Good day, and welcome to Endava's Third Quarter of Fiscal Year 2024 Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Laurence Madsen, Head of Investor Relations and ESG. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Endava's third quarter of fiscal year 2024 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 Q4 fiscal year 2024, and for the full fiscal year 2024, the impacts 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, our expectations regarding the impact of our recent acquisition of GalaxE on our business, 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 strategies, plans, and operations. 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, 2023. 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.

Thanks, Laurence. I'd like to thank you all for joining us today, and I hope that you're all well. As we get started, I want to share some perspective on the current environment, which I think we all understand has been very challenging. My sense is that we have come off a period of aggressive tech spending post COVID. Clients now find themselves trying to sort through their spending priorities, as they continue to face meaningful macroeconomic uncertainty. However, we believe that there is also significant pent-up demand for technology services to undertake and complete digital transformation and to get ready for generative AI. Every industry needs to reinvent itself to some extent to take advantage of generative AI. But it first requires meaningful investments in technology and data stacks to be ready. This transformation goes beyond the digital systems, which mostly sit above the core and enhance customer interactions. AI requires access to the right data and systems to be truly effective, and therefore transformation work must go much deeper into the core of the enterprise. Due to the complexity, uncertainty, and risk involved in reengineering and opening up these core systems, the planning work is therefore taking much longer before scale production-ready projects can be commenced. All of this has created a pause, a deceleration, but I also think pent-up demand that may be more meaningful than what we have experienced in prior periods. While we aren't happy with our share price or multiple, I believe these are temporary as long as we maintain our competitive positioning. Our approach to this environment has been to continue to invest in our people and our ability to serve our clients and be ready for when the market turns. That's why we moved to diversify our footprint and delivery with GalaxE and continue to build accelerators that will give us a nimble and very relevant set of solutions for this emerging market. Our history has been centered around leading-edge technology capabilities, agile development in very fast-growing areas characterized by meaningful demand, and helping our clients ideate and innovate. The key to long-term success in services is a high-quality talent pool that adds real value to clients and with a scale that is relevant to clients as they move from proof of concept to production, but staying nimble and agile. We see our size as a competitive advantage as our entire industry gets ready to pivot yet again. Our systems analysis capabilities, patented technology, and deep understanding of the industries in which we operate enable a truly comprehensive enterprise modernization solution that supports our clients' overall business transformation, and which we refer to as enterprise transformation. We have been working with our clients to build a truly unique approach to enterprise transformation, which addresses this need for AI to reach to data and processes at the core of the enterprise. We use patented technology that facilitates a low-risk and controlled end-to-end transformation of core systems through data-driven decision making. With these capabilities, we help transform clients' underlying technology, so it becomes more efficient and agile. Our bespoke data-led approach not only helps re-engineer core technology, but also any legacy business processes that technology supports, ensuring that we continue to deliver holistic market-leading enterprise and business modernizations. With this tried and tested approach, we decrease overall impact and risk for the customer, and to-date, have delivered visible results to over 150 clients across more than 1,300 systems and with over 650 million lines of code. Clients trust us at a time when they feel very uncertain. In the coming quarters, we will discuss more and we are seeing signs that our strategic thinking is going to set us up well to catch yet another wave of massive change. Moving on to our results, let me now provide an update on our business and financial performance for the three months ended March 31, 2024. Our results for the quarter were within revenue guidance with revenue totaling £174.4 million, representing an 11.8% year-on-year decrease in constant currency from £203.5 million in the same period in the prior year. We ended the quarter with an adjusted profit before tax for the period of £15.5 million, representing an 8.9% adjusted profit before tax margin. And our adjusted diluted earnings per share of £0.22 was above our guidance. I'd like to cover in more depth our recent acquisition of GalaxE. GalaxE brings a strong senior executive team in the US with an excellent track record of winning and growing Fortune 100 relationships. We are already seeing opportunities emerge, including some early wins together. As a reminder, over 70% of GalaxE's revenue comes from clients in the US healthcare sector, which we believe is a very attractive vertical. GalaxE's leadership has proved successful at penetrating large US-based payer services and pharmaceutical companies. Based on conversations with these clients, we believe we will be able to significantly scale the offerings. Here are some examples of projects GalaxE is currently working on for various clients. In healthcare, we are working with a leading health insurance plan provider, leveraging GalaxE's self-service portal platform