Endava at TD Cowen Conference: Navigating Demand Challenges

On Wednesday, 28 May 2025, Endava (NYSE:DAVA) presented at TD Cowen’s 53rd Annual Technology, Media & Telecom Conference 2025. The discussion, led by CFO Mark Thurston, highlighted both opportunities and challenges for the company. While Endava faces a slowdown in client demand, particularly in North America, it is focusing on larger, outcome-based deals and leveraging AI to maintain its competitive edge.

Key Takeaways

• Endava is experiencing a slowdown in client demand, notably in North America.
• The company is shifting towards larger deals, emphasizing AI and core modernization.
• Q4 guidance was revised downward due to market uncertainties and currency impacts.
• Endava is maintaining stable margins despite competitive pricing pressures.
• The integration of the Galaxy acquisition is on track, enhancing AI capabilities.

Financial Results

Endava’s recent performance has been impacted by a slowdown in demand, particularly in North America, affecting sectors such as banking, capital markets, mobility, and healthcare. The company initially expected modest sequential growth, but this was not realized. Unfavorable currency exchange rates further affected the reported figures.

In response to these challenges, Endava revised its Q4 guidance downward. The company plans to focus on run-rate business performance and exclude potential large deals from forecasts until they are secured. Traditional forecasting methods will be supplemented with a more cautious approach.

Despite competitive pricing pressures, Endava has maintained stable margins. The average workday rate has remained flat for about eight quarters, and the company is willing to adjust pricing based on strategic importance and potential long-term value. However, historical profitability targets may not be achievable in the current environment, with expectations now set for high 30s gross margin and mid-to-high teens adjusted PBT.

Operational Updates

Endava is pivoting towards larger deals, ranging from GBP 5 million to GBP 10 million, to drive revenue growth. These deals require more certainty around spend and outcomes, prompting the creation of a strategic deals team to manage the process. Currently, there are approximately 24 large deals in the pipeline, with slower-than-expected conversion rates due to protracted negotiations. However, signed deals are expected to contribute significantly to FY 2026 revenue.

The integration of the Galaxy acquisition is progressing as expected, with the company on track to fully integrate delivery models throughout FY 2026. This acquisition is enhancing Endava’s AI capabilities, allowing the company to explore AI agents to augment human teams and develop value-based pricing models.

Future Outlook

Looking ahead, Endava anticipates a gradual improvement in client demand as macroeconomic uncertainties ease. The company remains focused on securing large deals and improving pipeline conversion rates. Endava is confident in its ability to capitalize on the growing demand for AI solutions and core modernization, which require significant engineering expertise.

The company is committed to maintaining stable margins and avoiding aggressive price competition. While AI and tooling may impact profitability, Endava believes it can deliver sustainable value to clients.

Q&A Highlights

During the Q&A session, Mark Thurston addressed the adoption of generative AI, noting that demand is moving from pilot phases to production, albeit on a small scale. Applications include back-office efficiency, clinical trials, and onboarding. Core modernization is seen as a larger opportunity for unlocking benefits from enterprise-wide AI adoption.

Endava is not overly concerned about the potential cannibalization of services due to AI, as technology is expected to enhance productivity and throughput. The company aims to deliver faster, better-quality engineered products by leveraging technology advancements.

In conclusion, readers interested in a detailed analysis of Endava’s strategy and financial performance can refer to the full transcript for further insights.

Full transcript - TD Cowen’s 53rd Annual Technology, Media & Telecom Conference 2025:

Brian Bergen, Analyst, TD Cowen: We’re going to get started here. I’m Brian Bergen from TD Cowen. I cover payments and IT services. Thank you all for joining us. With us today we’re Fireside with Endava.

Endava is a digital engineering provider with over 11,000 global professionals. Its heritage base of operations is in Central Europe but it’s growing increasingly global with employees across 29 countries now and it also includes a more nascent growing base in APAC and we’ll certainly get into that. Company has been focused on industry and with us from Endava is CFO Mark Thurston. So Mark thanks for being here.

