Q1 2026 Endava PLC Earnings Call
Good day and welcome to the Endava Q1 2026 Earnings Call.
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I would now like to turn the conference over to Miss Laurence Madsen, head of Investor Relations and ESG at Endava. Please go ahead.
Thank you. Good afternoon, everyone and welcome to end ofa's first quarter of our fiscal year 2026 conference call. As a reminder, this conference call is being recorded joining me. Today are John cotterell end of the chief executive officer and Mark thirst and have as Chief Financial Officer.
We begin with a quick reminder to our listeners.
Our presentation, our accompanying remarks today include forward-looking statements and excluding but not limited to statements regarding our guidance for Q2 fiscal year 2026 and for the full fiscal year 2026. The impacts of headwinds facing our industry and business Trends in our industry, including with respect to developments with AI announcements, to our technology, and offering our pipeline of clients opportunity and our ability to convert such opportunities into Contracting orders.
The benefits of our Partnerships are pricing models demand for from clients for technology services. Our ability to create long-term value for our clients, our people and our shareholders, and our business, strategies plans operations and growth opportunities.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
Actual results and the timing of certain events May differ materially from the results, our 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 this forward-looking statements made during this conference call.
Only as of today's date, and we undertake no obligation to update them to reflect subsequent events or circumstances, other than to the extent required by law.
For more information, please refer to the risk factors section of our annual report filed with the Securities and Exchange Commission on September 4, 2025, and in other filings that we make from time to time with the SEC.
Also during the call we'll present both IFRS and nonis 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.
By consolidation of such non-ifrs measures to the most directly comparable IFRS measures are included in today's earnings press release as well as the 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 website.
With that, I'll turn the call over to John.
Thank you and welcome everyone.
We appreciate you joining us for our first quarter, fiscal year 2026 earnings call.
And continues to be deeply engaged by. And with major companies across the world. As they look for support in, navigating the journey towards AI whilst ensuring operational resilience in existing platforms and devices.
We believe that our partnership with major technology giants and the decisions we took 3 years ago have led to the development of our AI-native change delivery life cycle, now branded De Flow.
See us. Well placed for the coming years.
However, we continue to navigate the challenges associated with this transition in business models delivery approach and acceleration of the new AI driven digital wave.
The first quarter results were lower than guided primarily due to an unexpected credit made to a client that arose subsequent to our last earnings call.
As well as certain non-large, strategic pipeline opportunities that did not convert into Revenue during the quarter as anticipated.
while these factors weighed on our performance, our ability to secure a multi-year, strategic relationship with a leading payments company of up to a hundred million dollars, demonstrates the strength of our client relationships,
this partnership will utilize the best.
Of in DA's Global delivery capability, as well as our Ai and advanced engineering capabilities to streamline our client's technology platforms and enhance existing capabilities.
This represents a prime example of the type of deal and partnership. We are targeting utilizing our capability as an AI-native, technology-agnostic transformation partner.
Ecosystem is already generating incremental potential pipeline opportunities and client interest in da. Floe is accelerating.
I will return to each of these topics later in the call.
Following the sales leadership realignment announced last quarter. We recently hired a chief growth officer for Commercial Services for Europe and North America.
These changes are already sharpening our customer engagement model.
Which is evident in the composition of our potential opportunity pipeline, which we are tracking closely.
We remain committed to disciplined cost management to protect margins while continuing to focus on growth.
Starting with an update on our AI-related engagements, AI now anchors many clients' technology roadmaps. We are partnering across a spectrum of projects, from early proof of concept to enterprise-wide rollouts and subsequent optimization efforts.
Following the engagement for a leading us healthcare services, provider where we deployed AI to automate the intake and summarization of medical bills and supporting documentation. We have now Advanced integration into the clients, adjust the portal, and enable, both new real-time and scheduled processing to support Peak volumes.
The architecture is built for compliance and auditability with us. Data residency and targets. High accuracy to meet over 95% Precision, while holding unit costs below half a cent per page.
Early performance indicates faster, more consistent decisions and a clear path to materially lower per claim, handling costs.
