Q3 2024 Endava PLC Earnings Call
Speaker Change: [music].
Yes.
Operator: Good day, and welcome to Endava's third quarter of fiscal year 2024 conference call. All participants will be in listen-only mode.
Speaker Change: Good day, and welcome to <unk> third quarter of fiscal year 'twenty 'twenty four 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 touch.
Operator: 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. Laurence Madsen, head of investor relations and ESG. Please go ahead. Thank you. Good afternoon,
The phone 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.
Speaker Change: Note. This event is being recorded I would now like to turn the conference over to MS. Laurence Madsen head of Investor Relations and ESG. Please go ahead.
Laurence Madsen: Thank you. Good afternoon, everyone, and welcome to Endava's third quarter fiscal year 2024 conference call. As a reminder, this conference call is being recorded. Joining me today are John Cotterell, Endava's chief executive officer, and Mark Thurston, Endava's chief financial officer.
Speaker Change: Thank you good afternoon, everyone and welcome to another third quarter of fiscal year, 2020 Four conference call. As a reminder, this conference call is being recorded joining me today are John car trial, and Chief Executive Officer, and Mark Thurston and Chief Financial Officer before we begin a quick reminder.
Laurence Madsen: 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 2024 and for the full fiscal year 2024, 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 development of artificial intelligence, our expectations regarding the impact of our recent acquisition of Galaxy on our business, enhancements to our technology and offerings, demand from clients for our technology services, our ability to create long-term value for our clients, our people, and our shareholders, and our business strategies, plans, and operations.
Laurence Madsen: These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Moreover, 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, and we undertake no obligation to update them to reflect subsequent events or circumstances other than to the extent required by law.
Speaker Change: Our presentation and I companion remarks today include forward looking statements.
Speaker Change: Bleeding, but not limited to statements regarding our guidance for Q4 fiscal year 'twenty 'twenty four and for the full fiscal year 'twenty 'twenty four the amp.
Speaker Change: Past, the headwinds facing our industry and business, our ability to capitalize on market opportunities and trends in our industry, including with respect to development of artificial intelligence our expectations regarding the impact of our recent acquisition of Galaxy on our business and hence that's starting now.
Jan: I'll, let jan offering demand from clients for our technology services, our ability to create long term value for our clients, our people and our shareholders and our business strategies plans and operations.
Jan: These statements are subject to risks and uncertainties that could cause actual results to differ materially from those kind of change 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.
Jan: And reported results should not be considered as an indication of future performance pizza.
Jan: 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.
Jan: They've done them to reflect subsequent events or circumstances other than to the extent required by law.
Laurence Madsen: For more information, please refer to the risk factors section of our annual report filed with the Securities and Exchange Commission on September 19, 2020. 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.
Jan: For more information please refer to the risk factor section of our annual report filed with Securities and Exchange Commission on September 19 2023.
Jan: Also during the call we'll present in both I FRS nine alright.
Jan: Alright financial measures, but we believe the non <unk> 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 Ias Alright reconciliation that's.
Laurence Madsen: Reconciliations of such non-IFRS measures to the most directly comparable IFRS measures are included in today's earnings specialties 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.
Jan: Alright measures to their most directly comparable alright measures are included in today's earnings press release as well as an investor presentation, both of which you can find on our Investor relations site or on the SEC website. The link to the replay of this call will also be available on our web.
Jan: On our website.
Speaker Change: With that I'll turn the call over to John.
Yeah.
Speaker Change: Yeah.
Laurence Madsen: Thanks Laurence.
John E. Cotterell: I'd like to thank you all for joining us today and hope that you're all well. As we get started, I want to share some perspective on the current environment, which I think we all understand has been very challenging. My sense is that we have come off a period of aggressive tech spending post-COVID. Clients now find themselves trying to sort through their spending priorities, as they continue to face meaningful macroeconomic uncertainty.
John E. Cotterell: I'd like to thank you all for joining us today and hope that you're all well.
John E. Cotterell: However, we believe that there is also significant pent-up demand for technology services to undertake and complete digital transformation and to get ready for generative AI. Every industry needs to reinvent itself to some extent to take advantage of generative AI. But it first requires meaningful investments in technology and data stacks to be ready. This transformation goes beyond digital systems, which mostly sit above the core and enhance customer interaction. AI requires access to the right data and systems to be truly effective, and therefore, transformation work must go much deeper into the core of the enterprise.
John E. Cotterell: So as we get started I want to share some perspective on the current environment, which I think we all understand who's been very challenging.
John E. Cotterell: My sense is that we have come off a period of aggressive tech spending post COVID-19.
John E. Cotterell: Clients now find themselves trying to sort through that spending priorities.
John E. Cotterell: It continues to face meaningful macro economic uncertainty.
John E. Cotterell: However, we believe there is also a significant pent up demand for technology services to undertake and complete digital transformation.
John E. Cotterell: And to get ready for generative IRI.
John E. Cotterell: Every industry needs to reinvent itself to some extent to take advantage of generative ally.
John E. Cotterell: But at first requires meaningful investments in technology and data stocks to be ready.
John E. Cotterell: This transformation can always be one additional systems, which mostly sits above the cool and enhance customer interactions.
John E. Cotterell: Hey, Eli requires access to the right data and systems to be truly effective.
John E. Cotterell: Therefore transformation work, let's go much deeper into the core of the enterprise.
John E. Cotterell: Due to the complexity, uncertainty, and risk involved in reengineering and opening up these core systems, the planning work is therefore taking much longer before scale production ready projects can be commenced. All of this has created a pause, a deceleration.
John E. Cotterell: Due to the complexity uncertainty and risk involved in reengineering and opening up these cool systems. The planning work is the full taking much longer before scaled production ready projects compete commenced.
John E. Cotterell: All of this has created a pause a deceleration.
John E. Cotterell: But I also think pent-up demand that may be more meaningful than what we have experienced in prior periods. While we aren't happy with our share price, almost. I believe these are temporary as long as we maintain our competitive positioning. Our approach to this environment has been to continue to invest in our people and our ability to serve our clients and be ready when the market turns. That's why we are moving to diversify our footprint and delivery with Galaxy and continue to build accelerators that will give us a nimble and very relevant set of solutions for this emerging market. Our history has been centered around leading-edge technology capabilities.
John E. Cotterell: But I also think pent up demand that may be more meaningful than what we have experienced in prior periods.
John E. Cotterell: Yes.
John E. Cotterell: While we aren't happy with our share price almost book I believe things are temporary as long as we maintain our competitive positioning.
John E. Cotterell: Our approach to this environment has been to continue to invest in our people and our ability to serve our clients and be ready for when the market turns.
John E. Cotterell: That's why we moved to diversify our footprint and delivery with Galaxy.
John E. Cotterell: <unk> continues to build accelerators that will give us a nimble and very relevant set of solutions for this emerging market.
John E. Cotterell: Our history has been centered around leading edge technology capabilities.
John E. Cotterell: Agile development in very fast growing areas characterized by meaningful demand and helping our clients ideate and innovate. The key to long-term success in services is a high quality talent pool that adds real value to clients and with a scale that is relevant to clients as they move from proof of concept to production, but staying nimble and agile. We see our size as a competitive advantage as our entire industry gets ready to pivot yet again.
John E. Cotterell: Joel development, and very fast growing areas characterized by meaningful demand and helping our clients ideate and innovate.
John E. Cotterell: The key to long term success and services is a high quality talent pool.
John E. Cotterell: It's real value to clients and we.
John E. Cotterell: The scale that is relevant to clients as they move from proof of concept to production.
John E. Cotterell: Staying nimble and agile.
John E. Cotterell: We say our size is a competitive advantage as our entire industry gets ready to pivot, yes again.
John E. Cotterell: Our systems analysis capabilities, patent technology, and deep understanding of the industries in which we operate enable a truly comprehensive enterprise modernization solution that supports our clients' overall business transformation, which we refer to as enterprise transformation. We have been working with our clients to build a truly unique approach to enterprise transformation, which addresses this need for AI to reach data and processes at the core of the enterprise. We use patient technology that facilitates a low-risk and controlled end-to-end transformation of core systems through data-driven decision-making.
John E. Cotterell: Our systems analysis capabilities page to technology.
John E. Cotterell: Deep understanding of the industries in which we operate.
John E. Cotterell: Enable a truly comprehensive enterprise modernization solution that supports our clients' overall business transformation.
John E. Cotterell: And which we refer to as enterprise transformation.
John E. Cotterell: Okay.
John E. Cotterell: We have been working with our clients to build a truly unique approach to enterprise transformation, which addresses this need for AI to reach data and processes at the core of the enterprise.
John E. Cotterell: We use pace to technology that facilitates a low risk and controlled end to end transformation of cool systems through data driven decision making.
John E. Cotterell: With these capabilities, we help transform clients' underlying technology, so it becomes more efficient in our job. Our bespoke data-led approach not only helps re-engineer core technology but also any legacy business processes that technology supports, ensuring that we continue to deliver holistic market-leading enterprise and business modernization. With this tried and tested approach, we decrease overall impact and risk for the customer and, to date, have delivered visible results to over 150 clients, across more than 1,300 systems and with over 650 million lines of code. Our clients trust us at a time when they feel very uncertain.
John E. Cotterell: With these capabilities, we help transform client's underlying technology, so it becomes more efficient and agile.
John E. Cotterell: All bespoke data led approach not only helps reengineer cool technology, but also any legacy business processes the technology supports and.
Ensuring that we continue to to live a holistic market, leading enterprise and business Modernizations.
John E. Cotterell: With this tried and tested approach, we decrease overall impact and risk for the customer.
John E. Cotterell: And to date have delivered visible results to over 150 clients.
John E. Cotterell: Across more than 700 systems and with over 650 million lines of codes.
John E. Cotterell: Clients Trust us at a time when they feel very uncertain.
John E. Cotterell: In the coming quarters, we will discuss more, and we are seeing signs that our strategic thinking is going to set us up well to catch yet another wave of massive change. Moving on to our results, let me now provide an update on our business and financial performance for the three months ended March 31st, 2024. Our results for the quarter were within revenue guidance, with revenue totalling £174.4 million, representing an 11.8% year-on-year decrease in constant currency from £203.5 million for the same period in the prior year.
John E. Cotterell: In the coming quarters, we will discuss more.
John E. Cotterell: And we are seeing signs that our strategic thinking is going to set us up well to catch yet another wave of massive change.
John E. Cotterell: We ended the quarter with an adjusted profit before tax for the period of £15.5 million, representing an 8.9% adjusted profit before tax margin, and our adjusted diluted earnings per share of 22 pence was above our guidance.
John E. Cotterell: Moving onto our results, let me now provide an update on our business and financial performance for the three months ended March 31st 2024.
John E. Cotterell: Our results for the cool, so well within revenue guidance with revenue totaling 174.4 million pounds, representing an 11, 8% year on year decrease in constant currency from 203.5 million pounds in the same period in the prior year.
John E. Cotterell: We ended the quarter with an adjusted profit before tax for the period of $15 5 million pounds.
John E. Cotterell: Representing.
John E. Cotterell: 8.9% adjusted profit before tax margin.
John E. Cotterell: Our adjusted diluted earnings per share of 22 pets was above our guidance.
