Q2 2023 Grid Dynamics Holdings Inc Earnings Call
[music].
Yeah.
Good afternoon, everyone welcome to pre dynamics second quarter 2023 earnings conference call <unk> <unk> head of Investor Relations.
Okay.
Alicia only mode.
Joining us on the call today are CEO laggards that shifts and our CFO Neil Corrado.
Following their prepared remarks, we'll open the call to your questions.
Please note today's conference is being recorded.
Before we begin I would like to remind everyone that today's discussion will contain forward looking statements. This includes our business and our financial outlook and the answers to some of your questions.
Such statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with ICT.
During this call, we'll discuss certain non-GAAP measures of our performance.
GAAP to non-GAAP financial calculations and supplemental financial information are provided in the earnings press release, and the 8-K filed with SEC.
You can find all of the information I've just described in the Investor Relations section of all of that effect.
That I will now turn the call over to Leonard our CEO .
Thank you Ben.
Good afternoon, everyone and thank you for joining us today.
As you have seen from our published results.
Dynamics' second quarter revenue was in our guidance range and non-GAAP EBITDA significantly exceeded expectations.
Also on the give me she was.
We achieved record net income since becoming a public company.
Our results are commendable and reflect the company's unrelenting commitment to our clients.
There were some noteworthy trends, including strong new logo wins meaningful contributions from new logos that we won over the past couple of quarters and deeper relationships with our ship.
It could just.
This has been a recurring theme with.
So the best several quarters en route.
The springs are all for it.
Additionally, the significant interest and engagement with our clients on artificial intelligence initiatives continue to positively impact our business.
Without <unk>.
Operationalized, many keep your eyes across the company.
And then Mac.
Oh opinions have remained unchanged.
During the quarter with many of our clients, we witnessed continued recalibration of spending priorities and investments.
Also customers continue to transition their projects from higher cost locations to lower cost offshore locations and this is playing to our favor as we have our global delivery footprint and locations of choice for our clients.
During the quarter, we ensure doe spending level aligned with the current demand environment and as disciplined bid over the second quarter profitability.
We are also witnessing three important trends that lead us to the incrementally positive conclusions.
These trends are expected to play out in the third quarter to.
First the magnitude of resets at grocery customers are diminished.
We're seeing stabilization in business. It grows the majority of well counts and finally thirdly.
All forms of new engagements, both with new clients and existing clients are on their rates.
This includes enhanced activities with partnerships engagements on empty official intelligence and willingness from new logos to work with us on their digital transformation needs.
While uncertainties persist and it's too early to make any definitive commentary around demand snapback.
We believe underlying trends are moving in the right direction, leading us to the incrementally positive view.
Yet we remain conservative in our third quarter.
As I highlighted in the best coming out of economic cycles.
Dynamics is stronger as a company proves to be a reliable partner in delivering on our customers' business objectives in an efficient manner.
Also the current economic cycle should provide us a great opportunity to realign and organized according to our Giga cube finish.
This includes adding new talent across different industry verticals, both in sales and CPG organizations.
We're also witnessing great access to high quality talent as our strengths and depreciation became more visible across the industry.
Over the past couple of quarters, we have incrementally invested in our engineered resources towards building, new R&D artifacts are accelerators and artificial intelligence capabilities.
There are many positive trends with our technology organization. This includes several exciting opportunities with AI.
Georgia has been strong.
<unk> and center across a broad range of clients and we're witnessing exponential interest in our enterprise AI solutions, particularly in generative AI, including conversational AI data harmonization solutions.
We're currently engaged in multiple billable projects.
Created a robust portfolio demo capabilities and solutions.
Our R&D organization completed nine AA project during the quarter. There are currently more with over 20 enterprise clients.
As a reminder, we the naming <unk> engagements are based on more than seven years of internal research and successful implementations.
Without regenerative AI offering we partner with customers to employ large language models and from guidance image interaction to the application and product design and visualization as well as knowledge from wealth management and customers.
During the quarter.
Now a significant global partnership with Google cloud to develop and implement innovative general degenerative AI solutions.
This partnership will result in incremental customer wins for Green dynamics in the second half of 2023 and beyond.
This partnership is a reflection of agreed dynamics position as an industry leader in AI.
Great dynamics will leverage Google cloud verdict C. I a platform that incorporates powerful foundational large language models and advanced.
Image generation capabilities.
With this partnership we expect to significantly accelerate and develop innovative solutions across the financial services and insurance manufacturing and life science pharma industry.
