Earnings Call Transcript - DAVA Q1 2022

Operator, Operator

Hello, and welcome to the Endava Q1 Fiscal Year 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I would now like to turn the call over to Ms. Laurence Madsen. Please go ahead.

Laurence Madsen, Moderator

Thank you, operator. Good afternoon, everyone, and welcome to Endava’s first quarter fiscal 2022 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 remarks today include forward-looking statements, including our guidance for Q2 fiscal year 2022 and for the full fiscal year 2022, and statements regarding our perceived opportunities and anticipated future growth, our expectations regarding digital transformation of existing businesses and industry, the necessity of digital transformation for many companies and Endava’s ability to benefit therefrom, potential technological advances across the industry, our expectations for future partnerships and other credentials, anticipated client demand for Endava services, our ability to attract and retain employees, our integration of front-end level, and our ability to execute on our sustainability objectives, as well as other forward-looking statements. 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 the company undertakes no obligation to update them to reflect subsequent events or circumstances other than to the extent required by law. Please refer to the Risk Factors section of our Annual Report on Form 20-F filed with the Securities and Exchange Commission on September 28, 2021, which contains a discussion of important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, during the call, we'll present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which you can find on our Investor Relations website. A link to the replay of this call will also be available there. With that, I'll turn the call over to John.

John Cotterell, CEO

Thank you, Laurence. I'd like to start by thanking you all for joining us today. I hope you're staying safe and well. We're pleased to be here to provide an update on our business and financial performance for the three months ended September 30, 2021. At a headline level, we continue to experience very strong demand for our digital services in all of our regions and verticals. While we're very focused on recruiting talented people, we remain in an environment where demand outweighs supply. And therefore, we're having to be selective in the work that we take on. Endava reported revenue of £147.5 million for Q1 of our fiscal year 2022, representing an almost 61% year-on-year increase in constant currency from £95.1 million in the same period in the prior year. We ended the quarter with an adjusted profit before tax for the period of £34.8 million, representing a 91% year-on-year increase from £18.2 million in the same period in the prior year. Our strong revenue growth continues to be driven by both the expansion of work for our existing clients and the acquisition of new ones during the quarter. I mentioned on previous calls that we were seeing an increasing flow of new client opportunities which starts small with ideation or proof of concept engagements, and then scale as we move into production and system development. The scaling of these projects has engagements expand, is now driving the growth of the larger clients and the increased spend by these clients. As a result, we ended the quarter with 658 active clients, up from 501 at the end of the same period in the prior year, a 31% year-on-year increase. Importantly, we grew the number of larger clients with a total of 93 clients who are paying us in excess of £1 million per year, compared to 66 in the same period last year, representing a 41% year-on-year increase. The average spend of our top 10 clients is also accelerating, growing by 42% year-on-year. And the revenue from clients who paid us above £5 million increased by 31% year-on-year. The integration of our most recent U.S. acquisitions, FIVE and Levvel, both of which we acquired this past fiscal year, is going very well. And we're actually in Charlotte in person this week, meeting with clients and our people. I'm very excited about the growth prospects for our business in the U.S. following these acquisitions. Our business in the U.S. continues to grow strongly, up 93% for the three months ended September 30, 2021, over the same quarter of fiscal year 2021. From a technology perspective, we continue to see high demand for all types of cloud computing services from helping clients with cloud choices and strategy to the migration of existing software to cloud platforms, to the development of cloud-native applications; and finally, operating cloud-based platforms through our managed by Endava services. As part of accelerating disruption and change for our plans, we were on all three major cloud platforms, maintaining strong partnerships with AWS, Azure and Google Cloud. These partnerships give us access to the knowledge and skills needed to ensure that we can use the agility and sophistication of these cloud platforms to build industry-leading solutions for our clients. This allows us to avoid the delays associated with on-premise infrastructure, and allows us to harness industry-leading cloud services, such as those of cognitive computing and data analytics. Additionally, cloud platforms avoid many of the traditional bureaucratic and governance obstacles that are found in large organizations, allowing us to deliver value faster. Often we find that a relatively specialist project in one area of cloud computing, for instance, creating a data lake or working on the migration of an application, that often drives other cloud-based work to us. And importantly, our people love working on cloud platforms. And so it helps us to grow and retain the best software engineers. Another technical trend that we're observing with interest is the rising profile of a possible future Metaverse, fueled in part by Facebook's recent rebranding and investment announcements relating to it. While we'd agree with many observers that such an ambitious virtual environment is many years and several technology advances ahead of us, we can see its future importance to our clients and will continue to track its development and experiment with it. Back in today's world, though, we're seeing greater awareness of the possibilities offered by augmented reality, virtual reality and mixed reality across a range of our clients. And in response, we continue to grow our strong capabilities in these areas, through our group-level technical community for XR and 3D computing. Demand for our services in the payments vertical continues to accelerate