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01/10 19:48
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Endava's earnings call reflects a positive sentiment with strong financial performance, including significant revenue and profit growth, enhanced liquidity, and reduced borrowings. The increased share buyback authorization is likely to boost stock prices. Despite challenges in North America and FX impacts, optimistic guidance and strategic focus on AI and cloud indicate potential growth. The Q&A section reveals resilience in client relationships and stable pricing. Given the market cap of a small-cap stock, these positive factors are expected to lead to a 2% to 8% stock price increase in the short term.
Revenue £194.8 million (11.7% increase year-over-year); increase attributed to strong performance in the U.K. and Europe, despite a weakening U.S. dollar and some deals not being signed in North America.
Profit Before Tax £13.6 million (compared to a loss of £0.5 million year-over-year); significant improvement due to revenue growth and cost control.
Adjusted Profit Before Tax (PBT) £24.6 million (58.7% increase year-over-year from £15.5 million); increase attributed to strong cost control measures.
Adjusted PBT Margin 12.6% (compared to 8.9% year-over-year); improvement due to effective management of expenses.
Adjusted Diluted Earnings Per Share 34 pence (54.5% increase year-over-year from 22 pence); stronger than guidance due to revenue miss offset by strong cost control.
Revenue from 10 Largest Clients 39% of total revenue (up from 34% year-over-year); average spend per client increased from £5.9 million to £7.5 million (28% increase year-over-year).
Adjusted Free Cash Flow £17.5 million (significant increase from £2.2 million year-over-year); reflects improved operational efficiency.
Cash and Cash Equivalents £68.3 million (increase from £62.4 million at June 30, 2024); indicates improved liquidity position.
Borrowings £136.5 million (decrease from £144.8 million at June 30, 2024); reflects debt reduction efforts.
Capital Expenditures as Percentage of Revenue 0.6% (down from 0.8% year-over-year); indicates improved capital efficiency.
New Product Development: Endava announced its involvement in Open AI’s exclusive beta services partner program, developing industry-first products and solutions for multiple joint clients. Endava is an implementation partner for Google Agent Space, enabling enterprises to embed intelligent proactive agents across their workflows. Partnership with SideFX combines machine learning expertise with Houdini 3D software for simulation and procedural content creation. Endava is developing an intelligent coaching agent for a premier golf performance brand, utilizing AI for personalized coaching.
Market Expansion: Endava is expanding its presence in the U.S. healthcare sector with a new pharmacy benefit manager client. Endava is working with banks in Europe and the Middle East to modernize their payments business.
Operational Efficiency: Endava is closely managing expenses to protect margins while investing in the business. Adjusted free cash flow increased to £17.5 million from £2.2 million year-over-year.
Strategic Shift: Endava is increasing its share buyback authorization by an additional $50 million. The company is focusing on long-term partnerships to enhance solutions and strengthen value propositions.
Client Behavior: Inconsistent behavior from clients with shifting business priorities, leading to delays in signing large contracts.
Macroeconomic Environment: Uncertain macroeconomic environment causing a slowdown in deal conversions and revenue generation.
Currency Fluctuations: Weakening of the U.S. dollar impacting revenue and growth projections.
Pipeline Conversion: Increased global macroeconomic turbulence affecting the conversion rate of the opportunity pipeline into signed deals.
Client Caution: High level of client caution on spending, particularly in mobility and healthcare sectors.
Geographic Performance: Decline in revenue from Europe and the rest of the world, with North America showing growth but facing conversion challenges.
Regulatory Challenges: Ongoing challenges in navigating regulatory environments, particularly in sectors like healthcare and pharmaceuticals.
Technical Debt: Need for remediation of technical debt in client systems, which poses risks to project timelines and costs.
Market Competition: Competitive pressures in the technology services market, requiring continuous innovation and adaptation.
Share Buyback Authorization: Endava is increasing its share buyback authorization by an additional $50 million, which is viewed as an optimal capital allocation tool in the current environment.
Partnerships: Endava plans to accelerate the pace of partnership formalization to enhance solutions and strengthen value propositions, including partnerships with Open AI, Google, AlixPartners, SideFX, and Backbase.
AI Initiatives: Endava is focusing on AI-driven solutions, helping clients navigate their AI journeys, and has developed industry-first products in collaboration with Open AI.
Opportunity Pipeline: Endava is pursuing larger and longer-term deals, particularly in payments and banking, and is engaging with senior leadership in these discussions.
Q4 Fiscal Year 2025 Revenue Guidance: Endava expects revenue to be in the range of £186 million to £188 million, reflecting a constant currency change of between -1.0% and 0% year-over-year.
Full Year Fiscal Year 2025 Revenue Guidance: Endava expects revenue to be in the range of £771.5 million to £773.5 million, representing a constant currency increase of 6.0% to 6.5% year-over-year.
Q4 Fiscal Year 2025 Adjusted EPS Guidance: Endava expects adjusted diluted EPS to be in the range of 22 pence to 24 pence per share.
Full Year Fiscal Year 2025 Adjusted EPS Guidance: Endava expects adjusted diluted EPS to be in the range of 111 pence to 113 pence per share.
Share Buyback Authorization Increase: Endava has increased its share buyback authorization by an additional $50 million.
Share Repurchase Program Update: As of April 30, 2025, Endava has repurchased approximately 2 million ADS for $39.7 million. $60.3 million remains for additional repurchases under the authorization.
The earnings call reveals a weak financial outlook with decreased revenue guidance and EPS, compounded by unexpected credits impacting performance. Despite the optimistic long-term view on AI transition and new deals, the immediate financial health and guidance adjustments are concerning. The market cap suggests moderate volatility, leading to a likely negative stock price reaction.
The earnings call summary indicates mixed signals: strong financial health with no debt and increased dividends, but challenges with AI monetization, competitive pressures, and restructuring costs. The Q&A reveals management's vague responses on AI impact and customer churn, adding uncertainty. Positive aspects include share buyback and cash flow strength. The market cap suggests a moderate reaction, leading to a neutral sentiment prediction within -2% to 2% range.
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