Endava PLC

NYSE:DAVA

Q4-2025 Earnings Call

[Operator]

Good day, and welcome to Endava's Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions] This event is being recorded.

I would now like to turn the conference over to Ms. Laurence Madsen, Head of Investor Relations and ESG at Endava. Please go ahead.

[Laurence Madsen, executive]

Thank you. Good afternoon, everyone, and welcome to Endava's Fourth Quarter and 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 accompanying remarks today include forward-looking statements including, but not limited to, statements regarding our guidance for Q1 fiscal year 2026 and for the full fiscal year 2026, the impact on headwinds facing our industry and business, our ability to capitalize on market opportunities and trends in our industry, including with respect to the development of AI, enhancements to our technology and offerings, our pipeline of client opportunities and our ability to convert such opportunities into contracted orders, the benefits of our partnerships, our pricing models, demand from clients for technology services, our ability to create long-term value for our clients, our people and our shareholders and our business strategies, 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 4, 2025, and in other filings that Endava makes from time to time with the SEC.

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.

[John Cotterell, executive]

Thank you, Laurence, and welcome, everyone. We appreciate you joining us for our fourth quarter and full fiscal year 2025 earnings call.

For 25 years, Endava has delivered as an agile native and digital native solution provider. We are now undertaking a deep cultural and operational shift becoming AI native. This transition is driven by our ongoing commitment to evolving our delivery model, forming new alliances, redesigning client engagements around domain expertise, adopting modern AI-oriented architectures and institutionalizing rapid experimentation.

Our scale, large enough to drive meaningful change yet compact enough to stay agile, allows us to execute the transformation without the inertia that hampers far bigger organizations. We're making good progress on our shift towards becoming AI native, and are seeing results, which I will highlight shortly.

Client commitment to transformative technology is undiminished, which is reflected in our growing pipeline of opportunities. The conversion from the pipeline of opportunities to signed orders picked up in Q4, where we saw our highest ever order book value signed, leading to FY '25 being our highest order book value signed on record.

We believe this shows the strength of our customer relationships and the attractiveness of our transformative offerings. Despite the increase in the order book, the short-term operating backdrop remains volatile, and many clients continue to recalibrate the timing of spending, and therefore, our outlook remains cautious.

AI continues to be a strategic focus for many of our clients, and we have now passed the point where over half of our people use AI in projects. Endava is currently supporting multiple engagements aimed at evaluating, implementing or scaling AI capabilities. The following are select examples from recent project activities.

For a leading U.S. health care services provider, we're scaling an AI-driven document processing platform that currently processes over 40 million medical records annually. The platform operates using a 4-stage Gen AI pipeline comprising standardization, data extraction, parsing and summarization, and integrates calibrated confidence scoring with a human-in-the-loop sampling mechanism to maintain measured precision and recall levels of 95%.

This system is designed to minimize per document cost while preserving accuracy. The operational design targets automation that reduces risk exposure for health care payers and providers. Current performance benchmarks indicate a sustainable reduction in processing cost per document, supporting long-term scalability and operational efficiency.

With a Tier 1 global automotive supplier, we completed development of an in-cabin driver identification prototype. The machine learning models were trained using a combined dataset of synthetic and real-world video captures of in-cabin driver monitoring. Performance benchmarking was conducted across multiple models, picked to match the target hardware, with results meeting current state-of-the-art standards. Following prototype completion, the engagement has entered the customer validation phase. This includes integration into the vehicle's driver monitoring system, a prerequisite for the supplier's product deployment.

In partnership with the research arm of a hyperscaler, we're exploring how creators can retain artistic control while working alongside generative AI. Our team built an image generation tool designed to improve visual fidelity compared to default models, underscoring the value of thoughtful human in the loop design. Deployment of the tool on the partner's infrastructure is now underway. The current road map includes expansion of the models control services and customization features to support a broader set of creative use cases.

As I mentioned on our last earnings call, we are accelerating the pace of partnership expansion to enhance our solutions and further strengthen our value proposition. These partnerships are already contributing to deal flow and delivering opportunities.

Our partnership with OpenAI continues to strengthen, and resulted in a further expansion of internal technical capabilities. In June, Endava engineers and the team at OpenAI held a technical workshop focused on the Model Context Protocol, or MCP, responses API and Codex tool chain. The session included direct sandbox experimentation, open roadmap discussions and direct feedback loops. The event strengthened our progress towards AI native delivery capability and informed a joint enablement and road map.