to facilitate the complex management of pharmacy benefit plans across multiple third-party pharmacy benefit managers. Additionally, the platform will be used to support the implementation of the new requirements for CMS, the government agency that regulates Medicare and Medicaid, allowing Medicare members to opt into a monthly payment plan for out-of-pocket expenses. GalaxE's platform uniquely de-risks the implementation, while significantly improving accuracy, regulatory traceability, and member experience. GalaxE is also helping a Fortune 50 health plan achieve its goal of building a high-performing health services portfolio for the delivery of innovative and flexible solutions to their clients. We are working with the client's leadership team to define goals to retire end-of-life technologies while implementing DevOps-enabled, cloud-centric, and product-oriented systems. This is a multi-year initiative focused on providing scalable solutions, driving lower costs and improved quality with zero downtime. GalaxE is working with a leading global bank to accelerate and advance their API migration initiative for their US operations. Utilizing our proprietary accelerators, the teams will map business functions, extract business rules, identify data and workflows, map functional dependencies, and create testing scenarios in cases for complete future testing coverage. This approach is expected to help the bank reduce transformation costs while improving speed to market and quality. And finally, for a large fintech client, GalaxE is mitigating and eliminating exposure to excessive extended security updates for end-of-life operating systems and database assets. By building a sustainable asset lifecycle management process, maximizing automation, and integrated tooling, GalaxE's efforts are resulting in significant cost savings for the client. Moving on to an update on technology, we recently announced the creation of our Agentic AI Industry Accelerator, internally called Morpheus. We have already been successfully using it as part of both our pre-sales cycle as well as a foundation for quickly helping our clients get value from their AI investments. To-date, large language models, or LLMs, and AI have existed in a black box with little insight into how the systems arrive at the answers they provide. Endava is changing this by operationalizing LLMs around data to overcome current barriers caused by hallucinations, ensuring that all activity is transparent, knowable, and critically auditable. Rolling out this accelerator to regulated industries can deliver value in many ways, including helping insurers underwrite policies more efficiently, helping analysts with legal or financial research as well as due diligence efforts, and driving the development and testing of new healthcare products. Multi-agent teams represent a significant advancement in AI technology, allowing for a more dynamic, flexible, and comprehensive problem-solving capabilities. We see it solving complex industry challenges, optimizing processes, and delivering unprecedented value for our clients and their customers. AI is an exciting technology, which we believe will positively impact our clients and businesses. We are still engaged in demonstrating the art of the possible with AI. We are beginning to see production projects being signed off and investments being made. This last quarter, we signed new contracts in automotive, healthcare, and sports for AI-specific projects. In healthcare, we recently scoped an AI platform that leverages our Morpheus Agentic AI application accelerator to significantly increase the efficiency of medical trials. Projects like these highlight that with the right use case, Endava is well placed to benefit from an exponential increase in opportunities, given the relatively low investment costs and potential high savings for our clients. Our people are top-notch, and we recently won the grand prize in the competition Hack Together in Microsoft Fabric Global AI Hack. This event was a global online hackathon where participants had the opportunity to build innovative AI solutions using Microsoft's data platform Fabric. The Endava team won with a cloud-native data solution integrating OpenAI for document analysis, particularly for detecting personally identifiable information in files and images. International Women's Day in March was a wonderful moment to recognize women at Endava, who each play a significant role in making a difference to our culture, with our clients and solutions, and in the world of technology. We ran a global campaign under the concept umbrella Connect, Inspire, Rise, and over 1,000 Endavans attended sessions on leadership, career growth, mental, physical, and financial well-being. We received excellent internal feedback on a new training program under our Endava wellbeing umbrella called Mental Wellbeing for Leaders. It's a program created to help line managers recognize warning signs of mental health issues in their teams and it provides them with the tools to address the issue. We ended the quarter with 11,025 employees, a 6.1% decrease from 11,742 in the same period last year. In the current environment, our recruitment is focused on areas of demand. Technology is our how, and people are our why. As such, we continue to prioritize professional development by training and upskilling our people in key emerging technologies and techniques such as machine learning, generative AI, next-gen Cloud, cybersecurity, product strategy, and sustainable computing in order for them to remain at the leading edge of digital transformation. I'd like to take this opportunity to thank all Endavans for their commitment and determination as we persevere through current headwinds. We will continue to manage the business for the long term, maintaining our culture and organizational health and creating exciting solutions for our clients and their customers. I'll now pass the call on to Mark, who will walk you through our financial results for the quarter and provide guidance for the coming quarter and fiscal year.

