Endava plc

Good day and welcome to NDAAVA's third quarter of fiscal year 2024 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. Laurence Madsen, Head of Investor Relations and ESG. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to NDAVA's third quarter fiscal year 2024 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 presentation and our accompanying remarks today include forward-looking statements, including but not limited to statements regarding our guidance for Q4 fiscal year 2024 and for the full fiscal year 2024, the impacts of headwinds facing our industry and business, our ability to capitalize on market opportunities and trends in our industry, including with respect to development of artificial intelligence, our expectations regarding the impact of our recent acquisition of Galaxy on our business, enhancements 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 risk 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 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 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.

Thank you, Laurence. I'd like to thank you all for joining us today and hope that you're all well. As we get started, I want to share some perspective on the current environment, which I think we all understand has been very challenging. My sense is that we have come off a period of aggressive tech spending post COVID. Clients now find themselves trying to sort through their spending priorities as they continue to face meaningful macroeconomic uncertainty. However, We believe that there is also significant pent-up demand for technology services to undertake and complete digital transformation and to get ready for generative AI. Every industry needs to reinvent itself to some extent to take advantage of generative AI, but it first requires meaningful investments in technology and data stacks to be ready. This transformation goes beyond the digital systems, which mostly sit above the core and enhance customer interactions. AI requires access to the right data and systems to be truly effective, and therefore transformation work must go much deeper into the core of the enterprise. Due to the complexity, uncertainty, and risk involved in re-engineering and opening up these core systems, The planning work is therefore taking much longer before scale production ready projects can be commenced. All of this has created a pause, a deceleration. But I also think pent up demand that may be more meaningful than what we have experienced in prior periods. While we aren't happy with our share price or multiple, I believe these are temporary as long as we maintain our competitive positioning. Our approach to this environment has been to continue to invest in our people and our ability to serve our clients and be ready for when the market turns. That's why we moved to diversify our footprint and delivery with Galaxy and continue to build accelerators that will give us a nimble and very relevant set of solutions for this emerging market. Our history has been centered around leading edge technology capabilities. Agile development in very fast-growing areas characterized by meaningful demand and helping our clients ideate and innovate. The key to long-term success in services is a high-quality talent pool that adds real value to clients and with a scale that is relevant to clients as they move from proof of concept to production, but staying nimble and agile. We see our size as a competitive advantage as our entire industry gets ready to pivot yet again. Our systems analysis capabilities, patent technology, and deep understanding of the industries in which we operate enable a truly comprehensive enterprise modernization solution that supports our clients' overall business transformation, and which we refer to as enterprise transformation. We have been working with our clients to build a truly unique approach to enterprise transformation, which addresses this need for AI to reach data and processes at the core of the enterprise. We use patient technology that facilitates a low risk and controlled end-to-end transformation of core systems through data-driven decision-making. With these capabilities, we help transform clients' underlying technology so it becomes more efficient and agile. Our bespoke data-led approach not only helps re-engineer core technology, but also any legacy business processes the technology supports, ensuring that we continue to deliver holistic, market-leading enterprise and business modernizations. With this tried and tested approach, We decrease overall impact and risk for the customer and to date have delivered visible results to over 150 clients across more than 1300 systems and with over 650 million lines of codes. Clients trust us at a time when they feel very uncertain. In the coming quarters, we will discuss more and we are seeing signs that our strategic thinking is going to set us up well catch yet another wave of massive change. Moving on to our results, let me now provide an update on our business and financial performance for the three months ended March 31, 2024. Our results for the quarter were within revenue guidance, with revenue totaling £174.4 million, representing an 11.8% year-on-year decrease in constant currency from 203.5 million pounds in the same period in the prior year. We ended the quarter with an adjusted profit before tax for the period of 15.5 million pounds, representing an 8.9% adjusted profit before tax margin. And our adjusted diluted earnings per share of 22 pence was above our guidance. I'd like to cover in more depth our recent acquisition of Galaxy. Galaxy brings a strong senior executive team in the US with an excellent track record of winning and growing Fortune 100 relationships. We are already seeing opportunities emerge, including some early wins together. As a reminder, over 70% of Galaxy's revenue comes from clients in the US healthcare sector, which we believe is a very attractive vertical. Galaxy's leadership has proved successful at penetrating large US-based payer services and pharmaceutical companies. Based on conversations with these clients, we believe we will be able to significantly scale the offerings. Here