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01/10 19:48
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture. Positive elements include a share buyback increase and strategic partnerships, notably with OpenAI, which could boost sentiment. However, concerns arise from a decline in client numbers, reduced margins, and weak organic growth guidance. The Q&A highlighted uncertainties regarding revenue impact from AI initiatives and flexible pricing. Despite these challenges, committed contracts and strategic shifts offer some stability. Given the market cap, a neutral sentiment is appropriate, reflecting a balance of positive strategic moves against operational and market challenges.
Revenue for Q4 FY 2025 GBP 186.8 million, a 3.9% decrease year-over-year (YoY). In constant currency, the revenue decreased by 0.7% YoY. The decline was attributed to FX movements and weakness in certain verticals.
Profit Before Tax (PBT) for Q4 FY 2025 GBP 3.8 million, compared to a loss of GBP 0.4 million in the same period last year. The improvement was due to better operational performance.
Adjusted Profit Before Tax (PBT) for Q4 FY 2025 GBP 16.4 million, up from GBP 14.9 million in the same period last year, representing an adjusted PBT margin of 8.8% compared to 7.7% last year. The increase was due to improved operational efficiency.
Adjusted Diluted Earnings Per Share (EPS) for Q4 FY 2025 24p, up from 22p in the same period last year. The increase was due to higher adjusted PBT.
Revenue from Top 10 Clients for Q4 FY 2025 37% of total revenue, up from 34% last year. The average spend per client increased from GBP 6.7 million to GBP 6.9 million, a 2.8% YoY increase.
Geographical Revenue Distribution for Q4 FY 2025 North America accounted for 38% (down 5.3% YoY due to FX movements), Europe 23% (down 13.1% YoY due to weakness in TMT and Mobility verticals), the U.K. 33% (up 5.9% YoY), and the rest of the world 6% (down 5.8% YoY).
Adjusted Free Cash Flow for Q4 FY 2025 Negative GBP 4.0 million, compared to a positive GBP 6.6 million last year. The decline was due to delayed payments from a key client.
Cash and Cash Equivalents at Q4 FY 2025 End GBP 59.3 million, down from GBP 68.3 million at the end of Q3 FY 2025 and GBP 62.4 million at the end of Q4 FY 2024.
Borrowings at Q4 FY 2025 End GBP 180.9 million, up from GBP 136.5 million at the end of Q3 FY 2025 and GBP 144.8 million at the end of Q4 FY 2024.
Capital Expenditure for Q4 FY 2025 0.9% of revenue, up from 0.8% in the same period last year.
Revenue for FY 2025 GBP 772.3 million, a 4.3% increase YoY. In constant currency, the revenue increased by 6.3% YoY. The growth was driven by contributions from acquisitions and organic growth in certain verticals.
Profit Before Tax (PBT) for FY 2025 GBP 24.1 million, down from GBP 27.0 million last year. The decline was due to increased operating expenses.
Adjusted Profit Before Tax (PBT) for FY 2025 GBP 82.1 million, down slightly from GBP 83.0 million last year. The adjusted PBT margin was 10.6%, compared to 11.2% last year.
Adjusted Diluted Earnings Per Share (EPS) for FY 2025 113p, up from 112p last year. The increase was due to a higher adjusted PBT margin.
Revenue from Top 10 Clients for FY 2025 36% of total revenue, up from 32% last year. The average spend per client increased from GBP 24.1 million to GBP 27.9 million.
Geographical Revenue Distribution for FY 2025 North America increased 21.9% (due to acquisitions), Europe decreased 5.5% (due to weakness in Payments and TMT verticals), the U.K. increased 2.8% (due to growth in Banking and Capital Markets), and the rest of the world decreased 29.7%.
Adjusted Free Cash Flow for FY 2025 GBP 48.7 million, down from GBP 58.4 million last year. The decline was due to increased operating expenses and delayed payments.
Capital Expenditure for FY 2025 0.6% of revenue, down from 0.7% last year.
AI-driven document processing platform: Scaling a platform for a U.S. healthcare provider that processes over 40 million medical records annually, achieving 95% precision and recall levels, and reducing per-document costs.
