Endava plc

Ladies and gentlemen, thank you for standing by, and welcome to the INDEVA Q2 FY 2020 results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would like to hand the conference over to your speaker for today. Lawrence Mattson, Investor Relations, please go ahead.

Thank you. Good afternoon, everyone, and welcome to Endava's second quarter of fiscal year 2020 earnings conference call. As a reminder, this conference call is being recorded. Joining me today are John Cottrell, Endava's Chief Executive Officer, and Mark Thurston, Endava's Chief Financial Officer. Before we begin, a quick reminder to our listeners. Our remarks today include forward-looking statements, including our guidance for Q3 fiscal year 2020 and the full fiscal year 2020, and other forward-looking statements. These statements are subject to risk and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Please note that these forward-looking statements made during this conference call speak only as of today's date and the company undertakes no obligation to update them to reflect subsequent events or circumstances other than to the extent required by law. Please refer to our SEC filings as well as our financial result press release for a more detailed description of the risk factors that may affect our results. Also, during the call, we'll present both IFRS and non-IFRS financial measures. A reconciliation of the non-IFRS to IFRS measures is included in today's earnings press release. which you can find on our investor relations website. The link to the replay of this call will also be available there. With that, I'll turn the call over to John.

Thank you, Laurence, and thank you all very much for joining us today. Mark and I are pleased to be here to provide an update on our business and financial performance for the three months ended December the 31st, 2019. Endava had another record quarter for Q2 fiscal year 20 with the revenue of £85.9 million, a growth of 19.6% year-on-year from £71.8 million in the same period in the prior year. Our revenue growth in constant currency was 20.5% year-on-year. If we perform for the revenue from the WorldPay captive last year, our revenue growth on a constant currency basis was 24.5% year on year. Our strong revenue growth is driven by the expansion of our existing customers and the acquisition of new ones during the quarter. We continue to broaden our client base and ended the quarter with 367 active clients, up from 271 at the end of the same period in the prior year. a 35% year-on-year increase. The total number of clients who generated revenue over £1 million on a rolling 12-months basis was 65, an increase of 8.3% over the same period of the prior year. While WorldPay remains a very large and fast-growing client for us, in Q2, following the sale of the captive, it was no longer our largest client. Last week we celebrated 20 years since I founded Endava. 20 years of reimagining the relationship between people and technology. 20 years of transforming business models, reimagining user experiences, and opening up new markets through the creation of technology products. We started the business in the financial services space in the City of London, but are increasingly expanding into other sectors. Today, I'd like to spend a little time on retail and CPG, which is a fast-growing segment for Endava. Customers are becoming sophisticated consumers of content, with retail and CPG organizations being forced to provide increasingly content-rich experiences in support of new purchasing and ownership models. This experience can be taken to the next level by considering the immersive experiences that can be provided through the application of virtual and augmented reality technologies. By providing truly immersive experiences, ranging from mobile-enabled augmented wayfinding or extended product interactions, a retail and CPG business can counter app fatigue and drive a more direct interaction with end consumers. Expectations are also quickly transcending the table stakes experiences of the last 10 years, digital tools into the physical world, combining environmental elements with interactive touchpoints designed to enhance and delight, offering a differentiator against competitors and a potential advantage as they tap into more personalized engagements. On this note, data-driven insight is a core enabler of all these enhancements. Insights gleaned from data collection around behaviors, preferences, operations, and conversion form the foundation of a new iterative product strategy of which technology is an integral component. The rapidity with which companies can capture, synthesize, and take action on customer data is increasing. And the time required to recognize results and inform the next phases of product development is shrinking inversely. In addition to these gains, data is creating a deeper, more personal connection to both products and the experiences associated with them. Audience segmentation has become such a granular pursuit that the days of grouping individuals against defined criteria are behind us, and each consumer is truly an audience of one, with a laser focus on gleaning as much insight on a per-person basis as possible to aggregate into still more development choices and customizations. We are well positioned to deliver into this space, rethinking the consumer technology connection and pairing innovative thinking around data applications with strategic planning against emerging technology