Endava plc (DAVA) Q2 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the Endava Second Quarter and Fiscal Year 2025 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would like now to turn the conference over to Laurence Madsen, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Endava's second quarter of fiscal year 2025 conference call. As a reminder, this conference call is being recorded. Joining me today are John Cotterell, Endava's Chief Executive Officer; and Mark Thurston, Endava's Chief Financial Officer. Before we begin, a quick reminder to our listeners. Our presentation and our accompanying remarks today include forward-looking statements, including but not limited to statements regarding our guidance for Q3 fiscal year 2025 and for the full fiscal year 2025. The impact of headwinds facing our industry and business, our ability to capitalize on market opportunities and trends in our industry, including with respect to development of artificial intelligence or addressable markets, our expectations regarding the impact of our acquisition of GalaxE on our business, our expectations regarding the share repurchase program including our anticipated receipt of shareholder approval for the share repurchase program. Expectation of the effect of Endava's financial condition of claims, litigation, contingent liabilities and governmental and regulatory investigations and proceedings, enhancements to our technology and offerings, demand from clients for our technology services, our ability to create long-term value for our clients, our people and our shareholders, and our business strategy, plans, operations, and growth opportunities. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Please note that these forward-looking statements made during this conference call speak only as of today's date, and we undertake no obligation to update them to reflect subsequent events or circumstances other than to the extent required by law. For more information, please refer to the Risk Factors section of our annual report filed with the Securities and Exchange Commission on September 19, 2024. Also, during the call, we'll present both IFRS and non-IFRS financial measures. While we believe the non-IFRS financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. Reconciliations of such non-IFRS measures to the most directly comparable IFRS measures are included in today's earnings press release as well as the investor presentation, both of which you can find on our Investor Relations site or on the SEC website. A link to the replay of this call will also be available on our website. With that, I'll turn the call over to John.

