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Endava Announces Second Quarter Fiscal Year 2019 Results

February 28, 2019

Q2 FY2019
43.6%Year on Year Growth in Revenue to £71.8 million
42.4% Constant Currency Revenue Growth
IFRS diluted EPS £0.14 compared to £0.10 in the prior year period
Adjusted diluted EPS £0.20 compared to £0.12 in the prior year period

LONDON--(BUSINESS WIRE)-- Endava plc(NYSE:DAVA), a global provider of digital transformation, agile development and intelligent automation services, today announced results for the three months ended December 31, 2018, the second quarter of its 2019 fiscal year ("Q2 FY2019").

"Q2 FY2019 was another record quarter for Endava, with revenue of £71.8 million, a strong growth of 43.6% Year on Year on a reported basis from £50 million in the same quarter in the previous fiscal year. This remarkable revenue growth was driven by the expansion of our existing customers particularly our larger ones, as well as the acquisition of new customers." said John Cotterell, Endava’s CEO.

“We delivered strong results in Q2 FY2019 with Profit Before Tax at £9.4 million and Adjusted Profit Before Tax at £13.6 million. Our strong client relationships contributed to our revenue growth and underpin future growth.” said Mark Thurston Endava’s CFO.”

FINANCIAL HIGHLIGHTS:

  • Revenue for the second quarter ended December 31, 2018 was £71.8 million an increase of 43.6% compared to £50.0 million in the same period in the prior year.
  • Revenue growth rate at constant currency(a non-IFRS measure) was 42.4% in the second quarter compared to 29.0% in the same period in the prior year.
  • Profit before tax in the second quarter was £9.4 million compared to £6.0 million in the same period in the prior year or 13.1% of revenue compared to 12.0% in the same period in the prior year.
  • Adjusted profit before tax (a non-IFRS measure) in the second quarter was £13.6 million compared to £7.5 million in the same period in the prior year or 18.9% of revenue compared to 15.0% in the same period in the prior year.
  • Profit for the period was £7.4 million in the second quarter, resulting in a diluted EPS of £0.14, compared to profit for the period of £4.8 million and diluted EPS of £0.10 in the same period in the prior year.
  • Adjusted profit for the period (a non-IFRS measure) was £10.9 million in the second quarter, resulting in adjusted diluted EPS (a non-IFRS measure) of £0.20 compared to adjusted profit for the period of £6.1 million and adjusted diluted EPS of £0.12 in the same period in the prior year.
  • Net cash from operating activities was £9.6 million in the second quarter compared to £8.6 million in the same period in the prior year.
  • Free cash flow (a non-IFRS measure) was £9.2 million in the second quarter compared to free cash flow of £7.4 million in the same period in the prior year.
  • At December 31, 2018, Endava had cash and cash equivalents of £51.0 million, compared to £15.0 million at June 30, 2018. Net cash at December 31, 2018 was £51.0 million compared to net borrowing of £4.7 million at June 30, 2018.

OTHER METRICS:

  • Headcount reached 5,389 at December 31, 2018, with 4,845 average operational employees in the second quarter compared to a headcount of 4,580 at December 31, 2017 and 3,684 average operational employees in the second quarter of the prior year.
  • Number of clients with over £1 million in spend grew to 60 on a rolling twelve months basis at December 31, 2018 compared to 42 at December 31, 2017.
  • Top 10 clients accounted for 38% of revenue in the second quarter down from 45% in the same period in the prior year.
  • By geographic region, 27% of revenue was generated in North America, 28% was generated in Europe and 45% was generated in the United Kingdom in the second quarter. This compares to 15% in North America, 37% in Europe and 48% in the United Kingdom in the same period in the prior year.
  • Revenue by industry vertical was as follows in the second quarter, Payments and Financial Services 53%, TMT 27% and Other 20%. This compares to Payments and Financial Services 62%, TMT 26% and Other 12% in the same period in the prior year.