needs. I'd like to highlight how our service solutions and product innovation offerings are helping clients in the ever-competitive and changing world of retail and CPG. Our creativity, along with our technical expertise, have been instrumental in helping clients in these fast-changing sectors. We partnered with a US-based worldwide retailer in leisure equipment. We provide applications used within their retail locations to help customers in stores, as well as store staff and management. We are helping in the streamlining of several key business areas, including infantry management, SEO optimization, and customer experience, as well as technology migration to the cloud using both AWS and Salesforce platforms. We're also working with a leader in the online and mobile prepared food ordering and delivery industry. We're involved in several of their mission-critical projects, providing expertise and engineering capacity in a modern environment. For example, we recently delivered improvements to their ratings and reviews module, Our team owned the entire delivery of the solution, design, implementation, and subsequent feature improvements. The work requires a well-designed architecture, allowing for vertical and horizontal scaling. Endafa was chosen by one of the world's largest beverage companies to be their IT services partner for a variety of mobile and web-led internal and external projects. These projects include helping the beverage company Giant consolidate and standardize its web experience on desktop and mobile. We've also built for them a next generation promotion platform designed to increase efficiency and lower cost by modularizing the company's promotions globally. It is designed to be available across all consumer channels, locally adaptable, easily configured, and for a small fraction of the cost traditionally associated with their running such campaigns for their beverage business. In the CPG space, we are also working with Unilever. They had bold ambitions to revolutionize the world of HR rewards by building a platform offering a unified benefits experience that needed an innovative technology partner with the capabilities to support their vision and deliver an end-to-end solution in an agile way. After a thorough competitive tender process, Unilever partnered with us to deliver the new platform. Unilever has now gone a step further by making this exciting solution available to other businesses to purchase with the launch of Uflex Reward as a new company. The cloud-based platform built on Microsoft Azure is multi-tenanted, secure, and fully customizable to each business user's brand. And Uflex Reward will continue to work with Endav to support and further develop the product. On December the 17th, we announced the purchase of Exocet, headquartered in Berlin, Germany. Exocet is a leading German digital agency delivering digital transformation from ideation to production using agile development. This acquisition should help to accelerate our European expansion. Exocet brings to Indaba a list of well-known German multinationals, including Audi, Deutsche Telekom, Siemens, and Europa Park. as well as experience in the broadcasting sector, working with ZDF, Media Broadcast, the BBC and others. With this acquisition, we now have 156 employees based in Germany and Austria with end-to-end expertise from consulting to design, implementation and technical innovation. Exocet's key clients were very receptive to the announcement and the acquisition is already leading to additional business which we believe Exocet would not have won without our support. On the acquisition of Intuitus, which I highlighted last quarter, we started the integration process with several commercial wins. Currently, we are working through our combined go-to-market and the positioning of our services to PE funds. Intuitus' deep knowledge of the PE space and their flexible operating model is accelerating our PE footprint. An increasing number of PE funds for whom we've done due diligence work are coming to us to support their post acquisition technology challenges. Our client growth continues to translate into strong employee growth. We ended the quarter with 6,267 employees, a 16.3% increase from 5,389 in the same period last year. In a continued effort to build out and invest in our U.S. growth, we recently opened two new close to client locations in the United States, in Dallas, Texas, and Santa Monica, California. Both offices have a mix of close to client staff from our sales and delivery organizations. We expect those locations, along with those we have in New York City, New Jersey, Atlanta, and Seattle, will continue to provide the basis for our US expansion. The Endava online community remains very active, with approximately 30 postings on technology thought leadership in the quarter ended December 31st, 2019. We delivered a solid first half of fiscal year 2020. Client demand for our service offering remains strong. Mark and I and the entire team are extremely pleased with our excellent performance for Q2. and continue to have confidence in the opportunities ahead of us and therefore our ability to deliver value for all our stakeholders, our clients, our investors, our exceptional leadership team and of course our people who are what makes Endava so special. I'll now pass the call on to Mark who will walk you through our financial results for the quarter and provide guidance for the coming quarter and update it for the fiscal year.

