Good day, and welcome to Endava's Third Quarter of Fiscal Year 2024 Conference Call. All participants will be in listen-only mode. [Operator Instructions] 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…

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 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,…

We'll now begin the question-and-answer session. [Operator Instructions] 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, he 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, it was enabled by the fact that we have 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. So -- 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. And 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, as in 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. Mark?

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 to 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. And 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.

That's helpful. Appreciate that, guys.

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. And so, each quarter there's a sort of downward pressure, which we overcome with the new business that's coming through. And so, 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, we 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. And I touched on some of that in the opening remarks and that continues. And it is now a larger backlog than it was at the end of last quarter. And that gives us confidence that at some point it needs to break through. That confidence being 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. Mark, any color on the numbers?

Well, I think it's all down to visibility, Bryan. So, as you can tell with the guide at the moment, the high level of contractual committed coverage at 99%. So, certainly near terms, looking into the first quarter, we have stronger visibility. I think it comes back again to this pipeline conversion issue where we're adding to the pipeline, it is growing, it is the velocity at which it proceeds through to sign an initiated work that continues to be the issue. So, in terms of sequential growth, when we anticipate the uptick, it is difficult to say at the moment. And 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 there are other organizations who previously operated further East than us who 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. And 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 are receiving some of the funding around the restructuring that they've been planning. And we are working with them on planning how they -- how we can help them execute on that. And we're hopeful that we'll see a reasonable amount of that work coming our way.

Yeah. And 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. And it [indiscernible] 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. And then in automotive, again, we're seeing delayed decision-making given choices of technologies. And those are the real sort of key drivers in that mobility. But in terms of the rest of the portfolio, it is relatively sort of 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. And also, the tax rate was significantly lower than anticipated at 18% due to the release of a tax provision, which is one-off in nature. Now, in terms of what we see going out into Q4, and 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 sort of restructuring through to the year, and we announced that program back in February. So, we will continue with that. So that will give us some upside. And then, I think our SG&A will start to normalize as well. So 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. Thereafter, I think we will start to improve as we go through our next fiscal year in terms of the gross margin improvements and the leverage from SG&A that we get through that 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. So, 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. And 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 raise. So, we are going to be cautious basically in our guidance as we go forward. And part of that is because we've only done a sizable acquisition with GalaxE, so there are integration challenges. So, we will aim to sort of guide appropriately. So, I think as we go through the integration process between now and September, as we sort of form that view for the fiscal, we'll guide appropriately so that we hopefully don't deliver any surprises.

Thank you.

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

Hey, thanks for taking my question. So, John, you talked about -- you gave us a helpful perspective on how GenAI could be hurting near-term demand, and yet it represents significant medium-term growth opportunities for the sector. Could you review for us why DAVA or maybe digital engineering companies as a group have right to win in this new AI age? Like what type of work you expect you will do and why like the DAVA or digital engineering companies are the right names to be doing that for clients?

Yeah, great question, Puneet, I love it. So, 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. And we've been one of the organizations that's 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. And so, 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. Now, what I was highlighting in my preliminary remarks was that Endava is actually incredibly well-positioned for this. We have over the last 10 to 15 years been building a whole core modernization suite, which we have tried with many customers, 150 as I highlighted, across 1,300 systems. And that actually enables in a data-driven way to understand what the existing [indiscernible] actually do, and what changes need to be made to make them more flexible and opened up, 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, and so on, that it's going to open up, and the core modernization capability that's needed. And 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?

Yeah. I mean, so utilization at the moment is being pretty sort of stable since about a 66%, 67% for the quarter just gone. Our bench is pretty low, currently about 8.5% so to speak. So, it will remain at that sort of level. The bench may go a little bit lower, but most of our margin improvement is going to come from greater utilization basically. And historically, when we've been delivering good margins, we've been up at the high 60%s, and typically a percentage movement in utilization, all things being equal, leads to a percentage point improvement on gross margin. Again, one caveat around that, we are integrating GalaxE, and so we need a stronger hold around the metrics -- operating metrics of that business. But I think what I've said is largely going to hold true for them as well.

Okay. Thank you.

