Endava plc

Good day and welcome to NDAAWA's third quarter of fiscal year 2025 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. Laurent Madsen, Head of Investor Relations and ESG at NDAAWA. Please go ahead.

Thank you. Good afternoon everyone and welcome to NDAAWA's third quarter of fiscal year 2025 conference call. As a reminder, this conference call is being recorded. Joining me today are John Cotterow, NDAAWA's Chief Executive Officer, and Mark Thurston, NDAAWA'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 2025 and for the full fiscal year 2025, 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 developments with AI, our addressable market, our expectations regarding the share repurchase program, announcements to our technology and offerings, demands from clients from our technology services, our ability to create long-term value for our clients, our people and our shareholders and our business strategy, plans, operations and growth opportunities. 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 or there then 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, 2024 and in other filings that NDAVA makes from time to time with the FCC, including our current report on Form 6K filed with the FCC on March 28, 2025. 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 measure 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. A 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, and welcome everyone. We appreciate you joining us for our third quarter Fiscal Year 2025 Earnings Call. The business environment continues to evolve rapidly, and the quarter just ended has been challenging. We are witnessing what I would characterize as inconsistent behaviour from some clients, with their business priorities shifting rapidly. By that, I mean that clients desire to innovate remain strong. However, they're slow to sign large contracts in the current uncertain macroeconomic environment. Our slowing growth in the quarter was primarily driven by the weakening of the US dollar at the end of the quarter and some deals that did not get signed in North America and to a lesser extent in Asia Pacific. Mark will provide you with more details on our financial results shortly. Our pipeline of large opportunities continues to grow. However, with an increased level of global macroeconomic turbulence since our last earnings call, the pipeline is not converting into signed deals and thus into revenue at the rate we anticipated last quarter. In this uncertain environment, we are focusing on what we can control to best position the for the long term. We continue to invest in the business while at the same time closely managing our expenses to protect our margins. We are also increasing our share buyback authorization by an additional $50 million, which we believe is the optimum capital allocation tool for us in the current environment. We also plan to accelerate the pace of partnership formalization to enhance our solutions and further strengthen our value proposition. These partnerships are already contributing to deal flow and delivering opportunities. Just a few weeks ago, we announced our pioneering involvement in OpenAI's exclusive Beta Services Partner Program. Together, we have already developed industry-first products and solutions for multiple joint clients. We are extremely excited about this next step in our journey with OpenAI. Last week, we announced that we are an implementation partner for Google AgentSpace, a powerful platform that enables enterprises to embed intelligent, proactive agents across their workflows. At its core, AgentSpace offers a multimodal search agent that serves as a central conversational interface for accessing enterprise knowledge. With Alex Partners, a global consulting firm, we are excited to announce our strategic partnership, building on over 15 years of successful collaboration across some of the most complex and high-impact digital transformation programs globally. This partnership is designed to address the full spectrum of client needs. From strategic formulation and diagnostic assessment to technology, design, implementation, and scaling. Our joint approach ensures that clients benefit not only from the high-level strategic insight, but also from seamless execution that turns vision into tangible results, bridging the critical gap between strategic vision and technological realization. We've also partnered with SideFX, a leading developer of Houdini 3D procedural animation and visual effects software. The partnership combines our machine learning expertise and synthetic data with SideFX's renowned VFX software suite for simulation and procedural content creation. This process is particularly crucial for fields where precision and realism are key to innovation, like manufacturing line inspection and autonomous vehicle training. We've built a strong partnership with Backbase, a leader in engagement banking across both R&D and implementation streams. To date, we have jointly delivered digital banking solutions for seven banks, reinforcing Endava's role as a trusted and capable implementation partner. Our work has helped transform retail banking services by delivering comprehensive digital capabilities, ranging from web and mobile retail and corporate banking applications to digital lending solutions. AI remains a priority for many of our clients, and we continue to help them navigate their AI journeys. Let me take you through a few recent examples. In our ongoing collaboration with a leading global pharmaceutical company, our engagement has focused on refining their processes relating to regulatory clinical trial submissions, where precision, reliability, and speed are paramount. Facing the challenge of exceeding a rigorous accuracy benchmark measured against the output of a human clinical programmer, our team leveraged an advanced AI consensus mechanism, enhanced by multi-shot training techniques designed to evaluate and capture an extensive amount of data. I'm pleased to report that across two pivotal datasets, we exceed the accuracy baseline by as much as 19%. At the same time, reducing the time taken from hundreds of workdays to just a few hours. We underscores our ability to deliver trusted high-stakes outcomes in regulated environments. At one of the world's leading insurance groups, we've recently collaborated with two operations teams to illustrate the transformative impact AI can have on their daily operations. Through a series of targeted training sessions, we demonstrated how precision prompt engineering can unlock new levels of productivity and innovation. The result was accelerated