As part of our partnership, our joint go-to-market collaboration with OpenAI progressed on 3 fronts: first, we supplied comprehensive insurance sector pipeline data through the new shared tracking system to tighten deal tracking governance. Second, we developed cross-vertical playbooks that translate open AI's agent-based frameworks into standard offerings for U.S. retail and supply chain clients. And third, we established a quarterly training cadence to keep Endava's delivery teams steadily building these capabilities.

Importantly, our strategic partnership with OpenAI has resulted in client acquisitions. Between April and June of this year, the partnership supported multiple client engagements. Here are some examples. An Endava sourced lead successfully converted a leading financial compliance technology provider into an enterprise customer for OpenAI Enterprise GPT. We are now orchestrating a company-wide rollout beginning with legal, marketing and customer support. The engagement includes the building of custom GPT extensions designed to integrate directly into department-level workflows. Initial performance benchmarks show an approximate 25% reduction in document review time. These results are being used to inform expansion plans across additional departments.

Together with OpenAI, we've secured a new engagement for a leading global specialty insurer to implement agentic data to value ingestion for processing complex [indiscernible] files. The engagement also includes joint visioning sessions on an AI-enabled operating model for insurers. And following an introduction from OpenAI, we are undertaking a project for a leading global reinsurer that deploys autonomous AI agents to understand, classify and ingest incoming submission data. Learnings from this project are to be used to drive the design of a new AI native architecture for the clients' business, replacing the legacy systems currently in place.

We're engaged in enterprise scale AI initiatives with both AWS and Microsoft. We are co-creating solutions that integrate generative AI to transform operations and customer experiences across sectors. These engagements reflect alignment between Endava's delivery strength and our partners' cloud native AI platforms.

In collaboration with Google Cloud, Endava is contributing to the advancement of Agentic AI. We are actively engaged in more than 30 agent-based projects across multiple geographies. These initiatives are focused on regulated sectors, including banking and other highly regulated industries. These projects are structured around the design and evaluation of production-grade AI systems with emphasis on safety and measurable operational impacts.

We've been named a premier partner in Adient's newly launched global partnership program. This designation reflects Endava's track record of delivering integrated payment solutions in collaboration with Adient across the commerce, financial services and digital native businesses.

I'd now like to provide an update on our large strategic deals, defined as multiyear large-scale engagements. The total value of our pipeline of potential large opportunities has grown. Additionally, we are increasing the number of large projects with flexible pricing structures tied to meeting deadlines, achieving required features or functions or delivering a consistent high velocity. These new pricing models build on our long-standing ability to deliver quality at speed, and are designed to support both our customers and ourselves.

For example, in the payments vertical, Endava has begun engaging with some customers based on a transaction-based pricing model, where clients are offered the ability to pay for our services on a fee per transaction basis. Endava signed an extension of its partnership with Mastercard to support real-time payments. The agreement reinforces Endava's role in supporting Mastercard's live market critical services and reflects an expanded scope of collaboration.

We also signed a 5-year agreement with Reed Exhibitions, RX, a global event organizer and part of the RELX Group, following a competitive tender process. Endava replaced the incumbent provider, and the scope of the agreement is focused on supporting RX's global technology operations over the medium to long term. RX cited Endava's focus on automation, issue prevention and service model adaptability as key differentiators against other vendors, including traditional providers that primarily offer resource-based delivery from low-cost regions.

RX highlighted Endava's use of agile-based support models, observability tools and AI-enabled service test functions as contributing factors in the selection process. The RX engagement reflects an enterprise shift from the transactional outsourcing model to a structured outcome-driven technology operation.

Additionally, our collaboration with a leading financial institution in North America is gaining momentum. The client has now appointed us as a preferred supplier in the area of enterprise professional services, covering artificial intelligence and automation, application development and technology advisory. This expanded mandate further solidifies Endava's standing as a strategic vendor and trusted partner within the banking and financial industry.

Moving to the important shifts resulting from the growth of Agentic AI. We are developing the next generation of software delivery life cycle, with a shift towards Change Delivery Life Cycle, or CDLC for short, where intelligent software agents work side-by-side with our engineers. This is needed because truly leveraging Agentic AI requires a delivery approach that pushes past traditional agile ceremonies that embraces the autonomy of AI agents and their ability to learn and adapt.

Instead of linear integration, AI agents demand continuous oversight, guardrails and adaptive governance to ensure safe, reliable outcomes. Our new approach replaces discrete project phases with one continuous stream of change. Every feature, fix or enhancement flows from idea to production with outpours. Internally, we created a program driving this change, serving as Endava's early adopter initiative that equips a growing cohort of engineers to apply Agentic coding tooling, including OpenAI's Codex and Windsurf's cascade.

