Q4 2023 Grid Dynamics Holdings Inc Earnings Call

[music].

Bin Jiang: Good afternoon, everyone. Welcome to Grid Dynamics' fourth quarter and full year 2023 earnings conference call. I'm Bin Jiang, head of investor relations. At this time, our participants are in laser homing.

Good afternoon, everyone.

Welcome to great dynamics fourth quarter, yes.

Earnings Conference call.

The Investor Relations at this time.

Lisa.

Operator: Join us on the call today as CEO Leonard Snipshet and CFO Anil Doradla make their prepared remarks, followed by our poll for 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 concludes our business and financial outlook and answers to some of your questions. Such statements are subject to risks and uncertainty as described in the company's earnings release and other findings with the ICC.

Joining us on the call today.

Dennis.

As CFO Neil.

Following their prepared remarks, we'll open the call for 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 financial outlook and the answers to some of your questions.

The statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with SEC.

Bin Jiang: During this call, we will discuss certain non-GAAP measures of our performance. Gap to non-gap financial recalculations and supplemental financial information are provided in the earnings press release and the AK filed with the SEC. You can find all the information I have just described in the investor relations section of our website. With that, I will now turn the call over to Leonard, our CEO. Thank you, Ben.

During this call, where we'll discuss certain non-GAAP measures of our performance GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release, and 8-K filed with SEC.

You can find all of the information I have just described on the Investor Relations section of our asset.

That I will now turn the call over to ladder our CEO.

Thank you bill good.

Good afternoon, everyone and thank you for joining us today.

Leonard: As you have seen from our published results, Grid Dynamics for Squared Revenues was above our guidance range and exceeded Wall Street expectations. It was another quarter of solid execution and continued focus on our outstated goals. The core witnessed a lot of our students, both in sales and CTO, the two key areas within the company where we invested significantly in 2020. On the sales side, our industry-centric efforts are paying off across all divisions. In 2023, we added 33 new offers, which is a strong testament to our differentiation in a year where customers were more selective toward business and Digital Providers.

As you have seen from all those results really underscore squared revenues were above our guidance range and exceeded wall Street expectations.

Another quarter of solid execution and continued focus on our stated goals.

A lot of our students both in sales and CTO organization.

Two key areas the companies, where we invest significantly in 2023.

On the sell side.

Our industry centric efforts are paying off across all the verticals in 2023.

New orders, which is a strong testament to our differentiation in a year, where customers were more selective to our business.

Traditional providers with respect to the CTO office, our scientists are heavily engaged with clients across the spectrum of innovative solutions, including AI to drive meaningful business outcomes.

Leonard: With respect to the CTO office, our scientists and architects are heavily engaged with clients across the spectrum of innovative solutions, including AI, to drive meaningful business outcomes. To that end, we released several new functional accelerators across industry verticals, which have resulted in greater engagement across both new and existing technologies, supply chain manufacturing, pharmaceutical, and financial services, which is an area of focus with our GigaCube initiatives. The ability to offer unique and differentiated offerings has resulted in accelerated acceptance across a wide range of industries. To support the strong demand for AI skills, we established a comprehensive AI training program. I'm happy to report that over 25% of our engineers are trained in generative ads. Our AI curriculum is rigorous and is segmented across three tracks, ranging from introductory AI to more advanced topics. It may take up to several quarters to complete the entire curriculum on the macro front.

Does that then we released several new functional accelerates across industry verticals. We showed resulted in greater engagements across both new and existing customers and supply chain manufacturing pharmaceutical and financial services, which is area of focus with our gear cube initiatives the ability to.

To offer a unique and differentiated offerings as a result in accelerated acceptance across a wide range of customers to.

To support the strong demand for it skills, we established comprehensive AI training programs.

We don't report that over 25% of our engineers are trained to Jeremy.

Our AA credit from this rigorous and as <expletive> mentioned a gross return.

Our ratio from introductory.

Good morning.

It may take up to several quarters to complete the entire group.

On the macro front.

Leonard: I'm happy to report that the demand environment is improving. The demand trends are directionally consistent with my commentary over the last couple of quarters. While we're yet to get back to normal at levels of growth, we're moving in the right direction.

I'm happy to report that the demand environment is improving.

The demand trends are directionally consistent with my commentary over the last couple of quarters, while we're yet to get back to normalized levels of growth. We are moving in the right direction in many ways the sequential growth without first quarter revenue guidance reflects our sentiment.

Leonard: In many ways, the sequential growth with our first quarter revenue guidance reflects our sentiment. We'll assume positive trends with our four company specific facts. First, we see customers either choosing to maintain their current level of spending or moderately improve it with increases in investment. We witnessed a similar trend last quarter. The fact that customers demonstrate more stability is an important step in getting back to historically normalized levels. This is reflected in the steady rise in unbillable headcount trends from our existing lows. Second, drops in revenue across some or all large existing customers are moderate. To put it in perspective, in 2023, the consumer revenue headwinds we faced were limited to a handful of existing cuts.

We also assumed a positive trends with our four company specific factors.

First we see customers either choosing to maintain their current level of spending or waterway brewed with increases in the west.

Well, we witnessed a similar trend last quarter. The fact that the customers demonstrated more stability is an important step in getting back to historical normalized levels.

This is reflected in the steady rise in our billable head count trends from our existing laws.

Second drops in revenue across some of our large existing customers are moderating to put it in perspective in 2023. The considerable revenue headwinds we faced were limited to a handful of existing customers.

Leonard: We anticipate this trend will diminish in 2024. This bodes well for the company's growth in 2024. Third, our partnership-driven revenues are growing steadily. In 2023, roughly 13% of our revenues came from partners.

We anticipate the strength will diminish in 2021.

This bodes well for the company's growth in 2024.

Third our partnership driven revenues are growing steadily in 2023, roughly 13% of our revenues came from partnerships the accelerated investment into partnership programs a couple of years ago.

Leonard: They accelerated the investment into partnership programs a couple of years ago, and I'm bullish on expanding and monetizing more partnership opportunities in 2024 and beyond. And fight on, fourth!

I am bullish on expanding and monetize more partnership opportunities in 2024 and beyond.

And final report.

Leonard: Our New Logo Momentum. In 2023, we invested in a broader, industry-specific, creative, dedicated sales team to pursue new logos and opportunities. We expect this to continue to be an important component of our growth in 2020. Our follow-the-sun strategy has been successful with our clients. Today we serve our customers from 18 countries, and our global footprint fully aligns with our customer needs. Welcome to the first order of Puneet Jain.

Our new logo momentum in 2023 third invest in the broader industry specific created dedicated sales team to pursue.

New logos and opportunities we expect this to continue to be an important component of our growth in 2020.

I'll follow this our strategy has been successful with our clients today, we serve our customers from 18 countries and our global footprint fully.

Aligned with our customer needs.

That will come into the first quarter of 2020.

Leonard: We're almost two months into the quarter, and the characteristics that I shared with you today apply to the first quarter. Our billboard headcount continues to grow, our air activity is robust, and the headwinds from a handful of clients continue to diminish. We believe underlying trends are moving in the right direction. As we enter 2024, our city organization is highly focused on expanding our capabilities, highlighted in our GeoCube strategy. This includes building new R&D innovations, accelerators, and AI solutions. During the fourth quarter, we made good progress with the approval of concepts and customer pricing related to artificial intelligence. An internal R&D innovation lab, which we call GridLabs, has generated several functional accelerators and AI-related architectures.

Almost two months into the quarter and the commentary that I shared with you today.

Extend to the first quarter.

Our billable headcount continues to grow our activity is robust and the headwinds from a handful of <unk>.

<unk> continued to diminish we believe underlying trends are.

And to the right direction.

As we enter 2024 hour city organization is highly focused on expanding our capabilities and now <unk> switch. This includes building new R&D innovations accelerators and the air solutions.

During the fourth quarter, we made good progress with our proof of concepts and customer pricing related to institutional intelligence.

Normal R&D innovation lab, which we call grid labs has generated several functional storage and AI related architects to date, Aaas infused across breakfast and industries as well as customers representing over 80% of our revenues are engaged repeat dynamics on AI initiatives and more of it.

Leonard: Today, AI is infused across practices and industries, as well as customers representing over 80% of our revenues are engaged with Grid Dynamics on AI initiatives, and more than 50% of our new engagements have an AI component. These include industry verticals beyond which we have historically been stalled, such as supply chain and manufacturing, financial services, and pharmaceuticals. Some of our new AI innovations include pricing applications and Internet of Thing Analytics.

50% of our new engagements how many acres.

This includes industry verticals beyond which we historically have been strong such as supply chain and manufacturing financial services and pharmaceutical.

Some of our new AI innovations include pricing applications in.

Internet of things analytics, visual quality control and industrial vision launch languish models.