Thanks John. Endava's revenue totaled £85.9 million for the three months ended December 31, 2019, compared to £71.8 million in the same period last year, a 19.6% increase over the same period in the prior year. In constant currency, our revenue growth rate was 20.5%. As John mentioned, if we pro forma for the revenue from the well-paid captive last year, our revenue growth on constant currency basis was 24.5% year on year. Loss before tax for quarter two fiscal year 2020 was 17.3 million pounds compared to a profit before tax of 9.4 million pounds in the same period in the prior year. The loss during the quarter is the result of the declaration of a non-recurring discretionary employee bonus of 27.7 million pounds in December 2019. The Endava Limited Guernsey Employee Benefit Trust, or EBT, funded the first tranche of the bonus through the sale of Endava's Class A ordinary shares in November 2019. Funding of the second tranche by the EBT is expected to occur during the second half of fiscal year 2020. As previously disclosed, the EBT, whose beneficiaries are our employees, was holding certain Class A ordinary shares for sale in the event it decided to fund a discretionary cash bonus to our employees. Our adjusted profit before tax for the three months entered December 31st, 2019 was 20.5 million pounds compared to 13.6 million pounds for the same period last year, a 50.8% year-over-year increase. Our adjusted profit before tax margin was 23.8% for the three months ended December 31, 2019, compared to 18.9% for the same period last year. The year-over-year improvement in our adjusted profit before tax margin is mainly due to an FX tailwind and continued positive pricing environment. We also benefited from a one-off gain from Argentinian credits relating to payroll taxes, which previously could not be fully utilized. This is as a result of a legislation passed in Argentina in December 2019. Excluding the impact of this release, our adjusted profit before tax margin would have been 23%. Adjusted profit before tax is defined as the company's profit before tax for the period adjusted to exclude the impact of share-based compensation expense, discretionary EBT bonus expense, amortization of acquired intangible assets, realized and unrealized foreign currency exchange gains and losses, initial public offering expenses incurred, Sarbanes-Oxley compliance readiness expenses, fair value movement of contingent consideration and gain on disposal of subsidiary, all of which are non-cash other than discretionary EBT bonus expense, realized foreign currency exchange gains and losses, initial public offering expenses, Sarbanes-Oxley compliance readiness expenses, and gain on disposal of subsidiary. Adjusted PBT margin is calculated as a percentage of our total revenue. Our adjusted diluted earnings per share was 30 pence for the three months ended December 31st, 2019, calculated on 56 million diluted shares as compared to 20 pence for the same period last year, calculated on 54.9 million diluted shares, up 50% year over year. Revenue from our 10 largest clients accounted for 37% of revenue for the three months ended December 31st, 2019, compared to 38% for the same period last year. Additionally, the average spend per client from our 10 largest clients increased from £2.7 million to £3.2 million for the three months ended December 31st, 2019. We continue to grow outside of our top 10 clients. The number of clients who paid us at least £1 million on a rolling 12-month basis grew to 65 for December 31st, 2019, compared to 60 at December 31st, 2018, and to 62 at September 30th, 2019. These large clients operate in our three largest geographical locations, North America, Europe, and United Kingdom. In the three