Thank you.

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

Yeah. Hi. Mark, just wanted to ask on gross margin. I think it fell below the 30% threshold in the quarter, which was a little below we were expecting. Was there any callouts just for the quarter itself that -- I know you're talking about an improvement sequentially, but just trying to figure out the quarter itself, why it fell?

It did fall, but it was where we've guided. So, it's interesting how you've got your number. We think it's on an adjusted basis, 31.5%. So, it's above 30%. And 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.

Got it. Okay. I'll pass the line. Thank you.

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. I mean, the first thing to say is that, if you look at the average revenue per workday in GalaxE, it's not a lot different to DAVA, because of that mix of onshore and offshore. And so we would expect to maintain that sort of value-added pricing in what we do. The second thing is that the strengths that we have are very complementary. So, 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 that 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. And I think 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. And 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. And then 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. And so that's very much how we're seeing it. We see it as being able to protect price and being earning and enhancing over time. So, I think that's probably economically what you were searching for there.

Yeah. No, that's great. Appreciate that.

Thanks, James.

The next question comes from Moshe Khatri with Wedbush. Please go ahead.

Hey, thanks for squeezing me in. So, two questions. First, on bookings, can we get some color on some of the new bookings in terms of verticals, regions? And then in general, are we seeing any sort of changes in terms of how bookings have been converting? Obviously, there's been an issue with conversion slowdown, and the fact that conversion has been pretty inconsistent. So any color there will be helpful. Thanks.

Hi. My comments are already on the larger deals that I sort of focus on. But I mean, the pipeline has been growing, as John said, so quite significantly in terms of the number of deals and the average sort of size of them from the last time we talked on the earnings call. What hasn't changed is the pace at which they go through from proposals to contracts or being told you, you haven't been successful. That remains sort of slow. And then partially the sort of reason, mainly the reason that we're in the quarter where we're guiding towards what was our previous bottom. So, it is an issue basically of progression through the pipeline in terms of velocity, not one of win rate.

Okay. And then, just on GalaxE, can you just remind us of GalaxE is growing this year or any sort of color on their growth rates?

Yeah. It is too early. We say that we sort of took control, as said in the comments, 10th of April. We obviously have a budget to put together for ourselves for June '25. So, we are going through the process at the moment of looking at their forecasts and establishing what those growth run rates look like. But certainly, they were growing. They have in a calendar year, by the way. They were certainly growing as year-on-year between calendar '22 and calendar '23.

I think the big opportunity with the GalaxE lies in the deals that we can collaborate on and win together. That's where we're going to get the acceleration. Either their clients allowing us to expand the footprint because of the larger scale and capabilities that DAVA brings, or DAVA clients benefiting from the footprint capabilities, particularly the enterprise transformations thing that I've been talking about, that GalaxE really solidifies for us. So that's where we're looking to see the growth rather than just them organically operating by themselves.

Understood. Thank you.

The next question comes from Jamie Friedman with Susquehanna. Please go ahead.

Good morning. Good afternoon. I wanted to follow up on Puneet's earlier question, John. In terms of your right to win in AI, is it possible to share your perspective, maybe with this, the lens of Slide 13? It's the one where you talk about your capabilities. So, even if you don't have it in front of you, but it's where you -- if you look at AI in the context of these service lines, say digital production or engineering or data delivery, where are you seeing revenue realization at this point or expecting to see it?

Yeah. So, I mean, that's pulling out the underlying capabilities, rather than what we go to market with. So, we go to market with digital transformation propositions, that are all about helping a client transform their business, whether that be driving revenue or efficiencies on the cost side. And that's been the classic digital transformation space that we've performed in and done so well over so many years. The right to win, I think, comes from being able to combine that with patented unique approach to core modernization that really de-risks that modernization program. And there are so many large enterprises out there that have been wary of getting into the enterprise core modernization space. And actually, we can give them a much more solid route to doing so. Now, as you do that, it really opens up what you can do on the digital transformation side. So because of the access to data that you get, because of the process cleanup that you can drive through the organization. And we have been able to put those two capabilities together in a very differentiated way, that's where we see our right to win comes from.