John E. Cotterell: I'd like to cover in more depth our recent acquisition of Galaxy. Galaxy brings a strong senior executive team to the U.S. with an excellent track record of winning and growing Fortune 100 relationships. We are already seeing opportunities emerge, including some early wins together.
John E. Cotterell: I'd like to cover in more depth, our recent acquisition of Galaxy Gal.
John E. Cotterell: Galaxy brings a strong senior executive team in the U S with an excellent track record of winning and growing fortune 100 relationships.
John E. Cotterell: We are already seeing opportunities emerge, including some early wins together.
John E. Cotterell: As a reminder, over 70% of Galaxy's revenue comes from clients in the U.S. healthcare sector, which we believe is a very attractive vertical. Additionally, its leadership has proved successful at penetrating large US-based payer services and pharmaceutical companies. Based on conversations with these clients, we believe we will be able to significantly scale the offering. Here are some examples of projects Galaxy is currently working on for various clients. In healthcare, we are working with a leading health insurance plan provider, leveraging Galaxy's self-service portal platform to facilitate the complex management of pharmacy benefit plans across multiple third-party pharmacy benefit managers.
John E. Cotterell: As a reminder, over 70% of galaxies revenue comes from clients in the U S health care sector, which we believe is a very attractive vertical.
John E. Cotterell: Galaxy's leadership has proved successful at penetrating large U S based payer services and pharmaceutical companies.
John E. Cotterell: Based on conversations with these clients, we believe we will be able to significantly scale the offerings.
John E. Cotterell: Here's some examples of projects Galaxy is currently working on the various clients.
John E. Cotterell: In health care, we are working with a leading health insurance plan provider leveraging galaxy self service portal platform to facilitate the complex management of pharmacy benefit plans across multiple third party pharmacy benefit managers.
John E. Cotterell: Additionally, the platform will be used to support the implementation of the new requirements for CMS, the government agency that regulates Medicare and Medicaid, allowing Medicare members to opt in to a monthly payment plan for out-of-pocket expenses.
John E. Cotterell: Additionally, the platform will be used to support the implementation of the new requirements for CMS.
John E. Cotterell: The government agency that regulates Medicare and Medicaid.
John E. Cotterell: Allowing Medicare members to opt into a monthly payment plan for out of pocket expenses.
John E. Cotterell: Galaxy's platform uniquely de-risks the implementation while significantly improving accuracy, regulatory traceability, and member experience. Additionally, Galaxy is helping a Fortune 50 health plan achieve its goal of building a high-performance health services portfolio for delivery of innovative and flexible solutions to their clients. We are working with the client's leadership team to define goals to retire end-of-life technologies while implementing DevOps-enabled cloud-centric and product-oriented systems. This is a multi-year initiative focused on providing scalable solutions, driving lower costs, and improving quality with zero downtime.
John E. Cotterell: Calix East platform uniquely de risks the implementation, while significantly improving accuracy regulatory traceability and member experience.
John E. Cotterell: Okay.
John E. Cotterell: Galaxy is also helping a fortune 50 health plan achieve its goal of building a high performing health services portfolio for delivery of innovative and flexible solutions to their clients.
John E. Cotterell: We are working with the clients leadership team to define goals to retire end of life technologies, while implementing Dev ops enabled cloud subject and product oriented systems.
John E. Cotterell: This is a multiyear initiative focused on providing scalable solutions driving lower costs and improved quality with zero downtime.
John E. Cotterell: Galaxy is working with a leading global bank to accelerate and advance their API migration initiative for their U.S. operations. Utilizing our proprietary accelerators, the teams will map business functions, extract business rules, identify data and workflows, map functional dependencies, and create testing scenarios in case it's for complete future testing coverage. This approach is expected to help the bank reduce transformation costs while improving speed to market and quality.
John E. Cotterell: Galaxy is working with a leading global bank to accelerate and advance that a P O and migration initiative for the U S operations.
John E. Cotterell: Utilizing our proprietary accelerators the teams will map business functions extract business rules.
John E. Cotterell: And five data and workflows functional dependencies and create testing scenarios in case, it's for complete testing coverage.
John E. Cotterell: This approach is expected to help the bank reduce transformation costs, while improving speed to market and quality.
John E. Cotterell: And finally, for a large FinTech client, Galaxy is mitigating and eliminating exposure to excessive extended security updates for end-of-life operating systems and database assets. By building a sustainable asset lifecycle management process, maximizing automation, and integrated tooling, Galaxy's efforts are resulting in a significant cost savings for the client. Moving on to an update on technology, we recently announced the creation of our agentic AI industry accelerator internally called Morpheus. We have already been successfully using it as part of both our pre-sale cycle, as well as a foundation for quickly helping our clients get value from their AI investments. To date, large language models, or LLMs, and AI have existed in a black box with little insight into how the systems arrive at the answers they provide.
John E. Cotterell: And finally for a large fintech client galaxy is mitigating and eliminating exposure to excessive extended security updates.
John E. Cotterell: Our end of life, our pricing systems and database assets.
John E. Cotterell: Building, a sustainable asset lifecycle management process, maximizing automation and integrated tooling galaxy's efforts are resulting in a significant cost savings for the client.
John E. Cotterell: Moving onto an update on technology, we recently announced the creation of Argentic AI industry accelerator internally called Morpheus.
John E. Cotterell: We have already been successfully using it as part of both our pre sales cycle.
John E. Cotterell: As well as the foundation.
John E. Cotterell: For quickly, helping our clients get value from their investments.
John E. Cotterell: To date lost language models or LMS.
John E. Cotterell: And I I have existed in a black box with little insight into how the systems are arrived at the answer is they provide.
John E. Cotterell: Endava is changing this by operationalizing LLMs around data to overcome current barriers caused by hallucinations, ensuring that all activity is transparent, knowable, and critically auditable. Rolling out this accelerator to regulated industries can deliver value in many ways, including helping insurers underwrite policies more efficiently. Help analysts with legal or financial research, as well as due diligence efforts, and drive the development and testing of new health care products. Multi-agent teams represent a significant advancement in AI technology, allowing for a more dynamic, flexible, and comprehensive problem-solving capability.
John E. Cotterell: And stuff is changing this by operationalized L. L happens around data to overcome current areas caused by hallucinations, ensuring the all activity is transparent knowable and critically auditable.
John E. Cotterell: Rolling out this accelerates to regulated industries can deliver value in many ways, including helping insurers under what policies more efficiently.
John E. Cotterell: Analysts with legal finance chores, such as well as due diligence efforts and drive the development and testing of new health care products.
John E. Cotterell: Multi agent teams represent a significant advancement in AI technology, allowing for a more dynamic flexible and comprehensive problem solving capabilities.
John E. Cotterell: We see AI solving complex industry challenges, optimizing processes, and delivering unprecedented value for our clients and their customers. AI is an exciting technology, which we believe will positively impact our clients and businesses. They're still engaged in demonstrating the art of the possible with AI.
Speaker Change: You say, it's solving complex industry challenges optimizing processes and delivering unprecedented value for our clients and their customers.
Speaker Change: AI is an exciting technology, which we believe will positively impact our clients and businesses.
Speaker Change: Yeah, it's still engaged in demonstrating the after the possible with I O.
John E. Cotterell: We're beginning to see production projects being signed off on, and investments being made. This last quarter, we signed new contracts in automotive, healthcare, and sports for AI-specific projects. In healthcare, we recently scoped an AI platform that leverages our Morpheus-Agentic AI application accelerator to significantly increase the efficiency of medical trials. Projects like these highlight that with the right use case, Endava is well placed to benefit from an exponential increase in opportunities, given the relatively low investment costs and potential high savings for our clients.
Speaker Change: We are beginning to see production projects being signed off and investments being made.
Speaker Change: This last quarter, we signed new contracts in automotive health care and sports for a specific projects in health care, where you recently scoped NII platform that Leverages, our morpheus agenda AI application accelerator to significantly increase the efficiency of medical trials.
Speaker Change: Project like these highlight that with the right use case and the other is well placed to benefit from an exponential increase in opportunities given the relatively low investment costs and potential high savings for our clients.
John E. Cotterell: Our people are top-notch, and we recently won the grand prize in the competition Hack Together, the Microsoft Fabric Global AI Hack. This event was a global online hackathon where participants had the opportunity to build innovative AI solutions using Microsoft's data platform, Fabric. Innovators team up with a cloud native data solution integrating open AI for document analysis, particularly for detecting personally identifiable information in files and images.
Speaker Change: Our people are top notch and we recently won the Grand Prize in the competition [laughter] together.
Speaker Change: Soft fabric global Hawk.
Speaker Change: This event was a global online hackathon workhorse participants have the opportunity to build innovative AI solutions, using Microsoft Stater platform fabric.
Speaker Change: Innovative team one with a cloud native data solution.
Speaker Change: Integrating open AI for document analysis, particularly for detecting personally identifiable information and files and damages.
John E. Cotterell: International Women's Day in March was a wonderful moment to recognize women at Endava, who each play a significant role in making a difference to our culture, with our clients and solutions, and in the world of technology. We ran a global campaign under the concept umbrella Connect, Inspire, and Rise, and over 1,000 Endavans attended sessions on leadership, career growth, mental, physical, and financial well-being. We received excellent internal feedback on a new training program under our Endava Wellbeing Umbrella called Mental Wellbeing for Leaders. It's a program created to help line managers recognize warning signs of mental health issues in their teams, and it provides them with the tools to address the issue.
Speaker Change: International Women's day in March was a wonderful man to recognize women I, Didnt, daughter, who each play a significant role in making a difference to our culture with our clients and solutions and in the world of technology.
Speaker Change: We ran a global campaign under the concept umbrella connect inspire rise and over 1000 in dog tended sessions on leadership career growth mental physical and financial well being.
Speaker Change: We received excellent internal feedback on our new training program and our.
Speaker Change: And all the wellbeing umbrella called mental well being for latest it's a program created to help line managers recognize warning signs of mental health issues and that teams and it provides them with the tools to address the issue.
John E. Cotterell: We ended the quarter with 11,025 employees, a 6.1% decrease from 11,742 in the same period last year. In the current environment, our recruitment is focused on areas of demand. Technology is our how, and people are our why.
Speaker Change: We ended the quarter with 11025 employees, a 6.1% decrease from 11742 in the same period last year.
Speaker Change: In the current environment, our recruitment is focused on the areas of demand.
Technology is all how people are all Y and as such we continue to prioritize professional development by training and Upskilling our people in key emerging technologies and techniques such as machine learning generally to buy a next gen cloud cyber security product strategy and sustainable computing.
John E. Cotterell: And as such, we continue to prioritize professional development by training and upskilling our people in key emerging technologies and techniques, such as machine learning, generative AI, next-gen cloud, cybersecurity, product strategy, and sustainable computing, in order for them to remain at the leading edge of digital transformation. I'd like to take this opportunity to thank all Endavans for their commitment and determination as we persevere through current headwinds. We will continue to manage the business for the long term, maintaining our culture and organizational health and creating exciting solutions for our clients and their customers. I'll now pass the call on to Mark, who will walk you through our financial results for the quarter and provide guidance for the coming quarter and fiscal year. Thanks, John.
Speaker Change: In order for them to remain at the leading edge of digital transformation.
Speaker Change: I'd like to take this opportunity to thank all <unk> for their commitment and determination as we persevere through current headwinds we will continue to manage the business for the long term, maintaining our culture and organizational health and creating exciting solutions for our clients and their customers.
