Endava (NYSE:DAVA) reported a weaker fiscal third quarter and lowered its fourth-quarter outlook, with management citing delayed client decisions, geopolitical disruption in the Middle East and longer sales cycles for large outcome-based contracts.
Chief Executive Officer John Cotterell said demand conditions remained “uneven” across several sectors, while clients continued to scrutinize technology spending. He said the main driver of the quarterly miss and reduced Q4 guidance was slower-than-expected pipeline conversion.
“This has been one of the more challenging periods Endava has faced in recent years,” Cotterell said on the company’s earnings call. He said clients in the Middle East delayed work because of the ongoing conflict, while the broader macroeconomic environment tied to the conflict weighed on client demand. He also said large, complex outcome-based contracts were taking longer to execute than planned.
Revenue Declines as Profitability Comes Under Pressure
Chief Financial Officer Mark Thurston said revenue for the quarter ended March 31, 2026, was £178.5 million, down from £194.8 million in the same period a year earlier. That represented an 8.4% decline, or a 6.4% decrease in constant currency.
Endava reported a loss before tax of £372 million, compared with a profit before tax of £13.6 million a year earlier. The loss included a non-cash goodwill impairment charge of £364.6 million. Thurston also said the company derecognized a £23.2 million deferred tax asset related to U.K. tax losses. Both charges were described as non-cash and one-off in nature.
Adjusted profit before tax was £3.2 million, compared with £24.6 million in the prior-year quarter. Adjusted PBT margin fell to 1.8% from 12.6% a year earlier. Thurston said costs rose because of higher go-to-market investments and an increase in bench capacity as the company trains staff in AI and Dava.Flow skills.
Adjusted diluted earnings per share were £0.05, compared with £0.34 in the prior-year period.
Company Highlights AI Shift, Partnerships and New Contracts
Cotterell sought to distinguish near-term execution issues from what he described as Endava’s longer-term strategic positioning. He said the company has accelerated its transition toward AI-native delivery, expanded relationships with hyperscalers and deepened its presence in payments transformation.
Endava said its AI-driven business accounted for 15% of total revenue in the quarter, or £27 million, compared with 5% of revenue in the third quarter of fiscal 2025. Cotterell said margins in the AI-driven business are higher than in the company’s traditional digital transformation business.
The company also said Dava.Flow, its AI-enabled delivery framework, was deployed with 12 clients during the quarter, up from three in the previous quarter. Cotterell said more than 1,000 engineers are using or training on Dava.Flow, representing more than 10% of Endava’s direct staff.
Management highlighted several client and partner developments, including:
- A recently announced collaboration with Mastercard focused on next-generation payments and immersive experiences, with an initial focus on insurance and healthcare and additional attention on telecom, mobility and travel.
- Participation in the Google Cloud AI Agent ecosystem program, which Cotterell said is generating engagements across North America, Asia-Pacific and Europe.
- An agreement to implement Gemini Enterprise at a leading U.K. high street bank.
- A partnership with Tyl by NatWest Group to modernize and expand its payments acceptance platform using Dava.Flow and components of Endava’s PGX payments accelerator.
- Renewal of a long-standing partnership with Slovenia’s Ministry of Finance and Financial Administration through 2028.
Regional and Client Trends Remain Mixed
Thurston said Endava’s 10 largest clients accounted for 40% of revenue in the quarter, compared with 39% in the same period last year. Average spend among the top 10 clients declined 5.6% year over year, including a 3.7% headwind from foreign exchange.
By geography, North America represented 38% of revenue, the U.K. 33%, Europe 23% and the rest of the world 6%. Revenue in North America declined 5.5%, driven by a 6.1% foreign-exchange headwind. Europe declined 3.6%, due mainly to weakness in payments and technology, media and telecom. The U.K. fell 15.4%, largely due to the reclassification of a large payments client from the U.K. to North America.
In the question-and-answer session, Thurston said banking and capital markets had seen a step down in the third quarter and that the slowdown was most pronounced in the U.S. and U.K. He said Endava expects some recovery in the segment in Q4, though not as much as previously anticipated. In healthcare, he said one large client continued to slow spending, while another client was growing quickly, creating an offset.
Cash Flow Weakens, Borrowings Rise
Adjusted free cash flow was negative £3.1 million in the quarter, compared with positive £17.5 million a year earlier. Thurston attributed the negative free cash flow mainly to an increase in receivables because a large portion of quarterly billings was issued in March. He said Endava expects to collect the majority of those receivables by the end of June.
Cash and cash equivalents totaled £48.4 million at March 31, 2026, compared with £59.3 million at June 30, 2025, and £68.3 million at March 31, 2025. Borrowings rose to £195.8 million from £180.9 million at June 30, 2025, and £136.5 million a year earlier, primarily to support the company’s share repurchase program.
Asked about capital allocation, Thurston said leverage is an area the company wants to focus on reducing. He also noted that Endava has a refinancing coming up during fiscal 2027 and will consider the broader funding of the business as part of that process.
Guidance Lowered for Fiscal Q4 and Full Year
For the fourth quarter of fiscal 2026, Endava expects revenue of £181 million to £185 million, representing a constant-currency revenue decline of 3.5% to 1.0% year over year. The company expects adjusted diluted EPS of £0.09 to £0.13.
For the full fiscal year, Endava expects revenue of £721.8 million to £725.8 million, representing a constant-currency revenue decrease of 6.0% to 5.0%. Adjusted diluted EPS is expected to be £0.45 to £0.49.
Thurston said the lowered Q4 guidance reflected slower-than-expected pipeline conversion, “most marked in banking and capital markets across all of our regions.” He said the company had 95% contracted and committed coverage at the high end of the Q4 revenue range and 97% at the low end, leaving £9 million to convert at the high end and £5 million at the low end.
Despite the weaker results, Cotterell said Endava remains focused on the transition toward AI-driven delivery and outcome-based work. “We are seeing much more substantive AI-driven deals coming through,” he said, adding that those engagements are often more complex and take longer to close.
About Endava (NYSE:DAVA)
Endava PLC is a publicly traded technology services company specializing in digital transformation and agile software development. The firm helps enterprise clients design, build and manage custom software solutions across industries such as financial services, payments, retail, telecommunications and media. Its service offerings span end-to-end product design, customer experience, application development, quality engineering, DevOps, automation and artificial intelligence, all delivered through agile methodologies.
Founded in 2000, Endava has grown from a small software provider into a global IT partner.
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