What happened
Tech consulting company Endava (NYSE: DAVA) reported quarterly results that met expectations, but it forecasted weaker-than-expected results in the quarters to come. Investors were not pleased, sending shares of Endava down as much as 15% in Tuesday trading.
So what
Endava is a United Kingdom-based consulting firm that specializes in helping large corporate clients keep pace with tech advancements. It is a lucrative niche, helping the company to post market-beating returns since its 2018 initial public offering.
The company's fiscal second quarter came with few surprises. Endava earned 0.57 pounds per share in the quarter on revenue of 205.2 million pounds. Those figures matched analyst expectations, and represented growth of 23% and 30%, respectively. Revenue grew by 23.4% on a constant-currency basis, adjusting for the strong U.S. dollar.
"Endava reported another solid quarter for Q2 FY2023 as demand for our services across all regions and verticals in which we operate remained healthy," CEO John Cotterell said in the earnings press release. "Even with the global economic uncertainty, digital transformation remains a priority for our clients, and they value the transformation services we are delivering."
Endava continues to grow. Head count reached 12,183 at year's end, up from 10,391 a year prior, and the number of clients doing at least 1 million pounds in revenue per year was at 156 as of Dec. 31, compared to 107 on the last day of 2021.
As the company grows, it is also diversifying: Endava's top 10 clients accounted for 31% of total revenue in the most recent quarter, down from 34% in the same period last year.
Now what
Cotterell mentioned global economic uncertainty, and it does appear the uncertain macro environment could be weighing on corporate clients and slowing growth in the quarters to come. Endava said it expects to report earnings of between 0.52 pounds and 0.54 pounds in the current quarter on revenue of between 201 million pounds and 203 million pounds. The estimates are below the 0.61 pounds per share in earnings on sales of 216 million pounds that analysts had expected.
Similarly, projections for the full fiscal year are a little short of expectations.
Endava is still growing, is free cash flow positive, and has more than 185 million pounds in cash and equivalents on its balance sheet to help it weather any slowness. For long-term investors, the demand for Endava's services from large corporate clients who fear going the way of the dinosaur should remain strong for the foreseeable future, and there is nothing in the results to suggest the company is having trouble fulfilling its promise to its clients.
The issue is how fast that growth will come in the next few quarters. For those able to look beyond the current weakness, Tuesday's drop looks like a buying opportunity.
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Lou Whiteman has positions in Endava Plc. The Motley Fool has positions in and recommends Endava Plc. The Motley Fool has a disclosure policy.
