DAVA - Endava Announces Third Quarter Fiscal Year 2023 Results

May, 23 2023 07:19 AM Endava plc American Depositary Shares

Q3 FY2023
20.3% Year on Year Revenue Growth to £203.5 million
14.6% Revenue Growth at Constant Currency
IFRS diluted EPS £0.42 compared to £0.35 in the prior year comparative period
Adjusted diluted EPS £0.59 compared to £0.48 in the prior year comparative period

Endava plc (NYSE: DAVA) ("Endava" or the "Company") a global provider of digital transformation, agile development and intelligent automation services, today announced results for the three months ended March 31, 2023, the third quarter of its 2023 fiscal year ("Q3 FY2023").

“Endava reported another solid quarter for Q3 FY2023 despite the challenging economic environment,” said John Cotterell, Endava's CEO. "Demand from new and existing clients continued to drive revenue growth in the quarter, leading to a revenue increase of 14.6% in constant currency for Q3 FY2023.”

THIRD QUARTER FISCAL YEAR 2023 FINANCIAL HIGHLIGHTS:

Revenue for Q3 FY2023 was £203.5 million, an increase of 20.3% compared to £169.2 million in the same period in the prior year.
Revenue growth rate at constant currency (a non-IFRS measure)* was 14.6% for Q3 FY2023, compared to 50.9% in the same period in the prior year.
Profit before tax for Q3 FY2023 was £30.4 million, compared to £25.9 million in the same period in the prior year.
Adjusted profit before tax (a non-IFRS measure)* for Q3 FY2023 was £43.4 million, compared to £34.2 million in the same period in the prior year, or 21.3% of revenue, compared to 20.2% of revenue in the same period in the prior year.
Profit for the period was £24.4 million in Q3 FY2023, resulting in a diluted earnings per share ("EPS") of £0.42, compared to profit of £20.1 million and diluted EPS of £0.35 in the same period in the prior year.
Adjusted profit for the period (a non-IFRS measure)* was £34.1 million in Q3 FY2023, resulting in adjusted diluted EPS (a non-IFRS measure)* of £0.59, compared to adjusted profit for the period of £27.9 million and adjusted diluted EPS of £0.48 in the same period in the prior year.

CASH FLOW:

Net cash from operating activities was £25.1 million in Q3 FY2023, compared to £18.7 million in the same period in the prior year.
Adjusted free cash flow (a non-IFRS measure)* was £21.2 million in Q3 FY2023, compared to £16.1 million in the same period in the prior year.
At March 31, 2023, Endava had cash and cash equivalents of £199.2 million, compared to £162.8 million at June 30, 2022.

* Definitions of the non-IFRS measures used by the Company and a reconciliation of such measures to the related IFRS financial measure can be found under the sections below titled “Non-IFRS Financial Information” and “Reconciliation of IFRS Financial Measures to Non-IFRS Financial Measures.”

OTHER METRICS FOR THE QUARTER ENDED MARCH 31, 2023:

Headcount totaled 11,742 at March 31, 2023, with 10,818 average operational employees in Q3 FY2023, compared to a headcount of 11,001 at March 31, 2022 and 9,851 average operational employees in the same quarter of the prior year.
Number of clients with over £1 million in revenue on a rolling twelve-month basis was 155 at March 31, 2023, compared to 118 clients at March 31, 2022.
Top 10 clients accounted for 33% of revenue in Q3 FY2023, compared to 35% in the same period in the prior year.
By geographic region, 32% of revenue was generated in North America, 24% was generated in Europe, 38% was generated in the United Kingdom and 6% was generated in the rest of the world in Q3 FY2023. This compares to 33% in North America, 21% in Europe, 43% in the United Kingdom and 3% in the rest of the world in the same period in the prior year.
By industry vertical, 53% of revenue was generated from Payments and Financial Services, 21% from technology, media and telecommunications (TMT) and 26% from Other in Q3 FY2023. This compares to 51% from Payments and Financial Services, 25% from TMT and 24% from Other in the same period in the prior year.