On the Youtube initiatives, we continued to make good progress as you know <unk> is a strategic <unk>.
The leaves out a framework for our company to over $1 billion room.
Is it most all part of the organization that includes sales R&D marketing operations as well as M&A.
We made some exciting additions to our team. This includes a senior sales leader and specialized sales executive across automotive pharma and insurance. These additions will accelerate our new industrial vertical penetration highlighted now give accumulation in the quarter. There were several notable trends and I would like to share with you some of them.
Logo momentum.
In the second quarter was signed nine large enterprise clients. This spring the new enterprise logos added in 2023 total to eight.
Additionally, we added new customers from our recent acquisitions. We believe Q2 client acquisition is a further testament of competency and the confidence for large global enterprises to sign up with three dynamics in the current environment.
Some of the most notable wants to mention include a leading digital payment service company.
Global consumer healthcare company, a global athletic wear company.
Global Hotel and hospitality cheap and then North American art and craft sheets.
We're very proud of our achievements and this is a testament to our differentiation and value we bring to our cost.
Do you relocation support.
Moving to our delivery operations, our execution remained Florence.
As some more recent logo wins, we were able to quickly put together and ramp up dedicated teams across our global delivery locations.
Additionally, our integration with next year in mutual mobile is in full swing and have started to implement synergies gross engineering operations and other back end functions.
Our customers have a choice of over a dozen countries across North America, Central Europe and India.
Ill followed the same strategy enables our clients to be served and uninterrupted fashion around the clock.
Clients support our geographic diversification and chorizo locations, where engineering support.
European business.
During the quarter made good progress in expanding our footprint across industry verticals with our European plants.
As a global specialty automotive parts company, we're implementing a major composite <unk> commerce modernization platform.
And another global automotive and tire company, we're involved in a significant digital transformation initiative.
Automotive tire wear in their predictive maintenance using data engineering and analytics.
With artificial intelligence. We're also engaged with the high end apparel company in Netherlands in order.
The meeting process description using product attributes and images and finally with a European based global truck manufacturer, we're starting a project to modernize deal management system in the very near future.
Partnerships.
They will continue to be an important part of our growth and have become a significant contributor.
To lead generation.
In addition to the general partnership with Google Cloud. They spoke a few minutes ago. We're also working with many of our clients across industry verticals as they move from events.
Brewer concepts to real world business transformation solutions.
Our relationship with Microsoft Azure.
And AWS are expanding in the future.
Green dynamics has been recognized for its advanced specialization by Microsoft which earned US the membership Microsoft Azure migration and modernization program.
Additionally, we continue to invest in growing number of independent software vendor partnerships and <unk>.
Supply chain is still experience marketing and commerce that means we're expecting and enhancing the value of delivery across the entire C suite.
We are engaging with chief operating officers should market officers should product officer.
Others.
M&A.
With M&A the integration of our acquisition of <unk> technologies, which very cool quiet on April 18th 2023 is working well.
To remind you this acquisition strengthens our presence in strategic verticals, such as healthcare Fintech and manufacturing.
I'm happy to report that in the short time of three plus months.
We're able to integrate the operational back end functions. Additionally, we're able to really keep the employees in Hyderabad to the new construct degree dynamics office will also have an office in Shanghai as well.
We're currently working on a business development synergies and expect to start cross selling across our customer base in the next couple of quarters.
Beyond our recent acquisitions the pipeline for M&A opportunities is robust.
We're actively working on multiple opportunities and we'd be happy to provide updates.
As the time becomes right.
As a reminder, all M&A focuses on capabilities key clients and delivery locations.
During the quarter grew dynamics delivered some notable projects.
And they're really now in financial services and wealth management firm, we are piloting in the native AI based knowledge management platform.
This platform offers thousands of financial advisors with direct access to the firm's best enterprise data natural language <unk>.
Xena retrieval augmented generation technology, and leading large language models the platform will improve for activity with financial advisors and help them to create highly personalized updates and offerings that are our clients.
We are a leading global technology company, we successfully executed a massive migration of user segmentation pipeline to a new cloud data platform.
This BOP lines play a crucial role in processing and extensive range of data signals encompassing diverse aspects such as user demographics spending the styles usage frequencies and more.
This solution ensures better scalability to address growing amounts of data and fault tolerance.
At a prominent membership only chain with modernize their mobile app to enable and enhance better security frictionless payments and user experience. Therefore, the result it.
