Endava plc

Ladies and gentlemen, thank you for standing by, and welcome to the NDAAVA PLC earnings release Q3 fiscal year 2020 conference call. 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 now like to hand the conference over to your speaker today, Lawrence Madsen. Thank you. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to NDAVA's third quarter of fiscal year 2020 earnings conference call. As a reminder, this call is being recorded. Joining me today are John Cottrell, NDAVA's chief executive officer, and Mark Thurston, NDAVA's chief financial officer. Before we begin, a quick reminder to our listeners. Our remarks today include forward-looking statements, including our guidance for Q4 fiscal year 2020 and the full fiscal year 2020. The impact of the COVID-19 pandemic and associated global economic uncertainty, the opportunity for new generation technology services, Endava's ability to participate in the recovery from the COVID-19 pandemic and timing thereof, and its ability to retain its employees and their income during the COVID-19 pandemic. Client demand for Endava services 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 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 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 the risk factor section of our annual report on Form 20F, filed with the Securities and Exchange Commission on September 25, 2019, and supplemented by the risk factor update filed as Exhibit 99.2 to our current report on Form 6-K, filed with the SEC on March 31, 2020, as well as other SEC filings. Also, during the call, we'll present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which you can find on our investor relation website. A 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 I'd like to thank you all for joining us today. I hope you and your families are all safe and well in these challenging times. Mark and I are pleased to be here to provide an update on our business and financial performance for the three months ended March the 31st, 2020, and to give a bit of color on how we are responding to the COVID-19 pandemic. Whilst we see significant short-term uncertainty, we'd like to give you some perspective on what Endave is experiencing and our actions in response. But firstly, looking at Q3 fiscal year 2020, Endava had another record quarter with revenue of 92.2 million pounds, a growth of 26.2% year on year from 73.1 million pounds in the same period in the prior year. Our revenue growth in constant currency was 25.7% year on year. If we perform or adjust for the revenue from the well-paid captive divested last August, our revenue growth on a constant currency basis was 30% year on year. Our strong revenue growth was driven by the expansion of our existing customers and the acquisition of new ones during the quarter. We continued to broaden our client base and ended the quarter with 395 active clients, up from 280 at the end of the same period in the prior year, a 41.1% year-on-year increase. Next, we want to turn to the ongoing COVID-19 pandemic and its impact on Indaba. Our priorities have been as follows. Firstly, the health and well-being of our people. Secondly, continuity of services to our clients. And finally, the protection of the jobs and incomes of our people, particularly with an eye to what we expect will be an upturn in demand as we all emerge from this crisis. After COVID-19 was declared a pandemic, we rapidly moved to a work from home model with almost 100% of our people able to work from home and took efforts to provide office environments that minimized the risk of exposure for the small number who needed to attend an office. These efforts kept our people healthy. Our business continuity plans were executed and this transition occurred over three intensive days with minimal disruption to productivity as evidenced by our excellent Q3 results. Home internet connections in our main delivery locations are state of the art and we have not seen connectivity present obstacles for our employees working from home. Clients have commented very positively on how quickly and painlessly we transitioned to work from home operations. Endava's distributed agile at scale model fully supports such a distributed workforce, enabling continued high productivity and quality of services. In fact, our measures show that over the eight weeks since our transition to working from home, we have seen a 5% to 10% increase in productivity. In this way, we have achieved our second priority of continued quality services to clients. I'd like to express my appreciation to all Endardens who have made this happen and continue to provide an excellent service to our customers. As the COVID-19 pandemic began to impact the global economy, many clients needed to reevaluate their priorities. And I'm pleased to say that the vast majority of our client teams have continued as originally planned, showing the criticality of the work Endava performs for our customers. We hold twice weekly calls with our team to discuss challenges and opportunities within our client base. Clients have articulated a need to preserve today and grow tomorrow, resulting in different priorities, depending on the sector and the anticipated speed of recovery. Some clients, particularly those in hard hit sectors such as travel and hospitality, are very focused on preserve today and have stopped projects or reduced team sizes. We've seen some projects delayed from starting due to clients being overwhelmed and unable to commission new work right now. And we anticipate these projects coming back quickly as clients recover. And some projects have been delayed for a longer period as part of cost-saving measures. These demand reductions have been balanced by other projects where prioritization has resulted in significant team increases to accelerate delivery and grow tomorrow. And