Thank you, Laurence, and welcome, everyone. Thank you for joining us for our second quarter fiscal year 2025 earnings call. We continue to see a fast changing demand environment with a strong shift from traditional digital transformation services to an AI-led model, what we call the digital shift. In a recent company sponsored survey of 350 tech and business leaders, 98% of senior leaders believe the digital shift has impacted their core business model in the last two years. Almost a quarter goes so far as to say that their organization's mission or purpose has also changed as a direct result of the same. At our Investor Day back in November, we highlighted how Endava is leveraging AI-enabled capabilities like Morpheus and Compass to accelerate client transformations. Interest in these solutions continues to grow and are contributing to our solid pipeline of signed and potential opportunities. That said, these are large scale projects that require greater business case validation and more detailed prototyping leading to less predictable decision making timing and an elongated ideation to production cycle. On the technology front, Gen AI adoption is becoming a key priority for clients. With our hands-on experience coupled with deep industry expertise, we believe that we are in a strong position to cut through the hype that our clients are exposed to regarding AI and to work with them to deliver real business value. We believe the customization of Gen AI for enterprise level delivery should create increased demand for Endava and the broader IT services industry as adoption gathers pace. Implementation of Gen AI solutions requires a fundamental re-architecture, deeper cloud integration, core modernization for full data access, regulatory compliance, security, resilience and cost effective scaling of AI processing demand. Becoming truly AI native does not happen overnight for our clients. It requires thoughtful planning, a clear understanding of ROI and a willingness to challenge longstanding ways of working. We are proud to guide clients as they transform into AI-driven enterprises. Additionally, today we announced our first share buyback program totaling $100 million as we reinforce our commitment to optimizing our capital allocation. And now I'd like to provide you with an update on our recent successes in securing larger and longer-tem deals. On our last earnings call, we explained our focus on these opportunities as a foundation for future growth. This approach has allowed us to refine our strategy, concentrating on the relationships that drive meaningful revenue growth as well as deal size, core proposition and deal structure. The three months since our last earnings call have been marked with exciting wins with new customers as well as extended partnerships with some of our longstanding clients. I'll now share some examples. We are helping a leading global fintech and payments provider refresh their technology stack by tackling technical debt and assisting with their data center migration and consolidation. Using our Ray and Infra accelerators, we are also providing an independent third-party view of risks, opportunities, and strengths of the applications and products they offer to their clients. We also secured a core modernization project with a leading financial institution in North America. In the first phase, we used our Ray accelerator to create a comprehensive inventory of applications, focusing on key outputs, such as modernization paths, a risk model, a prioritization model and a costing model. The second phase will build on these outcomes, delivering deeper application level insights and finalizing the frameworks established in phase one. Using our Maps and Dash accelerators, we expect to develop a detailed modernization roadmap for the organization's core applications, helping them drive transformation with clarity and confidence. These two clients are in our banking and capital markets industry vertical. We are seeing strong growth in this sector, which is up 43.6% over the past 12 months, and these two engagements are illustrative of the scale of spend we can unlock as we apply our accelerators to this space. Moving on to other industries. One of our longest standing customers and a global player in the talent acquisition industry, Alexander Mann Solutions, signed their longest commitment with us, a five-year extension as their key technology partner. This is particularly exciting for us. Whilst we continue to maintain and optimize their critical platforms and services, we are also exploring new ways to expand our partnership driven by our strengths in technology innovation and core modernization. We also extended a multi-year partnership with a major European commodities trader becoming their prime technology partner. Together, we are focusing on providing advanced technology and data engineering solutions to meet the demands of the fast changing global commodities trading markets, including areas like market data, collateral management, trade finance, and pricing. We are also working on several projects for a global healthcare company covering various facets of their operations. This includes providing professional services to build out an innovation hub in India, and we are also working on modernizing their mobile application for clients and providers to improve the customer experience. We continue to win new clients and we are selected as the technology partner for a London-based market insurer in a three-year deal to help with the transformation of their technology operating model and their technology estate. And in the U.S., we launched a campaign targeting an emerging energy industry need. We've just signed Austin Energy, one of several U.S. energy providers we are working with to address a common need to modernize similar legacy technology platforms. We are aiming to secure additional U.S. energy providers as clients for this service. As I mentioned earlier, Gen AI continues to be a major driver of technological advancement. We are seeing ongoing evolution in the space from more powerful models and breakthroughs in model training from both a cost and a technology perspective. To deeper integration into the software delivery lifecycle, advancement in Agentic AI and the increase of available open source models. All of this leads to more choice and options to build exciting solutions for our clients. At Endava, we believe AI is the single most defining technological advance of our lifetimes. It has the potential to change every aspect of our professional and personal lives, and we are already seeing this impact unfold daily. Through cutting-edge innovation, we are guiding our clients on their AI transformation journeys, helping them implement scale and optimize AI to achieve real business value. Let me take you through some examples. In our ongoing partnership with a major global pharmaceutical business, we are working to transform one of their critical clinical code processes where consistent and reliable results are absolutely essential. In an industry where decisions are heavily scrutinized and the AI landscape presents challenges around consistency, the client needed a solution they could fully trust. To address this, we developed an innovative consensus mechanism within our agent framework, a software protocol designed to validate data by cross verifying outputs. This approach significantly enhances reliability. Through multi-shot training, a method that reuses stored data instead of starting from scratch each time, the system is designed to reinforce correct behaviors by capturing the best answers and using them as references for future interactions. Working closely with the client, we are fine tuning the system incrementally, aiming to uncover previously hidden complexities. This process not only improves the solution itself, but also provides the client with a deeper understanding of their workflows, enhancing transparency and control. What is particularly exciting is that this solution has the potential to go beyond the immediate challenge we are solving. It offers a versatile approach that can be applied across a wide range of industries and we are eager to explore how it can create value for others. In another example, we partnered with a multinational insurance provider owned by a private equity fund to help modernize and streamline their operations using AI-driven solutions. Their new leadership team wanted to understand how AI could transform their business, and so together we identified two high impact AI projects and a payment processing flow transformation as key focus areas. Working with the client, we first introduced ChatGPT Enterprise and began training their teams to rethink daily workflows using AI. By focusing first on foundational understanding and personal productivity gains, we aim to build a strong base for broader organizational transformation. Starting at the individual level allows us to lay the groundwork for re-imagining larger processes further down the road. Another recent project was with a leading golf equipment company. They wanted to expand their B2B golfer training business into the B2C space with a direct-to-consumer mobile application. However, existing solutions for golfer swing analysis did not meet the quality and precision standards that they are known for. That's where we came in. Together, we developed a tailored AI solution that brings their renowned training programs straight to consumers. By doing so, the company opened up a new revenue stream whilst allowing customers to benefit from professional grade training programs that were previously too expensive to be accessible. We've also been working with an automotive technology provider, which facing resourcing and time constraints struggle to meet deadlines for developing in-cabin facial identification technology, and scaling its internal synthetic data capabilities. To help the team overcome these challenges, they partnered with Endava as their technology augmentation partner. We stepped in with cutting-edge solutions, conducting R&D and developing a prototype facial recognition solution that pushed technological boundaries. To support their synthetic data needs, we used advanced 3D graphics tools to create tailored assets and provided technical consultation to optimize and streamline their pipeline. This scaled development of pipeline optimization achieved up to a 50% increase in speed, enabling the client to meet project timelines whilst also unlocking greater innovation potential. Following positive feedback, we are now exploring additional opportunities to enhance their workflows and drive long-term success. Also within Endava, the integration of GalaxE is continuing and we are focused on both commercial alignment and a goal of achieving operational excellence. Client satisfaction is core to our service delivery. We completed our latest client satisfaction survey in November 2024, and I'm happy to report that 92% of our participating clients stated that they would be likely to recommend Endava as compared to 91% in April 2024, and 90% stated that they would likely repurchase from us compared to 88% in April 2024. And now moving on to our people. We ended the quarter with 11,668 Endavans on board, which represents a 1.1% increase from the same period last year. Looking forward and based on the current environment, we continue to prioritize recruitment in high demand areas such as around the domains of data, AI, and cloud. In closing, I would like to take this opportunity to thank all Endavans for their commitment and determination as we are navigating the digital shift and discovering the new opportunities that it brings. We will continue to manage the business for the long-term, maintaining our culture and organizational health, and creating exciting technological solutions that empower our clients to thrive. Now, I'll hand over to Mark, who will walk you through our quarterly financial results and offer guidance for the upcoming quarter and remainder of the fiscal year.