at the core of payments, all the acquiring systems, which are the most complex aspect of the entire payment journey. Relatively few organizations have tackled the challenges of either reengineering or building from scratch an acquiring platform due to the great complexity and risks associated with such undertakings. However, these projects are at the core of our expertise and demand for this service continues to increase. With a significant shift to online payments, Endava is also helping payments companies ensure that platforms and systems can scale with increases in volume. Aligned with the increasing requirement by consumers and businesses to send and receive money in real-time, Endava is also helping clients roll out real-time payments globally. Additionally, a key challenge for payments companies today is to differentiate themselves while holding on to merchants. We think the best way to do this is through delivering value-add services, thus creating additional stickiness. Here also we support our clients by innovating and building additional services, such as portals with business analytics or loyalty offerings, such as merchant financing. We also go further in building downloadable Smart terminals that don't just take payments, but also control stock and host bookkeeping-as-a-service. Here are some examples of what we're doing today for our clients in the payments vertical. We're working with ClearCourse, a partnership of innovative technology companies created in 2018. They provide membership software to organizations and small businesses to help their clients manage their members and clients, administer their business workflow and automate their payment processes seamlessly. This allows them to deliver a cleaner customer journey and to cross-sell. It also helps increase revenue while lowering expenses. Endava has been their exclusive tech partner in this journey from the very beginning, as we're enabling them to become a fully-fledged payments facilitator. Endava and MasterCard are working to deliver additional choice in how consumers and businesses pay, seen in account-to-account and real-time payments infrastructure. This builds on the relationship with Vocalink in the early 2000s. And we're working with OneBanks, an innovative solution that enables financial institutions to broaden and maintain a cost-effective, sustainable physical presence to support their full customer base. But banking branches continue to close, and people are being financially excluded. OneBanks leverages open banking to support communities by providing individuals and SMEs access to their underlying bank accounts in a single location, and by providing face-to-face support, helping people engage with the digital future. OneBanks’ ambition is to play a leading role in the delivery of everyday banking services in the UK initially, before looking to take the solution international, as open banking continues to gain traction globally. Endava has played a pivotal role since inception in the development of the platform and continues to work on expanding new and innovative capabilities. Endava came to ACI as part of the acquisition of the Speedpay bill and payment business from Western Union. Endava’s teams designed the cloud architecture and built the platform for Western Union. We started working with ACI in 2019, and have been a key part of Speedpay’s ongoing functional development, client onboarding and integrations with ACI systems. Prior to the acquisition, we provided sole application support of the Speedpay platform. We currently work closely with ACI teams on joint support of application. Endava has moved beyond the Speedpay to support other areas in the ACI business. We are working with a leading payment company to build a gateway for non-card payments known as alternative payment methods or APMs, including connections to aggregators such as PPRO. We support APMs as well as the shopping cart integrations, building the reference implementations for two key marketplaces. We're also helping build a new e-commerce fraud solution and enhancing the flexibility and scalability of the overall cloud architecture. Final areas of support involve the integration of Salesforce and the associated merchant billing, pricing, and onboarding enhancements. I also want to highlight that we recently celebrated our 10-year anniversary working together with Worldpay from FIS, and we continue to expand our work with FIS and Worldpay globally. Our client growth continues to translate into strong employee growth. We ended the quarter with 9,616 employees, a 33.6% increase from 7,199 in the same period last year. We added 733 net new employees in the last quarter. While competition for talent remains intense, our focus on recruiting the best talent in the countries where we are located is unchanged, and we continue to recruit and retain the employees we need. Our attrition level remains low by industry standards. Focusing on being an employer of choice in our core locations remains a key objective of our growth strategy. Additionally, we believe the moat around our business model, created by our unique culture, remains intact despite our strong headcount growth. We recently opened new state-of-the-art offices in Bucharest, Romania, and Buenos Aires in Argentina, designed specifically for hybrid work across home and office. The new working environment maximizes collaboration and innovation when teams are in the office and offers our people flexibility. These two offices will serve as a pilot, so that we can further refine and optimize this new model and work. More employees are choosing to return to the office. However, as we said, the majority of our workforce continues to work from home most of the time, given the ongoing impact of the COVID-19 pandemic in all geographies. Following up on the launch of our Sustainability Report, we're delighted to have received such great feedback, and we will continue to build and iterate our roadmap around the five key pillars of our We Care approach. If you've not had a chance to read our report, we invite you to have a look at it. More recently, we’ve started the rollout of our inclusive leadership program focused on equipping our leaders with practical solutions, actions, and a toolkit to build solutions to inclusion challenges, and improve our people's experience. As demonstrated by our financial results, demand for our services remains strong. We're excited about the opportunities in front of us and remain confident in our ability to deliver value for all of our stakeholders. I will 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 the fiscal year.

