Q1 2024 Grid Dynamics Holdings Inc Earnings Call
Leonard Livschitz: cross other capabilities and services Coming Drear, customers are increasingly incorporating AI in their projects and requirements. Additionally, some of our customer-generated projects have become meaningful. For example, is a large financial institution. Our GNI project has been successfully completed, and we expect that platform to go live in the second half. At the same time, we're not only using AI technologies with the clients, but also within our internal systems. Last week, we soft launched our website that incorporates AI. Our users visiting Grid Dynamics' website will now be able to use natural language queries to find company-related information.
Leonard Livschitz: This includes Grid Dynamics capability, work we perform with our clients, case studies, and Now, let me make some more detailed comments about the demanded work. For many, our reported results and commentary over the past couple of quarters may appear more positive than it actually is. There are some key reasons for that, and in my opinion, that makes Grid Dynamics unique across the MIT industry. First, in the current economic cycle, spending is under heightened scrutiny.
Leonard Livschitz: This, in turn, has resulted in many clients consolidating their IT partners and tightly coupling their investors with corporate performance goals. Grid Dynamics' strength and reputation for technology leadership, engineering prowess, and delivery excellence position us as a trusted partner, often leading us to gain business at the expense of the company.
Leonard Livschitz: In 2024, at two of the Fortune 1000 retailers, Grid Dynamics was selected as one of the two partners for all digital engineering programs. Additionally, as a large Fortune 500 telecom company, after a million dozens of assistance suppliers, they chose Green Dynamics for all the customer facing applications. One of the key applications that we are rolling out at scale includes a mobile app for new customer self-installations and provisioning. Second, in our rapidly evolving world, a company's ability to adapt and integrate new technologies defines its relevance and competitiveness. With the relentless progression of disruptive technologies, businesses must innovate or risk obsolescence.
Cause other capabilities and service offerings.
Leonard Livschitz: Coming to air.
Leonard Livschitz: Customers are increasingly incorporating AI in their projects and requirements.
Leonard Livschitz: Additionally, <unk>.
Leonard Livschitz: Some of our customer generic projects have become meaningfully beach.
Leonard Livschitz: Moreover, in that landscape marked by rising capital costs, the efficiency and speed with which innovative solutions are brought to the market are crucial. TSI has been at the forefront of helping enterprises scale their operations through numerous technological advancements over the past two decades. Deep knowledge and robust capabilities position us not just to adapt to change but to drive it forward. As an example, at the large financial institutions that I mentioned before, the AI assistant for financial advisors that we implemented is poised to dramatically enhance both the customer experience and the efficiency of financial advice.
Leonard Livschitz: It's a large financial institution, our generic project had been successfully completed and we expect the platform to go live in the second quarter.
Leonard Livschitz: At the same time, we're not planning using AI technologies with the claims but also within our internal systems.
Leonard Livschitz: Last week was soft launch our website that incorporates features.
Leonard Livschitz: Our users visiting Green dynamics website will now be equal.
Leonard Livschitz: To use natural language curious to find companies related information.
Leonard Livschitz: Greetings capability.
Leonard Livschitz: Or would perform at our clients key studies.
Leonard Livschitz: Now, let me make some more detailed comments about the demand environment.
Leonard Livschitz: We anticipate that this capability, when industrialized, will save the wealth management industry billions of dollars. Notably, at this financial institution, we are one of the few selected partners of the Vendor Consolidation Exercise in 2023. Further, underscoring our pivotal role in their crucial... Now coming to the second, positive trends that I highlighted regarding the first quarter extend into the second quarter. Our customer activity is picking up, and your new billable headcount continues to grow. Customers have heightened. We believe these factors formulate the basis for our continued positive outlook as we look into the second quarter and remainder of 2024 on Citiofra.
Leonard Livschitz: For many of our reported results and commentary over the past couple of quarters, Matthew I'm more positive than many of our peers.
Leonard Livschitz: There are some key reasons for that and in my opinion that is makes green dynamics unique across the.
Leonard Livschitz: In the.
Leonard Livschitz: Firstly in the current economic cycle spending is under heightened scrutiny.
Leonard Livschitz: This in turn has resulted in many clients consolidating their key partners and tightly coupling their investors with corporate performance goals.