months ended December 31st, 2019, North America accounted for 29% of revenue compared to 27% in the same period last year. Europe accounted for 23% of revenue compared to 28% in the same period last year. and the UK for 45% of revenue unchanged from the same period last year, while the rest of the world accounted for 3% of revenue. Revenues from North America grew 24.9% for the three months ended December 31, 2019, over the same quarter of 2018. Comparing the same periods, revenue from Europe was flat, and the United Kingdom grew 21.3%, but excluding the WorldPay captive from the comparative, growth would have been 30.7%. We grew in all three of our industry verticals during the quarter. Revenue from payments and financial services grew 20.4% for the three months ended December 31st, 2019, but excluding the WorldPay captive from the comparative, growth would have been 28.3% over the same quarter of 2018 and accounted for 53% of revenue unchanged from the same period last year. Revenue from TMT grew 6% for the three months ended December 31st 2019 over the same quarter of 2018 and accounted for 24% of revenue compared to 27% in the same period last year. Revenue from other grew 36% for the three months ended December 31st 2019 over the same quarter of 2018 and now accounts for 23% of revenue compared to 20% in the previous fiscal year. This growth was mainly driven by clients in the logistics, retail, and services sectors. Our adjusted free cash flow was 8 million pounds for the three months ended December 31st, 2019, compared to 9.2 million pounds during the same period last year. As already mentioned, during the period, we paid the first tranche of this discretionary EBT bonus of 10.7 million pounds. Excluding this, our underlying adjusted free cash flow was 18.7 million pounds. Our adjusted free cash flow is our net cash provided by operating activities plus grants received less net purchases of non-current tangible and intangible assets. Our cash and cash equivalents at the end of the period reflects proceeds of 14.8 million pounds from the sale of shares by the EBT to fund the first tranche for bonus. This cash inflow is shown under the financing activities heading in the cash flow. CapEx for the three months ended 31st December 2019 as a percentage of revenue was 3.7% compared to 2.8% in the same period last year. We are currently refreshing equipment and investing internal systems which accounts for the raised level as a percentage of revenues. The underlying cash generation of the business remains strong Whilst the cash outflow in the period was £1.6 million, this is after spending £25.5 million on acquisitions. Our guidance for the third quarter fiscal 2020 is as follows. We expect revenues will be in the range of £87.5 million to £88 million, representing constant currency growth of between 26% and 27%. We expect adjusted diluted earnings per share to be in the range of 21 pence to 22 pence per share. Our updated guidance for full fiscal year 2020 is as follows. We expect revenues will be in the range of 349 million pounds to 353 million pounds, representing constant currency growth between 25% and 26%. We expect adjusted diluted earnings per share to be in the range of 95 pence to 99 pence per share. Our guidance regarding constant currency growth is pro forma for the sale of Endava Technology SRL, also referred to as the captive, to WorldPay. The transaction closed on August 31st, 2019. This quarter, we are providing guidance for the third quarter fiscal year 2020. and for the full fiscal year 2020 using the exchange rates at the end of January, when the exchange rate for one GBP to US dollar was 1.31 and to the Euro was 1.19. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.

