Endava's Q3 2026 earnings reveal an 8.4% revenue decline, a goodwill impairment of £364.6M, and a growing focus on AI-driven solutions. Discover more here.

Key Takeaways

• Revenue for Q3 2026 reached £178.5 million, reflecting an 8.4% decrease year-over-year in constant currency.
• Loss before tax totaled £372 million, primarily due to a goodwill impairment of £364.6 million.
• AI-driven business has expanded to 15% of total revenue, a significant increase from 5% a year ago, amounting to £27 million.
• Adjusted diluted EPS stood at 5 pence, down from 34 pence in the same quarter last year.
• Q4 guidance estimates revenue between £181 million and £185 million, indicating a constant currency revenue decrease of 3.5% to 1% year-over-year.

Financial Performance

The third quarter figures for Endava plc reveal a challenging environment, with revenue totaling £178.5 million, down from £194.8 million in the same period the previous year. This marks an 8.4% decrease in constant currency and a 6.4% decline from the prior year. The significant drop in revenue was attributed to several factors, including a slowdown in overall client demand, particularly from clients in the Middle East due to ongoing conflicts, extended deal cycles, and complex contracts taking longer to execute.

Furthermore, the company recorded a substantial loss before tax of £372 million, largely driven by a non-cash goodwill impairment of £364.6 million. Adjusted profit before tax (PBT) was £3.2 million, down from £24.6 million year-over-year, resulting in a lower adjusted PBT margin of 1.8% compared to 12.6% from the prior year. The decline in margins is partly due to increased investments in talent and training, particularly in AI and Java Flow skills.

Strategic Initiatives

Despite the recent challenges, Endava remains focused on long-term strategic positioning, particularly its pivot toward AI-native delivery. The company has seen its AI-driven business grow from 5% to 15% of total revenue in just one year, totaling £27 million. This transition is evident in new partnerships, such as the collaboration with MasterCard, which aims to enhance next-generation payment systems through AI integration.

Additionally, the deployment of Darva Flow, an AI-enabled solution, has expanded from three clients to twelve within a quarter, highlighting the company's commitment to operationalizing AI within its offerings. Endava is also focusing on outcome-based contracts, as evidenced by the introduction of pgx, a modular accelerator designed to improve clients' payment operations. This shift is expected to yield higher margins compared to traditional digital transformation projects.

The management emphasized the importance of adapting to the evolving market, where clients are increasingly seeking partners who can help them integrate AI securely into their operations. This strategy aligns with the broader trend of companies moving beyond mere experimentation with AI to operationalizing it within their organizations.

Future Outlook

Looking ahead, Endava has adjusted its guidance for the fourth quarter of fiscal year 2026, projecting revenue between £181 million and £185 million. This guidance reflects a cautious approach due to slower-than-expected pipeline conversion, particularly in the banking and capital markets sectors. Management expects a revenue decrease in constant currency of 3.5% to 1% compared to the previous year.

For the full fiscal year 2026, Endava anticipates revenue between £721.8 million and £725.8 million, representing a constant currency decline of 6% to 5% year-over-year. The adjusted diluted EPS is expected to fall within the 45 to 49 pence range. Despite the challenging landscape, management remains optimistic about the long-term potential of its AI initiatives and the growth of its strategic partnerships.

“What we are seeing now is a market moving beyond experimentation. Clients are increasingly looking for partners who can help them operationalize AI securely,” stated John Cotterell, CEO.

Conclusion

In summary, Endava plc is navigating a tumultuous period characterized by reduced demand and extended deal cycles. However, the company’s strategic focus on AI and the expansion of its partnerships suggests a promising path forward. The transition to an AI-native delivery model is not only reshaping its revenue streams but also positioning Endava to capitalize on future opportunities in a rapidly evolving technology landscape. Investors should monitor the company's ability to adapt to changing market conditions and execute its long-term strategy effectively.

This analysis is based on public earnings call materials and is not investment advice.