DAVA — Endava plc

Endava (DAVA) Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Revenue: GBP 184.1 million, down 5.9% year-on-year but up 3.3% sequentially from Q1 FY '26.
• Loss Before Tax: GBP 7.2 million, compared to a profit of GBP 2.5 million in the same period last year.
• Adjusted Profit Before Tax (PBT): GBP 10.7 million, down from GBP 21.8 million year-on-year; adjusted PBT margin at 5.8%, down from 11.2%.
• Adjusted Diluted EPS: 16p, compared to 30p in the same period last year.
• Client Concentration: Revenue from the top 10 clients accounted for 35% of total revenue, with average spend per client decreasing from GBP 7.1 million to GBP 6.5 million.
• Geographic Revenue Breakdown: North America (40%), U.K. (31%), Europe (23%), Rest of World (6%).
• Cash Position: GBP 68.5 million in cash and equivalents; borrowings increased to GBP 202.7 million to support share repurchase program.

2. Strategic Updates and Business Highlights

• AI Investments: Continued focus on becoming AI-native, with significant investments in talent and technology.
• Dava.Flow: Positive client interest in Dava.Flow, an AI-native engagement lifecycle model, showing improved productivity and quality in projects.
• Partnerships: Strengthened relationships with OpenAI, AWS, Google Cloud, and Microsoft Azure, leading to increased demand for AI solutions.
• Client Wins: Notable projects include a cloud-native cross-border payment switch for Nexus Global Payments and a digital CRM for an electric vehicle manufacturer.
• Dava.Rise Program: Launched to accelerate start-up innovations into enterprise-ready solutions.

3. Forward Guidance and Outlook

• Q3 FY 2026 Revenue Guidance: Expected between GBP 182 million and GBP 185 million, indicating a constant currency decrease of 4% to 2.5% year-on-year.
• Full Year FY 2026 Revenue Guidance: Projected between GBP 736 million and GBP 750 million, reflecting a constant currency decrease of 3.5% to 1.5%.
• Adjusted Diluted EPS Guidance: Expected to be between 18p and 21p for Q3, and 80p to 86p for the full year.

4. Bad News, Challenges, or Points of Concern

• Revenue Decline: Year-on-year revenue decreased significantly, with a loss before tax indicating financial strain.
• Margin Compression: Adjusted PBT margin reduced due to investments in AI and talent, impacting profitability.
• Client Spending: Decrease in average spend from top clients and a notable revenue drop from key sectors like Payments and Mobility.
• Market Uncertainty: Ongoing economic uncertainty affecting client decisions and project timelines, particularly in larger deals requiring extensive due diligence.

5. Notable Q&A Insights

• Growth Drivers: Q4 is expected to show sequential growth due to increased working days and secured deals, despite a flat Q3 outlook.
• Client Engagements: Extensions of commitments with major Payments clients are primarily run-rate extensions rather than new incremental business.
• Investment Impact: Increased investments in partnerships and AI initiatives are expected to continue affecting margins in the near term.
• Adoption of AI Solutions: Strong demand for outcome-based solutions, particularly in financial services, with a focus on addressing legacy systems through AI.

Overall, while Endava is navigating through a challenging financial landscape with declining revenues and margins, its strategic focus on AI and partnerships positions it for potential growth in the future.