And as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And your first question comes from the line of . Please go ahead.

Thank you. Good morning. I just wanted to get some thoughts on the pipeline coming into this year. I'm assuming you've had conversations with clients around budgets for the upcoming calendar year. So just wanted to get your thoughts around how does that look versus, say, a year ago, and maybe in terms of deal sizes, scope and size versus, say, 12 months ago. How is that shaping up?

Hi, Maniak. So the metrics on the pipeline for us look, very similar to the picture that we had a year ago you're quite right customers shape up their budgets some of it happens towards the end of the last calendar year but you know much of it firms up during the the first couple of months or so of each calendar year and we're seeing You know, good clarity on that. And it's following a similar pattern to previous years.

Got it. And then maybe just pivoting to margins. Obviously, the margins have been running hot well ahead of your medium term targets. So sorry if I missed it, but wanted to get some thoughts on what are the levers that bring the margins back down in the back half of the year for your guidance? Is it utilization? Are there other factors that will play a role in margins coming down in the rest of the year?

Hi. Hi, Mark. So we benefited this quarter from the Argentinian fiscal credit, which I can give you some detail on if you're interested in. But that contributed about 0.8 percentage points to our adjusted PBT margin. But as you pointed out, our adjusted gross margin was strong, even including that. Some of that is the benefit of FX, because the pound has strengthened against the US dollar and the euro. But it's also the positive pricing environment. But in terms of going forward, we're coming up to our major pay round at Endava, which takes effect from the 1st of January, and that has gone through. And that will reduce our adjusted gross margin by two, two and a half to three percentage points. And in tandem with that, Q1 and Q2 have benefited from additional working days of 66 days each. And this quarter, Q3, we have 65. And that reduced working day, so you're paying people, but you're receiving one less day of revenue, has about a one percentage impact. So in tandem with the gross margin coming off somewhat, we also see SG&A picking up. It was positive in terms of the percentage this quarter, but we've been a victim of our own success in terms of the share price. So we've lost our emerging growth status, and so we have to have our SOX assertion reviewed by our auditors. And we're having to do that in pretty short order, and that is going to boost our SG&A in the second half. So it's a combination of factors that play for a reduced level of margin, both at the adjusted gross margin and the adjusted PBT margin for the second half of the year.

Got it. That makes sense. Great job on the results. Thank you. Thanks. Thank you.

And your next question comes from the line of Brian Burgin. Please go ahead.

Hi, thank you. I wanted to start just a little bit on M&A target flavor. Can you comment on the financial profiles of the two targets here as far as growth and profitability? And on Exocet, can you give us a sense of that size and whether that, you would say, brings a new subvertical for you within TMT, or is it more so a scaling of the TMT capability there?

Sure. So in terms of the size for Intuitus, we can talk about historic figures. So they generated about 5.5 million in the 12 months, and it's going back some time in 2018. They generate a comparable EBITDA margin to Endava. And they are also growing a good lick, not quite as fast as we are. The last four years, the CAGR has been about 18%. There will be a little bit of noise around sort of revenue per head because they have a freelance associate model. So they have around 24, 25 people who are permanent. So that will distort our metrics in terms of revenue per head. But it's not significant because Intuitus is about sort of 1% of Endava overall. Exaset is generating around 15 million euros annually. So in pounds, that's about sort of 12 million. Their growth rates, again, are similar to Endava. Margin profile is lower than ours. They have a number of heavier onshore mix to Endava, so around 156 people. All of those are onshore by our definition. Because of the work they do as well on that onshore mix, their revenue per head is also slightly than Endava. But again, you have a, once you put them part of Endava, it has a sort of negligible effect in terms of dilution. So hopefully that gives you an idea of the size. I don't know if John wants to comment on.

Just on the sub-vertical question, most of their work fits into TMT, the media space, broadcasting fitting within media, with some of it in other. So It actually aligns with our verticals. We were very keen on that. One of the reasons that we wanted to do the Exocet deal was to start that push in Europe that we've been talking about and give a bit of critical mass aligned with our existing sectors in Europe. So it fits very, very well from that point of view.

Okay, thank you. That was helpful. And then I guess just on Europe, can you just comment on the performance there? Is there any particular clients or any verticals that are performing slower than others right now?

So, you know, the main thing to say about Europe is that we haven't pushed and invested as much in Europe as in the UK and the US over the last year. I've commented on that in most of the earnings calls recently. And so it's by our own decision that we haven't seen the growth in Europe. As I called out last time, we're starting to push some of that attention back into Europe. The Exocet deal is very much part of initiating and strengthening that push into Europe. And we will now start ramping sales teams and so on across Europe to start to see some benefit. I have to say from a market's point of view, it'll probably take a while to come through. We have to bring the sales guys in, get them up to speed. It takes them a while to mature to the full level of bookings that we expect from them. So just as with the US, over the last two years we've been ramping and you see the effects there, we'd expect to start to see that come through in Europe over the next 12 to 18 months.

Okay, makes sense. Thank you very much.

Thanks, Brian.

And your next question comes from the line of Maggie Malone. Please go ahead.

