A class action lawsuit was filed against Endava PLC (DAVA) by Levi & Korsinsky on August 26, 2024. The plaintiffs (shareholders) alleged that they bought DAVA stock at artificially inflated prices between May 23, 2023, and February 28, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought Endava PLC stock during that period can click here to learn about joining the lawsuit.
UK-based Endava is a technology platform offering solutions to several industries, including payments, healthcare, media, retail, logistics, and others. The company’s claims about the demand for its services and related sales projections are at the heart of the current complaint.
Endava’s Misleading Claims
According to the lawsuit, Endava and two of its senior officers and/or directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about demand for the Company’s services, the cancellation of certain projects, and other issues, from SEC filings and related material.
For instance, during a press release for Q3 FY23, Endava noted that the demand for its services from existing and new clients continued to drive meaningful revenue growth. Revenue grew 14.6% on a constant currency basis in the third quarter. Further, during the earnings call the same day, the CEO stated that the company is well-positioned to witness continued growth into the next decade.
Additionally, in a press release dated September 19, 2023, the CEO stated that even though clients were delaying new projects owing to the uncertain macroeconomic background, Endava was seeing solid sales activity as customers continued to prioritize digital transformation initiatives.
Finally, in the same press release, Endava forecasted Q1 FY24 revenue in the range of £186.0 million to £187.0 million. This represented a 1% to 2% decline on a constant currency basis compared to Q1 FY23. Also, the company guided for adjusted diluted earnings per share (EPS) in the range of £0.34 to £0.35.
In contrast to the company’s expectations, subsequent events (discussed below) revealed that Endava allegedly misled investors about the demand and revenue expectations for its services, irrespective of the tough macro background.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about their revenue expectations for Fiscal 2023 and 2024.
The information became clear on February 29, 2024, when Endava reported its financial results for Q2 FY24. Revenue fell 10.6% year-over-year to £183.6 million, while on a constant currency basis, revenue dropped by 8.1% year-over-year. The company stated that the delay in orders from some clients impacted its performance. DAVA stock collapsed by 41.8% on February 29, following the news.
To conclude, Endava PLC allegedly misled investors about the revenue expectations and demand for its offerings, resulting in the over-projecting of revenues and investor expectations. Year-to-date, DAVA shares have plunged 69.7%.