Mark Thurston, CFO, Endava: Not so bad.

Brian Bergen, Analyst, TD Cowen: I was looking back since 2015, ’10 years in April.

Mark Thurston, CFO, Endava: Yeah, yeah, long time.

Brian Bergen, Analyst, TD Cowen: Happy anniversary.

Mark Thurston, CFO, Endava: Thank you.

Brian Bergen, Analyst, TD Cowen: We also have Lawrence Madsen here head of IR and ESG in the room so thank you for being here. I think most important question for all of us is demand right current demand. So let’s get right into that and on growth. So Mark if you can discuss what you’re currently seeing in client demand, just walk us through how you planned for demand as you entered fiscal twenty twenty five, how that evolved before the U. S.

Election and then what’s transpired since?

Mark Thurston, CFO, Endava: So we thought we were going to see a sequential modest growth quarter on quarter when we were guiding back in September. It started to flatten. We could still see the pipelines there or opportunities that supported the original guide. We trimmed it in February. So we were going sort of flatter, but we expected an inflection point in Q4.

What we were seeing was more geographical than anything. So we were seeing sort of weakness in The UK, which is one of our biggest markets in Continental Europe. And this is all pre Trump’s election. So we saw weakness, but we thought we sort of trimmed it enough. And I think what we’d seen since, we put our figures in mid May is North America go very sort of soft on us.

And partly because of where the dollar is at the moment, we’re GBP reporter, so that hurts us. I think particular sort of sectors in North America were banking capital markets and mobility and these sort of health care for us. I think some of that might have been reaction to discussions around sort of tariffs certainly in the automotive sort of side. It wasn’t just North America. We saw some weakness in what we call rest of world, but mainly Asia Pacific.

The other thing which we’ve also found difficult, we’ve sort of moved more focus into bigger deals, so they have a longer sort of duration. And I’m sure we’re going to touch on it later. But actually, the cadence which they move through the pipeline, which has been difficult anyway over the last two years or so, has been extremely elongated. And we weren’t seeing opportunities that we thought would land. So we took the guide down quite strongly in Q4.

So since the earnings call, there hasn’t been any sort of significant change. I mean there’s been a lot going on in terms of tariff conversations, etcetera. It just adds to the uncertainty basically that is out there. But I think the guide that we’ve given is derisked.

Brian Bergen, Analyst, TD Cowen: Okay. As you think about those conversations you’ve been having in the last couple of weeks, just what does that tell you about the second half of twenty twenty five, just kind of the budget potential? Do you think it’s just kind of a slower progression until

Mark Thurston, CFO, Endava: deals are think so. I mean we I think I got all to our sort of guidance methodology. Typically what we’ve done, we do a very sort of granular bottom up forecast. This is, let’s call it, the traditional sort of business. And take a view on it and try and layer in some conservatism around that which hasn’t been conservative enough.

And then you layer on the timing of these larger deals, which we’re finding difficult to sort of predict. And you’ve got another layer of sort of uncertainty. So I think the approach that we’ll be taking is looking at the run rate of the business certainly as we come out of the June and coming to a view about what’s the run rate on it. Is it 1% sequential, zero? We won’t be, I don’t think, putting in anything for a big deal unless we’ve sort landed it.

Because they do step change. So we’d have a run rate and they would step. We’re presenting the budget to board. I’ll be using a similar sort of methodology when I’m taking them through what the budget figure we want for the year is. So we will take a different approach and I think it’s the right one in this market.

So we see some real evidence that pipelines are moving and the cadence that we used to see is returning.

Brian Bergen, Analyst, TD Cowen: Okay. Well, let’s double click on the large deal. So they’ve become a greater focus for you, I guess over the last two years or speaking months, Yes. So talk about why that is and how does that differ versus the heritage pursuits in digital engineering?