Thanks, John. Endava's revenue totaled £174.4 million for the three months ended March 31, 2024, compared to £203.5 million in the same period in the prior year, a 14.3% decrease over the same period in the prior year. In constant currency, our revenue declined 11.8% from the same period in the prior year, within the range we provided to you last quarter, and reflected a 5.2% positive inorganic contribution during the quarter. Sequentially, revenue was down by 4% in constant currency on the previous quarter. As a reminder, there was no contribution from GalaxE during the quarter just ended. Loss before tax for the three months ended March 31, 2024, was £0.5 million compared to a profit before tax of £30.4 million in the same period in the prior year. Our adjusted profit before tax for the three months ended March 31, 2024, was £15.5 million, compared to £43.4 million for the same period in the prior year. Our adjusted profit before tax margin was 8.9% for the three months ended March 31, 2024, compared to 21.3% for the same period in the prior year. Our adjusted diluted earnings per share was £0.22 for the three months ended March 31, 2024, calculated on 58.8 million diluted shares, as compared to £0.59 in the same period in the prior year, calculated on 58.2 million diluted shares. Revenue from our 10 largest clients accounted for 34% of revenue for the three months ended March 31, 2024, compared to 33% for the same period last fiscal year. The average spend per client from our 10 largest clients decreased from £6.8 million to £5.9 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, representing a 13.9% year-over-year decrease. In the three months ended March 31, 2024, North America accounted for 30% of revenue, Europe for 28%, the UK for 35%, and the rest of the world accounted for 7%. Revenue from North America declined 19.4% for the three months ended March 31, 2024, over the same period last fiscal year. Comparing the same periods, revenue from Europe grew 0.9%, the UK declined 22.3%, and the rest of the world grew 3.8%. Revenue from payments declined 27% for the three months ended March 31, 2024 over the same period last fiscal year and accounted for 24% of revenue. Revenue from banking and capital markets declined 24.2% for the three months ended March 31, 2024 over the same period last fiscal year and accounted for 14% of revenue. Revenue from insurance grew 1.7% for the three months ended March 31, 2024 over the same period last fiscal year and accounted for 9% of revenue. Revenue from TMT declined 4% for the three months ended March 31, 2024 over the same period last fiscal year and accounted for 24% of revenue. Revenue from mobility declined 22.4% for the three months ended March 31, 2024 over the same period last fiscal year and accounted for 10% of revenue. Revenue from other grew 3.2% for the three months ended March 31, 2024 over the same period last fiscal year and accounted for 19% of revenue. Our adjusted free cash flow was £2.2 million for the three months ended March 31, 2024, compared to £21.2 million during the same period last fiscal year. Our cash and cash equivalents at the end of the period totaled £190 million at March 31, 2024, compared to £164.7 million at June 30, 2023. In April, we used £129 million of our cash funds towards the acquisition of GalaxE. Capital expenditure for the three months ended March 31, 2024, as a percentage of revenue was 0.8% compared to 2% in the same period last fiscal year. Now, turning to our outlook for the quarter four and the full year fiscal '24. When we announced our guide in February, we did not include the contribution from GalaxE, which at the time remained subject to regulatory approval. On the 10th of April, finally, expiration of the required waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976, we closed the transaction. So, the Q4 guide includes the contribution from GalaxE. The guide, including GalaxE, represents sequential growth of 12% to 13% at the bottom and top of the range. Excluding GalaxE, the guide otherwise generally remains flat compared to Q3. Our guidance for Q4 fiscal year 2024 is as follows: Endava expects revenue to be in the range of £195 million to £197 million, representing constant currency revenue growth of between 3.5% and 4.5%, on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of £0.22 to £0.23 per share. Our guidance for full year fiscal year 2024 is as follows: Endava expects revenue to be in the range of £741 million to £743 million, representing constant currency revenue decrease between 4.5% and 4.0% on a year-over-year basis. Endava expects adjusted diluted EPS to be in the range of £1.13 to £1.14 per share. This above guidance for Q4 fiscal year 2024 and the full fiscal year 2024 assumes the exchange rates on April 30, 2024, when the exchange rate was £1 to $1.25, and €1.17. This concludes our prepared comments.