Building on the Enterprise ChatGPT program, our collaboration with a leading financial compliance technology provider has progressed.
We partnered with OpenAI to drive a company-wide deployment of ChatGPT Enterprise, anchored in governance and enablement. Within 3 months, more than 500 licenses were rolled out with single sign-on, role-based access, and audit logging.
E team members across Finance, Legal, IT, Client Services, and Support received train-the-trainer enablement to develop high-value use cases.
And custom gpts reinforced by structured, Communications weekly Show and Tell sessions and continuous measurements adoption has scaled with growing catalogs of validated use cases. And measurable productivity gains are emerging in document, workflows and client service operations.
These first two client cases are examples we have previously discussed on earnings calls, and I'm covering them to show how these engagements are progressing and how engagements are building and deepening. Once production solutions are in place,
For leading US retail, the pharmacy chain is modernizing a core handheld application by upgrading its codebase using AI-assisted analysis, leveraging GitHub Copilot.
We completed a comprehensive assessment and prepared a two-phase execution plan that targets the highest impact fixes and de-risks the upgrade.
The resulting Playbook is designed to be repeatable across other applications.
Strength and security, reduces technical debt, and supports a faster release Cadence.
Initial results indicate AI-enabled reviews and automated testing while lowering manual effort by between 25% and 30% and shortening migration time by between 20% and 25%. This implies a projected productivity uplift of between 30% and 35% once both phases are completed.
For Global energy and utilities provider that runs large-scale power grid simulations, we migrated a 400,000 line for Trans system.
We built AI, assisted passes and automation tools. With agent coding tools to preserve program flow while refactoring syntax and improving memory management.
We also identified code sections tied to domain Concepts to speed future features delivery.
Close to 30 times faster, code changes with improved reliability.
For an e-learning provider serving over 12,000 healthcare and human services organizations, we developed an AI-enabled content studio that streamlines the entire content lifecycle: drafting, review, quality assurance, export, and accreditation.
for a catalog of 7,000 plus courses.
Built on windsurf, and integrated with the client's Enterprise AI infrastructure. The platform generates course, outlines and transcripts runs policy based QA agents automates School Imports and Compares accreditation standards.
Automation rules and validation tests further, enhance compliance and operational consistency.
Results show end-to-end. Authoring elements, have fallen by approximately 30% and modeling shows. Projected Time Savings of 30 to 50% when scaling updates across the full course Library.
Returning to partnerships, our investment in our partnership with OpenAI is expanding as we've enrolled a group of Endava engineers in OpenAI's newly launched Para exclusive certification program.
Our team is pursuing multiple opportunities across the open AI product Suite through training created by open AI, that is only available to Service Partners.
This is another step to deepen our knowledge and advance our AI-native delivery capabilities.
On the commercial side, The Joint go to market framework. We created in partnership with openai is producing measurable results with winds in the insurance sector.
We continue to grow our dedicated, Google Cloud business. Unit in collaboration with Google Cloud, we continue to increase the number of Gemini Enterprise projects that we are actively engaged in.
Each engagement follows a production grade reference architecture with explicit safety and audit controls ensuring that pilot outcomes can be migrated into compliant Enterprise environments.
1 of these projects involves a leading UK bank, where we are rolling out AI enabled digital assistance that give employees fast, secure access to internal and Market data.
Early pilot results indicate shorter query resolution times and improved policy compliance, laying a foundation for institutional and wide adoption of agentic workflows.
We also continue to strengthen our partnership with Salesforce by investing in a gentic Ai, and Innovation with a focus on applying agent, force across sales forces, core clouds to assist customer-facing, teams streamline operations, and unlock new levels of Engagement and productivity.
This reflects in Dar's commitment to staying at the forefront of sales force innovation and helping clients turn emerging AI capabilities into real, measurable impact.
And now, with an update on our large strategic deals, defined as multi-year, large-scale engagements.
In addition to the multi-year payments deal. I mentioned earlier, we deepened our engagement with convex and international specialty. Reinsurer
By signing a new agreement, this Builds on the success, we have achieved together in recent years, as convex continues to invest in the Innovative technology and deliver consistently high quality service.