Thanks, John. Endava's revenue totaled £195.6 million for the three months ended December 31st, 2024 compared to £183.6 million in the same period in the prior year, representing a 6.6% increase. In constant currency, our revenue increased 9.1% from the same period in the prior year. Profit before tax for the three months ended December 31st, 2024 was £2.5 million compared to £10.6 million in the same period in the prior year. Our adjusted PBT for the three months ended December 31st, 2024 was £21.8 million compared to £22.7 million in the same period in the prior year. Our adjusted PBT margin was 11.2% for the three months ended December 31st, 2024 compared to 12.4% for the same period in the prior year. Our adjusted PBT continues to improve when compared to the 9.9% we reported in Q1 fiscal 2025 due mainly to cost control and we expect a continued margin recovery as we continue to integrate GalaxE and benefit from the optimization effort we took in Q2 fiscal 2025, which I'll comment on shortly. Our adjusted diluted earnings per share was £0.30 for the three months ended December 31st, 2024, calculated on 59.6 million diluted shares as compared to £0.30 for the same period in the prior year, calculated on 58.6 million diluted shares. Our adjusted diluted earnings per share in Q2 was stronger than our previous guide of £0.24 to £0.25 due to improved cost management, largely in indirect costs. We continue our business optimization efforts, which have resulted in an exceptional charge in the quarter of £5.5 million due to headcount reduction. Most of the exits occurred at the end of the quarter and thus this latest round of business optimization has limited impact on profitability in Q2, which should largely benefit future quarters. Additionally, the adjusted tax rate in the quarter was 18.2% down from 21.5% in Q1 FY2025. UK and Romania agreed on a new tax treaty in November, which will exempt Endava from Romania dividend withholding tax once it is fully ratified by both countries. This charge added £0.01 to adjusted EPS in the quarter. The impact against the statutory EPS figure is approximately £0.06. As a result of this tax change, we now expect our adjusted tax rate to be around 18.5% for the remainder of fiscal year 2025. Revenue from our 10 largest clients accounted for 36% of revenue for the three months ended December 31st, 2024 compared to 34% in the same period last fiscal year. The average spend per client from our 10 largest clients increased from £6.3 million to £7.1 million for the three months ended December 31st, 2024 as compared to the three months ended December 31st, 2023, representing a 13% year-over-year increase. In the three months ended December 31st, 2024, North America accounted for 39% of revenue, Europe for 24%, the UK for 32%, while the rest of world accounted for 5%. Revenue from North America grew 32.7% for the three months ended December 31st, 2024 over the same period last fiscal year. Comparing the same periods, revenue from Europe declined 0.6%, the UK grew 1.3% and the rest of the world declined 43.5%. North America was again boosted by the contribution of the GalaxE business, while the decrease in Europe is mainly due to a slowdown of a client TMT and an FX headwind. The decline in the rest of world is due to several clients in various verticals pulling back on projects. Revenue in the payments vertical remains challenged as some of our larger clients continue to reduce spend. We saw a strong pickup in banking and capital markets, driven by some larger projects and expect this vertical to continue growing for the remainder of the fiscal year. Insurance remains another source of strength for us, and we would expect this vertical to continue to grow for the remainder of the fiscal year. In TMT, one of our larger client in media was acquired in Q1 fiscal 2025 and the buyer shutdown our project, which explains in part the continued weakness in that vertical. The decline in mobility revenue is primarily explained by the planned ramp down for one large U. S. client project in the last 12 months. Healthcare revenue growth is primarily explained by the GalaxE acquisition. Our adjusted free cash flow was £31.6 million for the three months ended December 31st, 2024 compared to £34 million during the same period last fiscal year. Our cash and cash equivalents at the end of the period totaled £60.1 million, December 31st, 2024 compared to £62.4 million at June 30th, 2024. Our borrowings totaled £123.7 million at December 31st, 2024 compared to £144.8 million at June 30th, 2024. Capital expenditure for the three months ended December 31st, 2024, as a percentage of revenue was 0.2% compared to 0.8% in the same period last fiscal year. Additionally, as John mentioned earlier, the Board of Directors of Endava approved $100 million share repurchase program as part of Endava's evolving approach to capital allocation. The execution of the share repurchase program is subject to shareholder approval, which we intend to seek at a general meeting to be held on or around March 14, 2025. Before providing the guide, I would like to provide some additional details. Since the end of the quarter, we have seen increased softness in the UK and rest of world regions due to a worsening macroeconomic environment, leading to increased client caution regarding spend, which in turn resulted in unplanned ramp downs on existing projects and delays in our pipeline. Consequently, we are pulling back the revenue and growth outlook. And moving on to the outlook. Our guidance for Q3 fiscal year 2025 is as follows. Endava expects revenue to be in the range of £198 million to £200 million, representing constant currency revenue growth of between 13% and 14% on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of £0.31 to £0.32 per share. Our guidance for the full fiscal year 2025 is as follows. Endava expects revenue to be in the range of £795 million to £800 million, representing constant currency revenue increase between 8.5% and 9% on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of £1.20 to £1.23 per share. This above guidance for Q3 fiscal 2025 and for full-year fiscal 2025 assumes the exchange rates on January 31st, 2025. And the exchange rate was £1 to US$1.24 and €1.20. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Bryan Bergin of TD Cowen. Please go ahead.

