Endava plc

Good morning and welcome to the NDAAVA second 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 touchtone phone. 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 Lawrence Madsen, Head of Investor Relations. Please go ahead.

Lawrence Madsen Thank you. Good afternoon, everyone, and welcome to end of our second quarter of fiscal year 2024 conference call. As a reminder, this conference call is being recorded. Joining me today are John Cottrell, End of Us Chief Executive Officer, and Mark Thurston, End of Us 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 Q3 fiscal year 2024 and for the full fiscal year 2024, the overall headwinds facing our industry and business, including adverse macroeconomic conditions and the global geopolitical climate, and the impacts of such headwinds on our ability to grow revenue, and in particular, growth and expansion in our industry verticals, the impact of our investment and cost-saving initiatives on our financial performance, Our acquisition of Galaxy solutions, including expected synergies from the transaction and the overall impact on our business. Announcements to our technology and offerings, demand from clients for our technology services, our ability to create long-term value for our clients, our people, and our shareholders, and our business strategies, plans, 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 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. Reconciliation 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 site 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.

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 the 31st, 2023. As we noted in our press release, obviously the environment continues to be challenging. Our results and guidance reflect headwinds in IT spending, particularly on discretionary projects and in the payments and banking and capital markets verticals. That said, we believe we have a very well positioned and strong business. We are confident that despite current softness in demand, in the longer term, the opportunity for us is very attractive. We want to make sure Endava continues to be well positioned to create long-term value for our clients, our people, and our shareholders. We continue to pursue our strategy to ensure that while we are right-sized for the current demand environment, we are also making necessary investments in our business to position ourselves for when discretionary capex picks up again. We're seeing three key trends in the market. One, while budgets are up this year and there's a lot of work to be done, in the short term, spend is being deferred as clients continue to be cautious. As one client put it, we have the budget for a substantial ramp up with Endava, but are going to go slow for now and see how the year unfolds. Secondly, we are seeing deeper demand for vertical and technology expertise. And thirdly, the growing importance and relevance of a broader diversified delivery footprint. Given these trends, we're continuing to make organic and inorganic investments in a disciplined way to number one, diversify our revenue, our delivery, and invest in technology and domain capabilities. Secondly, attract great talent and take advantage of the difficult times many others are facing. to invest in and add to our leadership. And thirdly, evaluate acquisition opportunities that help us accelerate our growth strategy. Some of these investments may result in lower near-term margins given the current market environment. As we know, it takes courage to invest in uncertain times. But we continue to make sure we are being disciplined in pursuing our strategic objectives. Moving on to our results, we reported revenue totaling 183.6 million pounds for Q2 of our fiscal year 2024, representing an 8.1% year-on-year decrease in constant currency from 205.2 million pounds in the same period in the prior year. We ended the quarter with an adjusted profit for tax for the period of 22.7 million pounds, representing a 12.4% adjusted profit before tax margin. Some of the large projects we mentioned last quarter have not scaled up to expectations yet, while others have remained in the pipeline for longer than expected as a result of client hesitancy. We now have numerous projects where discovery work has been done, but clients are hesitating on when to commit the sizeable spend needed to build production-ready systems. Alongside this short-term change to our growth expectations, we have started a business optimization program in order to facilitate a return to the medium term to our 20% constant currency organic revenue growth and 20% adjusted profit before tax margin. We remain focused on investing in growth while simultaneously reducing corporate complexity and eliminating inefficiencies. We believe this will improve our competitiveness and enable us to further invest in growth. Let me tell you about some of these strategic initiatives where we are investing. We will continue with our global industry focus, which is a key competitive differentiator. Additionally, we are increasing our use of automation and accelerators to deliver outcomes for our clients more quickly. Increasingly, we are being requested to participate in larger scale enterprise systems integration work. And as a result, this will be a focus of activity in the coming quarters. We are bringing together our close to client delivery and near shore delivery teams under one manager per region in order to further build consistency in our delivery capability. We're starting to see the benefits of our combined sales and client delivery operations, resulting in a more cost-effective organization, greater collaboration across industries and regions, and the development of senior multi-disciplined leaders that will ensure Endava is able to continue to scale. We're using this slowdown period as an opportunity to invest in senior go-to-market leadership attracting deal makers who are difficult to shift in the boom times. And we undertook a rebranding exercise at the end of January, which has been very well received. In the last 12 months, we hired a dozen deal makers from leading competitors across our industry verticals. On the technology front, we want to help our clients embrace and explore new technologies