OUTLOOK:

For Q3 FY2019:

We expect revenues will be in the range £71.0m to £72.0m, representing constant currency growth of between 20% and 21%. We expect adjusted diluted EPS to be in the range of 16.0p to 17.0p per share.

Full Fiscal Year 2019:

We expect revenues will be in the range £284.0m to £286.0m, representing constant currency growth of between 29% and 30%. We expect adjusted diluted EPS to be in the range of 69.0p to 72.0p per share.

Endava is not able, at this time, to provide an outlook for IFRS diluted EPS for Q3 FY2019 or FY2019 because of the unreasonable effort of estimating certain items that are excluded from adjusted diluted EPS, including, for example, share-based compensation expense, amortisation of acquired intangible assets, foreign currency exchange (gains) losses, the effect of which may be significant.

CONFERENCE CALL DETAILS:

The Company will host a conference call at 8:00 am EST today to review the second quarter 2019 results. To participate in Endava’s second quarter 2019 earnings conference call, please dial in at least five minutes prior to the scheduled start time (877) 683-6368 or (647) 689-5450 for international participants, Conference ID 5350136.

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 Friday March 15, 2019.

ABOUT ENDAVA PLC:

Endava is a leading next-generation technology services provider and helps accelerate disruption by delivering rapid evolution to enterprises. Using distributed enterprise agile at scale, Endava collaborates with its clients, seamlessly integrating with their teams, catalysing ideation and delivering robust solutions. Endava helps its clients become digital experience-driven businesses by assisting them in their journey from idea generation to development and deployment of products, platforms and solutions. It services clients in the following industries: Payments, Financial Services, TMT, Consumer Products, Logistics and Healthcare. Endava had 5,389 employees as of December 31, 2018 located in offices in North America and Western Europe and delivery centres in Romania, Moldova, Bulgaria, Serbia, Macedonia, Argentina, Uruguay, Venezuela, and Colombia.

NON-IFRS FINANCIAL INFORMATION:

To supplement Endava’s Consolidated Statements of Comprehensive Income and Consolidated Balance Sheets 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 diluted EPS, adjusted profit before tax, adjusted profit for the period and 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 rates in effect for the fiscal quarter ended December 31, 2017 were used to convert revenue for the fiscal quarter ended December 31, 2018 and the revenue for the comparable prior period.

Adjusted diluted EPS is defined as the Company's profit for the period adjusted to exclude the impact of share-based compensation expense, amortisation of acquired intangible assets, realized and unrealized foreign currency exchange gains and losses, fair value adjustment of contingent consideration, initial public offering expenses incurred and Sarbanes-Oxley compliance readiness expenses incurred (all of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering and Sarbanes-Oxley compliance readiness expenses) and the tax impact of these adjustments, divided by weighted average number of shares outstanding - diluted.

Adjusted profit before tax is defined as the Company’s profit for the period adjusted to exclude the impact of share-based compensation, amortization of acquired intangible assets, realized and unrealized foreign currency exchange gains and losses, fair value adjustment of contingent consideration, initial public offering expenses incurred and Sarbanes-Oxley compliance readiness expenses incurred (all of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering and Sarbanes-Oxley compliance readiness expenses).

Adjusted profit for the period is defined as the Company's profit for the period adjusted to exclude the impact of share-based compensation expense, amortisation of acquired intangible assets, realized and unrealized foreign currency exchange gains and losses, fair value adjustment of contingent consideration, initial public offering expenses incurred and Sarbanes-Oxley compliance readiness expenses incurred (all of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering and Sarbanes-Oxley compliance readiness expenses).

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

In order for Endava’s investors to be better able to compare its current results with those of previous periods, the Company has shown a reconciliation of IFRS to non-IFRS financial measures. 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. Endava 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.

