Q4 2020 Grid Dynamics Holdings Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the grid dynamics fourth quarter and fiscal year 'twenty 'twenty earnings Conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the.
For my presentation. As a reminder, this conference call is being recorded I would now like to turn this call over to Mr. Lee of turnover on the Investor Relations. Thank you you may begin.
Good afternoon, welcome from Great dynamics fourth quarter, and full year 2000, and setting the conference call.
Let me remind everyone that today's discussion will contain forward looking statements based on all the current assumption expectation.
Including our first quarter 2021 of them on some guy there.
The growth of the dynamic.
All of our objective on different strategies as well as other for it.
Okay.
You can see parts of the disclosure on the accompanying press release on form 8-K filed with the FCC to the.
For information about forward looking statements that would be.
On the call.
All statements made today for Blackberry.
Current assumptions on the.
And we undertake no obligation to update any statements to reflect the one well let you on optical.
You can learn more about the risk.
Factors that could cause our actual results to differ materially from today's discussion of risks.
That's from flexing the company quantum two of them.
And each of them and then subsequent periodic reports that come from all the calls.
Of the Columbus call well discuss for non-GAAP measure of alcohol Yep.
Yeah on non-GAAP.
Supplemental from them.
I provided for.
And then each day.
It sounds like a weighted.
Yeah.
This call going for available violent.
You can probably of information adjusted price.
The relations are big enough.
Joining us on the call today I know Leonard.
Oh, no we're going on.
All of the prepared remarks, well open the call for your questions.
With that let me turn the call over to Linda.
Thank you for Lilly.
Good afternoon, everyone and thank you for joining us today.
I'm excited to share my thoughts on how the company is making strides across this business and the highlight the progress we have made since we spoke with you on several months ago.
More important on this call today I will share my perspective on the full year 2020, how it has shaped us.
The company, leading to the questions and one of the future is exciting and we are all set well for 2021 and beyond.
In many ways.
One of 20.
It was a unique year even.
Within that mix went public on March ships.
The very short time of two or three weeks after going public.
We have faith in the precedent of crisis from the global for debt.
Many of the retail customers or severely impacted especially the brick and mortar department stores.
The second quarter results highlight the retail business was down 75% sequentially and on a year.
Year over year basis brick and mortar of department store customers were down even more subsidiary.
Despite the headwinds we bonds back and underpinning the strong recovery the Duke so very important decisions.
Our immediate focus was to Brazil of course.
Prepare for the possibility of a prolonged impact from the debt.
We're exploring of the business development efforts toward non retail opportunities.
We initiated a number of strategic R&D projects and of course.
On vascular cell of larger clients.
Each of these actions.
They'd all the R&D projects gained the attention of you on existing clients and the strong growth in all CPG manufacturer of medical was a consequence of well co investment decision as well as client trust and help keep the doors Oh quicker of ball resolve the cash generation and profitability on the non-GAAP.
To give you a perspective of how far we recovered all of current bill of both the adult today is almost double of what we were at the bottom of May 2020.
We feel the vertical which we witnessed a year ago over a year of decline in 2020.
Other industries growth in 'twenty, one low.
More of it.
All of them for all of the technology.
Which grew 40% from TPG manufactured vertical which grew over 190% when the year.
The over a year of beaches, respectively.
But what are the 1% of full year and 37% for fourth quarter 'twenty 'twenty revenue technology was largest vertical and we expected to remain so in 2020 of them.
More importantly.
The 2020 with 210% customers both of us below two technology work.
But this is vertical we continued to witness the original levels of engagement with global technology brands as they increasingly become appreciative of our differentiated skill sets. The emergence of technology is the largest in the industry vertical marks an important step on the diversification of the company the way of promotes historically.
The retail focused market all day.
Logic was on.
The market leaders with most of the revenue derived from the digital sales and they are very resilient to market volatility.
The 21% or 'twenty 'twenty revenue she'd be human nutrition was the festival in the vertical in 2020, the nature of the four quarters of 'twenty 'twenty Who's really the go over 10% sequentially in the over 100% the year over year basis, the longest of such strong growth for its all of success with one of the largest.
Global CPG Brett.
More importantly, the spread.
The fourth quarter, we won key strategic programs, which incrementally contributes not only for 'twenty 'twenty, but do the expanded business of 'twenty one the yet.
Very proud of what we accomplished in 2020 and thank the hard work into the tissue of each one of them.
But equally important and more.
You've mentioned is the.
The strange or technical capability, the appeal to customers across all industries.
I would like to mention the.
And of course things center.