workflows, reduced operational friction, and a clear path forward for integrating AI at scale. The enthusiasm and commitment demonstrated by the teams underscore the tangible benefits of embracing AI, marking a critical step forward in their digital transformation journey. In our continued work with a Premier Golf performance brand, we are powering a strategic shift from B2B to B2C through AI-powered swing analysis and tailored coaching. We built a cutting-edge video analysis platform capable of breaking down swing mechanics with precision. Using synthetic data and privacy-first design, our models detect biomechanical movement with remarkable accuracy, and we're now advancing the analysis of intricate swing characteristics. For tailored coaching, we are developing an intelligent coaching agent, one that combines historical data with real-time analysis to deliver personalized improvement plans. This agentic solution adapts to individual goals and harnesses from our video analysis. What was once reserved for elite athletes is now scalable for a wider audience. Through this engagement, our dedicated product team has also worked closely with the client to refine the product strategy and overall consumer experience, from app functionality to market positioning. Our recent engagement with a top-tier global services company showcased how generative AI can accelerate complex technical transformation. During a hackathon-style session, participants blended structure with speed while working in two agile teams. One team tackled the upgrade of a 37-module Java application from Java 11 to 21, iterating AI-driven code improvements. The other team led a major migration over 1,000 entities into a modern data management framework using custom GPT workflows. Teams reported productivity gains of 50 to 300%, and a strong appetite to deepen the AI integration, which is exactly the kind of transformation we need to catalyze, hands-on, high-impact and forward-looking. I would like to provide you with an update on our recent successes in adding to our opportunity pipeline of larger and longer-term deals. On recent earnings calls, I've been highlighting the work we have been doing in securing these larger and longer-term deals. We consider these deals as being transformative for the relationships we build with our customers. Deals of this nature give us the ability to enter into true partnership discussions with our customers and elevate us beyond the technology domain into being relevant to the senior C-suite. I'm now going to take you through a few examples of deals that we're pursuing and have had recent successes with. In payments and banking, we've observed a key trend emerging around major global banks looking to modernize and reinvent their payments business and capabilities. We started working with a number of banks in Europe and the Middle East. Our heritage in this space enabled us to be able to engage knowledgeably with these banks about modern technology platforms as a driver of their payments business strategy. We are being increasingly trusted to design, build, run, and evolve entire payment platform ecosystems. These deals are strategic and long-term in nature and require engagement with the senior leadership. They call on our industry expertise, our approach to core modernization, our delivery capabilities, and our ability to reimagine an AI-enabled future. In a number of our verticals, industry consolidation has led to overlapping ecosystems with multiple vendors creating overcomplexity, high maintenance cost, and delays in responding to market demands. We offer customers compelling insights to start addressing these challenges using our accelerators and tooling. We have recently engaged in discussions with a capital markets infrastructure company, a U.S. healthcare company, and a global financial services institution to help modernize their systems. And these deals are in our opportunity pipeline. We continue to support a leading fintech payments provider in their strategic efforts to remediate technical debt and compete a major data center migration by fall 2025. Through our RAE and IMPRA accelerators, we are delivering an independent third-party perspective to help resiliency risks and unlock opportunities to enhance application monitoring across the products and services they deliver to their customers. Some additional projects worth highlighting are the following. Our partnership with a leading financial institution in North America continues on a major core modernization initiative focused on reverse engineering and remediating three core banking platforms using our maps and dash solutions. This engagement highlights our automation capabilities and enables our clients to modernize their platforms, eliminate technical debt, and introduce new features and enhance performance. We are also expanding our presence in the U.S. healthcare sector with the addition of a new nationally recognized pharmacy benefit manager to our client roster. We launched a comprehensive benefit plan discovery phase using our RAE accelerator, craving the way for future initiatives to automate the creation and ongoing management of benefit plans. Now for an update on our people and innovation. Our recent innovation lab global final held in Belgrade in March brought together top endowment talent from around the world to showcase AI-driven solutions addressing real client challenges. Out of the many impressive entries, eight finalist teams competed, with Australia taking first place for an edge AI solution transforming healthcare, Germany secured second for bridging AI with diverse systems, and North Macedonia earned third for boosting digital accessibility through AI and open source tools. Argentina's team won the crowds hot with an AI-powered payment automation solution. Congratulations to all participants. Your innovation continues to drive in DARV and forward. As of course end, we were 11,365 in DARV and strong, representing a .1% increase from the same period last year. We continue to prioritize recruitment in high demand areas, including data, AI, and clouds to match the evolving needs of our clients. To all endowments, thank you for your commitment and determination as we navigate the digital shift and discover the new opportunities that it brings. We remain focused on building sustainable growth, preserving our strong culture, and delivering solutions that help our clients not just adapt, but lead. With that, I'll hand over to Mark for a closer look at our quarterly financial results and guidance for the upcoming quarter and remainder of the fiscal year.