And an increase in the browse to pay conversion.
And substantially reduce the uninstall rate by a factor of seven X currently the mobile App is serving tens of millions of shoppers in the United States.
For a major CPG brands.
We delivered a solution that significantly shorted checkout time in their physical stores, even four orders with many small items.
Or is this existing.
Security tax to skin shopping bags and requires minimal modification, there historically out or Pos.
Good work.
Once deployed across the clients 900, plus stores as potential to significantly decrease labor cost and increased customer service.
With that.
Let me turn the call over to our new <unk>.
We'll discuss Q2 results in more detail.
<unk>.
Thanks, Linda good afternoon, everyone.
Our second quarter revenue of $77 2 million was within our guidance range of 76 million to $78 million and we provided to you all in our earnings call in May and reiterated it on June six.
On a year over year basis, both on a reported and constant currency the growth was flat as the impact of currency movements were negligible.
On a sequential basis, our revenue declined by three 4% during the quarter, we witness headwinds from some of our customers as it continued to rationally to spending levels during the quarter, new builder revenues contributions offset macro driven caution from others.
During the second quarter retail our largest vertical representing 33, 7% of our revenues increased by two 5% on a sequential basis and grew two 3% on a year on year patients within the retail vertical on a sequential basis, we witnessed growth from areas such as home improvement Department store.
And specialty.
TMT, our largest second largest vertical represented 31, 2% of our second quarter revenues decreased by 10% on a sequential basis and grew 3% on a year over year basis on a sequential basis, we witnessed continued caution and some of our large TMT customers.
This was offset by growth both from existing and new logos.
Here are the details of the revenue mix some other verticals, our CPG and manufacturing represented 14, 1% of our revenue in the second quarter, a decrease of 14% on a sequential basis and 32, 4% on a year over year basis.
The decline on a sequential and year over year basis came from some of our large customers as a readjusted their spending levels to the current macro environment.
The finance vertical represented eight 7% of revenues an increase of three 6% on a sequential basis.
And 33, 7% on a year over year basis, the growth in the quarter came from a combination of financial technology customers as well as new logos.
And finally other segment represented 12, 3% of our second quarter revenue.
And was up 10, 1% on a sequential basis.
Strong sequential growth was driven by growth in our health care and pharma customers.
We exited the second quarter with a total headcount of 3862.
Up from 3744 employees in the first quarter of 2023 and.
And up from 3763 in the second quarter of 2022.
The sequential increase of 118 employees from three two person was largely due to our recent acquisition of next year.
<unk>, which we acquired in April .
At the end of the second quarter of 2023, our total USA Congress 317, or eight 2% of the company's total headcount. This remained on the same level compared to eight 1% in the first quarter of 2023 and slightly decreased from eight 7% in the year ago quarter.
The year over year.
Slight decline as a percentage of total revenue was largely driven by growth at our offshore locations, resulting in greater mix of non USA count our non U S headcount located in central Eastern Europe , India, U K, and Netherlands, Mexico, and other locations was 3545 or 91, 8%.
In the second quarter revenues from our top five and top 10 customers were 37, 6% and 56, 6%, respectively versus 44, 2% and 62% in the same period a year ago, respectively.
During the quarter, we had a total of 216 customers down from 220 in the first quarter of 2023.
And up from 208 in the year ago quarter.
The decline in customers on a sequential basis was largely from our commercial business, which focuses on smaller customers do.
During the quarter, we signed $90 from our enterprise business.
Moving to the income statement, our GAAP gross profit during the quarter was $28 $3 million.
36, 6% versus $28 6 million or 35, 7% in the first quarter of 2023 and down from $28 9 million or 37, 3% in the year ago quarter.
On a non-GAAP basis, our gross margin was $28 8 million or 37, 3% versus $29 million or 36, 3% in the first quarter of 2023 and down from $29 1 million or 27, 7% in the year ago quarter.
The increase in gross margin as a percentage on a sequential basis, both on a GAAP and non-GAAP basis was largely due to high utilization of engineering resources.
non-GAAP EBITDA during the second quarter that excluded stock based compensation depreciation and amortization restructuring and expenses related to geographic makeup organizations.
Transaction and other related costs of $12 million or 15, 5% up from $10 8 million or 13, 5% in the first quarter of 2020.
And down from $13 3 million or 17, 2% in the year ago quarter.