more rapidly. Therefore, in addition to our core delivery competencies, we are creating new teams called pods that will be singularly focused on helping our clients accelerate and invent the future around new and emerging technologies. Pods represent an opportunity for differentiation by demonstrating our thought and delivery leadership across industry verticals against a key set of technologies and capabilities. The pods pull together existing Endava experts with exceptional thought and delivery leadership within a fast involving technology domain. They will work with our industry teams to establish thought leading propositions around high momentum technologies and working alongside our delivery locations to ensure that appropriate skills are built and available at scale as acceleration is realized. We are building pods for AI, cloud, intelligent automation, cybersecurity, quantum, sustainability, embedded, and physical computing. We believe this is the right time to invest in these go-to-market technology and sales arenas, and these efforts will lay an even stronger foundation on which to scale as markets return. In addition to the release of our results today, I am thrilled to announce our acquisition of Galaxy Solutions to strengthen our healthcare vertical as well as establish delivery capabilities in India. This is our largest acquisition to date, and it aligns with our strategic vision of expanding our global delivery footprint and further diversifying our revenue base. Galaxy was started in 1993 by the CEO, Tim Bryan, and is a leading provider of digital transformation and product development services to blue chip US companies. with a significant client base in the healthcare vertical and delivery capabilities in India. I met with Tim and his leadership team and visited their delivery centers in India and am excited about the synergies we can create between the two companies. This acquisition significantly expands our presence in the fast-growing and exciting healthcare sector in the US. Additionally, with Galaxy, our global delivery footprint now expands to India, the deepest IT talent pool in the world, where Galaxy has nearly 1200 employees. Galaxy will strengthen our North American management team and brings decades of offshore delivery know-how to Endava. In addition, Galaxy has developed a strong accelerator-enabled capability, facilitating the understanding of existing enterprise systems and enabling change. This capability, alongside of Endava's existing strength in delivering next generation technology, will allow us to open new opportunities and go deeper into enterprise transformation work, delivering more insightful and predictable outcomes. Mark will provide more details on the transaction shortly. I'm excited to share that we announced yesterday that we are expanding our strategic partnership with Equinity, a leading international provider of tech-enabled shareholder retirement and remediation services. We have established a five-year partnership of £75 million to support the delivery of a transformative product and tech roadmap. This deal strengthens our existing three-year relationship and delivers significant growth for Endava in our capital markets vertical. With the extension of this partnership, Equinity has become one of Endava's top 10 clients globally. This revenue is net new and is an example of the sizable project opportunities that are being slower to convert than expected last quarter. I'd like to provide you with an update on projects we are working on in North America. In our banking and capital markets vertical, we are working with early warning services in launching PAYS, an easy online checkout solution offered by banks and credit unions. Endava is accelerating speed to market with the expediting of test environments and the development of an SDK for merchant integrations. We continue to drive market expansion as an integration partner of early warning, enabling Endava to drive value across all verticals. Endava is working with a leading fintech company in the alternative investment space based in North America. Our two-plus-year partnership started with a platform envisioning project working directly with their entire C-suite to translate their growth ambitions into executable backlogs in order to jumpstart an actionable delivery plan. We helped build out their Snowflake-based data lake and end-to-end data pipeline enabling sales and operational reporting. Additionally, we provide ongoing support for internal integrations with systems and external integrations with reporting providers. Endava is working with the American Endowment Foundation, or AEF, one of the nation's largest independent donor advised fund sponsors to help modernize their donor advised fund platform. We are supporting their leadership team with their digital transformation journey. The goal is to harness technology and automation to optimize the end-to-end fund management process by improving the user experience for firms, financial advisors, donors and internal AEF team members. By curating a seamless interface for both existing clients and prospective partner firms, we will help to scale and streamline AEF's overall internal operational efficiency. In our TMT vertical, we are working for a large US sports media company, organizing their data by building a platform to centralize, monitor, and show interactive reports for financial information. The financial data visualizations encompass details relating to ticketing, events, payments, customer information, video visualization, and streaming. The centralized information allows our client to make real-time database decisions and monitor their top sales indicators. Mobile gaming remains an important revenue contributor for clients in the gaming sector. We are collaborating with a global brand in both the console and casual game market, reshaping their direct to consumer platforms to revolutionize their monetization strategy. Through the implementation of streamlined processes, exclusive deals, tailored and compelling transactional interfaces, and loyalty rewards programs, we are enticing mobile gamers to explore web platforms, fostering a more immersive community-focused user experience beyond the confines of the game. In the