Areas of course of expertise in cloud transformation initiatives as we build the engineer and modernize the certifications and systems at large enterprise customers second.
That's the experience and extract meaningful insights for our customers data via data science machine the.
Hello customers and optimization of the operational keep yes.
The third I'll focus on customer experience with extends well beyond the funding uncertainty when you go deep knowledge around the artificial intelligence at leading consumer facing brands to solving the STREAMWAY customer Jones of core strengths of the capabilities are not just tied to any given vertical.
The Testament to our competencies evidenced in 2020, as we quickly reassigned and pivot away from retail to other verticals.
So that's an important aspect of our company.
On the confidence of our progress on the years to come.
On December 14th 2020, we know of course the acquisition.
Netherlands based ducks in an all cash deal.
Got it and I'm sure the unemployment over 500 engineers in the genome centers of course, the agree that speeds of more than 20 years of experience in delivering social services to the clients across the wide range of industry verticals.
In addition to high end software the vote the company consults in the few of the edge of lots of engagement being the development and dwarfs that service, the customers, Netherlands, Germany, and Israel and the United States and is focused on the media of high growth start up markets.
The reason for the acquisitions, where especially in your.
Supplementary services market driven.
Customer acquisition model leveraging one of the most successful search engine optimization.
That's the large exposure to new customer logos, we didn't execute a large pool of engineers the ski.
Oh, just making sure you're being the Louis what are you starting on leveraging relationship of the customer level, but the sales teams and the marketing has just started directly around the pursuit of meat and opportunities.
No call them for the fourth quarter and the fourth quarter revenues of $31 million equal the roughly 1 billion of revenue from the decks. Excluding the contribution from the ex fourth quarter revenue of $29 1 million grew 11% sequentially and was higher in all three.
This guidance of 6% to 9% most.
Most importantly, the.
Underlying trends that shape, the fourth quarter, both from the customer demand and the the little from we're very encourage them setting the stage two of favorable favorable first quarter, the full year 2020 one.
Although there are many positive trends I wanted to share some key highlights.
Each of the three months of the fourth quarter of revenue grew sequentially with December being the seventh consecutive months of revenue and growth.
More importantly, the first two months of 2021 are trending in the right direction.
He has to be confident in our Q1 the outlook.
Many of them toward the expansion be I recall the levels.
If you remember the other recent acquisitions.
Furthermore, the Q4 'twenty 'twenty, we witnessed heightened customer that's the only with the new programs.
Initiatives.
In terms of skill sets, we went to the great demand for data sales specialist and big data engineers, we expect to benefit from the strength of this.
It's been one of the world for Kimpton abilities, and expect to meet the demand going for.
We have increased our focus on the high spending on getting drunk opening and training the training all the engineers during the fourth quarter, where the total of over 200 engineers.
Comparing with the quarter number three excluding our recent acquisition of <unk>.
He's putting dogs, we added roughly 700 engineers.
The increase comes after two quarters of sequential decline from the second and the third quarter 'twenty.
In the first quarter, we continued the weakness greater willingness from some of the larger customers to engage with the offshore locations.
The combination of could you focus on cost efficiencies really extend lives of the boardwalk and the ability to step in scale of the liberties quickly have you know factors to increase our capability and customer engagement.
Although this trend was present in the third quarter. It picked up in the fourth quarter, especially of the sample of technology customers and some cash who has taken the relationship between the 11th the dedicated for sure centers.
During the quarter.
We added five new logos all of them contributing revenue in the fourth quarter.
One was the global insurance true.
The technology of States one was in the international like marketplace platform and one was the industrial Park.
Revenue for our top customers in the quarter was 56%. This was down from 64% of the revenues from the same quarter a year ago, but they moved up for clients towards technology.
One was banking one of the CPG and what was retail.
More importantly on the fourth quarter, none of the top three customers with traditional brick and mortar department store retailers and they were significantly different from two of went to Oh, well the top three customers with department store retailers from the fourth quarter once the trial.
The major.
During the quarter with the lever some of the notable crunches.
For a large global technology company, all engineers integrated SaaS products drove growth.
e-commerce, but the.
This integration is expected to generate revenue for the global technology company. It gets exposed to a larger audience the solar.
As expected for release in the second quarter of 2020.
At the same large technology customer we implemented the front end people doing it for the fraud detection and protection system. This interface allows two labeled transactions at a tree.
Ml models training of accordingly for a different risk profile of the solution of ultimately allows the clients to use the underlying platform for them.
To the variety of use cases.
And the global CPG company, our engineers develop the tool that allows customers the search and discovery product more of attrition.