In-cabin driver identification prototype: Developed for a Tier 1 global automotive supplier, now in customer validation phase, integrating into driver monitoring systems.
Image generation tool for creators: Built in partnership with a hyperscaler to improve visual fidelity and expand creative use cases, currently being deployed.
Partnership with OpenAI: Strengthened collaboration, resulting in client acquisitions and expanded technical capabilities, including new engagements in financial compliance and insurance sectors.
Collaboration with AWS, Microsoft, and Google Cloud: Co-creating generative AI solutions and advancing Agentic AI projects across regulated sectors like banking.
Premier partner designation with Adient: Recognized for delivering integrated payment solutions, enhancing market positioning in commerce and financial services.
Change Delivery Life Cycle (CDLC): Introduced a new delivery framework, Endava Flow, integrating AI agents with engineers, achieving up to 10x productivity improvements.
Flexible pricing models: Adopted transaction-based pricing in payments vertical and outcome-driven models in large strategic deals.
Workforce alignment: Reduced workforce by 5% while prioritizing recruitment in high-demand areas like AI, data, and cloud.
AI-native transformation: Undertaking a cultural and operational shift to become AI-native, focusing on modern architectures and rapid experimentation.
Leadership changes: New appointments to strengthen sales, engagement, and operational strategies, including a Global Advisory Board.
Sustainability commitment: Published the fifth annual sustainability report, emphasizing positive impact on people, clients, and communities.
Short-term operating volatility: Despite an increase in the order book, the short-term operating backdrop remains volatile, with many clients recalibrating the timing of spending, leading to a cautious outlook.
Revenue decline in key regions: Revenue from Europe decreased by 13.1% and the rest of the world declined by 5.8% in Q4 FY 2025, primarily due to weakness in the TMT and Mobility verticals.
Dependency on large clients: Revenue from the 10 largest clients accounted for 37% of total revenue in Q4 FY 2025, indicating a high dependency on a small group of clients, which could pose risks if any of these clients reduce spending.
Cash flow challenges: Adjusted free cash flow was negative GBP 4.0 million in Q4 FY 2025, impacted by delayed payments from a key client, which could strain liquidity.
Sector-specific revenue declines: Revenue from payments decreased by 19.0% and TMT by 13.2% in FY 2025, reflecting reduced activity in these sectors, which could impact overall growth.
Increased operating expenses: The Change Delivery Life Cycle program and reinstating the company-wide bonus scheme are expected to raise operating expenses, impacting adjusted PBT margin by 3% in FY 2026.
Economic and currency risks: Revenue from North America decreased by 5.3% in Q4 FY 2025 due to FX movements, highlighting exposure to currency fluctuations.
Client spending recalibration: Clients are recalibrating the timing of their spending, which could delay revenue recognition and impact financial performance.
Q1 Fiscal Year 2026 Revenue Guidance: Endava expects revenue to be in the range of GBP 181 million to GBP 183 million, representing a constant currency revenue decrease of between 6% and 5% year-over-year.
Full Fiscal Year 2026 Revenue Guidance: Endava expects revenue to be in the range of GBP 750 million to GBP 765 million, representing a constant currency revenue change of between -1.5% and +0.5% year-over-year.
Adjusted Diluted EPS Guidance for Q1 Fiscal Year 2026: Endava expects adjusted diluted EPS to be in the range of 17p to 19p per share.
Adjusted Diluted EPS Guidance for Full Fiscal Year 2026: Endava expects adjusted diluted EPS to be in the range of 82p to 94p per share.
Impact of Change Delivery Life Cycle Program: The program is projected to raise operating expenses, impacting adjusted gross margin and adjusted SG&A. This is expected to reduce adjusted PBT margin by 3% in FY '26.
Reinstatement of Company-Wide Bonus Scheme: Reinstating the bonus scheme is expected to negatively impact margins in FY '26.
share repurchase program: Endava has repurchased approximately 6.7 million ADSs for $111.2 million as of August 29, 2025. As of August 29, 2025, $38.8 million remain for additional repurchase 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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