Leonard: Visual Quality Control and Industrial Vision Launch Language. As a reminder, Grid Dynamics AI Engagements are based on more than seven years of internal research and successful implementation, with our journey very often partnering with customers to employ large models in a variety of applications. This includes 12 guys in the generation. Product Design and Visualization, Knowledge Retrieval, Wealth Management, and Customer Representation. In the first quarter, there were several notable trends, and I want to share with you some of them. Longer women!

As a reminder, <unk> engagements are based on more than seven years of internal research and successful implementations with our journey, where we partner with customers to employ.

Large models in a variety of applications.

Good <unk>.

Mid generation product design, and visualization knowledge Ritchie wealth management and customer support.

In the first quarter there were several notable trends and I want to share with you some of them.

Lord Ahmed.

Leonard: In the fourth quarter, we signed five new and debris customers. This brings the number of new enterprise loggers in 2023 to 33 months. This is a record number of new logos for us, and it's a testament to our reputation with large global enterprises. Of the new enterprise customers, one is the largest omni-channel specialty retailer.

In the fourth quarter, we signed five new enterprise customers.

This brings the number of new enterprise logos in 'twenty, two 'twenty three to <unk> 33 months.

This is a reported record number of new logos for US and is a testament to our reputation with large global enterprise.

The new enterprise customers, we signed in the quarter, one is the largest omnichannel specialty retailer.

Leonard: One is a large insurance company, and one is a software company focused on revenue management for the healthcare industry. Delaware Kitchen.

<unk> is a large insurance company and one is a software company focused on revenue management, where the health care industry.

The other locations.

Leonard: Our Follow the Sun strategy continues to be a guiding principle in enabling our clients to be served in an uninterrupted fashion around the clock. I'm proud of our ability to serve our customers across 18 countries spanning across North America, Europe, and India. I'm happy to report that we're opening an office in Bengal. This brings the total number of Indian offices to three, which includes Hydro-Web.

Our followed the sound strategy continues to be guiding principle, and enabling our clients to be served and the entourage. This fashion around the globe I'm proud of our ability to serve our customers across 18 countries spanning across North America, Europe and India.

You mean there.

I'm happy to report that we are opening an office in Bengal.

This brings the total number of Indian offices to three which includes hydro Bud and Chennai.

Leonard: Our clients have successfully engaged with Grid Dynamics in leveraging our presence and expansion in India. In Europe, we continue to expand our footprint in Poland and Romania. In Poland, our growth is increasingly driven by partnerships with client-local. With respect to our recent acquisitions, we will complete all the engineering integration by the end of Q1. You're dead, Europe continues to be strategic to our growth. In 2023, our revenue from Europe will be roughly 20% of our total revenue with customers across industries. During the quarter, we made good progress in expanding our footprint across industry verticals with our existing and European clients. To highlight some notable achievements during the quarter, let me point out that with a leader in legal index services, we're partnering to use GNI technology and build a global data platform to accelerate the ability to serve their customers with reviews and publishing of content, and with a large UK-based retailer, we signed a multi-year contract to modernize their e-commerce platform. At a global counterpart company, we expect to roll out their composable commerce modernization platform across other brands within Europe.

Our clients have successfully engage with great dynamics and leveraging our presence in expansion.

In Europe, we continue to expand our footprint in Poland and Romania.

In Poland, our gross is accretive and do it by partnerships with our clients local centers with respect to our recent acquisitions. We completed all of the engineered integration by the end of Q1.

The European business.

Europe continues to be strategic door growth in 2023, all revenue from Europe was roughly 20% of our total revenue with customers across industry verticals. During the quarter. We made good progress in expanding our footprint across industry verticals with our existing in European glass.

To highlight some notable achievements during the quarter.

Let me point out that we're the leader in legal index services, we're partnering.

Jim Technology, and build a global data platform to accelerate their duty to serve their customers with reviews and publishing of crackers and a large U K based retailer, we signed a multiyear contract to modernize their ecommerce but.

Global Auto parts company, we expect to rollout there are composite book covers modernization platform across other brands within Europe for.

Leonard: We're a large medical device company. We're launching initiatives in data engineering and generative AI. The goal is to enhance the efficiency of sales reporting products.

For a large medical device company, we are large initiatives and data engineering and charity of yet.

The goal is to enhance the efficiency of sales reporting process.

Leonard: And finally, at a large clean energy company, we're enhancing their sustainable ESG industry for the show. As I highlighted before, partnerships are increasingly playing an important role in our growth and our long-term plan for becoming a billion-dollar company. Let me remind you, in 2023, partnerships contributed to 13% of our overall revenue. Again, this is impressive given that we embarked on this strategy in 2021. And within a short period of two years, we have achieved such impressive results.

And finally at the large clean energy company, we're enhancing their sustainable ESG initiatives.

Partnerships as I highlighted before partnerships are increasingly playing an important role in our growth and our long term blip towards becoming a billion dollar company.

Let me remind you in 2043 partnerships contributed 2% of all overall revenue again. This is impressive given that we embarked on this strategy in 2021 and within a short period of three years, we have achieved such impressive results.

Leonard: Not only with our partners, AI is becoming a core element of our joint go-to-market strategy. Looking forward to 2024, we have strong momentum with hyperscalers and linear digital commerce SAAS companies, as well as other specialists in their brands.

Notably with our partners AI is becoming a core element of our joint go to market strategy looking forward to 2024, we have strong momentum with Hyperscale is linear digital Congress.

<unk> companies as well as other specialists or <unk>, our focus is to capture greater wallet share.

Leonard: Our focus is to capture greater world share. Dear Humanition, With GigaCube, we continue to make good progress. As you know, GigaCube is our strategic blueprint that lays out a framework for a company toward a billion dollars in revenue. We operationalize Geocube via four key areas.

Year accumulation.

With <unk>, we continued to make good progress as you know we review with our strategic blueprint that lays out a framework for our company toward $1 billion in revenue.

Operationalize the four key areas.

Leonard: Knowledge Management, Partnerships, New Vertical Focus, and Winning Larger, and each of these fronts have made progress, both in Q4 and a full 2020. With our knowledge management efforts, we have cataloged over 100 important delivery case studies that are being used across pre-sales, sales, and delivery organizations. This is important.

Knowledge management partnerships, new vertical focus and winning larger deals and each of these fronts remained brokers both into Q4 and our full 2023 with our knowledge management efforts. We have a catalog of over 100 important delivery key studies that are being used across prefills sales and delivery organizations.

This is important we explained the proliferation of our learnings from each project and program to ensure that the whole company benefits focus.

Leonard: We explain the proliferation of our learnings from each project and program to ensure that the whole company benefits. During the quarter, Grid Dynamics did some normal projects. For a leading global technology company, Grid Dynamics enhanced the Recommendation Engine, one of the largest online streaming services. We successfully implemented cutting-edge machine learning heuristic techniques to enhance the quality of the data used by the Recommendation Engine.

During the quarter <unk> equities do with some normal projects.

For a leading global technology company Green dynamics enhance the recommendation engine one of the largest online streaming services, we successfully implemented cutting edge machine learning heuristic techniques to enhance the quality of the data use better recommendation engine.

Leonard: Our engagement covers the entire machine learning process, including model engineering, evaluation, deployment, and post-production efficacy monitoring. This resulted in significant improvements in the relevancy recommendations and the system's capability to self-adjust in real time. For one of the largest auto part distribution retail, Grid Dynamics has been actively engaged in the modernization of the product catalog, which enables search and browse functionality. Our solution uses generative AI to correct for..., generate descriptions, correct categorization, enhance attributes, and highlight discrepancies on a broader... As a result, this client expects to improve customer conversion in user experiences, leading to an increase in sales across both B2B and B2C channels. For a multinational financial service provider, Grid Dynamics leads a cybersecurity program to onboard over 400 custom-built applications to SailPoint and DTD

Our engagement covered and drilling machine learning process, including Mato engineer evaluation deployment and postproduction efficacy monitor this resulted in significant improvements in the relevance of our recommendations and the systems capability to self adjust in real time.

For one of the largest autopart distribution retail company <unk>.

Actively engaged in the modernization of the protocol, which enables search and browse functionality.

Our solution uses Gerry Liang too.

To correct broke images generate descriptions correct categorization. He may have attributes and highlight discrepancies in our broader digital.

As a result, this client expects to improve customer conversion and user experiences leading to increase in sales across both b to B and C shares.

For a multinational financial service provider Green dynamics, Lisa Cyber security program towards board over 400.

Build application to Sailpoint identity IQ platform.

Anil Kumar Doradla: The solution enables our client with a full life cycle of identity and access management, ensuring proper duty separation to meet the latest security compliance standards. We expect to expand this project during the next phase and onboard another over 1,000 applications to this platform. For a global automotive manufacturer, Grid Dynamics developed a cloud-native platform that enables an intuitive end-to-end user experience and promotes in-house financing to car shoppers, which is expected to increase vehicle sales through the digital transformation. With that, let me turn the call to Anil, who will discuss Q4 results in more detail. Anil?

This solution enables our clients with their full lifecycle of identity and access management, ensuring proper duty separation to meet the latest security compliance standards, we expect to expand this project during the next phase.