OUTLOOK:

Fourth Quarter Fiscal Year 2023:

Endava expects revenues will be in the range of £187.0 million to £189.0 million, representing constant currency revenue growth between 3.0% and 4.0%. Endava expects adjusted diluted EPS to be in the range of £0.44 to £0.45 per share.

Full Fiscal Year 2023:

Endava expects revenues will be in the range of £792.0 million to £794.0 million, representing constant currency growth between 16.0% and 16.5%. Endava expects adjusted diluted EPS to be in the range of £2.15 to £2.16 per share.

This above guidance for Q4 Fiscal Year 2023 and the Full Fiscal Year 2023 assumes the exchange rates on April 30, 2023 (when the exchange rate was 1 British Pound to 1.26 US Dollar and 1.13 Euro).

Endava is not able, at this time, to provide an outlook for IFRS diluted EPS for Q4 FY2023 or FY2023 because of the unreasonable effort of estimating on a forward-looking basis certain items that are excluded from adjusted diluted EPS, including, for example, share-based compensation expense, amortisation of acquired intangible assets and foreign currency exchange (gains)/losses, the effect of which may be significant. Endava is also not able, at this time, to reconcile to an outlook for revenue growth not at constant currency because of the unreasonable effort of estimating foreign currency exchange (gains)/losses, the effect of which may be significant, on a forward-looking basis.

The guidance provided above is forward-looking in nature. Actual results may differ materially. See the cautionary note regarding “Forward-Looking Statements” below.

RECENT BUSINESS HIGHLIGHTS:

On May 2, 2023, Endava announced the appointment of Patrick Butcher to its Board of Directors.

Mr. Butcher most recently served as Group Chief Financial Officer of the Headlam Group plc from April 2022 until March 2023. From January 2019 to November 2020, he served as Group Chief Financial Officer at Capita plc. Prior to that, Mr. Butcher served as Chief Financial Officer at various companies including The Go-Ahead Group plc, Network Rail Limited, English and Scottish Railway and Mapeley Limited. Mr. Butcher received his B. Compt. (Hons) in Accounting and Finance from the University of South Africa and is a qualified Chartered Accountant (South Africa).

On May 2, 2023, Endava also announced a number of changes to the executive team, effective July 1, 2023.

Rob Machin, the Company's current Chief Operating Officer, will be transitioning off the Endava executive team to focus on Endava's internal Business Transformation programme, designed to enable the company to scale through 2030. Over the past few years, Endava has been shifting to an industry vertical go to market, which is a significant point of differentiation in client engagements. To further accelerate this shift, Julian Bull, the Company's current Chief Commercial Officer, will be taking over the role of Chief Operating Officer, and will be responsible for both Sales and Client Delivery to Endava's industry verticals.

In addition, Matt Cloke will be promoted to the position of Chief Technology Officer, and both he and David Churchill, Endava's Chief People Officer, who currently reports to Rob Machin, will be joining Endava’s executive team, reporting directly to Endava's Chief Executive Officer.

On May 10, 2023, Endava announced the acquisition of Mudbath & Co. Pty Ltd, headquartered in Newcastle, Australia (“Mudbath”).

Mudbath is an Australian-based technology firm specialising in strategy, design and engineering services. Mudbath partners with businesses to build new digital solutions, enhance user experiences and accelerate digital transformation programs across enterprise systems, web and mobile products using their proven agile delivery methodology. Mudbath’s clients span broad industry verticals, including retail, mining (and adjacent activities including rail and tools), health, insurance, banking and travel. Mudbath’s employees are based primarily in Newcastle, Sydney and Melbourne, Australia.

CONFERENCE CALL DETAILS:

The Company will host a conference call at 8:00 am ET today, May 23, 2023, to review its Q3 FY2023 results. To participate in Endava’s Q3 FY2023 earnings conference call, please dial in at least five minutes prior to the scheduled start time (866) 652-5200 or (412) 317-6060 for international participants, Conference ID: Endava Call.

Investors may listen to the call on Endava’s Investor Relations website at http://investors.Endava.com . The webcast will be recorded and available for replay until Thursday, June 22, 2023.