Leonard Livschitz: Greenberg with strength and reputation for technology leadership engineered promise and delivery excellence positions us as a trusted partner over leaving us to gain business at the expense of the company.
Leonard Livschitz: As an example.
Leonard Livschitz: In 2020 for a tour of the Fortune 1000 retailers <unk> was selected as one of the two partners or all digital engineering programs. Additionally, if at all.
Leonard Livschitz: GridLabs, our internal innovation center, completed multiple projects and initiatives. Our researchers and architects are engaged across the spectrum of innovation that includes AI, Data, Machine Learning, and Commerce Solutions. Like previous quarters, our architects and CTO team were instrumental in opening new accounts with new clients. As a reminder, Grid Dynamics AI engagements are based on more than seven years of internal research and successful implementation. With our generative AI offering, we partner with customers to employ large language models and prompt guided image generation applications in product design, visualization, knowledge retrieval, Wealth Management, and Customer Service. At Lakewater, there were several trends, and I want to share with you some of the most notable.
Leonard Livschitz: Larger fortune 500 Telecom company after nobody's in dozens of assistance suppliers they choose read their names.
Leonard Livschitz: All the customer facing applications.
Leonard Livschitz: One of the key application that we're rolling out that scale. It puts a mobile app for new customer self installations and provisioning.
Leonard Livschitz: Second and now rapidly evolving world of company's ability to adapt and integrate new technologies defined its relevance and competitive.
Leonard Livschitz: With a relentless progression of disruptive technologies businesses must innovate or risk obsolescence.
Leonard Livschitz: Moreover.
Leonard Livschitz: And then let's get marked by rising capital cost the efficiency and speed in which innovative solutions approach to the market.
Leonard Livschitz: Great.
Leonard Livschitz: It's been at the forefront of helping enterprises scale their operations through numerous technological advancements over the past two days.
Leonard Livschitz: Logo Momentum: Building up on our success in 2023, in the first quarter, we signed five large new enterprise customers. One of the new enterprise customers was signed in a quarter. One is a leading North American pet company. One is an American high-end sport apparel and accessory company. One is a global consumer goods company focused on personal care and health products, an energy manufacturing and service company, and one is a large multinational confectionery manufacturer.
Leonard Livschitz: The deep knowledge and robust capabilities position us not just to adapt to the change but to drive it forward.
Leonard Livschitz: As an example, a large financial institution that I mentioned before they are system for financial advisors, and we implemented is poised to dramatically enhance both customer experience and the efficiency on financial advice.
Leonard Livschitz: We anticipate that this capability will industrialize.
Leonard Livschitz: I believe each of these logos has the potential to become large top accounts, and I'm looking forward to seeing these initiatives too. Delivery Locations, Grid Dynamics' Follow the Sun strategy provides the framework for scaling our global location. India, one of the key locations, has been growing at a rapid pace and is in the top three countries in terms of headcount. Last quarter, I highlighted the opening of the third office in India. This location in Bengaluru is quickly becoming popular with our clients. In the first quarter, we had multiple visits from our U.S.-based clients across all our key offshore locations.
Leonard Livschitz: Could save the wealth management industry billions of dollars.
Leonard Livschitz: Notably this financial institution, but one of the few selected partners after vendor consolidation exercise in 2020.
Leonard Livschitz: Further underscoring our pivotal role and there are crucial and strategic.
Leonard Livschitz: Now coming to the second quarter.
Leonard Livschitz: Positive trends that I highlighted regarding the first quarter extend into the second.
Leonard Livschitz: Our customer activity is picking up.
Leonard Livschitz: Billable head count continues to grow.
Leonard Livschitz: Customers have heightened.
Leonard Livschitz: Yeah.
Leonard Livschitz: We believe these factors formulate the basis for our continued positive outlook as we look into the second quarter and remainder of 2020.
Leonard Livschitz: We continue to attract high-quality talent from the universe, and our activities with internships, hackathons, and dynamic talks are paying off. Additionally, we brought on an industry veteran to lead our India operations, and with his addition, I'm confident of many positive things happening in India and in Europe. Poem continues to be our anchor.
Leonard Livschitz: Our CTO from grid.
Leonard Livschitz: <unk> labs, our internal innovation center.
Leonard Livschitz: Blended multiple projects and initiatives our resources and architects are engaged across the spectrum of innovation that include AI.