We'll now begin the question-and-answer session. The first question comes from Jonathan Lee with Guggenheim Securities. Please go ahead.

Great. Thanks for taking our questions. Hey, can you help us understand how the integration of GalaxE Solutions is progressing? And can you remind us of the revenue and EPS implications over the next few quarters?

Sure. So, I'll pick up on how the integration is going, and then Mark can just talk about the revenue and so on. So, it's actually going very, very well. We are already winning business together. One contract that we've signed for a European telco was enabled by the fact that we have a footprint in India now, because as a telco, they are completely operating out of India in the space where we've done that piece of business, which is a call center AI deal where we're now doing the discovery for them. Plus, we have others that are in the contracting phase. We're also seeing opportunities in expanding across GalaxE customers, essentially a couple of customers who are moving us up their preferred supplier lists so that we can take larger pieces of work and have more prioritization from them. The diversification of geo and industry footprint is helpful, and you'll start to see that coming through in the quarters ahead. Finally, as I touched on in the opening remarks, our enterprise transformation proposition has been significantly strengthened and we're getting a lot of interest, more than 10 customers that we're talking to about those services, following that strengthening. So, we're very, very positive about the GalaxE deal and the organic opportunities that it's going to give us going forward.

Hi, Jonathan. So, as I said in the prepared comments, the quarter-on-quarter growth represents 12% and 13% at the high end of the guide. GalaxE represents about sort of 12% of that uplift. So, it's about £21 million run rate on the revenue perspective. As we sort of signaled at the time of the last call, integration costs are expected to be reasonably heavy this quarter. So, there is negligible to zero EPS contribution in the quarter. I think as we go through into our FY '25, we should start as we go through the integration process, their gross margins and their adjusted PBT should move up towards the Endava level, but it is too early to call out a metric on that at this stage. But certainly, their gross margins will be in line with where we are in Endava.

Appreciate the details there. As a follow-up, what in your customer conversations gives you confidence in achieving your fiscal '24 outlook, especially as we think about potential delays in ramping up projects that may already be committed versus some of the prepared remarks around pent-up demand and potentially increasing discretionary spend?

Yeah, sure. I mean in the fiscal year '24 in our last quarter, so there's just over a month to go. Therefore, within our guide, we have a very high proportion that is contracted and committed as we call it. Mark can touch on the numbers in a moment. But that visibility and the work that we're currently doing is what gives us the confidence around the current quarter guide that we have, which leads to the full fiscal year.

Yeah, the contracted and committed percentage is 99% within that guide. So it's a very high level of coverage when you compare it with what were our historic norms.

The next question comes from Bryan Bergin with TD Cowen. Please go ahead.

Hey, good morning. Good afternoon. Thank you. I'll start with demand. Can you kind of give us a sense that since you last reported how that client behavior has progressed, particularly deal closure and deal ramps as you've gone past March into April and May? Can you talk about the conversations you're having with clients? And understand you noted a flattish 4Q growth ex GalaxE. Can you just share any thoughts on how sequentials may progress as you work through the balance of calendar '24?

Yeah. So, client behavior is actually picking up a little bit, perhaps worth unpacking the dynamics. I've discussed this on previous calls of our business, which is that we have projects and programs running with clients, and there's a natural closure as some of those are complete. Each quarter there's a sort of downward pressure, which we overcome with the new business that's coming through. The discretionary spend, as I was calling it, or the new spend by clients, needs to be larger than the amount that's dropping off each quarter for us to drive growth. Clearly, we've had a series of quarters where that had us been lower. In fact, it's been very quiet indeed, leading to the drops quarter-on-quarter, with the flattening of that is showing that some of that discretionary spend is coming through and impacting the quarter. Not as much as we'd like, but I think it is early signs that some of that is coming through and of a strengthening underlying environment. The actual customer conversations continue to build a backlog of business where we have done discovery work and where clients are still making the decisions about whether to go ahead with the programs. I touched on some of that in the opening remarks and that continues. It is now a larger backlog than it was at the end of last quarter. That gives us confidence that at some point it needs to break through. That confidence is based on the fact that if clients were never going to spend the money on building out the production systems, they wouldn't continue to spend money on the discovery work that we're doing with them.