Hi, thank you. In some of your large verticals like payments and telecom, is there any exposure to or opportunity from recent M&A activity in those industries?

um you're talking about across potentially some of our clients and so on where they're emerging yeah exactly yeah um so i mean we in the payment space we've we've seen this a number of times over the years um where um you know our clients have um bought businesses or become part of larger businesses and um you know that has pretty much universally been a good move for us, where it's opened up wider opportunities. And we've seen work within the client expand as a result of that. I mean, that happened with the MasterCard acquisition of Vocalink. It happened with Wellpay following the merger with Vantiv. And then, of course, more recently, following the FIS acquisition, we've seen acceleration coming through from that. So generally where that happens, it's a positive move for us and we can see one or two others that are in process but in the public realm with clients where we can see work lining up off the back of that. So yes, it's a good driver for us.

Okay, great. Good to hear that acceleration coming off the SIS acquisition. The work that you're doing with PE firms, when you do that due diligence work up front, how consultative are you during that process? And are you using that as an opportunity to pitch those types of changes and improvements that you would make? And then is there any kind of upcharge for consulting services like that?

Yes, so I'd probably split the answer to that into three spaces. There's some work that we've traditionally done direct with PE, and that can happen as doing due diligence. It can happen after they've bought the portfolio company, and indeed some of the relationships have started with the managers of those portfolio companies after they've established their strategy. And at all stages of that process, we're looking to position Endava's capability to do execution of their investment thesis through the platform changes that they're looking at. Obviously, there's the relationship with Bain where we're working alongside them with some of the larger PE firms. And, you know, once again, in those situations, we're helping the client to put together their investment thesis, but once again, very much positioning for Endava's ability to help with the execution downstream. With the Intuitus guys, you know, their business model has been to just be doing the IT and digital due diligence with a little bit of downstream, very, very small amount really. So we are going through that process of helping them to understand the endowment capability and how to position that with clients. And we are seeing, I think we've seen one downstream piece of work come through from that since November when we did the deal, which is actually faster than we expected. So yes, we are seeing that flow coming through.

All right, thank you for the update.

And your next question comes from the line of Ashwin Shivakar. Please go ahead.

Hi, John. Hi, Mark. Hi, Ashwin. Hey. Congratulations on your 20-year anniversary.

Thank you. Big moment.

Sure. So I guess my first question is with regards to the operational headcount growth seemed like it was 13% versus the obviously much higher revenue growth. I think you've mentioned a couple of the elements, pricing and utilization and so on. Maybe there's a timing of higher impact, but can you quantify the relative parts of the gap if possible and provide a view on how some of these metrics might evolve?

Yeah, so if I just focus on, say, the constant currency growth, so our revenue was 20.5, and as you point out, the closing headcount was 16.3, but that can mislead because we had the headcount for Exocet at the end of December, but very, very small contribution in terms of revenue. So it's the average headcount that's probably the better metric, which grew 12.9%. there is that gap in terms of the rate. The way I tend to think about it is the revenue per head, which joins the two metrics quite nicely together. And that's really a function of utilization and pricing, or rate per mandate as we refer to it in DARPA. So our revenue per head has grown to 62.8 thousand pounds at Q2, which compares with 61.7 in the last quarter. And year on year, that 62.8 compares with the 59.3 in Q2 FY19. And what you need to bear in mind when we quote those figures, so I say it's a function of utilization of rate, is actually our utilization was marginally higher than we're used to. It was in the low 70s. We're now at a more normalized level, which is high 60s. So you can infer from that that a lot of it is from the positive pricing environment that we're operating in at the moment.

Understood. Understood. Okay. And what's the expected inorganic contribution for the rest of the year in GDP, I guess? And let me throw in the broader M&A question as well. Obviously, a very healthy cash balance here, which actually grew. So... If you could comment on your M&A pipeline, where might it be focused?

Sure. So in terms of the guide, so we guide in two ways. We give the cost of currency growth, and also we give an absolute figure based on what we anticipate the exchange rates to be, which we just select the end of January, as we said on the call. So our guidance for the second half, you've roughly got around 2% of our increased constant currency growth coming from the contribution from Exocet. So I think we raised our guidance from the previous fall year by sort of three percentage points. 1% is reflecting the beat that we've had in Q2, and then the balance is reflecting that uplift or contribution for the six months from Exocet.