While the program is still in its initial deployment phase, it is already being used on real client work, and we are recording clear gains in speed, quality and cost. We've seen tasks that took days being completed in minutes and regularly see up to 10x productivity improvements. We call this new delivery framework Endava Flow, a lean pull-based operating model that is designed to propel a stream of change, remove friction and release value the instant it is ready. Pilot engagements using this approach are already underway with throughput, lead time and quality metrics informing wider rollout. Collectively, these initiatives position agent technology at the core of Endava's long-term operating model transformation, driving higher productivity and faster change delivery.

By powering talent enablement with our CDLC-driven Endava Flow, we are cultivating delivery environments where AI agents and human engineers work side by side safely and at scale. This capability places Endava amongst the select group technology services firms able to operationalize AI across the entire software life cycle.

Moving now to our continued commitment to creating a positive impact for our people, clients and the communities in which we operate. Today, we published our We Care Sustainability Report for the fiscal year 2025, our fifth consecutive year of sustainability reporting.

As announced in July, we had some leadership changes, including my assumption of additional operational responsibilities for the sales and go-to-market strategy, following the retirement of Julian Bull, our former Chief Operating Officer. Alastair Lukies CBE, also joined us as Chief Engagement Officer, and he is responsible for chairing our new Global Advisory Board, whose members bring a wide experience across industries and regions, reflecting the breadth of the technology industry today. And finally, Rob Machin has returned as Chief People and Locations Officer, succeeding David Churchill.

While strengthening our leadership team, we have also continued to adapt the size and shape of our workforce to align with market demands. As of quarter end, we were 11,479 Endavans strong, representing a 5% decrease from the same period last year. We continue to prioritize recruitment in high-demand areas, including data, AI and cloud to match the evolving needs of our clients.

In closing, I want to thank all Endavans, for your unwavering commitment and determination as we move through this era of digital change and uncover the opportunities it presents. We are committed to sustainable growth, to safeguarding the culture that makes us unique and to delivering solutions that enable our clients to lead with confidence in a rapidly evolving world.

And with that, I'll hand over to Mark for a closer look at our quarterly and annual financial results and guidance for the upcoming quarter and the new fiscal year.

[Mark Thurston, executive]

Thanks, John. Endava's revenue totaled GBP 186.8 million for the 3 months ended June 30, 2025, compared to GBP 194.4 million in the same period in the prior year, representing a 3.9% decrease. In constant currency, our revenue decreased 0.7% from the same period in the prior year.

Profit before tax for the 3 months ended June 30, 2025, was GBP 3.8 million compared to a loss of GBP 0.4 million in the same period in the prior year. Our adjusted PBT for the 3 months ended June 30, 2025, was GBP 16.4 million compared to GBP 14.9 million for the same period in the prior year. Our adjusted PBT margin was 8.8% for the 3 months ended June 30, 2025, compared to 7.7% in the same period in the prior year.

Our adjusted diluted earnings per share was 24p for the 3 months ended June 30, 2025, calculated on 56.2 million diluted shares as compared to 22p for the same period in the prior year, calculated on 58.8 million diluted shares.

Revenue from our 10 largest clients accounted for 37% of revenue for the 3 months ended June 30, 2025, compared to 34% for the same period last fiscal year. The average spend per client from our 10 largest clients increased from GBP 6.7 million to GBP 6.9 million for 3 months ended June 30, 2025, as compared to the 3 months ended June 30, 2024, representing a 2.8% year-over-year increase.

In the 3 months ended June 30, 2025, North America accounted for 38% of revenue, Europe for 23%, the U.K. for 33%, while the rest of the world accounted for 6%. Revenue from North America decreased 5.3% for the 3 months ended June 30, 2025, over the same period last fiscal year, due mainly to FX movements. Comparing the same periods, revenue from Europe declined to 13.1%, due mainly to weakness in the TMT and Mobility verticals. The U.K. grew 5.9% and the rest of world declined 5.8%.

Our adjusted free cash flow was a negative GBP 4.0 million for the 3 months ended June 30, 2025, compared to a positive GBP 6.6 million during the same period last fiscal year. Our adjusted free cash flow in the quarter was mainly impacted by an agreement to extend our relationship with an existing key client. As part of securing the contracts, we agreed improved terms of trade for them, which resulted in payments for work performed in FY '25 being delayed into Q1 FY '26.

Our cash and cash equivalents at the end of the period totaled GBP 59.3 million at June 30, 2025, compared to GBP 68.3 million at March 31, 2025, and GBP 62.4 million at June 30, 2024. Our borrowings totaled GBP 180.9 million at June 30, 2025, compared to GBP 136.5 million at March 31, 2025, and GBP 144.8 million at June 30, 2024.

