Endava (DAVA) investor relations material

Industry trends and demand environment

• IT services experienced a post-COVID digital transformation surge, followed by a recent slowdown as enterprises tightened technology budgets and faced macroeconomic headwinds.

• Current market uncertainty is driven by rapid AI advancements, causing clients to delay large-scale projects and extend ideation phases up to 18–24 months.

• Despite concerns, Gen AI and Agentic AI are expected to create deeper, more transformative opportunities, requiring significant core system changes.

• Delays in project scaling are attributed to the complexity and depth of AI-driven programs, which surpass previous digital transformation efforts.

• Client concerns have shifted from security and scalability to managing rapid technology change and business case clarity.

Deal pipeline, revenue, and guidance

• Eight large deals were closed in Q4, contributing to the largest order book ever, though revenue impact is back-end loaded and not yet fully visible.

• The pipeline includes 24–25 large deals (over $5 million each), with only landed deals included in guidance; timing of conversion remains uncertain.

• Larger deals are trending toward longer contract durations and outcome-based pricing, moving away from traditional time-and-materials models.

• About 70% of annual revenue is contracted and committed, with growth expected to accelerate in the second half as large deals ramp up.

• Profitability is expected to decline in Q1 due to bonus reinstatement and AI investments, with adjusted PBT projected to end the year at 8%.

Client and sector focus

• Strategic focus is shifting toward larger clients, reducing the number of smaller, less profitable accounts.

• Top 10 clients now account for 37% of revenue, up from 32%, with continued commitment and increased spend among this group.

• North America shows good momentum, while payments and TMT sectors remain under pressure; banking and capital markets are growing, and automotive is recovering.

• Weakness in payments is driven by new competitors, margin pressure, and a shift toward M&A over technology investment among traditional players.

• The technology vertical remains stable, with some declines due to specific client events, such as project cancellations in media.