This partnership enables us to deliver a range of capabilities, enabling convex to continue. Creating a business that has data at its heart and a strong emphasis on analytics to make better underwriting decisions.
In Mobility, we have extended and expanded, our long-standing partnership with Toyota Racing development as their official, IT consulting partner in 2026 and Beyond.
As part of the partnership.
In the will leverage its AI-enabled accelerators and frameworks to modernize core Toyota Racing development and production systems and enable digital transformation for the business.
Next, let me outline how our delivery model is evolving and what that means for execution and client outcomes.
The pace of AI Innovation remains exceptionally fast. And the nature of our client discussions, has evolved just as quickly.
Ijen agents, we are now examining how those agents can be deployed to deliver measurable efficiency across customer facing and core operations.
Clients are starting to move beyond the search for a single killer application.
and are instead seeking opportunities to embed AI throughout their technology stacks and operating models.
This marks the beginning of the transition. From chasing incremental changes brought about by embracing AI to notable productivity changes.
We are now spending time shaping larger scale projects that can only be delivered through the strategic adoption of AI.
Purpose built for an environment in which autonomous software agents participate in delivery Darva. Flow treats flow as the next progression Beyond agile by embedding AI into every activity.
The delivery life cycle is organized into 4 sequential yet, feedback linked phases.
Signal Explorer doin and evolve.
Throughout all phases, human oversight or human-in-the-loop guides AI contributions, and the system learns and improves with each cycle.
And Signal we deploy market and estate scanning agents to surface and qualify opportunities.
The agent reacts to signals in the market or client environment and feeds qualified opportunities into the life cycle with confidence scores.
In Explorer, we use human-AI collaboration to convert these signals into evidence solutions, designs, producing prototype requirements, and models at PACE.
The aim is to reduce uncertainty and finalize. What needs to be built supported by evidence
In govern, we assemble and automate. The build engineer oversight, combines with agent generated code to enforce best-in-class controls.
Evolve is the post-deployment phase where the solution is in production with continuous improvement.
Human in the loop checkpoints span every phase so that each iteration strengthens the next.
AI agents watch the systems' telemetry, user behavior, and performance data to detect anomalies or opportunities.
Across the four phases, we take our lifetime experience of distributed Agile at scale and optimize our approach to best organize agents at work, with genetic checkpoints and humans in the loop at the core of the new approach.
We've equipped our teams with playbooks and training materials, and all delivery teams are expected to complete and da floe training and emotion before the close of the current Financial year.
We ended the course with $11,000,636 in DARS, representing a 2% decrease from the same period last year.
We are deepening, our AI talent, pool and embedding new capabilities across the business positioning in data to help clients turn emerging technology into near-term. Operational gains. We are expanding and upskilling, our AI Talent while trimming roles where market demand has declined.
Our inaugural data X Academy created to Jen to train the next generation of AI skilled professionals through 2,900, applicants and resulted in 470 hires across 9 delivery locations.
and our recent techfest engineering event brought together those new hires working in 48 cross functional teams to address 24 client, inspired challenges every team produced a working minimal Wii product under Mentor, guidance
Before we conclude, I want to recognize every in Darvon for the perseverance and focus. You continue to show as we steer through this, period of ragged de digital Evolution and translate change into opportunity. Our priorities remain clear sustained growth that endures Safeguard the distinctive culture that defines us and deliver Technology Solutions. That equip our clients to set the pace confidently in an ever-shifting Market.
I'll now hand over to mark for a closer look at our quarterly, Financial results, and guidance for the upcoming quarter and the remainder of the fiscal year.
Thanks John.
.1 million pounds in the same period in the prior year. Representing an 8.6% decrease
In constant currency, our Revenue, decreased 7.3% from the same period in the prior year.
As Sean already mentioned, the first quarter results were lower than anticipated, primarily due to a matter in the United States relating to an unexpected credit made to a client that arose subsequent to our last earnings call, as well as failure to convert certain non-large, strategic pipeline opportunities into revenue as previously anticipated.
