Executive Summary / Key Takeaways

• Endava is undergoing a profound transformation to become an "AI-native" technology services provider, strategically repositioning itself to address the burgeoning demand for AI-led core modernization across enterprises.
• The company's proprietary AI-enabled accelerators and the innovative "Endava Flow" delivery model offer tangible benefits, including significant productivity gains and enhanced accuracy, creating a distinct competitive advantage in complex, high-value projects.
• Despite a challenging macroeconomic environment and client caution leading to elongated sales cycles, Endava achieved a record order book in FY2025, signaling strong client relationships and the attractiveness of its transformative offerings.
• While FY2025 saw revenue growth of 4.3% to £772.3 million and an improved gross margin of 25.1%, the company anticipates a cautious FY2026 outlook with revenue guidance between £750 million and £765 million, reflecting continued market volatility and strategic investments in AI.
• Endava's focus on higher-value, outcome-based contracts, strategic partnerships with hyperscalers like OpenAI and Google Cloud, and expansion into new geographies like India are critical drivers for long-term sustainable growth and margin expansion.

The Dawn of the AI-Native Enterprise: Endava's Strategic Imperative

Endava plc, a leading provider of next-generation technology services, stands at the forefront of a significant digital shift, transitioning from its roots as an agile and digital-native solution provider to an "AI-native" enterprise. This strategic evolution is not merely an incremental change but a deep cultural and operational transformation, driven by the imperative to help clients accelerate growth and tackle complex challenges in an increasingly AI-dominated market. The company's overarching strategy is to leverage innovative technologies and deep industry expertise, combined with an AI-native approach, to create solutions that drive transformation, augment intelligence, and deliver lasting impact from ideation to production.

The technology services industry is experiencing an unprecedented wave of AI-driven transformation. Organizations are moving beyond being merely "Digital Natives" to becoming "AI Natives," embedding AI across all operations. This requires a fundamental understanding of core systems, data, and workflows to create next-generation products and client interactions. However, incumbent enterprises often grapple with significant investments in legacy infrastructure, ingrained processes that hinder innovation, and a scarcity of talent in cutting-edge areas like AI. A company-sponsored IDC info brief revealed that 60% of CEOs prioritize AI, machine learning, and generative AI as their top modernization initiative, underscoring the urgency of this shift. Furthermore, 49% of firms attribute overspending on digital infrastructure to the cost of maintaining legacy systems, highlighting the critical need for modernization.

In this dynamic landscape, Endava's competitive positioning is defined by its agility and specialized focus on AI and core modernization, differentiating it from larger, more diversified competitors. While global consulting and traditional IT services companies like Accenture PLC (ACN), Capgemini SE, Cognizant Technology Solutions Corporation (CTSH), and Tata Consultancy Services Limited offer broad services, Endava aims to excel in innovation speed and tailored solutions. Its focus on user experience and visual design in tech services, coupled with its ability to integrate AI deeply into core systems, provides a unique value proposition. Compared to Cognizant, Endava's offerings in extended reality and machine learning are more advanced, aligning with modern digital strategies. Against Infosys (INFY), Endava's architecture and product design approach offers a more user-centric experience, while its agile delivery models provide faster market entry than Wipro (WIT). Endava's scale, "large enough to drive meaningful change yet compact enough to stay agile," allows it to execute this transformation without the inertia that often hampers larger organizations.

Technological Edge: Fueling Transformation with AI-Enabled Accelerators

Endava's core differentiated technology lies in its suite of AI-enabled accelerators and its innovative "Endava Flow" delivery framework, designed to address the complexities of enterprise-scale AI adoption and core modernization. These tools provide specific, tangible benefits that set Endava apart:

• Morpheus (Agentic AI Industry Accelerator): This proprietary tool operationalizes large language models (LLMs) around data, leveraging multi-agent autonomous teams to tackle complex challenges in regulated industries. It ensures transparency, traceability, and auditability, overcoming common barriers like "hallucinations" in AI outputs.
• Compass: An AI-enabled proprietary tool that acts as a virtual subject matter expert for engineers. It ingests source code, documentation, and other artifacts to provide immediate, context-aware answers on architecture, engineering, and testing. This has led to faster ramp-up on legacy platforms and improved quality and time-to-value for clients.
• Ray: This assessment process provides an in-depth overview of complex enterprise systems, guiding detailed assessments against business and technology requirements. It identifies gaps and challenges, offering an automated "x-ray" of an entire system, which is crucial for de-risking modernization programs.
• Dash: A centralized command and control platform that offers a holistic view of enterprise technology. It provides automated dependency mapping and predictive analysis capabilities, reducing risk and significantly shortening software development timelines.
• Infra: This full-scale, end-to-end service evaluates data center environments to enhance efficiency, reliability, dependability, and security through automated services and proprietary data collectors.
• Maps: An automated dependency mapping tool that visualizes complex relationships between software system components and identifies the impact of code changes, supporting both reverse and forward engineering.