aviation space, Endava is partnering with Delta Airlines, helping them launch and support Delta Sync, a suite of personalized experiences and offers aimed at creating new ways for customers to enjoy their time on board. Endava worked with Delta to establish a cutting edge agile product strategy and design approach, which has improved customer satisfaction, increased member acquisition, and delivered value to strategic partners through customer engagement. We'll continue to bring to bear our capabilities in support of Delta's ongoing investment into industry leading products and the best in class customer experience. We are working with many of the leading brands across different segments of the automotive OEM landscape. From back office and plant floor operations to in-car experience, we are helping our clients leverage technology to solve problems and improve revenue. For example, we used optical character recognition and artificial intelligence to digitize paper vehicle documentation, which expedited processing, improved accuracy and reduced manual labor. We used computer vision and synthetic data generation techniques to accelerate and deepen learning for AI models. We are also helping a top carmaker leverage virtual reality and AI to optimize and validate the design of production processes to reduce the time required to commission and build. And lastly, we are helping to design and deploy a scalable cloud architecture to enable over the air capabilities for millions of vehicles. On the technology side, we are rapidly moving to the point where AI touches just about every project. We continue to see a wide variety of work in our pre-sales pipeline, right across the ideation to operation cycle. And we continue to see a significant increase in client interest in exploring the potential of generative AI. These conversations are becoming more focused as clients want to investigate specific applications for their business. This is happening across several industry verticals, including insurance, pharmaceuticals, technology, gaming, telecoms, banking, and capital markets. In many cases, clients are taking steps in exploring potential applications And we help them do this through workshops and practical proof of concept work. We are also seeing some more forward-looking organizations start to actively explore new types of application, such as AI agent automation, and combinations of generative AI with other emerging technologies, such as knowledge graphs. Clients are increasingly looking to us for their AI implementation roadmaps, in particular in the insurance and tech sectors. A few examples of our involvement here include work with a large US insurer to explore how they can use generative AI to grow their business, a workshop to demonstrate how generative AI can help a London market insurer, an advisory engagement to explore personalization of omnichannel customer communication for a large telecoms company, as well as creating a number of generative AI-powered tools for a wealth tech company. and also building an evaluation framework for a question answering bot in the gaming industry. We're also pleased with the level of client interest in our in-house generative AI-based platform, which enables the exploration of a wide range of potential applications of the technology through practical prototype implementations alongside of our clients. Two examples include code generation for pharmaceutical statistics for a global pharmaceutical company, and a multi-agent prototype, which took a claim through multiple stages and scenarios for a large US insurer. Our deep partnership relationships with major technology providers continue to bear fruit. Here are a few tangible examples of projects we are working on, starting with an exciting generative AI-based prototype of a voice and text-based call center assistant on Google Cloud for a major UK insurer. We recently held a multi-day hackathon at our offices in Charlotte to explore the latest advances in Microsoft semantic kernel platform targeting the healthcare industry and developed two compelling prototypes in the areas of pharmacy automation and critical care triage. Internally, we're seeing the early benefits of generative AI in our processes. With production use of tools increasing productivity in generating sales material, producing client insight for our private equity business, as well as helping to generate insights on our workforce. We recently held our Endava Innovation Lab with a total of 75 teams participating in this global innovation competition. And this year, 80% of the finalists applied AI in some practical way, illustrating how knowledge of AI has spread right across the firm. Globally, our recent acquisitions in Asia-Pac and in the US are integrating smoothly, and I am excited about the prospects of our expanding global footprint. We continue trusted partnerships with NGOs, supporting inclusive education, including NIA, an NGO dedicated to bridging the technology skills gap for refugees by providing free training and matching talent with opportunities around the world. Additionally, we are also leveraging our technical expertise to help solve complex environmental and societal issues. We recently teamed up with the Resilient Building Council in Australia to launch a bushfire resilience app tailored for Australians, empowering users to gauge their preparedness in the event of a fire, providing an easy to use solution to protect homes and communities. We ended the quarter with 11,539 employees, a 5.3% decrease from 12,183 in the same period last year. In the current environment, our recruitment is focused on areas of demand and, as I mentioned earlier, the strengthening of our senior go-to-market leadership. I'd like to take this opportunity to thank all endowments for their commitment and determination as we persevere through these headwinds. We will continue to manage the business for the long term, maintaining our culture and organizational health, and creating exciting solutions for our clients and their customers. We believe clients' activities in exploring and commissioning new products will overtake the headwinds and see us return to growth. 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 fiscal year. Thanks, John.