Sequential increase in non-GAAP EBITDA was largely due to a combination of higher levels of gross margin as a percentage compared with lower operating expenses on.
On a year over year basis, the decline in non-GAAP EBITDA was driven by increase in operating expenses from our recent acquisitions.
Our GAAP net income in the second quarter totaled $2 6 million or a <unk> based on a basic share count of $75 1 million shares.
Prior to the first quarter loss of $8 million or 11 cents based on a basic share count of $74 5 million and a loss of $13 2 million or loss of <unk> 20 per share based on $67 1 million basic shares in the year ago quarter the year over year.
The increase in GAAP net income was largely due to lower levels of stock based compensation and significant decrease in geographically organization expenses.
On a sequential basis the increase in GAAP net income was largely driven by a reduction in stock based compensation expenses on.
On a non-GAAP basis in the second quarter, our non-GAAP net income was $7 million or <unk> <unk> per share based on $76 9 million diluted shares.
To the first quarter non-GAAP net income of $6 5 million or <unk> <unk> per share based on $77 1 million diluted shares and $8 2 million or 12 cents per diluted share based on $69 9 million diluted shares in the year ago quarter.
The increase in non-GAAP net income from the second quarter was largely due to higher gross margins and lower Opex savings.
The decrease in the non-GAAP net income in comparison to the year ago quarter was largely from higher levels of operating expenses.
On June 32023, our cash and cash equivalents totaled $246 $2 million.
Down from $258 4 million in the first quarter of 2023.
The key reason for the decrease on a sequential basis was due to the all cash acquisition of on X Ray technologies, which was made on April 19th.
Coming to the third quarter guidance, we expect both revenues and non-GAAP EBITDA to be at similar levels to what <unk> guided for Q2 in May.
We expect revenues to be in the range of $76 million to $78 million and non-GAAP EBITDA to be in the range of $10 million to $11 million.
The third quarter, we expect our basic share count to be in the $75 million to $76 million range and for diluted share count we expect it to be in the 78 to 79 million range.
That concludes my prepared remarks, Ben we are ready to take questions.
[music].
Thank you Danielle.
As we go through the Q&A session. Our first announcement name at this moment. Please financial your line turn on camera.
Our first question comes from the line of <unk> Chen from Jpmorgan.
Please go ahead.
Hi, Thanks for taking my question.
Leonard like you talked about like 20 clients, who you are providing some startup AI services.
I believe he is out of total of 100 enterprise customer set that could be like 20% of corporate customers.
To whom you are providing <unk>.
<unk>. So can you talk about what type of services you are providing.
Those clients in AI and since some of these customers also outsource to satisfy.
But how are you going to then Shan <unk> at those times.
I think it would be well it's it's.
Quite a comprehensive question. So thank you for pointing out the percentage too.
We're quite proud that we are still in the <unk>.
Basically the cradle of AI.
AI expansion or evolution, so we already capture a substantial percentage of our client base. So.
The projects we have started.
Some of them actually wrong from before.
It was defined as a modernization of technologists.
We've been noise.
Our investments in machine learning data science.
So large models.
Data for me to get out of the future. So.
Now when it kind of becomes more as a part of creating some tangible monetization of the declines we've seen some trends where we actively parties.
First and foremost.
<unk>, it's only a subset of work with you.
Since we are focused on.
Large enterprises from Sweden.
The ultimate definition for us, it's the enterprise arbitration, which comes with the supply chain of our predictive models for the supply and demand.
Travel.
The variances of the forecasts and others.
Comes to the wealth management financial companies.
We are accelerating the hub adjustments, which related to the personal this full portfolios, we were talking about a medical zelle clients in them.
In the areas of pharmaceuticals.
Masuda go life science, those are related to their own models, which help them to accelerate the decision on <unk>.
Internal critical development and so on so forth not demand not just forget about our beloved consumer world, where most of the work as <unk> seen so far I mentioned to be mostly in the Beecher seaworld.
It's a lot of customer consumer behaviors, which are scaling to the.
Very large amount of the preparation.
And you should be at a significant cost savings associated with those businesses now in terms of our competition.
It's absolutely true I mean, everybody is thumbs up on sales we are the leaders.
The audience.
And we are taking a more modest approach we're looking to add.
More and more proven cases of the Rois. So in other words are aware that our customer.
Financial gains starting to come in tangible so we do quite a few proof of concepts, but I think one of the key advantage of <unk>. Since we started this initiative over seven years ago, some of the pool and convertible analytics comes into fruition in them as we speak so.
