Endava (NYSE:DAVA), a technology service provider specializing in IT and digital advisory, reported fiscal 2025 second-quarter results on Thursday, Feb. 20, that fell short of analysts' consensus expectations. Revenue of 195.6 million British pounds rose 6.6% year over year but missed the expected 246 million pounds. Adjusted EPS remained stable at 0.30 pounds, missing the 0.31 pounds anticipated by the market.
The quarter presented a mixed picture with revenue growth amid profitability concerns, underlined by a significant drop in profit before tax to 2.5 million pounds from 10.6 million pounds.
| Metric | Q2 FY2025 | Analysts' Estimate | Q2 FY2024 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | 0.30 pounds | 0.31 pounds | 0.30 pounds | 0.0% |
| Revenue | 195.6 million pounds | 246 million pounds | 183.6 million pounds | 6.6% |
| Adj. profit before tax | 21.8 million pounds | - | 22.7 million pounds | (4%) |
| Adj. free cash flow | 31.6 million pounds | - | 33.6 million pounds | (6%) |
Source: Endava. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
About Endava
Endava is a technology service company providing a comprehensive range of digital advisory services. These services include IT strategies, digital product design, and a suite of engineering services such as automation testing and cloud computing. The company's recent focus areas include expanding its offerings in advanced technologies like artificial intelligence (AI) and cloud engineering. Success in these areas depends heavily on leveraging its strengths in diverse service offerings, a collaborative service model, and a strong international presence.
Endava's strategic focus is on industries experiencing rapid digital transformation, such as consumer products, healthcare, and retail. By maintaining a diversified service portfolio and an adaptable service delivery model, Endava positions itself to cater to a wide range of client needs and market trends.
Quarter Overview and Highlights
Endava faced challenges in maintaining profit margins in fiscal 2025's Q2. Among profitability measures, the adjusted profit before tax decreased from 22.7 million pounds to 21.8 million pounds, with the profit margin narrowing from 12.4% to 11.2%.
In its service strategy, Endava emphasizes the adoption of generative AI and machine learning, which aligns with its strategic focus and market demand trends. CEO John Cotterell noted, "Gen AI adoption is becoming a key priority for clients," reinforcing the company's dedication to advanced technologies.
Despite revenue misses, international operations showed a notable geographic revenue shift with its North American constituents increasing to 39% of overall revenue while the U.K. slightly decreased to 32%. The top 10 clients took a larger revenue share, rising to 36% from 34%, signaling increased reliance on key partnerships.
Endava launched a $100 million share repurchase program reflecting its confidence in value creation and long-term strategy. This initiative, subject to shareholder approval, will depend on prevailing market conditions for execution.
Outlook and Investor Considerations
Looking forward, Endava forecasts fiscal 2025 Q3 revenue between 198 million pounds and 200 million pounds, predicting a 13% to 14% increase at constant currency. Adjusted diluted EPS is projected at 0.31 pounds to 0.32 pounds. For the full fiscal year, the company anticipates revenue in the range of 795 million pounds to 800 million pounds and an adjusted diluted EPS of 1.20 pounds to 1.23 pounds, suggesting cautious optimism despite recent challenges.
Investors should watch for Endava's execution on strategic initiatives, including the integration of emerging technologies like AI, which could drive further revenue and market engagement. Observers will also focus on any updates to client acquisition and retention strategies, particularly given the critical revenue shares held by its top clients.
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