Thanks, John. DARV's revenue totaled £194.8 million for the three months ended March 31, 2025, compared to £174.4 million in the same period in the prior year, representing an .7% increase. In constant currency, our revenue increased .4% from the same period in the prior year. The lower revenue versus our guide is explained by the weakening of the dollar at the end of the quarter and some deals we expected to get signed in North America that didn't, and to a lesser extent in Asia Pacific, whilst the UK and Europe performed as expected. Profit before tax for the three months ended March 31, 2025, was £13.6 million, compared to a loss of £0.5 million in the same period in the prior year. Our adjusted PBT for the three months ended March 31, 2025, was £24.6 million, compared to £15.5 million for the same period in the prior year. Our adjusted PBT margin was .6% for the three months ended March 31, 2025, compared to .9% for the same period in the prior year. Our adjusted diluted EPS for the three months ended March 31, 2025, calculated on 59.4 million diluted shares as it compared to 22.0 for the same period in the prior year, calculated on 58.8 million diluted shares. Our adjusted diluted earnings per share in Q3 was stronger than our guide for the quarter of 31 to 32 pence. We were able to offset the revenue miss with a strong cost control of adjusted SG&A. Additionally, the share buyback started last quarter, had a minimal impact on adjusted EPS in the quarter. Revenue from our 10 largest clients accounted for 39% of revenue for three months ended March 31, 2025, compared to 34% for the same period last fiscal year. The average spend per client from our 10 largest clients increased from £5.9 million to £7.5 million for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, representing a 28% year over year increase. In the three months ended March 31, 2025, North America accounted for 37% of revenue, Europe for 22%, the UK for 35%, while the rest of the world accounted for 6%. Revenue from North America grew .1% for the three months ended March 31, 2025, over the same period last fiscal year, due mainly to the contribution of Galaxy. Comparing the same periods, revenue from Europe declined 10.4%, the UK grew 13.2%, and the rest of the world declined 16.0%. Adjusted free cash flowing was £17.5 million for the three months ended March 31, 2025, compared to £2.2 million during the same period last fiscal year. Our cash and cash equivalents at the end of the period totaled £68.3 million at March 31, 2025, compared to £62.4 million at June 30, 2024. Our borrowings totaled £136.5 million at March 31, 2025, compared to £144.8 million at June 30, 2024. Capital expenditure for the three months ended March 31, 2025, as a percentage of revenue was .6% compared to .8% in the same period last fiscal year. As an update on our share repurchase programme, Andava has repurchased approximately 2 million ADSs for $39.7 million as of April 30, 2025. As of April 30, 2025, $60.3 million remained for additional repurchases under the authorisation. Additionally, as John mentioned earlier, the Board of Directors of Andava has approved an additional $50 million of repurchases under the existing share repurchase programme. Before providing the guide, I'd like to provide some additional details. The US dollar has continued to weaken since we closed Q3, and this is providing additional significant headwinds. On a sequential basis, in Q4, it is contributing a negative 3% impact on growth. In addition, in North America, the conversion of deals in the opportunity pipeline into revenue continues to slow, reflecting a high level of client caution on spend, particularly in mobility and healthcare. Additionally, the rest of the slow more than expected when we last guided. The UK also continues to face headwinds while Europe is performing as expected. Now moving on to our outlook. Our guidance for Q4 fiscal year 2025 is as follows. Andava expects revenue to be in the range of £186 million to £188 million, representing constant currency revenue change of between minus .0% and 0% on a -over-year basis. Andava expects adjusted diluted EPS to be in the range of 22 to 24 pence per share. Our guidance for the full year fiscal year 2025 is as follows. Andava expects revenue to be in the range of £771.5 million to £773.5 million, representing constant currency revenue increase of between .0% and .5% on a -over-year basis. Andava expects adjusted diluted EPS to be in the range of 111 to 113 pence per share. This above guidance for Q4 fiscal year 2025 and the full year fiscal 2025 assumes the exchange rates on the April 30th 2025, when the exchange rate was £1 British pound to 1.34 US dollars and 1.18 euro. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Brian Bergen with TD Cowan. Please go ahead.

