Endava (DAVA) Q4 Earnings call transcript Sep 19, 2024

Endava, a leading digital transformation partner, recently held its Fourth Quarter and Full Year 2024 Results Conference Call, highlighting both the challenges and opportunities in the digital landscape, particularly in the realm of Artificial Intelligence (AI). The call, led by CEO John Cotterell, CFO Mark Thurston, and Head of Investor Relations and ESG, Laurence Madsen, provided valuable insights into Endava's financial performance, strategic initiatives, and future outlook.

Financial Overview and Market Challenges

Endava reported a challenging fiscal year, with revenue headwinds attributed to the macroeconomic backdrop, slower IT spend from some clients, and the impact of AI on the planning process for production-ready projects. The company's traditional focus on payments and the U.K. market, which have historically driven significant growth, experienced significant challenges. In response, Endava has plans to diversify its industry verticals and client geographies, aiming for a more balanced and less cyclical business model.

Digital Transformation and AI

Endava's focus on digital transformation and AI is a key theme, with the company recognizing the disruptive impact of AI on businesses and the technology landscape. While AI presents opportunities for innovation and growth, it also brings challenges in understanding the technology and navigating market dynamics. Endava is investing in Dava.X, a platform providing tailored expertise to help clients embrace and implement technologies rapidly and at scale. This includes emerging and established technologies such as AI and data, core modernization, cloud, cybersecurity, embedded software, sustainability, physical computing, and quantum.

Acquisition and Integration

Endava's acquisition of GalaxE, a technology services company, is a significant strategic move. The integration is going well, with a focus on cross-selling opportunities and synergies between the two companies. GalaxE's capabilities in core modernization, particularly in the banking and insurance sectors, align well with Endava's existing strengths. The acquisition is expected to enhance Endava's offerings and expand its reach, particularly in the North American market.

Financial Performance and Outlook

Endava reported a 2.4% increase in revenue for the quarter, with a 15.6% positive inorganic contribution from the GalaxE acquisition. The company's adjusted PBT margin was 7.7%, down from 20.2% in the previous year, reflecting the impact of the acquisition and business optimization initiatives. For the upcoming quarter and fiscal year, Endava expects revenue growth of 4.5-5.0% and 10.0-11.5%, respectively, with a focus on core modernization, cross-selling opportunities, and the Indian market.

Conclusion

Endava's earnings call underscores the challenges and opportunities in the digital landscape, particularly in the context of AI and digital transformation. The company's strategic initiatives, including the acquisition of GalaxE and the launch of Dava.X, position Endava well for future growth. However, the company faces challenges in navigating the complexities of AI implementation and market dynamics. As Endava continues to invest in its people, skills, and partnerships, it remains focused on delivering value for its clients and shareholders in the rapidly evolving digital world.