Mark Thurston, CFO, Endava: So I think it’s a function of size. We’re about $1,000,000,000 revenue. You’re going to make those step changes with fewer larger clients. And we do have larger clients anyway. We’ve got strengths with payments in the likes of Mastercard and Worldpay.

Those engagements are typically different to what we’re envisaging with what I call sort of big deals now, where they’ve been framework agreements, they’ve been minimum commit, but essentially a big function of it is time and material. I think the market is changing somewhat, so that larger type of engagement where a client will want more certainty around spend and out outcome. What are they going to get? So you’ve got a change in the way at that end the market is buying, which we’re responding to. And I think the other thing as well, we’ve got a confluence with AI being a disruptive technology.

We’re sort of convinced that enterprises will get the best value out of the solutions by actually dealing with the core. The core systems, because the data is siloed. All those benefits will come through that. And that’s part of the reason for the Galaxy acquisition. So that unleashing the benefits of AI is going to come through those larger deeper engagements.

And that’s our belief. And that’s why we sort of pushed more recently, last twelve months on the core modernization prop.

Brian Bergen, Analyst, TD Cowen: Okay.

Mark Thurston, CFO, Endava: I think way that we will do things will change as well. With the tooling, with AI, I think there’s still a lot of time and material in terms of, let’s call it, the digital transformation work that we’ve always done. But it will migrate to something different over a period of years.

Brian Bergen, Analyst, TD Cowen: Okay. All right. So an evolution of the company naturally with size, the way clients are buying and just AI being more incorporated, what you’ve called core modernization?

Mark Thurston, CFO, Endava: Yes.

Brian Bergen, Analyst, TD Cowen: Okay. When we talk and I guess just for context from a large deal standpoint, what is the threshold for a large deal that we’re talking about here? And how does that compare to like an ACV level of past We tend to look

Mark Thurston, CFO, Endava: at anything as a minimum, which is quite small, a GBP 5,000,000 or GBP 10,000,000. The deals that sort of sit in there have a variety of tenure. You can have some that are five years, seven years, three years. They could be €90,000,000. They could be $50,000,000, 50 million sterling.

So there’s quite a range. They tend to be more at the bigger end now actually. One of the also the change over the last sort of two years is we go to market through industries. But we have pulled out what we’re calling a strategic deals team to think about how you formulate these commercial constructs that will excite a client because of our technology sort of smarts. But how are we going to give them the outcomes they want at a reasonable sort of price.

So they sort of sit outside the industry vertical, but they help the industry verticals land those larger deals and manage the process.

Brian Bergen, Analyst, TD Cowen: Is that typically newer clients you’re going after or that new and existing?

Mark Thurston, CFO, Endava: It’s a mix. So we can have deals with some of our larger clients. They’re not exactly sort of renewals because the shape of it is sort of changing. Some of them are with clients where they’ve started small through the usual sort of TMM work and the client has seen what we can do and then wants to make the next big sort of step. And we’ve seen that in a number of sort of sectors.

And then there are others where they are brand new, where it’s coming from reputation. Mainly I’d say on that part, it’s financial services, is our sort of heritage. Why it’s been quite difficult for us certainly sort of payments over the last sort of couple of years. So it’s a mixture of all of the above basically.

Brian Bergen, Analyst, TD Cowen: Okay. And you talked about the pipeline growing, just the conversion being slow on these. You’ve signed some in year? Yes. Did those contribute to this year?

Is it more so a story for next year and beyond?

Mark Thurston, CFO, Endava: They’re mainly a story for next year. I think we expected we’ve got, I think at the moment, probably about 24 live. This was back in a couple of weeks ago. We expected since February about 10 of these deals convert, about five did. The five that didn’t are still there, painfully sort of going through the process of contract negotiation.

But they won’t produce anything meaningful until our FY 2026, which is post June.

Brian Bergen, Analyst, TD Cowen: Okay. All right. You mentioned well, a bit of a guidance framework. So you mentioned some changes there. Can you kind of build that up for us as far as first off, what are you assuming from a client standpoint, macro backdrop standpoint?

