• Revenue: GBP194.4 million for Q4 FY24, a 2.4% increase year-over-year.

• Constant Currency Revenue Growth: 3.5% year-over-year for Q4 FY24.

• Sequential Revenue Growth: 11.4% in constant currency from the previous quarter.

• Loss Before Tax: GBP0.4 million for Q4 FY24, compared to a profit of GBP24.9 million in the prior year.

• Adjusted PBT: GBP14.9 million for Q4 FY24, down from GBP38.3 million in the prior year.

• Adjusted PBT Margin: 7.7% for Q4 FY24, compared to 20.2% in the prior year.

• Adjusted Diluted EPS: 22p for Q4 FY24, compared to 57p in the prior year.

• Revenue from Top 10 Clients: 34% of total revenue for Q4 FY24.

• Geographical Revenue Distribution: North America 38%, Europe 25%, UK 30%, Rest of the World 7% for Q4 FY24.

• Revenue by Vertical: Payments 19%, Banking and Capital Markets 17%, Insurance 9%, TMT 21%, Mobility 9%, Other 25% for Q4 FY24.

• Adjusted Free Cash Flow: GBP6.6 million for Q4 FY24, compared to GBP31.5 million in the prior year.

• Cash and Cash Equivalents: GBP62.4 million at June 30, 2024.

• Borrowings: GBP144.8 million at June 30, 2024.

• Capital Expenditure: 0.8% of revenue for Q4 FY24.

• Full Year Revenue: GBP740.8 million for FY24, a 6.8% decrease year-over-year.

• Full Year Adjusted PBT: GBP83.0 million for FY24, down from GBP164.2 million in the prior year.

• Full Year Adjusted PBT Margin: 11.2% for FY24, compared to 20.7% in the prior year.

• Full Year Adjusted Diluted EPS: 112p for FY24, compared to 228p in the prior year.

• Full Year Adjusted Free Cash Flow: GBP58.4 million for FY24, compared to GBP111.5 million in the prior year.

• Full Year Capital Expenditure: 0.7% of revenue for FY24.

• Q1 FY25 Revenue Guidance: GBP194 million to GBP195 million.

• Q1 FY25 Adjusted Diluted EPS Guidance: 21p to 22p per share.

• Full Year FY25 Revenue Guidance: GBP800 million to GBP810 million.

• Full Year FY25 Adjusted Diluted EPS Guidance: 112p to 117p per share.

• Warning! GuruFocus has detected 3 Warning Sign with DAVA.

Release Date: September 19, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Endava PLC (NYSE:DAVA) reported a 2.4% year-over-year increase in revenue for Q4 FY24, driven by a 15.6% positive inorganic contribution primarily related to the GalaxE acquisition.

• The company has broadened its delivery presence, with 17% of its workforce now based in APAC, up from 9% in the previous year.

• Endava PLC (NYSE:DAVA) launched Dava.X, a new initiative to help clients rapidly implement emerging and established technologies, including AI, cloud, and cybersecurity.

• The acquisition of GalaxE has opened significant cross-selling opportunities, particularly in core modernization and AI integration projects.

• Endava PLC (NYSE:DAVA) announced a strategic deal with OpenAI to deploy ChatGPT enterprise licenses to all employees, enhancing productivity and embedding AI within the company.

Negative Points

• Endava PLC (NYSE:DAVA) experienced a decline in operating margins, with adjusted PBT margin dropping to 7.7% for Q4 FY24 from 20.2% in the same period the prior year.

• Revenue from the UK geography and payments vertical saw significant declines, with the UK down 19.2% and payments down 30.5% year-over-year.

• The company reported a loss before tax of GBP0.4 million for Q4 FY24, compared to a profit before tax of GBP24.9 million in the same period the prior year.

• Adjusted free cash flow decreased to GBP6.6 million for Q4 FY24, down from GBP31.5 million in the same period last year.

• Endava PLC (NYSE:DAVA) is facing elongated sales cycles, particularly for AI and core modernization projects, due to higher scrutiny and additional levels of sign-off required by clients.

Q & A Highlights

Q: Your outlook implies slight sequential improvement through the year. What's driving your confidence in that dynamic? And how much visibility do you have at this point in the year? A: (John Cotterell, CEO) There is some sequential improvement, but it's conservative. Key drivers include core modernization projects, new opportunities from our India footprint, and cross-selling opportunities with GalaxE. (Mark Thurston, CFO) Visibility to December is solid, but the second half is less clear. The business mix has changed with the GalaxE acquisition, reducing exposure to payments and the UK.

Q: Given some of the payment softness you called out, can you talk us through what you're seeing across your top two customers and what's contemplated in your outlook across those 2? A: (John Cotterell, CEO) Revenue from one client is stabilizing with a large program dropping steadily but offset by other growing revenues. The second client is ramping up due to private equity investment and a transformation program.

Q: Considering how early it still is in enterprise adoption of GenAI, does this mean you may face a more extended recovery to a new normal on growth profile? A: (John Cotterell, CEO) Yes, sales elongation is driven by higher bars for business cases and engineering challenges with AI. This has led to longer decision-making cycles. Projects are emerging, but volumes are not yet sufficient to impact our guidance significantly.

Q: Can you give us a sense on the path to gross margin recovery as '25 unfolds? And any aspects around pricing dynamics in the market? A: (Mark Thurston, CFO) We expect margin improvement in the latter half of fiscal '25. Pricing is assumed to remain flat. Pay rises will depend on demand recovery and client pricing. Investments in Dava.X and GalaxE integration will weigh on margins initially but should improve by Q4.

Q: What does the guidance assume for client budgets next year? Are there any early signs of improvement in the second half of the fiscal year? A: (John Cotterell, CEO) The guidance is not based on significant changes in client budgets but on expanded service capabilities, the India footprint, and cross-selling opportunities. These factors give us confidence in slight growth.

Q: Can you talk about GalaxE integration plans and cross-sell opportunities? A: (John Cotterell, CEO) The integration is going well, with significant cross-selling opportunities in core modernization. The India footprint is opening new client opportunities. (Mark Thurston, CFO) Investments include migration onto our systems and sharpening the go-to-market strategy.

Q: When do you think GenAI becomes more material to the revenue base? A: (John Cotterell, CEO) The lead indicators will be pipeline progress. The engineering around GenAI is complex, requiring core modernization. We don't expect significant growth from GenAI in fiscal year '25 but see long-term potential.

Q: Can you expand on the investments that will impact adjusted PBT margin? A: (Mark Thurston, CFO) Investments include Dava.X tools and technologies, sharpening the go-to-market strategy, ChatGPT licenses, and GalaxE integration costs. We also anticipate paying bonuses based on good performance this year.

Q: Are there specific partnerships that you think could provide substantial opportunity in the next year? A: (John Cotterell, CEO) Key partnerships include Google, AWS, Microsoft, Snowflake, and Stripe. These partnerships are crucial for incorporating technical solutions and driving client success.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.