Endava plc

Good morning and welcome to the NDAAVA first quarter fiscal year 2024 results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Laurence Madsen, head of IR. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to NDADA's first quarter of fiscal year 2024 conference call. As a reminder, this conference call is being recorded. Joining me today are John Cottrell, NDADA's chief executive officer, and Mark Gerson, NDADA's chief financial officer. Before we begin, a quick reminder to our listeners. Our presentation and our accompanying remarks today include forward-looking statements, including but not limited to statements regarding our guidance for Q2 fiscal year 2024 and for the full fiscal year 2024, the improvements in the overall headwinds facing our industry, and the impact of such changes on our ability to grow revenues and in particular, growth and expansion in our industry verticals, our continued business optimization actions, enhancements to our technology and offerings, the impact of adverse macroeconomic conditions, and our business strategies, plans, and operations. These statements are subject to risk and uncertainties that could cause actual results to differ materially from those contained in the four looking states. 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 the 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 we undertake 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 September 19, 2023. Also during the call, we'll present both IFRS and non-IFRS financial measures. While we believe the non-IFRS financial measures provide useful information for investors, The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Reconciliations of such non-IFRS measures to the most directly comparable IFRS measures are included in today's earnings press release as well as the investor presentation, both of which you can find on our investor relations website or on the SCC 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, 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 September the 30th, 2023. We reported revenue totaling £188.4 million for Q1 of our fiscal year 2024, representing a 0.6% year-on-year decrease in constant currency from £196.2 million in the same period in the prior year. Sequentially, revenue was up by 0.2% in constant currency on the previous quarter. We ended the quarter with an adjusted profit before tax for the period of 29.8 million pounds, representing a 15.8% adjusted profit before tax margin. On our last earnings call in September, I mentioned that we're inherently conservative, but are seeing real signs of improvement, which should impact our second half of fiscal year 2024. Whilst the world has become more unstable over the past two months, we continue to see sizeable new opportunities entering and progressing through our funnel, as well as new assignments commencing and scaling. I will shortly go through some case studies, and a number of these illustrate work which starts small and ramps as we move to production environments. Mark will come to our guidance later, which we have broadly maintained on the basis that the uplift in the second half continues to firm up. We continue to prioritise our efforts on larger relationships that can grow and scale. We have a total of 145 clients, each paying us in excess of £1 million per year in the quarter just ended, compared to 140 in the same period last year, representing nearly a 4% year-on-year increase. Additionally, we had 33 clients, each paying us in excess of £5 million per year in the quarter just ended, compared to 25 in the same period last year, representing a 32% year-on-year increase. Over the last several years, we've seen an interesting trend emerge with many of our customers. The proliferation of application programming interfaces, or APIs, But a common building block for modern products and services has opened the door to a new way for companies to interact with their partners and customers. Many of these companies have begun extending functionality externally that would historically have been reserved for use inside their organization. An example of this is embedded finance, where financial services products are made available to other organizations. This has meant that companies in industries including health, retail, automotive, tech, logistics, and insurance have all started to embed financial services products into their customer journeys. For these businesses, this often provides new revenue streams, wider value-added services, and often increased customer retention. For the end customer, This is manifested in experiences such as being offered an instantaneous loan at the physical point of sale and buying from a retail, being offered temporary insurance when taking a scooter ride, being able to see real-time availability of parking spots to reserve and pay for them directly from a mobile app, or being able to have your car infotainment system store your payments credentials and automatically pay for tolls as you pass by a checkpoint. All of these are real world examples of solutions that Endava has helped our clients build. Endava is finding opportunities to help the providers build their embedded finance solutions, but also with the businesses across many industries who are embedding these services into their customer journeys. Endava's experience enabled us to engage very early to help establish strategy, build proof of concepts, and then integrate and develop production systems. Digging a little deeper, the emergence of payments as a service as a subset of the use cases under the embedded finance umbrella has played particularly well to endow the strengths and rich history in the payments and financial services space. Our deep expertise in building large-scale payment systems and integrating with major payment providers across the world has made us a go-to partner for customers looking to incorporate payment services into their businesses. Additionally, many of the creators of those payment services are banks or other financial institutions that Endava also has strong experience supporting. Our unique position in the payments industry has allowed us to help customers in retail, media, logistics, transportation, and many other industries design, build, and integrate key financial services technology to enable their payments, lending, and issuing as a service products. Today, I will highlight some of the projects we are working on in embedded finance. In the mobility space, we are working with a global car manufacturer which had first embedded their first generation of payment services into both the app and the in-car experience. allowing consumers to seamlessly pay for services such as fuel, parking, or charging from their car. Endava was initially approached to consult on how to build an embedded payments ecosystem in order to expand the client's presence globally and to allow it to interact with a vast network of external parties. We advised the client on how to streamline their platform by building a robust and scalable architecture how to integrate to the complex network of payment partners, and how to commercially structure the proposition across multiple geographies. The project evolved, and Endava is now working on building the client's new target state platform, including payments orchestration as a unifying component, which will enable the addition of new components as the client expands globally. Building on this experience, we continue to find and help other global automotive OEMs who are seeking to engage with their customers and discover new embedded payment revenue streams through strategic consulting and downstream execution. In the healthcare space, Endava has been working with a US-based company that provides a comprehensive suite of practice management, electronic record-keeping, patient engagement, billing, and collection solutions to medical practices. The suite of services includes an arrangement with their payment processor, whereby the client embeds their products and services, including pulse terminals, web-based payments, and so on for costs borne by patients. With their existing payment processing model and processor arrangements, they were unable to take advantage of increased payments revenue. Endava provided a payment strategy, financials, and operational processes that allowed our client to add net new recurring revenue streams to their business. In the insurance space, Endava has been developing the new gold standard in customer experience for one of the largest healthcare insurers in North America. We were engaged to take a holistic look at their infrastructure and member experience and create the vision and roadmap for member experience, including embedded payments. We are now working with their new ecosystem partners to create the implementation plan and execution strategy for 2024.