Hi, guys. Thank you for taking the question here. So, John, I wanted to dig into some of the challenges here and one of your perspectives on whether any changes internally over the last couple of years, whether the acquisition of Galaxy or anything like that has potentially compounded issues around execution while client demand has been more challenged. So, as we kind of step back and see some peers talking about more stability, what do you see as the biggest differences here?

Hi, Brian. Thanks for that. I think the biggest focus that we have is on getting some of these big deals that we have in our pipeline signed and over the line. And, you know, they're big swing items for us. We expected, as we guided last time, that we would close around 10 of these big deals and actually five of them closed. There were a number of factors. Two actually announced fairly quickly after our earnings call that they were in take private discussions and that refocused them and they deferred doing those deals as they went through that take private. And one announced a big cost takeout program and also deferred. And then there were two tariff related ones where they were in the automotive space and they had a big focus on looking at their supply chain, which obviously they prioritized above what they were looking at with us. None of those have gone away, but they have all been pushed back as a result of those external challenges coming in. Now, you're asking whether the internal changes have actually compounded things. We're not seeing that. We actually see the internal changes that we've made over the last two years have strengthened our conversations with clients. We're talking, you know, alongside the larger scale deals that we're working on. We're talking at more senior levels and much more imaginative types of work that we're working on. And those are directly resulting from the internal changes that we made, both in the technologies that we're bringing to bear, the ways in which we are structuring deals, but most importantly in the go to market and the conversations that we're having with clients. So, you know, we do feel we're in a little bit of an air pocket at the moment as we're shifting from, you know, the digital transformation work that we were doing and going through into this AI driven digital shift and the types of deals that go with that shifting with it. And we believe that we're positioning ourselves well. We can see those deals building in the pipeline. We now have 24 of those larger deals compared to 21 last time. Nine new ones. We won five. We lost one. Actually, it wasn't lost. It was just put on a very long pause. So, you know, that took us up from 21 last time to 24. So we continue to see that build and our focus is on getting those conversions through so that we can get it into revenue and start seeing an uptick in the revenue.