Hi, thanks. This is Zach Ajzenman on for Bryan. First question we had is on the outlook. We were hoping that you can maybe go deeper into the underlying assumptions that inform the 3Q guide and the implied acceleration in 4Q sequentially. Just hoping for any more color that you can share on the large deal conversion and kind of what's contemplated there. It sounds like there was a macro downtick in some geos, earlier this calendar year. But just kind of curious what the assumptions are underpinning the March Q and June quarter guide?

Thanks, Zach. Quite a lot to cover there. I think Mark is going to kick off with the underlying assumptions around Q3. I'll pick up some of the things driving the acceleration through into Q4, which is around large deals, so that overlaps.

Yes. So Zach, on the Q3 outlook, as we sort of said in the reduction, there's some macro effects. I mean, basically, North America remains strong for us. Europe is stable with some puts and takes in there, but the UK definitely signed towards the negative side and that's what's really forced a reduction mainly around sort of financials, and similarly sort of rest of world, again, a negative sort of sentiment. If you look at it by industry verticals, banking and capital markets is strong, so good growth there on the quarter. And actually, it's one of our stronger areas as is insurance. Payments stable again, but there is pressure there and puts and takes by geography. On the negative side, though, you do have TMT weakening and mobility. And in terms of the pipeline outlook, that has also had an effect in terms of the judgments that we've made. I mean, John can comment on some of the bigger deal pipeline, which is encouraging. It is going to be timing in that instance. So John, over to you.