The tool will improve the overall customer experience and ease of use and also capture incremental revenue, but better product placement and conversion rates.
But on a global industrial technology company specializing in diagnostics repair technologic mobility solutions all of the genius created out of the major platform the <unk>.
<unk> and on Dave you can price different anomalies of fuel stations mistletoe customer solution to identify leaks theft and dispensing errors of the issue.
At the stations I liked the best whereas this pause was largely done.
The automated platform not only save customer resources, but it's also more accurate. This solution has been deployed at gross fuel station on the other states.
And finally on it.
Global true deliberate company, we have quite data on the leading technology to migrate their existing inventory and procurement system to a more efficient platform, we created for the amazing inventory and supply of management.
About the vacation system, which allows the customer to manage all data and information from one place.
With that let me turn the call for two of them you will discuss Q4 results more detail on them.
Thanks Leonard.
Good afternoon, everyone.
Let me start by summarizing our fourth quarter 2020 of results.
Total revenue for the fourth quarter was $30 1 million that included roughly $1 million from our recent acquisition of docs.
Excluding revenues from docs.
Revenues in the fourth quarter of $29 1 million increased by 11% on a sequential basis and declined by 9% on a year over year basis, and exceeded our guidance range of $27 7 million to $28 $7 million.
Other than our technology media and telecom, commonly referred to as technology and financial verticals. All segments grew over the third quarter with strong quarter over quarter growth coming from CPG manufacturing retail and the other segment.
Similar to the last couple of quarters, our technology vertical was the largest vertical in the corner.
Excluding the contribution from that from the fourth quarter, our non retail business now representing 73% of revenues in the fourth quarter was up 6% on a sequential basis and 49% on a year over year basis.
During the fourth quarter and excluding Ducks are retail segment, representing 27% of our revenues grew 26% on a sequential basis.
The growth in the quarter was largely driven by one of our top e-commerce friendly retail client and to a lesser extent by other retail clients.
In spite of a 26% quarter over quarter growth retail was down 66% on a year over year basis.
Within the segment, while we are seeing a steady come back from some of our retail clients. We are not witnessing of returned to pre COVID-19 levels of business from some of our historical top customers.
Our outlook and forecast for 2020. One takes this factor into consideration and our forward guidance is not predicated on the comeback from the retail clients.
Our technology vertical excluding doubts represented 37% of of our fourth quarter revenues and grew 21% on a year over year basis, but was down 16% on a sequential basis.
The key reason for the sequential decline was greater shift towards offshoring at some of our larger technology clients.
And all of the head count increased during the quarter. It was not enough to offset the revenue decline.
We expect the offshoring trends entertaining all of the customers to continue on over the next couple of quarters and expect continued head count increase.
Here are the details of the revenue mix of other segments. Excluding the contribution of roughly a million dollars on revenue from docs are CPG and manufacturing represented 21 person number on revenue in the fourth quarter and grew 84% on a sequential basis and 252% on the year over year basis.
As Leonard pointed out in his opening comments the <unk>.
Strength came from our engagements with the global CPG brand that is in the midst of ramping key digital transformation programs.
Going forward incremental program wins combined with ramping of existing programs and this claim make us bullish on this segment in 2021.
Financial represented 10% of revenue and declined 5% and 20 person.
On a sequential and year over year basis, respectively.
And finally, the other segment represented 5% of our fourth quarter revenue and was up 41% on a sequential basis largely from faster than expected ramps and some of our recent client wins.
We exited the fourth quarter with the total head count of 1894.
Excluding the head count contribution from Docs, we exited the fourth quarter with 1402 employees up from 1200 and for employees in the third quarter of 2020 and down from 1430 in the fourth quarter of 2019.
The 16% sequential increase in head count was largely a reflection of the improving demand environment.
Excluding the head count from Docs at the end of the fourth quarter of 2020, our total U S. Head count was 259 or 18% of the company's total head count while our non U S head count, which we sometimes refer to as offshore located in central and Eastern Europe locations was 1001.
143 or 82%.
Excluding the contribution from docs in the fourth quarter revenues from our top five and top 10 customers were 56% and 76% respectively.
During the same period, a year ago, our top five and top 10 customer concentrations were 67% and 87% respectively.
We exited the quarter with 43 paying customers up from 41 in the third quarter of 2020.
And up from 38 customers in the fourth quarter of 2019.
As a reminder, we only count the revenue generating customers in the quarter and do not include customers for inactive during the quarter.
Relative to the third quarter, we added five new logos one of these were in the insurance segment.
Two are in the technology segment, one of the CPG and one in.
In the retail segment.
Moving to the income statement and including.
Our recent acquisition.