What do you have in there as far as backlog coverage, contracted work, things like that?

Mark Thurston, CFO, Endava: So when we go into any year, we split our forecast into contracted and committed revenue. But basically, it’s backed up by a backlog of work that we think will burn at a certain rate. Sometimes it doesn’t, which is what we’ve seen over the last sort of two years. But that sort of underpins the visibility that we have. And then it’s about the pipeline opportunity.

So these are either opportunities in existing sort of clients. We sort of discussed sort of the bigger sort of deals. And we grade them by where we think they are in the pipe basically. Are they things that we know the client is wanting to do. We know they’re on their backlog.

They’re not typically competitive. Although surprises. Or they may delay this sort of progress. We characterize the pipeline in terms of, I’ll call it certainty or waiting and incorporate that into our bottom up sort of forecast. And again, we’ve been doing it for a long time.

We have until very recently had a very good track record of beat and raise. It’s then looking at those proportions of when it’s contracted and committed I. The backlog, proportion of the revenue that we can see and then that weighting of those sort of pipelines. So I think we will go through that same process that we’ve always done. I think there’s going to be a higher level skepticism which we’ve tried to apply as we’ve gone through our fiscal sort of ’25.

And then it’s getting a sense from conversations with clients about where they are in terms of their commitment to spend, etc. The clients do need to spend. This is the frustrating thing about the big deals. We’re told they need savings this year. They need to progress.

But there is this reticence to actually proceed which is highly frustrating.

Brian Bergen, Analyst, TD Cowen: Yeah, that’s I guess a key question. What’s just going to get clients over the line here? A lot of vendors talking about building backlogs, not talking about cancellations, things like Yeah. Is it just time you think?

Mark Thurston, CFO, Endava: I think it is. I think uncertainty is high. Mean, macros have a sort of broad term, but it does sort of weigh on decision making. I think the technology weighs on decision making as well. I think certainly in terms of AI, I think euphoria has come off and there’s talk about in the trough of despair.

I think maybe overstating it a little bit. But there is an issue about how you get a disruptive technology like AI enterprise wide and actually delivering benefits. So I think people will pull back a little bit to see. But they’re going to have to move at some stage or else they’re going to lose competitive advantage.

Brian Bergen, Analyst, TD Cowen: Yes. We think about this group historically, it was a 20% kind of consensus growing group or better. As you kind of step back and think about some of the trends, whether how clients are buying in these larger deals, AI being incorporated around them, do you think there’s a structurally different trajectory for the industry going forward?

Mark Thurston, CFO, Endava: I don’t think so. It might sound a little glib. I mean, what Endava has been very good at is engineering solutions for clients and delivering sort of benefits. I think with AI, I don’t think clients will be able to hire some smart people and deploy the technology at an enterprise level. There’s going to be a big engineering challenge to do it.

And they will need expert help, which is what Endava sort of does. It’s part of its DNA. So I think it will come back, whether it’s 1520%. I don’t think it fundamentally sort of changes that thesis.

Brian Bergen, Analyst, TD Cowen: Okay. Okay. And I guess as it relates to your fiscal year, you’ll be reporting in I guess September. So you’ll least hopefully have some time here to get some macro uncertainties abating. Yes.

Okay. Let’s talk about pricing and kind of deal economics. So there have been some peers that have noted more competitive behavior in the market. And for those that don’t accommodate on that, it certainly can drive slower growth. What are you seeing there as it relates to pricing and deal contract terms in the market?

Mark Thurston, CFO, Endava: So I think it competitive. We have seen some players being very aggressive. I think you can see it in their margins. Our sort of stance is we’ve kept it stable. And when I say stable and it’s still talking about the sort of T and M work time and material based on an average workday rate.