–: And then as you get through that, you start to see the revenues ramping through. So we get earlier visibility on all of that happening than is visible in terms of booking revenue coming through. An example of that is, we've been working on a core modernization with a large banking and capital markets client. And that started around two years ago. This time last year, they were spending $1.5 million a quarter with us. It's now 4x that and continues to grow. So looking forward, we see the opportunity for that to grow and we're seeing many other clients progressing down that road. And as at various stages, and as they progress down that road, that informs the forecast that we have going forward. Now some of that's coming in, in Q3, but mitigated by those macro effects that Mark was just taking you through. And outside of further macro, we'd expect to see the acceleration going into Q4.

That's very helpful. And the follow-up is on the large account activity. Can you provide more insight into top client behavior and expectations moving forward? Just kind of looking for any incremental color on the top healthcare client, which actually looked pretty strong sequentially. And then some of the volatility called out on the larger payment customer side, we're just hoping to dig in a little bit further as to what some of those conversations and interactions have been more recently.

Yes. So where we're seeing the strength is in the AI-driven, core modernization-driven space. So you see that with the healthcare client that was a GalaxE client, where they've been doing core modernization work using their accelerators for years now. And that work continues to flow through with that client and is giving growth there, which you've picked up in the numbers. As you look at payments and the BCM space, they're contrasting stories. The payments side, which to be clear is focused on the payments processes as clients, continues to decline a little. It's much more stable than it was, if you look back a year ago when it was declining quite fast. But there's still a slow decline in that space. That is contrasted by very strong growth in the banking and capital market space. Now the reason I highlight the two next to each other is some of that is payments work that we are doing in the banking and capital market space where banks are investing in their payments infrastructure. But that isn't visible as payments work because it's part of a banking organization on being a payments processor. So we continue to see demand for our payments capabilities, but it's more appearing alongside many other things in the Banking and Capital Markets segment. And a lot of that is core modernization related. I just gave the example a moment ago of one large bank in North America where they're ramping up with us in terms of the spend. And we're seeing huge interest in the banking space around that capability and expect that to be a leading sector for us in adopting our capabilities in core modernization.

Appreciate that color.

Thank you, Zach.

The next question comes from Tyler DuPont of Bank of America. Please go ahead.

Hi, good morning. Thanks for taking our questions. I just want to also start with a demand related question. It sounds like some of your clients are continuing to either delay or ramp down projects. Can you maybe just discuss the visibility you have into calendar 2025 budgets given we're, I guess, sort of near the end of February and budgets tend to be set around this time, I guess, both on an absolute basis and versus this time last year?

Yes. So I mean, we're still seeing budgets get settled down. I think part of the reason for that is what I was picking up on earlier around our core modernization approach, which is where we're seeing a lot of demand, that AI-driven approach to core modernization, is pretty new in the market. It's a pretty unusual and unique proposition that we have. And so clients not knowing that that is available and having confidence in it until they've done the proof of concepts and so on are not sitting on budget going we're expecting to do this piece of work. The opportunity to do the work opens up as they understand the art of the possible. And so with some clients, we're seeing them shape that into their budgets. With other clients, we're still seeing them shuffle budgets around and look for budget in order to get these programs underway. So that maybe specific to where we are with our capabilities and the conversations we're having with clients, which as we all know is more around the discretionary spend space of what's really going to drive change in client organizations.

Okay. That's helpful. And then just as a follow-up, I want to ask about any potential pricing conversations you're having. As we're still given the continued malaise in spending, particularly on the discretionary side, are you having to engage in more meaningful pricing conversations to sort of compensate for that pullback, if you will? And if so, sort of where are those more pronounced versus others? Just any clarity there.

I mean, we're actually seeing a slight improvement in pricing. I mean, this is measured on a sort of average revenue per workday and indeed on a revenue per head basis. I think most of it is us actually recovering inflationary driven sort of rises. But we're also, I think, seeing some benefits from the productivity we're achieving on some of our outcome based deals. I think the core modernization, I think as we land those bigger deals, they'll be multi-year and will be around us extracting sort of efficiency. So they will play very much to productivity sort of play and our use of our accelerators that we've called out, Ray and Dash, as well as the AI, Morpheus and Compass.