Capital expenditure for the 3 months ended June 30, 2025, as a percentage of revenue, was 0.9% compared to 0.8% in the same period last fiscal year.

I'd now like to move on to some highlights for our fiscal year 2025. Endava's revenue totaled GBP 772.3 million for the fiscal year ended June 30, 2025, compared to GBP 740.8 million in the previous fiscal year, a 4.3% increase over prior year. In constant currency, our revenue increased 6.3% from the prior year.

Profit before tax for the fiscal year ended June 30, 2025, was GBP 24.1 million compared to profit before tax of GBP 27.0 million in the prior year. Our adjusted PBT for the fiscal year 2025 was GBP 82.1 million compared to GBP 83.0 million in the prior year. Our adjusted PBT margin was 10.6% in fiscal year 2025 compared to 11.2% in the prior year.

Our adjusted diluted earnings per share was 113p for the fiscal year 2025, calculated on 58.9 million diluted shares as compared to 112p for the previous fiscal year, calculated on 58.7 million diluted shares.

Revenue from our 10 largest clients accounted for 36% of revenue for the fiscal year 2025 compared to 32% for the previous fiscal year. The average spend per client from our 10 largest clients increased from GBP 24.1 million to GBP 27.9 million for the fiscal year 2025 as compared to fiscal year 2024.

In terms of geographies on a year-over-year basis, revenue from North America increased 21.9%, due mainly to the contribution of GalaxE. Europe decreased 5.5%, due mainly to the payments and TMT verticals. The U.K. increased 2.8%, due mainly to an increase in banking and capital markets. And the rest of world was down 29.7%, due to decreases across most verticals, partially offset by growth in payments.

On a year-over-year basis, revenue from payments decreased 19.0% due to a reduction in the pace of activities for certain large clients in the U.K. and North America. Banking and Capital Markets increased 37.4% due to a mix of organic growth and the impact of the GalaxE acquisition. Insurance increased 12.1% due mainly to growth in the U.K. and North America. TMT decreased 13.2% due to reduced activity in media across all geographies and telecommunications in North America, partially offset by an increase in technology. Mobility decreased 11.7%, primarily due to lower activity in the travel sector across most geographies. And Health Care increased 103.8% due mainly to the GalaxE acquisition and Other increased 0.8%.

Our adjusted free cash flow was GBP 48.7 million for the fiscal year ended June 30, 2025, compared to GBP 58.4 million during the same period last fiscal year. Capital expenditure for the fiscal year ended June 30, 2025, as a percentage of revenue, was 0.6% compared to 0.7% in the last fiscal year.

Now an update on our share repurchase program. Endava has repurchased approximately 6.7 million ADSs for $111.2 million as of August 29, 2025. As of August 29, 2025, $38.8 million remain for additional repurchase under the authorization.

Before providing the guide, I'd like to remind everyone that as stated during our Q3 FY '25 earnings call, we are utilizing a stricter guidance methodology, under which revenue from any unsigned large opportunity in the pipeline is excluded until the related statement of work is executed and delivery has begun. The current outlook, therefore, recognizes 8 recently signed multiyear agreements.

At the same time, we are increasing investment in the Change Delivery Life Cycle program that John mentioned earlier. This initiative is projected to raise operating expenses, and thus impact adjusted gross margin and adjusted SG&A. Because of any productivity gains from the program are not yet certain, no margin improvement has been credited in the guidance. In addition, reinstating the company-wide bonus scheme is expected to also negatively impact margins. We believe these expenses will impact our adjusted PBT margin by 3% in FY '26.

Now moving to our outlook. Our guidance for Q1 fiscal year 2026 is as follows: Endava expects revenue to be in the range of GBP 181 million to GBP 183 million, representing constant currency revenue decrease of between 6% and 5% on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of 17p to 19p per share.

Our guidance for full fiscal year 2026 is as follows: Endava expects revenue to be in the range of GBP 750 million to GBP 765 million, representing constant currency revenue change of between minus 1.5% and plus 0.5% on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of 82p to 94p per share.

This above guidance for Q1 fiscal year '26 and the full fiscal year 2026 assumes exchange rates on August 31, 2025, when the exchange rate was GBP 1 to USD 1.35 and EUR 1.15.

This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.

[Operator]

[Operator Instructions] And your first question comes from Bryan Bergin with TD Cowen.

[Bryan Bergin, analyst]

I guess the first one, as it relates to 2026 growth guidance, I want to just try and reconcile that with the strong order book commentary that you have here in 4Q. Are these engagements kind of stuck in backlog and the work is just not commencing or is there a base business that's running off that's more than offsetting the new work scaling? Just help us, how do we match that order book strength in 4Q with the '26 growth view?

