges?

A: Pushing hard to be AI native, with over 70% of services AI related, shifting to outcome-based deals to improve margins, despite short-term revenue headwinds from old model erosion.

Q: Details on $100,000,000 payments deal?

A: Over 5-year duration, nearly all new development, involves transformation pillars, close partnership, and payment space expertise.

Q: Confidence in large deals coming through in back half?

A: Three large deals are signed, committed spend with ramp up in second half, layering step change revenue onto run rate, with confidence in back half guide accommodating risk.

Q: Capital allocation priorities between AI investment and share buybacks?

A: Share buyback continues, but investment in AI shift with margin impact, sacrificing near-term profitability for future upswing.

Q: Decompose outlook across high and low end of range and macro uncertainty allowance?

A: Q2 guide ranges account for lower working days headwind, Q3 and Q4 have higher pipeline with sanitized pipelines, guide reduced to account for pipeline conversion review.

Q: Headcount strategy and anticipation for demand second half?

A: Headcount increase from DARVAX Academy targeting AI native leaders and graduates, attrition from skill shifts, anticipates churn to continue for couple of quarters.

Q: Details on $100,000,000 deal duration, work type, and replicability?

A: Over 5 years, nearly all new development, close partnership mindset, with similar deals in the pipeline that are replicable in transforming client markets.