Speaker Change: I'll now pass the call onto Mark who will walk you through our financial results for the quarter and provide guidance for the coming quarter and fiscal year.
Mark S. Thurston: Thanks, John.
Mark S. Thurston: Endava's revenue totaled £174.4 million for the three months ended March 31, 2024, compared to £203.5 million for the same period in the prior year, a 14.3% decrease over the same period in the prior year. In constant currency, our revenue declined 11.8% from the same period in the prior year. Within the range we provided to you last quarter and reflected a 5.2% positive inorganic contribution during the quarter. However, sequentially, revenue was down by 4% in terms of currency on the previous quarter. As a reminder, there was no contribution from Galaxy during the course that just ended.
And Tavis revenue totaled $174 4 million pounds for the three months ended March two.
Mark S. Thurston: <unk> 24, compared to $203 5 million pounds in the same period in the prior year 14, 3% decrease over the same period in the prior year.
Speaker Change: Constant currency, our revenue declined 11, 8% from the same period in the prior year.
Speaker Change: And then the range, we provided to you last quarter and reflects a five 2% positive inorganic contribution during the quarter.
Speaker Change: Sequentially revenue was down by 4% in constant currency on the previous quarter.
Speaker Change: As a reminder, there was no contribution from Galaxy during the course just ended.
Mark S. Thurston: The loss before tax for the three months ended March 31st 2024 was £0.5 million, compared to a profit before tax of £30.4 million in the same period in the prior year. The adjusted profit before tax for the three months ended March 31st 2024 was £15.5 million, compared to £43.4 million for the same period in the prior year. The Adjusted Profit Before Tax margin was 8.9% for the three months ended March 31st, 2024, compared to 21.3% for the same period in the prior year.
Speaker Change: Loss before tax of three months ended March 31 2024.
Speaker Change: 5 million pounds compared to a profit before tax of 34 million pounds in the same period in the prior year.
Speaker Change: Our adjusted profit before tax for the three months ended March 31st 2024 was $15 5 million pounds compared to $43 4 million pounds.
Speaker Change: Same period in the prior year.
Speaker Change: Adjusted profit before tax margin was eight 9% for three months ended March 31st 2024, compared to 21, 3% the same period in the prior year.
Mark S. Thurston: Our adjusted diluted earnings per share was 22 pence for the three months ended March 31st 2024, calculated on 58.8 million diluted shares as compared to 59 pence for the same period in the prior year, calculated on 58.2 million diluted shares. Revenue from our 10 largest clients accounted for 34% of revenue for the three months ended March 31st 2024, compared to 33% for the same period last fiscal year. The average spend per client from our 10 largest clients decreased from £6.8 million to £5.9 million.
Speaker Change: Our adjusted diluted earnings per share was 22 pets in the three months ended March 31st 2024 calculated on $58 8 million intelligence chest as compared to 59 pence for the same period in the prior year calculated on $58 2 million turning to chance.
Speaker Change: Revenue from our 10 largest clients accounted for 34% revenue for the three months ended March 31st 2024 compared to 33% for the same period last fiscal year.
Speaker Change: Average spend per client from our 10 largest clients decreased from $6 8 million pounds to five 9 million pounds for the three months ended March 31, 2024 as compared to the three months ended March 31st 2023, representing a 13.9% yeah.
Mark S. Thurston: The three months ended March 31st, 2024, as compared to the three months ended March 31st, 2023, representing a 13.9% year-over-year decrease. In the three months ended March 31st, 2024, North America accounted for 30% of revenue, Europe for 28%, the UK for 35%, and the rest of the world accounted for 7%. Revenue from North America declined 19.4% for the three months ended March 31, 2024, over the same period last fiscal year. Comparing the same periods, revenue from Europe grew 0.9%, the UK declined to 22.3%, and the rest of the world grew 3.8%.
Speaker Change: Decrease.
Speaker Change: In the three months ended March 31st 2020 for North America accounts for 30% of revenue.
Speaker Change: Europe for 28% U K for 35% and the rest of the world accounted for 7%.
Speaker Change: Revenue from North America declined 19, 4% for the three months ended March 31st 2024 over the same period last fiscal year.
Speaker Change: Comparing the same parents revenue from Europe grew 9% U K declined 22, 3% and the rest of the world grew three 8%.
Mark S. Thurston: Revenue from payments declined 27% for the three months ended March 31st 2024 over the same period last fiscal year and accounted for 24% of revenue. Revenue from banking and cattle markets declined 24.2% for the three months ended March 31st 2024 over the same period last fiscal year and accounted for 14% of revenue. Revenue from insurance grew 1.7% for the three months ended March 31, 2024, over the same period last fiscal year and accounted for 9% of revenue.
Speaker Change: Revenue from payments declined 27% and the three months ended March 31st 2024 over the same period last fiscal year and accounted for 24% of revenue.
Speaker Change: Revenue from banking capital markets declined 24, 2%.
Speaker Change: And at March 31, 2024 over the same period last fiscal year and accounted for 14% of revenue.
Speaker Change: Revenue from insurance grew one 7% for three months ended March 31st 2024.
Speaker Change: Over the same period last fiscal year and accounted for 9% of revenue.
Mark S. Thurston: Revenue from TMT declined 4% for the three months ended March 31st 2024 over the same period last fiscal year and accounted for 24% of revenue. Revenue from mobility declined 22.4% for the three months ended March 31st 2024 over the same period last fiscal year and accounted for 10% of revenue.
Speaker Change: Revenue from TMT declined 4% for three months ended March 31st 2020 for the same period last fiscal year and accounted for 24% of revenue.
Speaker Change: Revenue from mobility declined 22, 4% for three months ended March 31st 2020 for the same period last fiscal year and accounted for 10% of revenue.
Mark S. Thurston: Revenue from other groups increased by 3.2% for the three months ended March 31st 2024 over the same period last fiscal year and accounted for 19% of revenue. Adjusted free cash flow was £2.2 million for the three months ended March 31st 2024 compared to £21.2 million during the same period last fiscal year. Our cash and cash equivalents at the end of the period totaled £190 million at March 31st 2024, compared to £164.7 million at June 30th 2023. In April, we used £129 million of our cash funds towards the acquisition of Galaxy.
Speaker Change: Revenue from other grew three 2% the three months ended March 31st 2024.
Speaker Change: Same period last fiscal year and accounts for 19% ROTC.
Speaker Change: Oh, just a free cash flow was two 2 million pounds for the three months ended March 31st 2020 call compared to $21 2 million pounds. During the same period last fiscal year.
Speaker Change: Our cash and cash equivalents at the end of the parent totaled 119 million pounds at March 31, 24, compared to $164 7 million pounds, a tune to 'twenty to 'twenty right.
unknown: In April we used 129 million pounds about cash balance towards the accent acquisition of Galaxy.
Mark S. Thurston: Capital expenditure for the three months ended March 31, 2024 as a percentage of revenue was 0.8% compared to 2% in the same period last fiscal year. Now, turning to our outlook for the quarter to fall and the full year fiscal 24. When we announced our guidance in February, we did not include the contribution from Galaxy, which at the time remained subject to regulatory approval. On the 10th of April, following the expiration of the required waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvement Act of 1976, we closed the transaction.
unknown: Capital expenditure for the three months ended March 31st 2024.
unknown: Send your revenue was <unk>, 8% compared to 2%.
unknown: Same period last fiscal year.
unknown: Yeah.
unknown: Now turning to our outlook for the cohorts four and the full year fiscal 'twenty four.
Speaker Change: Well I mean Thats don't guide in February we did not include the contribution from Galaxy, which at the time remains subject to regulatory approval.
On the 10th of April following the exploration of the required waiting period under the U S. Hart Scott Rodino antitrust improvements hacks at 1976, we closed the transaction.
Mark S. Thurston: So the Q4 guide includes the contribution from Gallup. Glide, the guide including Gallup represents sequential growth of 12% to 13%, at the bottom and top of the range, excluding Alex.
Speaker Change: So the Q4 guide includes the contribution from Calix.
Speaker Change: Declining guide, including Galaxy represents sequential growth of 12%, 13% coupon.
Speaker Change: Boston until the range.
Speaker Change: Excluding galaxy.
Mark S. Thurston: The guidance otherwise generally remains flat compared to Q3. For fiscal year 2024, Endava expects revenue to be in the range of £195 million to £197 million, representing constant currency revenue growth of between 3.5% and 4.5% of the year-over-year base. Endava expects adjusted diluted EPS to be in the range of 22 to 23 pence per share. Our guidance for full year fiscal year 2024 is as follows.
Speaker Change: Otherwise generally remains flat compared to Q3.
Speaker Change: Our guidance for Q4 fiscal year 'twenty 'twenty four is as follows.
Speaker Change: <unk> expects revenue to be in the range of 195 million pounds to 197 million pounds, representing constant currency revenue growth of between three 5% and four 5% on a year over year basis.
Speaker Change: <unk> expects adjusted diluted EPS to be in the range of 22 to 23 pence per share.
Speaker Change: Our guidance for full year fiscal year 'twenty 'twenty four is as follows.
Mark S. Thurston: Endava expects revenue to be in the range of £741 million to £743 million, representing a constant currency revenue decrease between 4.5% and 4.0% on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of 113 to 114 pence per share. This guidance for Q4 fiscal year 2024 and the full fiscal year 2024 assumes exchange rates on April 30th, 2024, when the exchange rate was one British pound to 1.25 US dollars and 1.17 euros. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.
Speaker Change: <unk> expects revenue to be in the range of 744 million pounds to 743 million pounds, representing constant currency revenue decrease between four 5% and four zero percent on the year.
Speaker Change: Every year basis.
Speaker Change: <unk> expects adjusted diluted EPS to be in the range of 113 214 pence per share.
This is not guidance for Q4 fiscal year 2024, and the full fiscal year 'twenty 'twenty four ashamed to exchange rates on April 30 of 2024 and exchange rate was one British pound 1.25 U S dollars at 1.17 year right.
This concludes our prepared comments operator, we are now ready to open the line for Q&A.
Okay.
Speaker Change: Yeah.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: 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're using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question, it's been a drag.
And you would like to withdraw your question. Please press Star then two.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Jonathan Lee with Guggenheim Securities. Please go ahead. Great. Thanks for taking our questions. Can you help us understand how the integration of Galaxy Solutions is progressing? And can you remind us of the revenue and EPS implications over the next few quarters?
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Jonathan Lee with Guggenheim Securities. Please go ahead.
Jonathan Lee: Great. Thanks for taking our questions.
Jonathan Lee: Can you help us understand how the integration of Galaxy solutions is progressing and can you remind us of the revenue and EPS applications over the next few quarters.
John E. Cotterell: Sure, so I'll pick up on how the integration is going, and then Mark will speak to us and talk about the revenue and so on. So it's actually going very, very well. We are already winning business together. One contract that we've signed for... a European telco. It was enabled by the fact that we have a footprint in India now.
Jonathan Lee: Sure.
Speaker Change: I'll pick up on whether and how the integration is going in the North Sea.
Speaker Change: I'll talk about the revenues.
So it's actually going very very well.
Speaker Change: We are already winning business together.
Speaker Change: Track that we signed for.
Speaker Change: European Okay.
Speaker Change: It was enabled by the fact that we have footprint in India now.