[John Cotterell, executive]

Thanks, Bryan, and good morning. We are in New York. The order book that's coming through is a mixture of renewal work, but then a good amount of new business layered on top of that. Now the new business element takes a while to ramp into revenue, either because the projects in the early stage are running with smaller teams before we get into the full ramp-up as delivery gets into full flight. Others are -- there is just a delay in terms of when the revenue starts. For instance, one of the larger deals was in order book in Q4, but revenue is H2 in 2026. So we're pulling all of that together in terms of the guidance that we're giving.

Mark, I don't know if you want to say anything about that?

[Mark Thurston, executive]

I think that's right. We have a few deals, a couple where they have a step change in nature from quarter-to-quarter. There's a good mix where I'll call it, extensions of existing work, so there's no real change in sort of run rate, and then others where you get a gradual build over the course of the year.

[Bryan Bergin, analyst]

Okay. Okay. And then maybe, Mark, on the margin side, as we bridge the growth to the EPS outlook, you mentioned investments there. I think I heard 3 points effectively of adjusted PBT margin headwind. Can you kind of just give some finer points as you're projecting the year PBT margin as you go through the quarterly progression of '26?

[Mark Thurston, executive]

Sure. I mean the -- if I sort of go through, say, the bridge from Q4 to Q1, so we are actually on an adjusted basis at 30.4%, reinstating the bonus for Endava because there was no bonus paid last year or the year before, takes about 1% off. And the AI investment is at a further 1% off as well. So there is an underlying sort of improvement, but those investments are weighing on the adjusted gross margin so that we're seeing a reduction in overall gross margin of about 1% which I think will be consistent through Q1 and Q2, and then we will start to get a little bit of leverage in it.

The other impact is also in G&A, which tends to be -- there is a bonus element to it, but it is mainly, again, through the investment in AI, and that's about 1% as well. So there's a 3% depreciation in the adjusted PBT margin from Q4, about 8.8% to about 7% or so. And that directly impacts the EPS where we were 24 in Q4, takes about 5p off. There's some movement maybe to draw your attention to in terms of the tax rate is moving up. So the tax rate that we ended at FY '25 was around 17 -- sorry, was around 19%. It's pretty low actually in Q4, but it will move up to 21% due to the shift in profitability to higher tax jurisdictions. And then the result of the buyback has reduced the number of shares also outstanding. So there's going to be a dip that we'll see through the course of FY '26. But the increased tax rate and the reduction in the number of shares basically have offset the EPS level. So the EPS story is mainly about adjusted PBT margin and the investments that outlined in the preamble to the call.

[Operator]

And your next question comes from Jonathan Lee with Guggenheim.

[Yu Lee, analyst]

It looks like total clients declined to 619 from, call it, 656 prior. Can you help us unpack what you're seeing there, especially on the back of incremental new logos from your developing partnerships?

[Mark Thurston, executive]

The total number of clients is a trading figure. I think in the quarter, we had some net additions. But obviously, for it to come down on a sort of -- it's a rolling 12-month figure, we've had some lost clients, which outweighed it. So that's a trim as a statement. I think the clients that have reduction are usually very sort of small and they are dropping out revenue in, say, 4 quarters back.

The sort of pattern is it's across most sort of geographies. There's no one particular geography where it's decreasing. It's -- as you'd suspect, it's more strongly in payments than from a vertical perspective. The net additions, though, again, they're sparse, but there's more strength in DCM, which is one of our better growing segments and also in the other sort of category in TMT. So it's a bit of a mixed picture. I think payments is weighing on those client numbers.

[John Cotterell, executive]

Jonathan, we are expecting to continue to see some of this because part of it is tidying up the tail where we've had a long tail of very small clients. And actually, the cost of operating those clients is prohibitive compared to the revenue that comes through. And so that's a trend that you've been seeing over the last few quarters as we've been looking to tidy that up. Even although there's a small negative impact on revenue at a time where we don't need it, we see it as the right business choice for us at the moment to tidy up that tail.

[Yu Lee, analyst]

Understood. Can you decompose organic growth in the quarter and sort of how you're thinking about that versus prior quarter as well as what's embedded in the outlook from an organic growth perspective?

[Mark Thurston, executive]

Each on that organic revenue growth is common. So I think in the quarter -- in the Q4 quarter that we just reported, we still had a year-on-year decline of circa 2%. We had a big FX hit because of dollar volatility. So whilst the reported figure was about minus 4%, minus 3.9%, a big chunk of that was U.S. dollar related. So there was a decline year-over-year of about minus 1%, but there was a small contribution from GalaxE. So you've got a minus 2%.