As board another over 1000 applications to this blip.

For a global automotive manufacturer Green dynamics develop a cloud native E Commerce platform based on a robust micro services architecture.

This platform enables an intuitive and to end user experience and promote in house financing to car shoppers, which anticipates to increase that vehicle sales through the digital channel.

With that let me turn the call to our new we'll discuss Q4 results in more details.

Neil.

Anil Kumar Doradla: Thanks Leonard. Good afternoon, everyone. Our four-quarter revenue of $78.1 million was slightly ahead of our guidance range of $76 million to $78 million and exceeded Wall Street expectations. On a sequential basis, our revenue grew 0.8% and was down 3.1% on a year-over-year basis. Relative to last quarter, we saw greater stabilization across the majority of our. During the fourth quarter, retail, our largest vertical representing 31.5% of our revenue, declined by 7.4% on a sequential basis and by 4.2% on a year-over-year basis. For more information, please visit www.bradyfoundation.net. On a sequential basis, the decline was largely from specialty retail offset by strength in home improvement.

Thanks, Nick.

Afternoon, everyone. Our fourth quarter revenue of $78 1 billion was slightly ahead of our guidance ranges and 86 million to $78 million and exceeded wall Street expectations.

On a sequential basis, our revenue grew <unk>.

8%.

It was down three 1% on a year over year basis.

Relative to last quarter, we saw greater standardization across the majority of our accounts.

During the fourth quarter became our largest vertical representing one 5% of our revenue decreased by seven 4% on a sequential basis and by four 2% on a year over year basis.

On a sequential basis, the decline was largely from specialty retail offset by strength in home improvement.

Anil Kumar Doradla: TMT, our second largest vertical, represented 31% of our four-quarter revenues, grew 1.9% on a sequential basis and decreased by 10.9% on a year-over-year basis. On a sequential basis, the growth was largely driven by some of the large technology. Here are the details of the revenue mix of other verticals. Our CPG and manufacturing represented 12.4% of our revenue in the fourth quarter, flat on a sequential basis and a decrease of 31.3% on a year-over-year basis. During the quarter, we witnessed stabilization at our largest CPG customer and growth at other customers. In finance, vertical represented 10.6% of revenue, an increase of 13.4% on a sequential basis, and 32.6% on a year-over-year basis.

<unk>, our second largest vertical represented 31% of our fourth quarter revenues.

Grew one 9% on a sequential basis and decreased by 10, 9% on a year over year basis.

On a sequential basis, and Brooklyn, largely driven by some of the large technology customers.

Here are the details of their messaging mix of other verticals, our CPG and manufacturing represented 12, 4% of our revenue in the fourth quarter flat on a sequential basis and decrease of 31, 3% on a year over year basis during the quarter, we witnessed stabilization and our largest CPG customer.

And growth at other customers.

The finance vertical represented 10, 6% of revenue an increase of 13, 4% on a sequential basis and 32, 6% on a year over year basis.

Anil Kumar Doradla: The growth in the quarter came from a combination of financial technology customers and users. And finally, the other segment represented 14.5% of our fourth quarter revenue and was up 11.5% on a sequential basis. sequential growth was driven by strength across multiple customers, some of them in the health care and restaurant sectors. We exited the fourth quarter with a total headcount of 3,920 versus 3,823 employees in the third quarter of 2023 and up from 3,798 in the fourth quarter of 2022. At the end of the fourth quarter of 2023, our U.S. headcount was 331 or 8.4% of the company's total headcount. This remained on the same level compared to the third quarter of 2023 and slightly decreased from 8.9% in the year-ago quarter. Our non-US headcount located in Europe, America, and India was 3,589, or 91%.

Growth in the quarter came from a combination of financial technology customers and use all of us.

And finally, the other segment represented 14, 5% our fourth butter revenue and was up 11, 5% on a sequential basis.

The sequential growth was driven by strength across multiple customers some of them in the healthcare and restaurant industry.

We exited the fourth quarter with a total headcount of 3920 versus 3823 employees in the third quarter of 2023 and up from 3798 in the fourth quarter of 2022.

At the end of the fourth quarter of 2023, our U S head complex 331, or eight 4% of the company's total head count. This remained on the same level compared to the third quarter of 2023 and slightly decreased from eight 9% in the year ago quarter.

Our non U S headcount located in Europe, Americas, and India was 3589 or 91, 6%.

Anil Kumar Doradla: In the fourth quarter, revenues from our top 5 and top 10 customers were 39.7% and 55.3% risk reduction, versus 43.2%. 60.4% in the same period a year. Respect. Respect. We witness continuous diversification and greater contribution from our recently acquired, During the fourth quarter, we had a total of 218 customers down from 224 in the third quarter of 2023, flat in the earlobe, and declines were largely from our commercial customers offset by growth in our enterprise. Moving to the income statement, our GAF gross profit during the quarter was $28.1 million or 36% and remained flat compared to $28.2 million or 36.4% in the third quarter of 2023 and down from $32.3 million or 40.1% in the year-ago quarter. On an on-gap basis, our gross profit was $28.6 million or 36.6% versus $28.7 million or 37% in the third quarter of 2023 and down from $32.7 million or 40.6% in the year ago, increase in gross margin as a percentage on a year-over-year basis, both on a gap and non-gap basis, which is largely due to a combination of epic sentiments, costs associated with expansion into new geographies and other areas.

In the fourth quarter revenues from our top five and top 10 customers were 39, 7% and 55, 3%, respectively versus 43, 2% and 64% in the same period a year ago.

Respectively.

We witnessed continuous diversification and greater contribution from our recently acquired buildings.

During the fourth quarter, we had a total of 218 customers down from $2 24 in the third quarter of 2023.

Flat in the year ago quarter and declines for Nike from our commercial customers offset by growth in our enterprise customers.

Moving to the income statement, our GAAP gross profit during the quarter was $28 $1 million or 36% and remained flat compared to $28 2 million or 36, 4% in the third quarter of 2023 and down from $32 3 million or 41%.

In the year ago quarter.

On a non-GAAP basis, our gross profit was $28 6 million or 36, 6% versus $28 7 million or 37% in the third quarter of 2023 and down from $32 7 million or four.

<unk>, 6% in the year ago quarter.

The decrease in gross margin as a percentage on a year over year basis.

On a GAAP and non-GAAP basis was largely due to a combination of FX headwinds costs associated with expansion into new geographies.

Estimates.

non-GAAP EBIT margin in the fourth quarter that excluding stock based compensation depreciation and amortization restructuring expenses related to geographic reorganization transaction and other related cost was $10 7 million was 13, 7% of sales versus $10 7 million or 13.

Anil Kumar Doradla: Non-GAAP EBITDA during the fourth quarter that excludes stock-based compensation, appreciation, and amortization, restructuring, and expenses related to geographic reorganization. Transaction and other related costs were $10.7 million or 13.7% of sales versus $10.7 million or 13.9% of sales in the third quarter of 2023 and down from $16.5 million or 20.4% of sales in the year-over-year quarter. The year-over-year decline in non-GAAP EBITDA as a percentage was largely due to a combination of a decline in gross margins, an increase in operating expenses related to acquisitions, and investments in our sales earnings. Our cabinet income in the fourth quarter totaled $2.9 million, or $0.04 based on a basic share count of 75.7 million shares compared to the third quarter income of $0.7 million or $0.01 based on a basic share count of 75.5 million and a loss of $6.7 million or $0.09 per share based on 74 million basic shares in the year-ago quarter.

9% of sales in the third quarter of 2023 and down from $16 5 million or 24% of sales in the air a little corner.

The year over year decline in non-GAAP EBITDA as a percent instruments market due to a combination of declining gross margins increase in operating expenses related to acquisitions and investments into our sales organization.

Our GAAP net income in the fourth quarter totaled $2 9 million or <unk> based on basic share count of $75 7 million shares compared to the third quarter income up $7 million or <unk> based on a basic share count of $75 5 million and a loss of six.

<unk> 7 million or nine cents per share based on 74 million basic shares in the year ago quarter.

The year over year increase in GAAP net income was largely due to lower levels of stock based compensation and significant <unk>.

Decrease in geographic reorganization costs.

On a non-GAAP basis in the fourth quarter, our non-GAAP net income was $5 7 million or seven cents per share based on 78 million diluted shares compared to the third quarter non-GAAP net income of $5 9 million or <unk> <unk> per share based on $77 3 million diluted shares.

Anil Kumar Doradla: The year-over-year increase in GAAP net income was largely due to lower levels of stock-based compensation, and significant decrease in geographic reorganization. On a non-gap basis, in the fourth quarter, our non-gap net income was $5.7 million, or $0.07 per share, based on 78 million diluted shares, compared to the third quarter, non-gap net income of $5.9 million, or $0.08 per share, based on 77.3 million diluted shares, and $10.5 million, or $0.14 per diluted share, based on 76.5 million diluted shares in the year and a half.

And $10 $5 million or <unk> 14 per diluted share based on 76 5 million diluted shares in the year ago quarter.

