Endava plc

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Endeavor PLC Earnings Release Conference Call. At this time, all participants are in a lesson-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 turn the conference over to your speaker today, Lawrence Madsen, Investor Relations, please go ahead.

Thank you. Good afternoon, everyone, and welcome to NDava's fourth quarter of fiscal year 2020 and full fiscal year 2020 earnings conference call. As a reminder, this conference 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 Q1 fiscal year 2021, our expected near and medium-term revenue growth, the potential impact of the COVID-19 pandemic and associated global economic uncertainty, our expectations for future investments in our business, our expectations regarding digital transformation of existing businesses and industries, the necessity of digital transformation for many and Endava's ability to benefit therefrom and anticipated client demand for Endava services, as well as other forward-looking statements. These statements are subject to risks 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 the extent required by law. Please refer to the risk factors section of our annual report on Form 20-F, filed with the Securities and Exchange Commission on September 15, 2020, which contains and identifies important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, during the call, will 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 everyone for joining us today and I hope you're all staying safe and healthy. Mark and I are pleased to be here to provide an update on our business and financial performance for the three months ended June 30th, 2020 and for the full fiscal year 2020. The world has changed drastically over the last six months, an evolution that may previously have taken years or even decades, to occur has been accelerated into a matter of months. The benefit of a business model that has the ability to operate predominantly in a digital environment has been clearly demonstrated. And COVID-19 has given us a glimpse of the large amount of digital transformation work still to be done in our world. In addition, as I mentioned last time, the productivity improvements when we switched to working from home has led to widespread acceptance of this more flexible working model. And we expect this to serve us well in the future, with a more attractive employee proposition possible, assisting in the attraction and recruitment of people. The Endava distributed agile delivery model was designed to be hugely flexible, and this has served us well as these structural shocks have impacted, enabling a fast reaction and protecting our business performance and our people as the changes hit. Moving to the financials, and firstly looking at quarter four fiscal year 2020, Endava had a solid quarter, with revenue of £90.5 million, a growth of 18.1% year on year, from £76.6 million in the same period in the prior year. If we pro forma adjust for the revenue from the WorldPay captive divested in August 2019, our revenue growth on a constant currency basis was 20.4% year on year. Our strong revenue growth was driven by the expansion of work for our existing customers and the acquisition of new ones during the quarter. During the quarter, we continued to broaden our client base. and ended the quarter with 416 active clients, up from 275 at the end of the same period in the prior year, a 51.3% year on year increase. We saw a trough in client projects in April, May, and business has recovered nicely since. Many customers re-evaluated their priorities with an unprecedented level of stopping and starting projects underlying our quarter four performance. In the quarter, revenue growth coming from our largest clients increased sequentially, as large corporations continued to invest in digital transformation during the pandemic. Revenue from clients who paid us above £5 million increased 7.6% over the prior quarter, while revenue from our smaller clients decreased slightly during the same period. This was part of a very visible trend where our larger clients with strong balance sheets doubled down on digital investments through this period, while smaller customers trimmed back while they assessed the impact of the pandemic. We wouldn't normally disclose our book-to-bill ratio, but in the interest of providing additional colour during these uncertain times, I will disclose that for Q4, book-to-bill was well over 2%. and our highest quarterly ratio in four years. Our ability to engage with customers and close business was not impeded by the pandemic, despite reduced travel and attendance at industry events. Much of this order book will take a few months to come through into revenue as project ramp-ups take time and as early stages involve smaller teams undertaking ideation, solution design, and so on. Moving on to our results for the full fiscal year 2020, our revenue totaled £351 million, up 21.9% year over year, and 24.2% adjusting for the sale of the WorldPay captive. While the pandemic halted our record of more than 30% reported revenue growth every year since 2015, and makes near-term prospects difficult to predict, we remain confident in our ability to continue to grow our top line at over 20% on an annualized basis in the near to medium term. In the last fiscal year, we grew in all of our regions and verticals. We continue to invest in our North American business, where we posted a solid revenue increase of 26.3% year on year, and 28.9% year-on-year in Q4. For the year, Europe grew 8.5% and the UK 20.1%. All of our verticals also grew nicely, with payments and financial services up 21.7% year-on-year, TMT up 14.4%, and other up 32.8%. Our strong revenue growth came with an improving adjusted profit before tax margin. We know that these continue to be uncertain times, with the impact of this pandemic still being felt. But at the same time, for Indava, these