Understood. Thank you very much.

Thanks, Tyler.

Our next question comes from Jonathan Lee of Guggenheim Partners. Please go ahead.

Great. Thanks for taking our questions. As you think about some of the recent ramp downs and softness driving the revised outlook, were those more broad-based across your client base? Or are you expecting any incremental challenges with some of your large customers?

They have been relatively broad-based. I mean, they've been more noticeable for the geographies that we sort of called out in the UK and rest of world. I guess given our exposure to financial services is where we've seen most of it. But it's not – we can't point to one sort of client or a very specific instance what has caused it. It's general sort of softness, which we think is certainly, let's call it macro-driven, certainly the UK. I can certainly vouch for that at the moment. And we are hearing also about softness Asia Pacific more particularly sort of Australia. So we have seen some of these unnotified ramp downs. Obviously, we get the notice, but they – we haven't seen them coming and the reasons are typically sort of budget pressures or uncertainty, which I think is macro-driven.

Understood. And again, in the context of ramp downs, I mean, how should we think about the pace of hiring going forward for the remainder of the year, especially given the sequential ramp that you're seeing in fiscal 4Q?

So I think with Q3 coming up, we'll see sort of the headcount step down on an average basis when we report the number in May. But actually given the sequential increase that we're seeing, it's implied by the back end Q4. I think it's growth of between organically about 4%, 6% year-on-year, we will start to recruit to make that happen. So you will see headcount start to build maybe towards you, but you won't see it, I don't think, towards the end of March. But certainly, we will build headcount as we go through the fourth quarter to June.

I'd just add to that. There's a bit of rotation of skills that are going on as we go through this digital shift. And that's a little bit of a rotation towards higher value. So I'd expect headcount to be growing slower than the revenues we look for.

Yes, absolutely.

Got it. Thanks for the detailed commentary there.

Thanks, Jonathan.

The next question comes from James Faucette of Morgan Stanley. Please go ahead.

Hey, guys. Thanks for the question. It's Antonio on for James Faucette. I wanted to ask more on the GalaxE acquisition. How far along are you in that process as far as like integration? And what is baked into that increase in, I mean, like profitability that you're expecting in the back half of the year?

So we're well progressed. Certainly from a systems perspective, we aim to cut over the end of this month and derive our financials, so our operating systems financial systems will be locked. We are currently working in a joint manner on propositions with the core modernization proposal that we have out in the marketplace. As we're getting closer to integration, I think there will be further opportunities for cost optimization. We are focused more on G&A in the initial sort of stages, but as the two organizations come more closely together, I expect more to come from it. So slowly, we are improving the profitability at GalaxE. We bring the two organizations together. And I think there'll be more further actual opportunity for that actually into FY2026 for us as we get closer and closer aligned and build on the core modernization prop together.

Got it. That's helpful. And then as a follow-up, I just wanted to ask on your bench dynamic and the rate of like utilization and how that's trending both onshore and offshore? Thank you.

Bench is stable. It's low by historic standards for us. I think we're operating at around, I think, 6%, 7%. I think we will operate at that level subject to this sort of integration further with GalaxE. We expect utilization to move up modestly from where we are at the moment. It's reasonably high for us by historic standards, but actually I think we're getting more effective and efficient, and I think it's through adopting some of the tools that we've outlined. We're not making any significant step change because of the use of AI, which we are rolling out across the company. But we see sort of modest improvements from utilization towards the end of this fiscal.

Got it. Thank you for the color guys.

The next question comes from Maggie Nolan from William Blair. Please go ahead.

Hi, everyone. It's Kate Kronstein on for Maggie. Thanks for taking my question. My first question is you guys mentioned the continued focus on hiring for AI and data skills and you also talked about the digital skill shift going on in the market. Can you talk a little bit more about what you're seeing in the hiring market right now and how you feel your access to this talent has evolved over the past year?