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 use of terms and phrases such as “believe,” “expect,” “will,” and other similar terms and phrases. Such forward-looking statements include, but are not limited to, the statements regarding our projected financial performance for our third fiscal quarter and full-fiscal year 2019. 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: our ability to sustain our revenue growth rate in the future; our ability to retain existing clients and attract new clients, including our ability to increase revenue from existing clients and diversify our revenue concentration; our ability to attract and retain highly-skilled IT professionals at cost-effective rates; our ability to penetrate new industry verticals and geographies and grow our revenue in current industry verticals and geographies; our ability to maintain favorable pricing and utilization rates; our 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 our market; the size of our addressable market and market trends; our ability to adapt to technological change and innovate solutions for our clients; our plans for growth and future operations, including our ability to manage our growth; our expectations of future operating results or financial performance; our ability to effectively manage our international operations, including our exposure to foreign currency exchange rate fluctuations; and our 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 our Annual Report on Form 20-F filed with the Securities and Exchange Commission on October 11, 2018. In addition, the forward-looking statements included in this press release represent our views and expectations as of the date hereof and are based on information currently available to us. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so except as required by law. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date hereof.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

               

Six Months Ended
December 31

     

Three Months Ended
December 31

2018       2017       2018       2017
        £’000       £’000       £’000       £’000
REVENUE       138,248       97,542       71,834       50,011
Cost of sales                                
Direct cost of sales       (83,026)       (60,321)       (42,668)       (30,904)
Allocated cost of sales       (7,305 )       (6,046 )       (3,737 )       (3,099 )
Total cost of sales       (90,331 )       (66,367 )       (46,405 )       (34,003 )
GROSS PROFIT       47,917         31,175         25,429         16,008  
Selling, general and administrative expenses       (31,008 )       (18,050 )       (16,345 )       (9,832 )
OPERATING PROFIT       16,909         13,125         9,084         6,176  
Net finance (expense) / income       (4,860 )       (660 )       331         (153 )
PROFIT BEFORE TAX       12,049         12,465         9,415         6,023
Tax on profit on ordinary activities       (2,584)       (2,607)       (1,998)       (1,250)
PROFIT FOR THE PERIOD AND PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT       9,465         9,858         7,417         4,773  
Other comprehensive income                                
Items that may be reclassified subsequently to profit or loss:                                
Exchange differences on translating foreign operations       662       255       930       234
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT       10,127         10,113         8,347         5,007  
                 
EARNINGS PER SHARE:                                
Weighted average number of shares outstanding - Basic       48,859,382         45,100,165         49,454,195         45,100,165  
Weighted average number of shares outstanding - Diluted       54,454,333         49,436,677         54,892,513         49,596,219  
Basic EPS       0.19       0.22       0.15       0.11
Diluted EPS       0.17         0.20         0.14         0.10  
 

CONDENSED CONSOLIDATED BALANCE SHEETS

                       
December 31, 2018       June 30, 2018       December 31, 2017
        £’000       £’000       £’000
                         
ASSETS - NON-CURRENT                        
Goodwill       42,447         41,062         40,517  
Intangible assets       30,303         30,787         31,356  
Property, plant and equipment       9,989         8,584         8,716  
Deferred tax assets       2,519         2,488         919  
TOTAL       85,258         82,921         81,508  
ASSETS - CURRENT                        
Inventories               16         14  
Trade and other receivables       63,766         52,352         49,349  
Corporation tax receivable       546         677          
Cash and cash equivalents       51,044         15,048         25,066  
TOTAL       115,356         68,093         74,429  
TOTAL ASSETS       200,614         151,014         155,937  
LIABILITIES - CURRENT                        
Borrowings       39         19,744         38,917  
Trade and other payables       41,892         40,243         28,522  
Corporation tax payable       1,270         1,488         741  
Contingent consideration       1,244         5,259         5,141  
Deferred consideration       4,691         4,401         11,993  
TOTAL       49,136         71,135         85,314  
LIABILITIES - NON CURRENT                        
Borrowings       3         20         45  
Contingent consideration               7,251         6,961  
Deferred consideration                       1,235  
Deferred tax liabilities       2,601         2,832         2,692  
Other liabilities       284         277         267  
TOTAL       2,888         10,380         11,200  
EQUITY                        
Share capital       1,061         996         996  
Share premium       48,614         2,678         2,678  
Merger relief reserve       4,430         4,430         4,430  
Retained earnings       73,956         59,260         48,519  
Other reserves       22,804         4,410         5,075  
Investment in own shares       (2,275 )       (2,275 )       (2,275 )
TOTAL       148,590         69,499         59,423  
TOTAL LIABILITIES AND EQUITY       200,614         151,014         155,937  
           