So we'll continue to update your opinions on the team.
Well you were very bullish on the expansion luminescence.
Okay, no thanks, but a comprehensive answer that asphalt.
Let me ask about new logo contribution you have talked about in the past 80 515.
<unk> 80, 510 five model.
So given like the strong client activity, new new logo contribution that you have seen.
Is that at a point, where you would expect to be in any normal year like the new plant.
Contribution.
And I understand the remaining 95% of our businesses meet but odd new clients.
At that point, maybe you would expect them to be and in Australia.
Yeah.
Very good question very good memory.
You know the reality is our you know yourself well that some of the.
Traditional clients, which started at the high a year ago.
Reduce the extent right so.
The reason why it's important that we reported 18, new clients and enterprise level since the beginning of the year, we expect that second half of the year monetization will come into fruition now we tend to be continues to be cautious because the first projects were not.
All of them, but we are quite a few wells there we're still in the land and expand mode, there hyperscale or our engagements with their cloud transformation with some notable isc's some of them come into the work with the Red.
To the defined budget like entertainment systems, but they are Hugh we started much higher level.
So we see that the numbers are increasing but I wanted to ensure that fiber is.
That's because the 85 goes down but because the absolute value of Richard So, but the answer is yes, we will likely see the higher contribution.
Okay. Thank you.
Thank you.
Thank you puneet.
Our next question comes from Josh <unk> from Cantor Fitzgerald. Please go ahead.
Yes, hi, Thanks for taking my question today.
First I'd like to start on AI, just given its significance.
And obviously, it's gaining a lot of traction. So are you seeing any specific interest from any one vertical over another for AI solutions or is it brought the man and further is greatest AI solutions, helping to provide a nice strong pipeline for future new logo additions.
Okay well.
The area, we've been known for for railroad for all time with them.
Yeah.
The retail this full brands the more of the DTC side of business.
Amanda is enormous because the results are easy to verify on the very short term right to win.
It would've been leaders in our.
Natural language processing for a long time.
Now when it comes to large language models the <unk> P&L.
So that space just from the percentage of our businesses, it's pretty sweet.
The upcoming.
Upcoming and expanding.
This is in our supply chain.
Obviously, it's.
<unk> set up the manufacturing, it's becoming more and more substantial for us we see the notable momentum in our life science, that's certainly a big momentum, which is going to be what I told my view with or without us. So we better be sharpening, our pencils, where their custom bespoke models for them.
Which we are in the early stage, but it's working.
And the area of the pretty much everything by but the tech itself and the reason I want to emphasize that that part is because.
We are together partnering to provide the.
Solutions for the enterprise stay are so enterprise, Yeah really falls on the enterprise side of the tech companies have their own models right. So.
There is a combination of the open source models.
And the proprietary models with the manufacturing and the Fintech and what Ive said that life science is becoming more and more trend those show would be.
Very competitive.
But races, which we'll participate on both sides with the partners.
Other part of it is becomes a very critical for US is sexually cyber security we've been investing in for cyber security for Awhile now becomes even more clear critical where are some of the normal.
AI.
Discoveries are happening simultaneously.
The massive number of datasets and providers and finally.
The cloud is one part of it but a lot of computational and capable our capabilities will run on a defined.
It continued to grow in our enterprise.
You know working on our enterprise capabilities become more and more critical so its really I take them from all the fronts and we are very bullish in <unk>.
So our position on the plants.
Understood. That's helpful color. Thank you very much and then in your prepared remarks, I believe you mentioned driving higher utilization from your employees, but just helping to foster those higher gross margins can you provide some more color on this and do you expect these levels of elevated utilization to remain as we move into the back half of points My theory.
Okay.
It's never good enough right [laughter] you. If you are a are you building your business momentum and you're always thinking about what is going to be in the business momentum to the next level when the inflection point, thus kid and material returned to growth.
We are doing massive retraining of the people, but at the same time, our whole loan predictable models, which we build internally in terms of understanding the profitability in various of the business help us too keeler better the skill sets of the peak so in other words.
When we get projects going.
We have much lower level of delays between turning people into profitable business versus the involvement them into interim to your approach and its notable when you get a new enterprise clients you can wait for months to that people become trained and capable to implement so that's that.
Probably the biggest impact which will continue to foster internally how to fit the training them capability with all our engineering workforce on the project level or at the system level with the clubs.
Just just adding one statement to that Josh.
