Endava Reports Mixed Q2 Results as AI Investments Weigh on Profitability
Endava Plc (NYSE:DAVA), a provider of digital transformation and AI-native technology services, announced financial results for its second quarter of fiscal year 2026, ending December 31, 2025. The report presents a picture of a company navigating a strategic pivot amid ongoing revenue pressures, with earnings narrowly missing analyst expectations.
Quarterly Performance Versus Estimates
The company's top and bottom-line results for the quarter came in close to, but slightly below, consensus forecasts. Revenue showed a sequential improvement but continued to decline on a year-over-year basis.
- Revenue: Reported revenue was £184.1 million (approximately $252.2 million). This compares to the analyst consensus estimate of £183.5 million. While it slightly exceeded the estimate, it represents a 5.9% decline from the £195.6 million reported in the same quarter last year.
- Adjusted Earnings Per Share (EPS): The company reported adjusted diluted EPS of £0.16. This figure fell just short of the analyst estimate of £0.1563.
The reported loss under standard IFRS accounting was more pronounced. Endava posted a loss before tax of £(7.2) million, compared to a profit of £2.5 million a year ago, and a diluted loss per share of £(0.13).
Market Reaction and Strategic Context
The initial market reaction appears muted to slightly negative. In pre-market trading following the release, the stock showed modest movement. This tepid response likely reflects the complex narrative within the earnings report: a slight revenue beat but an earnings miss, set against a backdrop of significant strategic spending.
CEO John Cotterell emphasized the company's heavy investment in its pivot towards AI, encompassing talent recruitment, platform development, and partnership expansion. He highlighted "strong initial interest" in the company's Dava.Flow AI-native engagement platform and a key new project in the payments vertical. However, these investments are clearly impacting near-term profitability, as evidenced by the contraction in adjusted profit margin to 5.8% of revenue, down from 11.2% a year ago.
Financial and Operational Highlights
Beyond the headline figures, the earnings release detailed several key operational and financial metrics:
- Sequential Growth: Revenue grew 3.3% compared to the first quarter of FY2026 (£178.2 million).
- Profitability Metrics: Adjusted profit before tax was £10.7 million, significantly lower than the £21.8 million recorded in the prior-year period.
- Cash Flow & Balance Sheet: The company generated £28.2 million in net cash from operating activities and ended the quarter with £68.5 million in cash. Notably, total borrowings increased to £202.7 million, up from £123.7 million at the end of December 2024.
- Share Repurchases: Endava continued its buyback program, repurchasing 8.05 million American Depositary Shares for $121.9 million as of January 31, 2026.
- Client & Headcount: The number of clients generating over £1 million in annual revenue decreased slightly to 135 from 141. Headcount stood at 11,385, down from 11,668 a year ago.
Forward Guidance and Analyst Expectations
Management provided guidance for both the upcoming third quarter and the full 2026 fiscal year, which projects a continuation of revenue declines at constant currency.
- Q3 FY2026 Outlook: Endava expects revenue between £182.0 million and £185.0 million, implying a constant currency decline of 4.0% to 2.5% year-over-year. Adjusted diluted EPS is forecast in the range of £0.18 to £0.21.
- Full Year FY2026 Outlook: The company anticipates full-year revenue of £736.0 million to £750.0 million, representing a constant currency decline of 3.5% to 1.5%. Adjusted diluted EPS is projected to be between £0.80 and £0.86.
This outlook sets up a comparison with existing analyst estimates. For the full year 2026, analysts had been estimating sales of approximately £752.5 million and EPS of £0.79. Endava's revenue guidance range is largely below this consensus, while its EPS forecast brackets it. For the next quarter (Q3), the company's revenue guidance midpoint of £183.5 million is slightly below the analyst sales estimate of £189.3 million, while its EPS guidance midpoint of £0.195 is above the EPS estimate of £0.226.
Conclusion
Endava's second-quarter results underscore the financial transition accompanying its ambitious AI-focused strategy. While the company signals early traction with new platforms and maintains a strong cash position, the costs of its pivot are evident in compressed margins and year-over-year declines in profit. The provided guidance suggests management expects these headwinds to persist in the near term. Investors appear to be weighing the promise of the long-term AI transformation against the clear near-term financial pressures, resulting in a cautious initial reaction to the earnings report.
For a detailed breakdown of future quarterly and annual earnings estimates for Endava, you can review the data here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, investment recommendation, or an offer to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.