Last before tax for 3 months, ended September 30th 2025 was 8.5 million pounds compared to a profit of 4.2 million pounds in the same period in the prior year.
Our adjusted PBT for the three months ended September 30th, 2025, was £9.9 million compared to £19.2 million for the same period in the prior year.
Our adjusted PBT margin was 5.5% for the three months ended September 30, 2025, compared to 9.9% for the same period in the prior year.
Our adjusted diluted earnings per share were 15 P for the three months ended September 30, 2025, calculated on 53.2 million diluted shares, as compared to 25 P for the same period in the prior year, calculated on 59.4 million shares.
Revenue from our 10 largest clients counted for 36% of revenue for the 3 months, ended September 30th 2025 in line with the same period last fiscal year.
The average spend per client from our 10 largest clients decreased from £7.1 million to £6.4 million for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, representing a 9.9% year-over-year decrease.
of this FX movement's contributed to a 2% year-over-year, decrease and the rest of the decline is in line with the rest of the business.
In a few months and it's September 30th 2025 North America, accounted for 42% of Revenue, Europe, for 24%, the UK for 28%, while the rest of the world, accounted for 6%.
Revenue from North America decreased by 1% for 3 months. Ended September 30th 2025 over the same period last fiscal year.
The decrease was driven by FX with underlying constant currency growth.
The unexpected credit mentioned. In my opening comments was more than offset by the reclassification of a large payments clients from the UK to North America, as the relationship with a client is now based their
Comparing the same periods, revenue from Europe declined 12.8%, mainly due to weakness in the TMT and Mobility verticals. The UK decreased 17.9%, due mainly to the reclassification of the client referred to above to North America, and the rest of the world increased 9%.
Our adjusted free cash flow was £9.2 million for the three months ended September 30, 2025, up from £3.5 million during the same period last fiscal year.
Our cash and cash equivalents at the end of the period totaled £47.2 million at September 30, 2025, compared to £59.3 million at June 30, 2025, and £52.8 million at September 30, 2024.
The barring totaled £193.2 million at September 30, 2025, compared to £180.9 million at June 30, 2025, and £132.6 million at September 30, 2024.
Capital expenditure for the 3 months, ended September 30th 2025 as a percentage of Revenue were 1.7% compared to 0.6% in the same period last fiscal year.
We remain committed to our share repurchase program.
$9 million under the program, and we had $34.1 million remaining for Perch to repurchase under its share repurchase authorization.
Before moving on to the guide, I would like to provide some context.
As a reminder, since May 2025, we are utilizing a guidance methodology under which revenue for any unsigned, large strategic opportunity in the pipeline is excluded until the related statement of work is executed and delivery has begun.
By contrast, for our non-large strategic deal pipeline, we make an assessment of likelihood and timing of conversion and likely timing of revenue.
Changing into the guide for the remainder of the fiscal year, we have really assessed our non-large deal pipeline and lowered our conversion into revenue assumptions.
Additionally, the client's specific issue in the United States weighed on first-quarter results and will continue to affect the remainder of the fiscal year. While the three large signed engagements John highlighted are reflected in our guidance and partially underpin the expected revenue uplift in the second half.
I'm moving on to our Outlook.
Our guidance for Q2 fiscal 2026 is as follows and our expects Revenue to be in a range of 179 million pounds to 182 million pounds, representing constant currency Revenue, decrease of between 8% and 7% on a year-over-year basis.
And other experts adjusted diluted EPS to be in the range of 15 to 17 pence per share.
Our guidance for full fiscal year 2026 is as follows: We expect revenue to be in a range of £735 million to £752 million, representing a constant currency revenue decrease of between 4.5% and 2.5% on a year-over-year basis.
Andava expects, adjusted diluted EPS to be in the range of 80 to 88 P per share.
This above guidance for due to fiscal year 2026 and the full fiscal year 2026, assume the exchange rates on October 31st 2025 with the exchange rate was 1 British pound to 1.32 US dollar and 1.14 Euro.