Josh I think Thats, a very key statement and linear foot because that's the leverage in the model going forward right.
Have the resources, we have the capabilities and as we see some of these demand trends come back you will see all these people to work and then that will have an impact.
Okay.
Understood. Thank you very much I appreciate it.
Neither.
Thank you Josh next part of your question.
Our next question comes from Maggie Nolan from William Blair.
Your line is open.
And then on Hana.
On AI, it's pretty clear that you have years' worth of expertise kind of balancing up to this moment.
Should we expect to see any perceptible pickup in dollar spend or investment in AI. Our journey II and then what would that look like in terms of magnitude.
Yeah. So.
The magic wand is here, but the crystal ball is not so.
We do have all the tools necessary to scale the business.
It's really how it's becoming more of a consultant.
Because the ability to build the model scale them all accretive the predictable.
Our recommendation is there.
Depending on the business the financial benefit may vary because it takes some time not only to train the model.
Finally, the financial impact because there are other variances.
Variances, besides just optimization of the forecasting and other stuff for example that the market trends.
The competitive threats for our clients. So when they tried to do they try to take projects.
Rather than massive transformation of this point and they went around those cases at least we are involved so there are sizable dollars, but I almost remember when we.
The the cloud transformation from on Prem to a private cloud to hybrid cloud to the public now kind of reversing the trend rollout of those computational capabilities. So I see that.
We're going to have a bit of a step function right now we're in the early stage, where the dollars are still limited with the projects are notable but I think there's gonna roll up into the sizable part of the business, which means one of the important factor for US. There are many questions asked what's the role of the software engineers.
The future requires less over 80 people and how would how those.
People will look like and we would not covered in that mix.
And our I T engineers, we are highly trained intellectually.
Intellectually developed professionals in our data and software development space in the cloud space, which means that while the industry go through transformation, we are spending more and more into meeting the the match from the capabilities and it's relatively beneficial to us versus.
Some more traditional <unk>.
Thanks Monica.
And now that the margins were strong this quarter I'm wondering if you can talk a little bit about specific drivers as operating expenses is there a possibility that these trends are over the next couple of quarters.
Thanks for the question Maggie So and you saw.
This quarter, we had restaurants 200 bps expansion on the EBITDA side right, we saw gross margin expanding.
In my comments that we had in our prepared remarks around greater utilization of engineers.
And then also on the operating front you saw it go down by about $1 million.
Driven by the fact that given the environment that we're in we're just prioritizing our investments and spend.
Now as we go into the back half of the year.
Approaches continues to be cautious on the spending but that said you know certain initiators and.
Projects that we deemed as essential.
<unk> been prioritized.
So.
We will see how.
Things play out on the revenue side on the demand side, obviously, there's going to be a lot of leverage there but.
Well, we'll go one quarter at a time and the hope and the aspiration is from a margin point of view.
Should see some tailwind.
Thank you Beth.
Thank you.
Thank you Mike Thank you Maggie.
Next question comes from Bryan Bergin.
T. Colin Please go ahead.
Hey, guys. Good afternoon, good to see you.
Wanted to start on kind of existing base and industry expectations. As you go into the next quarter. So can you talk about what youre seeing in the existing client base, where they are seeing signs of stabilization that are becoming a little bit more broad based and specifically if you can kind of keen on TMT and CPG as you plan for the third quarter.
Okay.
So but.
Not select any specific vertical I think it's pretty much goes across all of them at this point, we do see a stabilization.
On a technologist space specifically.
Is there a limit more claim to Glenn vary, but most of them because they are giants right. So one department goes live and more active and are spending the other one takes a little bit back seat but from.
From the CPG.
No different than manufacturing or get a life science, we see that dynamics of conversations start becoming more deterministic.
Deterministic by dollar.
Investments and recently, we were one couple of very notable.
Rfps.
Great for us anyway, because its something we are doing there have been more aggressive and.
We see that.
The company is our start preparing theres anticipation.
Then there will be an inflection point in Q4, and maybe even late Q3, but those are.
A little bit more speculative we.
Yes.
To reflect our <unk>.
<unk> based on the effects, but I would say that from the demand dynamics of the engagement with existing glass.
No new customers you already know, we're doing fine, but it doesn't create that.
Inflection from the short term revenue perspective. So we do believe there is a there is gonna be a some positive momentum coming in.
Okay, that's good to hear.
And then a general question for you, but more so much internal so can you just talk a bit more about how youre applying generative AI.