Our GAAP gross margin during the quarter was 47% or $12 $3 million down from 42, 4% or $11 $2 million in the three months ended September 2020 quarter and up from 39, 6% of $12 $7 million in the three months ended December.
2019.
On a sequential basis the decline in gross margin as the percentage was the combination of factors that included headwinds from fewer working days increased head count costs from hiring and our recent acquisition of <unk>, which is operating at lower margins.
On a non-GAAP basis, our gross margin was 41% or $12 $4 million down from 42, 6% or $11 $2 million in the third quarter of 2020.
41% or $13 $1 million from the same year ago period.
The sequential decline in non-GAAP gross margin as a percentage was driven by the same factors highlighted for you yet.
Adjusted EBITDA during the quarter debt excluded stock based compensation transaction and restructuring related costs was 13, 7% or for $1 million down from 16% are for $2 million in the three months ended September.
Quarter, and down from 22% or $6 7 million in the year ago quarter.
The sequential drop in EBITDA as a percentage of revenue was due to lower gross margins combined with higher operating expenses as compensation levels for fully reinstated.
On a year over year basis, the decline was mainly due to lower revenues combined with increasing operating costs such as public company costs.
Our GAAP net loss in the fourth quarter totaled $4 7 million or a loss of 10 cents per diluted share based on $49 7 million shares.
Paired to our GAAP net income of $2 1 million or nine cents per diluted share based on $22 7 million shares in the fourth quarter of year ago.
On the non-GAAP basis in the fourth quarter. Our net income was $2 2 million or four cents per diluted share based on 54 9 million shares compared to $3 7 million or 16 cents per diluted share.
Based on 22 7 million shares in the year ago quarter.
The decline in the GAAP and non-GAAP income was due to a combination of reasons highlighted earlier, both on the gross margin and the operating expenses for them.
Our cash cash equivalents and short term investments totaled $113 million down from $126 5 million in the third quarter 2020, and up from $42 million.
As of December 31, 2019.
The sequential decline in the current quarter was largely due to the acquisition of tax which was paid in cash.
The significant increase from the December 31, 2019 level balance was primarily due to the successful merger between <unk> and grid dynamics on March five 2020.
Now I'll provide you some.
Guidance for the first quarter and for the full year.
Coming to the first quarter guidance, we expect revenues to be in the range of 35 million to $36 5 million.
This includes $5 5 million in revenue contributions from our recent acquisition of <unk>, We expect our adjusted EBITDA in the first quarter to be in the range of $2 4 million to $3 for me.
For the full year 2021, we expect our revenue to be at least 156 million. This includes the contribution of $22 million from docs.
For Q1, 'twenty 'twenty, one we expect our basic share count to be in the $52 million to $53 million range and our diluted share count to be in the $58 million to $60 million range.
For the remainder of 2021 here some modeling parameters for the diluted share count.
And as you know we went public on March five 'twenty 'twenty as part of the spec process.
As part of the deal.
There were 11.35 million warrants outstanding.
On February 19, 2021, we issued an 8-K, where we exchanged six points for millions of roughly 56% of the outstanding warrants for common stock.
This exchange resulted in roughly $2 1 million common shares.
Depending on how of the remainder of the 5 million warrants of retired there are different scenarios of dilution in 2020 one.
Based on our estimates we believe it may vary approximately in the range of 2 million two 5 million shares.
That concludes my prepared remarks, operator, we're ready to take questions.
At this time, we'll be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You May Press Star two true remove your question from the queue for participants using speaker.
And may be necessary for you to pick up your handset before pressing the star keys.
The moment, while the poll for questions.
Our first question comes from the line of my young adult with Needham <unk> Co. You May proceed with your question.
Thank you good evening, congrats the Leonard and on El <unk>.
On close.
On the 20th I wanted to just start with the demand curious in terms of the pipeline and the pace of deal conversions are relative to say, maybe you know a few months ago as you've gone through the budgeting cycle. The clients. What are you hearing now from customers in terms of their visibility and propensity to spend on digital projects.
Hi, Brian This is Leonard from thank you for a question.
I would say there are two parts of the ex.
The first part is we definitely see the uptake and the uptick in AR.
And the number of verticals. So we do have engaged ourselves.
The number of opportunities on.
The other hand, I would say, we'll get a much better visibility on the conversion.
As the first quarter transition on the Q2 the humor.
January and February of tool because a lot of conversational time, it's a lot of projections like I said, we're exciting about.
For the funnel, but I will have a much better visibility.
Moving to two.
Got it and then I just wanted to switch over to obviously the revenue looks really good on the EBITDA side I think I know you mentioned a few other.