This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from Brian Bergin with TD Cowen. Please go ahead.
Hey guys. Thanks
Credit, can you share some more detail on this credit? That was not foreseen, and wait on performance, just any sizing of that. And context, curious, if it was due to company, execution, or, or maybe a choice, by the client made to pull back on. Something, is it isolated? Or or could this reoccur elsewhere?
Uh, so it it was not expected. Brian it arrived. Um, after, um, we we guided last quarter, um, uh, it isn't uh, related to remediation work. It's um, I'll I'll qualify as being a more Pro procedural matter in terms of the impact, um, if it hadn't have happened, we would have been at around, you know, the bottom of the revenue.
New guide and certainly uh in terms of eps we would have been right in the middle of the range that we set, uh, last last quarter. Um, I can't really go into any more detail than that at this stage.
Okay. Okay. And I guess on demand and and the pipeline conversion then is that the main issue or would you say some friction in the changes in the commercial responsibilities? I'm just curious how whether you would say that demand has, or client sentiment has changed much at all here in the last.
Quarter, uh maybe if you could just talk about how demand Trends progress through uh, through the first quarter and to the early part of 2 Q now.
Around. Uh, partline conversion in in the quarter, the significant impact on Revenue was the um, credit. Uh, note we just mentioned pipeline conversion, we did convert pipeline. So, uh, you know, again the the high end it was about 50% and against the low end, we're about 80%. Um, so not not as high as we would have, you know, anticipated. Um, but in the light of that, uh, sort of performance in the ongoing sort of review of pipeline quality, we've looked at, you know, our assumptions for the the rest of the year. Um, and and that's resulted in it's actually downgrading from the top of the guy at 765 to you know 752. Um it's it is actually offset though by some of the big wins that John uh highly highlighted on his script. Um so they add um Step change Revenue basically in the second half. So they do underpin uh, part of the ramp as we see.
Going through into mainly Q3 Q4. Uh but we've taken a more prudent uh line on the pipeline conversion in the non uh strategic deal space.
Okay, understood. Thank you.
Thanks Brian.
The next question comes from Maggie Nolan with William Blair. Please go ahead.
Hi, thank you.
Um, I understand the commentary on.
You know how your pace of conversions from here for the non-large accounts. But can you comment on whether there's been any client churn at unusual levels uh, in this quarter versus recent past?
I'm Maggie. Um, there hasn't been a, um, growth in client churn, um, and just to be clear, the, the client that Mark was referring to where we had, the credit is an ongoing relationship and not in Decline.
Um, the, um, it's just a more conservative view. Based on the conversations that we've been having around that inflow of the, uh, non-large deal, uh, pipeline, uh, which is what we guide against
Okay, thank you. And then, can you talk a little bit about how you're quantifying any productivity gains from Inaba flow and just the ability to kind of drive this upscale in your model?
Yeah, so um we're we're seeing um the AI shift essentially going through 2 steps.
Um, there's the sort of Gen AI with a bit of a genetic element coming in, where organizations are largely applying a bit of an accelerator from AI to um.
An agile, methodology.
Um, and getting, you know, in that sort of 20% to 30% range productivity improvement that, uh, people are talking about.
What we're seeing with de flow is taking that next step into, uh, using agents to do a far far bigger element of the, uh, design and coding.
Uh, all under human guidance and governance.
Um, and um and and through that getting significant step UPS,
Um, in productivity, in the 5 to 10 times type range as I covered, uh, on the call last time. Um, now, you know, for us, that gives us an opportunity alongside some of these bigger deals that we're working on to significantly accelerate um, transformation and change in client environment. Um, and and through doing that, um, to actually deliver a lot of benefit to the client
But also, um, look at pulling through wider, margins through that huge added value that we're delivering. Now, you know, the the big deal that I covered with the large payments client is very much based on, uh, those principles, um, and taking that de flow capability to accelerate transformation for them to, to help with new product development, um, and some joint go to market together. Um, so it's and it's very illustrative of the type of deal, uh, larger deal that we're working on, um, and um, and but, but we're not putting into our guidance as Marcus highlighted over the last couple of quarters.