On December 31, 2023, our cash and cash equivalents totaled $257 2 million up from $253 7 million in the third quarter of 2023.

Coming to the first quarter guidance, we expect revenues to be in the range of 77 million to $79 million.

We expect our non-GAAP EBITDA in the first quarter to be in the range up.

$9 5 million to $10 5 million.

For Q1, 2024, we expect our basic share count to be in the 76, 5% to $77 $5 million range.

Anil Kumar Doradla: On December 31st, 2023, our cash and cash equivalents totaled $257.2 million, up from $253.7 million in the third quarter of 2020. Coming to the first part of guidance, we expect revenues to be in the range of $77 million to $79 million. We expect our non-GAAP EBITDA in the first quarter to be in the range of $9.5 million to $10.5 million.

And our diluted share count to be in the 78, 5% to $79 $5 million range.

That concludes my prepared remarks, we are ready to take questions.

[music].

Thank you Anthony.

As we go to the Q&A session of this call I will first that announced their name at that point. Please on the inkjet itself and turn on the camera.

Our first question comes from the lie of banking Nolan from William Blair Maggie Your line is open.

Bin Jiang: In Q1 2024, we expect our basic share count to be in the 76.5 to 77.5 million range, and our diluted share count to be in the 78.5 to 79.5 million range. That concludes my prepared remarks. Bin, we are ready to take questions. Puneet Jain, Bryan Bergin, Maggie Nolan, Anil Doradla, Bin Jain, Rajiv Sharma, Grid Dynamics Thank you, Anil. As we go to the Q&A session of this call, I will first announce your name. At that point, please unmute yourself and turn on your camera.

Hi, Thank you.

They have to update that as that sounds really solid so congrats.

I know you only guide one quarter at a time, but at this point in the year I'm wondering if there's any visibility anything you can share with us either quantitatively or qualitatively about how the second quarter, it's coming together and beyond if there's anything to comment there.

Okay.

Thank you for your question well, it's interesting just starting to ramp up over 23 talk about six months forward.

Got you.

No problem as does the tone of conversation that we are.

A bit on the rebound and we do sound optimistic I would say that without going into all the details because the environment is still the bigger right.

Bin Jiang: Our first question comes from the line of Maggie Nolan from William Blair. Maggie, your line is open. Hi, thank you. I appreciate the update. The business sounds really solid, so congratulations. I know you only guide one quarter at a time, but at this point in the year, I'm wondering if there's any visibility, anything you can share with us, either quantitatively or qualitatively, about how the second quarter is coming together and beyond, if there's anything to comment on there. Thank you for your question.

Complex.

I would say that the.

I expect Q2 to be how are you.

New high watermark in terms of.

Our revenue position.

That's all the time now.

It doesn't sound a lot today, but if you look at the last 12 months I think we're kind of getting ourselves back to shape to the normalized growth.

Okay, Great and then.

Great to see that new logo commentary the additions that you've had.

I'm curious what we can expect from those in terms of the revenue ramp and the margin contribution as we see those accounts ramping.

Leonard: Well, it's interesting to start the wrap-up of 23, talk about six months going forward, but you probably sense the tone of the conversation that we are a bit on the rebound, and we do sound optimistic. I would say, without going into all the details, because the environment is still a bit of a mess, I would say that I expect Q2 to be our new high watermark in terms of our revenue position. It doesn't sound like much today, but if you look at the last 12 months, I think we're kind of getting ourselves back to shape to the normal age group.

Sure.

So.

As you know our model, but probably that's a little bit of beat up right now it's 85.

Great.

This 5%.

Turning to be a little bit more.

Predictable.

And some extent dependent as well so the larger logos, which we grow upon.

Now last quarter.

The quarter after.

There ultimately.

Or a bit more defined in terms of the broad based.

Leonard: Okay, great. And then, you know, great to see that new logo commentary, the additions that you've had. I'm curious what we can expect from those in terms of the revenue ramp and the margin contribution as we see those accounts ramping up. Thank you very much.

Rather than.

Broadband service so.

They are a little bit better anticipation of the ramp up of those same bet.

Again that gives me the confidence for some of the.

Upswings, but the company, but also I should.

Leonard: As you know, our model probably it's a little bit beat up by now, 85.5 right, but this five percent is turning to be a little bit more predictable, and to some extent, the 10 as well. So the larger logos which we grabbed upon in now, last quarter were recorded after. They ultimately are a bit more defined in terms of the project base, rather than pro-culture. So, we have a little bit better anticipation of the ramp-up of the low. Saying that, again, that gives me confidence in some of the upstream for the company, but I also see a return to positive momentum at our existing level. I think the question on the new enterprise law of the wings in late 2023 and what we already have, 2024 combined with some of the larger existing customers using that level of. Thank you.

A return back to the positive momentum.

Existing logos. So I think the question on the new enterprise logo the winnings.

Late 2023, and we already have actually.

For combined with them.

Some of the trends.

Larger existing customers.

That level of uptick.

Thank you.

Thank you Megan.

Great. Thanks, maybe a quick question next.

Next question comes from Ryan <unk> from Citi.

Bryan. Please go ahead.

Hey, Thanks for taking my question and good quarter here.

Wanted to start on kind of it was good to see head count growing sequentially on an organic basis in the quarter, but can you help reconcile the flattish sequential growth in the <unk> outlook first.

Yes.

<unk> signed up you see a demand recovery coming later in the year and then also any color you can give in terms of where you are growing the fastest sputtered, India or any other geos.

Operator: Thank you, Major. Thanks, Maggie, for your question. The next question comes from Ryan Plotter from Citi. Ryan, please go ahead.

Yeah.

Leonard: Hey, thanks for the question and a good quarter here. I want to start with headcount. I was going to see headcount growing sequentially on an organic basis in the quarter. But can you help reconcile the sluggish sequential growth in the 1Q outlook versus this headcount growth? Is it true you view it more as a sign that you see a demand recovery coming later in the year? And then also, any color you can give in terms of where you're growing headcount the fastest, whether it be India or any other geo? Oh, a lot of questions in one, getting them ending right. So let me start with the last one because it kind of rolls back, right?

A lot of questions, even ones, you're getting demanding right.

Let me start with the last because it's kind of rolls back right. So.

This will leave in our press release.

We indicated a bit of a shift in terms of the diversification, we see more on the rate of growth.

Whereas the non retail verticals or non retail customer verticals.

It doesn't mean, we're moving away from B to C absorb <unk> business, but.

The skills and.

<unk> abilities in a more traditional skill sets.

Leonard: So, um, you know, this doesn't even apply to our freshman. We indicated a bit of a shift in terms of diversification. We see more on the rate of growth in what I say, non-retail verticals or non-retail customer verticals. It doesn't mean we're moving away from B2C. It's all B2B business. But the skills and capabilities and the more traditional skills in data management and cloud migrations. The Bespoke Tooling Partnerships mentioned that. Combined with new applications related to AI technologies, and that's a separate point of discussion. Everybody's asking that.

And.

Data management.

<unk> migrations.

The bespoke tooling partnerships mentioned that.

Combined with the new developed applications related to the AI technologies, that's a separate point of discussion <unk> right.

Gives us a bit more upswing.

<unk> pharma, we see more in the <unk>.

<unk> segment, so that gives us a bit more of a I would say continuation of the growth. So.

Leonard: This gives us a bit more upswing on FinTech and pharma. We see more in the TMPL, the tech segment. So that gives us a bit more of a, I would say, continuation of the growth. And again, those sectors are a little bit less volatile, even though the economy has not. And the first part of the question, I believe you wanted to know specifically, can you just give me a little bit more? Yeah, the headcount growth versus the flat-edge outlook is a sign of demand that will come later in the year. Right, right. So this is about reading on tea leaves, right?

And again those sectors, a little bit less volatile.

Given the even though the economy has done.

Staples and the first part of the question I believe you wanted to know.

<unk> can you just give me a little bit more than.

Headcount growth.

First is the flattish outlook last question why not right.

Demand that would come later in here right right. So.

This is about reading on tea leaves right.

The growth of <unk>.

<unk>.

Leonard: So the growth of the headcount happens in India. That's one area, as we mentioned again, is picking up. I think that our customer base has grown with an understanding of our versatility in following the sun's rays. What it means is that, you know, Grid Dynamics provides the same quality level of services whether we're in Europe, in Latin America, or in India. And, you know, access to talent in India is quite, you know, larger than the market, but, you know, everybody is there. So, you see the little bit of an uptake part of it that it's a little bit longer time to bring in talent in India, so we need to start building You know, not saying we're going to reshuffle some of the people in Europe; there are many activities there, but that's where the growth comes in, and it just requires a bit more, you know, the capable people.

That's one area as we mentioned again is picking up.

I think.

Our customer base has grown with understanding our versatility.

Versatility of the.

Following the same strategy.

What it means it means that you know all agree then that makes <unk> the same quality level.

Services, whether were in Europe.

Latin America Arena, India and.

