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What were the key takeaways from Endava's earnings call?

- **Revenue Miss and Strategic Deal**: Q1 FY2026 revenue missed due to a £10M client credit, but a $100M multi-year payments deal highlights AI-native transformation success.
- **AI Productivity Gains**: 70% of services now involve AI, with DARVA Flow driving 25-35% productivity gains in code reviews and testing.
- **Margin Pressure and Recovery**: Adjusted PBT margin dropped to 5.5%, but FY2026 guidance reflects cautious pipeline conversion (£735-752M) and large deal ramp-up in H2.
- **Operational Shift**: Transition to outcome-based deals (24% of revenue) is prioritized, with 470 new AI hires and mandatory DARVA Flow training by year-end.

**【CEO Summary Section】**
- **Revenue Miss and Challenges**: Q1 FY2026 revenue of £178.2M (-8.6% YoY) fell short of guidance due to an unexpected £10M client credit and pipeline conversion delays. The company secured a multi-year $100M deal with a payments firm, showcasing AI-native transformation capabilities.
- **AI-Driven Growth**: 70% of services now involve AI, with examples like automating medical bill processing (95%+ accuracy) and AI-assisted code migration (30x faster). DARVA Flow, an AI-native delivery model, is being rolled out across 11,636 employees, with 470 new hires from the DARVA X Academy.
- **Strategic Shift**: Transitioning from TNM (76% of revenue) to outcome-based deals (24%) is driving productivity gains (5-10x) but causing short-term margin pressure. The company aims to lock in long-term partnerships, e.g., with Toyota Racing and Convex.

**【CFO Financial Commentary】**
- **Financial Results**: Adjusted PBT margin dropped to 5.5% (-440bps YoY), with EPS of £0.15 (-40% YoY). Adjusted free cash flow improved to £9.2M, but cash reserves declined to £47.2M. Capital expenditures rose to 1.7% of revenue.
- **Guidance Update**: Q2 FY2026 revenue expected £179-182M (-8% to -7% YoY), with FY2026 at £735-752M (-4.5% to -2.5% YoY). The lower guide reflects cautious pipeline conversion assumptions, offset by large signed deals.
- **Leverage and Margin**: Operational leverage will drive margin recovery as large deals ramp up. Share buybacks continue ($34.1M remaining), but investments in AI talent and DARVA Flow are prioritized.

**【Q&A Key Highlights】**
- **Client Credit Clarification**: The £10M credit was procedural, not execution-related, and isolated. If absent, revenue would have met the low end of guidance.
- **Pipeline Conversion**: Non-strategic deal conversion was 50-80% of high/low pipeline, below expectations. FY2026 guide lowered to £752M (from £765M) to account for pipeline risk.
- **DARVA Flow Productivity**: Early wins show 25-35% productivity gains via AI in code reviews and testing. Full-phase completion could double this impact.
- **Headcount Strategy**: 2% YoY headcount decline reflects AI talent expansion (470 hires) and attrition in non-AI roles. DARVA Flow training will be mandatory by year-end.
- **Macro Considerations**: No unusual client churn; the payments deal is net new business. Pricing stability in TNM suggests demand resilience despite macro headwinds.

Endava plc (DAVA) Q1 2026 Earnings Call Transcript

Revenue

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DAVA

DAVA fundamentals

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