Endava's Strategic Pivot to AI Weighs on Near-Term Profits

Endava's strategic shift to AI services drives a quarterly loss but beats adjusted EPS. Revenue guidance revised down for FY2026 as investments in AI automation deepen.

The technology services firm Endava is undergoing a significant strategic shift, aggressively reorienting itself to become a provider focused on artificial intelligence capabilities. This transformation, while aimed at securing long-term growth, is currently impacting profitability due to substantial investment requirements. The company's latest quarterly results, however, revealed an adjusted earnings figure that modestly surpassed market consensus.

Quarterly Performance: A Mixed Picture

For its second quarter of fiscal 2026, Endava reported revenue of £184.1 million. This represents a year-over-year decline of 5.9%, yet the figure came in above analyst forecasts. The company's adjusted diluted earnings per share (EPS) also exceeded expectations, coming in at £0.16.

The IFRS accounting presentation tells a different story, highlighting the immediate financial cost of the company's strategic overhaul. Endava posted a pre-tax loss of £7.2 million for the quarter, a stark contrast to the £2.5 million profit recorded in the same period last year. Management attributes this swing to deliberate, heavy investment in building "AI-native" competencies.

Deepening Automation Capabilities

A cornerstone of this new direction is an expanded partnership with Cognition, announced on February 18. Endava is integrating Cognition's Windsurf and Devin platforms into its proprietary "Dava.Flow" framework. The objective is to leverage AI agents to automate and standardize software development processes. According to company leadership, initial data already indicates significant time savings on repetitive tasks and shorter development cycles.

Despite these technological advancements, the broader market environment for IT services remains difficult. Client demand is increasingly moving away from traditional projects toward complex cloud migration initiatives and specialized AI development work.

Revised Guidance for Fiscal 2026

Looking ahead, management has provided guidance for the current third quarter. Revenue is projected to be in the range of £182.0 million to £185.0 million, with adjusted EPS anticipated between £0.18 and £0.21.

For the full fiscal year 2026, Endava has revised its outlook. The company now expects annual revenue of £736.0 million to £750.0 million. On a constant-currency basis, this forecast implies a year-over-year decrease of 1.5% to 3.5%. The full-year adjusted EPS is projected to be between £0.80 and £0.86. Additionally, the company retains $28.1 million in its existing share repurchase authorization.