In terms of the guide at the top being about minus 6%, we still -- that's on a reported basis. We're still encountering U.S. dollar weakness, which is hurting our revenue growth. So it's a clean number. It's still a decline year-over-year. It's about 4.5% on a constant currency basis. And on a constant currency basis, sequentially, we're still down about minus 2%. Although looking at the guide, as we've outlined in the pipeline, we then expect some sequential growth once we get beyond Q1.

[Operator]

And your next question comes from James Faucette with Morgan Stanley.

[Antonio Jaramillo, analyst]

It's Antonio on for James. I wanted to ask about your guys' OpenAI partnership. Can you maybe talk about the economics of that partnership? What was the contribution of revs in the quarter? And what you maybe expect to see in the upcoming fiscal year?

[John Cotterell, executive]

The partnership with OpenAI is one that we've been developing for over 18 months now. It's a very strong leadership type of relationship where we are working together on new propositions to market, using their capabilities, but also introducing our domain knowledge and our understanding of the areas that are going to make a business impact on our clients.

And then we're jointly taking those capabilities to market. So we're seeing OpenAI bring opportunities through as well as Endava bringing opportunities that then use that platform. It's one of our partnerships that's key in this area, and I've touched on the others with Google, with AWS and Microsoft in particular. So it's -- we don't carve out an analysis around OpenAI. Our focus is on developing this partnership area, which historically has been an area that we haven't focused on. But we see this shift to AI, making the hyperscalers and the likes of OpenAI, bringing a key -- playing a key part in how we drive that shift, more key than we found in the digital transformation wave, which is why we're focusing so much on it.

[Antonio Jaramillo, analyst]

Got it. That's helpful. And then I want to shift over to the payments vertical. Could you maybe talk about what some of your largest clients in that vertical have sort of signaled on their spending intentions and like what they're saying around that?

[John Cotterell, executive]

So we retain very positive relationships with our largest clients in the payments arena. We believe our relationship with Mastercard remains solid, and we're working on multiple projects with them across the organization and continue to have conversations about other things that we can work on with them.

The other key client that is out there is Worldpay. They continue to be an important client to us in one of our most strategic industries. And we value that longer-term partnership and the continued opportunities to grow our contributions to their major programs at work. We -- there obviously is a transaction going on that's out there. And we know all of the players in this transaction have a good feel about the opportunities arising. I would say in payments, we're also seeing early signs of interest from other clients as the payments market shifts and some of them are starting to realize and want to respond to that shift by addressing their more legacy platforms. But it is early days on that at the moment.

[Operator]

And your next question comes from Nate Svensson with Deutsche Bank.

[Christopher Svensson, analyst]

At the end of one of Jonathan's questions, you mentioned the expectations for sequential growth after 1Q. So I was hoping to follow up on that. So as you mentioned, we're going to see a sequential decline in 1Q, but in order to hit that full year guide, you're going to have to show some pretty solid sequential growth. So wondering on the cadence of that and then more specifically on the confidence or visibility you have in that actually occurring. And the reason I ask, I think this is the third consecutive fiscal year where we're kind of expecting that same sort of sequential ramp through the year, and there's obviously been a lot going on in the macro, but that hasn't materialized. So just wondering confidence and visibility and then the cadence of that sequential growth after 1Q.

[Mark Thurston, executive]

Yes. So as we sort of said, the confidence in terms of what's the proportion -- well, if I start with what is the proportion of contracted and committed. As we go out into the full year, it's over 70% and compare that with when we were guiding this time last year, it's about 60%. We don't have any of the big deals in the pipeline apart from those that are won, which is 8. Not all of those will produce a significant step-up from quarter-to-quarter, about a couple will, which is also the underpin of the confidence of some of the sequential movement from one quarter to the other.

As the other 6 big deals come through, some will deliver at a consistent quarter-on-quarter growth, but others will sort of ramp through the course of the year as well. So the top of the guide has some modest sequential growth, something like 2%, I think, from Q2, Q3 underlying and a slight uptick in Q4. And in terms of the lower end of the guide, we've assumed that the ramp rate and some of that new work comes through more slowly. But it is underpinned by what we are seeing in the pipeline and what has been secured today.

[Christopher Svensson, analyst]

That's helpful. And then other thing I wanted to ask on was this shift to those flexible pricing structures that you mentioned in the prepared remarks. I mean, from my perspective, it seems like this is a necessary shift, particularly as AI becomes a bigger part of the delivery model. But at the same time, a lot of the risk associated in delivery moves on to your plate rather than the client. So maybe you can talk about how we should think about the risk from that shift with regards to your financial outlook? Is your visibility maybe lower than it's been historically if it's all outcome-based or transaction-based? Or is there going to be -- as we move into the out years of the model, is there going to be a fundamental shift in your margin profile from these new pricing structures?

