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Endava Announces Third Quarter Fiscal Year 2019 Results

May 21, 2019

Q3 FY2019

24.7% Year on Year Revenue Growth to £73.1 million

23.2% Revenue Growth at Constant Currency

IFRS diluted EPS £0.11 compared to £0.08 in the prior year comparative period

Adjusted diluted EPS £0.19 compared to £0.13 in the prior year comparative period

LONDON--(BUSINESS WIRE)-- Endava plc(NYSE: DAVA) ("Endava" or the "Company") a global provider of digital transformation, agile development and intelligent automation services, today announced results for the three months ended March 31, 2019, the third quarter of its 2019 fiscal year ("Q3 FY2019").

"Endava continues to deliver strong results and I am pleased with our performance. Our revenue for Q3 FY2019 was £73.1 million, an impressive increase of 24.7% Year on Year on a reported basis from £58.6 million in the same quarter in the prior year. We continue to expand in all of our geographies and industry verticals." said John Cotterell, Endava’s CEO.

FINANCIAL HIGHLIGHTS:

  • Revenue for Q3 FY2019 was £73.1 million, an increase of 24.7% compared to £58.6 million in the same period in the prior year.
  • Revenue growth rate at constant currency(a non-IFRS measure) was 23.2% for Q3 FY2019 compared to 39.6% in the same period in the prior year.
  • Profit before tax for Q3 FY2019 was £7.6 million compared to £5.5 million in the same period in the prior year, or 10.4% of revenue compared to 9.4% in the same period in the prior year.
  • Adjusted profit before tax (a non-IFRS measure) for Q3 FY2019 was £13.2 million compared to £8.5 million in the same period in the prior year, or 18.1% of revenue compared to 14.5% in the same period in the prior year.
  • Profit for the period was £6.3 million in Q3 FY2019, resulting in a diluted EPS of £0.11, compared to profit for the period of £4.2 million and diluted EPS of £0.08 in the same period in the prior year.
  • Adjusted profit for the period (a non-IFRS measure) was £10.6 million in Q3 FY2019, resulting in adjusted diluted EPS (a non-IFRS measure) of £0.19 compared to adjusted profit for the period of £6.9 million and adjusted diluted EPS of £0.13 in the same period in the prior year.
  • Net cash from operating activities was £12.6 million in Q3 FY2019 compared to £7.9 million in the same period in the prior year.
  • Free cash flow (a non-IFRS measure) was £11.4 million in Q3 FY2019 compared to £7.2 million in the same period in the prior year.
  • At March 31, 2019, Endava had cash and cash equivalents of £59.3 million, compared to £15.0 million at June 30, 2018. Net cash at March 31, 2019 was £59.3 million compared to net borrowing of £4.7 million at June 30, 2018.

OTHER METRICS:

  • Headcount reached 5,573 at March 31, 2019, with 5,012 average operational employees in Q3 FY2019, compared to a headcount of 4,700 at March 31, 2018 and 4,246 average operational employees in the third quarter of the prior year.
  • Number of clients with over £1 million in spend grew to 67 on a rolling twelve months basis at March 31, 2019 compared to 42 at March 31, 2018.
  • Top 10 clients accounted for 40% of revenue in Q3 FY2019, unchanged from the same period in the prior year.
  • By geographic region, 27% of revenue was generated in North America, 27% was generated in Europe and 46% was generated in the United Kingdom in Q3 FY2019. This compares to 25% in North America, 31% in Europe and 44% in the United Kingdom in the same period in the prior year.
  • By industry vertical, 53% of revenue was generated from Payments and Financial Services, 28% from TMT and 19% from Other. This compares to 54% Payments and Financial Services, 29% TMT and 17% Other in the same period in the prior year.

OUTLOOK:

For Q4 FY2019:

We expect revenues will be in the range £75m to £76m, representing constant currency growth of between 21% and 22%. We expect adjusted diluted EPS to be in the range of £0.17 to £0.18 per share.

Full Fiscal Year 2019:

We expect revenues will be in the range £286m to £287m, representing constant currency growth of 31%. We expect adjusted diluted EPS to be in the range of £0.73 to £0.74 per share.