Obviously early proof of concepts internally any any early measures of success you can share around developer productivity and I also wanted to give you a point on really a high level question, but do you think that this technology can potentially reduce the competitive benefits of scale, meaning do you see this as an opportunity for some of the smaller.
A more specialized vendors to have a leg up and competitive positioning versus some of the large scale global players.
Hum.
Let me start with the last one of course I would love to tell you there was nobody in the world better than us right.
That's the same.
The big guys can invest big dollars.
Big Dallas can lead to big failures, because this is not the time to compete on the size of investment per se, it's how smart.
The models must be proven.
Can't prove the model still there is a sizable resolved in the industry and you need to remove the bias the noise.
I hope everybody who've done their model and they realize that how sensitive the environment of the forecasting to the boundary condition to the variance in the older stuff and you need to really look at the consistent correlation.
That's all I have more technical so I see I do believe on a laser focus engagement rather than a broad based announcements that we've got to put X billion of docs now are seeing it on a what do we do internally there are a lot of things happening. So first of all on the call itself.
But it's not a secret as people say you know of course could be developed with.
With a national come out with you know augmentation of the code the quality controls the automation to the next level, where there's a I.
I would say artificially driven sectors again internally, it's always works great because you know it's.
With teams for ourselves.
But the importance to test those samples of the codes with a with a class what did say as I mentioned just before you asked this question in terms of the productivity.
In terms of selection of a skill.
The skill sets map, which we've been using for a long time, there's a lot of guesswork. There I think is becoming a little bit more deterministic, but he was in the stochastic processes all of the large models. So we do believe that internal review increase it but our focus is on experimenting the models also on AR.
Core substitutions.
The ability to implement the <unk>.
Dependence software vendor products into the major a stream.
Okay. That's clear thank you.
Thanks, Brad.
Thank you Brian .
Our next question comes from Ryan Potter from Citi.
Go ahead.
Yeah, Hey, guys. Thanks for taking my question.
I wanted to start on pricing I was wondering if you could give some color on how pricing trends are kind of all the past few quarters.
Our clients pushing back more on price or is it become more of a certain criteria.
The longer ones.
We have seen increased adoption.
<unk> XP or upon models.
Sure. Thanks for the question.
Look this is a question that we've entered in the past when there is no exception to that even today climb.
Clients always want better prices right I mean that is always one of those.
Steve.
I think what we'd go back to the reclined is value per dollar spent.
Whether it's on some of these cutting edge technologies, where there is some.
Some of these are difficult problems to solve and time again, we prove ourselves to be.
A partner of choice, where the value of dominant and they spent right now in the current environment as we have macro headwinds play out as we've seen in the past.
If there is some incremental pressure with the clients that we have a talk with them on one on one basis, we have sometimes short term arrangements, where we accommodate some of their request and then.
Reverted back to historical levels, I would say that from a pricing point of view nothing has fundamentally changed long term, but in the short term, there's a little bit of a give and take as some of our clients also faced pressure and we've been good partners of them helped them out.
Leonard whether you want to yes, I think the color is probably on the back of their mind at all you guys.
How are we dealing with the pricing coming out of India.
Did they take it out of your mouth or default.
Voluntary too much right.
Because it's no secret when you move your force from Central Eastern Europe , and your scale, India. The biggest question becomes what's your pricing position well.
We've done a few acquisitions or I know you were extending an existing team I think we're holding the pricing well and this is because.
Our teams are extremely well trained and intra interline, we heard good quality people in the right.
But with our European organization, So we don't necessarily wrong.
Project for one reached where it truly global followed the sound strategy as we're getting more and more involved with the Indian offices are all clients, we should by the way a great addition to our business we will see how it is going to hold but we've maintained the focus on hiring people.
Creating their consultancy approach that all our people kind of work the same quality around the world and also the maintaining of the high quality of the insurance. So right now it's fine the thing with our newest telling you as a generic trend, but I'm quite proud that we.
Implement I'll give her Cuba approach with the fall of the Sun very consistently across all the regions.
Got it I'll follow up on delivery and getting cube.
Not earnings deck. It looks like you added five additional countries pseudo remarks, like Spain, Portugal, Turkey.
Were these organic addition did they come through acquisitions and then more broadly can you kind of discuss your.
The strategy around delivery expansion.
And diversification.
Well.
We have not ever in these countries is a big Central's of engineering yet.