Speaker Change: Because of the telco pay all completely oh pricing out of India in a space where.
Speaker Change: We've done that piece of business wishes.
Speaker Change: Our call Center.
Speaker Change: Alright.
Speaker Change: Oh glad where we're now doing discovery, so a plus.
Speaker Change: Plus we have others that are in the contracting phase.
Speaker Change: We're also seeing opportunities and expand the accrual scallops see customers essentially.
Speaker Change: A couple of customers who are moving.
Speaker Change: The preferred supplier list.
Speaker Change: So that we can take larger pieces of work.
Speaker Change: More prioritization from them.
Speaker Change: Diversification.
Speaker Change: Oh and industry footprint is helpful. When you start to see that coming through in the quarters ahead.
John E. Cotterell: Because of the telco, they are completely operating out of India in the space where we've done that piece of business, which is a call center, AI, and Sponsored ADR Class A We're also seeing opportunities to expand across Galaxy customers, essentially a couple of customers who are moving us up their preferred supplier lists so that we can take larger pieces of work and have more prioritization from them. The diversification of the geography and industry footprint is helpful, and you'll start to see that coming through in the quarters ahead. And, you know, finally, as I touched on in the opening remarks, our enterprise transformation proposition has been significantly strengthened, and we're getting a lot of interest. Sponsored ADR Class A, So, hey Jonathan.
Speaker Change: And finally.
Touched on in the opening remarks.
Speaker Change: Our enterprise transformation proposition has been significantly strengthened and we're getting a lot of interest.
Speaker Change: Hum.
Speaker Change: In 10 customers that were talking to.
Speaker Change: Foundry services.
Speaker Change: Following that strengthening so we're very very close to about the galaxy deal and the organic opportunities that he's going to give us going forward.
Mark S. Thurston: So, as I said in the prepared comments, the quarterly-on-quarter growth is 12% and 13% at the high end of the guide. Galaxy represents about 12% of that uplift, so it's about a 21 million run rate from a revenue perspective. As we sort of signaled at the time of the last call, integration costs are expected to be reasonably heavy in the quarter, so there will be negligible to zero EPS contribution in the quarter.
Speaker Change: So I think Jonathan.
Speaker Change: So as I said in our prepared comments a quarter on quarter growth phase, that's 12% to 13% at the high end of the guide Galaxy represents a basketball the torque sensor stocks less.
Speaker Change: It's about 21 million run rate.
Speaker Change: On a revenue perspective, as we sort of signaled at the time of the last call.
Speaker Change: <unk> costs, especially recently heavy this quarter.
Is negligible.
Speaker Change: Zero.
Speaker Change: EPS contribution in the quarter I think as we go through into FY 'twenty five.
Mark S. Thurston: I think as we go through FY25, we should start to, as we go through the integration process, their gross margins and their adjusted PVT should move up towards the Endava level, but it is too early to sort of call out a metric on that at this stage, but certainly, their gross margins will be in line with where we are at Endava. Appreciate the details there. As a follow-up, what in your customer conversations gives you confidence in achieving your fiscal 24 outlook, especially as we think about potential delays and ramping up projects that may already be committed versus some of the prepared remarks around pent-up demand and potentially increasing discretionary spend? Yeah, sure.
We should start soon.
Speaker Change: The collection process that gross margins.
Speaker Change: Just P V T should move up towards the a dollar level.
Speaker Change: It's too early so call outs electrical not at this stage, but certainly that gross margins will be.
Speaker Change: In line with why we Onondaga.
I appreciate the details there.
Speaker Change: You know what in your customer conversations gives you confidence in achieving your fiscal 'twenty four outlook, especially as we think about potential delays in ramping up projects that may already be committed versus some of the prepared remarks around pent up demand and potentially increasing discretionary spend.
John E. Cotterell: I mean, fiscal year 24 is in our last quarter, so there's just over a month to go. And therefore, within our guide, we have a very high proportion that is contracted and committed, as we call it. Mark can touch on the numbers in a moment.
Speaker Change: Yeah sure I mean, the fiscal year 'twenty four in our last call to say, there's just over amongst the guy.
Speaker Change: And therefore within our guide we have a very high proportion.
Speaker Change: Contracted and committed as call it Oh can touch on the numbers it environment.
Speaker Change: But you know that this is the let's say on.
Speaker Change: In the west. They currently doing is what gives us confidence.
John E. Cotterell: But, you know, that visibility and the work that we're currently doing is what gives us the confidence around the current quarter guide that we have, which leads to the full fiscal year. Yeah, I think the contracted and committed percentage is 99% within that guide. So it's a very high level of coverage when you compare it with what were our historic norms.
Speaker Change: Around the current quarter guidance.
Speaker Change: Which leads to the full fiscal yeah, yeah, I think that the contractor and commenced its percentage is 99% Oh My God.
Speaker Change: It's a very high level.
Speaker Change: Coverage, when you compared with historic norms.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: That's helpful. I appreciate that guys.
Operator: The next question comes from Bryan Bergin with TD Cowan. Please go ahead.
Speaker Change: The next question comes from Bryan Bergin with TD Cowen.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
John E. Cotterell: Hey, good morning. Good afternoon. Thank you. I'm gonna start with demand. So you kind of give us a sense of how since you last reported how client behavior has progressed, particularly deal closure and deal ramps, as you've gone past March into April. Mike, you talk about the conversations you're having with clients, and understand you noted a flattish growth for Q growth x galaxy. Can you share any thoughts on how sequentials may progress as you work through the balance of calendar 24?
Bryan C. Bergin: Hey, good morning, good afternoon. Thank you.
Bryan C. Bergin: I mean I'll start with demand so can.
Bryan C. Bergin: You kind of give us a sense that since you last reported how that client behavior has progressed, particularly.
Speaker Change: Deal closure and deal ramps as you've gone past March into April May can you talk about the conversations you're having with clients and understand you noted a flattish <unk> growth ex Galaxy can you just any thoughts on how your sequential has made progress as you work through the balance of calendar 'twenty four.
John E. Cotterell: Yeah, so client behavior is actually picking up a little bit, you know, it's perhaps worth unpacking the dynamics of our business, which is that we have projects and programs running with clients, and there's a natural closure as some of those complete.
Speaker Change: Yeah, so client behavior is.
Speaker Change: Picking up a little bit.
Speaker Change: Absolutely I'm talking there's dynamics discussed this on previous calls.
Speaker Change: <unk> of our business, which is.
Speaker Change: You know we have projects and programs.
Speaker Change: Running with clients and there's a natural closure of some of those complete.
John E. Cotterell: And so each quarter, there's a sort of downward pressure, which we overcome with the new business that's coming through. And so the discretionary spend, as I was calling it, or the new spend by clients, needs to be larger than the amount that's dropping off each quarter for us to drive growth. Clearly, we've had a series of quarters where that has been lower. In fact, it's been very quiet indeed, leading to drops quarter on quarter.
Speaker Change: So each call so there's a sort of a downward pressure.
Speaker Change: Which we either come with the new business that's coming through.
Speaker Change: And so the discretionary spend that is all I was calling out all the new spend by clients.
Speaker Change: I used to be larger than the amount that's dropping off each quarter for us to draw it right.
Speaker Change: Clearly you've had a series of quarters.
Speaker Change: That is how it is being lower in fact, it's been very quiet and beat.
Speaker Change: Leading to control school of phone calls.
John E. Cotterell: With the flattening off, that is showing that some of that discretionary spend is coming through and impacting the quarter. Not as much as we'd like, but I think it is early signs that some of that is coming through and the strengthening underlying environment. Sponsored ADR Class A, where we have done discovery work and where clients are still making decisions about whether to go ahead with the programs, and I touched on some of that in the opening remarks, and that continues, and there is now a larger backlog than it was at the end of last quarter, and that gives us confidence that at some point, it needs to break through.
Speaker Change: With the flattening of that is showing that some of that discretionary spend this is coming through and impacting the quarter.
Speaker Change: Not as much as we'd like them, but I think it is early signs that some of that is coming through.
Speaker Change: And the strengthening underlying environment.
Speaker Change: The actual customer conversations.
We continue to build a backlog.
Business, where we have done discovery work and where our clients are still making their decisions about whether to go ahead with the programs.
Speaker Change: And I touched on some of that.
Speaker Change: Any remarks.
Speaker Change: It continues and it is now a larger backlog than it was at the end of last quarter.
Speaker Change: That gives us confidence that at some point.
Speaker Change: East breakthrough.
John E. Cotterell: That confidence is based on the fact that if clients were never going to spend the money on building out the production systems, they wouldn't continue to spend money on the discovery work that we do with them. Oh, can you color over the numbers?
Scott: That confidence big based on the fact that if it's Scott.
Scott: So we're never going to spend the money on.
Scott: On building out the production systems. They wouldnt continue to spend money on the discovery work that we're doing so.
Speaker Change: Okay any color on the numbers.
Mark S. Thurston: Well, I think it's all down to visibility, Bryan. You know, so as you can see from the data at the moment, we have a high level of contractual committed coverage at 99%. So certainly near terms, looking into the first quarter, we have stronger visibility. I think it comes back again to this pipeline conversion issue where, you know, we're adding to the pipeline. It is growing, but the velocity at which it proceeds through to sign an initiated work that continues to be the issue.
Scott: I think so thats the visibility.
Scott: So I can tell you that they got at the moment.
Scott: High level of contractual.
Scott: The company had 99%.
Scott: So certainly near just looking into the first quarter.
Scott: We have stronger visibility.
Scott: I think it comes back again to this plotline conversion issue.
Scott: You know, we're adding to the potline at <unk>. It is the velocity at which it proceeds through its assigned and initiated.
Scott: He used to say are the.
Scott: The issue.
Scott: So in terms of sequential growth when we anticipate the uptake.
Mark S. Thurston: So in terms of, you know, sequential growth when we anticipate an uptick, it is difficult to set at the moment. And obviously, we'll be giving clearer guidance when we get to September, when we give our full-year results and the outlook for our fiscal year to June 2025.
Scott: It is difficult to set a level obviously.
Scott: Well be giving clear guidance when we get to <unk>.
Scott: When we look at our full year results and the outlook.
Speaker Change: Uh huh.
Speaker Change: Oh fiscal year June 25.
Operator: Okay, understood. As we think about gross margin inputs, we understand Central Europe has become more expensive as a result of the war in Ukraine. Can you maybe talk about how you're navigating that, just given your leading scale, particularly in Romania? Is that market becoming more crowded from a talent acquisition standpoint?
Speaker Change: Okay.
Speaker Change: Okay understood.
Speaker Change: And I guess as we think about gross margin inputs, we understand central Europe has become more expensive as a result of the war in Ukraine can you just maybe talk about how you're navigating that just given your leading scale, particularly in Romania is that market, becoming more crowded from a talent acquisition standpoint.
John E. Cotterell: So I'm not sure where you're picking up that Central Europe has become more expensive. That's certainly not true for us. It may be there are other organizations who previously operated further east than us who've had to move west, into more expensive territories, and that's pushed up their Central European costs. Sponsored ADR Class A, We're not seeing an inflationary impact in Central Europe at all at the moment.
Speaker Change: So you're right I'm not sure where you are picking up the central Europe has become more expensive certainly not true for us.
Speaker Change: It may be that our other organizations, who previously operated further east.