And then on your M&A question, our focus there continues to look for sensibly-sized, tuck-in-sized businesses, big focus on geography and the geographic expansion that we're looking for, with our focus there being on Europe and the USA still. Of course, we're looking for businesses that will strengthen us in our current sectors, particularly where we've got a geographic weakness in that sector. But also we're just keeping an eye out for businesses that are bringing a technology that we think is going to be exciting. The rest of the world, as you'll have seen from our numbers, is starting to pick up. So we've just got to weather eye on what the right moment is to use M&A to accelerate that as well.

Great.

Thank you. Thanks, Ashwin.

And your next question comes from the line of James Friedman. Please go ahead.

Hi. Thank you, and let me echo the congratulations both on the strong numbers and the 20th. I'll just ask my two up front, if I could. Mark and John, in your prepared remarks, you emphasized the benign pricing environment. I was hoping you could dimensionalize that a little bit. Is this Is this what you're used to? Is it getting better, even better than better? And then, John, I want to get your perspective on IT budgets. We're about six weeks in now. How are things shaping up for your clients in terms of their budgets for calendar 20? Thank you.

Well, we don't explicitly call out prices. You can tell from the answers I've given thus far, but... We've seen, you know, strength basically since the IPO in our rate per man day. And, you know, we've almost seen sort of sequential growth on some quarters of a modest sort of nature and certainly growth year on year. And what we're seeing, are we seeing any sort of slowdown in that? No, we're not currently.

And on your IT budgets question, I mean, you know, I think this is a function of the segment of the market that Endava is focused on. You know, we're focused on the areas where companies are continuing to invest. And, you know, that's all driven by the level of change that the technologies that we're working with enable and the impact that they have on our clients' business models. So we continue to see a lot of new opportunity areas with clients, you know, areas where we can ideate and drive change in their business. So I think, you know, compared with larger competitors who are perhaps more exposed to other segments of the market where clients are pulling back budget, we see a lot less reaction to that. It's a benefit of being a pure play in the next general or digital-focused business area. So we continue to see the growth opportunities coming from budgets flowing in our direction.

Got it. Thank you. I'll drop back in the queue.

Thanks. Thank you.

And your next question comes from the line of Joseph Recy. Please go ahead.

Hi, this is Daniel Regan on for Joe. Thanks for taking our question. So you had mentioned about a 2% contribution from Exoset in the second half. I'm just curious about organic growth. Can you break down how we should think about organic growth for the fiscal year and longer term for the company?

Well, we're not really deviating from what we've said since the IPO, which is that we'll go at a plus 20% constant currency year on year. And in some quarters, we have grown faster than that. But that basically remains our guide.

Gotcha. Excellent. And you also provided some color on factors that got us to the 23.8% adjusted PBT margin. Can you provide a little more color on how we should think about the PBT range for the full fiscal year and longer term? Are there any updates on that? Thank you.

So as I sort of said at the start of the Q&A, I think our adjusted PBT margin will come off in the balance of the year because it has been pretty strong where it's 20, 20 and a half for Q1. 23.8. There are some one-offs in there. Again, in terms of whether we're going to rebase our outlook in terms of the adjusted PPT margin, which we stated at the IPO is 17%, I'd like to get Q3 under my belt and see what that brings before we look forward. But I think where we will probably get to over the longer term is that, as in DARPA, grows and we maintain a good level of adjusted gross margin, we will get the leverage over SG&A. We're impacted this year as I said up front because we have to invest in making sure that we are SOX compliant for the auditor attestation. But I think once we're past that, then the growth should exceed our level of SG&A and be margin accretive. But we'll probably provide more update on that when we go to Q3.

Got it. Great. Thank you. Thanks, Daniel.

And there are no further questions at this time. I'll turn it back over to the speakers.

So thank you all for joining us today. You will have gathered that Mark and I remain confident about the opportunities ahead of us and look forward to speaking to you again next quarter. Thank you all. Thank you.

Ladies and gentlemen thank you for your participation. This does conclude today's conference call. You may now disconnect.