Endava, a London-domiciled software engineering group listed in both London and New York, reported a third fiscal quarter in which a large non-cash goodwill impairment and the write-off of the entire UK deferred tax asset drove the headline result into a steep loss, even though the underlying operating business still produced a thin positive adjusted profit. The two charges are non-recurring and do not reflect cash outflow, yet they are the clearest admission in the quarter that the long-run earnings base management once built into the acquisition prices has been marked down.
The distance between the adjusted operating line and the prior year is the whole story. Adjusted profit before tax, a measure that strips out impairment, amortisation, restructuring and currency items, sat at roughly 2% of revenue against about 13% a year earlier. The top line is shrinking and the operating profit line beneath it is collapsing far faster, and that gap is what the market is now debating.
One genuinely forward-looking datapoint broke through the noise. AI-driven work is now 15% of revenue, up from 5% a year earlier, and management tied that step change to a collaboration with Mastercard and a strategic partnership with Tyl by NatWest to modernize a payments-acceptance platform. The AI share of revenue is the single most important variable in the current case, and the two named deals are the first hard evidence the pivot is converting into contracted work rather than pipeline talk.
The debate is whether an enterprise value of about 9 times trailing adjusted free cash flow already discounts a structurally broken services model, or whether it leaves room for a recovery if the AI share keeps compounding. That framing sets up the rest of the analysis. The clock runs to the fourth-quarter print, where the constant-currency revenue decline should narrow from the full-year guided 6% to 3.5% or less. A further drop in the count of large clients, which fell to 129 from 136, is the variable that would break the recovery story.