Endava is not able, at this time, to provide an outlook for IFRS diluted EPS for Q4 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 and 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, May 21, 2019, to review its Q3 FY2019 results. To participate in Endava’s Q3 FY19 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 4226669.

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, June 7, 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 and Financial Services, TMT, Consumer Products, Retail, Logistics and Healthcare. Endava had 5,573 employees as of March 31, 2019 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, Consolidated Balance Sheets and Consolidated Statements of Cash Flow 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 profit before tax, adjusted profit for the period, adjusted diluted EPS 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 March 31, 2018 were used to convert revenue for the fiscal quarter ended March 31, 2019 and the revenue for the comparable prior period.

Adjusted profit before tax is defined as the Company’s profit before tax adjusted to exclude

the impact of share-based compensation expense, amortisation of acquired intangible assets, realized and unrealized foreign currency exchange gains and losses, initial public offering expenses incurred, Sarbanes-Oxley compliance readiness expenses, fair value movement of contingent consideration, secondary offering expenses incurred and stamp duty on transfer of shares (all of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering expenses, Sarbanes-Oxley compliance readiness expenses, secondary offering expenses incurred and stamp duty on transfer of shares). Adjusted PBT margin is adjusted profit before tax as a percentage of total revenue.

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, initial public offering expenses incurred, Sarbanes-Oxley compliance readiness expenses, fair value movement of contingent consideration, secondary offering expenses incurred and stamp duty on transfer of shares (all of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering expenses, Sarbanes-Oxley compliance readiness expenses, secondary offering expenses incurred and stamp duty on transfer of shares) together with the tax impact of these adjustments.

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, initial public offering expenses incurred, Sarbanes-Oxley compliance readiness expenses, fair value movement of contingent consideration, secondary offering expenses incurred and stamp duty on transfer of shares (all of which are non-cash other than realized foreign currency exchange gains and losses, initial public offering expenses, Sarbanes-Oxley compliance readiness expenses, secondary offering expenses incurred and stamp duty on transfer of shares), divided by weighted average number of shares outstanding - diluted.

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

In order for Endava’s investors to be better able to compare its current period 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. Management also 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 the use of terms and phrases such as “believe,” “expect,” "outlook," 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 fourth 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 and the final prospectus relating to our recent public offering filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) on April 18, 2019.

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

 
Nine Months Ended March 31 Three Months Ended March 31
2019   2018 2019   2018
  £’000 £’000 £’000 £’000
REVENUE 211,312 156,140 73,064 58,598
Cost of sales        
Direct cost of sales (127,356) (96,104) (44,330) (35,783)
Allocated cost of sales (11,050 ) (9,281 ) (3,745 ) (3,235 )
Total cost of sales (138,406 ) (105,385 ) (48,075 ) (39,018 )
GROSS PROFIT 72,906   50,755   24,989   19,580  
Selling, general and administrative expenses (48,609 ) (31,755 ) (17,601 ) (13,705 )
OPERATING PROFIT 24,297   19,000   7,388   5,875  
Net finance (expense) / income (4,644 ) (1,030 ) 216   (370 )
PROFIT BEFORE TAX 19,653   17,970   7,604   5,505
Tax on profit on ordinary activities (3,874) (3,893) (1,290) (1,286)
PROFIT FOR THE PERIOD AND PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT 15,779   14,077   6,314   4,219  
Other comprehensive income        
Items that may be reclassified subsequently to profit or loss:        
Exchange differences on translating foreign operations (2,365) (1,108) (3,027) (1,363)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT 13,414   12,969   3,287   2,856  
 
EARNINGS PER SHARE:        
Weighted average number of shares outstanding - Basic 49,072,773   45,100,165   49,500,875   45,100,165  
Weighted average number of shares outstanding - Diluted 54,648,204   50,050,447   54,912,822   51,142,347  
Basic EPS (£) 0.32 0.31 0.13 0.09
Diluted EPS (£) 0.29   0.28   0.11   0.08  
 
     