Mark Thurston, CFO

Thanks, John. Endava’s revenue totaled £147.5 million for the three months ended September 30, 2021, compared to £95.1 million in the same period last year, a 55.0% increase over the same period in the prior year. In constant currency, our revenue growth rate was 60.8%. Profit before tax for Q1 fiscal year 2022 was £24.9 million compared to £8.7 million in the same period in the prior year. Our adjusted profit before tax for the three months ended September 30, 2021 was £34.8 million compared to £18.2 million for the same period last year. Our adjusted profit before tax margin was 23.6% for the three months ended September 30, 2021, compared to 19.2% for the same period last year. Adjusted profit before tax, adjusted PBT is defined as the company's profit before tax adjusted to exclude the impact of share-based compensation expense, amortization of acquired intangible assets, and realized and unrealized foreign exchange gains and losses, all of which are non-cash items. Adjusted PBT margin is adjusted PBT as a percentage of total revenue. Our adjusted diluted EPS was £0.49 for the three months ended September 30, 2021, calculated on 57.8 million diluted shares as compared to £0.26 for the same period last year, calculated on 56.6 million diluted shares. Revenue from our 10 largest clients accounted for 36% of revenue for the three months ended September 30, 2021, compared to 39% for the same period last year. Additionally, the average spend per client from our 10 largest clients increased from £3.7 million to £5.3 million for the three months ended September 30, 2021, representing a 42.0% year-over-year increase. For the three months ended September 30, 2021, North America accounted for 36% of revenue, compared to 29% in the same period last year, Europe accounted for 20% of revenue compared to 25% in the same period last year, and the UK accounted for 41% of revenue compared to 43% in the same period last year, while the rest of the world accounted for 3%, unchanged from the same period last year. Revenues from North America grew 93.0% for the three months ended September 30, 2021, over the quarter of fiscal year 2021. Comparing the same periods, revenue from Europe grew 24.1%, the UK grew 47.6%, and the rest of the world grew 53.6%. We grew in all three of our industry verticals during the quarter. Revenues from Payments and Financial Services grew 54.8% for the three months ended September 30, 2021. Revenue from Payments and Financial Services accounted for 50% of revenue, unchanged from the same period last year. Revenue from TMT grew 35.6% for the three months ended September 30, 2021, over the same quarter of 2020, and accounted for 25% of revenue compared to 28% in the same period last year. Revenue from other grew 81.2% for the three months ended September 30, 2021, over the same quarter of 2020, and now accounts for 25% of revenue compared to 22% in the same period last year. We now turn to our adjusted free cash flow, which is our net cash provided by operating activities, plus grants received, less net purchases of non-current tangible and intangible assets. Our adjusted free cash flow was £16.5 million for the three months ended September 30, 2021, compared to £21.2 million during the same period last year. Our cash and cash equivalents at the end of the period remained strong at £82.0 million at September 30, 2021, compared to £69.9 million at June 30, 2021. CapEx for the three months ended September 30, 2021, as a percentage of revenue is 2.3% compared to 0.6% in the same period last year. Our guidance for Q2 fiscal year 2022. Endava expects revenues will be in the range of £150 million to £152 million, representing constant currency revenue growth of between 47% and 49%. Endava expects adjusted diluted EPS to stay in the range of £0.42 to £0.44 per share. Our guidance for full year fiscal year 2022 is as follows: Endava expects revenues will be in the range of £615 million to £620 million, representing constant currency growth of between 40% and 41%. Endava expects adjusted diluted EPS to be in the range of £1.71 to £1.76 per share. This above guidance for Q2 fiscal year 2022 and the full fiscal year 2022 assumes the exchange rates at the end of October, when the exchange rate was 1 British pound to US$1.37 and EUR 1.18. This concludes our prepared comments. Operator, we are now ready to open the line for Q&A.