It is basically flat for us for about eight quarters or so. So we tend not to sacrifice margin if we can possibly help. It will depend on the deal, whether it’s key to a particular industry vertical or establishes our credentials. So we take those sort of softer criteria into account. But our sort of experience is that if we do give way on price and we try to move up price later, it’s very difficult to do And it comes back to what do we think about the cycle, will it come back?

I think it will. You will find it very difficult to move prices up when it does come back.

Brian Bergen, Analyst, TD Cowen: Is that differing by geography or vertical, anything to call out?

Mark Thurston, CFO, Endava: No, not particularly. Okay.

Brian Bergen, Analyst, TD Cowen: Galaxy, so the largest transaction that Endava has done. Let’s talk about rationale there. What did that kind of fill from a capability set for you?

Mark Thurston, CFO, Endava: So the we tend when we tend to buy businesses to extend the geography of the market So Galaxy was North America. North America is the biggest market for IT services. We wanted to diversify away from financial services and payments in particular. Galaxy is predominantly sort of healthcare.

And then looking at it from a geography perspective in terms of where the work is delivered, so it’s India. So Endava is quite unusual given the size we are of not having an engine component as we sort of call it, which makes us attractive to our existing clients and our new clients as well. So those are the geographic aspects of it. The technical part of it is Galaxy had a number of they didn’t call it this, but we call them accelerators, which are using a word, we’re debating internally about automations to deliver work quicker in terms of work on legacy core systems. Now they didn’t really have a core modernization prop, as we would call it now, We’re using our own tools such as Kronos, which tells you where a core is hot or cold in terms of people going in and using it.

But also bringing in AI to take the artifacts from those accelerators to then build out workflows and plans, etcetera, from it. So the accelerators were very interesting to us as well. And we looked at it thought, is an adjacent market. And in terms of the sort of big theme about where AI is going, where we no longer really possible to work on the periphery of the core, which is what Endava has traditionally done, it took us into the core and added capability for us. So strategically, a good deal for us.

Brian Bergen, Analyst, TD Cowen: Okay. And since the deal has been closed, talk about integration and performance of the business.

Mark Thurston, CFO, Endava: They’ve performed as expected. It has come off, think, because of the uncertainty around the macro, But actually, they’ve held up pretty well. We haven’t uncovered any surprises after the initial sort of integration phase. They have gone on to our Oracle platform. Might have been a bit risky at the quarter end, March, with no drama.

They are getting into the cadence in which Endava works. We have one way of doing things. So there’s a modification in terms of forecasting and the grading of people and how we shape work together. And that will sort of come, those are softer sort of integration facets as we go through FY sort of ’26. So far it’s been, it’s worked well.

We’re not fully integrated from a work process. So Galaxy tends to use its people for delivery at the moment. We do use Endava’s staff for some of the newer proposals. And we are sometimes also using some of the Galaxy workforce and some of the Endava props. But this is a false way of looking at it.

It’s all Endava. So we’re not fully integrated from a sort of delivery model yet.

Brian Bergen, Analyst, TD Cowen: How long do you think that is going to take? And I guess as you go forward, are you going to be delivering on an engagement from multiple geographies or is it components of work that you kind of break apart?

Mark Thurston, CFO, Endava: I think it’s going to be multiple. I think we can ultimately get the blend of onshore, nearshore, offshore, but it will depend on what the client wants. The things that we’re seeing at the moment, it tends to be either it’s sort of offshore part of it or it’s nearshore. I think it’s like blending that overall sort of solution.

Brian Bergen, Analyst, TD Cowen: Okay. As you do that and as we think about kind of the historical profitability of the business, at optimal growth 40% plus gross margin, right, and 20 plus percent PBT, is that something you get back to with this new model? Is it different?

Mark Thurston, CFO, Endava: I think what will be different is AI and tooling. Okay. And AgenTika AI in particular. I think when we IPO ed back in I think 2018, we always thought we would get to the high 30s and mid teens and we sort of went straight through I think it’s going to be at that level. It’s sort of in the high 30s And I think the adjusted PBT in the mid to sort of high teens.