Factors, obviously, the <unk> acquisition does have some dilution in terms of profitability.
Should we think about EBITDA trajectory beyond the second quarter of sorry, the first quarter into to Q and it really in terms of framing the EBITDA outlook for the full year of any guidance around that.
Sure.
Great question, Mike So, let's just kind of break the home.
You know kind of EBITDA cushion to a couple of parts. So when you look at our guidance for the first quarter is your own 7% of 9% or 8% of the midpoint range. So a couple of of assumptions that we had out there.
As you know Q1 tends to be.
The seasonal factor comes in we typically start off on.
And lower levels and work our way so in a nutshell. The answer to your question is we're going to start off here and as the year progresses, we're going to see expansion.
So also in Q1, just to give you a little perspective, we have fewer working days the holiday season, and the essential needs from European or in early January.
Also you know there's an.
On a little bit more robust hiring going on because the demand environment is shaping up well and obviously you know that all works and finally, we've got our acquisition of Docs, which has lower gross margins and EBITDA margins and we will have a full quarter also you know as we've said over the past couple of quarters, we've got some.
Strategic.
Plans, we're gonna be building up our sales force we're building off of our training internship programs. So those are kind of the investments for the growth point of view, but as we come out of Q1, you should start seeing expansion has the go into Q2 onwards.
Great and then just finally in terms of revenue again, a very healthy outlook on an organic based on this well.
How should we think about the breakdown between the various levers that you have in terms of pricing utilization and then head count growth and given the recent hiring trends that would suggest that hiring is probably back to some level of normal levels for you, but just would love to get a breakdown of those three drivers of revenue for 2021. Thank you.
Sure well any time you look forward there are some of the journeys remember a year ago. We were very excited on March 1st and then Mark can happen. So let me be a little bit more subtle a sort of straight in my judgment, but.
I would say that all of hiring right now it's above the traditional level. There's a lot of demand, especially if you think about it our three key areas of Oh capability for growth one as it relates to the.
The cloud migration digital transformation and the second one is the relates to the customer data relationship on the data science of machine learning on the third one.
As it relates to the areas of.
On customer experience, we shouldn't be odd user experience kind of good that greatly greatly the Cape.
Capabilities of artificial intelligence. So all of these areas the required that just robust pipeline, but the significant investment in growth and the.
Technology can do it at a low.
Worked for it so I would say our growth path in terms of the utilization levels.
We're back to normal again.
You look at where we work last year grew a little bit.
Behind some of the areas, where we had to making the investments I don't see a problem there and what was the third area of I'm, sorry, you said the U S, but had current utilization and.
Let her just your commentary on pricing what are you seeing on the pricing front from the trends.
So well a lot of customers has a different approach towards price is if you look at the areas.
Where we excel the most.
There's a huge demand for the keep the daughters will go for the.
The solutions, we offer the accelerators, we hope for.
Oh pods as of.
Two of you know.
Sales from just the regular engagement sales, let's say that we have the wish you the halsey healthy.
Now and on price relationships as well.
Thank you so much congrats on the quarter Yep.
The Domenico I just wanted to give you a little bit perspective for everyone on the full year.
So if you look at our core grid growth, that's at least 21, 5% of it.
The 30 for he can do the math right, we're starting off the ear and obviously, we will have incremental updates on the course of the quarter. We did a bottoms up analysis and when we actually looked at our full year. You know the you know the the commonly 80 510 five rooms that we usually talk about.
On the ear is going to be shaping out more or less like that in the sense of that as you know our most of our revenues come from customers who have been there for some time.
Just to give you a little bit more color. There you know, we do expect technology to do well, we expect it to be the largest we're very bullish on CPG.
And you know some pick up on the retail, but we'll see how retail place on for the full year, but yes, I mean, the overall environment looks good and.
We'll obviously give you updates.
Great. Thank you so much.
Our next question comes from the line of the.
Joseph <unk> with Canaccord you May proceed with your question.
Hey, guys. Good afternoon, great results of nice outlook, just wondering if we could talk on the business development front, a little bit any progress or anything notable.
In Q4 relative to sales force hiring or development there.
And then you know maybe some commentary on I think you said you.
The new logo wins.
Maybe a little color on on how those deals came about and then all of the follow up thanks.
Sure sure well, we we've talked about it last quarter seems that we added more capabilities from the sales side and the various regions, particularly in the.
And the self.
Texas added more capabilities.
In the Midwest East Coast. So certainly of the investment is there and it started paying at all.
Of the distribution of the customer base of I read the said that they came from.