Operator, Operator

Your first question comes from the line of James Faucette with Morgan Stanley.

James Faucette, Analyst

I want to ask first, if you're seeing any changes around client behavior and decision-making in that current environment, and especially when so many people are facing headcount constraints, especially in their IT departments?

John Cotterell, CEO

James, thanks for that. Client behavior is very much a lot of time driven by the business opportunities and challenges that are staying in the digital space environment. So there's a lot of demand flowing from those business needs and the projects work are emerging from that. Now, demand in the space is far exceeding supply right across the whole business, and so that is of course driving them to have conversations with organizations like ourselves, who have the skills and capabilities to execute on their business challenges. Now that's what potentially a change in behavior from before but there is definitely higher volumes of that coming through and hitting us.

James Faucette, Analyst

And then on that point of hiring, et cetera, can you provide an update on your own? Are you still comfortable with the previous maximums of how quickly you can grow your own headcount in a quarter or a year? And can you just kind of give an update of what that looks like and how are you thinking about your current recruitment algorithm, et cetera?

John Cotterell, CEO

Sure. I mean, the recruiting stuff has always been a challenge and getting the right talented people. It requires successful businesses to build a really good market presence with a career proposition that's going to attract and retain the best. And that is very, very crucial in the current market at the moment. Now things you were touching on, we've always guided that we can do sort of 25% to 30% organic headcount growth as a sensible scaling where the ability to onboard people, deploy them into projects, and make sure they're operating with the quality and the Endava approach, that is going to enable us to deliver effectively to our clients. It’s the constraining factor which sort of caps into that 30%. Now, currently our attrition is actually running very low, actually around the 12% mark over the last 12 months, which is still below the 15% that we target. And that's giving us a little bit of headroom on that 30% max that we can only go for. And it's actually trending down. If we look at our rolling three months attrition, that has been moving down over the last four months. One of the things that happened through the pandemic period, a year ago was actually, we didn't lay off staff. We held on to them. We continue to promote them during that slightly slower growth period. As a result, Endava just became a little bit more senior than we normally are in terms of our grades. And that's also provided a little bit of headroom in terms of being able to expand. So, we run a little bit above the 30%, I think we’re about 34% year-on-year on mark. Yes, that’s part of what has enabled that to happen.

Operator, Operator

Your next question comes from the line of Bryan Bergin with Cowen.

Bryan Bergin, Analyst

Just given the magnitude of growth right now, and demand outstripping supply, can you talk about your near considerations for maintaining the high levels of adjusted PBT margin versus reinvesting even more at a higher level to try and support elevated growth for an extended period?

John Cotterell, CEO

Hi, Bryan. We had a very strong quarter with our adjusted gross margin just under 43%, which indicates a solid utilization level. It hasn't increased significantly from quarter to quarter in a stable environment. We've consistently mentioned aiming for high 60s to low 70s, with our current position at the higher end of that range. The pricing environment remains favorable, which supports our gross margin expectations. However, we are facing challenges in the battle for talent, leading to potential cost pressures as we onboard new employees to meet strong demand. We need to be competitive with our offerings to attract and retain talent while managing attrition. Although the impact of these cost pressures might not be immediately visible, particularly because our major pay adjustments are due in January, we are aware of them. Nevertheless, we are optimistic that over the next 12 months, we can recover these costs through pricing and client negotiations. Additionally, our adjusted PBT margins this quarter reflected a lower SG&A percentage at around 15%, mainly due to delayed spending compared to the previous quarter. I anticipate an increase in the coming quarter as we invest more in sales and marketing and integrate our recent acquisitions, bringing us back to around 16.5% to 17%. In the medium term, we intend to maintain our gross margin above the 40% mark and effectively manage our SG&A, acknowledging that there will be some fluctuations each quarter without altering our long-term outlook.

Mark Thurston, CFO

And it’s worth just adding to that. Over the last nine months or so, we have been investing in our industry vertical space. So specifically accelerators, propositions to industry segments within the market to strengthen our position in the market, and that is part of what's helping accelerate the demand that we are seeing. But we've been doing that within the framework of the results that we've been delivering.

