DAVA — Endava plc

Endava (DAVA) Q1 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: £178.2 million, down 8.6% year-over-year; a 7.3% decrease in constant currency.
• Loss Before Tax: £8.5 million, compared to a profit of £4.2 million in Q1 2025.
• Adjusted Profit Before Tax (PBT): £9.9 million, down from £19.2 million year-over-year; adjusted PBT margin at 5.5% vs. 9.9% last year.
• Adjusted Diluted EPS: £0.05, down from £0.25 in the same period last year.
• Client Concentration: Revenue from the top 10 clients accounted for 36%, with average spend per client decreasing from £7.1 million to £6.4 million.
• Cash and Cash Equivalents: £47.2 million, down from £59.3 million at the end of Q4 2025.
• Borrowings: Increased to £193.2 million from £180.9 million in the previous quarter.

2. Strategic Updates and Business Highlights

• AI Initiatives: Continued focus on AI-driven solutions, with Dava Flow being a key offering. The company is seeing increased client interest in AI capabilities.
• New Partnerships: Secured a multiyear strategic relationship with a leading payments company worth up to £100 million, aimed at transforming their business through AI and advanced engineering.
• Sales Leadership: Recently appointed a Chief Growth Officer for Commercial Services in Europe and North America to enhance customer engagement.
• Talent Development: Launched the DARVAx Academy, hiring 470 AI-skilled professionals to bolster AI capabilities across the organization.

3. Forward Guidance and Outlook

• Q2 Fiscal 2026 Guidance: Expected revenue between £179 million and £182 million, representing a constant currency decrease of 8-7% year-over-year. Adjusted diluted EPS forecasted at £0.15 to £0.17.
• Full Fiscal Year 2026 Guidance: Revenue expected between £735 million and £752 million, a constant currency decrease of 4.5-2.5% year-over-year. Adjusted diluted EPS projected at £0.80 to £0.88.

4. Bad News, Challenges, or Points of Concern

• Unexpected Client Credit: A significant credit issued to a client negatively impacted Q1 results, leading to lower-than-expected performance.
• Pipeline Conversion Issues: Challenges in converting non-large strategic pipeline opportunities into revenue, prompting a reassessment of conversion assumptions for the remainder of the fiscal year.
• Revenue Decline: Overall revenue decline attributed to a mix of factors, including client reclassifications and weaker performance in certain verticals, particularly in Europe and the UK.
• Headcount Reduction: A decrease in total headcount by 2% year-over-year, reflecting a strategic shift towards AI and the need to align talent with market demand.

5. Notable Q&A Insights

• Client Credit Details: The unexpected credit was procedural and not indicative of client decline; it impacted revenue but is not expected to recur.
• Demand Trends: While there was a decline in pipeline conversion, demand for AI-related services remains strong, with over 70% of services now AI-related.
• Strategic Shift to AI: The company is transitioning to an AI-native model, which is expected to enhance productivity but is currently impacting revenue due to the shift from traditional models.
• Large Deals Confidence: Confidence in future revenue growth is bolstered by signed large deals, which are expected to ramp up in the second half of the fiscal year.

Overall, while Endava faces several challenges, particularly in revenue performance and client conversions, its strategic focus on AI and new partnerships positions it for potential recovery and growth in the latter half of the fiscal year.