Basically the number of different verticals and again I would that total to say that we are absolutely vertical agnostic, but if you kind of summarize the various works for Ts.
The anybody right now.
Moves into the broader.
The world.
Drives about the same level of demand so the skills are moving.
And we also added two of our business development process some of the additional interest with respect to the.
Competencies for the specific specialization areas. So we're kind of working as a cross functional business drove the approach which combines.
The business competency of technical competency in particular areas of industries combined with the two classrooms in the relationship on the wrong with the dog.
Finally, we significantly from the uptick from our marketing campaigns.
See the debt our positioning of the call.
The other natural assume though.
The direct dialogue with the client so it's it's a very broad and they shouldn't.
And we see progress from watching the true.
Yeah.
Okay and then on the.
On the docks front, if I recall I think they have a more European customer base. So I was wondering if from now.
The other docs has been part of the company for a little while.
What you see as opportunities in.
And leveraging them in in terms of joint sales capabilities or how you see the the.
The the growth in the docs business in 2021 rare.
Relative to how they might've been as a standalone and then just one more on docs on I know the margins are a little low or if there's there's the strategy for lifting that a this year on moving toward thanks, Thanks very much.
Well.
George the dissertation.
Well, let me let me do the highlights.
The first and foremost.
Absolutely correct the focus from Europe, it's been the very strong at the.
The day point for grid dynamics to proceed with the acquisition.
If you look at the ownership previous one of the restructure of the company of the Burger several individuals from Netherlands, So the mineral ones position historically strong and they have sales, but you know the presence in the country. So that helps hold on.
Oh, I think Germany would be another.
A good example of where the.
The good reputation.
The the way how we.
The.
The corporate.
It's number of points first and foremost.
We specialize in the system approach not just the implementation part, but also the pledge of management.
Technology leadership, the architecture work, so we're able to complement and extend the services would come from the emphasis.
Good good.
The touch points for good.
The focus on the technology the start up the.
On the one global base of customers, they're great ex U.
Of our engine so.
The definitely helped us for the lending part.
And we are starting to work to do the expenses of a couple of good examples on the other hand, the corporation backwards works well to the tenants. If you look at some of the opportunities for the whole clients.
The west Gotcher more qualified the Kobe.
During the.
The ducks capabilities.
Good.
Hiring machine works well for both.
For kind of highlights in terms of the.
The corporation here too, but more of them, but he grew the.
Relative to say a little bit.
Three months to get the so far the very positive thing.
Goodbye.
Part of it.
The limitation is we all are having on the engineering team in Ukraine.
The other than the food shows.
So I would say the integration is going well and the quite old pointed on the U S customers definitely we're helping to lead this fall.
Great. Thank you very much longer.
Of course.
As a reminder, if you would like to ask the question. Please press star one on the telephone keypad.
The moment all of the poll for questions.
Our next question comes from the line of Bryan Bergin with Cowen You May proceed with your question.
Hi, Good afternoon. Thank you I wanted to follow up on head count. So certainly a big increase on an organic basis that you had on the quarter can you talk about how you thought the operating model performed my Rahmbo on boarding that many of anything to call out there where are you comfortable with that rate of expansion of it and what what locations specifically are you.
Are you increasing that offshore presence in.
Right.
Smart the pause.
The questions, Okay, well, we can share some of the part of our kitchen, but you know grid that makes the has its own very appropriate the methods of bringing them up to speed capabilities of people and one of the very key element is real low practice. So when you have the technology practices in the offshore located.
<unk>.
Easier to absorb and integrate people sort of matured they have basically of the.
On the training of information readily available for debt to get up to speed much quicker.
But on boarding people the processes first.
Jim.
The other part is when you start getting a good workforce influx from all.
Graduated.
People from the tertiary program again, the program is gaining momentum so the.
The people who've been with us on the training portal for some months and they get into the workforce faster.
Some of the edge of additional attributes comes from obviously, the ducks and the ducks are helping us.
On areas when you look of geography, it's pretty much across all of the.
The central European countries Hollywood is because several large clients and the <unk>.
Time of the distance with the new work.
More on.
Comparable with grid to extend our of pods of technical teams globally.
We are able to scale the momentum.
Extending more of the.
International growth rather than concentrating as we've done in the past the debt.
The customer location, so generally works well.
So we will be prepared for that.
Hum.
The storm.
The results of this year will certain of the rate of growth will only accelerate.
Okay. That's good and then on just one on the margin here. So the composition of your margin assumptions, taking dax into account how should we be thinking about gross margin levels as you get a full quarter here in <unk> and then as you work through 2021, and then also you know further down.