Bryan Bergin, Analyst

And then just as you lean into that U.S. opportunity further, should we expect an even more substantial LatAm build-out on the operational front? Can you kind of give us a sense on how you're thinking about the footprint expansion in the LatAm region over kind of 2022?

John Cotterell, CEO

So the whole Americas is expanding really well for us. And if you actually looked at what we did in the U.S. this last quarter, it was actually at 107% in constant currency terms that we expanded in the U.S., and that is very, very strongly linked to what we're doing in LatAm, having all the percentages. But the LatAm acceleration is significantly faster than we're seeing in Central Europe at the moment as we're scaling for that growth that we're seeing in the U.S. Do you have another, Mark? We will take that out in a moment.

Mark Thurston, CFO

Yes. I mean, the LatAm growth was very strong. If you look at it year-on-year, very strong, really sort of embedded the approach within the assured delivery of our North American revenues, which has proven that sort of accelerator there. So, we're really encouraged by the growth that we're seeing there.

Operator, Operator

Your next question comes from the line of Jamie Friedman with Susquehanna.

Jamie Friedman, Analyst

So, John, in your prepared remarks, you talked a bit about the Metaverse and I couldn't help, but ask for some use cases. I know you talked about 3D, but can you share some other use cases that you're seeing potential demand for from clients?

John Cotterell, CEO

Yes, currently we are focusing on augmented reality, virtual reality, and mixed reality solutions that we are developing with clients. For example, we are assisting a large German client in the industrial sector who is utilizing augmented reality to inspect large machinery, such as turbines. An engineer can remotely send a drone to review equipment located on the other side of the world, while using a headset to see what the drone captures. This type of application is becoming increasingly common and is related to IoT in various sectors. Much of this work is still at the experimental stage, as we explore what will be profitable with clients through ideation. Some projects are beginning to scale up. Training is another important area where, due to the shift to working from home, we have been able to create training scenarios using actual equipment. This allows individuals who cannot travel to receive training on maintenance procedures and to assist local maintenance teams in remote factories.

Jamie Friedman, Analyst

And then Mark, just as we're building out for quarters for the year, you gave the Q2 in the fiscal year. But how much M&A contribution is there? And then is there a particular time at this point where it fades, like assuming you don't do more, which you may, but absent that, did accounts get different in the second half?

Mark Thurston, CFO

Yes, there is an M&A contribution in our constant currency for the first quarter, which is 61%. About 15% of that comes from M&A. For the second quarter, we are guiding for an overall growth of 44%, but it's actually 49% in constant currency, so that reflects a contribution of 39%. In terms of organic growth, that amounts to about 10%. For the full year, at the top end we are guiding for 41%, with an M&A contribution of 7%, leaving 34% from organic growth. The decrease in M&A contribution is primarily due to the acquisitions we completed towards the end of Q3 FY '20 with FIVE and Levvel, which will have a full 12-month cycle. By Q4, the guidance will be entirely organic, and that should certainly exceed 20%.

John Cotterell, CEO

So I just wanted to sort of answer that question that we had earlier from Bryan about the attrition in LatAm headcount. So year-on-year it’s been 61%. So you have roughly about 1,400 people in LatAm.

Operator, Operator

Your next question comes from the line of Maggie Nolan with William Blair.

Maggie Nolan, Analyst

Just a follow-up on that. Is that delivery mix a big factor in driving your revenue per delivery head up over time? Or could you get a little bit more granular in what's been driving that up particularly the strength this quarter and then how sustainable you feel about this?

John Cotterell, CEO

We have made significant progress in revenue per employee, currently just over £69,000. This growth is reflected in our year-on-year headcount increase of 37% and a consistent revenue growth rate of 61% in constant currency. A portion of this improvement is due to an increase in utilization, estimated at about 8%. There has also been a slight shift in our onshore and nearshore mix, particularly following the acquisitions of Levvel and FIVE, which has contributed to growth at around 6%. Additionally, the rates we can charge for services on a per day basis have added about 9% to our revenue growth, bringing us to the 61% mark. The revenue per employee is expected to stay at this elevated level since there won’t be significant changes in the onshore and nearshore mix. We are currently operating at the high end of our utilization in the low 70s percentage range. The only potential for increasing this figure will come from higher day rates, which will help address cost pressures for the remainder of the year. Overall, while we anticipate revenue per employee to remain stable, there might be slight upward movement due to the pricing environment.