ABOUT ENDAVA PLC:

Endava is reimagining the relationship between people and technology. By leveraging next-generation technologies, its agile, multi-disciplinary teams provide a combination of product & technology strategies, intelligent experiences, and world class engineering to help clients become digital, experience-driven businesses by assisting them in their journey from idea generation to development and deployment of products, platforms and solutions. Endava collaborates with its clients, seamlessly integrating with their teams, catalysing ideation and delivering robust solutions.

Endava services clients in Payments and Financial Services, TMT, Consumer Products, Retail, Mobility and Healthcare. As of March 31, 2023, 11,742 Endavans served clients from locations in Asia-Pacific, Middle East, North America and Western Europe and delivery locations in Argentina, Bosnia & Herzegovina, Bulgaria, Colombia, Croatia, Malaysia, Mexico, Moldova, North Macedonia, Poland, Romania, Serbia, Slovenia, Uruguay and Vietnam.

NON-IFRS FINANCIAL INFORMATION:

To supplement Endava’s Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows presented in accordance with IFRS, the Company uses non-IFRS measures of certain components of financial performance. These measures include: revenue growth rate at constant currency, adjusted profit before tax, adjusted profit for the period, adjusted diluted EPS and adjusted free cash flow.

Revenue growth rate at constant currency is calculated by translating revenue from entities reporting in foreign currencies into British Pounds using the comparable foreign currency exchange rates from the prior period. For example, the average currency rates in effect for the fiscal quarter ended March 31, 2022 were used to convert revenue for the fiscal quarter ended March 31, 2023 and the revenue for the comparable prior period.

Adjusted profit before tax ("Adjusted PBT") is defined as the Company’s profit before tax adjusted to exclude the impact of share-based compensation expense, amortisation of acquired intangible assets, realised and unrealised foreign currency exchange (gains)/losses, restructuring costs and fair value movement of contingent consideration, all of which are non-cash items except for the restructuring costs and realised foreign currency exchange (gains)/losses. Adjusted PBT margin is Adjusted PBT as a percentage of total revenue.

Adjusted profit for the period is defined as Adjusted PBT together with the tax impact of these adjustments.

Adjusted diluted EPS is defined as Adjusted profit for the period, divided by weighted average number of shares outstanding - diluted.

Adjusted free cash flow is the Company’s net cash from operating activities, plus grants received, less net purchases of non-current assets (tangible and intangible).

Management believes these measures help illustrate underlying trends in the Company's business and uses the measures to establish budgets and operational goals, communicated internally and externally, for managing the Company's business and evaluating its performance. Management also believes the presentation of its non-IFRS financial measures enhances an investor’s overall understanding of the Company’s historical financial performance. The presentation of the Company’s non-IFRS financial measures is not meant to be considered in isolation or as a substitute for the Company’s financial results prepared in accordance with IFRS, and its non-IFRS measures may be different from non-IFRS measures used by other companies. Investors should review the reconciliation of the Company’s non-IFRS financial measures to the comparable IFRS financial measures included below, and not rely on any single financial measure to evaluate the Company’s business.

FORWARD-LOOKING STATEMENTS:

This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of terms and phrases such as “believe,” “expect,” "outlook," “may,” “will,” and other similar terms and phrases. Such forward-looking statements include, but are not limited to, the statements regarding Endava’s projected financial performance for the fourth fiscal quarter of fiscal year 2023 and the full fiscal year 2023; the perceived impact and effect of macroeconomic conditions on Endava and its customers including the March 2023 banking collapse; expectations of increased demand for Endava offerings in upcoming periods and resulting impact on revenue; the impact that Endava’s management changes will have on the business and its growth; and Endava’s ability to achieve its anticipated growth. Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including, but not limited to: Endava’s business, results of operations and financial condition may be negatively impacted by the Russia-Ukraine armed conflict or if general economic conditions in Europe, the United States or the global economy continue to worsen, including increased inflation and recent and potential future bank failures; Endava’s ability to retain existing clients and attract new clients, including its ability to increase revenue from existing clients and diversify its revenue concentration; Endava’s ability to attract and retain highly-skilled IT professionals at cost-effective rates; Endava's ability to penetrate new industry verticals and geographies and grow its revenue in current industry verticals and geographies; Endava’s ability to maintain favorable pricing and utilization rates; Endava’s ability to successfully identify acquisition targets, consummate acquisitions and successfully integrate acquired businesses and personnel; the effects of increased competition as well as innovations by new and existing competitors in its market; Endava’s ability to adapt to technological change and innovate solutions for its clients; Endava’s ability to collect on billed and unbilled receivables from clients; Endava’s ability to effectively manage its international operations, including Endava's exposure to foreign currency exchange rate fluctuations; Endava’s ability to maintain an effective system of disclosure controls and internal control over financial reporting; and Endava’s future financial performance, including trends in revenue, cost of sales, gross profit, selling, general and administrative expenses, finance income and expense and taxes, as well as other risks and uncertainties discussed in the “Risk Factors” section of Endava's Annual Report filed with the SEC on October 31, 2022. In addition, the forward-looking statements included in this press release represent Endava’s views and expectations as of the date hereof and are based on information currently available to Endava. Endava anticipates that subsequent events and developments may cause its views to change. Endava specifically disclaims any obligation to update the forward-looking statements in this press release except as required by law. These forward-looking statements should not be relied upon as representing Endava’s views as of any date subsequent to the date hereof.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


Nine Months Ended March 31
Three Months Ended March 31

2023
2022
2023
2022

£’000
£’000
£’000
£’000
REVENUE
604,942

474,353

203,532

169,220

Cost of sales




Direct cost of sales
(381,711
)
(297,384
)
(132,458
)
(108,092
)
Allocated cost of sales
(18,676
)
(16,797
)
(6,433
)
(5,707
)
Total cost of sales
(400,387
)
(314,181
)
(138,891
)
(113,799
)
GROSS PROFIT
204,555

160,172

64,641

55,421

Selling, general and administrative expenses
(114,158
)
(89,613
)
(37,916
)
(29,989
)
Net impairment (losses) / gains on financial assets
(265
)
(1,826
)
3,379

(14
)
OPERATING PROFIT
90,132

68,733

30,104

25,418

Net Finance (expense) / income
(905
)
1,155

284

472

PROFIT BEFORE TAX
89,227

69,888

30,388

25,890

Tax on profit on ordinary activities
(18,122
)
(13,834
)
(6,030
)
(5,787
)
PROFIT FOR THE PERIOD
71,105

56,054

24,358

20,103

OTHER COMPREHENSIVE INCOME




Items that may be reclassified subsequently to profit or loss:




Exchange differences on translating foreign operations
(3,001
)
1,187

(3,824
)
2,715

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT
68,104

57,241

20,534

22,818






EARNINGS PER SHARE (EPS):