There is a mix of local hires with some of their reallocated.
And we have reviewed each center.
Was there.
Great filter.
In terms of the synergies with other locations.
And I recently visited in pretty much all of the countries you just named.
And.
I am not a collector of the geographies yeah. It's one of those things you put it.
You work with a suitcase, which has a little stickier from every country visit right, that's where the tourists not for the business we need to make money in every place we go but we need to bring the value with a local partner so number one.
Guiding factor for the new countries as the relationship with the University.
That's been their early stage, we've made some very key notable universities.
As those relationships you will prosper.
And then we can say definitively how scalable those.
As new countries will be but certainly the young talent is there are I would say is that repeated multiple times, we're not creating shelters for people to really keep I mean, that's just the one part we need to be a homegrown.
The organization with a homegrown relation with universe, so that we'll do and we'll keep you updated but right now the focus from the oral growth is unquestionably India.
Mexico and in Central Europe is going between.
Poland, Romania, and Serbia to some extent we are we have a good team in Armenia.
Still a good team in Ukraine, and a few other places, but as we expand we need to take all these factors into administration, but we'll keep you posted.
Got it thanks again.
Thank you Ryan.
Yeah.
Thank you Brian .
Our next question comes from the line of Hawaiian Tandon from Needham. Please go ahead.
Good evening I had a couple of questions.
First was.
You didn't comment on the fourth quarter, specifically, so just curious.
Are there fewer billing days as we're modeling our fourth quarter revenue off the third quarter I just wanted to make sure we check on that one and then secondly have you been hearing from certain companies. Some of your peers out there is that potential for a budget flush given the sort of pent up demand that's building any comments around that to help us frame the fourth quarter.
Sure, so you're you're bringing two things which have oh.
Closing FX rate, you're absolutely right fourth quarter tends to be from a billing these point of view across the industry.
We're gonna exception.
Now in the past being a smaller company with high growth you know.
One off client they start growing also the timing of some of these projects can actually impact the movement from Q3 to Q4, but in general yes from a number of days point of view, there's a little bit of a decline now the second point that you bring up his budget flush which is a very good point and that is something we all have to see as an industry.
Well, what we saw in previous cycles, you know if you don't spend it you lose it right.
A little bit of that going on so.
I don't want to comment upon.
Four at this stage, we're doing one quarter at a time.
These two points that you bring up are very valid and as part of our planning process as we look into the business. Yeah. One more just squeak comment on that in the very early of this session. Please ask a question about the contribution of the new clients. So that's.
And that's one of the area, where we see also the contribution later in the year, whether it's going to be a larger or medium time will tell in a month or two so we will talk about this in the November and from this existing customers I would not call it the budget.
Flush and the reason being is we find that more and more as we go through the diversity of the industries. They tend to have fiscal years not necessarily aligned with the calendar years, what we do see for the Q4, it's what's missing from the investments earlier in.
The year, Jamie considered to start this like are there, but again those are Neil said, it's it's a it's a bit speculative, but it's not without the aries.
That's a helpful color and then my second question is really more housekeeping one on Ala what was the revenue contribution from the acquisition in the second quarter was that for the full quarter and then also really good to see the stock compensation expense come down as a percentage should we assume that as the run rate going.
Forward or should we expect further golf's, maybe more in line with industry peers.
So I'll start with the second question, Yes. The way you should model is.
<unk> seven we had about $7 1 million this quarter right, so plus minus around that range for the remainder of the year. So that's a that's a good observation that you made in.
In terms of the.
New logos and new acquisition revenue contribution as you know next year was acquired on April 18th right and as we said in the last quarter to kind of a.
Low to mid single digits is what you should be looking at for my competition plan.
Sorry, just to be clear low single digit in terms of absolute dollars right.
First stage.
Got it great. Thank you so much thank.
Thank you Andrea.
Thank you Matt Thanks for your question.
Ladies and gentlemen that would be all of the Q&A session today.
Small and I will pass the line back to lever for closing remarks.
Thank you everybody for joining us on the call today.
Continue to focus on executing towards our stated goals.
There are many reasons to feel positive about our business.
Great dynamics strong execution technology leadership, and Florida's delivery set us up extremely well coming out of this economic stake.
Our clients continue to place their confidence in our abilities and we continue to execute towards our plan gearing for a $1 billion revenue company.
Recent trends, where they are only validated our technology strengths and look forward to sharing with you many new and exciting updates in November .
Thank you.
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Yeah.