Endava Announces Strong Q2 FY2025 Results, Driven by Healthcare Vertical Growth

Endava plc (NYSE: DAVA), a leading technology services provider, has announced its second quarter fiscal year 2025 results, showcasing robust growth and strategic shifts in its revenue mix. The company reported revenue of £195.6 million, representing a 6.6% year-over-year increase and 9.1% at constant currency. This growth was driven by a significant increase in the Healthcare vertical, which contributed 12% of total revenue, up from 4% in the prior year.

Key financial metrics for the quarter include diluted EPS of £0.11, down from £0.14 in the prior comparative period, and adjusted diluted EPS remaining stable at £0.30. Profit before tax stood at £2.5 million, down from £10.6 million. Despite the decline in profitability, the company maintained a strong cash position with £60.1 million in cash and cash equivalents.

Endava's revenue mix transformation reveals important strategic shifts:

1. Healthcare Vertical Growth: The increase in revenue from the Healthcare vertical from 4% to 12% indicates successful diversification into a more stable, recession-resistant sector. This growth suggests that Endava is effectively expanding its client base and revenue streams in the healthcare industry.
2. Payments and TMT Revenue Decline: The decline in Payments (from 26% to 19%) and TMT (from 23% to 19%) sectors suggests a deliberate rebalancing away from more volatile tech-dependent sectors. This strategic shift allows Endava to mitigate risks associated with market fluctuations in these sectors and focus on more stable and growing industries.
3. North American Revenue Contribution: The increase in North American revenue contribution to 39% reflects Endava's successful geographic expansion into the world's largest tech market. This growth indicates that the company is effectively penetrating the North American market, likely through strategic partnerships, acquisitions, or organic growth.

Endava's Q2 FY2025 results demonstrate the company's ability to navigate strategic transitions while maintaining revenue growth. The 6.6% revenue growth (9.1% at constant currency) demonstrates resilience, but the more telling story lies in the evolving business mix and profitability dynamics. The significant compression in profit before tax to £2.5 million from £10.6 million year-over-year warrants attention. This 76.4% decline in profitability, despite revenue growth, suggests increased operational costs or strategic investments that haven't yet yielded returns. However, the adjusted metrics show more stability, with adjusted profit before tax at £21.8 million (11.2% margin) indicating underlying business strength once exceptional items are excluded.

The newly announced $100 million share repurchase program is particularly strategic given the current market conditions. With £60.1 million in cash and robust operating cash flow of £32.0 million, the company maintains financial flexibility while returning capital to shareholders. This balanced approach to capital allocation suggests management's confidence in future cash generation capabilities.

Looking forward, the company's guidance for Q3 FY2025 projects revenue between £198.0-£200.0 million, representing a constant currency revenue increase of between 13.0% and 14.0% on a year-over-year basis. Endava expects adjusted diluted EPS to remain stable. This acceleration from Q2's growth rate, combined with the company's strategic positioning in AI solutions, indicates potential for margin recovery as these initiatives mature.

In conclusion, Endava's Q2 FY2025 results highlight the company's strategic rebalancing towards more stable sectors like Healthcare, as well as its successful geographic expansion into North America. While profitability dynamics warrant attention, the company's strong cash position and balanced capital allocation strategy suggest a path towards long-term growth and margin recovery. As Endava continues to execute on its strategic initiatives, investors should monitor the company's progress in the coming quarters.