Endava (DAVA) J.P. Morgan Ultimate Services Investor Conference (USIC) 2024 summary

Financial performance and outlook

• Revenue reached the top end of guidance, with profitability and EPS exceeding expectations due to higher utilization.

• Annual guidance was maintained, with sequential growth of 3% expected from Q2 to Q3 and 1.5% for Q2 after FX adjustments.

• The Galaxy acquisition, completed in April, is being integrated and will create some cost headwinds but is expected to support growth.

• Forecasting remains cautious due to elongated sales cycles, but the pipeline is strong and supports the growth outlook.

• No significant changes in client budget levels are anticipated, with stability expected into the next fiscal year.

Client behavior and market trends

• Clients are shifting more budget into discretionary spending, especially for AI initiatives and core modernization.

• Early indicators from regions like Australia and others show increased spending as new budget cycles begin.

• The need for better business cases and higher returns, along with AI-driven uncertainty, has slowed discretionary spend, but this is starting to ease.

• Larger, longer-ramping transformation programs are expected as organizations address core modernization and AI integration.

• The shift from "keep the lights on" to transformation is gaining traction, underpinned by new tools and accelerators.

Core modernization and AI opportunity

• Core modernization is essential for effective AI deployment, requiring access to organizational data and processes.

• The opportunity is larger than previous digital transformation markets, as legacy systems consume up to 80% of IT budgets.

• Transformation will occur piecemeal, enabled by tools that help break off and modernize parts of legacy systems.

• AI and proprietary accelerators (MAPS, DASH, Chronos, Compass) are used to analyze, map, and modernize code and systems.

• Agentic AI solutions improve quality by having multiple AI agents interact, reducing hallucinations and increasing reliability.