Mark Thurston, CFO

It's probably worth just noting that although we've increased utilization against the same quarter last year, it was actually very low last year at 67%. So we moved it up to 71%. That's what drove the 8% element of the utilization component going into that revenue per head. So we are keeping a level that's sustainable for the high growth that we experience, as you know we're running utilization at a lower level than many of the larger peers in the business, and that is to enable our growth rates to continue.

Maggie Nolan, Analyst

I wanted to ask about the other segment, which is growing well and becoming a more significant part of your business. Can you provide details on specific sub-verticals that are contributing to this growth, particular clients or projects, or anything else we should watch for as potential growth drivers?

John Cotterell, CEO

It is contributing to that, especially in North America. There is a significant contribution from Levvel and FIVE in that growth. We are also experiencing strong growth in mobility, which we previously discussed, as well as in health tech and retail CPG. We believe mobility is the primary driver of growth this quarter, followed by health tech. Those three areas are the key verticals we have mentioned before. Levvel and FIVE have certainly accelerated our progress in that domain.

Operator, Operator

Your next question comes from the line of Mayank Tandon with Needham.

Mayank Tandon, Analyst

Congrats, John and Mark on a strong quarter. I wanted to go back to John's comment around the 25% to 30% headcount growth. So if we think about that as the benchmark in terms of headcount and given the pricing leverage, there may be some more room for utilization, can we then assume that the embedded organic growth is probably going to run somewhere closer to what Mark you said, you'll finish fiscal ‘22 more like a medium term outlook. Just curious if that is a sustainable level as you look at the demand climate today?

John Cotterell, CEO

Yes. Regarding the exit rates discussed earlier, which represent a clean organic figure, we can expect them to remain in the low to mid 20s. We anticipate this will not change, as we believe demand is strong at this point due to an upcoming significant pay round. This situation influences our conversations with clients. While we are being somewhat cautious about next year's growth outlook, my confidence in our ability to address talent competition and maintain reasonable attrition rates remains strong. I am optimistic that we can recover costs through price increases.

Mark Thurston, CFO

Certainly, it's true that the 25% to 30% headcount growth range has historically been achieved, and we've also achieved price increases and so on. So the revenue growth has trended above the headcount growth in the past, and we don't see any reason why we wouldn't be able to achieve that going forward.

Mayank Tandon, Analyst

That's very helpful. Then I wanted to ask just about the verticals and service lines, obviously doing really well across your portfolio today. Any areas that you want to be in that you would call out as maybe target areas, whether it's organic build out or through M&A that you would look to maybe expand into both from a vertical standpoint and from a service line perspective?

John Cotterell, CEO

So at the moment, we're focusing on the areas that we've highlighted to you guys in the past, in essence, the insurance payments and the banking and capital markets, the fintech areas, if you like, in those financial services arenas, the TMT space, which is coming through strongly. And then within other, we've stuck with health, CPG, and retail, and the mobility space with a little bit of activity coming through in what we call private equity. It's a cross-industry area, but it's driven by the relationships we have with private equity firms. Now that is turning up one or two other areas that are looking at interest, and maybe in a year or two through M&A or otherwise through some of these client relationships that are coming through our private equity practice, we might see ourselves moving into that. So energy is one of those that we've got operating at a small level at the moment. There's also interestingly some mining activity where digital is even hitting a business like that now.

Operator, Operator

Your next question comes from the line of Moshe Katri with Wedbush Securities.

Moshe Katri, Analyst

Okay. Thanks. Let me add my congrats on very strong results. I have two questions. First, it's kind of exciting to see the growth in the U.S. and obviously, this is a relatively new market for Endava. Any specific differences based on what you've seen so far in terms of your ongoing interactions with the U.S.-based clients or enterprise customers that you're seeing, are you planning to run this a bit differently versus what you've done in the past? And then how are the specific verticals do you think will be the leading in terms of growth down the road for Endava here? That's my first question.