I think the 40%, twenty % was quite high.

Brian Bergen, Analyst, TD Cowen: It’s accelerated growth, yes. Okay.

Mark Thurston, CFO, Endava: Yes.

Brian Bergen, Analyst, TD Cowen: Let me just pause here, see if there are any questions in the audience. Let’s key in on Gen AI. As far as what you’re seeing in client engagements, how prevalent is demand and kind of how what is most common, I guess, as you work through some of these client engagements, understanding it’s still early?

Mark Thurston, CFO, Endava: Yeah, I think it’s definitely coming. It’s moved out of pilot into production, but it’s still small, basically. And it sometimes feels like two steps forward, one step backwards as sometimes with clients in terms of their confidence to proceed with things. I’d say it’s a broad areas that we’re working on. We’re sort of working in healthcare, banking, capital markets, insurance.

A range of projects. They can be back office sort of efficiency. Some can be running clinical with pharma for instance, clinical trials more efficiently for the regulator. Some can be onboarding. So it’s a complete sort of spectrum.

It’s not all about back office efficiency, etcetera. I think it will start to pick up. I think the bigger opportunity is going back to what we just talked about earlier is around sort of core modernization. Enterprise wide, open up the core systems, the silo data and get real sort of benefit from it. I don’t think we’re there yet.

We have some, deals or engagements we are calling core modernization, but it’s not that sort of North Star yet. It is coming is my sort of sense.

Brian Bergen, Analyst, TD Cowen: Okay. When you think about the impact on various services activities because of Gen AI, I know areas like testing have been called out. Right. How do you think about the net impact here for you? And where are those areas that will see pressure versus where you’ll be able to grow through it?

Mark Thurston, CFO, Endava: Yeah. It’s interesting. Before AI, we used to have automated and manual testing. Manual testing has gone. I think we will start to substitute certain roles with agents basically in the process.

We’re not doing it at scale at the moment. We’re exploring it. So it will take out roles. So when people are buying teams, there will be, let’s call it the human component, roles being performed by humans and then we’ll be an agent in there as well. Our experience at the moment is we’re not looking at the pricing yet.

Pay for a certain human and you pay something else for an AI agent. And I think the way that longer term the industry sort of has the price for is around outcomes basically. What are you getting? Whether it’s you know, velocity your work or whatever. What are you getting?

What’s your value that you’re getting and price on that? And then it’s up to the services business. How they sort of deliver it. You’ll always have a little bit of attention. I’ve been around this game long enough when people find out where you’re delivering work from and try and get underneath the covers.

They try and argue about sort of price. But the art in terms of the commercials is to, what value do you want to get, velocity and we’ll deliver it to you with the quality etcetera. And I think we’re on that journey.

Brian Bergen, Analyst, TD Cowen: Okay. So even in the furthest along relationships contracting terms haven’t No. You’re not even there yet on No. Interesting. Okay.

What in the market there’s certainly an the existential fear in services because of the risks of cannibalization right of certain activities. What’s your perspective on that topic?

Mark Thurston, CFO, Endava: I don’t think it does. I think the technology enables technology. So things will get faster. Throughput will pick up. Productivity will pick up.

I think where we have to get to is break this algorithm between inputs and outputs basically. The client is getting faster, better quality engineered products combining best of breed technology. And it’s Endava’s job to deliver on that and capture as much margin as possible, obviously in a competitive marketplace.

Brian Bergen, Analyst, TD Cowen: Yes, yes. Choppy macro doesn’t help all that’s going on. Yes. All right. Very good.

I know we’re out time now. So Mark, I appreciate the conversation. Thank you.

Mark Thurston, CFO, Endava: Not at all.

Brian Bergen, Analyst, TD Cowen: Good to

Mark Thurston, CFO, Endava: talk about.

Brian Bergen, Analyst, TD Cowen: Thank you.

Mark Thurston, CFO, Endava: And thanks for my anniversary.

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