[John Cotterell, executive]

We see these pricing structures as being an opportunity. I recognize that there's a balance that we're taking some of the risk from the client in performing in that way. But we go through a very rigorous understanding of what those risks are and how we, as an organization with our capabilities are able to handle and manage those risks often in a much better way than our clients are able to.

So the downside, we believe we are managing well. When we talk about flexible pricing structures like transaction-based prices, et cetera, we would always be looking for some security around that, i.e., there are minimum volumes that the clients are already transacting and that underpins the contract with upside coming from things like us with the new product that we help them create driving growth to the benefit of both organizations. So they're sensibly structured opportunities.

We talk about them as being more outcome-based rather than fixed price. Fixed price has a different connotation, perhaps one the market is more experienced with, that has risks attached to it. It is less usual for us to go down a full fixed price route and more to go down an outcome-based route where we see the upside with the client as we both perform. I believe, Mark, we're going to start separating out fixed price in the future because it captures all of these things at the moment.

[Mark Thurston, executive]

Yes. We disclosed the percentage of [ T&M ] and fixed pricing, I think. In our 20-F, I think it's increased year-over-year from FY '24 to FY '25. I think we're about 23%. We think it would be more useful to use the accounts junction splitter current based element of it as opposed to the true fixed price element because it's becoming a significant part of our revenue.

[Operator]

And your next question comes from Spencer Anson with Susquehanna.

[Spencer Anson, analyst]

Can you just talk about the dynamics between headcount growth and your revenue? You mentioned that headcount was down 5% and the guide implies minus 1.5% to plus 0.5%. Are you using AI internally to drive efficiency? Just any dynamics there would be helpful.

[Mark Thurston, executive]

I think you misheard. We were talking about the headcount reduction from FY '24 to FY '25. It wasn't a comment in relation to the guide. So I think just to correct you on that. I mean we will see some increase in headcount. We've seen it as we've exited Q4 and we believe we will see headcount grow through Q1, Q2 modestly. I think it will slow as we go into Q3, Q4 as we get the benefits of Endava sort of flow, but it will continue to sort of grow. So I anticipate given the growth that we've given for the guide of 0.5% on a constant currency at the top, headcount will probably rise from a delivery perspective, something like 2% to 3%. But it will probably be heavy in the first half of the year rather than the second half.

[Spencer Anson, analyst]

Great. That was helpful. And if I could just ask a follow-up on the flexible pricing models that you mentioned. How can we think about how that might impact revenue realization?

[Mark Thurston, executive]

Well, going back to the example John was giving about transaction volumes. If we are -- and this is just a hypothetical. If we are involved in building, say, a platform that is new for a client, but the client has existing volumes that are passing through that platform and they're stable, we will price on that basis. And the benefit for us is that the new function -- functionality and appeal of the product should go to grow volume through that platform. And so the outcome base is basically around us securing the share of that uplift in volume through the product that we build. So there could be some security of the existing volumes which will equate to sort of activity. And then as we deliver through the productive means that we know we're capable of doing, that is how I think we secure the margin upside.

[Operator]

And your next question comes from Maggie Nolan with William Blair.

[Margaret Nolan, analyst]

I was hoping you could expand on Endava Flow and this idea of the change management delivery model in some terms around what that means in terms of head count, your hiring ambitions? Maybe how you deliver to the clients from an on-site versus nearshore perspective, any billing implications? Just help us understand, is this a big shift operationally for the company?

[John Cotterell, executive]

Thanks, Maggie. Yes, it is a big shift. It's a big shift that is being driven by the introduction of AI, particularly agents into the market and into the way in which we work. It's an approach suitable for an enterprise environment that replaces what many people have moved to over the last 20 years or so in terms of agile.

We don't believe that agile as an approach is going to be appropriate as AI agents gather momentum. And so what we're doing, it's not just about speed that you can get out of AI agents, it's about better overall delivery. And it means that you can get faster throughput and improved quality, reduced rework, and tighter control, less delivery risk. And there is a speed dimension to it, so you can help realize value sooner, get earlier business impact and more rapid feedback loops for improvement.

And we see that as we introduce that, we will be providing a pathway for enterprises to confidently adopt AI alongside ourselves into their large-scale transformation programs. And that's been one of the big restrictions that we see is operating in the market is client confidence to actually drive these large programs with the different method and approach that it needs. We see it as a premium product. And as it scales across the organization and what we're doing, we see margin improvement that can come through it. However, as Mark touched on, as you look at FY '26, it's an area where we're investing in and building scale. And so it has a short-term negative impact on the margins that we're coming up with. But it's a process that we need to go through to move to that new world of enterprise delivery enabled by AI.