Thanks Maggie.
The next question comes from Nate, spencon with Deutsche Bank, please go ahead.
Hey, thanks for the questions. Um, John, I want to go back to something you said at the beginning of the prepared remarks. I think you mentioned that you're navigating challenges associated with the transition in business models, delivery approaches, and the acceleration of the AI wave. Um, I guess, just from my perspective, given the growth in the business, the lower guide seems like there's been some struggles with everything that's going on. So, I'm just hoping you can take a step back and maybe talk at a higher level on what your strategy is to successfully navigate these changes. I know there are macro considerations, but I guess beyond that, what do you think isn't going right? And what's the plan internally to try to turn things around and ultimately capitalize on some of the opportunities that are ahead of you?
Yeah, thanks, Nate. So, um, for us, we're pushing very, very hard on this shift to being AI native. Um, our...
Vision is that um, over the next 2 to 3 years, AI becomes a much much more significant player in our industry in the way in which uh people deliver to clients deliver code deliver uh requirements and so on.
And, um, in pushing hard on that shift.
um we are moving much faster away from the old models than I believe many of our peers are
Um, and the result of which is that we are, uh, accelerating deliveries to clients in the current environment under the old tnm model largely this quarter. We were 24% outcome based, which was is still Rising, but it does mean that 76% of our revenue is coming in on a tnm basis. And as we're delivering at a much higher productivity that is um, having an erosion on, um, the revenue that's coming through the business.
That is being offset by the growth in demand for our new AI native approaches, um, where every in Darin is using AI every day in the delivery of services to our clients. Um, and, you know, that shift is, uh, very, very fast. Um, last quarter, our reported that half of just over half of our services, were AI related,
Covering, you know, using AI to change and accelerate the sdlc software development life cycle or identifying client work for those or indeed in deploying AI into the physical world.
This quarter that greater than half has moved to over 70% of our services, our AI related on the same measure, so it is a strong shift and strong acceleration in productivity.
Um, and that is having, you know, headline it's it's headwinds for us on revenue, on the old model.
The strategy and the focus is all around driving, the fastest shift we possibly can to the new model.
Where we are writing more outcome based deals with clients uh, which locks in the opportunity to deliver greater benefit to the client using AI, but also to improve our margins and we are seeing that come through in the rising proportion of outcome, based deals, um, and in the margins attached to those deals. And so that's the Strategic shift that we are going through. We are pushing through it very fast and we're probably carrying more pain in the short term because of that accelerated shift to the Future state that we're pushing through.
Makes sense, and I appreciate the detailed response there. Um, I did want to follow up on this? This $100 million deal with a leading payments company. My guess is that would be a renewal with maybe one of your two large payments partners, but maybe you can correct me if that isn't the case and it was a new logo. Um, but beyond that, maybe you could use that deal as kind of a launch point to expand more into general commentary on pricing and productivity commitments you're having to make in the current difficult macro sort of in order to get these larger deals across the finish line.
Uh, so the $100 million deal is not a renewal of, um, one of our larger payments clients. Uh, it is an existing payment client that is really quite small and, you know, well over.
Their business.
Um, they are as equally excited about us helping them do that. As we are about helping them drive through and transformation and bringing our engineering skills to bear on their estate. Mark, do you want to pick up on the pricing on this? Yeah I mean pricing. I mean um we you know Sean said in terms of the revenues we are still uh mainly time and material. So we still look at the average um rate per per work day.
And it is very much stable according to quarter uh our issue is is volume more than anything else certainly in the in the tnm space.
nice to hear about the payments, uh, when
thanks.
The next question comes from James faucet with Morgan Stanley, please go ahead.
Hey guys, thanks for the question. It's Antonio on for James. I wanted to ask about your fiscal year 2026 guide. It looks like in the back half there's still a strong acceleration, and I know that you mentioned those three large deals are contemplated in that. But what gives you confidence that those large three deals will sort of come through in the back half?
