DAVA — Endava plc

Endava plc Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: £184.1 million, a 5.9% decrease year-over-year but a 3.3% increase from Q1 FY 2026.
• Loss Before Tax: £7.2 million, compared to a profit of £2.5 million in the same period last year.
• Adjusted Profit Before Tax (PBT): £10.7 million, down from £21.8 million year-over-year; adjusted PBT margin at 5.8%, down from 11.2%.
• Adjusted Diluted EPS: 16p, compared to 30p in the prior year.
• Client Concentration: Revenue from the top 10 clients accounted for 35%, with average spend per client decreasing from £7.1 million to £6.5 million.
• Geographic Revenue Breakdown: North America (40% of revenue) decreased by 5.1%, Europe (23%) down 8.5%, and UK (31%) down 9.1%. Rest of the world increased by 21.8%.
• Cash Flow: Adjusted free cash flow was £20.1 million, down from £31.6 million year-over-year. Cash and equivalents totaled £68.5 million.

2. Strategic Updates and Business Highlights

• AI Investments: Continued focus on becoming an AI-native company, with significant investments in talent and technology.
• Dava Flow: Positive client reception with faster delivery and improved productivity. Two live engagements reported early success.
• Partnerships: Strengthened relationships with OpenAI, AWS, Google Cloud, and Microsoft Azure, leading to increased demand for AI solutions.
• New Ventures: Launched Dava Rise, a program to accelerate startup innovations into enterprise-ready solutions.
• Client Wins: Notable projects include a cloud-native payment switch for NexSys Global Payments and a partnership with Bolero International for digitizing trade processes.

3. Forward Guidance and Outlook

• Q3 FY 2026 Guidance: Expected revenue between £182 million and £185 million, representing a constant currency decrease of 4% to 2.5% year-over-year. Adjusted diluted EPS forecasted at 18p to 21p.
• Full Year FY 2026 Guidance: Revenue expected between £736 million and £750 million, with a constant currency decrease of 3.5% to 1.5%. Adjusted diluted EPS forecasted at £0.80 to £0.86.

4. Bad News, Challenges, or Points of Concern

• Revenue Decline: Year-over-year revenue decrease indicates potential challenges in client spending and market conditions.
• Margin Pressure: Adjusted PBT margin impacted by investments in AI and talent, with an estimated 3% reduction attributed to these costs.
• Client Spending: Decrease in average spend from top clients raises concerns about future revenue stability.
• Market Uncertainty: A wider guidance range reflects increased uncertainty in the market compared to previous years.

5. Notable Q&A Insights

• Growth Drivers: Sequential growth expected in Q4 driven by secured deals and an increase in working days compared to Q3.
• Client Engagements: Extensions with major payments clients indicate strong relationships but mostly involve maintaining existing run-rate levels rather than significant new business.
• Investment Impact: Increased investments in partnerships (e.g., with Miro and Cognition) are expected to weigh on margins but are seen as necessary for long-term growth.
• AI Adoption Trends: Strong demand for Enterprise ChatGPT and AI solutions, with a focus on outcome-based pricing models, which may offer varied margin outcomes.
• Market Dynamics: The company sees opportunities in addressing legacy systems and believes AI will drive significant demand in the coming years, countering fears of displacement from foundational AI models.

This summary encapsulates the key points from Endava's Q2 2026 earnings call, highlighting both the challenges and strategic initiatives the company is pursuing in the evolving tech landscape.