Endava plc

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the NDAAVA third quarter fiscal year 2022 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. Lawrence Madsen, Head of Investor Relations. You may begin your conference.

Thank you. Good morning, everyone, and welcome to NDAVA's third quarter fiscal year 2022 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 Q4 fiscal year 2022 and for the full fiscal year 2022, and statements regarding our perceived opportunities and anticipated future growth and geographic expansion. Our expectations regarding digital transformation of businesses and industries and our industry trends. The necessity of digital transformation for many companies, and NDAAVA's ability to benefit therefrom. Potential technological advances are expectations for future partnerships and abilities to expand our existing relationships, anticipated client demand for NDAAVA services, our ability to attract and retain employees and be an employer of choice in multiple geographies, and our ability to execute on our sustainability objectives 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 to 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, or the SEC, on September 28, 2021, and as updated in Exhibit 99.2 to our current report on Form 6-K, filed with the SEC on March 30, 2022, which contains a discussion of important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, during the call, we'll present both IFRS and non-IFRS financial measures. The reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which you can find on our Investors Relations 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. I'd like to thank you all for joining us today and I hope you're all well. We're pleased to be here to provide an update on our business and financial performance for the three months ended March 31st, 2022. I'm pleased to report that we continue to be in a very favorable business environment where demand outweighs supply and therefore we remain very selective in the business we take on. We carefully balance expanding work with existing clients and taking on new ones. Our ability to service clients from Central Europe has not been impacted by the war in Ukraine. And we remain thoughtful about the locations for our delivery centers and are very mindful of managing potential geopolitical risk in the countries where we choose to expand. Additionally, our distributed agile delivery model provides for a multi-site delivery approach, spreading delivery to individual clients across multiple centers, reducing risk associated with any one location, and making business contingency planning highly effective should it be required. Endava reported revenue of 169.2 million pounds for Q3 of our fiscal year 2022, representing a 50.9% year on year increase in constant currency from 112.3 million pounds in the same period in the prior year. We ended the quarter with an adjusted profit for tax with a period of 34.2 million pounds, representing a 43.1% year on year increase from 23.9 million pounds in the same period in the prior year. Our strong revenue growth continues to be driven by both the expansion of work for our existing clients and the acquisition of new ones during the quarter. The continued scaling of existing projects and accounts continues to drive the growth of larger clients and the increased spend by these clients. We ended the quarter with 717 active clients, up from 567 at the end of the same period in the prior year, a 26.5% year-on-year increase. Importantly, we grew the number of larger clients, with a total of 118 clients paying us in excess of £1 million per year, compared to 81 in the same period last year. representing a 45.7% year-on-year increase. Additionally, the average spend of our top 10 clients continues to grow strongly and was up 44.2% year-on-year in the three months ended March the 31st, 2022. Our business in the US continues to expand strongly and revenue from North America grew 75.5% for the three months ended March 31, 2022, over the same quarter last fiscal year, with demand particularly strong in banking and capital markets and insurance, as well as in tech and mobility. Revenue in our payments and financial services vertical grew by 46% year-on-year, driven by strong growth in all the subsegments of that vertical. Our other vertical also grew very strongly, up 77.3% year-on-year, with mobility being the key driver. The healthy demand from our clients continues to be driven by technology-enabled transformations occurring in many industries, such as autonomous vehicles, frictionless payments, data insights, and supply chain pressures. There remains much interest in the topic of the metaverse, as entire ecosystems are emerging around it, while we are seeing a broadening of its applications. We believe that this represents an opportunity for Endava as an expanding area of digital acceleration. For example, we are already seeing and increasing interest in practical applications of virtual and augmented reality using headsets like Microsoft's HoloLens. We have recently developed virtual showrooms, assistance applications for logistics workers, 3D industrial training applications, and business-to-consumer applications for areas like furniture and toys, and virtual experiences for tourists. All of these applications require a blend of skills, including user experience, 3D graphical design, software engineering, automation, and specialized testing, and are ideally suited to our cross-functional delivery teams. Such projects also often involve or lead to work on infrastructure, backend services, or data analytics, generating work for other teams as well. We are investing in the space as we see good growth opportunities. Endava recently joined the Unity Certified Creator Network, which leverages Unity technology to solve customer problems with the power of real-time 3D. The membership-based ecosystem is focused on putting diverse, innovative creators such as Endava at the center of the metaverse economy. As we expand our expertise in the media and telecommunications segments, we'd like to highlight a number of clients, both North American and European, where we are accelerating the evolution of their businesses through the application of next-generation technologies. In the media vertical, we're seeing increased demand in building products and platforms in line with the industry's technology disruption wave and early movement towards the decentralization and token-based economics fundamental to Web3. We are also helping our clients monetize the