Any color. There would be appreciated. Thanks.
So, um, the, the 3 deals are signed. Um, so they're, they are committed span that involves ramp up in the second half. I'll let, Mark give you a little more, they are. And it's not just those 3 deals, they're additive. So, um, we we've signed deals going back to q1. Um, sorry, when we were guarding for q1 at the end of the year. Um, so there was a further sort of layering on of I'll call it step change Revenue because that's typically the nature of it. Uh, and that layering on of these, these larger deals Onto, You Know, The Run rate which will refer to the non-strategic, uh deal Revenue stream, uh, gets confidence in that that um, that back half. I mean there there is still uh pipeline, you know, to convert, um, as we sort of highlighted when we were discussing the q1 performance. Um, uh, so there is always sort of risk in the figure, but we have, you know, given a range of 752 to 735 which we think accommodates.
That, uh, risk in terms of the pipeline conversion on the non-strategic big deals.
Got it, that's helpful. And then as a follow-up I wanted to ask on your Capital allocation priorities like how are you balancing investment within Ai? And also um um and also share BuyBacks just trying to get a sense of that as well.
Um, the share buyback. Um, continues we still have, uh, 150 million dollar approval from the board. Uh, we continue to invest. I mean, part of this year, we we highlighted, there was going to be margin impact through the investment in this, this shift mainly in terms of, you know, technology and on boarding people. Um, and that's still, you know, Remains the case as John said, we are pushing very fast on this and, um, sacrificing near-term profitability, um, for the upswing and profitability that we think will come through in at the outer years.
Great. Thank you guys so much.
I'm telling you.
The next question comes from Jonathan Lee with Guggenheim Partners. Please go ahead.
Great. Thanks for taking my questions. Can you help decompose with contemplated in your outlook, the high and low end of the range? As it relates to pipeline, conversion, required, and the level of go get required and whether you've given any sort of allowance for macro uncertainty,
Um, well, in terms of the, the the range, the full year, if this is excluding obviously any strategic deal pipeline which is growing strongly, i i, as it's hard. Um, the the range on the non-static deal, uh, pipeline is for the full year. Uh, I think it's about 79% to 81% um in the current quarter. It is it is very high stance 95% to you know, 903%. Uh, so we think the the quarter for Q2, um, adequately, uh, is is ranged. Um, it does take into account that, uh, the quarter ended December. We have, uh, a lower number of working days, which is a headwind, um, uh, against the sort of Revenue. When you look at it, sort of sequentially, but we have strong conference in Q2. So Q3 and Q4, uh, where we have the higher levels of of pipeline,
Um and we believe that those are achievable and as I said, we have reduced the, the overall guides to take account of that.
Thanks for that color. And as you think about some of the margin challenges, you're facing, how are you thinking about the potential for expansion levers and investments in to you know the end of the calendar year and into the start of
26.
Well, I think as you've probably seen adava has high operational leverage, which is a sort of a negative and a and a positive. So um, we're very much driven by Top Line, you know, performance and reacting accordingly. You know, this ability has to be good for us to react and sort of time. So if we if we have slow uh, Revenue progress, uh, we have to take out costs that, you know, as we respond to that. But similarly, uh, with increasing Revenue, we get a strong profitability, you know, recovery, which is what is implied basically in the in the 4 year guide that we get on that growth trajectory, uh, and yeah, there are some strong sequential growths uh quarter on quarter implied by those those larger deals. Uh starting to deliver Revenue, um but it does give us High operational leverage which moves up our gross margin quite significantly and you know delivers strong e, bit guitar performance.
Anything that I would add to that is if you look at that strategic pivot that we're talking about, uh, going through at the moment that does have, um, a margin impact. There's a friction element, um, of that change the change of skills, um, making sure that you know, our people are moving to being, you know, AI native and having to take action where people are unable to uh make that shift um or a caring skills that become less important in an AI native world going forward. Um so that friction element is also hitting the short-term margin picture.
Thanks for that clarity.
Thanks John.
The next question comes from fari Kumari with HSBC. Please go ahead.