Access to tell them in India is a quiet.

Larger from the market, but everybody is there so you see the little bit of a key part of it that it's a little bit longer.

The time to bring the talent in India. So we need to start building a good pipeline there.

<unk> not seen where we're gonna reshuffle some of the people in Europe. There is there are many activities there, but that's where the growth to come in and it just requires a bit more.

The capable people. It also noticed we talked about our presentation about rigorous training right. So.

Leonard: And also, notice we talked about our presentation about rigorous training, right? So I mentioned that it takes sometimes up to a quarter to bring the talent up to speed with the new tools and capabilities, specifically in the AIML sector. So it's an investment in the people, I would say, rounding out the people and building the pipeline of capable technical execution folks. India is a... Got it, Ben.

Mentioned that it takes sometimes up to a quarter to bring the talent to up to speed with the new tools and capabilities specifically in that yes.

So it's an investment.

Leonard: I agree, and it was good to see the sales momentum continue in the quarter. But as the demand environment stabilizes in your existing client base, should we foresee any changes to your sales strategy in 2024? Will you have to shift more to sales or more to some kind of expansion with clients versus hunting new logos? Or are you able to continue to balance both efforts? Well, that's one of the areas which you again notice from our conversations was the point of investment in 2020. It's a bit, it's a bit, uh...

Leonard: I would say sometimes it can be ambiguous when the company invests in R&D and sales during the year of being flat, right? But at one point in time, it's beneficial to reach for the resources when they're available in the market, right? So when the market is a bit segmented, you have a broader selection of talent. On the R&D side, it takes more time for people to come up to speed, both on the architecture side, the SME side, materials, industry-specific artifacts, and accelerators. So when we talk about sales, it's a combination of sales and technical resales and first-level engagement. When it comes to hunting, per se, we actually added hunting capability for the first time.

Especially if there's a <unk>.

Segment.

A broader selection of the talent R&d's style. It takes the more.

More time for people to come to speed both on the architecture said SME side, you know pay the materials.

Industry specific artifacts accelerators. So when we talk about sales, it's a combination of self and technical details and the first level of engagement when it comes to their funding per se, we actually have a hunting capability for the first time.

Leonard: Typically, as a company, we're still relatively small to compare with many, many others. So we focused on a diversity of the responsibilities for the same individuals. Right now, we have a dedicated sales force, particularly in the United States, with hunting accounts. But we also doubled down on farming of the new business lines with an existing larger cost. So that's pretty much the days now.

Typically is accompanying been we're still relatively small too.

Many many others. So we we focused on a diversity of the responsibility same individuals right now we have dedicated <unk>, particularly in the United States with the hunting advanced but we also a double down on uhm, Wyoming of the new.

<unk> business lines within existing allergic cough, so that's pretty much the <unk> the.

Operator: The proof is in the pudding. But I think even though we're a little bit sweated in the margins last year, I think that gives us a bit more runway, not just kicking the can to the second half of the year, talk about 2025, but more immediate targets as early as now. Great, thanks again.

Or was it a footing, but I think even though it limits sweated marches last year, I think that gives us a bit more runway.

It's just <unk>.

You know.

Can to the second half of the year talk about 2025, but more immediate targets as as early as now.

Operator: Thank you. Thank you, Ryan. Next question comes from the line of Zachary Arzeman from TD Corner. Zach, please go ahead. Hey, thanks. Zach Aisman on for Bryan Bergin.

Great Mexican.

Alright, thank you.

Thank you right.

Next question comes from the line the Zakary <unk> from T D <unk> <unk>.

<unk>. Please go ahead.

Hey, Thanks, <unk> for Brian Bergen first question. We had was just on the the overall demand backdrop. So good to hear more of the stabilization commentary.

Leonard: The first question we had was just on the overall demand backdrop. So good to hear more of the stabilization commentary evident in the Q1 guide. I was hoping to further dig into...

And <unk>.

I was hoping it further dig into.

Leonard: The dynamics that have actually changed from three months ago, is it just the higher prevalence of more optimistic client conversations? Or have you seen a change in actual signings or willingness to go ahead with new programs? Just trying to get a better sense of recent client behavior and how that's informing your view into 2Q, which sounds like it's going to be even better than what we're seeing into OneCue. Very good, Derek. Well, you have to feel the big shoes because Bryan won a prize.

The dynamics of actually changed from three months ago is it just a higher prevalence of more optimistic client conversations or have you seen a change in an actual signings our willingness to go ahead with new programs, just trying to get a better sense of recent client behavior and how that's informing your view with the two key which sounds that.

It's gonna be.

Even even better than what we're seeing into one too.

<unk> well Europe, you have to fill the big shoes, because Brian one of the most.

Leonard: Talented Analyst. Welcome. The question is about what is really happening in the forefront of our business. And as you know, traditionally, at least from Grid Dynamics' perspective, from our client's perspective, there is always what I call a bit of a turnover from projects and business directions between late Q4 and early Q1. That's kind of, I wouldn't call it a pit stop, but it released more than just budgets, a reassessment of their own performance, tuning the business, a lot of disruption happened with AI tools. So, we had to go last year and started making a lot of proposals on how to get viable conversion of their top line with more economical budget leveraging various AI technologies. And again, it's not just you plug in a chatbot, and it gives you more money, right?

<unk> <unk> <unk>.

The the.

The question is about what is really happening in the first part about business and.

You know the traditional <unk> from <unk> from a client perspective.

There's always a when it goes.

You know the the middle of a turnover from the projects and and business directions between the link you for an early Q1.

That's kind of what I would go with a pit stop but it's released more than just budget reassessment of their performance.

Tuning the business a lot of disruption happened with a I T.

<unk>.

So we have to go last year.

Making a lot of proposals.

How to.

Get viable conversion of their top line.

With more economic buzzer, leveraging various health conscious and again <unk>.

Not just you plug in Czech border gives you more money right. So it's a very complex process.

Leonard: So it's a very complex process of using private data and public access tools, various clouds, how Grid Dynamics knows how and an understanding of their business based on previous expertise, even in machine learning, transition from machine learning to AI. So we see the conversion on a contractual basis. I think that's very important. So not just the words.

Using private data in public exes tools, various clouds, our green dynamics know, how an understanding of their business based on that previous.

<unk> even in <unk>. So we see that conversion on a contract basis I think that's very important so not just the awards again, we're still in February.

Leonard: Again, we're still in February, and we are not completely out of the spirit of retooling our clients. But the new logos and existing logos on the demand side are contractually driven. So we're not talking just about the proof of concept. Let's run another, you know, one, two, three months of the test.

And we are not completely out of the spirit of retooling of all clients, but the the new logos and existing logos on the demand side are contractually driven so we're not talking just about the broad <unk> run. Another you know 123 months of the test what are the initial.

Leonard: What are the initiatives to trend upward? In business, this is a B2C business. In a B2B business, it's a bit different, right? Because there are no more people who understand that new technology, first and foremost, needs to bring better results.

The <unk>.

This is this is what made me just cheese on it needs to be business. It took me a different price because.

There's no more like people understand that new technology, but first and foremost needs to bring the better results and.

Leonard: And their models are not as trivial because it's a complex of supply chain, logistics, and demand for the various products. So that business is probably going to keep in a little bit more in the latter part of this year because there's still more in the steadyest state of learning and adoption. But because we have both markets, we see an immediate new remuneration as well as potential upside with existing customers. That's helpful. Moving over to margins, we were hoping to dig into the factors that have been weighing more recently. How long are these items expected to be headwinds?

<unk> is not a trivial because it's a complex of supply chain logistics.

The demand on their various products, so that business, probably gonna keep in a little bit more on the later part of this year because there are still more than.

City or state learning, an adoption, but because we have both markets, we'll see an immediate uranium duration as well as potential upside with existing glands.

That's helpful.

Alright margins, we were hoping to dig into the factors that have been way more recently, how long are these items expect it to be headwinds and what are their controllable levers that great. It can pull to partly until eight including maybe any color around pricing or utilization.

Anil Kumar Doradla: And what are the controllable levers that grid can pull to partly insulate it, including maybe any color on pricing or utilization? Sure. So that again, that's a loaded question. There are many moving parts to it right from the COGS point of view and the OPICS point of view. I'll let her talk about the pricing, but let me talk about a couple of moving parts as we move through the course of the year. Now, year-over-year, you've seen the difference, right, in our gross margins. Half of it came from FX; the other half of it came from the fact that, you know, we've expanded into some of these new geographies and there's a certain cost structure. If you look at our OpEx, 2023, as Leonard pointed out, was a year of investment because we are investing in our future.

Sure. So that again, that's a loaded question there many moving parts of the drink from you know <unk>.

<unk>.

Let's talk about the pricing, but let me talk about a couple of moving parts as we move in the course of the year.

No ear over here, you'll see me a different strength on our gross margins uhm half of it came from the effects. The other half of it came from the fact that you know we may expanded into some of these new geographies and there's a certain construct your name.