Weighted average number of shares outstanding - Basic
57,176,428

56,135,980

57,603,730

56,585,768

Weighted average number of shares outstanding - Diluted
58,070,352

57,945,549

58,210,601

57,999,337

Basic EPS (£)
1.24

1.00

0.42

0.36

Diluted EPS (£)
1.22

0.97

0.42

0.35

CONDENSED CONSOLIDATED BALANCE SHEETS


March 31, 2023
June 30, 2022
March 31, 2022 ⁽¹⁾

£’000
£’000
£’000
ASSETS - NON-CURRENT



Goodwill
186,946

145,916

143,346

Intangible assets
50,924

56,189

53,585

Property, plant and equipment
26,459

21,260

18,677

Lease right-of-use assets
58,727

50,818

50,780

Deferred tax assets
13,515

17,218

19,342

Financial assets
1,992

2,276

189

TOTAL
338,563

293,677

285,919

ASSETS - CURRENT



Trade and other receivables
183,533

162,671

159,197

Corporation tax receivable
678

2,309

1,636

Financial assets
136

392

318

Cash and cash equivalents
199,200

162,806

120,407

TOTAL
383,547

328,178

281,558

TOTAL ASSETS
722,110

621,855

567,477

LIABILITIES - CURRENT



Lease liabilities
13,859

11,898

11,779

Trade and other payables
92,649

98,252

88,762

Corporation tax payable
5,569

3,477

4,333

Contingent consideration
3,511

4,183

4,014

Deferred consideration
6,538

10,604

7,036

TOTAL
122,126

128,414

115,924

LIABILITIES - NON CURRENT



Lease liabilities
50,193

43,999

44,036

Contingent consideration
—

4,331

3,995

Deferred tax liabilities
10,152

10,826

8,551

Deferred consideration
1,363

1,062

3,992

Other liabilities
525

500

191

TOTAL
62,233

60,718

60,765

EQUITY



Share capital
1,153

1,135

1,134

Share premium
13,546

9,152

7,605

Merger relief reserve
39,976

30,003

30,003

Retained earnings
491,739

398,102

363,108

Other reserves
(8,515
)
(5,514
)
(10,907
)
Investment in own shares
(148
)
(155
)
(155
)
TOTAL
537,751

432,723

390,788

TOTAL LIABILITIES AND EQUITY
722,110

621,855

567,477

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


Nine Months Ended March 31
Three Months Ended March 31

2023
2022
2023
2022

£’000
£’000
£’000
£’000
OPERATING ACTIVITIES




Profit for the period
71,105

56,054

24,358

20,103

Income tax charge
18,122

13,834

6,030

5,787

Non-cash adjustments
40,216

46,228

15,242

13,258

Tax paid
(16,189
)
(9,187
)
(6,142
)
(3,486
)
Net changes in working capital
(22,063
)
(33,322
)
(14,428
)
(16,926
)
Net cash from operating activities
91,191

73,607

25,060

18,736






INVESTING ACTIVITIES




Purchase of non-current assets (tangibles and intangibles)
(11,804
)
(10,195
)
(4,213
)
(2,797
)
Proceeds from disposal of non-current assets
148

241

132

70

Payment for acquisition of subsidiary, net of cash acquired
(35,773
)
(10,135
)
(3,376
)
(9,524
)
Interest received
1,851

65

1,054

45

Net cash used in investing activities
(45,578
)
(20,024
)
(6,403
)
(12,206
)





FINANCING ACTIVITIES




Proceeds from sublease
325

418

88

141

Repayment of lease liabilities
(9,960
)
(10,468
)
(3,469
)
(3,345
)
Interest and debt financing costs paid
(3,532
)
(695
)
(3,109
)
(220
)
Grant received
472

90

252

47

Issue of shares
4,398

7,366

2,132

3,067

Net cash used in financing activities
(8,297
)
(3,289
)
(4,106
)
(310
)
Net change in cash and cash equivalents
37,316

50,294

14,551

6,220






Cash and cash equivalents at the beginning of the period
162,806

69,884

185,323

114,176

Exchange differences on cash and cash equivalents
(922
)
229

(674
)
11

Cash and cash equivalents at the end of the period
199,200

120,407

199,200

120,407

RECONCILIATION OF IFRS FINANCIAL MEASURES TO NON-IFRS FINANCIAL MEASURES

RECONCILIATION OF REVENUE GROWTH RATE AS REPORTED UNDER IFRS TO REVENUE GROWTH RATE AT CONSTANT CURRENCY:

Nine Months Ended
March 31

Three Months Ended
March 31

2023

2022

2023

2022

REVENUE GROWTH RATE AS REPORTED UNDER IFRS

27.5

51.7

20.3

50.7

Foreign exchange rates impact

(6.5

3.1

(5.7

0.2

REVENUE GROWTH RATE AT CONSTANT CURRENCY

21.0

54.8

14.6

50.9

RECONCILIATION OF ADJUSTED PROFIT BEFORE TAX AND ADJUSTED PROFIT FOR THE PERIOD:

Nine Months Ended
March 31

Three Months Ended
March 31

2023

2022

2023

2022

£’000

PROFIT BEFORE TAX

89,227

69,888

30,388

25,890

Adjustments:

Share-based compensation expense

24,135

27,542

8,226

6,626

Amortisation of acquired intangible assets

9,427

7,746

3,220

2,805

Foreign currency exchange losses / (gains), net

10,030

(3,159

)

2,497

(1,099

)

Restructuring costs ⁽²⁾

3,683

—

2,570

—

Fair value movement of contingent consideration

(10,650

)

—

(3,507

)

—

Total adjustments

36,625

32,129

13,006

8,332

ADJUSTED PROFIT BEFORE TAX

125,852

102,017

43,394

34,222

PROFIT FOR THE PERIOD

71,105

56,054

24,358

20,103

Adjustments:

Adjustments to profit before tax

36,625

32,129

13,006

8,332

Tax impact of adjustments

(8,299

)

(5,485

)

(3,247

)

(508

)

ADJUSTED PROFIT FOR THE PERIOD

99,431

82,698

34,117

27,927

Diluted EPS (£)

1.22

0.97

0.42

0.35

Adjusted diluted EPS (£)

1.71

1.43

0.59

0.48

RECONCILIATION OF NET CASH FROM OPERATING ACTIVITIES TO ADJUSTED FREE CASH FLOW

Nine Months Ended
March 31

Three Months Ended
March 31

2023

2022

2023

2022

£’000

Net cash from operating activities

91,191

73,607

25,060

18,736

Adjustments:

Grant received

472

252

Net purchase of non-current assets (tangibles and intangibles)

(11,656

)

(9,954

)

(4,081

)

(2,727

)

Adjusted Free cash flow

80,007

63,743

21,231

16,056

SUPPLEMENTARY INFORMATION

SHARE-BASED COMPENSATION EXPENSE

Nine Months Ended
March 31

Three Months Ended
March 31

2023

2022

2023

2022

£’000

Direct cost of sales

15,996

17,020

5,699

4,345

Selling, general and administrative expenses

8,139

10,522

2,527

2,281

Total

24,135

27,542

8,226

6,626

DEPRECIATION AND AMORTISATION

Nine Months Ended
March 31

Three Months Ended
March 31

2023

2022

2023

2022

£’000

Direct cost of sales

13,242

12,171

4,616

4,147

Selling, general and administrative expenses

11,406

9,554

3,945

3,392

Total

24,648

21,725

8,561

7,539

EMPLOYEES, TOP 10 CUSTOMERS AND REVENUE SPLIT

Six Months Ended December 31
Nine Months Ended March 31
Three Months Ended March 31

2023
2022
2023
2022





Closing number of total employees (including directors)
11,742

11,001

11,742

11,001

Average operational employees
10,960

9,167

10,818

9,851






Top 10 customers %
33
%
35
%
33
%
35
%
Number of clients with > £1m of revenue (rolling 12 months)
155

118

155

118






Geographic split of revenue %




North America
33
%
35
%
32
%
33
%
Europe
23
%
21
%
24
%
21
%
UK
39
%
41
%
38
%
43
%
Rest of World (RoW)
5
%
3
%
6
%
3
%
Industry vertical split of revenue %




Payments and Financial Services
52
%
51
%
53
%
51
%
TMT
22
%
25
%
21
%
25
%
Other
26
%
24
%
26
%
24
%

FOOTNOTES

(1) The Condensed Consolidated Balance Sheet as of March 31, 2022 has been restated to include the effects of IFRIC agenda decision on cloud configuration and customisation costs and to include the effect of revisions arising from provisional to final acquisition accounting for Five and Levvel (refer to note 3C from Endava's Annual Report on Form 20-F for the fiscal year ended June 30, 2022 for further details).

(2) Management has decided to exclude the impact of restructuring costs from profit before tax, costs which are one-off in nature. Restructuring costs of £3.7 million for the nine months ended March 31, 2023 include £1.1 million in costs related to the three months ended December 31, 2022.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230522005588/en/

INVESTOR CONTACT:
Endava plc
Laurence Madsen, Investor Relations Manager
Investors@endava.com

Company Name:	Endava plc American Depositary Shares
Stock Symbol:	DAVA
Market:	NYSE
Website:	endava.com

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