These accelerators enable Endava to deliver quantifiable benefits. For a leading U.S. healthcare services provider, an AI-driven document processing platform processes over 40 million medical records annually, achieving 95% precision and recall while minimizing per-document cost and reducing risk exposure. In regulatory clinical trial submissions for a major pharmaceutical business, an AI system exceeded human clinical programmers' accuracy by up to 19% and reduced processing time from hundreds of work days to just a few hours. A hack-a-thon style session for a global services company demonstrated productivity gains of 50% to 300% using generative AI for Java application upgrades and data migration. Furthermore, pipeline optimization for an automotive technology provider achieved up to a 50% increase in speed.

The company's R&D efforts are epitomized by Endava Flow, a new "Change Delivery Life Cycle" (CDLC) delivery framework. This lean, pool-based operating model is designed to propel continuous change, remove friction, and release value instantly, with pilot engagements already demonstrating up to 10x productivity improvements. This shift is critical because traditional agile methodologies are deemed insufficient for truly leveraging Agentic AI, which demands continuous oversight and adaptive governance. Endava's Dava.X department is singularly focused on accelerating clients' future around new and emerging technologies like AI, Cloud, and Core Modernization, ensuring that appropriate skills are built and available at scale. These technological advancements are not just about efficiency; they are about expanding Endava's competitive moat, enabling higher average selling prices (ASPs), lower delivery costs, and ultimately, better margins and market positioning, particularly by addressing the core systems that competitors often struggle to transform.

Financial Performance and Strategic Responses

Endava's financial performance in fiscal year 2025 reflected both the strategic shift and the challenging market conditions. Revenue for the fiscal year ended June 30, 2025, was £772.3 million, marking a 4.3% increase over FY2024. In constant currency, revenue increased by 6.3%. This growth was primarily driven by the significant contribution from the GalaxE acquisition and organic expansion in the Banking and Capital Markets (BCM) and Insurance verticals. However, this was partially offset by declines in other verticals, notably Payments and Technology, Media, and Telecommunications (TMT), due to macroeconomic uncertainty and client delays in AI-related decision-making.

Profitability metrics showed resilience amidst these dynamics. The gross margin improved to 25.1% in FY2025 from 24.3% in FY2024, an increase of 0.8%. This improvement was a direct result of management's proactive cost control measures, including limiting wage increases and restructuring headcount, which helped maintain reasonable margins despite demand softness. Selling, General and Administrative (SG&A) expenses increased by 1.6% in FY2025, primarily due to a £6.1 million increase in depreciation and amortization from the GalaxE acquisition and £0.9 million in property costs. However, these increases were partially offset by a £1.3 million decrease in support function costs and a £3.1 million decrease in sales and marketing expenses. The company's profit before tax for FY2025 was £24.1 million, down from £27.0 million in FY2024. The adjusted PBT margin for FY2025 was 10.6%, compared to 11.2% in the prior year.

Net finance expense shifted significantly, from a £6.8 million income in FY2024 to a £7.4 million expense in FY2025, largely due to increased interest on borrowings and leases, and higher foreign exchange losses, including a £2.8 million loss from an Argentinian blue chip swap transaction. The effective tax rate for FY2025 was notably lower at 12%, compared to 36.5% in FY2024, primarily due to the release of a £3.8 million deferred tax liability related to Romanian withholding tax following a new Double Tax Treaty announcement.

Endava's liquidity position remains robust. As of June 30, 2025, cash and cash equivalents stood at £59.3 million. The company's revolving credit facility, with £180.9 million outstanding under a £350 million facility, provides ample capital for future investments and development activities, with Endava consistently complying with its debt covenants. In a strategic move to optimize capital allocation, Endava initiated a share repurchase program, authorizing up to $150 million in repurchases. As of August 29, 2025, approximately 6.7 million ADSs had been repurchased for $111.2 million, demonstrating a commitment to shareholder returns.