Speaker Change: West.
Speaker Change: Into more expensive territories and that's pushed out.
Speaker Change: Central European costs.
Speaker Change: But for US we haven't needed to do that.
Speaker Change: In fact, given the current environment.
Speaker Change: A lot with the malls that are going on.
Speaker Change: We're not seeing inflationary impact in central Europe.
Speaker Change: Yeah.
Operator: Okay, I appreciate that. Thank you.
Speaker Change: Okay I appreciate that thank you.
Speaker Change: The next question comes from Ryan Potter with Citi. Please go ahead.
John E. Cotterell: Hey, thanks for taking my question. I'm just kind of looking across your verticals, and the payments vertical looks to be where you're still seeing some of the most demand pressure. So I was wondering if you could dive a little deeper into the trends you're seeing there and what it would take to start to see a recovery there. And also, in terms of some of your larger clients in the vertical, if you could comment.
Ryan Potter: Hey, Thanks for taking my question, just kind of looking across your verticals and the parents vertical looks to be where you're still seeing some of the most demand pressure I was wondering if you could dive a little deeper into the trends youre seeing there and what would it take to start to see a recovery there and also in terms of the some of your larger clients in the vertical.
Speaker Change: On real pay now that its majority stake is complete if you're seeing that improve.
Speaker Change: But there and then also if mastercards remain largely stable.
Speaker Change: Yes.
John E. Cotterell: I'll let John talk about payment types and, you know, it comes back to our largest clients, Mastercard and Worldplay, and then I'll pick up the balance of the portfolio. Yeah, so on MasterCard, it remains the story of the work that we're doing on the RTP, the real-time payments business, which continues to just slowly decline and is offset by the growth in work with the rest of MasterCard. It's actually very healthy growth with MasterCard outside of the RTP space, just from a smaller initial start point.
Speaker Change: I'll, let John talk about sort of paint.
Speaker Change: Payments.
Speaker Change: It comes back to largest class loss Cornwell and then.
Speaker Change: The balance of the portfolio.
Speaker Change: Yeah.
Speaker Change: Yeah. So on most call. It remains the story is the work that we're doing on a multi phase of real time payments business.
Speaker Change: It continues to just slowly decline.
Speaker Change: And is offset by the growth in work with the rest of the small Scott.
Speaker Change: It's actually very healthy growth.
Speaker Change: It's the most called work outside of the Otp space.
Speaker Change: From high school.
Speaker Change: Our initial store point huh.
John E. Cotterell: So the one isn't quite balancing the other, meaning that we're seeing a slow decline across the overall MasterCard portfolio. But I think the relationship remains very healthy and, underneath the surface, we're breaking into more and more parts of the MasterCard business. So for the longer term future, it's actually very healthy.
Speaker Change: The one he isn't quite balancing the other meaning that we're seeing a flatter decline across the I would almost call failure.
Speaker Change: But I I think.
Speaker Change: Our relationship remains very healthy.
Speaker Change: Underneath the surface, we're breaking into more and more calls it most cost.
Speaker Change: Sorry for the long term future is actually very healthy.
Mark S. Thurston: In WellPay, we are seeing the first signs of the work coming from that spinoff, and WellPay is receiving some of the funding around the restructuring that they've been planning, and we are working with them on planning how we can help them execute on that, and are hopeful that we'll see a reasonable amount of that work coming along. And I think if you look at the rest of the portfolio, it is flat progress, really, cross-banking, capital The one area where we saw a sequential decline was in mobility, and that was most noticeable in North America.
And well pay them.
Speaker Change: We are seeing the first signs of the work come in from that spin off.
Speaker Change: And you know it.
Speaker Change: We will pay our receiving some of the funding a round of restructuring, but they've been planning.
Speaker Change: And you know, we all are working with them on planning.
Speaker Change: How like how we can help them execute on that.
Speaker Change: You know, we're hopeful that we'll see.
Speaker Change: A reasonable amount of that work coming our way.
Speaker Change: Yeah, and I think if.
If you look at the rest of the portfolio is pretty.
Speaker Change: Absolutely because banking capital markets insurance and TNT, the one area, where we saw a sequential decline was in mobility.
Speaker Change: And that was most last spring in North America.
I think the place to comments, we made last quarters earnings why.
Mark S. Thurston: And it places the comments we made about last quarter's earnings, where it's a mixture of a large client coming off peak activity in the logistics space. And we made some comments about airlines, where, again, there was some conservatism around spend and rolling out programs due to the macro outlook, which has come to fruition, for lack of a better word. And then in the automotive industry, again, we're seeing delayed decision making given choices of technologies. And those are the real key drivers of that mobility. But in terms of the rest of the portfolio, it is relatively flat, apart from those two areas.
Speaker Change: It's a mixture of a large client on and off peak activity in the logistics space, Let me make some comments.
Speaker Change: Airlines, where again there is some conservatism around spend rolling out programs are adjacent sort of macro outlook, which has just come through.
Speaker Change: Just fruition.
Speaker Change: Better worse.
Speaker Change: And then renewals amongst that again, we were seeing July decision, making given.
Speaker Change: Given choices technologies.
Speaker Change: The real key drivers in mobility.
Speaker Change: In terms of the rest of.
Speaker Change: The bulk of it is relatively sort of flat off from those two areas.
Speaker Change: Okay.
Operator: Got it. I guess maybe shifting to some margins. The fiscal 24 EPS outlook midpoint was lowered here. Could you provide some details on the factors that are driving this? Like how much is coming from potentially lower margin expectations? Do you comment on your margin expectations for 4Q? Sponsored ADR Class B
Speaker Change: Got it I guess, maybe shifting to some margins, let's go 24, EPS outlook midpoint was lowered here.
Speaker Change: So could you provide some details on the factors that are driving us like how much is coming from essentially a lower margin expectations you comment on your margin expectation for pork you and at this 0.4 versus maybe higher interest expense certain integration costs from from Galaxy and then on the margin side, what drivers do you have to improve margins.
Speaker Change: From here, whether it be improved utilization or anything else to call out as guidance.
Speaker Change: 25.
Mark S. Thurston: Well, Q3 was a big EPS beat. We did much better on our G&A savings, so we secured through the restructuring quicker savings than anticipated at the time of the guide, and also, the tax rate was significantly lower than anticipated at 18% due to the release of a tax provision, which is well off in nature. Now, in terms of what we see going out into Q4, and this includes the Galaxys, we'll see some improvement in the gross margin, probably up to between 33% and 34%.
Speaker Change: Okay. So it was a big Etfs a bit.
We did much better on our G&A.
Speaker Change: So we secure.
Speaker Change: And quicker savings than anticipated some design and also had the tax rate was significantly lower than anticipated the 18%.
Speaker Change: A J so the release.
Speaker Change: The tax provision.
Speaker Change: She is one off in nature in terms of what we see going into Q4 and it's this includes galaxies, we'll see some improvement in the gross margin probably up to between sort of 33, 34%.
Speaker Change: We continue to juice bench, there isn't anything really in terms of pricing uplift research in Africa without regards to bench will lead to improved utilization.
Speaker Change:
Speaker Change: Besides this we will continue with us.
Speaker Change: <unk> theory, I mean as that program back in February. So we will continue with that so that will give us some upside and then I think our SG&A will start to normalize as well. So the guide implies at the moment for Q4, there's not a significant uplift in adjusted PBT margin.
Mark S. Thurston: As we continue to reduce the bench, there isn't anything really in terms of a pricing uplift reflected in that figure, but that reduction in the bench will lead to improved utilization. So the guide implies at the moment for Q4 that there's not a significant uplift in adjusted BBT margin, given that we've got a heavy sort of integration budget with Galaxy at the moment. Thereafter, I think we will start to improve as we go through our next fiscal year in terms of the gross margin improvements and the leverage from SG&A that we get through that full integration with Galaxy.
Speaker Change: We've got a heavy sort of integration.
Speaker Change: Budget with Galaxy at the moment that also I think we start to improve as we go to our next fiscal year in terms of the gross margin improvements and all that.
Speaker Change: From SG&A as we get to see that flew integration mcdonalds.
Operator: Got it. Thanks again. The next question comes from Maggie Nolan with William Blair. Please go ahead.
Speaker Change: Got it thanks again.
Operator: The next question comes from Maggie Nolan with William Blair. Please go ahead. Thank you. Do you have a multi-year target for the percentage of headcount in terms of geographic distribution that you're working toward?
Speaker Change: The next question comes from Maggie Nolan with William Blair.
Speaker Change: Please go ahead.
Margaret Marie Niesen Nolan: Thank you.
Margaret Marie Niesen Nolan: Do you have a multi year target a four percentage of head count in terms of geographic distribution that you're working toward.
John E. Cotterell: Uh, so our expectation over time is that we will diversify across the globe. So currently, we are concentrated in Central Europe relative to our other global Endava Plc Sponsored ADR Class A, and then over time, the delivery capabilities out of Asia-Pac, mainly in Vietnam and India now, will start to move up, very much sticking to the delivery model and the delivery approach that we currently have. We're not looking to shift the market that we're operating in because of that geographic mix changing. Thank you.
Speaker Change: So our expectation over time is that we will diversify.
Speaker Change: Across the globe.
Speaker Change: So currently we are concentrated in central Europe relative to all the other guys.
Speaker Change: Delivery locations.
Speaker Change: In particular, he concentrates in Romania.
Speaker Change: Uh huh.
Speaker Change: We expect those all to continue to grow.
Speaker Change: But as the business expands we also expect to see a lot of time move up as a proportion of our business and then over time the delivery capabilities out of Asia Pac mainly in Vietnam and India now.
Speaker Change: We'll start to move up.
Very much sticking to the.
Speaker Change: Delivery level and the delivery approach. So we currently have.
Speaker Change: Looking to shift the markets that we're operating in because of that geographic Ah.
Speaker Change: The mix changing.
Mark S. Thurston: And as we approach the end of your fiscal year in June, can you remind us kind of what the typical method is in terms of how you'll build the guidance for your next fiscal year? Are you taking any additional considerations? In your view, given that the visibility has been quite limited in recent quarters when you think about how you'll build guidance for next year. I believe, to date, and from more recent history, we have a track record of beats and rays, so we are going to be cautious, basically, in our guidance as we go forward.
Speaker Change: Thank you.
Speaker Change: And as we approach the end of your.
Speaker Change: Fiscal year in June and can you remind us kind of what the typical method in terms of how you build the guidance for your next fiscal year are you taking any additional consideration.
Speaker Change: Under your.
Speaker Change: Given that capability has been quite limited.
Speaker Change: In recent quarters, when you think about high about guidance for next year.
Speaker Change: I believe so.
Speaker Change: Dyson floor from more recent history.
Speaker Change: Chocolate clubs base right. So.
Mark S. Thurston: And part of that is because we've done a sizable acquisition with Galaxy, so there are integration challenges, so we're willing to guide appropriately. So I think as we go through the integration process between now and September, as we sort of form that view for the fiscal world, we'll guide appropriately so that we hopefully don't deliver any surprises.
Speaker Change: I've got to be cautious basically in our guidance.
Speaker Change: It goes going forward and part of that is because we've done a sizable acquisition.
Speaker Change: We've got Oxy said administration charges.
Speaker Change: So they are willing to sort of guide appropriately. So I think as we go through the integration process between now.