[Margaret Nolan, analyst]

That's helpful. And then maybe in the context of the guide in the next several quarters, where do you think the growth drivers are for the business in terms of either segments or geographies? Where are you most optimistic?

[Mark Thurston, executive]

Well, geography-wise, I think North America will go strongly. There's an element where one of our key payments accounts, the center of gravity is moving from the U.K. to North America. So there will be a shift that you'll see from a geography perspective from Q4 to Q1. But that aside, I think that sort of shift the geographies will -- no call out from a geography perspective apart from North America, U.K. upticks.

I think payments-wise, we still see that as running flat, which would mean that you'd see a sequential decline year-on-year, but we expect BCM to offset that. That's the sector we see the strongest sort of growth. Insurance would be stable. I think TNT, we will see flat to decline. Again, I think the RX deal will come through and improve into the back half.

Mobility, I think, again, is stable. Largely, I think automotive stabilizes we believe from a tariff perspective, but that doesn't seem to be impacting. And I think health care makes good progress and some of the deals will come through maybe again, as we said, in the second half.

So I think payments summary will look flat. As we secure work, we will revise. BTM, I think, will stand out. I think the others will make a modest sequential sort of improvement and then maybe some uptick because of the deals we've mentioned. And also North America, will be strong because of that change in where the work is delivered to the client in the payment space.

[Operator]

[Operator Instructions] Your next question comes from Puneet Jain with JPMorgan.

[Puneet Jain, analyst]

So growth rates being weak for last 2, 3 years, like how do you convince investors that the weakness that we are seeing right now is macro-related or like the clients delaying decision-making and projects and that it's not AI related, that the AI is making IT services work more productive or making IT services model less relevant?

[John Cotterell, executive]

Puneet, I would actually look at that slightly differently. I think there is an AI-related element, which is that client decision-making in -- from a technology point of view, alongside the macro is also being delayed because of AI. And the fast-moving nature of the AI world and the rate at which from a technical point of view, things are changing means that clients are hesitating to move fast and jump into their new programs. And that is what's driving the nature of our growing pipeline, and we're hearing that from peers as well.

And so we see that dimension of speed of change slowing down decision-making. We're not concerned about the AI productivity causing clients to stop buying our services. We -- there may be a very small amount around the edges where we've completed programs a little more quickly than we expected and clients draw a line under it rather than continuing to spend the money that they've saved, if you like.

But in the main, that isn't what we're seeing. We're seeing that clients actually expand their scope, expand the quality work that we do around delivery in order to get higher quality products and more widely scoped products. That is the benefit that's coming through. And we expect that, that will accelerate. If you look forward, the ability to do more transformative systems using AI is what's driving most of our conversations with clients. And they are working through being prepared to spend substantial budgets on driving that change. It's the hesitation to kick things off because there might be something better in 3 months' time that has been an issue. That's part of what we're addressing through our Endava flow approach is how you stay on top of the technology and continue to drive towards business solutions without concerns about the technology slowing you down.

[Puneet Jain, analyst]

Understood. No, that's very well said. And then as you implement Endava Flow at your clients, generate productivity savings, offer it back to clients, what could offset that, like the productivity savings for Endava in P x Q equation Like what will drive that higher quantity for you to be able to offset reduced pricing because of AI benefits?

[John Cotterell, executive]

Well, this is where the much more transformative conversations that we're having at senior levels with clients is crucial to our strategy going forward. And the reason for some of the changes that we've made in terms of our go-to-market to make sure that we're speaking at the right level and having the right sort of transformative conversations.

Now as we do that, and we're able to introduce the technologies, the productivity, the impact on clients, that's where we're looking to put the deals together with more flexible pricing structures, outcome-based as we call them, where the client gets more assurance of the change that we're going to apply to their organization and the benefit that they're going to get. And we get the assurance of knowing how to use the technology to drive that change and drive that impact.

And that is a big TAM for us that we historically have not really addressed with the -- in the digital transformation wave, where what we were doing was building more around the outside of core systems and adding customer-facing capability generally. This goes much deeper into the organization and has much bigger transformative impacts with clients.

[Operator]

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

[John Cotterell, executive]

Thank you all for joining us today. You can see that Endava is advancing its transformation to become an AI-native company. And we've now passed the point where over half of our people are using AI in projects constantly. Strategic partnerships are fueling innovation and new delivery models and large-scale opportunities across industries. And we continue to expand long-term collaborations with major clients, and our pipeline of opportunities continues to grow.

I look forward to speaking to you on our next earnings call in November. Thank you.

[Operator]

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