Sectoral Shifts and Geographic Dynamics

The performance across Endava's industry verticals reflects the ongoing digital shift. The Payments vertical experienced a 19% revenue decrease in FY2025, primarily due to reduced activity from larger clients in the UK and North America. Management acknowledged that Payments is "weighing on client numbers" as the company streamlines its client base. However, relationships with key clients like Mastercard (MA) remain strong, and new opportunities are emerging as the payments market evolves. In contrast, the Banking and Capital Markets (BCM) vertical surged by 37.4% in FY2025, driven by organic growth and the GalaxE acquisition, particularly in North America and the UK. This sector is expected to be a strong growth driver, including payments-related work within banking organizations. The Insurance vertical also grew by 12.1% in FY2025, primarily from organic expansion.

The Technology, Media, and Telecommunications (TMT) vertical saw a 13.2% decline in FY2025, largely due to reduced activity in Media and Telecommunications, exacerbated by a project shutdown following a major media client's acquisition. Mobility revenue decreased by 11.7%, impacted by reduced activity in travel, logistics, and automotive sectors. Conversely, the Healthcare vertical experienced substantial growth of 103.8% in FY2025, predominantly due to the GalaxE acquisition, which significantly expanded Endava's presence in the U.S. healthcare market and added delivery units in India.

Geographically, North America's revenue increased by 21.9% in FY2025, boosted by the GalaxE acquisition and growth in Healthcare and BCM. This region is anticipated to be a strong growth area, partly due to a shift in the center of gravity for a key payments account. Europe's revenue decreased by 5.5%, while the UK saw a modest increase of 2.8%, primarily from BCM growth. The Rest of World (RoW) experienced a 29.7% decline, reflecting broad-based decreases, partially offset by growth in Payments. The expansion of Endava's delivery footprint in India, a strategic location for many clients, is opening new avenues for client spend and enabling strategic bids that were previously out of reach, exemplified by a new engagement with a global capital markets organization.

Outlook and Strategic Imperatives

Endava's outlook for fiscal year 2026 reflects a cautious yet strategically focused approach. For Q1 FY2026, Endava expects revenue between £181 million and £183 million, representing a constant currency decrease of 6% to 5% year-over-year. Adjusted diluted EPS is projected to be in the range of £0.17 to £0.19 per share. For the full fiscal year 2026, revenue is guided between £750 million and £765 million, indicating a constant currency change of -1.5% to +0.5% year-over-year. Adjusted diluted EPS is expected to be between £0.82 and £0.94 per share. This guidance assumes exchange rates of GBP 1 to USD 1.35 and €1.15 as of August 31, 2025.

The cautious outlook stems from continued macroeconomic volatility, client delays in decision-making (exacerbated by the rapid evolution of AI technology), and significant U.S. dollar weakening, which creates headwinds for reported revenue and gross margins. Management has adopted a stricter guidance methodology, excluding revenue from unsigned large opportunities until contracts are executed and delivery commences. Despite these challenges, the company's confidence in sequential growth after Q1 FY2026 is underpinned by over 70% of the full-year outlook being contracted and committed, alongside the anticipated ramp-up of recently secured large deals.

Strategic investments in the "Change Delivery Life Cycle" program (Endava Flow) are projected to increase operating expenses, impacting adjusted PBT margin by 3% in FY2026. However, these investments are crucial for Endava's long-term AI-native transformation, with potential productivity gains not yet factored into the guidance. The reinstatement of the company-wide bonus scheme will also impact margins. Endava's strategic partnerships with OpenAI, Google Cloud, AWS, and Microsoft (MSFT) are expected to continue fueling deal flow and innovation, particularly in enterprise-scale AI initiatives. The company's focus on flexible, outcome-based pricing models for larger deals is designed to align with client needs and manage risk, offering a pathway to margin upside as AI-enabled solutions become more prevalent.

Conclusion

Endava is at a pivotal juncture, actively transforming into an AI-native technology services leader amidst a dynamic market characterized by both unprecedented opportunities and persistent macroeconomic headwinds. The company's core investment thesis rests on its ability to leverage its differentiated AI-enabled accelerators and the innovative "Endava Flow" delivery model to drive complex core modernization projects, offering clients superior efficiency, accuracy, and reduced risk. This technological leadership, coupled with a strategic shift towards higher-value, outcome-based contracts and expanding global delivery capabilities, positions Endava to capture a growing share of the evolving digital transformation market.

While the near-term outlook for FY2026 reflects caution due to client decision-making delays and currency fluctuations, the record order book in FY2025 and strong pipeline of large, transformative deals underscore the underlying demand for Endava's specialized offerings. The company's proactive management of costs, strategic capital allocation through share repurchases, and continuous investment in its AI capabilities are critical steps in navigating this transition. Investors should recognize Endava's commitment to long-term value creation through technological innovation and strategic partnerships, which are essential for maintaining its competitive edge against larger rivals and capitalizing on the profound shift towards AI-driven enterprise.