Speaker Change: In September we saw a full not view for fiscal well look out appropriately so that.
Speaker Change: Hopefully done till they are there any surprises.
Speaker Change: Thank you.
Operator: The next question comes from Puneet Jain with J.P. Morgan. Please go ahead.
Speaker Change: The next question comes from Puneet Jain with Jpmorgan. Please go ahead.
John E. Cotterell: Hey, thanks for taking my question. So John, you talked about, you gave us a helpful perspective on how Gen-AI could be hurting near-term demand, and yet it represents significant medium-term growth opportunities for the sector. Could you explain for us why Dava or maybe digital engineering companies as a group have a right to win in this new AI age? Like what type of work? you expect you will do and why, like DAWA or digital engineering companies, they are the right names to be doing that for clients.
Speaker Change: Hey, Thanks for taking my question.
Speaker Change: So John you talked about you gave US helpful perspective on how tending I could be hurting you can go back and get it represents significant medium term growth opportunities for the sector.
Speaker Change: Could you review for US right now Oh, maybe digital engineering companies as a group have a right to win in this new era I E like what type of work.
Speaker Change: You expect you'll be due.
Speaker Change: And by like the Davos or digital engineering companies as well.
Speaker Change: Right.
Speaker Change: Ames.
Speaker Change: We'll be doing that for clients.
John E. Cotterell: Yeah, great questions. I love them.
Yeah, Great question Nate.
Speaker Change:
John E. Cotterell: So the way we see it is that if you look at what digital transformation has been over the last 20 years, it has largely been about creating a layer over the top of their enterprise core, a layer that has enabled improved customer interaction, driven revenue, and so on, and is hugely valuable to them. And, you know, we've been one of the organizations that's really benefited from helping drive change across that top layer.
Speaker Change: So the way we see it is that.
Speaker Change: If you look at what digital transformation has been over the last 20 years.
Speaker Change: It has largely.
Speaker Change: A lot of the enterprise customers.
Speaker Change: Around creating a layout over the top is that enterprise cool.
Speaker Change: Atlanta has enabled improved customer interaction.
Speaker Change: And driven revenue and so I'm hugely valuable to them.
Speaker Change: And you know waste being one of the organizations, that's really benefited from helping drive change across that talk to that.
John E. Cotterell: As we get into AI, it will need to drill into the systems, the data, and the processes that exist in the core in order to provide the quality of change, the business benefit that you can get out of AI. You've got to get at the data that's in the core.
Speaker Change: As we get into AI.
Speaker Change: It will need to drill into the.
Speaker Change: The systems, the data and the processes that exist in the cool.
And also to provide the quality of that.
Speaker Change: Change the business benefit, but you can get out of a are you going to get a date.
Speaker Change: Data.
Nicole: Let's say Nicole.
Organizations, who already have a very flexible cool new organizations typically.
John E. Cotterell: Organizations that already have a very flexible core, newer organizations, typically, are going to find it much easier to adopt AI and roll out the benefits of it than the larger enterprises who have a more, let's say, legacy core. And so the opportunity is for an organization to have both the digital transformation capability that we've demonstrated over so many years and the core modernization capability. Now, what I was highlighting in my preliminary remarks was that Endava is actually incredibly well positioned for that.
Nicole: I've got to find it much easier to adopt and roll out the benefits that the larger enterprises to have a more let's say legacy cool.
Nicole: And I'm.
Nicole: So the opportunity is for the organizations, who have both the digital transformation capability that we've demonstrated over many years.
Nicole: The cool modernization capability now.
Nicole: Now what I was highlighting in me.
Nicole: My preliminary remarks was the and dog is actually incredibly well positioned for this.
John E. Cotterell: We have, over the last 10 to 15 years, been building a whole core modernization, which we have tried with many customers, 150, as I highlighted, across 1300 systems. And that actually enables, in a data-driven way, you to understand what the existing ecosystem actually does and what changes need to be made to make them more flexible and opened up so that their data is available to the AI that's coming. So you put those two things together, you've got digital transformation taking a kick from the AI wave that's coming through and all the new ways of doing customer interaction, driving automation, and so on that it's going to open up and the core modernization capability that's needed. And we see ourselves as being in a uniquely differentiated position against our competitors out there.
Nicole: We have over the last 10 15 years building a home.
Nicole: <unk> suite.
Nicole: Which we have tried with many customer was 150 as I highlighted them accrual.
Nicole: Across 3800 systems and that actually enables in a data driven way to understand well.
Nicole: It's actually too.
Nicole: Kind of what changes need to be made to make them more flexible.
Nicole: Open it up so that data is available to them for the <unk>. That's coming so you put those two things together you you'd go digital transformation, taking a kick from the.
Nicole: The AI wave, that's coming through and all the new ways of doing customer interaction driving automation and so on and that is going to pan out.
And the core modernization capabilities as needed and we see ourselves as being in a.
Uniquely all nice differentiated position against them against our competitors out there.
Mark S. Thurston: Got it. That's very helpful. And then your headcount was down, give or take, about 5% this quarter on a sequential basis. How does your utilization look right now versus your target? I think, Mark, you mentioned there is some scope to improve utilization in Q4. So can you talk about utilization rates right now versus your target?
Speaker Change: Got it that's very helpful. And then your head count was down give or take about 5% this quarter on a sequential basis.
Speaker Change: How does utilization look like right now versus your targets I think Mark you mentioned there is some scope to improve utilization in Q4. So can you talk about utilization rate right now and what's the sort of topics.
Mark S. Thurston: Yeah, I mean, utilisation at the moment is pretty sort of stable. So it's about 66, 67 for the quarter just gone. Our bench is pretty, pretty low. Currently, about 8.5 as a, 8.5% as I sort of speak.
Speaker Change: Yeah, It makes sense.
Speaker Change: Ization of alignment is staying pretty stable because it's about a 66 67 for the quarter just come on.
Speaker Change: Our bench is.
Speaker Change: Really pretty low.
Speaker Change: Currently about half is Uh huh.
Speaker Change: Sensus is so to speak.
Speaker Change: So.
Speaker Change: And we will remain in that sort of level of a bunch and I got a little bit.
Speaker Change: Most of the margin improvement is going to come from a great job.
Speaker Change: Utilization basically.
Mark S. Thurston: So it will remain at that sort of level, the bench may go a little bit lower, but most of our margin improvement is going to come from greater utilisation, basically. And historically, when we've been delivering good margin, we've been up at the high 60s. And typically, a percentage movement in utilisation, or things being equal, leads to a percentage point improvement in gross margin. Again, one caveat around that: we are integrating Galaxy. And so we need a stronger hold around the metrics, the operating metrics of that business, but I think what I've said is largely going to hold true for them as well.
Speaker Change: He started when we begin delivering good margin.
Speaker Change: The high Sixty's.
Speaker Change: Typically.
Speaker Change: Essentially that the utilization of all things being equal east essentially.
Speaker Change: Essentially point improvement on our.
Speaker Change: Gross margin.
And again, one caveat around that we are integrating our galaxy.
Speaker Change: And so we need a stronger hold around the metrics operating metrics of our business.
Speaker Change: But I think Bob said as long as you can kind of hold true for them as well.
Operator: Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Okay. The next.
Operator: The next question comes from Bryan Keane with Deutsche Bank. Please go ahead.
Speaker Change: The next question comes from Bryan Keane with Deutsche Bank.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
Mark S. Thurston: Yeah, hi, Mark, just wanted to ask about gross margin. I think it fell below the 30% threshold in the quarter, which is a little below we were expecting. Was there any call-outs just for the quarter itself that, I know you're talking about an improvement sequentially, but just trying to figure out the quarter itself, why it fell?
Bryan Connell Keane: Yeah, Hi, Mark just wanted to ask on gross margin I think it fell below the 30%.
Bryan Connell Keane: Threshold in the quarter, which was a little below we were expecting was there any call outs just for the quarter itself that I know you were talking about an improvement sequentially, but just trying to figure out the quarter itself why at a quite fell.
Bryan Connell Keane: Yeah.
Mark S. Thurston: It did fall, but that was where we got it. So did you see how you got your number?
Speaker Change #101: It states that he was glad we got it.
Speaker Change #102: Hey, how are you planning on the way, we think it's an adjusted basis 31, 5%. So it's about 30%.
Speaker Change #101:
Speaker Change #101: In line with what we were guiding the kicker.
On the Aps is basically through SG&A and reduced tax rate.
Speaker Change #101: So maybe we just need to compare notes on that okay.
Speaker Change #101: Okay.
Speaker Change #101: Yes.
Mark S. Thurston: We think it's on a just a basis 31.5%. So it's about 30%. In line with what we were guiding, the kicker of the EPS was basically through lower SG&A and reduced tax rate. So maybe we just need to compare notes on that. Okay. Calculation difference
Speaker Change #104: Yeah, Yeah, we will look at it there might be some adjustments there and then.
Mark S. Thurston: Yeah, yeah, we'll look at it. There might be some adjustments there. And then I think you gave us the Galaxy contribution. What's the other inorganic contribution we should expect in the fourth quarter from other acquisitions, just so we have the total inorganic contribution for four?
Speaker Change #103: You gave us the galaxy contribution.
Speaker Change #105: Any what's the other inorganic contribution we should expect in the fourth quarter from other acquisitions. Just so we have a totally in organic contribution for fourth.
Mark S. Thurston: It's a very minimal element from TLM, which we had about a year ago, but it's pretty negligible. It's mainly all of Galaxy.
Speaker Change #106: So very minimal from tail language, we had about a year ago, it's pretty Netflix place, namely oldest.
Speaker Change #105: Galaxy.
Speaker Change #105: Yeah.
Operator: Got it. Okay, I'll pass the line. Thank you.
Speaker Change #107: Got it Okay I'll pass it along thank you.
Operator: The next question comes from James Faucette with Morgan Stanley. Please go ahead.
Speaker Change #108: The next question comes from James Fawcett with Morgan Stanley. Please go ahead.
John E. Cotterell: Hey, thanks, guys, for taking the question. Just a couple of quick follow-ups.
James Eugene Faucette: Hey, Thanks, guys for taking the question just a couple of quick follow ups first in terms of of World. How you said that you're starting to see some of that business and engagement come back.
Speaker Change #110: Is G T Shar takes over management of that company.
Speaker Change #111: How are you thinking about like what the return and opportunity looks like they're over what timeframe. You know just trying to get a sense of any early indications on on that because it seems like there's a lot of potential there.
John E. Cotterell: First, in terms of WorldPay, you said that you're starting to see some of that business and engagement come back as GTCR takes over management of that company. How are you thinking about what the return and opportunity looks like there over what time frame? You know, just trying to get a sense of any early indications on that, because it seems like there's a lot of potential there.
John E. Cotterell: Yeah, I mean, James, obviously, it's a sensitive area in terms of clients' investment decisions. We have very good stakeholders across the COO, and CTO. So we're engaged regularly in conversation with them. And, you know, with them shaping up,
Speaker Change #112: Yeah, I mean, obviously it's.
Speaker Change #112: A sensitive area in terms of clients investment decisions.
Speaker Change #112: We have very good stakeholders.
Speaker Change #112: Across the <unk>.
Speaker Change #113: So where do you guys regularly in conversation with them.
Speaker Change #113: And with that I'm shaping up.
