Endava plc

Good day and welcome to NDAAVA's second quarter of fiscal year 2023 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Lawrence Madsen, Head of Investor Relations at Endava PLC. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Endava's second quarter of fiscal year 2023 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 2023 and for the full fiscal year 2023, and other forward-looking statements regarding our business and operations. 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. For more information, please refer to the Risk Factors section of our annual report filed with the Securities and Exchange Commission on October 31, 2022. 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 relations website or on the SEC website. The link to the replay of this call will also be available on our website. With that, I'll turn the call over to John.

Thank you, Lawrence. 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 December 31st, 2022. We reported another solid quarter, with revenue totaling 205.2 million pounds for Q2 of our fiscal year 2023, representing a 30.2% year on year increase from £157.7 million in the same period in the prior year. We ended the quarter with an adjusted profit before tax for the period of £41.9 million, representing a 20.4% adjusted profit before tax margin. On the revenue front, we grew in all geographies and verticals year on year during the quarter. As usual, our 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. And more importantly, we continue to prioritize our efforts on larger relationships that can grow and scale. As a result, we continued growing the number of larger clients with a total of 156 clients paying us in excess of £1 million per year, compared to 107 in the same period last year, representing an impressive 46% year-on-year increase. We also saw the cohort of our largest clients, those spending over £5 million per year with us, grow by 48%, from 21 in the same period last year to 31 last quarter. Starting in December, we saw a change in behavior as some clients added another level of due diligence to their decision-making cycles, slowing the commencement of new projects, and in some cases, pausing existing spend as they reassessed their priorities. These behaviors reduced activity towards the end of December. And although we are now seeing decisions being made and activity increasing again, the short pause reduced our expectations of growth for this fiscal year. In our ever more digital world, we are seeing continued strong demand for our more sophisticated design and ideation skills, such as digital product strategy, digital product design, and user experience design. as well as the more technical areas of user interface and mobile design build and test. We're being asked to apply our skills to a range of digital applications, including client portals to simplify client interactions with complex organizations, B2B interfaces for digital commerce, in-transit customer experiences for the transportation industry, and internal portals to make organizations more efficient and effective by improving their employee experience. We've been a long-term provider of cloud expertise with strong partnerships with all major providers. And the majority of our development and operational work utilizes the technology. We're increasingly seeing our clients moving on from cloud being about infrastructure towards cloud as a true enabler of next generation capability. Well-opted and implemented solutions allow for the ephemeral and elastic nature of cloud to be used to allow our clients to only use and pay for what they need when they need it. Furthermore, new technology frameworks deployed within the cloud and accessible through a rich API landscape allow our clients to rapidly adopt and integrate technology in a small amount of time. For example, it's inconceivable to imagine the complexity of adopting a technology such as GPT-3, which ChatGPT utilizes, for instance, within legacy compute environments. Together, new architectural patterns and the ubiquity of cloud mean Endava is well-placed to help our clients rapidly build, deploy, and test products and create a flywheel for future growth for us and for our clients. Today, I'd like to highlight the depth and breadth of our client relationships in two of our largest regions, the UK and continental Europe. Endava has its roots in the UK. And over the years, our business in the UK has evolved and diversified. For example, we grew in the banking sector where we are currently working with three large high street banks as they seek to navigate regulatory change and modernize their market-facing offerings with new cloud-based solutions. We helped a large UK bank transform its payment offering through the launch of an award-winning payments proposition. This cloud-native solution leverages the capabilities of open banking to provide next generation offerings to retail and business customers. We also developed strong relationships in the insurance industry. For example, Endava is supporting Beazley Digital by building and supporting multiple distribution channels for broker quote submissions and we are developing new products for the US portfolio on the Rulebook platform. Additionally, we are working to onboard product lines onto the Beazley underwriter workbench in order to aid efficiencies in responding to broker submissions and maximize intelligent underwriting capabilities. Our business in the UK also includes some of the largest corporates in TMT. Endava has helped Arm, a British semiconductor and software design company, leverage the use of cloud to test its chip designs at scale. This delivery has allowed Arm to reduce its on-prem resources, allow teams to meet their delivery deadlines, and even increase testing and improve quality of the design. This project won the Editor's Choice Award in the Best Use of HPC in the Cloud category. in the HPC Wire 2022 awards. We're also working with two major communication service providers delivering on the operation support system and business support system suite modernization in the new era of open architecture cloud native self-healing networks. With our recognized competence in technology strategy, architecture and analysis in the connectivity area and integrating alternative payment solutions, we are in a strong position to support telcos in their quest for better platform monetization and to remain relevant in the market beyond commodity traditional services. Our payments expertise has helped us to develop strong relationships with the leading payment service providers in continental Europe. Additionally, as larger banks are reentering the payment business, it has led us to help them with architecture design and platform development