Okay. And then, Mark, I just had a question about the free cash flow, and I think you had called this out last quarter, so it wasn't a surprise. But the 1.2% adjusted free cash flow as a percentage of revenue down from 10%, I see that, obviously, a lot of it's the revenue pressure and the profitability pressure, but what else in here should we be looking at?

Well, we have -- we typically have some [indiscernible] in the cash flow. So, it is usually a low quarter cash flow, not as low as this as a percentage of revenue. We have taken the cash component of the restructuring of about £7.5 million through the cash flow sort of £4 million. So I think that adds about -- I think about a couple of percentage points to it. I don't think this is a representative of sort of cash flow generative position of DAVA going forward. I think it is a combination of us going through the restructuring. There definitely has been a sort of slowdown because it's related to the profitability of the revenue, which is low. And as our profitability sort of improves going forward, that will drive a stronger sort of free cash flow position.

Okay. That makes sense. Thank you.

The next question comes from Tom Blakey with KeyBanc. Please go ahead.

Hey, everyone. Thank you for taking my question. My question was, it's good to hear about the new bookings seeming to offset some of these -- the pressures of down sells and whatnot. When you look out, John, to the next few quarters here, maybe into fiscal '25, not exactly a question on guide, but how far through are we in terms of these potential downward pressures? What does the portfolio look like in fiscal '24 that seemed to have kind of like upticked in terms of downward pressure when you kind of take a look at it from a portfolio of like your current business as we look out the next few quarters? That'd be kind of, I think, helpful for everybody.

Yeah. I don't want you to take away that this downward pressure is an unusual thing. This is something that has been happening through all of the boom times of growth as well. It's just the natural projects coming to an end cycle. What we've been experiencing over the last 18 months or so is the new spend that's been coming through has not been offsetting that. And that's where this quarter we're seeing it offsetting it and enabling stabilization. We're also seeing that big backlog of work where we've done discoveries for clients -- paid discoveries, where they're not yet making the decisions to go ahead with it. So, it's too early to call that upward trend that's coming from new discretionary spend coming through that's enabled stabilization in Q4 is going to accelerate to the point where we anticipate an upturn, but that is the core question is when does that happen? When does this backlog of opportunities break through and actually start to lead to the uplift? And right now we're not ready to call that. We'll see in September.

Okay. That's helpful in terms of the relatively normal cadence of the downward pressure. That's helpful. And then maybe just switching back over to the GalaxE topic, I was under the understanding, just given prior research and whatnot from GalaxE, that EBIT margins were in the high teens from an organic perspective. Just walk us through maybe the puts and takes there, as we look to kind of like model out the next year or so? And if there's any seasonality in their revenue organically, that would be helpful as well. Thank you.

Well, I think it depends on what numbers you've been looking at. So I don't disclose any [indiscernible] sort of numbers. We have been putting them onto IFRS. That's part of the integration challenge and looking at the accounting policies. There is integration activity which can be quite marked for us certainly in the first six months. So that's really until probably longer until about December. I think as John said, their bill rate is in line with our revenue per head. They do have a high proportion of onshore compared to us. But we think that we can achieve over the course of what will be fiscal '25, taking them up to levels of gross margin that we achieve. And then, we will also be looking at the SG&A because there will be some synergies there basically. So, I'm not going to spell it how many short. I think you're going to have to sort of wait until we guide in more detail for fiscal '25, which we will do in September.

Okay. And, Mark, just any seasonality that GalaxE has been typically experiencing off at £21 million, £22 million?

It's too early to tell, to be honest. Certainly, in terms of the budgets that we were looking at through the due diligence process, it looked like strong growth. Again, we have to sort of [dedupe] (ph) it for our revenue recognition, which we tried to do at the due diligence sort of stage, but we're sort of working through that. I don't think there is any cyclicality or seasonality that we could pick up in terms of the timing of the spend that they have with their clients. But we have to do further work really before I can comment.

Excellent. Thank you for taking my questions.

Thanks, Tom.

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

Yeah. So thank you all for joining us today. And 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. And I look forward to updating you on our next earnings call, which will be our full year numbers. Thank you.

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