Endava's Q2 2025: Revenue Growth, Profit Margin Pressure, and Capital Allocation

Endava PLC (NYSE: DAVA), a leading technology services provider, reported its Q2 2025 earnings on February 20, 2025, with mixed results that highlighted the company's strategic initiatives and capital allocation decisions. The quarter presented a picture of revenue growth amid profitability concerns, underlined by a significant drop in profit before tax to £2.5 million from £10.6 million in the prior year.

Revenue for Q2 FY2025 was £195.6 million, an increase of 6.6% compared to £183.6 million in the same period in the prior year. Revenue increase at constant currency was 9.1% for Q2 FY2025, indicating strong underlying growth. However, profit before tax for Q2 FY2025 was £2.5 million, compared to £10.6 million in the same period in the prior year, reflecting a 76.4% decline in profitability.



Endava's adjusted profit before tax for Q2 FY2025 was £21.8 million, or 11.2% of revenue, compared to £22.7 million, or 12.4% of revenue, in the same period in the prior year. This stability in adjusted metrics suggests underlying business strength once exceptional items are excluded. The company's cash position remained robust, with £60.1 million in cash and cash equivalents, and net cash from operating activities of £32.0 million.

Endava announced a $100 million share repurchase program, subject to shareholder approval in March 2025. This decision aligns with the company's commitment to optimizing capital allocation and returning capital to shareholders. The share repurchase program reflects management's confidence in the company's ability to generate cash in the future, supporting long-term growth prospects.

Geographic revenue distribution showed North America at 39%, Europe at 24%, UK at 32%, and rest of world at 5%. The company serves 141 clients with over £1 million in revenue, with top 10 clients accounting for 36% of revenue. For Q3 FY2025, Endava expects revenue between £198.0-£200.0 million, representing 13-14% constant currency growth.

Endava's Q2 2025 results reveal a company navigating through a strategic transition phase. 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, as it 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.

The revenue mix transformation reveals important strategic shifts, with healthcare vertical's growth from 4% to 12% indicating successful diversification into more stable, recession-resistant sectors. The decline in Payments (from 26% to 19%) and TMT (from 23% to 19%) suggests a deliberate rebalancing away from more volatile tech-dependent sectors. North American revenue contribution increase to 39% demonstrates successful geographic expansion in the world's largest tech market. The stable headcount of 11,668 despite revenue growth points to improved operational efficiency and higher revenue per employee. However, the slight decrease in million-pound clients (141 vs 150) and increased concentration among top 10 clients (36% vs 34%) suggests a need to accelerate new client acquisition.

Looking forward, the company's guidance for Q3 FY2025 projects revenue of £198.0-200.0 million, implying 13.0-14.0% constant currency growth. 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.