Should we be thinking about the pace of of G&A operating leverage has the scale.
Yes.
Thanks for the question, Brian So look I mean, the as we get a full quarter of debt the margin impact is going to be there. If you look at our you know the differential between them and non as far as both the gross margins and operating margins or EBITDA margins are lower than grid on the gross margin from the differential is.
More than the EBITDA margins largely because of their business model is slightly the.
Designed differently.
The fall into Q1, we'll have a full quarter of impact and obviously, you'll have a seasonal impact from our core business. So that's why you're going to see a little bit more you know.
Kind of the.
Near term.
Moving on the gross margin front, but as we go into the.
The second quarter onwards.
You know, there's obviously leverage in our model and that will offset.
And then you know over time as we understand some of the more nuances and so tell the teams of docs you know there's going to be some leverage there, but as we've also seen theres just so many moving parts right now because we are having the offshore on trend, which should be a tailwind right and that's gonna be there plus then we've got all the investments that Linda talked about.
For our growth so when I look at the gross margin, yes, we're gonna see Uh huh of.
Downside in the Q1 is going to be lower than our Q4, but then from there we're going to pick it up and the leverage in the model over time, obviously, it's going to come from.
As you know well you know we have.
Several million dollars of public company cost, which is there.
Docs is primarily located in the.
Ukraine area. So there is some leverage there that we could be exploring that will actually play out over the course of the year.
Okay. Thanks.
One last clarification just on the tech clients you mentioned.
And the sequential decline from the <unk> that that was entirely due to the shift for more on to more offshore. So just the per capita impact no other changes in relationships.
No from that relationship the relationships are as robust.
Brian as a matter of fact theyre going deeper.
And we had if you look at the ear and of course for some of these larger take clients of their ear on furloughs to write the ear and shutdowns. There is the offshoring component, which are you know kind of the REIT designation of the bench so to speak of.
A little bit of of movement, there, but as we go into.
Our Q1 onwards, we're going to see a pickup so we're very bullish of the sector and the relationships are Linda do you want to add anything to that.
Yeah. There was one other subtle sector, which you need to take into consideration. If you guys recall going through some of the challenges of 2020.
<unk> made some of the aggressive temporary cost reduction by reducing the compensations for good bonuses and the other.
The stuff and then Q4.
We came back to the full compensation model right. So there's some transition related to that as well so I think it.
It's not unusual when you see a little bit of the Q4 kind of situations of it's you know it's you know it's very late of the URL.
For the next year, where all of this combined with the specific Q4 getting the they have grown fast, but there was the cost added because we restated the colo.
For the competitions.
Thanks, guys.
Thanks, Brian.
Our next question comes from the line of Maggie Nolan with William Blair. You May proceed with your question.
Hi, Thank you.
On the positive for the brand.
No.
I'm wondering are you expecting to see of change in the mix going forward between onshore versus offshore delivery given that you've just kind of moved work from that tech client offshore and then how willing are your clients to embrace offshore delivery and does that typically change over the life of the relationship.
Yeah.
Thank you Maggie.
You know what.
We don't have a crystal ball for you.
For the future is going to do for us.
We've been trying to convince the number of customers for a long time, but the on.
On offshore combination could be more favorable from the.
The performance and efficiency perspective, some of the will.
Resistance, but the the.
Try the works.
What is going to happen one.
The country will come back to the normal operating mode.
People will come back to the offices I would say the some kind of uptick.
Uptick back to try to bring more people in the you know.
Either for the offices or sometimes on the need that some some returns of the previous model, but I don't think it's going to completely move back to the control of the onshore the close I think we proved ourselves to be there for.
Christian.
We are supportive of the customer trends.
Their demand.
On to the.
From other areas of operation.
Operation as well of those claim management data management et cetera, So I.
Oh, I actually like the balance we still need to have onshore presence I've always been saying the so now the heavy some good quality of W.
Other ship on the arc.
Sure well good good management of data help Hulu for communications, the most efficient way. So we will continue to invest in the onshore.
So it may not be at the customer offices, but still in the United States for.
He assured however, the definitely welcome the Cornell club.
Is that when you grow cash.
And Oh OXXO locations.
Thanks, Leonard and then <unk>.
After what period of time or your sales professionals.
Really truly productive and with that sales force ramping and you're starting to see the investments play out should we expect to see a meaningfully higher level of new logo additions in 2021.
Oh.
This is this is the word answer.
Myself, I really don't like and sort of the depends right.
A lot of effort to do the best we could bring on board so the fruits of their relationships.
Still requires some engagement time because of the great dynamics model.
