Q2 2025 Earnings Summary
- Strong growth in AI-driven core modernization projects, particularly in the banking and capital markets sector, is expected to accelerate revenue in Q4. For example, a large banking client increased quarterly spend from $1.5 million last year to 4 times that amount now, and continues to grow.
- Effective integration of the GalaxE acquisition is progressing well, leading to improved profitability and cost optimization. The company is working jointly on core modernization propositions and expects further opportunities as integration continues.
- Focus on higher-value services and skills is leading to increased efficiency and better margins. The company is rotating towards higher-value skills as part of the digital shift, expecting headcount to grow slower than revenues, implying productivity improvements.
- Macroeconomic headwinds in the U.K. and Rest of World are causing increased client caution: The company has seen unplanned ramp-downs on existing projects and delays in the pipeline due to a worsening macroeconomic environment, particularly in the U.K. and Rest of World. This has resulted in a pullback in the revenue and growth outlook.
- Clients are delaying projects and ramping down existing work, leading to revenue softness: The softness is broad-based, especially noticeable in financial services and the U.K., with clients delaying the speed at which things progress and ramping down existing work due to budget pressures and uncertainty.
- Reduced visibility and elongated sales cycles for large deals may delay revenue realization: The company's expectation of revenue acceleration in Q4 relies on large deals with longer sales cycles, which require greater business case validation and have less predictable timing. Clients are taking longer to settle budgets and make decisions, leading to uncertainty in revenue realization.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 FY 2025 | no prior guidance | GBP 198 million to GBP 200 million, constant currency revenue growth of 13% to 14% YoY | no prior guidance |
Adjusted Diluted EPS | Q3 FY 2025 | no prior guidance | 31p to 32p per share | no prior guidance |
Revenue | FY 2025 | GBP 800 million to GBP 810 million, constant currency revenue growth of 10.0% to 11.5% YoY | GBP 795 million to GBP 800 million, constant currency revenue growth of 8.5% to 9% YoY | lowered |
Adjusted Diluted EPS | FY 2025 | GBP 1.12 to GBP 1.17 per share | 120p to 123p per share | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
GalaxE Acquisition Integration | Q1 2025 emphasized ongoing integration and cost challenges with a focus on system alignment and operational synergy. Q4 2024 highlighted cross‐selling and migration efforts alongside integration‐related costs. Q3 2024 discussed early wins, heavy integration costs, and challenges aligning EPS contributions. | Q2 2025 showed that integration is well-progressed with strong cost optimization measures and a modest restructuring charge, with expectations of improved profitability in FY 2026. | Consistent focus on integration with an evolving emphasis on cost optimization and future profitability improvements. |
AI and GenAI-Driven Core Modernization Projects | Q1 2025 positioned AI and core modernization as strategic pillars with accelerated adoption. Q4 2024 stressed the significance of AI integrations in large-scale, long-cycle projects within banking and healthcare. Q3 2024 underscored the role of patented technology and early AI-driven wins to support transformation. | Q2 2025 emphasized robust demand for AI-driven modernization—especially in banking—with detailed prototyping and prolonged sales cycles highlighting deepened GenAI adoption. | Consistent bullish sentiment with increasing scale and sector-specific impact, reinforcing AI’s central role in modernization. |
Pipeline Growth and Elongated Sales Cycles | Q1 2025 noted a growing pipeline with elongated decision cycles and delayed conversion. Q4 2024 detailed longer sales cycles due to prototyping and extensive approval processes. Q3 2024 highlighted solid pipeline growth but persistent slow deal velocity. | Q2 2025 reported robust pipeline activity—particularly for AI-related programs—but continued emphasis on elongated sales cycles and delayed deal conversions amid macro uncertainty. | Recurring challenge of slow deal conversion persists despite a strong pipeline, reflecting continued client caution and complexity. |
Margin Pressure and Profitability Dynamics | Q1 2025 detailed heavy integration costs and resultant margin pressures with expectations for future improvement. Q4 2024 described a significant margin decline due to integration and restructuring investments, with recovery anticipated later. Q3 2024 focused on short-term pressure from integration costs with outlook improvements as synergies develop. | Q2 2025 reported improved margins relative to Q1, supported by focused cost control and a restructuring charge aimed at eliminating duplication, with expectations of margin recovery by FY 2026. | Gradual recovery outlook where short‐term integration costs cause pressure but systematic cost controls are beginning to pay off. |
Geographic Expansion and Market Diversification | Q1 2025 highlighted significant expansion in India and diversification across regions to reduce concentration risk. Q4 2024 underscored growth in APAC and reducing reliance on the U.K., leveraging GalaxE’s India capabilities. Q3 2024 pointed to strategic geographic diversification with focus on India and emerging regions. | No specific reference was made in Q2 2025 regarding geographic expansion or diversification. | Topic not mentioned in the current period, possibly suggesting a temporary deprioritization or that previous achievements are now taken as a given. |