others where specific COVID-19 related opportunities have arisen. In these COVID-19 driven opportunities, Our near-shore agile delivery model has been instrumental in helping our clients to pivot quickly and rapidly deploy new capabilities. Let me give a couple of examples. In early April, we were contacted to help a government that was implementing a pandemic response system on an AWS platform against incredibly tight timelines and coordinating work across four countries. Endava stood up the cloud-based infrastructure and services for a mobile application to track and manage the pandemic, as well as the data platform to support advanced data science activities. The next step for this project is to evolve and improve the platform to support more functionality within the mobile experience, as well as to enrich the data platform with additional sources. And one of the global investment banks we work with has temporarily introduced a soft hiring freeze, which impacted their change to bank plans. We're helping management fulfill their commitments despite their reluctance to increase headcount by using machine learning, data science, and predictive analytics to improve efficiencies and achieve delivery goals in the face of the current uncertainty. As we begin to look to the business environment beyond COVID-19 restrictions, we've been interested to see what is happening in Germany, one of our larger markets, where strict stay-at-home and similar orders are being eased ahead of those in other countries. We're seeing a definite shift to grow tomorrow with pipeline and revenues picking up and a clear investment in digital. Our revenue forecast for Q4 indicates a probable 5% to 10% increase in Germany on Q3 revenues as this uplift begins to come through. For example, the biggest amusement park in the German-speaking region, Europa Park, has been strongly affected by the COVID-19 restrictions. In order to help them prepare for reopening under extended hygiene measures, we are implementing gamified digital apps to incentivize social distancing and enable virtual queuing. The social distancing app will notify users in the park when they are too close to other visitors, and the virtual queuing will be integrated into the existing Europa Park mobile app to notify visitors when it's their turn to go on rides. This has enabled Europa Park to satisfy regulators and actively plan for reopening on the 1st of June. Following the cancellation of the Geneva International Motor Show, another one of our clients, Volkswagen, asked us to create a fully interactive Volkswagen virtual motor show. It allowed streaming in real time from the cloud to any device from mobile to desktop in order to provide an immersive showroom experience for over 30 cars, enabling interactive adjustment of features such as paint colors and rims entirely ideated and produced in a very tight timeframe of three weeks. This cloud streamed real time showcase was a world premiere for Volkswagen. The project received board acknowledgement and VW has made this virtual motor show an integral part of their digital strategy going forward. From conversations with clients, we anticipate that as the world attempts to emerge from the impacts of the first few months of this pandemic, Client focus will be even more concentrated on next generation technology services. These services will be digital, connecting clients with their customers and users to drive growth, and fixing throughput bottlenecks and breakages in digital processes and operations. Agile at speed, enabling much more flexible organizational and faster delivery models, the benefit of which has been massively demonstrated through this crisis. data analytics, enabling smart business decisions at speed, and automation, driving efficiency across their organization. These are the areas where Endava focuses, and we anticipate benefiting strongly from the predicted recovery as a result. We believe that we will therefore be able to deliver on our third priority of retaining our people and their incomes through this crisis period. Our client growth continues to translate into strong employee growth. We ended the quarter with 6,468 employees, a 16.1% increase from 5,573 in the same period last year. Endava and its employees have also been working to resolve some of the challenges created by this pandemic, in particular, We've been participating in numerous hackathons organized by supranational and national government agencies and other institutions globally in order to bring technology solutions to support global research and development efforts and to assist vulnerable people at risk. On the marketing front, we have recently launched a campaign to refresh our branding and go to market positioning. with the goal to align our messaging across the business and the market. Weaving the value that we provide to our clients, our areas of expertise, and our next-gen technology capabilities into something that is engaging, memorable, and exciting. Our new brand positioning centers on the contribution we've made over the last 20 years in reimagining the relationship between people and technology. While the current crisis has somewhat impacted our very near-term outlook, our fundamentals remain extremely solid with a strong balance sheet. Client demand for our services remains strong despite the current crisis, as digital transformation has become digital necessity for many. Mark and I and the entire team are extremely pleased with our excellent performance for Q3. And despite the challenging environment, We continue to have confidence in the opportunities ahead of us and in our ability to deliver value for all of our stakeholders, our clients, our investors, 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, provide guidance for the coming quarter, and update our guidance for the fiscal year.