If you look at our Opex you know 20th 23 is Leonard pointed out with a year of investment because we are investing into our future.

Anil Kumar Doradla: As we move into 2024 and beyond, let me talk about OpEx, and we'll talk about COGS. On the OpEx front, the focus for me internally is to keep the growth rate lower than the revenue growth rate. So you're going to see leverage on that. Now, there will be times when you'll have to invest, but that is my focus. On the COG side, as you can see, we're in all these different geographie

As we move in 2024 and beyond that let me talk Biopics and we'll talk about the cough and the optics friend P.

Focus for me internally is to keep the growth rate.

Lower than the revenue growth rate, so you're gonna see leverage on Netflix.

There will be times, when you'll have to invest but that is my focus right now on.

<unk> <unk> you can see where in all these different geographies uhm, we're scaling and each of these geographies and as we scale into some of these geographies some of them I didn't follow the same strategy, you're gonna get some benefits there.

Anil Kumar Doradla: We're scaling in each of these geographies, and as we scale into some of these geographies, some of them identified and follow the same strategy, you're going to get some benefit. But as far as, you know, the focus, again, is obviously going back to customers, but operationally, we also need to reorganize ourselves. You know, we have TNM, we have pods, we have fixed prices, we have, you know, the pyramid. There are so many operational aspects which we can work on. And Leonard, do you want to talk about pricing? We just covered it. I don't want to double down.

But as far as you know B B B focus again is obviously go back to customers, but operationally also reorganize ourselves you know we have T. N M. We have part of me a fixed price. We have you know and apparently there's so many operational aspects, which we can overcome that leonard.

You wanted to talk about pricing.

Covered [laughter].

I don't I don't want a double done actually I want to walk you'll <unk> visualization.

Leonard: Actually, I want to walk you a little bit on a visualization, pricing to Austin, because there are two things actually very well connected with each other. In order for us to get to higher profitability, it's not directly margin-related, but it's contract-related, right? So parts, fixed bids, delivery performance associated with a certain major milestone, expending budgets, signing now longer-term contracts. We see that happening.

Price you too close to the bank because there are two things actually very well connected with each other.

And in order to.

Get to the higher profitability.

It's not directly <unk> related but as a country <unk> related bright so big.

<unk> delivery performance associated with a certain major milestones expanding budget signing now longer term budgets.

We see that happening.

It doesn't mean.

Leonard: It doesn't mean that individual rates, for example, are going to be aggressively moving up. I mean, the market is still, I would say, demand driven, and the value we're bringing while we are increasing some of the basic rates. We're offering more and more systems, which I just described, which Anil pointed out, which ultimately brings a better architecture of the team structure. In other words, within the team, our cost benefit is evident to us. But for the customer, it's a result reader. So they're getting better efficiency with understanding their pocketbook spending without constantly going back and forth and looking at each individual rate. In many cases, also, we gain the trust of the customer sufficiently that they allow us to pick a proper tip formation, and it's getting more and more on the scale. That also helps. So, you know, all day, you know, all the evils, right?

That individual rates for example are gonna be aggressively moving up the Martha Stewart, let's see uhm demand driven and.

<unk> and the the value, we're bringing <unk>, while we are increasing some of the basic rate.

We're offering more and more system, which I, just described with which Neil pointed out which ultimately brings a better architecture of the team stretch and other word within the team all cost benefit.

Is.

Evidence to us, but for the customer as a result <unk>.

So they're getting better efficiency with understanding their pocket book spending without constantly going back and forth and looking at each individual right. In many cases also re gain the trust of the customers sufficiently did they allow us to pick your proper information is getting more and more of them.

<unk>.

It also helps so.

You know all the you know all the evils right I'm ordering from Eastern Europe Central Europe scaling the number of officers opening your cause is in India that is well understood.

Leonard: Moving from Eastern Europe to Central Europe, scaling the number of offices, and opening offices in India. That's well understood. But our model of 40-20, no matter how difficult it sounds today with where we are, it's under relentless pursuit. And I see the trend is coming. The numbers can't be said yet, but judging by the countries we're signing, I'm quite bullish. Thanks for all the collaboration. Thank you. Thank you, Zach. The next question comes from Puneet Jain from JP Morgan. Puneet, your line is open.

Model of 40, 20, no matter how difficult it sounds today. It was where we are it's under 11th this pursuit and I see the trend is coming the numbers.

See there yet.

But judging by the countries, we're sending mm mm quite bush.

Thanks for all the color.

And can I get.

Thank you day.

Next question comes from <unk> from checking mortgage.

Your line is open.

Puneet Jain: Thanks for taking my question. I wanted to ask about GigaCube, because it looks like great progress in financial services. The vertical was up nicely.

Thanks for taking my question I wanted to ask about <unk>. It looks like great progress in financial services devoted service up nicely can you also share like the contribution from whatever to cover such as health care and do you plan to <unk> like to make in India, and Europe as well as smaller.

Leonard: Can you also share the contribution from other verticals, such as healthcare, and do you plan to share progress like you make in India and Europe as well as smaller verticals on a quarterly or annual basis there? All right. So as you can see, the other segment was about 14 and a half percent, right?

<unk> and will be sent there.

Alright, I'm going to get the Bay. So as you see the other segment was about 14.5% right and that had a nightclub. So once you're going to see starting from next quarter. We're gonna break down the other segments because we're gonna have the health care Park. So you know health care life Sciences, that's becoming an increasingly a bigger part.

Anil Kumar Doradla: And that had nice growth. So what you're going to see starting next quarter, we're going to break down the other segment because we're going to have the health care part. So, you know, health care, and life sciences, that's becoming an increasingly bigger part. That has actually been one of the contributors to our growth. And, you know, as we evolve in the course of the year, some of the sectors that you talk about, financial services, I mean, there's a lot of activity going on there, and we're bullish on that. So, Puneet, that's in a formal way. In a formal way, I like to have statistical significance.

That has actually been one of the contributors and in our growth and you know as we involved in the course of the year. Some other sectors that you talk about financial services I mean, there's a lot of activity going on there and we we're we're bullish on that.

<unk> that that's a formal way in a formal way I like to have statistical significance.

Leonard: Before I claim the flag at the top of the hill, I can tell you confidently that in the fintech world, our investment is turning to the factual, material, and political. When we talk about, you know, pharma and healthcare, the number of accounts is growing. But I can't say that we are a dominant player yet.

Before I a claim the flag at the top of the Hill I can tell you confidence.

<unk> World.

Investment is turning to the sexual material improvement.

We're talking about you know for my health care the number of Mcdonalds is growing.

But I I can't say that we are the dominant player. Yes, we understand the capability was already new ways of adding business value you will see that trend.

Leonard: We understand the capability. We're learning new ways of adding business value. You will see that trend. There is the wealth management and insurance part of the BFSI.

Leonard: Right, you know, for a long time, we had one of the very large partners in wealth management. Those segments will grow too. And why we grow is because you guys, to some extent, helped us to assess four years ago what it means to be a public company, right? That you need to constantly challenge yourself, not just on growth but on safety, right? How you build a business. So we were very heavy, depending on brick and mortar. So that's a long history we were having, depending on certain brands. Again, it's a history.

There are a wealth management and insurance part overview of the site right you know for a long time, we just wanted to be very large.

<unk> management.

Those segments will grow too and why we will grow as because you guys and to some extent help us to assess four years ago with what does it mean to be a public company right. You you need constantly to challenge yourself not just on the Grove what are the Heche right.

Build the business so.

We were really heavier depending on a brick and mortar store. That's a long history, we were having depending on certain branches gives us a history. The tech is also diversified so but I would give the more specific material comes in when is she has moved to three quarters of consistent signing up a bit.

Puneet Jain: The tech is also diversifying. But I would give the more specific material content when I see at least two or three quarters of consistent signing of the new plans. And I think the biggest division for me right now is B2C application, B2B application. We'll continue to break it down, as Anil said, as we feel that there are statistically... Got it. Got it.

<unk> and I think the biggest right now division for me has been to see application will be to be able to.

We will continue to break it down as in you'll set as we feel that there are statistically significant.

Okay. Okay, that's very helpful.

Leonard: Now that's very helpful. And let me ask you a second question, like, So now that the macro had been appears to be behind you, and you're seeing stabilization, and some of the large customers. So some of those like the largest of your large customers, like I think they peaked at somewhere around like 30-35 million, maybe 40 million, like how high the addressable market for those clients is, like how large those customers can get given your current service mix. Yeah, you're getting me into trouble all right, you know, There is quite a bit of a ceiling on those clients. Why?

Let me ask my second question like.

So now that the macro had been appears to be behind you and you see.

Stabilization and some of the large customers.

So some of those like the lab largest okay large customers like.

B tech somewhere somewhere around like 30, 35 million, maybe 40 million.

How high.

<unk> those plans like how large customers can get given your current service Max.

So you're giving me into trouble.

Right [laughter] you know.

There is quite a bit of a ceiling on those clients why because we're changing alright tired too right.