Thanks, Kate. Yes, so we've got a big program going on around what we call being AI native. And we would define that as being everyone using generative AI in their daily work, and I emphasize the word daily, so that you're seeing people use it just as part of how they operate. Now a lot of what we're doing in that space is transitioning Endavans into the AI space as opposed to just recruiting new talent in the market. Everyone has gone back to the start line from an AI point of view just over two years ago. And so actually the best way of us moving forward is actually to equip our people and retrain them. If you look at the ChatGPT licenses that we have out there, because we have an enterprise license across the organization. We're seeing 80% of those being utilized on a daily basis now. And across all Endavans, we're at about 60% mark, where people are using it in their daily work. The reason for the difference being is some of our people are on client environments and the clients haven't made Gen AI available to them yet, although we are seeing progression in that direction. So the big push is on developing our own people through training, through the Endava University and so on, and we're seeing rapid progress there. We are bringing people in, particularly around the data, data science space, but also where we find a few people who've gone further down the road in the use of AI, for instance, in the Agentic AI space and so on, we snap those people up as well where possible. We're just moving as fast as we possibly can into making AI completely ubiquitous across the organization.

Great. That's super helpful. Thank you. And then can you guys hit a little bit on the $5 million restructuring charge that you took during the quarter and actions that you're taking to improve overall efficiencies in the business?

Yes. So we took out around below 200 people just before Christmas, split between direct and indirect. Quite a bit of this is actually anticipating the integration with GalaxE, as I said earlier, we certainly do our systems switch at the end of February. So it was very much focused on removing any sort of duplication and trying to simplify ahead of further integration that will happen from that point forward. I think there will be further opportunities to take out costs, whether it will be at this level. It's hard to say until we are fully on the systems and fully understand the delivery models on both sides. But I think we will continue to be vigilant on cost basically, given we still have this uncertainty from a macro perspective.

Great. Thank you both.

Thank you.

Our next question comes from Jamie Friedman of Susquehanna. Please go ahead.

Hi, good morning, good afternoon. I was just wondering if you could talk about what you're thinking or contemplating in terms of revenue realization, meaning like the revenue per headcount because some of the companies are now seeing revenue grow faster than utilized headcount. So revenue is growing faster than utilized headcount, right? So it's apples-to-apples. So any comment on the revenue per headcount at this stage?

Thanks, Jamie. I think it will improve basically as we were saying, because we're seeing pricing moderately improve. So if you think about that in terms of the workdays that we're delivering, I mean, we're still predominantly time and material, although we will increasingly sort of ship with our larger contracts to potentially more outcome based. But for the near-term, we're time and material. So there is a heavy linkage with the workdays delivered. We are seeing some pricing improvement. So with a modest improvement in utilization, which again is what we're seeing through the adoption of the tools that we have internally, we will see that revenue per head move up. It is modest, but it is moving up. So I guess with us, I think if you were trying to sort of do a headcount revenue growth, what's the right linkage, you will see us run a little bit hot, I think, towards Q3, Q4. But I think going forward, if that linkage with headcount and revenue holds true, which I think will change actually as the big deal sort of come in, you would then start to see us recruit at the same rate.

Okay. Thank you. And then in terms of the concerns, Mark, that you're mentioning with regard to the macro in the UK, could you just elaborate on that? When did that start or is that more the same? And to what extent is it contemplated to weigh on the guidance?

It does weigh. We basically saw it through January, February. I guess it's not followed the UK. Economy that closely in the U.S, but the inflation is difficult, growth is difficult. There is some uncertainty in terms of the outlook. We've definitely seen that being a factor in clients being more cautious. So they are delaying the speed at which things progress, but also they are, in some cases, ramping down existing work and a similar position in rest of world. So it's something that has materialized as we've crossover from the end of December into January, February.

Great. I'll drop back in the queue. Thank you.

Thanks, Jamie.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. John Cotterell for any closing remarks.

Thank you, and thank you all for joining us today. As I mentioned in my prepared remarks, we are continuing to see excitement in the market about AI-enabled capabilities, such as Morpheus and Compass on the core modernization side and progress on closing deals and initiating those ramps into production. But I just want to reemphasize these are large projects with longer sales cycles and slower paths to scale. And so whilst we're seeing that coming through, it will take a while to reach revenue. The adoption of Gen AI is becoming more top of mind for clients. And with our hands on experience with this technology, we think we're in a strong position to cut through the hype and focus on delivering tangible benefits from the technology, which is backed up by our deep industry experience. So I look forward to speaking with you all at our next earnings call in May. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.