Well, I think it's all down to visibility, Bryan. As you can tell with the guide at the moment, the high level of contracted committed coverage at 99%. So, certainly near terms, looking into the first quarter, we have stronger visibility. It comes back again to this pipeline conversion issue where we're adding to the pipeline, growing, it is the velocity at which it proceeds through to sign an initiated work that continues to be the issue. In terms of sequential growth, when we anticipate the uptick, it is difficult to say at the moment. Obviously, we'll be giving clearer guidance when we get to September, when we give our full year results and the outlook for our after-school year to June '25.

Okay, understood. I guess as we think about gross margin inputs, we understand Central Europe has become more expensive as a result of the war in Ukraine. Can you just maybe talk about how you're navigating that just given your leading scale, particularly in Romania? Is that market becoming more crowded from a talent acquisition standpoint?

So, I'm not sure where you're picking up that Central Europe has become more expensive. That's certainly not true for us. It may be that other organizations who previously operated further East than us had to move West into more expensive territories, and that's pushed up their Central European costs. But for us, we haven't needed to do that. In fact, given the current environment and the lower demands that are going on, we're not seeing the inflationary impact in Central Europe at all at the moment.

Okay. Appreciate that. Thank you.

The next question comes from Ryan Potter with Citi. Please go ahead.

Hey, thanks for taking my question. Just kind of looking across your verticals and the payments vertical looks to be where you're still seeing some of the most demand pressure. I was wondering if you could dive a little deeper into the trends you're seeing there and what it would take to start to see a recovery there. Also, in terms of some of your larger clients in the vertical, if you could comment on Worldpay now that its majority stake is complete, if you're seeing any improvement there? And then, also if Mastercard remains largely stable. Thanks.

I'll let John talk about sort of payments and comments about two largest clients, Mastercard and Worldpay, and then I'll pick up the balance of the portfolio.

Yeah. So, on Mastercard, it remains the story of the work that we're doing on the RTP, the Real Time Payments business continues to just slowly decline and is offset by the growth in work with the rest of Mastercard. It's actually very healthy growth with the Mastercard work outside of the RTP space, just from a smaller initial start point. So, the one isn't quite balancing the other, meaning that we're seeing a slow decline across the overall Mastercard portfolio. But I think the relationship remains very healthy. And underneath the surface, we're breaking into more and more parts of Mastercard. So, for the longer-term future, it's actually very healthy. In Worldpay, we are seeing the first signs of the work coming from that spin-off. And Worldpay is receiving some of the funding around the restructuring that they've been planning. We are working with them on planning how they can help execute on that. We're hopeful that we'll see a reasonable amount of that work coming our way.

Yeah. I think if you look at the rest of the portfolio, it is flat progressed really across banking, capital markets, insurance, and TMT. The one area where we saw a sequential decline was in mobility, and that was most notable in North America. It reflected the comments we made last quarter's earnings where it's a mixture of a large client coming off peak activity in the logistics space. We made some comments about airlines, where again there was some conservatism around spend and rolling out programs due to the sort of macro outlook which has come to fruition, for a better word. In automotive, again, we're seeing delayed decision-making given choices of technologies. Those are the real key drivers in that mobility. But in terms of the rest of the portfolio, it is relatively flat apart from those two areas.

Got it. I guess maybe shifting to some margins, the fiscal '24 EPS outlook midpoint was lowered here. Could you provide some details on the factors that are driving this, like how much is coming from potentially lower margin expectations? You comment on your margin expectations for 4Q and fiscal '24 versus maybe higher interest expense or integration costs from GalaxE? And then, on the margin side, what drivers do you have to improve margins from here, whether it be improved utilization or anything else to call out as you head into fiscal '25?