Okay. All right. That's very helpful detail. Thank you for that. And I guess as you step back and navigate this more challenging operating backdrop, how do you think about, you know, the workforce? Do you need to have additional optimization? And then from a forecasting standpoint too, does it require a change in the approach just given, you know, the volatility and client behavior?

I'll pick up on the workforce. I'll let Mark talk about the forecasting guidance. The, on the workforce side, there is quite a big shift going on in the types of skills and types of work that we're doing. You know, one extreme things like testing are dropping quite sharply. A lot of AI automation coming into that, needing less people to do the same amount of work. On the other side, a, you know, big uptick coming in AI data and cloud in particular. And a lot of re-skilling and a lot of the new people that are coming into the organization around those skills. And so that is also driving our attrition up a little bit at the moment as we make that shift from the oldest style skills that we had to the newer style. So a big shift going on there. It is one we are driving through. We're not finding that we're short of people or unable to start business that's coming through. So we feel confident we're making that shift well. Mark, do you want to talk about the forecast?

Yeah. A significant thing has been dollar GBP rates. I mean, since we guided mid-February, which was US dollar 124, we're guiding at 134. That's an 8% shift. We haven't really seen anything like this since Brexit. And that has taken off, certainly for Q4, about sort of 7 million of the previous guide alone. So it's quite a significant shift from an FX perspective. In terms of the big deals and in terms of the sort of guide, we have stripped them out because it is very difficult to predict timing. That is another big sort of shift. So in terms of the guide that we have for Q4, there is very limited amount of pipeline in it. Certainly at the top of the guide, there's something like 1% or so of the figure. And at the bottom of the guide, there is no basic pipeline in there. So we've taken what we believe is a very conservative view, given that the ability to predict when these bigger deals are going to land is proving extremely difficult. And I think also the other thing is there is still quite a bit of uncertainty, certainly in the US, where we have seen things slow. It's difficult to pinpoint whether it is things, to actually talk around tariffs, but we've certainly seen automotive sort of pullback and some of our logistics clients as well pullback. So we've been conservative with the outlook and we will remain conservative, I think, as we go forward.

Okay, I appreciate that. Thank you.

The next question comes from Tyler DuPont with Bank of America. Please go ahead.

Hi, good morning, John and Mark. Thanks for taking our questions. I just want to start by asking if you can discuss some of the pricing conversations you're currently having, given the macro environment has remained, let's call it choppy. It seems like certain vendors and your peers are seeing relative stability, others competing a little bit more aggressively for work. When you're having conversations with your clients, are they discussing it all about any pricing dynamics worth mentioning, any concessions or anything like that, that Indaba has been engaging with to try to secure wins or maintaining the deals that they have?

It's always competitive. It's got more competitive, is what I'd say. I think in terms of measure on an average basis, we are holding our day rates, basically. We obviously cut deals to win them. They tend to be at a larger level, so some of the bigger deals where to make it a more compelling proposition to the client, we will come to a construct that works for both of us. Pricing is competitive, but when you look at it on the average, certainly between Q2 and Q3, which is on an average revenue per head or an fairly stable, and that remains the case in terms of the Q4 guys. We have heard that people are pitching very aggressively for work, but we seem to be profitable in the work that we secure.

Great. That's helpful. Then I want to just touch on growth by geography. For starters, what was the organic growth in North America? You mentioned you've seen continued softness in North America, and in Europe it seems like things are trending as expected. UK is facing some incremental headwinds. I just want to gain a little bit of clarity on the types of projects that you're seeing relative stability in versus those that are beginning to see incremental pressure, and just any sizing of that would be appreciated.

North America has proved challenging in terms of Q3 year on year. It's not a great comparison basically because you have the full year impact of galaxy this year compared to last year. So, suddenly, sequentially, the exchange rates are relatively stable. Where we get the big movement is when you look at it going from Q3 to Q4. We were anticipating in the previous slide a reasonable sequential step up. We're no longer seeing that. It doesn't mean that North America is going backwards very strongly on a reported basis. It will probably be slightly below the level at which it is at the moment, but it would have grown a lot stronger if not for those FX headwinds, which are something like nearly, I think, about five, six million pounds. The headwinds that we're experiencing in North America in particular, most of it is FX driven, but there's certainly been a slowdown in some of the bigger deal conversion that we're anticipating, as John alluded to. More generally, also, it's been patchy in particular industry verticals like automotive, which resides within our mobility segment.