You know it's.
The high quality, it's the.
So the specialist services expenses would do so.
Let's say six to nine months, it's the kind of range, where we start seeing some good traction again remember we're not taking some really low it's more engaged we're looking for the top.
On technology companies the enterprises global businesses. So I would say that's it on average sometimes we're likely to get some of these tests.
<unk> of them speaks a little bit longer the again.
We will invest in the long term relationships. So so far we've been satisfied with grid.
Alright, Thank you for taking my question.
Thanks Maggie.
Our next question comes from the line of Tim <unk> with Northland Capital markets. You May proceed with your question.
Alright, sorry about that good afternoon.
Hey, I have some some questions on the acquisition on the docks acquisition and really.
How.
Indicative, we should consider that as well.
In terms of what you might be interested in doing heading forward.
Or is this kind of more of a one off opportunity and I say that just because of some of the.
The metrics here.
The you'll look to of paid something around.
The revenue level that you're.
For for next year, assuming that's the case are obviously.
Obviously trading at several times that the same same.
Same thing with regard to.
The enterprise value per employee in terms of acquisitions here may be paying a 10th of a of what your training.
On the other hand revenue per employee does seem to be lower than historically.
To be.
So with all of those and minor other opportunities to bring those revenue metrics up in line with with where grid has historically.
Or from your perspective as you look at it now are there a bunch of other doctors out there.
Yes.
Well.
Thank you Tim.
I'm thinking about the best way to describe the situation.
As you might have known or not the.
Ed.
As to Europe, and Central Europe for the acquisitions for quite a long time.
This is not the first time, we've ever kind of message, we have been having kind of ascension with docs.
Some time ago earlier.
We.
We look at very different set of matrix has for a number of acquisitions with cash on.
Net white.
The areas, where we are looking for.
This includes European market.
European of friendly.
What piece of for engineering, but they're also the some specializations so yeah.
Software packages.
The piece of the near shore some of them translate to the street.
Verticals.
Thanks.
You know, it's like it's very difficult to guess the.
The next step with interest.
Trying to make the conclusion based on this one acquisition we obviously.
Revenue to be aggressive on so.
The competitors.
This is the great market to find some good companies I would say that the no such thing because many of ducks.
And I think this acquisition has the same flavor, but when you see us, bringing the next one and an extra debt.
There will be different profiles like I said, Oh strategy was met a few years ago now where we are trying to get out of balance at the mall.
Most efficient way to extend the company growth.
It's very very important to diversify the type of investments, which you will see.
The one important point of just one of them the also.
The revenue matrix of.
The dollar per employee of Ducks moving.
The little bit of harder to gauge because they are pretty much all of them.
All of the work is done in eastern Europe. So it would bring dynamics was doing the work and they do the work combination United States.
Central Europe.
In Israel also their business model is a little bit.
So it's a good acquisition I'm very excited about it we've got great people and then the.
Time of colleagues, we've got very friendly relationship between the.
All of this integration groups, but you'll see some of the different phenomenon for now.
Going forward.
Okay.
Great and if I could follow up quickly and I think he may of.
Alluded to this earlier I'm not sure I quite got it though but as you add the the acquisition revenue and how does that impact your <unk>.
Mix across the verticals. It seemed like technology was was the big focus there, but just want to make sure I got that right.
Yes, so Tim if you look at the DOCSIS exposure you know just to give you a kind of a sense roughly 60% of their business is in the TMT space. They tend to be more kind of areas like high Tech software.
You know the cyber security law.
The logistics.
And retail is about 12% give or take financial service is about 10% and they've got other other areas such as health care of lifecycle life Sciences.
You know energy and the other thing so they're more diversified but the most of the revenues come in they're TMT. So coming back to your question as we look into 2021 and beyond you know that's why we feel incrementally confident the T. R technology verticals will continue to be the largest in 2020 one.
Okay. Thanks very much.
Thank you Kim.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Leonard Lipsitz CEO. Thank you for closing remarks.
Thank you everybody for joining us on the call today 'twenty 'twenty will be remembered as the dramatic here for all of us in the many ways and that goes for.
Our company or debt.
We persevered and recover.
And it was a year, where the company was just under unique situations and as our results over the last three quarters of Shaw will successfully navigate well.
While the pandemic is not yet over as we enter the 'twenty 'twenty. One there are many reasons to feel the positive.
It looks like we're there.
They've been done extraordinary items.
As many people get back to me on the global economy recovers businesses get back to normal level of operations, we feel confident grid the amendments prospects in 2020 one.
Look for to sharing with you the business update in May of next quarterly earnings call.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
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