Well, Q3 was a big EPS beat. We did much better on our G&A savings, so we secured through restructuring quicker savings than anticipated at the time of the guide. The tax rate was significantly lower than anticipated at 18% due to the release of a tax provision, which is one-off in nature. In terms of what we see going out into Q4, this includes GalaxE, we will see some improvement in the gross margin, probably up to between sort of 33%, 34%. As we continue to reduce bench, there isn't anything really in terms of pricing uplift reflecting that figure. But that reduction in bench will lead to improved utilization. So, we continued with our restructuring through to the year, and we announced that program back in February. So we will continue with that. This will give us some upside. I think our SG&A will start to normalize as well. The guide implies at the moment for Q4, there's not a significant uplift in adjusted PBT margin given that we've got a heavy sort of integration budget with GalaxE at the moment. Afterward, I think we will start to improve as we go through our next fiscal year in terms of the gross margin improvements and leverage from SG&A that we get through full integration of GalaxE.

Got it. Thanks again.

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

Thank you. Do you have a multi-year target for percentage of headcount in terms of geographic distribution that you're working toward?

So, our expectation over time is that we will diversify across the globe. Currently, we are concentrated in Central Europe relative to our other global delivery locations, and particularly concentrated in Romania, where about a third of our staff are. We expect those all to continue to grow, but as the business expands, we also expect to see LATAM move up as a proportion of our business. Then, over time, the delivery capabilities out of Asia PAC, mainly in Vietnam and India now, will start to move up. Very much sticking to the delivery model and the delivery approach that we currently have. We're not looking to shift the market that we're operating in because of that geographic mix changing.

Thank you. And as we approach the end of your fiscal year in June, can you remind us kind of what the typical method is in terms of how you'll build the guidance for your next fiscal year? Are you taking any additional considerations under your view, given that the visibility has been quite limited in recent quarters when you think about how you'll build guidance for next year?

I believe to date, I'm talking more recent history, had a track record of beats and raises. We are going to be cautious basically in our guidance as we go forward. Part of that is because we've only done a sizable acquisition with GalaxE, so there are integration challenges. We will aim to sort of guide appropriately. So, I think as we go through the integration process between now and September, we will guide appropriately so that we hopefully don't deliver any surprises.

The next question comes from Puneet Jain with JPMorgan. Please go ahead.

Thank you for taking my question. John, you mentioned that while GenAI could be negatively impacting short-term demand, it also offers significant growth opportunities for the medium term. Could you explain why DAVA or digital engineering companies as a whole are well-positioned to succeed in this new AI era? What type of work do you anticipate undertaking, and why are DAVA or digital engineering companies the ideal choice for these tasks on behalf of clients?

Yeah, great question, Puneet, I love it. The way we see it is that if you look at what digital transformation has been over the last 20 years, it has largely, for a lot of the enterprise customers, been around creating a layer over the top of their enterprise core, a layer that has enabled improved customer interaction, driven revenue, and so on, and hugely valuable to them. We've been one of the organizations that really benefited from helping drive change across that top layer. As we get into AI, it will need to drill into the systems, the data, and the processes that exist in the core in order to provide the quality of change the business benefit that you can get out of AI, you've got to get at the data that's in the core. Organizations who already have a very flexible core, newer organizations typically are going to find it much easier to adopt AI and roll out the benefits than the larger enterprises who have a more, let's say, legacy core. The opportunity is for the organizations who have both the digital transformation capability that we've demonstrated over so many years, and the core modernization capability. What I was highlighting in my preliminary remarks was that Endava is actually incredibly well-positioned for this. Over the last 10 to 15 years, we have been building a whole core modernization suite, which we have tried with many customers, and that actually enables in a data-driven way to understand what the existing systems actually do, and what changes need to be made to make them more flexible and open, so that their data is available for the AI that's coming. So, you put those two things together, you've got digital transformation taking a kick from the AI wave that's coming through, and all the new ways of doing customer interaction, driving automation, that it's going to open up, and the core modernization capability that's needed. We see ourselves as being in a uniquely, almost differentiated position against our competitors out there.

Got it. That's very helpful. And then, your headcount was down give or take about 5% this quarter on a sequential basis. How does your utilization look like right now versus your targets? I think, Mark, you mentioned there is some scope to improve utilization in Q4. So, can you talk about utilization rates right now versus your targets?