Leonard: Because we're changing our attire, too, right? Maybe the market cap is still not there, but we're a much more mature company, not just from a performance perspective, but from a stable capability perspective and resilience perspective, right? Every client, every large client, they look not just at the supply capability, but it's, again, hedging against certain unforeseen events, right? So I think they're getting more comfortable without reach and without

I mean, there's a market cap is still out there, but we're much more mature company not just from a performance perspective, but the stable capability with respect and resilience respect right every client every large client.

Look not just of the supply of capability.

You know hedging against certain unforeseen events right. So.

They're getting more comfortable without a region or without touch right. So I would say that the ceiling is less driven by our capabilities which are proven.

Leonard: So I would say that the ceiling is less driven by our capabilities, which are proven, and more opening up when people are starting to become comfortable with coming back to the gigabit stage. One day, we will be a billion-dollar company. So yeah, if you judge from that perspective, I'm not going to throw numbers of $100 million out there today. Again, it would be a bit premature.

More opening up when people are starting to become comfortable coming back to the Giga <unk>. One day, we are a billion dollar company. So yeah. If you judge from that perspective, I'm gonna throw a numbers over 100 million dollar come today again, it would be <unk> mature, but there's nothing stands between us and having <unk>.

Leonard: But there is nothing standing between us and having a number of accounts, which are in the $30 to $50 million range now, and then time will tell how much we can go further. Having just one account being so much bigger than everything else, that's another bit of a challenge. We've seen others struggling, so we want to do not only diversification on the verticals and the skill set but have large, driven partners to be somewhat diversified as well. Yeah, I totally agree. Multiple clients that are comparable in size, like I think we totally get it. Like, that's unique.

Number of accounts, which are the 30th 250 million dollar range. It now and then that will do how much. We can go further you you know I mean, just one account mmm being so much bigger than everything else. That's another a bit of a challenge. So we've seen others start.

So we Wanna do not only diversification on the verdict goes and the skill set but heading large dreaming partners to be somewhat diversifies as well.

Yeah, not okay at the multiple clients that is comparable in size like I think.

Uhm, we totally get it like <unk>.

Puneet Jain: I appreciate the comments. Thank you. Thank you. Thank you, Puneet. Thank you, Puneet. The next question comes from Josh Stigler from Kaiser Fissure. Please go ahead.

Dot com. Thank you. Thank you. Thank you for any.

Take care of me.

Next question comes from Josh Taylor from Cantor Fitzgerald. Please go ahead.

Operator: Hi Guys, thanks for taking my question today. It's nice to see the strong KPIs in the quarter and business stabilization throughout this more difficult macro period. I wanted to touch on partnerships specifically because they seem to have been a big contributor over the past year. How are you thinking about how partnerships will contribute as we progress through 2024 with a more positive macroeconomic environment potentially at our tailwind? Thank you. Well, I'm glad you pointed that out. I mean, we tried to repeat the favorite number, 13, long enough for people to memorize. It would not have been as exciting if it had been 12 or 14.

I got it thanks for taking my question today nice to see the strong K P. I as in the order and you know business stabilization throughout the more difficult macro period I wanted to touch on the partnership specifically because they seem to be a big contributor over the past.

How were you thinking about how partnerships will contribute as we progress through 2024 with a more positive macro potentially at our tailwind. Thank you.

Well I'm glad you pointed out of it I mean, we tried to repeat the you know the.

The favorite number 13.

Long enough for people to memorize so yeah.

<unk> not as exciting he was 12 440, but anyways the the the factor with a new mentioned up Harry.

Leonard: But anyways, the factor with Anil mentioned of having just a few years behind the belt is not truly about the partnerships per se. I mean, we always have partners, you know. I think there are a couple of fundamental changes happened a couple of years ago. The number one thing we realized is that sitting only on an open source platform is not enough to increase the breadth of the customer relationships. We need to become a bit of an advisory platform on a buy and build as a combination. It's a step. It's basically a stage of maturity, right?

Just a few years behind the bell.

<unk> about the partnerships per se.

I mean, the only when was the appointment you know.

<unk> there are a couple of fundamental changes happened a couple of years ago. The number one is we realize this sitting only on open source.

Is not enough to increase the breadth of the customer relationships, we need to become a bit advisory on by and billed as a combination.

So basically a stage or maturity right you.

Leonard: You everything regardless of investment. So it's not only about hyperscale; it's also about the ability to stitch together multiple software products. So we started with the areas where we have done most of the work, which is commerce. We've made major progress, both in Europe and the US, and we're expanding the number of products we are offering. So that part is very clear. So it's not just open source as a company. The other one is going back to hyperscalers, right? Hyperscalers represent a very complex system, right? And you come in, knock on the door, and ask them to give you the clients. Typically, it goes backwards.

<unk>.

So it is not only about 5%. It's also about the ability to.

Speech multiple sore throat products. So we started with the areas, where we have none most of the work which is commerce.

Major progress has bought in Europe, and the U S.

And we're expanding number of the products. We are so that that part is very clear. So it's not just open source of the combination.

The other one is going back to Hyperscale right.

<unk> represent a very complex just right and you know you got bitten knock on the door and ask them give me the clients typically it goes backwards you bring the clintons will see right could I also need to report that it goes two ways.

Leonard: You bring the clients, and we'll see, right? I'm happy to report that it goes both ways. When you do it two ways, on top of building the capabilities and contributing to the hyperscalers themselves, then you start getting the attractions because it's a joint client effort. So not only understanding the systems but understanding the customer's ability to have us as a partner of choice, not just an integration partner. That just added this number. Now, how big is the number going to be?

When you're doing too is on a toppled building the capabilities and contributed to the hyperscalers themselves.

Start getting the attractions because it's a joint.

So not only understanding of the systems, but understanding of the customer the ability to have us as a partner of choice. That's just the duration partner that just edit this number now.

How big is the number gonna be <unk>.

Leonard: We honestly, I can't tell because we're going into new verticals. And again, it's investment. You can't just come with open source and drop all these ideas in the laps of the big decision makers and other verticals. But it's certainly the model which we are expanding at this. Understood, appreciate that color there.

Honestly I can't tell me, because we're going into new vertical center got its investment.

You can just come with the open source and drop all those ideas on their laps of the big decision maker.

<unk> <unk>, but it certainly is a model, which we are expanding at this point.

Mmm understood I appreciate that color deck, and then Neil real quickly can you give us not Dan How're, you thinking about capital allocation as we progress through the year.

Anil Kumar Doradla: And then Anil, real quickly, can you give us an update on how you're thinking about capital allocation as we progress through the year? Well, look, I mean, the focus obviously is M&A internally. And, you know, I know this is a question that comes up very often.

Well look I mean, the focus obviously is uhm emanate.

Internally and you know I know this is a question that comes up very often.

Anil Kumar Doradla: The, you know, at any given point, we're evaluating, obviously, we will tell you when we actually get something done. But the priority, obviously, is our cash usage going there. Beyond that, you know, it's all about cash generation. It's all about, you know, ensuring that, you know, we get back to our 40-20, and we convert it, right? I mean, we, as you know, we don't have any debts on our balance sheet. But these are the two elements in terms of, you know, how we're looking at our balance sheet. And just to get a little bit of color on my knees, I know you've been patiently waiting for us. I mean, it's been a long time.

The you know at any given point.

Valuating, obviously, you know we will tell you when we actually get can get something done but the priority. Obviously is you know our cash usage is going there.

Beyond that you know, it's all about cash generation, it's all about ensuring that you know we get back to work 40, 20, and we converted Frank I mean, we add you don't we don't have any debt on our balance sheet, but these are the two elements in terms of how we're looking at our balance and just to get a little bit of a cold.

<unk> I know you've been patiently waiting for us I mean, there's been a long time since.

Leonard: We collected enough funds, right? And our cash generation exists, but it's super large. But we sit on a nice pile of cash.

Collected enough funds right, Okay, a generation it exists, but it's not.

Large, but we sit down at a nice part with cash. So we've completed all the conversions again from the if you look at our press release and report or months. So we have no lingering issues or.

Leonard: So we completed all the conversions. Again, if you look at our press release and reporter ones, we have no lingering issues or necessary investments into any of those four acquisitions we've done. It's all integrated macro.

Necessary investments into any of those four and you know acquisitions would've done it's all integrated knock on wood by now.

Leonard: And when I mean integrating, you need to integrate both sales and engineering. Engineering sometimes takes a little bit longer for the skill set. So we are exploring deals across all these verticals and geographies. Again, there is a range. Obviously, we're not going to burn all the money in one swoop, but it has to be more focused on skill development.

Integrating you need to integrate book sales engineering gene, sometimes it takes a little longer on the skill sets. So we are exploring deals across all these very close and Geography's again, there is arrange obviously, we're not gonna burn all the money in one swoop, but it.

Has to be more focused on.

He'll development, so ooh, we're big enough to train people in what we now.