pressures have opened up opportunities and acceptance of new business and operating models for which we are highly equipped. We expect many traditional industries, and the established businesses that exist therein will dramatically change and expand their business models over the course of the next two years. And these changes won't be subtle. Understanding the critical necessity of digital interactions, organizations that have relied solely on in-person, high-touch customer interactions or face-to-face business processes will need to develop new digital revenue streams to insulate their business from market and operational risk. Overall, we expect businesses are going to have to look hard at the strengths and weaknesses of their customer relationships and the products and platforms that support those bonds. By identifying which interactions are already digital, which can handle complete digitization, and which need to be retired, they can evolve beyond the analog business models that won't have the flexibility to roll with the punches of an uncertain and we believe undoubtedly digital future. I'd now like to provide an update on what has been happening on the private equity side of our business. The initial reaction we saw from private equity firms during the COVID-19 crisis was generally to focus their efforts on protecting their current portfolios. we reacted by offering a new portfolio advisory service, which was warmly received and resulted in strengthening our position and credibility within the market. Following the initial slowdown of deal flow, certain markets, notably the German-speaking and Nordic regions, began to open up, and we noticed a significant increase in complex transactions, for example, card outs and distressed assets, and so on. requiring in-depth and real-world technology expertise. We saw investors begin to shift their focus from more traditional business, such as manufacturing and retail, to software and technology driven targets. We also noticed that some PE firms had a greater appetite for risk and were taking advantage of the volatile market. These factors contributed to our team successfully securing 14 new clients in the last three months, with the majority of this work being undertaken remotely. A recent example includes an outside-in due diligence for a Swiss generalist PE investor focusing on the mid-market. The client was extremely pleased with the quality of our work, which also allowed them to perform their due diligence virtually and communicate with the management of the target seamlessly. With respect to our relationship with Bain and Company, we see evolving customer expectations alongside cost reduction and operational improvement imperatives, pushing technology to the top of retail banks and insurers' strategic agendas. With our clients' competitiveness in mind, Bain and Endava have partnered to develop an end-to-end digital solution, joining true strategic and engineering heritage to enable retail banks and insurers to best serve their customers in the digital world. This cloud-ready solution is built upon a compositable architecture of microservices designed to provide maximum flexibility and long-term sustainability and powered by over 80 proprietary accelerators that help increase velocity, improve quality, and reduce execution risk. Moving on to M&A, we are delivering on our strategy of pursuing tuck-in acquisitions. Last month, we announced the acquisition of Comtrade Digital Services, CDS, a provider of strategic software engineering services and solutions with delivery centers in Slovenia, Serbia, and Bosnia. I first met the team at CDS over one and a half years ago and we had an immediate connection as their whole mindset, the way they develop and look out for their people and the way they go to market resonated with me and our mindset at Endava. This acquisition fits with our strategy of further expanding our European business and complements our acquisition of Exocet in December 2019 by broadening our delivery centers in order to service clients in the German-speaking region with CDS's 460 technical staff. Additionally, CDS's existing client bases strengths our existing verticals in payments and financial services and TMT and bring clients in other verticals, including logistics, energy, travel, and healthcare. Culturally, we believe CDS is a great fit for Endava and we are excited about this acquisition. We also completed a third tuck-in acquisition this past financial year, Intuitus, which expanded our footprint in private equity. Our client growth continues to translate into strong employee growth. We ended the quarter with 6,624 employees, a 15.1% increase from the 5,754 in the same period last year. Our revenue per operational head continues to improve, ending the year at £62,300, up from £58,700 last year, a 6.1% year-over-year increase, driven mainly by an increase in pricing. Our attrition rate has decreased every quarter this past financial year. As we mentioned last quarter, we did not stop hiring when the pandemic hit. While this decision marginally impacted our utilization rate during the quarter, we believe that we are in a good position at the start of our new fiscal year to handle our strong pipeline. We added 137 operational staff in the quarter, up 2.3% over the prior quarter, and up 14.9% year on year. As shown by these results, client demand for our services is stronger than ever. as digital transformation has become digital necessity for many. Mark and I and the entire team are extremely pleased with our excellent performance for the fiscal year just ended, despite the challenging environment, and we are excited about the opportunities ahead of us and remain confident in our ability to deliver value for all of our stakeholders. I'll now pass the call on to Mark, who will walk you through our financial results for the quarter and for the year, and provide guidance for the coming quarter.