Utilization is currently stable, around 66% to 67% for the last quarter. Our bench is low at about 8.5% and is expected to remain around that level, possibly dropping a bit further. Most of our margin improvements will come from increased utilization. Historically, when we achieve strong margins, we usually see utilization in the high 60s, and any percentage change in utilization typically results in a corresponding percentage point change in gross margin, all else being equal. However, we are integrating GalaxE, and we need to have a better grasp of the operating metrics for that business. Overall, I believe what I've stated will also generally apply to them.

Okay. Thank you.

Thank you.

The next question comes from Bryan Keane with Deutsche Bank. Please go ahead.

Hi Mark, I wanted to ask about gross margin. I noticed it dropped below the 30% mark this quarter, which was a bit lower than we anticipated. Were there any specific reasons for the quarter that contributed to this decline?

It did fall, but it was where we've guided. It's interesting how you've got your number. We think it's on an adjusted basis, 31.5%. So, it's above 30%. It was in line with what we were guiding, the kicker on the EPS was basically through lower SG&A and reduced tax rate. So, maybe we just need to compare notes on that gross margin calculation difference.

Yeah, we'll look at it. There might be some adjustments there. And then, I think you gave us the GalaxE contribution. What's the other inorganic contribution we should expect in the fourth quarter from other acquisitions just so we have the total inorganic contribution for the fourth?

It's a very minimal element from TLM, which we had about a year ago, but it's pretty negligible. It's mainly all of GalaxE.

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

Hey, thanks, guys, for taking the question. Just a couple of quick follow-ups. First, in terms of Worldpay, you said that you're starting to see some of that business and engagement come back as GTCR takes over management of that company. How are you thinking about, like, what the return and opportunity looks like there, over what timeframe? Just trying to get a sense of any early indications on that because it seems like there's a lot of potential there?

Yeah. I mean, James, obviously, it's a sensitive area in terms of clients' investment decisions. We have very good stakeholders across the COO, CTO. So, we're engaged regularly in conversation with them, and with them shaping up their investment plans, their change plans. We feel very much involved and expect to be part of that going forward is about as far as I think we should go at the moment.

Understood. And then, I wanted to ask quickly about kind of GalaxE, and how you're thinking about that and integrating that into the rest of your operations? What are the things that you're paying attention to in terms of competition for talent in that market right now? The pricing dynamics between, at least traditionally, where GalaxE had been and Endava more broadly? Just trying to think through the working relationship and how that will expand and improve Endava's capabilities down the road?

Yeah, sure. The first thing to say is that, if you look at the average revenue per workspace in GalaxE, it's not a lot different to DAVA, because of that mix of onshore and offshore. We would expect to maintain that sort of value-added pricing in what we do. The second thing is that the strengths we have are very complementary. The digital transformation work that we do is something that is mainly an Endava strength. If you look at the core modernization stuff, the data numbers I put out there, about two-thirds of that was in DAVA work and about a third of it was from the GalaxE experience set. So they strengthened that. If you look at that core modernization side, India is a good place to do that. There's a lot of experience that they have in India and can bring to apply that. If you put that alongside the patented technologies that we have, the tool sets, and the accelerators that we use to deliver that service, it gives us a strong differentiation against the Indian pure plays for work that we do out of India. When you add the digital transformation capability to drive true enterprise transformation as AI comes through, put those two things together and you end up with a strong differentiation still pulling on our nearshore capabilities as well as earning in India. That's very much how we're seeing it. We see it as being able to protect price and being able to earn and enhance over time. That's probably economically what you were searching for there. Yeah. So, thank you all for joining us today. As I mentioned in my prepared remarks, we talked about the pivot in digital transformation that's underway driven by AI, specifically the need to drive change in the enterprise core. We've touched on that a little bit during this call. We believe that DAVA is well-positioned for this, with both the digital transformation capability to ideate and innovate alongside patented technology to help enterprise core systems and data accessible to AI. The combination of these capabilities positions us excellently for the next wave of digital transformation driven by AI. We will continue to invest in these capabilities in anticipation of the market turn. I look forward to updating you on our next earnings call, which will be our full year numbers. Thank you.

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