Just on the types of projects, so the growth areas are the AI data, cloud-based areas are where we're seeing the greatest demand, the greatest quick demand, if you like. The pipeline has a lot of core modernization demand. We're closing some of those, but we're not closing them at the rate yet that we would like to see. The areas where we're seeing clients turning things down or it being more competitive is the more commodity end. Obviously, we're driving away from the commodity end anyway in terms of our focus as a business, but things like the application maintenance and so on, it's not a huge part of our portfolio, but we are seeing clients going, is there a way of doing that cheaper?

Very helpful. Thanks, Chris.

The next question comes from Harry Reid with Redburn Atlantic. Please go ahead.

Hi, thanks for taking questions. I just wanted to ask on headcount. When I try and strip out Galaxy, I've got underlying headcount reducing by around high single digit. I was just curious how much of that is AI efficiency driven and how much is a reflection of potentially a more muted demand forecast for the next quarter and then into FY26?

There is productivity coming through, and that's partly what's helping maintain the pricing that Mark was touching on earlier. There's also a shift from the lower value activities that I was talking about earlier, things like testing, towards higher value. By higher value, I mean higher unit rates for things like data, AI, and cloud and so on. So the revenue per head over and above that shift is staying roughly stable. That explains the underlying drop in headcount versus the

revenue. Okay, great. Then maybe more of a housekeeping one. It looks like share-based comp as a percentage of sales has dropped versus the last couple of quarters. Do you think 3% is a sensible level to be modelling going forward?

Part of that is a fall away because of the performance. We're not going to meet the incentive targets for this year. Also, as we're looking at FY26, some of the wards which are you've got a big reduction in in quarter due to those two factors. So it is not representative as a percentage of revenue going forward. I think more realistic level is where we've usually guided, which is about 3% to 5% of revenue.

Okay, thank you. Then you mentioned testing on an area of efficiency gains. Are there any other areas that you have exposure to? One that comes to mind is BPO or any other areas where you're seeing AI automation driving some efficiencies?

We're not in BPO, let's be clear on that. AI driving efficiency applies to pretty much our whole business. So whether it's requirements gathering, doing consulting, doing development and so on, we're applying AI to that to make our teams more productive. Actually, I touched on quite a few on the call. We're seeing quite good productivity gains coming through. A lot of clients take that and actually then add additional work. So we're getting through their backlogs faster. So it's not turning down the amount of work, but it is making us more attractive from a delivery point of view to our clients because of the extra productivity that we have.

That's great. Thank you very much. Thanks, Harry.

The next question comes from Jonathan Lee with Guggenheim. Please go ahead.

Great. Good afternoon, guys. Thanks for taking my questions. I appreciate the candor around the current air pocket dynamic you called out earlier, but with the time it takes to ramp core monetization deals once they're signed, as well as the delays related to client decision-making you're seeing today, what gives you confidence that maybe there isn't risk of an extended revenue air pocket later this calendar year and potentially into next driven by a potential lack of large deal momentum here?

So I mean, I've sort through this call to give quite a bit of color on the deals that we're working on. I've highlighted that it is actually crucial for us to get out of their pocket to start closing these deals. And so we tried to get a little bit more disclosure on the ones that we're working on, how they're building up, the reasons why we didn't close quite as many, which were, well, I took you through those earlier. So we're trying to give you a lot more color than we would normally do to give you that understanding of what's coming through. It's a strange contrast for us because on the one hand, it is very exciting to have so many large deals progressing to late stages in our pipeline, but at the same time, extraordinarily frustrating that we're not seeing the signatures on them that push them over into seeing the revenue growth come through. And so we're just trying to give you a bit of color on that that I believe will start to pull us out of the air pocket much earlier than the timeframes that you were just talking about.

