Executive Summary
Endava reported QQ3 2024 revenue of GBP 174.4 million, down 14.3% year over year (YoY) and 11.8% in constant currency, with no GalaxE contribution in the quarter. Despite the topline decline, management emphasized a rebound-driven medium-term opportunity from AI-enabled core modernization and enterprise transformation. The company closed the GalaxE acquisition in April 2024, and guided for Q4 FY2024 revenue of GBP 195–197 million (up 3.5–4.5% YoY in constant currency, including GalaxE) and full-year FY2024 revenue of GBP 741–743 million (constant currency down 4.0% to 4.5%). Adj. diluted EPS for the quarter was GBP 0.22; GAAP net income was negative at GBP -1.74 million, reflecting operating headwinds and integration-related costs. Endava entered the quarter with a strong liquidity position (cash and cash equivalents of GBP 190.0 million) and a net cash surplus (net debt of GBP -132.8 million) despite M&A-related cash outlays (GBP -129 million for GalaxE in April). Management underscored a high level of visibility, with contracted and committed revenue at 99% of the Q4 guide. The strategic narrative centers on leveraging AI to transform core data and processes, expanding offerings through GalaxE (notably in US healthcare), and driving margin uplift through bench reductions and SG&A normalization as integration progresses. Investors should monitor GalaxE integration milestones, pipeline velocity, utilization trends, and the pace of discretionary spend re-accelerating in a slower macro environment.
Key Performance Indicators
QoQ: -5.01% | YoY:-14.33%
QoQ: -17.11% | YoY:-42.46%
QoQ: -139.67% | YoY:-106.09%
QoQ: -120.81% | YoY:-107.13%
QoQ: -121.21% | YoY:-107.07%
Key Insights
Revenue: GBP 174.365 million, down 14.3% YoY; cost of revenue: GBP 137.172 million; gross profit: GBP 37.193 million; gross margin: 21.33%; operating income: GBP -1.832 million; EBITDA: GBP 6.715 million; EBITDA margin: 3.85%; adjusted PBT: GBP 15.5 million; adjusted PBT margin: 8.9%; net income: GBP -1.737 million; diluted EPS: GBP -0.0295; adjusted diluted EPS: GBP 0.22; weighted average diluted shares: 58.8 million; operating cash flow: GBP 3.008 million; free cash flow: GBP 1.512 million; ca...
Financial Highlights
Revenue: GBP 174.365 million, down 14.3% YoY; cost of revenue: GBP 137.172 million; gross profit: GBP 37.193 million; gross margin: 21.33%; operating income: GBP -1.832 million; EBITDA: GBP 6.715 million; EBITDA margin: 3.85%; adjusted PBT: GBP 15.5 million; adjusted PBT margin: 8.9%; net income: GBP -1.737 million; diluted EPS: GBP -0.0295; adjusted diluted EPS: GBP 0.22; weighted average diluted shares: 58.8 million; operating cash flow: GBP 3.008 million; free cash flow: GBP 1.512 million; cash/end period: GBP 190.021 million; net debt: GBP -132.760 million; current ratio: 3.43; gross margin (reported): 21.3%; net margin: -0.99%. Ten largest clients accounted for 34% of revenue; average spend per top client: GBP 5.9 million (down from GBP 6.8m); geographic mix (Q3): North America 30%, Europe 28%, UK 35%, Rest of World 7%. Headcount: 11,025 employees, down 6.1% YoY. Guidance for Q4 FY2024: GBP 195–197 million revenue; adjusted diluted EPS GBP 0.22–0.23; full-year FY2024: GBP 741–743 million revenue; adjusted diluted EPS GBP 1.13–1.14. Contracted and committed revenue within the guide: 99%. GalaxE contributed 0% in QQ3; net capital expenditures as % of revenue: 0.8%.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
174.37M |
-14.33% |
-5.01% |
| Gross Profit |
37.19M |
-42.46% |
-17.11% |
| Operating Income |
-1.83M |
-106.09% |
-139.67% |
| Net Income |
-1.74M |
-107.13% |
-120.81% |
| EPS |
-0.03 |
-107.07% |
-121.21% |
Key Financial Ratios
operatingProfitMargin
-1.05%
operatingCashFlowPerShare
$0.05
freeCashFlowPerShare
$0.03
priceEarningsRatio
-252.48
Management Commentary
Strategy and AI. John Cotterell emphasized a shift from surface-level digital transformation to deep core modernization enabled by AI: "pent-up demand for technology services to undertake and complete digital transformation and to get ready for generative AI" and highlighted Endava’s differentiated core-modernization capabilities and patent-driven approach. GalaxE integration and opportunities. John noted GalaxE brings US healthcare relationships and near-term cross-sell opportunities; Mark quantified the uplift: GalaxE contributes roughly GBP 21 million of quarterly run-rate revenue within the range commentary. Morpheus AI accelerator. Endava introduced Morpheus as an AI accelerator to operationalize LLMs around data with multi-agent teams, enabling regulated-industries value (healthcare, legal, insurance) and accelerating AI-enabled production projects. Backlog and visibility. John cited a growing backlog of discovery-work with clients, underpinning near-term guidance; Mark reiterated 99% contracted and committed coverage, underscoring high visibility into the Q4 guide. Operational execution. Management discussed integration costs for GalaxE in the near term but expected margins to improve in FY25 as synergies and utilization improve; they also flagged ongoing investments in people and acceleration of AI capabilities. Market dynamics. The team framed AI as a long-term growth driver offset by short-term demand headwinds, with pent-up demand set to drive a recovery as clients invest in data, AI, and core modernization.
"pent-up demand for technology services to undertake and complete digital transformation and to get ready for generative AI"
— John Cotterell
"contracted and committed percentage is 99% within that guide"
— Mark Thurston
Forward Guidance
Near-term outlook remains cautious but constructive. Q4 FY2024 guidance incorporates GalaxE, implying a sequential uplift of 12–13% at the top and bottom line; excluding GalaxE, the guide is broadly flat versus Q3. Revenue guidance for Q4: GBP 195–197 million, representing 3.5–4.5% constant currency growth year over year; adjusted diluted EPS guidance GBP 0.22–0.23. Full-year FY2024 revenue guidance GBP 741–743 million, representing a constant currency decline of 4.0%–4.5% YoY; adjusted diluted EPS GBP 1.13–1.14. Assumptions include GBP/USD around 1.25 and EUR/USD around 1.17 as of April 30, 2024. Key levers for upside include faster pipeline-to-signature conversion, stronger utilization to lift gross margins toward 33–34% in Q4 (from 31–32% range implied by guide), and faster SG&A normalization post-GalaxE integration. Investors should monitor: (1) GalaxE integration progress and impact on margins; (2) velocity of pipeline conversion and real-time backlog conversion into contracted revenue; (3) utilization and bench dynamics; (4) potential acceleration in AI-related bookings (healthcare, financial services, automotive) driven by Morpheus and related accelerators.