Um thanks John and Mark for taking my question. Uh my question is on your head count uh there seems to be a bit of increase what wrong quarter is this in anticipation for demand uh in the second half of the year and then uh how do you see the headcount strategy in terms of the AI productivity that you're seeing and the macro headwinds that you're seeing for let's say uh the rest of the career? Thank you.
Yeah, so a lot of the increase in headcount, you've seen is the, um, de X Academy that I talked about, on the call, uh, where we're specifically targeting bringing in, uh, strong, AI native leaders across the organization, um, as well as bringing in, uh, graduates. Um, who are, you know, from their University background, more AI native, but perhaps less experienced from a, uh, coding and governance point of view so that you can create create that mix of teams who who've got that natural Affinity, um, with AI with prompt engineering and so on, um, alongside the experience. Um, headcount. Um, and so, you know, enabling that shift is part of the friction element. I was talking about uh, for for Jonathan, um, where, um, we're investing in the people who move into that space and then
Getting them placed into client environments.
Um so um that's that's part of that shift up in headcount. We still continue to see
Um, us, you know, training and bringing in AI, uh, Native people and losing, uh, people who are not going to make that shift into the future. Um, and so you're still seeing a nutrition level that's running higher than it has been historically, because of that churn, that's going uh, through the business. Um, and we anticipate that uh, that will carry on for another couple of quarters before we settle down into being much more completely in the New World,
Thank you. Thanks John. Thanks man.
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The next question comes from Puny Jane with JP Morgan. Please go ahead.
Taking my question. Uh, I wanted to follow up on like the hundred million dollar deal. The 1 that has, um, 85 90% of new work. Uh, can you share like more details like the duration of that Revenue, uh, type of work? You will do specifically around new development versus managed services. And then why that client? And that deal led to like a very different outcome than others. Like are these type of deals replicable.
Yeah, so it's a, it's a very exciting deal for us. It's um, uh, a headline of a number of other deals that we're working on, that would fall into the same category. Um, the duration, um, is over 5 years and it's a, it's a commitment on the part of the client to spend that level of money with us in return, for us, driving accelerated transformation. Uh, for them. It is almost all in the new development space rather than in the uh, managed Services space. Um, and there are a number of a number of pillars.
Um, of transformation of new product development, um, and of joint go-to-market exploration of capability. Um, that is built into, um, how um, how we will deliver value back to the client. Uh, so that spend that they have committed.
Um it's a it's a very close partnership mindset, uh, where um, together we're going to help transform uh their part of the market and obviously it's in the payment space so we we bring a lot of payments experience as well as the AI capabilities and so on. They're hoping talking about
Got it. And uh, can you also talk about like the timing? Given like the second half? Uh, guidance for Revenue. Implies devoted 10 million pounds in incremental, revenue or quarters in Q3 and Q4.
So can ramp in this deal and the last 2 other last deals, uh, alone, uh, drive that incremental Revenue in second half of this year.
So, so incrementally, you, you know, your maths is right around the 10th. It's not quite a phase that way, but, you know, math is is roughly right. The the deals, um, that we've, we've landed. I've, I've contributing roughly about sort of, 50% of that ramp, and the, the balance is coming from.
From the pipeline conversion on the existing sort of run rate that is after us look. And that is the non-state deals, um, uh, Revenue sort of stream, if I can put it that way. Uh, so it's coming half and half from the, the big deals that we have landed, but also some of the, the pipeline conversion in the existing run rate business that I can call it that.
Got it. Thank you.
Thanks pane.
This concludes our question-and-answer session. I would like to turn the conference back over to John Cotterell for any closing remarks.
Thank you all for joining us today. Um, in closing, we anticipate a gradual recovery over the balance of the year, um, with being assisted by those large strategic deals that we recently signed or indeed signed, uh, back in the summer uh which kick in in our H2, our broader partner. Ecosystem is already generating incremental.
Potential pipeline opportunities, uh, and client interest in Darva flow is accelerating.
So I look forward to speaking with you all on our next earnings, call in February. Thank you very much.
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