CONDENSED CONSOLIDATED BALANCE SHEETS

 
March 31, 2019 June 30, 2018 March 31, 2018
  £’000 £’000 £’000
       
ASSETS - NON-CURRENT      
Goodwill 41,197   41,062   39,267  
Intangible assets 28,800   30,787   30,051  
Property, plant and equipment 9,359   8,584   8,350  
Deferred tax assets 4,731   2,488   926  
TOTAL 84,087   82,921   78,594  
ASSETS - CURRENT      
Inventories

-

  16   57  
Trade and other receivables 63,041   52,352   50,190  
Corporation tax receivable 649   677  

-

 
Cash and cash equivalents 59,339   15,048   9,462  
TOTAL 123,029   68,093   59,709  
TOTAL ASSETS 207,116   151,014   138,303  
LIABILITIES - CURRENT      
Borrowings 29   19,744   23,612  
Trade and other payables 43,983   40,243   32,843  
Corporation tax payable 2,045   1,488   644  
Contingent consideration 1,211   5,259   4,947  
Deferred consideration 1,516   4,401   2,851  
Other liabilities 248  

-

 

-

 
TOTAL 49,032   71,135   64,897  
LIABILITIES - NON CURRENT      
Borrowings 1   20   34  
Contingent consideration

-

  7,251   6,751  
Deferred consideration

-

 

-

  1,238  
Deferred tax liabilities 2,380   2,832   2,621  
Other liabilities 67   277   267  
TOTAL 2,448   10,380   10,911  
EQUITY      
Share capital 1,085   996   996  
Share premium 16,451   2,678   2,678  
Merger relief reserve 4,430   4,430   4,430  
Retained earnings 133,219   59,260   52,959  
Other reserves 2,692   4,410   3,707  
Investment in own shares (2,241 ) (2,275 ) (2,275 )
TOTAL 155,636   69,499   62,495  
TOTAL LIABILITIES AND EQUITY 207,116   151,014   138,303  
 
   

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine Months Ended Three Months Ended
March 31 March 31
2019   2018 2019   2018
£’000 £’000 £’000 £’000
OPERATING ACTIVITIES
Profit for the period 15,779   14,077   6,314   4,219  
Income tax charge 3,874   3,893   1,290   1,286  
Non-cash adjustments 18,270   4,453   4,965   1,781  
Tax paid (3,641 ) (3,688 ) (730 ) (1,414 )
UK research and development credit received 1,278   1,854   1,278  

-

 
Net changes in working capital (11,271 ) (215 ) (493 ) 2,074  
Net cash from operating activities 24,289 20,374 12,624 7,946
 
INVESTING ACTIVITIES        
Purchase of non-current assets (tangibles and intangibles) (5,153 ) (3,680 ) (1,189 ) (919 )
Proceeds from disposal of non-current assets 33   2   8   8  
Acquisition of business / subsidiaries (net of cash acquired) (3,142 ) (25,423 ) (3,142 ) (8,031 )
Interest received 286   30 160   7  
Net cash used in investing activities (7,976 ) (29,071 ) (4,163 ) (8,935 )
 
FINANCING ACTIVITIES        
Proceeds from borrowings 3,500   22,979  

-

 

-

 
Repayment of borrowings (23,538 ) (28,094 ) (12 ) (14,451 )
Interest paid (280 ) (413 ) (58 ) (210 )
Grant received 1,784   147  

-

  147  
Net proceeds from initial public offering 44,828  

-

 

-

 

-

 
Issue of shares 85  

-

  85  

-

 
Net cash from financing activities 26,379 (5,381 ) 15 (14,514 )
Net change in cash and cash equivalents 42,692 (14,078 ) 8,476 (15,503 )
 
Cash and cash equivalents at the beginning of the period 15,048   23,571   51,044   25,066  
Exchange differences on cash and cash equivalents 1,599   (31 ) (181 ) (101 )
Cash and cash equivalents at the end of the period 59,339 9,462 59,339 9,462
 
   
RECONCILIATION OF ADJUSTED FINANCIAL MEASURES TO COMPARABLE IFRS FINANCIAL MEASURES
 
RECONCILIATION OF REVENUE GROWTH RATE AT CONSTANT CURRENCY TO REVENUE GROWTH RATE AS REPORTED UNDER IFRS:
 
