Endava ((DAVA)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Endava’s latest earnings call painted a mixed picture, blending genuine strategic momentum in artificial intelligence with sharp near-term financial stress. Management showcased fast-growing AI revenues, new partnerships and product traction, but these were outweighed by declining sales, a large goodwill write-down, weaker margins and negative cash generation, leaving investors weighing long-term promise against present pain.
AI-driven revenue acceleration
AI-related work surged from 5% of revenue a year ago to 15%, or about GBP 27 million, in the latest quarter, marking a rapid shift toward AI-native delivery. Management stressed that AI projects carry structurally higher margins than legacy digital transformation, positioning the mix shift as central to restoring profitability over time.
Dava.Flow adoption expansion
Endava’s AI-native delivery framework, Dava.Flow, scaled quickly from three clients last quarter to 12 this quarter, a notable commercialization step. The company sees Dava.Flow as a backbone for repeatable, productized delivery and a way to differentiate its engineering model as clients seek end-to-end AI solutions.
Strategic partnerships and go-to-market progress
The firm broadened its partner ecosystem with new ties to Mastercard and deeper links to hyperscalers such as Google, OpenAI, AWS and Microsoft. Endava was invited into Google’s AI Agent partner program and reported early commercial wins tied to Google Cloud and Gemini Enterprise, underscoring its credibility in emerging AI workloads.
Payments momentum and notable wins
Within payments, the PGX accelerator continued to gain traction, with new signings over the past three months. Notable engagements included being selected by Tyl, the merchant payments arm of NatWest Group, plus two further wins with a global payments provider and a pan-European energy retailer.
Productized marketplace progress
Management is leaning into a productized marketplace strategy, aiming to launch more than 15 offerings this year and noting that 10 are already live. These offerings are being aligned with hyperscaler marketplaces so clients can deploy Dava.Flow-based solutions faster and with lower upfront friction.
Client renewals and government engagement
Endava highlighted relationship durability through a renewal with Slovenia’s Ministry of Finance and Financial Administration, extending a multi-decade partnership through 2028. The company also expanded work with clients such as North Standard and a global vehicle manufacturer, reinforcing its positioning in mission-critical, high-volume systems.
Operational productivity examples
To showcase real-world impact, management cited a Google Cloud agent pilot for a European media company that cut engineers’ search time for materials by about 60%. Onboarding time was reduced by roughly 30%, illustrating how agentic AI solutions can drive tangible productivity gains for clients and support pricing power.
Ongoing investment in skills and go-to-market
Endava is increasing spending on go-to-market capabilities and internal training to support its AI-native pivot, even as margins tighten. More than 1,000 engineers, over a tenth of direct staff, are now being trained on Dava.Flow, while the firm maintains a larger AI-skilled bench to respond quickly to demand.
Quarterly revenue decline
Despite AI momentum, group revenue fell to GBP 178.5 million from GBP 194.8 million a year ago, an 8.4% decline or 6.4% in constant currency. Management blamed slower pipeline conversion, delays at key Middle East clients, macro-driven demand softness and longer execution timelines for large outcome-based deals.
Goodwill impairment and swing to loss
The quarter was dominated by a non-cash goodwill impairment of GBP 364.6 million and derecognition of a GBP 23.2 million deferred tax asset. These items drove a loss before tax of GBP 372 million versus a GBP 13.6 million profit a year earlier, with management emphasizing the impairment does not affect cash but reflects updated growth assumptions.
Material compression in adjusted profitability
On an adjusted basis, profitability deteriorated sharply as adjusted profit before tax dropped to GBP 3.2 million from GBP 24.6 million. The adjusted PBT margin compressed to 1.8% from 12.6%, signaling that pricing, utilization and cost discipline have not yet offset weaker demand and the cost of strategic investments.
Sharp decline in adjusted diluted EPS
Adjusted diluted earnings per share fell to 5p in the quarter, down from 34p in the prior year period. The fall reflects both weaker operating performance and the impact of share count dynamics, underscoring how far earnings power has slipped even before considering the large non-cash charges.
Negative free cash flow and lower cash balance
Cash generation reversed as adjusted free cash flow turned negative GBP 3.1 million, compared with positive GBP 17.5 million a year earlier. Cash and equivalents fell to GBP 48.4 million from GBP 68.3 million, leaving the company more reliant on its credit lines while it invests through the downturn.
Higher borrowings and capital deployment
Borrowings climbed to GBP 195.8 million from GBP 136.5 million, largely to fund the share repurchase program despite softer fundamentals. Capital expenditure also rose to 1.6% of revenue from 0.6%, reflecting continued investment in tools and platforms needed to support AI-led service delivery.
Regional and segment revenue pressures
Regionally, North America revenue fell 5.5%, including a 6.1% foreign-exchange headwind, while Europe was down 3.6% amid weakness in payments and technology, media and telecom. The UK declined 15.4%, partly due to client reclassification, and the Rest of World slipped 1.8%, with top-10 client concentration stable around 40% but average spend per top client down 5.6%.
Pipeline conversion shortfall and extended cycles
Endava converted about GBP 13 million of expected pipeline in the quarter versus an internal target of GBP 16–19 million, falling short of plan. Large, outcome-based AI engagements are now taking five to six months to close, stretching sales cycles and adding uncertainty to near-term revenue visibility.
Rising adjusted tax rate and one-off tax effects
The derecognition of a deferred tax asset pushed the adjusted tax rate higher, with the third quarter at roughly 17% and a jump to about 37% expected in the fourth quarter. Management guided to a full-year adjusted tax rate near 25%, noting that these tax adjustments are non-cash and do not change actual cash taxes paid.
Guidance and forecasting uncertainties
Looking ahead, Endava cut its outlook and acknowledged recent forecasting misses while it works to improve pipeline visibility. The company now expects fourth-quarter revenue of GBP 181–185 million, implying a low to mid-single-digit constant-currency decline, and full-year revenue of GBP 721.8–725.8 million with adjusted diluted EPS of 45p–49p and a higher tax rate weighing on earnings.
In sum, Endava’s earnings call offered a clear dual narrative of strategic progress and financial strain, with AI-led offerings winning traction even as traditional project volumes and margins decline. For investors, the story now hinges on whether AI-driven growth, productivity gains and new partnerships can scale fast enough to offset cyclical and execution headwinds over the coming year.