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

           

Six Months Ended
December 31

Three Months Ended
December 31

2018       2017 2018       2017
£’000 £’000 £’000 £’000
OPERATING ACTIVITIES
Profit for the period 9,465 9,858 7,417 4,773
Income tax charge 2,584 2,607 1,998 1,250
Non-cash adjustments 13,305 2,672 4,808 1,057
Tax paid (2,911 ) (2,274 ) (1,419 ) (963 )
UK research and development credit received 1,854 917
Net changes in working capital (10,778 ) (2,289 ) (3,190 ) 1,544
Net cash from operating activities 11,665 12,428 9,614 8,578
 
INVESTING ACTIVITIES
Purchase of non-current assets (tangibles and intangibles) (3,964 ) (2,767 ) (2,070 ) (1,137 )
Proceeds/(Loss) from disposal of non-current assets 25 25
Acquisition of business / subsidiaries (net of cash acquired) (17,392 ) (17,392 )
Interest received 126 23 52 19
Net cash used in investing activities (3,813 ) (20,136 ) (1,993 ) (18,510 )
 
FINANCING ACTIVITIES
Proceeds from borrowings 3,500 22,979 3,500 22,971
Repayment of borrowings (23,526 ) (13,643 ) (3,511 ) (4,620 )
Interest Paid (222 ) (203 ) (74 ) (127 )
Grant received 1,784 1,679
Net proceeds from initial public offering 44,828
Net cash from financing activities 26,364 9,133 1,594 18,224
Net change in cash and cash equivalents 34,216 1,425 9,215 8,292
 
Cash and cash equivalents at the beginning of the period 15,048 23,571 41,765 16,634
Exchange differences on cash and cash equivalents 1,780 70 64 140
Cash and cash equivalents at the end of the period 51,044 25,066 51,044 25,066
 

RECONCILIATION OF ADJUSTED FINANCIAL MEASURES TO COMPARABLE IFRS FINANCIAL MEASURES

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

               

Six Months Ended
December 31

     

Three Months Ended
December 31

        2018       2017       2018       2017
REVENUE GROWTH AT CONSTANT CURRENCY       41.1 %       31.7 %       42.4 %       29.0 %
Foreign exchange rates impact       0.6 %       1.2 %       1.2 %       (0.5 %)
REVENUE GROWTH AS REPORTED UNDER IFRS       41.7 %       32.9 %       43.6 %       28.5 %
                 

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

               

Six Months Ended
December 31

     

Three Months Ended
December 31

2018       2017       2018       2017
£’000       £’000       £’000       £’000
                                 
PROFIT BEFORE TAX       12,049         12,465         9,415         6,023  
Adjustments:                                
Share-based compensation expense       5,010         720         3,125         354  
Amortisation of acquired intangible assets       1,752         960         873         479  
Foreign currency exchange (gains) losses, net       (1,141 )       481         (436 )       44  
Initial public offering expenses incurred       1,055         685         79         604  
Sarbanes-Oxley compliance readiness expenses incurred       698                 504          
Fair value movement of contingent consideration       5,805                          
Total adjustments       13,179         2,846         4,145         1,481  
ADJUSTED PROFIT BEFORE TAX       25,228         15,311         13,560         7,504  
                                 
PROFIT FOR THE PERIOD       9,465         9,858         7,417         4,773  
Adjustments:                                
Adjustments to profit before tax       13,179         2,846         4,145         1,481  
Tax impact of adjustments       (2,349 )       (386 )       (666 )       (180 )
ADJUSTED PROFIT FOR THE PERIOD       20,295         12,318         10,896         6,074  
                                 
Diluted EPS (£)       0.17       0.20       0.14       0.10
Adjusted diluted EPS (£)       0.37       0.25       0.20       0.12
                 

