Endava ((DAVA)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Endava’s latest earnings call painted a picture of a business in strategic transition, pairing visible momentum in AI-native platforms and new partnerships with marked near-term financial strain. Management stressed that revenue remains under pressure and margins have compressed into a loss before tax, but argued that heavy AI investments are deliberate moves to capture a larger structural opportunity, with signs of sequential stabilization emerging.
Revenue Beats Guidance But Still Declines Year-on-Year
Endava reported quarterly revenue of £184.1 million, slightly above the upper end of guidance and up 3.3% sequentially from Q1 FY2026. However, revenue was still down 5.9% year-on-year, underscoring a market backdrop that remains challenging despite early signs of recovery.
Dava Flow Shows Tangible AI-Native Productivity Gains
The company highlighted strong early traction for Dava Flow, its AI-native delivery platform, with clients citing faster delivery, tighter control and full traceability across projects. Management pointed to a case where a 90-minute signal session produced work equivalent to weeks of traditional delivery, and two live engagements are already showing higher productivity and improved quality.
Large-Scale AI Projects Begin to Validate Strategy
Endava showcased material AI project wins as proof points for its pivot toward AI-native offerings, including an enterprise payments chargeback dispute system showing promising results midway through a six-month build. It also stood up an AI-native insurer incubator in roughly three weeks using agent-based delivery, which already has a backlog of more than 50 improvement hypotheses.
Strategic Partnerships Deepen AI and Cloud Reach
The company marked its first full year as an official OpenAI services partner and reported an expanding pipeline for Enterprise ChatGPT implementations. Demand is also ramping across major hyperscalers such as AWS, Google Cloud and Microsoft Azure, while fresh partnerships with Miro and Cognition are aimed at strengthening agentic workflows and agentic coding capabilities.
Client Wins Underscore Payments and Travel Strength
Endava secured a mandate from PayNetNets/NexSys to design a cloud-native cross-border payment switch on AWS and extended commitments with its two largest payments customers. In hospitality, its work for Accor Plus on a payments and loyalty overhaul delivered a 39% increase in product page conversion within the first 30 days, highlighting tangible commercial impact.
Product and Go-To-Market Push Targets Scalable Growth
On the product and go-to-market side, the company launched two offerings on the AWS Marketplace, including a cloud application engineering accelerator and an AWS Landing Zone solution. It also rolled out Dava Rise, a venture acceleration program run with Octopus Ventures, designed to translate start-up innovation into enterprise-scale solutions for clients.
Cash Build and Share Buybacks Offset Rising Debt
Endava’s cash and cash equivalents rose to £68.5 million from £59.3 million at the end of June 2025, supported by continued cash generation. At the same time, the company has repurchased about 8 million ADSs for $121.9 million under its buyback program, leaving $28.1 million of authorization but also pushing borrowings up to £202.7 million and increasing leverage.
Workforce Shift Toward AI Talent Despite Headcount Trim
The firm continues to hire, train and upskill next-generation AI talent while embedding AI capabilities throughout the organization to support AI-native delivery models. Overall headcount decreased 2.4% year-on-year to 11,385 as Endava streamlined roles in weaker demand areas, reflecting both cost discipline and a strategic reshaping of its workforce.
Regional Weakness Drives Year-on-Year Revenue Decline
Despite the quarterly beat, revenue fell 5.9% year-on-year, or 5.1% in constant currency, with notable regional softness. Europe declined 8.5% on pressure in payments and mobility, the U.K. fell 9.1% due to client reclassification and TMT weakness, and North America was down 5.1%, reflecting FX headwinds of about 3.3% and the absence of a large media client.
Margins Compress into a Loss Before Tax
Profitability deteriorated sharply, with a reported loss before tax of £7.2 million versus a £2.5 million profit a year ago. Adjusted profit before tax dropped to £10.7 million from £21.8 million, and the adjusted PBT margin fell to 5.8% from 11.2%, with management estimating around three percentage points of margin drag from AI investments through the first half.
Earnings Slide Nearly 50 Percent Year-on-Year
Earnings per share also reflected the profit squeeze, as adjusted diluted EPS came in at 16 pence, in line with guidance but roughly 47% lower than the 30 pence reported in the prior-year quarter. For the coming quarter, Endava guided to adjusted diluted EPS of 18–21 pence, implying only a modest earnings recovery from this depressed base.
Free Cash Flow Softens as Leverage Climbs
Adjusted free cash flow declined to £20.1 million from £31.6 million in the prior year, indicating some pressure on cash conversion even as the business continues investing. Borrowings increased sharply to £202.7 million from £123.7 million, largely to fund the aggressive share repurchase program, which has heightened balance sheet leverage and reduced financial flexibility.
Restructuring and Capex Drive Near-Term Margin Pain
Endava’s total employee count declined 2.4% year-on-year as the firm cut roles in softer areas while redirecting spend into AI talent, a shift that likely brings near-term restructuring charges. Capital expenditure spiked to 4.4% of revenue from just 0.2% a year earlier, mainly due to a one-time payments accelerator build and higher licensing and partnership costs that are weighing on margins.
Client Concentration Eases but Top Spend Declines
Revenue from the top 10 clients slipped to 35% of total revenue from 36%, suggesting a modest reduction in concentration risk. However, average spend per top 10 client dropped 7.9% year-on-year, with roughly 2 percentage points of that decline attributed to currency effects, pointing to softer budgets even among key accounts.
FX and Macro Conditions Keep the Outlook Cautious
Management noted that a weaker U.S. dollar against the pound remains a structural headwind to reported revenue, using a rate of $1.37 to the pound for guidance. The company also adopted a relatively wide guidance range, explicitly citing macroeconomic uncertainty and FX volatility as reasons to remain cautious on near-term predictability.
Guidance Signals Gradual Sequential Recovery, Not a Snapback
Endava guided Q3 FY2026 revenue to £182–185 million, implying a constant-currency decline of 4.0–2.5% year-on-year but underlying sequential growth of about 4% at the midpoint when adjusting for FX and fewer working days. Full-year revenue is forecast at £736–750 million, a constant-currency decline of 3.5–1.5%, with adjusted diluted EPS of £0.80–£0.86 and an expected Q4 underlying sequential pickup of roughly 6%, backed by strong contracted coverage for the next two quarters.
Endava’s earnings call underscored a company willingly trading current profitability for future growth, pushing hard into AI-native delivery, strategic partnerships and new products. While revenue remains under pressure, margins are squeezed and leverage is rising, management points to growing client traction and improving sequential trends as signs that today’s pain is laying the groundwork for a more AI-centric, higher-value business model over time.