Adoption of Higher-Value Services and Skills | Q1 2025 emphasized a digital shift with increased focus on AI, data, and cloud to drive higher-value engagements. Q4 2024 demonstrated a move toward AI-driven transformation with proprietary solutions enhancing productivity. Q3 2024 implicitly supported digital transformation and core modernization. | Q2 2025 stressed the digital shift by integrating generative AI into daily work, with 60% employee usage and 80% for enterprise licenses, thereby emphasizing productivity and higher-value skills in outcome-based deals. | Continued and reinforced focus on upskilling and productivity improvements through AI, aligning with the broader digital transformation. |
Macroeconomic Headwinds Impacting Client Spending | Q1 2025 detailed spending delays and declines in the U.K. and RoW, attributing them to macroeconomic caution and stringent CFO requirements. Q4 2024 mentioned top‐line pressure in the U.K. with mixed regional outcomes. Q3 2024 described slowed spending and delayed transformation due to uncertainty. | Q2 2025 highlighted increased client caution in the U.K. and RoW, with unplanned project ramp-downs and delays reflecting a worsening macroeconomic environment. | Persistent negative sentiment as macroeconomic headwinds continue to slow client spending and delay deal conversions across key regions. |
M&A Activity and Its Impact on Revenue | Q1 2025 noted a consistent 13% revenue contribution from acquisitions, particularly GalaxE, which bolstered core modernization and expanded geographical reach. Q4 2024 underscored GalaxE’s significant role in diversifying revenue, contributing double-digit growth. Q3 2024 highlighted early integration wins with GalaxE, reinforcing organic growth opportunities. | Q2 2025 emphasized that the GalaxE acquisition is contributing notably to North American and healthcare revenue, with sustained cross-selling and cost optimization efforts driving growth. | Steady reliance on M&A, with GalaxE’s integration continuing to be a key revenue driver while complementing ongoing organic growth strategies. |
Technology Partnerships and Investments | Q1 2025 detailed several high-profile partnerships (e.g., Mambu, GoCardless) and investments in proprietary accelerators and Dava.X. Q4 2024 notably announced the Dava.X initiative and a strategic ChatGPT licensing agreement to bolster AI adoption. Q3 2024 mentioned new AI accelerators like Morpheus and participation in technology hackathons. | Q2 2025 focused on bolstering internal AI capabilities with robust ChatGPT enterprise usage and leveraging AI-enabled accelerators to secure new opportunities, maintaining a strong emphasis on technology partnerships for digital transformation. | Consistent and evolving investment in technology partnerships, with a sustained focus on AI integration and productivity tools reinforcing the digital strategy. |
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Revised Outlook and Demand Environment
Q: How is demand impacting your outlook and visibility?
A: We are seeing clients delay or ramp down projects due to macroeconomic pressures, particularly in the U.K. and rest of world. This has led to a reduction in our Q3 outlook, primarily impacting financials. Visibility into calendar 2025 budgets is still settling, with clients being cautious and budgets being finalized later than usual. -
Large Deal Conversion and Q4 Acceleration
Q: What drives the implied Q4 acceleration and large deal conversion?
A: The acceleration into Q4 is driven by the ramp-up of large core modernization deals, particularly in banking and capital markets. These deals have longer sales cycles, but we're seeing increased activity and expect revenues to ramp as programs progress. -
Top Client Behavior
Q: Any updates on top clients, like healthcare and payments?
A: Our top healthcare client showed strong sequential growth due to ongoing core modernization work. In payments, we continue to see a slow decline with payments processors, but strong growth in banking and capital markets where banks are investing in payments infrastructure. -
Pricing Conversations
Q: Are you engaging in more pricing discussions amid spending pullback?
A: We're actually seeing a slow improvement in pricing, recovering inflation-driven rises and benefiting from productivity in outcome-based deals. So far, we haven't had to engage in significant pricing concessions. -
GalaxE Acquisition's Impact
Q: How is the GalaxE integration affecting profitability?
A: We're well-progressed in integrating GalaxE, aiming to cut over systems by end of this month. We're improving profitability by focusing on cost optimization, especially in G&A, and expect further opportunities as integration continues, contributing to increased profitability in the back half of the year. -
Restructuring Charge and Efficiencies
Q: Can you discuss the $5 million restructuring charge?
A: We took out around 200 people before Christmas, focusing on removing duplication and simplifying ahead of further GalaxE integration. This action is part of improving overall efficiencies in the business. -
Hiring Pace and Utilization
Q: How will hiring trend given the Q4 ramp?
A: We expect headcount to decrease in Q3 but will start recruiting in Q4 to support expected sequential growth. Utilization is stable and may improve modestly due to efficiency gains from internal tools. -
Revenue per Headcount
Q: What's happening with revenue per headcount?
A: We anticipate revenue per head to improve modestly due to better pricing and improved utilization. As we adopt more AI tools and increase productivity, this metric should continue to improve. -
Macro Concerns in U.K.
Q: How are U.K. macro conditions affecting you?
A: The U.K. economy faces inflation and growth challenges, causing clients to be cautious, delay projects, and ramp down existing work. This has impacted our guidance due to softness observed since January. -
AI and Data Skills Hiring
Q: How is access to AI and data talent evolving?
A: We're focusing on developing our people through training to become AI-native, with about 60% of our staff using generative AI daily. While we are hiring in data science, retraining existing staff is key.