John Cotterell, CEO

The U.S. market has shown significant strength. We have always approached our business with the belief that having local teams in each market is essential for success. This philosophy applies to our client markets in the U.S., Europe, and beyond, as well as to our delivery operations with teams specific to their regions, like Romanians in Romania and Argentinians in Argentina. This localized approach is crucial for having a team that understands and can respond to local market dynamics. In the U.S., we are noticing considerable growth in the non-financial services sector, which is beneficial for our diversification strategy, not only geographically but also into different sectors. We see strength in mobility and a strong demand in retail. The technology sector stands out, particularly with major clients on the West Coast utilizing our services to develop critical products such as web conferencing and work-from-home platforms. This differs from our observations in Europe regarding technology. The health sector in the U.S. is also more innovative and rapidly evolving than in Europe, which we are beginning to explore. Although our history in the health sector in Europe has been limited, we are gaining substantial traction in the U.S. and making progress.

Moshe Katri, Analyst

And then just a follow-up. Given the extensive kind of knowledge and work that you've done in fintech and payments and dealing with some of the players, including the neo-banks, any thoughts on kind of building your own platform and trying to kind of leverage that in terms of infrastructure and kind of being able to market that to some of your fintech customers?

John Cotterell, CEO

Yes, thanks for that question. It's one of the areas where we've been clear that we're not going to go down the route of building a product. There are a number of reasons for that. One of the key ones being you end up, to some extent, competing with your own clients because you harvest know-how that you build in an industry by working with them, and so we've adopted the view that we won't build product, and we won't, therefore, cause any sensitivities with the client base that we work with. The one thing that we do is we build what we call accelerators, which are components that are fairly standard, frequently used across the different spaces in which we operate, and that can help accelerate the projects that we're working on with clients, and clients are very, very positive about those accelerators where we deliver them.

Operator, Operator

Your next question comes from the line of Bryan Keane with Deutsche Bank.

Bryan Keane, Analyst

I want to ask about open banking, the demand there. Is there a material ramping of payment volume there yet or is it still in the development phase?

John Cotterell, CEO

Well, that's a pretty big question. Open banking is well beyond the development phase and is a huge facilitator for alternative payment types. It's stronger in Europe at the moment, but we're starting to see it open up in the U.S. as well, and it's driving a lot of activity. There's a lot of hugely value-added services that can be built on the open banking platforms. And we're definitely seeing that move very strongly in systems that are in use in the market with millions of customers on them.

Bryan Keane, Analyst

Got it. And the payment volume inside there, especially in account-to-account has been ramping pretty significantly?

John Cotterell, CEO

Yes, very much so.

Bryan Keane, Analyst

And then the only other question I want to ask on was M&A, just further appetite, maybe what you're looking at potentially and valuations willing to fit?

John Cotterell, CEO

Yes. So M&A is one of the areas that we keep a close eye on. We're seeing many opportunities, high single digits per week of opportunities get right across our desks, but few of them have the right DNA. That DNA being similar enough to Endava for us to integrate the ideation to production, agile approach to doing business, utilizing next-gen technology. We're always looking for that. So we remain very choosy on where we engage. And the strategy remains the same, which is to use M&A to help with our diversification strategy as in bringing geographic balancing and pushes into geographic areas that we're looking to expand faster, sector acceleration, so some of those long-wave change opportunities that we see in different industries where an M&A opportunity is going to bring acceleration in the right spaces for that, we'll look very closely at it. And occasionally, there's an organization that brings some technology that we've not been able to develop or nurture ourselves. It's actually very rare. Often, some deals will bring elements of all three. So we're continuing to look very hard and have conversations, nothing that I can report on at the moment, but if anything material happens, of course, we'll report to the market.

Bryan Keane, Analyst

How about valuations, John? Have they changed much given the market trend?

John Cotterell, CEO

Yes. So, I would say valuations have moved up a little bit over the last 12 months in particular. There's a little bit of extra competition. I think the market is beginning to understand the Endava business model and organizations that operate that way are becoming more attracted to the general ones in the market, and so that's pushed valuations up maybe around 20% over the last 12 months. And that makes it more important for us to choose wisely which businesses we're going to buy and integrate.

Operator, Operator

At this time, there are no further questions. I would like to turn the call back over to Mr. John Cotterell for closing remarks.

John Cotterell, CEO

Well, thank you all for joining us today. As you'll have noted from the call, demand for our services remains very strong. We're seeing good demand across all of our verticals and geographies. And so we remain very positive about our business position. Mark and I look forward to speaking to you early next year on our next earnings call. Thank you all.

Operator, Operator

This concludes today's conference. You may now disconnect.