Earnings call transcript: Endava's Q3 2025 results show AI-driven growth

Endava Ltd (DAVA) reported Q3 2025 revenue growth of 11.7% year-over-year to £194.8 million and a significant return to pre-tax profitability, yet its stock declined 6.11% post-earnings, reflecting investor caution. While the company is pushing AI-driven transformation and authorized an additional $50 million share buyback, it issued a cautious Q4 outlook, projecting a 10% year-over-year revenue decline, citing macroeconomic pressures, particularly in North America, and slow conversion of large deals. This mixed performance, coupled with a 57%+ stock drop over the past year, has led some analysis to deem Endava undervalued, despite management describing the current environment as an 'air pocket' due to deal conversion challenges.

Analysis

Endava Ltd. (DAVA) presented a dichotomous financial picture, reporting strong Q3 2025 results that were immediately overshadowed by a significantly weaker outlook. The company achieved an 11.7% year-over-year revenue increase to £194.8 million and a substantial rise in adjusted diluted EPS to £0.34, beating its own guidance. This performance was attributed to a strategic focus on AI-driven solutions, evidenced by partnerships with OpenAI and Google and reported productivity gains of 50-300% on certain projects. Management signaled confidence through an additional $50 million authorization for its share buyback program. However, this positive operational narrative was contradicted by a cautious Q4 forecast, which projects a 10% year-over-year revenue decline. Management attributed this sharp reversal to a confluence of factors: significant foreign exchange headwinds from a weakening US dollar, a slowdown in client spending in North America, and an "elongated ideation to production cycle" causing delays in the conversion of its growing pipeline of large, transformative deals. The stock's 6.11% post-earnings drop, contributing to a 57% decline over the past year, reflects investor focus on this forward-looking uncertainty and low visibility, which the CEO characterized as a temporary "air pocket."

Key Decisions for Investors

• Given the stock's significant 57% year-over-year decline and an expanded $50 million share buyback, investors may see the current valuation as an attractive entry point, banking on the eventual conversion of the large deal pipeline and the success of its AI initiatives.
• It is critical to monitor the company's ability to convert its pipeline of large deals into signed revenue, as management has identified this as the key catalyst required to exit the current revenue 'air pocket' and resume growth.
• Investors should remain cautious due to the severe foreign exchange headwinds and slowing North American client demand that prompted the conservative Q4 guidance, and should look for signs of stabilization in these areas before increasing exposure.
• Pay close attention to constant currency growth figures in upcoming quarters to differentiate between the temporary impact of FX volatility and any underlying structural weakness in client demand.