RECONCILIATION OF NET CASH FROM OPERATING ACTIVITIES TO FREE CASH FLOW

               

Six Months Ended
December 31

     

Three Months Ended
December 31

2018       2017       2018       2017
      £’000       £’000       £’000       £’000
                                 
Net cash from operating activities       11,665         12,428         9,614         8,578  
Adjustments:                                
Grant received       1,784                 1,679          
Net purchases of non-current assets (tangible and intangible)       (3,939 )       (2,767 )       (2,045 )       (1,137 )
Free cash flow       9,510         9,661         9,248         7,441  
                 

SUPPLEMENTARY INFORMATION

SHARE-BASED COMPENSATION EXPENSE

               

Six Months Ended
December 31

     

Three Months Ended
December 31

2018       2017       2018       2017
                                 
Direct cost of sales       1,939         482         1,191         237
Selling, general and administrative expenses       3,071         238         1,934         117
Total       5,010         720         3,125         354
                 

EMPLOYEES, TOP 10 CUSTOMERS and REVENUE SPLIT

                 
Six Months Ended December 31      

Six Months Ended
December 31

     

Three Months Ended
December 31

        2018       2017       2018       2017
Closing number of total employees       5,389       4,580       5,389       4,580
Average operational employees       4,726       3,621       4,845       3,684
                                 
Top 10 customers %       38 %       45 %       38 %       45 %
Number of clients with > £1m of revenue
(rolling 12 months)
      60       42       60       42
                                 
Geographic split of revenue %                                
North America       27 %       15 %       27 %       15 %
Europe       28 %       37 %       28 %       37 %
UK       45 %       48 %       45 %       48 %
Industry vertical split of revenue %                                
Payments and Financial Services       53 %       61 %       53 %       62 %
TMT       27 %       27 %       27 %       26 %
Other       20 %       12 %       20 %       12 %
                       

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME – TRANSLATED INTO US$

               

Six Months Ended
December 31

     

Three Months Ended
December 31

2018       2017       2018       2017
        US$’000 1       US$’000 2       US$’000 3       US$’000 4
REVENUE       179,004       128,609       92,429       66,395
Cost of sales                                
Direct cost of sales       (107,502)       (79,533)       (54,901)       (41,028)
Allocated cost of sales       (9,459 )       (7,972 )       (4,808 )       (4,114 )
Total cost of sales       (116,961 )       (87,505 )       (59,709 )       (45,142 )
GROSS PROFIT       62,043         41,104         32,720         21,253  
Selling, general and administrative expenses       (40,149 )       (23,799 )       (21,031 )       (13,053 )
OPERATING PROFIT       21,894         17,305         11,689         8,200  
Net Finance (expense) / income       (6,293 )       (870 )       426         (203 )
PROFIT BEFORE TAX       15,601         16,435         12,115         7,997  
Tax on profit on ordinary activities       (3,346)       (3,437)       (2,571)       (1,660)
PROFIT FOR THE PERIOD AND PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT       12,255         12,998         9,544         6,337  
Other comprehensive income                                
Items that may be reclassified subsequently to profit or loss:                                
Exchange differences on translating foreign operations       857       336       1,197       311
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT       13,112         13,334         10,741         6,648  
                                 
EARNINGS PER SHARE:                                
Weighted average number of shares outstanding       48,859,382         45,100,165         49,454,195         45,100,165  
Weighted average number of shares outstanding - Diluted       54,454,333         49,436,677         54,892,513         49,596,219  
Basic EPS       0.25       0.29       0.19       0.14
Diluted EPS       0.23         0.26         0.17         0.13  
                 

1 Translated solely for convenience into US dollars at the rate of £1.00=1.2948
2 Translated solely for convenience into US dollars at the rate of £1.00=1.3185
3 Translated solely for convenience into US dollars at the rate of £1.00=$1.2867.
4 Translated solely for convenience into US dollars at the rate of £1.00=$1.3276.

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

Source: Endava

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