Thanks for that color, John. Just one follow up from me, given some of the ownership changes at one of your top customers, are you seeing any impact on spending or budget priorities there? And if so, how is that contemplating in your outlook?

So we are not seeing any negative dynamics there. And we are seeing contracts continuing to sign, etc. And there's a lot of momentum on the programs that we're working on.

I appreciate that. Thank you.

Thanks, Jonathan. The next question comes from Jamie Friedman with Susquehanna. Please go ahead.

John, the commentary on the customers is noted and appreciated and helpful. So thanks for that. So in terms of though looking at some of the things beyond your control, like exchange rates, I was just wondering, Mark, if you could help isolate some of the exchange rate impact either by some of the other dimensions, like which of these segments is more impacted by exchange rates? Is there any way to land the constant currency approximation for that? And then I have a quick follow up.

Are you talking about quarter on quarter or when you're posing that question, are you talking about Q4 or are you talking about Q3?

You know, it would be helpful if you could do it year over year. Like, you know, if one of these segments, I think expectations based on the peer performance was that some of these segments were stabilizing. If the as reported numbers for you belie that, could it be because of foreign exchange to some degree?

Well, it is. I mean, in the, well, certainly against the guide, there was an impact about this is, you know, we were previously guiding at the top 200 and basically the effects impact was about one, one and a half million. Most of that you would expect in North America. But actually, we do get some of that hit in the UK because the UK does build some of its clients in US dollars. The main impact by sector going from Q3 to certainly against, you know, the guide has been mainly in banking and capital markets

because

most of the pullback in banking capital markets was US in that space. And we also felt it in the healthcare sector as well. You know, we have a big client, North American healthcare. So we felt it there as well. So it's mainly those two sectors where it's certainly against Q3 that we are experiencing that sort of heckling from an effects perspective.

Okay, the top client, by my math, it contracted as a percentage of revenue about 190 basis, 2%, which is about $4 million of revenue. What's the backstory on that one? I'm just looking at row 63 of your fact sheet.

Yeah, so there's a good chunk of that is going to be effects.

Yeah, okay. Okay. And

also, there was some follow on work in terms of we were talking about the big deals that got delayed as well, a small amount, but there's also a delay in some forward work that we were expected to happen.

Okay. And then similar and last question about the total clients that are greater than a million. So that one shrunk to by about six. It's hard to put a number on that because we don't know where greater than a million starts or stops, but I mean, we know where it stops. We don't know where it starts. You know what I mean? But anyway, anything you could share about why you had six less clients doing greater than a million pounds?

Well, the greater than a million is on a rolling 12 month basis. So there's an element of clients dropping out of a quarter 12 months ago and additions this quarter. So as you have that done, it shows a little bit of a backward looking metric. The sort of movement in those five, we felt most of it has been in TMT, which is a segment that hasn't grown particularly well for us and other the rest of the sector like payments, BCM insurance were basically stable.

Got it. Thank you. I'll drop back in the queue.

The next question comes from funny. Can we with HSBC? Please go ahead.

Hi, all. Thanks for taking my question. So the first one is regarding utilization rate. What are your current utilization rates? And we do you expect it to trend during the four Q. The second one is regarding your guidance for EPS. What are the cost elements that are impacting your guidance for EPS? What is your gross margin that you're looking at? And are there any measures to get the EPS back if their demand environment doesn't improve?