work. In Germany, this has been especially important with the increased adoption of cashless payments in the post-pandemic world. We have been helping some of the largest payment service providers to automate and streamline their small and middle-sized enterprise onboarding processes. In 2019, we disrupted the market by launching an innovative fully digitized onboarding product with a market-leading payment provider, which we believe quickly became the benchmark product for the payment industry. Additionally, for over a decade, we have been helping some leading European banks address their digital agenda as the emergence of digital banking platforms has enabled them to decouple the client-facing user interface from their legacy core. Our expertise ranges from building customized digital banking solutions through to partnering with BackBase Digital Banking. We are currently implementing BackBase Digital Banking to three European banks. In Romania, our work with Bank of Transylvania, the largest bank in the country, has helped position them as one of the most innovative banks in the region. We built for them a market-leading mobile banking application, as well as digitizing and automating their corporate lending process. In Switzerland, our clients include leading wealth managers and private banks. We are working with a private bank on a digital refresh of their client-facing portal as they look to address the generational shift of wealth to younger and more digitally savvy clients. Our work in capital markets includes high-volume, low-latency trading platforms in Germany and asset servicing platforms across the DAC region, which includes Germany, Austria, and Switzerland, as well as in Luxembourg. In Switzerland, this includes engineering for a market-leading commodity trader, where we are working across most of the core operational functions, including risk, audit, finance, customer and master data. In the Nordic region, we are working with a technology provider on a data management solution with a goal of enabling capital markets operators to streamline the challenges associated with large volumes of data. In our TMT vertical, we are working with forward-thinking companies in Europe, in innovation hubs in Germany and the Nordic countries. The Aviv Group, a subsidiary of Axel Springer, is one of the world's largest digital real estate tech companies based in Germany. The Aviv Group partnered with Endava for an ambitious multi-year product and technology transformation journey, aiming to consolidate their existing brands spread across multiple countries onto a white-label platform. The new platform will enable significant operational savings and will set Aviv on target for future geographical expansion while providing a competitive advantage for its products portfolio. Endava is providing support in designing and building the new platform and has additional plans to support Aviv with their innovation projects using Endava's experience with cutting edge technology to open new distribution channels and markets. Additionally, we've been selected by Vodafone Ireland to help them modernizing the new B2B big data platform for enterprise customers. We're very excited about our growing presence in the automotive sector in Europe. Our work with some of the largest car manufacturers in the Duff region is focusing on the digital opportunities, such as connected car, in-car payments, and insurance as a service. In the Nordic region, Endava has been working with the Swedish electric car manufacturer Polestar, supporting them evolve and scale the architecture that powers Polestar's business model, including end-user interaction. This is a global effort and we are delivering services with teams in Central Europe and Latin America. As our relationship expands, it will include work with manufacturing, supply chain, and customer care divisions, as well as work on their consumer mobile apps. We embrace Polestar's vision of an electric and sustainable future for the automotive industry. In Germany, Endava has been working closely with Deutsche Bahn, to develop and operate a state-of-the-art video-on-demand portal available on over 380 intercity express high-speed trains in Germany. With this portal, passengers can now access a wide variety of movies, documentaries, and TV shows on their personal devices. The solution Indava built includes front-end development and integration within existing portals. On the backend, we built a streaming, CMS, and encoding system, as well as content sourcing and continuous operations, monitoring, analytics, and customer support. In collaboration with Deutsche Bahn, Endava continuously brings innovations to the platform to offer best-in-class entertainment to travelers. We are well-placed to understand the changing dynamics in these markets. And our strong name recognition in the UK and Europe positions us well for continued growth. The integration process for Lexicon in Australia is going smoothly, and we are already seeing some growth with existing clients due to the increased breadth and depth of services that Endava brings to the platform. I remain excited about our growth prospects in the Asia Pacific region. We're delighted to share some highlights of our WeCare sustainability approach over the past quarter. We've been focusing on rolling out a number of diversity programs, working closely with our diversity and inclusion forum. We recently completed the second round of our Endava Rise mentoring program, where 27 mentees were paired with 23 mentors for a six month period, preparing our emerging women stars for senior management and leadership roles. Also, as part of our partnership with the Valuable 500, a global business collective innovating for disability inclusion, we launched and successfully completed Endava Signs, a voluntary program offering our people basic level training in four sign languages. We're also delighted that in partnership with Planting Good Deeds, a not-for-profit organization based in Romania, we joined the NYSE's Global Giving Campaign. We ended the quarter with 12,183 employees, a 17.2% increase from 10,391 in the same period last year. We continue to recruit very actively into the areas of strong demand and growth and to expand our sales and marketing teams. We are taking the opportunity of the less competitive talent market to recruit more senior and experienced people in readiness for client growth. In summary, based on our conversations, we believe clients continue to prioritize digital transformation in their IT budgets. We are already seeing a recovery in demand as clients clarify their focus, and we believe the secular trends for our business remain strong. 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 the fiscal year.