Speaker Change #113: The investment plans they've changed plans, we feel very much involved and expect the calls going forward.
Speaker Change #113: It's about as far as I think we should go to the environment.
John E. Cotterell: understood, understood. And then I wanted to ask quickly about the kind of galaxy and how you're thinking about that. And integrating that into the rest of your operations. And, you know, what are the things that you're paying attention to in terms of competition for talent in that market right now, the pricing dynamics between, you know, at least traditionally where Galaxy had been and Endava more broadly, just trying to think through the working relationship and how that'll expand and improve Endava's capabilities down the road.
Speaker Change #114: Understood understood and then I wanted to ask quickly about kind of galaxy and how you're thinking about that and.
Speaker Change #115: Integrating that into the rest of your operations and you know what are the things that you're paying attention to in terms of competition for talent and in that market right now on the pricing dynamics between you know I always traditionally where galaxy had been in and indaba more broadly just trying to think through.
Speaker Change #115: The working relationship and how that'll expanded and improved in <unk>.
Speaker Change #115: All those capabilities down the road.
John E. Cotterell: Yeah, sure. The first thing to say is that if you look at the average revenue per workday in Galaxy, it's not a lot different from Endava because of that mix of onshore and offshore. And so, you know, we would expect to maintain that sort of value-add pricing in what we do. And the second thing is that the strengths that we have are very complementary. So, you know, the digital transformation work that we do is something that is mainly an Endava strength. If you look at the core modernization stuff, the data numbers that I put out there, about two-thirds of that was Endava work, and about a third of it was from the Galaxy experience set.
Speaker Change #116: Yeah sure I mean the.
Speaker Change #117: That's the first thing to say is that if you look at the average revenue per workday in Galaxy, It's it's not a lot different too.
Speaker Change #117: Because of that mix of onshore and offshore.
Speaker Change #117: And so we would expect to maintain that sort of value add pricing.
Speaker Change #117: And what we do.
Speaker Change #117: The second thing is that the strengths that we have a very complementary.
Speaker Change #117: Yes.
Speaker Change #117: The digital transformation work that we do because.
Speaker Change #117: Is.
Speaker Change #118: Is it something that is mainly onondaga strength, if you look at the core modernization and stuff.
Speaker Change #118: The the data numbers that I put out there about.
Speaker Change #118: Two thirds of that was into all the work and about a third of it was.
Speaker Change #118: The galaxy experienced that so they've strengthened that I I don't think if you look at that core modernization side.
John E. Cotterell: So they've strengthened that. And I think if you look at that core modernization side, India is a good place to do that. There's a lot of experience that they have in India and can bring to apply that. And if you put that alongside the patented technology, That we have the tool sets and the accelerators that we use to deliver that service gives us a strong differentiation against the Indian pure plate for the work that we do out of it.
Speaker Change #118:
Speaker Change #118: The India is a good place to do that and there's a lot of experienced this.
Speaker Change #118:
Speaker Change #118: But they have in India and can bring to apply us.
Speaker Change #118: And if you put that alongside the patented technologies.
Speaker Change #118: We have the tool sets and the.
Speaker Change #118: Accelerators that we use them to deliberate I said I see it gives us a strong differentiation against the Indian pure plays.
Speaker Change #118: The work that we do out of India, and then when you ask the digital transformation capability to drive true enterprise transformation as it comes through.
John E. Cotterell: And then when you add the digital transformation capability to drive true enterprise transformation as AI comes through, put those two things together, and you end up with a strong differentiation, still pulling on our near-short capabilities, as well as earning India. And so, you know, that's very much how we're seeing it. We see it as being, you know, being able to protect price and earn earnings over time. So I think that's probably economically what you were searching for there.
Speaker Change #118: You put those two things together and you end up with a strong differentiation still pulling on the issue okay abilities as well as on the India.
Speaker Change #118: That's that's very much how we're seeing it we see it as being.
Speaker Change #118: You know.
Speaker Change #118: Being able to protect price and being earnings enhancing over time.
Speaker Change #118: So I think that's probably economically what you were searching for.
Operator: Yep, no, that's great. I appreciate that.
Speaker Change #119: Yeah, No that's great I appreciate that.
Speaker Change #119: Yeah.
Operator: The next question comes from Moshe Katri with Wedbush. Please go ahead.
But.
Speaker Change #120: The next question comes from Moshe <unk> with Wedbush. Please go ahead.
Moshe Katri: Hey, Thanks for squeezing me in so.
Speaker Change #122: Questions first on bookings can we get some color on some of the new bookings in terms of verticals regions and then in general are we seeing any sort of changes in terms of how bookings have been converting obviously, there's been an issue with conversion slowed down and the fact that conversion has been pretty inconsistent.
Speaker Change #122: So any color there would be helpful. Thanks.
John E. Cotterell: And yeah, my comments are really on the larger deals that I sort of...
Speaker Change #123: I mean, how.
Speaker Change #122: Hum.
Speaker Change #122: Sure.
Deals sort of focus on that.
Speaker Change #124: The timeline has been growing as John said so.
Speaker Change #124: Quite significantly in terms of the number of deals and the size of them.
Speaker Change #125: For the last time, we talked on the earnings call well Hasnt changed.
Speaker Change #125: Pace at which they go through from proposal to contrast, all being told you you haven't been successful that remains sort of slide.
Speaker Change #125: And then just partially because of the reason mainly the reason that we are.
Speaker Change #125: And of course, we're glad we're guiding towards what was a pretty useful Boston.
Speaker Change #125: So it is an issue basically.
Speaker Change #125: Progressing through the pipeline in terms of philosophy, not one right.
Mark S. Thurston: On Galaxy, can you just remind us if it is growing this year or any sort of color?
Speaker Change #125: Okay.
Speaker Change #127: And then just on Galaxy can you just remind us of galaxy.
Speaker Change #126: Growing this year or any sort of kind of color on their growth rates.
Speaker Change #126: Okay.
Speaker Change #128: Yeah. It's it's too early really to say that in any way sort of tool control setting that cause a pennsylvania pool.
Mark S. Thurston: It is too early really to say that. We've sort of taken control, as said in the comments, the 10th of April, and we obviously have a budget to put together for ourselves for June to June 25th.
Speaker Change #129: We obviously have a budget spoke together Oh ourselves for June to June 25. So we are going through the process of looking at that that forecast and establishing more ice credit for run rates look like but.
John E. Cotterell: So we are going through the process at the moment of looking at their forecasts and establishing what those growth rates look like. But certainly, they are growing, and they have a calendar year, by the way. They were certainly growing year on year between calendar 22 and calendar 23. I think the big opportunity with Galaxy lies in the deals that we can collaborate on and work together on. That's where we're going to get the acceleration.
Speaker Change #129: Certainly they were grabbing and.
Speaker Change #129: And they have to come to you and by the way they were suddenly grabbing.
Speaker Change #129: Year on year between <unk> and 'twenty two calendar 'twenty.
Speaker Change #129: <unk> 23.
Speaker Change #129: The big opportunity with the Galaxy lies in.
Speaker Change #129: The deals that we can collaborate tone, we went together, that's where we're going to get that acceleration.
Speaker Change #130: All right.
Speaker Change #130: Our clients are.
John E. Cotterell: Either their clients allowing us to expand our footprint because of the larger scale and capabilities that Endava brings, or Endava clients benefiting from the footprint capabilities, particularly the enterprise transformations thing that I've been talking about, that Galaxy really flies for us. So that's where we're looking to see the growth rather than just, you know, them organically operating by themselves.
Speaker Change #130: Allowing us to expand footprint, because it's the largest scale and capabilities and all the Bronx or in all the clients are benefiting from the footprint capabilities, particularly in enterprise transformation thing I've been talking about.
Speaker Change #130: The galaxy really solidified for us so that's where we're looking to see the growth rather than just.
Speaker Change #130: You know them organically operated by themselves.
Speaker Change #131: Understood. Thank you.
Speaker Change #131: Yeah.
Operator: Understood. Thank you. The next question comes from Jamie Freedman with Susquehanna; please go ahead. Good morning.
Speaker Change #132: The next question comes from Jamie Friedman with Susquehanna. Please go ahead.
Operator: Good morning, good afternoon. I wanted to...
Jamie Friedman: Good morning, good afternoon I wanted to.
John E. Cotterell: Following up on Puneet's earlier question, John, in terms of your right to win in AI, is it possible to share your perspective maybe with the lens of Slide 13, it's the one where you talk about your capabilities. So even if you don't have it in front of you, but it's where you, if you look at AI in the context of these service lines, say digital production or engineering or data delivery. We're, Uh, where are you seeing revenue realization at this point or expecting to see it?
Speaker Change #134: Follow up on Puneet earlier question John in terms of your right to win in N. A I is it possible to share your perspective, maybe with this the lenses.
Speaker Change #135: Slide 13, it's the one where you talk about your capabilities. So even if you don't have in front of me, but it's where you. If you look at AI in the context.
Speaker Change #136: Of these service lines say digital production or engineering or data.
Speaker Change #135: Delivery.
Speaker Change #135: Where.
Speaker Change #135: Where are you seeing revenue realization at this point, we're expecting to see it.
John E. Cotterell: Yeah, so I mean, that's pulling out the underlying capabilities rather than what we go to market with. So, we go to market with digital transformation propositions that are all about helping a client transform their business, whether that be driving revenue or efficiencies on the cost side. And, you know, that's been the classic digital transformation space that we have performed in and done so well over so many years. The right to win, I think, comes from being able to combine that with, you know, a patented unique approach to core modernization that really de-risks that modernization program. There are so many large enterprises out there that have been wary of getting into the enterprise core modernization space, and actually, we can give them a much more solid route to doing so.
Yeah, So I mean, not pulling out the underlying capabilities.
Speaker Change #135: Rather than what we go to market with them. So we go to market with our digital transformation propositions are all about.
Speaker Change #135: Helping our clients transform that business, whether that be driving revenue or.
Speaker Change #137: Our efficiencies on the cost side.
Speaker Change #135: And.
Speaker Change #135: That's been the classic digital transformation space that week before then it does so well.
Speaker Change #135: Over so many years.
Speaker Change #135: The rights of way and I think it comes from being able to combine that with.
Speaker Change #135: Hey, two unique approach.
Speaker Change #135: So you called modernization.
Speaker Change #135: The that really de risks that modernization program and they are assigned many large enterprises out there that have been wary of getting into that.
Speaker Change #138: The enterprise Cove authorization space and actually we can give them a much more solid rig to doing so now how did you do that.
John E. Cotterell: Now, as you do that, it really opens up what you can do on the digital transformation side. So, because of the access to data that you get because of the process cleanup that you can drive through the organization, we have been able to put those two capabilities together in a very differentiated way. That's where we see our right to win.
Speaker Change #138: Really opens up what you can do with the digital transformation side, so because because of the access to data that you get because of the price that's clean up that you can drive through the organization.
Speaker Change #138: And you know.
Speaker Change #138: We have been able to put those two capabilities together in a very differentiated way.
Speaker Change #138: That's where we see all right to win.
Speaker Change #138: Yeah.
Mark S. Thurston: Okay, and then Mark, I just did a question about free cash flow, and I think you had called this out last quarter, so it wasn't a surprise, but... The 1.2% adjusted free cash flow is a percentage of revenue down from 10. I see that obviously a lot of it's the revenue pressure and the profitability pressure, um, But what in the world here should we be looking at?