So utilization in Q3, which was good, so about 72%. We anticipate it'll actually be about that level in Q4. In terms of the EPS, if you're talking about the Q4 reduction, there is a big, you know, previously we were guiding about implied guide about 35. So the FX has a very outweighed hit. There's about six or pence bringing it down. And then you have the revenue and gross margin compression that takes it down significantly. We are able to offset some of that through GNA savings and by a contribution from the shared buyback. But in terms of the sort of gross margin, as you go from Q3, which on an adjusted basis was about 33.5, it does benefit from the reversal of the bonus crawl because of the short form performance, which is about one and a half percent. So a normalized gross margin is about 32%. What we've got implied in the guide is that we will move up the margin by roughly half a percent through a mixture of, you know, holding pricing and an improvement on utilization. But what really takes it down significantly to a level of about 31% is this FX impact on the dollar because the proportion of revenues that we now have, certainly in sort of Q4, are significant. There's so if you have a pullback in terms of the FX rate from, you know, a 124 to, you know, a 134, you have a significant sort of headwind and reduction in the revenue, which you've outlined in the guide about 7 million. The cost base is not dollar heavy. So that pullback on FX has quite a significant impact on the gross margin. And just to give you a sense of the sort of sensitivity to the dollar, so say if the dollar moved to, say, 130, we would potentially get something like a 1% movement on the gross margin.

Okay, yeah, that's helpful, Mark. So one other question that I had was that you mentioned that you had some integration benefits from Galaxy that will start flowing through this quarter. So going forward, are all the integration benefits already factored in the guidance and have all of them been recorded in 3Q? Yeah,

most of the benefits that we were getting were in GNA. So we have obviously sort of baked that in. As we sort of comments around sort of like the Q3 EPS, we're able to absorb weakness in the revenue and gross margin by savings on SGNA. So we've not only done it through, you know, the integration with sort of Galaxy, we've done it elsewhere. We're absorbing revenue shortfall and gross margin impact by those synergies that we've secured thus far. I mean, there is further to go, I think, looking forward into FY26 with further integration with Galaxy as we put together our global delivery model. But that will be come through operational efficiency, if I can put it in GNA. Thank

you.

Thank you.

The next question comes from James Fauset with Morgan Stanley. Please go ahead.

Thank you so much and appreciate all the color here. I want to ask a couple of questions related to types of engagement. First, any meaningful traction that you're seeing around GNAI and scaling of those from proof of concept and, you know, movement there as we think about that as a gross driver?

Yeah, we are seeing a pickup in that. But there's also a shift and we're seeing more opportunities resulting from the shift, which is in the commercial world using agentic AI, which essentially is teams of AI agents. You can get much better, you know, in the GNAI, in the GNAI, in the GNAI, quality of output, much better reliability, much better accuracy, and you bring in more intelligence to bear. And actually, you know, we're finding there's more applications for that that are really viable in the enterprise space. And so we're seeing more pickup into the larger project delivery activities that we're doing, some of which I touched on in the opening remarks. Then we are in just the pure GNAI type solutions. It's one of the areas where we've been working really well with open AI and Google, hence the announcements about the partnerships and, you know, the leads that are coming through that. So, yeah, we are seeing real traction in that and into larger scale engagements.

Interesting. And as that's happening, how should we think about that and how or maybe how are you thinking about that as a proportion of work or bookings? And I just wonder, you know, if that's going to if you're thinking about that as displacing some of your normal run of and course of work, or are you looking at those as incremental, or just any color on sizing would be helpful. Thank you.

We actually see it as a digital shift where, you know, the traditional digital work that we have been doing is shifting into an AI enabled space. And so, you know, over the next couple of years and over the last year or so, the shift of product work that we've been doing historically that was very digital oriented in many sectors is shifting to be an AI enabled product capability. So, ultimately, we see the entire organization either in the functionality that is AI enabled or in the way in which you deliver it being AI enabled. And we are well into that shift now.

That's great. Thanks for all the commentary this morning.

Thanks,

James.

This concludes our question and answer session. I would like to turn the conference back over to John Cottrell, CEO, for any closing remarks.

Thank you, and thank you all for joining us today. As I mentioned in my prepared remarks, the business environment continues to evolve rapidly. We are witnessing an increased level of global macroeconomic turbulence since our last earnings call. And while our opportunity pipeline continues to grow, it is not converting into signed deals and thus into revenue at the rate that we anticipated last quarter. And as a result, we continue to have an elongated ideation to production cycle. In that environment, we are focusing on getting those deals closed and to control what we can to the best position the business for the long term. I look forward to speaking to you on our next earnings call in September. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.