metaverse, both in North America and Europe. Endava has been working with a US-based gaming company, building the platform for a virtual blockchain-enabled gallery in the metaverse to view and transact in NFTs. We are also working on enhancing internal tools for their blockchain gaming platform, which will streamline automation when it comes to reviewing and publishing their games. We're working together with their engineering leads to design and deliver the next iteration of their backend platform, heavily focused on reusable microservices that will provide a scalable and flexible infrastructure. We've been working with ConsenSys, a leading Ethereum software technology company on several of their blockchain-based product offerings, starting with Comgo, a trade finance platform backed by 15 of the world's largest banks, trading and oil companies, enabling authorized participants to securely transact using blockchain for trading and for the standardization of documents. We're also working on Covantis, a platform servicing some of the leading global agricultural commodity providers with a global network for efficient execution of bulk agricultural trade operations, including notice issuance and visualization, as well as user productivity management. Finally, we're working on MetaMask, the primary way a global user base of approximately 30 million monthly active users interacts with a universe of Web3 applications that include NFT marketplaces, play-to-earn games, decentralized autonomous organizations, which are software platforms running business processes on transparent blockchain protocols, decentralized financial applications, and metaverse worlds. We started with a small team, which over the last few years grew to include many Scrum teams. Also in media, Endava works with VideoAmp, a media measurement and optimization software company whose goal is to create a more sophisticated data-driven advertising ecosystem. Our partnership aligns with and supports their goal to redefine how media is valued, bought, and sold. Similar to the scale of the technology disruption wave we see in media, the telco vertical is also moving into a new period of accelerated disruption. as the scaled availability of 5G networks has created vast new areas of opportunity for the evolution of mobile experiences. In line with this theme and supporting a long-term European telecom client, we've recently delivered a large cloud-native gaming platform leveraging 5G technology to enable unprecedented low latency gaming experience. For that same client, Endava is supporting their innovation unit with application layer and mobile software expertise in the area of time-critical applications over 5G with rate adaptation. Further, we are currently upgrading and managing the e-commerce platform and payments gateway of another large European telecom client. They look to evolve their business. We're on track to stabilize and provide direction of travel for this complex platform. I'm also very excited about our recently announced partnership with Stripe. We joined Stripe's new partner ecosystem as a key strategic partner. This ecosystem allows merchants to grow their business by connecting them with over 800 partners to facilitate new offerings, experiment with new business models, and monetize payments transactions. By keeping pace with the escalating adoption of SaaS tools and commerce platforms, merchants are able to reach new customers and increase conversions with a frictionless customer experience. To service this increased customer demand, we continue our growth from a people perspective. We ended the quarter with 11,001 endowments. a 35.4% increase from 8,127 in the same period last year. While competition for talent remains intense, our focus on recruiting the best talent in the countries where we are located is unchanged, and I'm pleased at our success in recruiting and retaining the people we need. We continue our geographical expansion and diversification, We're expanding our team in Toronto, Canada. In Poland, we currently have two delivery centers in Gdansk and Łódź, and plan to add several more locations in the coming months. Our expansion in Mexico is progressing well with our delivery center in Monterey, where we are actively recruiting. We also very recently opened a new delivery center in Kuala Lumpur, Malaysia, to service our APAC customers and a close to client location in Dubai, UAE. Additionally, to meet the continued strong growth in demand in North America, we continue to accelerate our LATAM presence. We ended the quarter with over 1,780 endavans in the region, up 65% year-on-year. At Endava, we aim to support our staff and give them the opportunity to achieve their professional ambitions. One of our tools to help them achieve their goals is our award-winning Endava Wellbeing Program, which we recently offered masterclasses and workshops focused on mental wellbeing. As we come together in caring for the environment, we're keen on getting increasing awareness on environmentally friendly practices, both at work and at home, through relevant masterclasses, workshops, and digital resources. As an example of our efforts, I'm delighted that our Endava Thank You Forest campaign has recently been awarded CSR Program of the Year at the ANUS Romania Glala. Under this campaign, We plant a tree for each thank you note sent by one in Darwin to another, both addressing our ecological aims and furthering our collaborative culture. We have planted 23,000 trees near five of our locations and 10,000 more are being planted in May. We look forward to keeping growing our Endava forest as we continue sharing gratitude by sending e-thank yous. Endavans wanted to respond to the humanitarian crisis in Ukraine. So we launched an employee-matched donation campaign, and together we raised 1 million euros. Our combined efforts will help thousands of Ukrainians with our donations to NGOs working on the ground in Ukraine and at the borders of Moldova and Romania. Demonstrated by our financial results, Demand for our services remains strong. We're navigating a challenging global macroeconomic environment and remain excited about the opportunities in front of us and remain confident in our ability to execute on our objectives. Let me end by thanking our people for their resilience and adaptability as they continue to deliver innovation, quality, and excellence to our clients. They enable the performance and the opportunity for our business that I've just discussed. I will 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 the fiscal year.