Nine Months ended Three Months ended
March 31 March 31
  2019   2018 2019   2018
REVENUE GROWTH RATE AT CONSTANT CURRENCY 34.4 % 34.6 % 23.2 % 39.6 %
Foreign exchange rates impact 0.9 % (0.4 %) 1.5 % (3.0 %)
REVENUE GROWTH RATE AS REPORTED UNDER IFRS 35.3 % 34.2 % 24.7 % 36.6 %
 
   

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

 
Nine Months Ended Three Months Ended
March 31 Mar 31
2019   2018 2019   2018
£’000 £’000 £’000 £’000
         
PROFIT BEFORE TAX 19,653   17,970   7,604   5,505  
Adjustments:        
Share-based compensation expense 8,690   1,026   3,680   306  
Amortisation of acquired intangible assets 2,609   1,804   857   844  
Foreign currency exchange (gains) losses, net (1,262 ) 545   (121 ) 64  
Initial public offering expenses incurred 1,055   2,472  

-

  1,787  
Sarbanes-Oxley compliance readiness expenses incurred 1,227  

-

  529  

-

 
Fair value movement of contingent consideration 5,805  

-

 

-

 

-

 
Secondary offering expenses incurred 306  

-

  306  

-

 
Stamp duty on transfer of shares 385  

-

  385  

-

 
Total adjustments 18,815   5,847   5,636   3,001  
ADJUSTED PROFIT BEFORE TAX 38,468   23,817   13,240   8,506  
         
PROFIT FOR THE PERIOD 15,779   14,077   6,314   4,219  
Adjustments:        
Adjustments to profit before tax 18,815   5,847   5,636   3,001  
Tax impact of adjustments (3,661 ) (745 ) (1,312 ) (359 )
ADJUSTED PROFIT FOR THE PERIOD 30,933   19,179   10,638   6,861  
 
Diluted EPS (£) 0.29 0.28 0.11 0.08
Adjusted diluted EPS (£) 0.57 0.38 0.19 0.13
 
   

RECONCILIATION OF NET CASH FROM OPERATING ACTIVITIES TO FREE CASH FLOW

 
Nine Months Ended Three Months Ended
  March 31 March 31
2019   2018 2019   2018
  £’000 £’000 £’000 £’000
         
Net cash from operating activities 24,289   20,374   12,624   7,946  
Adjustments:        
Grant received 1,784   147  

-

  147  
Net purchases of non-current assets (tangible and intangible) (5,120 ) (3,678 ) (1,181 ) (911 )
Free cash flow 20,953   16,843   11,443   7,182  
 
   
SUPPLEMENTARY INFORMATION
 
 
SHARE-BASED COMPENSATION EXPENSE
 
Nine Months Ended Three Months Ended
March 31 March 31
  2019   2018 2019   2018
  £’000 £’000 £’000 £’000
         
Direct cost of sales 3,587   686   1,648   205
Selling, general and administrative expenses 5,103   340   2,032   101
Total 8,690 1,026 3,680 306
 
   

DEPRECIATION AND AMORTIZATION

 
Nine Months Ended Three Months Ended
March 31 March 31
  2019   2018 2019   2018
  £’000 £’000 £’000 £’000
         
Direct cost of sales 2,870   2,371   1,011   821
Selling, general and administrative expenses 3,030   2,081   972   944
Total 5,900 4,452 1,983 1,765
 
   

EMPLOYEES, TOP 10 CUSTOMERS and REVENUE SPLIT

 
Nine Months Ended Three Months Ended
  March 31 March 31
  2019   2018 2019   2018
         
Closing number of total employees 5,573 4,700 5,573 4,700
Average operational employees 4,821 3,829 5,012 4,246
         
Top 10 customers % 36 % 43 % 40 % 40 %
Number of clients with > £1m of revenue
(rolling 12 months)
67 42 67 42
         
Geographic split of revenue %        
North America 27 % 19 % 27 % 25 %
Europe 28 % 35 % 27 % 31 %
UK 45 % 46 % 46 % 44 %
Industry vertical split of revenue %        
Payments and Financial Services 53 % 58 % 53 % 54 %
TMT 27 % 28 % 28 % 29 %
Other 20 % 14 % 19 % 17 %
 

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

Source: Endava plc

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