Endava’s Earnings Call: Growth Amid Challenges

Endava ((DAVA)) has held its Q3 earnings call. Read on for the main highlights of the call.

Endava’s recent earnings call reflected a mixed sentiment, highlighting both achievements and challenges. The company reported notable revenue growth and improvements in profitability, alongside strategic partnerships that promise future potential. However, economic headwinds, currency fluctuations, and client hesitancy have posed significant challenges, leading to a cautious outlook for the future.

Record Revenue Growth

Endava achieved a record revenue of £194.8 million for the quarter ending March 31, 2025, marking an 11.7% increase from the previous year. This growth underscores the company’s strong market presence and ability to drive sales despite challenging economic conditions.

Significant Partnerships and Innovations

The company announced strategic partnerships with industry giants such as Open AI, Google, and AlixPartners. These collaborations are expected to enhance Endava’s deal flow and enable the delivery of innovative AI-driven solutions to its clients, positioning the company at the forefront of technological advancements.

Increased Share Buyback Authorization

Endava has decided to optimize its capital allocation by increasing its share buyback authorization by an additional $50 million. This move reflects confidence in the company’s financial health and commitment to returning value to shareholders.

Strong Client and Industry Engagement

Endava continues to engage robustly with clients across sectors like AI, payments, and banking. The company’s efforts in modernizing systems and transforming operations have been well-received, showcasing its capability to drive industry innovation.

Profitability Improvement

The company reported a profit before tax of £13.6 million for the quarter, a significant turnaround from a loss in the same period last year. The adjusted PBT margin improved to 12.6% from 8.9%, highlighting effective cost management and operational efficiency.

Slowing Growth Due to Economic Factors

Despite strong performance, Endava faced slowing growth due to economic factors such as the weakening U.S. dollar and delayed deals in North America and Asia Pacific. These challenges led to revenue falling short of initial guidance.

Challenges in North America

North America, despite experiencing growth, faced slowdowns in deal conversion, particularly in the mobility and healthcare sectors. These challenges are attributed to external economic pressures and client caution.

Guidance Reflects Cautious Outlook

Endava’s guidance for Q4 reflects a cautious outlook, with expected revenue between £186 million and £188 million, indicating potential negative growth. The company anticipates ongoing challenges but remains focused on strategic initiatives to navigate these hurdles.

Client Caution and Delayed Large Deals

The company has experienced delays in closing large deals due to client caution and external factors, impacting expected revenue growth. This trend highlights the broader macroeconomic challenges facing the industry.

Forward-Looking Guidance

Endava’s forward-looking guidance for the upcoming quarter and fiscal year reflects a cautious stance. The company projects Q4 revenue between £186 million and £188 million, with a constant currency revenue change of -1.0% to 0% year-over-year. For the full fiscal year 2025, revenue is expected to range between £771.5 million and £773.5 million, representing a 6.0% to 6.5% increase on a constant currency basis. Adjusted diluted EPS is forecasted to be between 111 pence and 113 pence per share. The guidance takes into account significant currency headwinds and client caution, particularly in North America.

In summary, Endava’s earnings call highlighted a blend of positive growth and strategic advancements, tempered by economic challenges and client hesitancy. While the company has made significant strides in revenue and profitability, the cautious guidance reflects the need to navigate ongoing macroeconomic uncertainties. Investors and stakeholders will be keenly watching how Endava leverages its partnerships and strategic initiatives to sustain growth in the coming quarters.