Endava's Q4 2025 Earnings Call: Contradictions in Order Book, Client Ramp, AI Impact, and Macroeconomic Guidance

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: £186.8M, down 3.9% YOY (down 0.7% in constant currency)
• EPS: 24p adjusted diluted EPS, up from 22p in the prior year

Guidance:

• Q1 FY26 revenue expected at £181–£183M, down 6% to 5% YOY in constant currency.
• Q1 FY26 adjusted diluted EPS expected at 17p–19p.
• FY26 revenue expected at £750–£765M, constant currency change of -1.5% to +0.5% YOY.
• FY26 adjusted diluted EPS expected at 82p–94p.
• Guidance excludes unsigned large deals; includes 8 signed multiyear agreements.
• AI/CDLC investments and reinstated bonuses expected to reduce adjusted PBT margin by ~300 bps in FY26; ~1% impact to gross margin and ~1% to SG&A.
• Sequential growth expected after Q1; FX assumptions: £1=$1.35, €1.15 (as of Aug 31, 2025).

Business Commentary:

* Revenue and Profitability Trends: - Endava reported revenue of GBP 186.8 million for Q4 2025, showing a 3.9% decrease compared to the same period last year. The adjusted profit before tax was GBP 3.8 million, a significant improvement from a loss of GBP 0.4 million in the same period last year. - The decline in revenue was attributed to FX movements and weakness in specific verticals like TMT and Mobility, while the improved profitability was due to cost management and operational efficiency.

• Pipeline and Client Relationships:
• Endava's order book value signed reached the highest level in FY '25, with a notable increase in the number of large-scale engagements.

• This growth in the pipeline is fueled by strong client relationships and the attractiveness of their transformative offerings, particularly in AI-driven projects.

• Partnerships and Strategic Alliances:

• Endava has expanded its strategic partnerships, notably with OpenAI and hyperscaler research arms, contributing to deal flow and client acquisitions.

• These partnerships are enhancing Endava's solutions and value proposition, enabling it to drive more impactful collaborations with clients.

• AI Integration and Operational Transformation:

• Endava is transitioning towards becoming AI-native, with over 50% of its workforce now using AI in projects, demonstrating significant progress in integrating AI capabilities.
• This transformation is driven by evolving delivery models, new alliances, and a focus on rapid experimentation, aiming to enhance operational efficiency and client value.

Sentiment Analysis:

• Management cited record order book in Q4 and FY25, stronger partnerships, and 8 newly signed multiyear deals, but noted a volatile backdrop and cautious outlook. Q1 FY26 revenue guided down 6%–5% CC YOY and FY26 roughly flat (-1.5% to +0.5% CC). Investments in AI/CDLC and bonus reinstatement expected to depress adjusted PBT margin by ~3% in FY26.

Q&A:

• Question from Bryan Bergin (TD Cowen): How do we reconcile the strong Q4 order book with muted FY26 growth?
  Response: New wins include renewals and net-new work that ramps later; some large deals start revenue in H2 FY26, so timing delays temper FY26 growth despite strong bookings.

• Question from Bryan Bergin (TD Cowen): Bridge margins/EPS into FY26; clarify the ~300 bps headwind and cadence.
  Response: Adjusted PBT margin steps down ~3 pts from Q4’s 8.8% to ~7% in Q1 due to bonus and AI investments; tax rate rises to ~21% and buybacks lower share count; EPS pressure mainly from margin.

• Question from Yu Lee (Guggenheim Securities): Client count fell to 619—drivers amid new logos from partnerships?
  Response: Losses are mainly very small clients and deliberate tail rationalization, with payments softness; net adds are stronger in BCM and parts of TMT.

• Question from Yu Lee (Guggenheim Securities): Organic growth in Q4 and embedded in outlook?
  Response: Q4 organic down ~2% YOY (FX drove larger reported decline); Q1 guide implies ~4.5% CC decline YOY and ~2% sequential decline, with sequential growth expected after Q1.

• Question from Antonio Jaramillo (Morgan Stanley): OpenAI partnership economics and contribution?
  Response: No specific revenue breakout; it’s a strategic co-innovation and co-selling relationship alongside hyperscalers, informing offerings and deal flow.

• Question from Antonio Jaramillo (Morgan Stanley): Payments vertical spending outlook?
  Response: Relationships with Mastercard and Worldpay remain solid; early interest from others to modernize legacy platforms, but still early days.

• Question from Christopher Svensson (Deutsche Bank): Confidence and cadence of sequential growth after Q1?
  Response: Over 70% of FY26 revenue is contracted/committed (vs ~60% last year); 8 large deals signed with a couple driving step-ups; expect modest sequential growth from Q2 onward.

• Question from Christopher Svensson (Deutsche Bank): Risk from outcome-based/flexible pricing models?
  Response: Contracts are outcome-based with safeguards like minimum volumes and shared upside; risks are managed rigorously, with less full fixed-price exposure.

• Question from Spencer Anson (Susquehanna Financial Group): Headcount vs. revenue; AI-driven efficiency?
  Response: Delivery headcount expected to rise ~2%–3% in FY26, heavier in H1; Endava Flow should temper hiring needs later as productivity benefits scale.

• Question from Spencer Anson (Susquehanna Financial Group): Impact of flexible pricing on revenue realization?
  Response: Baseline volumes provide revenue security; Endava participates in volume uplift from new functionality, supporting revenue and margin upside.

• Question from Margaret Nolan (William Blair): Endava Flow—operational implications on staffing, delivery, billing?
  Response: It’s a major shift beyond agile to agentic AI, targeting faster throughput and quality with lower risk; near-term investment weighs on margins, but it’s a premium model expected to lift margins over time.

• Question from Margaret Nolan (William Blair): Near-term growth drivers by segment/geography?
  Response: North America and U.K. uptick; Payments flat; BCM strongest; Insurance stable; TMT flat-to-down with RX helping later; Mobility stable; Health Care improves in H2.

• Question from Puneet Jain (JPMorgan): Is weakness macro or AI-disruptive to services?
  Response: AI is delaying client decisions amid rapid change, not replacing services; pipeline is building for more transformative work; Endava Flow helps de-risk adoption.

• Question from Puneet Jain (JPMorgan): How offset AI-driven productivity in pricing (P×Q)?
  Response: Shift to outcome-based deals tied to broader, deeper transformations and shared upside, expanding scope into core systems and enlarging TAM.