Speaker Change #139: Okay, and then Mark I just did a.
A question about the free cash flow and I think you had called this out last quarter. So it wasn't a surprise but.
Speaker Change #140: The 1.2% adjusted free cash flow as a percentage of revenue down from 10.
Yes.
Speaker Change #141: I see that obviously a lot of it's the you know the revenue pressure and the profitability pressure.
Speaker Change #140:
Speaker Change #142: But what it ends up what else written here should we be looking at.
Mark S. Thurston: Well, we typically have some six counts in the cash flow, so it is usually a low quarter cash flow, not as low as this as a percentage of revenue. We have taken the cash component of the restructuring of about 7.5 million through the cash flows of 4 million. So I think that adds about, I think about a couple of percentage points to it.
Speaker Change #143: Well, we have we typically have some fixed costs in the country.
Speaker Change #143: It is usually a lag quarter.
Speaker Change #143: Cash flow I know it is.
Speaker Change #143: Is this.
Speaker Change #143: As a percentage of revenue we have taken.
Speaker Change #143: Cash component of the restructuring is about seven points.
Speaker Change #143: $5 million.
Speaker Change #143: Food cost $4 million.
Speaker Change #143: So I think that's about I think about a.
Speaker Change #143: A couple of percentage points to it.
Mark S. Thurston: It is, I don't think this is representative of the sort of cash flow charitable position of Endava going forward. I think it is a combination of us going through the restructuring. There definitely has been a sort of slowdown because it's related to the profitability of the revenue, which is low. And as our profitability sort of improves going forward, that will drive a strong sort of free cash flow position.
Speaker Change #143: It is I don't think this is represented as sort of a test flight chairmanship position.
Paul: Okay, Paul with I think it is a it's a combination of us going to the restructuring.
Paul: That's definitely has been a sort of slowdown related to the profitability of the revenue, which is a lot of them.
Paul: Our profitability improves going forward.
Paul: That will drive a strong sort of free cash flow position.
Operator: Okay, that makes sense. Thank you.
Speaker Change #145: Okay that makes sense. Thank you.
Speaker Change #145: Yeah.
Operator: The next question comes from Tom Blakey with KeyBank. Please go ahead.
Speaker Change #146: The next question comes from Tom Blakely Blakey with Keybanc. Please go ahead.
John E. Cotterell: Hey, everyone. Thank you for taking my question. I just, my question was, it's good to hear about the new bookings, you know, seeming to offset some of these pressures of down sales and whatnot. When you look out, John, to the next few quarters here, maybe in the fiscal 25, not exactly a question about guidance, but how far through are we in terms of these potential downward pressures? What does the portfolio look like in fiscal 24 that seems to have kind of like climbed in terms of downward pressure when you kind of take a look at it from a portfolio of like your current business as we look out the next few quarters? That'd be kind of helpful for everybody.
Speaker Change #147: Hi, everyone. Thank you for taking my question.
Speaker Change #148: I just my question was it's good to hear about the new bookings.
Speaker Change #149: You're going to offset some of these the pressures of down sells and whatnot. When you look out John too.
Speaker Change #150: The next few quarters here or maybe into fiscal 'twenty five not exactly a question on guide, but how far through are we in terms of these potential downward pressures what does the portfolio look like in fiscal 'twenty for that seem to have kind of like uptick in terms of downward pressure when you kind of take a look.
Speaker Change #151: Got it from a portfolio like your.
Speaker Change #151: Yeah.
Speaker Change #152: Your current business as we look out the next few quarters that'd be kind of I think helpful for everybody.
John E. Cotterell: Yeah, I don't want you to take away that this downward pressure is an unusual thing. This is something that has been happening through all of the boom times of growth as well. It's just the natural projects coming to an end cycle. What we've been experiencing over the last 18 months or so is the new spend that's been coming through has not been offsetting that, and that's where this quarter we are seeing it offsetting it and enabling stabilization.
Speaker Change #152: Yeah, I don't want you to take away that this downward pressure is an unusual thing or is it something that is.
Thing happening through all of the.
Speaker Change #152: Putting in times of growth as well as just the natural projects coming to an end so like cool.
Speaker Change #152: What we've been experiencing over the last 18 months or so is it the new spend that's been coming through is not paid off setting us.
Speaker Change #152: And and that's where this quarter we.
Speaker Change #152: We're seeing it offsetting and enabling stabilization.
John E. Cotterell: We're also seeing that big backlog of work where we've done discoveries for clients, paid discoveries where they're not yet making the decisions to go ahead with them. So it's too early to call whether that upward trend that's coming from new discretionary spend coming through that's enabled stabilization in Q4 is going to accelerate to the point where we anticipate an upturn. But that is the core question; when does that happen? When does this backlog of opportunities breakthrough and actually start to lead to an uplift? And right now, we're not ready to call that. We'll see you in September.
Speaker Change #152: We're also seeing that big backlog of work, where we've done discoveries for clients.
Speaker Change #152: Pes discoveries, where they're making the decisions to go ahead with it.
Speaker Change #152: So.
Speaker Change #152: It's too early to call that add up with trend that's coming from discretionary spend coming through that's a nice stabilization in Q4.
Speaker Change #152: It's going to accelerate to the point, where we anticipate an upturn.
Speaker Change #152: But that is the core question is when does that happen when when does this backlog of opportunities breakthrough.
Speaker Change #152: And actually start to lay to the Opex.
Speaker Change #152: And.
Speaker Change #152: Right now, we're not ready to call that.
Speaker Change #152: We will see in September.
John E. Cotterell: and that's helpful in terms of the relatively normal cadence of the downward pressure. That's helpful, and then maybe just switching back over to the galaxy topic I was under the understanding just given prior to the [inaudible].
Speaker Change #154: Alright, that's helpful in terms of at the relatively normal cadence of the downward pressure that is helpful. And then maybe just switching back over to the galaxy topic.
Speaker Change #153: I was under the understanding just given prior.
Speaker Change #155: Research and whatnot from Galaxy that EBIT margins were in the high teens from an organic perspective, just walk us through maybe the puts and takes there as we look to kind of like model out the next year or so and if theres any seasonality.
Speaker Change #156: And our revenue organically that'd be helpful as well thank you.
Mark S. Thurston: Well, I think it depends on what numbers you've been looking at. I don't think there's any public sort of numbers. We have been putting them on to IFRS, that's part of the integration challenge and you're looking at the accounting policy, um there is uh integration activity which will be quite marked for us certainly in the first you know six months so that's really until um it's probably longer until about sort of December um I think as John said their bill rate uh is in line with ours a revenue per head they do have a higher proportion of you know onshore uh compared to us um but we think that we can achieve uh over the course of what will be fiscal 25 taking them up to levels of gross margin that we achieve and then we will also be uh looking at the the SG&A um because there will be you know some synergies uh there basically um so I'm not I'm not going to spell it out in short uh I think you're going to have to sort of wait until we guide in more detail for fiscal 25 which we will do in September.
Speaker Change #157: Well I think it depends on what levels you'd be looking at.
Speaker Change #158: So I'd start off by disclosing any opex or numbers.
Speaker Change #159: We have game play them onto our first holiday integration challenges and looking at the accounting policies.
Speaker Change #159: There is integration activity, which we call them out for US certainly in the first six months that's really so.
Speaker Change #159: Probably longer until that sort of December.
Speaker Change #159: I think as John said the fill rates are in line with our revenue.
Speaker Change #160: Thank you have a high proportion of onshore.
Speaker Change #161: Compared to us.
Speaker Change #161: But we think we can achieve over the course of fiscal.
Speaker Change #161: Fiscal 'twenty five.
Speaker Change #161: Two levels of gross margin that we achieved and then maybe level set.
Speaker Change #161: Looking at the SG&A.
Speaker Change #161: There will be some synergies that basically.
Speaker Change #162: So I'm not I'm not going to spend at holiday shows Oh.
Speaker Change #162: Wait until we got even more detail for fiscal 'twenty five.
Speaker Change #162: They will do it in September.
Mark S. Thurston: Okay, and Mark, just any seasonality that Galaxy has been typically experiencing off that 21, 22 million GDP?
Speaker Change #163: Okay, and Mark just any seats.
Speaker Change #163: The analogy that galaxies and typically experiencing off that 'twenty, one 'twenty 2 million GDP.
Mark S. Thurston: It's too early to tell, to be honest. Certainly, in terms of the budgets that we were looking at through the due diligence process, it looked like strong growth. Again, we have to de-dupe it for our revenue recognition, which we tried to do at the due diligence stage, but we're working through that. I don't think there is any cyclicality or seasonality that we could pick up in terms of the timing of the spend that they have with their clients, but we have to do further work, really, before I can comment.
Speaker Change #164: Uh huh.
Speaker Change #165: It's too early to tell to be honest.
Speaker Change #165: Certainly in terms of the budget. So that we're looking at the fact that you've delicious process it looks.
Speaker Change #165: Strong growth.
Speaker Change #165: Again, we hustle did you could draw record revenue recognition she tried to do.
Speaker Change #165: Did you tell us sort of stack from the sort of working through that I don't think there is any.
Speaker Change #165: Cyclic policy, while seasonality, we could pick up in terms of the timing of the spend that they have with their clients.
Speaker Change #165: But we have to further but ready to go for it.
Speaker Change #165: Colin.
Speaker Change #165: Yeah.
Speaker Change #165: Okay.
Operator: Excellent Thank you for taking my questions.
Speaker Change #166: Excellent. Thank you for taking my questions.
Tom: Thanks, Tom.
John E. Cotterell: This concludes our question and answer session. I would like to turn the conference back over to John Cotterell, CEO, for any closing remarks.
Speaker Change #168: This concludes our question and answer session I would like to turn the conference back over to John Cottrill CEO for any closing remarks.
John E. Cotterell: Yeah, so thank you all for joining us today. As I mentioned in my prepared remarks, we talked about the pivot in the digital transformation that's underway, driven by AI, specifically the need to drive change in the enterprise core. We've touched on that a little bit during this call.
Yeah. So thank you all for joining us today and as I mentioned in my prepared remarks, we talked about pivot in digital transformation, that's underway driven by AI, specifically the need to drive change in the enterprise cool.
Speaker Change #168: We've touched on that a little bit during this call.
John E. Cotterell: We believe Endava is well positioned for this, with both the digital transformation capability to ideate and innovate alongside patented technology to help make enterprise core systems and data accessible to AI. The combination of these capabilities positions us excellently for the next wave of digital transformation driven by AI. We will continue to invest in these capabilities in anticipation of the market turn, and I look forward to updating you on our next earnings call, which will be our four-year numbers. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #168: We believe it is well positioned for this with both the digital transformation capability.
Speaker Change #169: Innovate alongside patient to technology to help my enterprise cool systems and data accessible to AI. The combination of these capabilities positions us excellently.
Speaker Change #169: For the next wave of digital transformation driven by AI.
Speaker Change #169: We will continue to invest in these capabilities and intense.
Speaker Change #169: This patient.
Speaker Change #169: Of the market.
Speaker Change #169: I look forward to updating you on our next earnings call, which will be our full year numbers. Thank you.
Speaker Change #169: The conference.
Speaker Change #170: <unk> has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change #170: Okay.
Speaker Change #170: [music].