Leonard: So we're big enough to train people on what we know. Some customer acquisition is obviously good, but we really want to add the skills in the AI revolution part, right? So there are new areas which open up by building those skills. So it's not just about marketing. We understand what we're good at and what it makes sense for us to, you know, complement from acquisition. So that's kind of a shift you may see in like six months. Great, thank you. I really appreciate the color and thanks for taking my questions.

Some customer acquisition, obviously is good.

Really want to add the skills and <unk> and they're AI resolution park right. So they're new areas, which open up my building those skills. So it's not about just the marketing. This we understand we're good at it wouldn't make sense for us to accomplish.

Complement for my position. So that's kind of a shift you may see you from like six months ago.

Great. Thank you I really appreciate the color and thanks for taking my question today.

Josh: Good night, y'all. Thank you, Josh. The next question comes from Sam Selvis from Needham; please go ahead. Thanks, Ben. Thanks for taking my questions today, guys. Most of my questions have been asked, but, you know, are there any AI-related metrics or anything you can share in terms of the number of projects or engagements or logos? If any, any colors you can give us to get some kind of sense into the demand you guys are seeing from AI? So the question, Sam, was that what are the AI-related metrics, right? And so Leonard is the AI expert.

Josh.

Thank you Josh.

Next question comes from <unk>. Please go ahead.

<unk> <unk> <unk> <unk>.

Most of my questions to ask but.

Are there any AI related Netflix.

Anything you can <unk> the number project.

Alright <unk> any.

Any color in it.

Get some kind of <unk>.

So the question Sandwich, and what are the E I related metrics range and you know so <unk> expert so but I'll I'll I'll tell you that from my point of view when I look at the activity right. We talk about any analyst day in a press release also we talked about there's a <unk>.

Anil Kumar Doradla: But I'll tell you that, from my point of view, when I look at the activity, right, we talk about it at the end, let's say, in the press release also, we talked about there being a lot of activity going around with both existing and some of our new. What I am very impressed with is that many of our new engagements have some level of AI component to them. So there's a lot of interest. AI is infused throughout our practices. But if you're talking about when we're going to reveal the standalone revenues and everything, when the time is right, we'll do that. But AI is pretty active across the company. Well, I'm glad that Anil stepped in because I wasn't sure exactly what you were asking. Sorry about that.

Madam activity going around but both existing and some of our new what I am very impressed with is that many of our new engagement has some level of <unk> component to it.

So there's a lot of interest.

You know, where you know ai's infused across or practices, but if you're talking about you know whenever the Red River.

<unk> Standalone revenues and everything when the time is right and will do that but a I S.

Pretty active across the company as well.

Well I'm I'm glad that Neil stepped in because I wasn't sure exactly what you were asking sorry about that now when I know I can tell you much I live in more color right. So first of all the areas, where we have progressed a lot it's conversation.

Leonard: Now, what I know, I can tell you a little bit more color, right? So first of all, the areas where we have progressed a lot are conversation, recommendation, catalogs, compliance. We do quite a few of the forum solutions.

It's a recommendation there catalogs compliance we do quite a few of the forum solutions what happened is.

Leonard: What happened is having expertise in a vertical, especially things related to e-commerce, but now it's growing, helps us to tune the proper model, help to get the visual parts, and help us to guide the internal client marketing and business teams to understand the ability to reach your business results.

<unk> and verticals.

Especially things really do ecommerce, but now it's just growing.

Helps us to to the proper models.

To get the visual parts help us to guide being torn Ah client marketing and business seems to understand the ability to reach your business results. The number of cases is groin for a very simple reason there are factual.

Leonard: The models change, the conversion rates are changed, the, you know, we can't promise results unless the client understands the reasonable target. So the cataloging, understanding their existing environment, cleaning up their codes, sometimes switching from the old models to the new ones. First, we need to get the code capable of accepting new things.

<unk> change the conversion rates are change that you know we've reached <unk> promised resolved unless the client understands the reasonable targets.

So the the cataloguing the.

Understanding of their existing environment cleaning up there are codes you know sometimes switching from the old models to the moderators first we need to get the.

The code capable of accepting that using so we do we do that conversion too augmentation and of course very close work with all the oil springs related the the.

Leonard: So we do that conversion to augmentation, and of course, very close work with all the old things, the AI Models on the Cloud, as well as the New York Commons standalone solutions. So I'm sure we'll do more presentation webinars. You guys can look at our website. We have a ton of demos, but those demos are typically something open for people to look at.

Yeah models on the cloud as well as the your <unk> solutions. So I'm sure, we'll do more more of a presentation. <unk> you guys can look at our website, we have a ton of Dallas, but those demos typically or something.

<unk> two people to look I had a question why we're one of the press release or we did.

Leonard: I had a question about one of the press releases we did with a certain client and certain project. And mainly because a lot of the work is so cutting-edge at the front of the customer DNA that we are grateful for the ones who are willing to open up to share. But many more are preferring to maintain the total proprietary approach to their development.

With them.

Client and certain project and mainly because a lot of the work is so cutting edge of the front or the customer DNA that.

We're grateful the ones, who are willing to open for sure, but many more are preferring to maintain the total of proprietary approach to their <unk>.

Okay, Yeah that'd be helpful.

Leonard: Yeah, okay. Anil Doradla, Bin Jiang, Rajiv Sharma, Grid Dynamics. So the question, Tim, because the volume is not here, your question was, we talked about... How many retail plans do we have? Is that the question?

There.

And then just one quick follow up.

The <unk> the order.

I've got one large scale.

<unk> plan or with that kind of broad based.

Alright.

So the question time, because the volume is not care. Your question was we we talked about maybe a retail clinic.

That was the question.

Leonard: Yeah, the weakness in retail, like with that one big client. To me, oh, there's not a weakness in retail is just others growing fast. It's not an absolute dollar situation in general.

The weakness in the retail.

<unk> was that one big <unk>.

Oh, no it's not a weakness of retail is just others grow fast.

Not in absolute dollar situation in general I mean, you see the trans but there's more investment to the modernization, where we are participating is a way I mean, yeah I mentioned the people who work with us know that the brick and mortar business was the dominant part of our business and then we'll be.

Leonard: I mean, you see the trends, but there's more investment in the modernization where we are participating in a way. I mean, again, I mentioned people who work with us know that the brick and mortar business was a dominant part of our business. And then it became brands and CPGs.

Comes a branch and you know <unk>, we are not dismissing this business, but we put eggs in different baskets right. So.

Leonard: We are not dismissing this business, but we put eggs in different baskets, right? Many years ago, when we had market dependence in retail, like three-quarters of our business, people were saying, you know, can you grow and bring the market to 20%? So we're not there at 20, but we're certainly in a much more comfortable position. So we want to grow it numerically as the company grows. But we want to focus on the proper brands which have growth capabilities and also on various platforms related to retail, because platforms also come and go. You're probably aware there's a big reshuffling in the industry going on right now, so we're actively pursuing value-add businesses like home improvement businesses, various products and services which are growing in the industry both in the United States and in Europe, but we're a little bit less, you know, excited to go into something we developed six, eight, ten years ago because that market is a bit diminishing.

Many years ago, when we had market dependence you in retail like three corner of our business.

People are saying you know can you brought in green the the market is a 20%.

So we're not there at 20th <unk> certainly much more comfortable position. So we want to grow it numerically as the company grows but we wanted to focus on the proper branch, which have the growth capabilities and also on various platforms related to retail because pleasant.

<unk>, you're probably aware, there's a big reshuffling of the industry going on right now so we <unk>.

You add.

Businesses like a home improvement businesses.

Serious products and services, which are growing in our industry, both in the United States and in Europe, but we are a little bit less I'm excited to go into something we developed the six 810 years ago, because the market has it been diminishing so.

Leonard: So I think that's a better scope for what's happening. Thanks. Thank you. Great. Thank you, Seth. Ladies and gentlemen, that will be all of the Q&A session for today. I will now pass the call back to Leonard for his closing comments. Thank you, everybody, for joining us on the call today. We entered 2024 with a marked improvement in sentiment from a year ago. We're focused on our goals of getting back to our long-term model, both from a growth and profitability perspective. The last two months have proven that Grid Dynamics is adept at navigating uncertainty.

That's a better scope from what's happening.

Okay.

Thank you Sir Thank you Sir.

Thank you for that.

Ladies and gentlemen that would be all of the Kennedys session for today.

Now I'll have to call back to Leonard closing comments.

Thank you everybody for joining us on at all today.

<unk> 2024, with a monster and sentiments from a year ago.

Focused on our bowls of getting back to our long term model both for growth and profitability perspective.

The last two months have proven that great dynamics is the depth and navigating uncertainties existing customers appreciate all of their hours and in 2023, we established a record number of new customers.

Leonard: Existing customers appreciate our value, and in 2023, we established a record number of new customers. I'm getting more and more bullish, looking forward to seeing you all in the next quarter. Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect. Goodbye.

I'm getting more and more bullish.

I'm looking forward to see you all in the next world.

This concludes today's conference call. Thank you all for participating Gimme Nowadays connect.

Goodbye.