are some examples of projects Galaxy is currently working on for various clients. In healthcare, we are working with a leading health insurance plan provider leveraging Galaxy's self-service portal platform to facilitate the complex management of pharmacy benefit plans across multiple third-party pharmacy benefit managers. Additionally, the platform will be used to support the implementation of the new requirements for CMS, the government agency that regulates Medicare and Medicaid, allowing Medicare members to opt in to a monthly payment plan for out-of-pocket expenses. Galaxy's platform uniquely de-risks the implementation while significantly improving accuracy, regulatory traceability, and member experience. Galaxy is also helping a Fortune 50 health plan achieve its goal of building a high-performing health services portfolio for delivery of innovative and flexible solutions to their clients. We are working with the client leadership team to define goals to retire end-of-life technologies while implementing DevOps-enabled cloud-centric and product-oriented systems. This is a multi-year initiative focused on providing scalable solutions, driving lower costs and improved quality with zero downtime. Galaxy is working with a leading global bank to accelerate and advance their API migration initiative for their US operations. Utilizing our proprietary accelerators, the teams will map business functions, extract business rules, identify data and workflows, map functional dependencies, and create testing scenarios and cases for complete future testing coverage. This approach is expected to help the bank reduce transformation costs while improving speed to market and quality. And finally, for a large fintech client, Galaxy is mitigating and eliminating exposure to excessive extended security updates for end-of-life operating systems and database assets. By building a sustainable asset lifecycle management process, maximizing automation and integrated tooling, Galaxy's efforts are resulting in a significant cost savings for the client. Moving on to an update on technology, We recently announced the creation of our agentic AI industry accelerator, internally called Morpheus. We have already been successfully using it as part of both our pre-sale cycle, as well as a foundation for quickly helping our clients get value from their AI investments. To date, large language models or LLMs and AI have existed in a black box. with little insight into how the systems arrive at the answers they provide. Endava is changing this by operationalizing LLMs around data to overcome quorum barriers caused by hallucinations, ensuring that all activity is transparent, knowable, and critically auditable. Rolling out this accelerator to regulated industries can deliver value in many ways, including helping insurers underwrite policies more efficiently, help analysts with legal or financial research, as well as due diligence efforts, and drive the development and testing of new healthcare products. Multi-agent teams represent a significant advancement in AI technology, allowing for a more dynamic, flexible, and comprehensive problem-solving capabilities. We see it solving complex industry challenges, optimizing processes, and delivering unprecedented value for our clients and their customers. AI is an exciting technology, which we believe will positively impact our clients and businesses. We are still engaged in demonstrating the art of the possible with AI. We are beginning to see production projects being signed off and investments being made. This last quarter, we signed new contracts in automotive, healthcare, and sports for AI-specific projects. In healthcare, we recently scoped an AI platform that leverages our Morpheus Agentic AI application accelerator to significantly increase the efficiency of medical trials. Projects like these highlight that with the right use case, Indaba is well-placed to benefit from an exponential increase in opportunities, given the relatively low investment costs and potential high savings for our clients. Our people are top-notch, and we recently won the grand prize in the competition Hack Together, the Microsoft Fabric Global AI Hack. This event was a global online hackathon where participants had the opportunity to build innovative AI solutions using Microsoft's data platform, Fabric. Pinnovator's team, One with a cloud native data solution, integrating open AI for document analysis, particularly for detecting personally identifiable information in files and images. International Women's Day in March was a wonderful moment to recognize women at Indala who each play a significant role in making a difference to our culture with our clients and solutions and in the world of technology. We ran a global campaign under the concept umbrella Connect, Inspire, Rise, and over 1,000 Indarvans attended sessions on leadership, career growth, mental, physical, and financial wellbeing. We received excellent internal feedback on a new training program under our Indarva wellbeing umbrella called Mental Wellbeing for Leaders. It's a program created to help line managers recognize warning signs of mental health issues in their teams and it provides them with the tools to address the issue. We ended the quarter with 11,025 employees, a 6.1% decrease from 11,742 in the same period last year. In the current environment, our recruitment is focused on areas of demand. Technology is our how and people are our why. And as such, we continue to prioritize professional development by training and upskilling our people in key emerging technologies and techniques, such as machine learning, generative AI, next-gen cloud, cybersecurity, product strategy, and sustainable computing, in order for them to remain at the leading edge of digital transformation. I'd like to take this opportunity to thank all endowments for their commitment and determination as we persevere through current headwinds. We will continue to manage the business for the long term. maintaining our culture and organisational health, and creating exciting solutions for our clients and their customers. 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 fiscal year.