Leonard Livschitz: Data machine learning.
Leonard Livschitz: And Commerce solutions.
Leonard Livschitz: Like previous quarters, all architectures and secure a team.
Leonard Livschitz: Work is for mental and opening new accounts with new clients. As a reminder, green dynamics AI engagements are based on more than seven years of internal research and successful implementation.
Leonard Livschitz: And in Latin America, Mexico remains the key location to support our clients seeking near shore capability. European Business Our European business is steadily diversifying beyond traditional areas of strength such as retail and, Additionally, the pipeline of the business is more distributed with plans spread across mainland Europe. For a global auto parts company, we're rolling out their composable commerce modernization platform across several brands within Europe, supporting them by establishing a multi-location global team structure. In Q1, we successfully delivered an ASG initiative for a large clean energy company. For many clouds, Gen AI continues to be a door opener.
Leonard Livschitz: Regenerative AI offerings, we partner with customers to important large language models and prompt guidance image generation left vacations.
Leonard Livschitz: <unk> design visualization knowledge retrieval.
Leonard Livschitz: Wealth management and customer service.
Leonard Livschitz: In the quarter, there were several trends and I wanted to share with you some of the notable ones.
Leonard Livschitz: Logan momentum.
Leonard Livschitz: Building up on our success in 2023, and the first quarter, we signed five large new enterprise customers.
Leonard Livschitz: Well the new enterprise customers were signed in the quarter. One is a leading north American that company one as an American high end sports apparel and accessory company. One is a global consumer goods company focused on personal care and health products and energy manufacturing and service company and one is a large one.
Leonard Livschitz: Additionally, several of our customers have transitioned from exploratory and proof-of-concepts to commercial build-out. For example, as a leading legal and tech service company, we're building a flagship platform for their new market. As a global international medical device company, we continue working on multiple initiatives to improve self-efficiency and partnerships. In 2023, partnerships contributed to 13% of our overall revenue, and we would aim to increase that share to at least 16% in 2021.
Leonard Livschitz: International confectionery manufacture.
Leonard Livschitz: I believe each of these logos have the potential to become large top accounts and I'm looking forward to assume these initiatives to scale.
Leonard Livschitz: Deliberate location simple.
Leonard Livschitz: Green dynamics, followed the sound strategy provides the framework.
Leonard Livschitz: Scaling our global locations.
Leonard Livschitz: India one of the key locations has been growing at a rapid pace and is in the top three countries and in terms of the head count.
Leonard Livschitz: Partnerships with hyperscalers and leading software vendors is a key part of our GigaCube. In the first quarter, we made progress with our go-to-market efforts with our partners and upgraded our status with a major partner. For example, at AWS, we achieved the AWS World Architecture Partner status. The program enables Grid Dynamics to provide its clients with an audit of their platform architecture, ensuring it is configured correctly in accordance with best practices. With NVIDIA, we're exploring go-to-market initiatives for the first time. During the quarter, Grid Dynamics delivered some notable For a leading global technology company, we created a test automation toolkit that improved the efficiency and effectiveness of the testing process, featuring a collection of independent modules.
Leonard Livschitz: Last quarter I highlighted in the opening of the third office you need at this location in Bangalore is quickly becoming popular with our clients in the first quarter with multiple visits from our U S based plans across all key offshore locations.
Leonard Livschitz: We continue to attract high quality talent out of University, and our activities with internships hackathon and dynamic talks are paying them.
Leonard Livschitz: Additionally were brought on in the industry veteran to lead our India operations and with his addition, I'm confident of many positive things happening.
Leonard Livschitz: In Europe.
Leonard Livschitz: <unk> continues to be our anchor point.
Leonard Livschitz: And then Latin America, Mexico remains the key locations to support our clients she can near shore keep it.
Leonard Livschitz: Each with a unified interface, the client was able to streamline the testing process and enjoy greater visibility into testing outcomes. This project enabled client issue resolution to be taken from days down to minutes, leading to faster time to market and ultimately enhancing the quality of the final product. For a leading internet and cloud company, we streamed the release preparation process for high-priority apps in its app store. We developed tools that enabled the client to submit releases that foster better communication between departments. These tools help accelerate the app release process, which enables the client to better predict release timing, monitor updates, and improve the overall user experience.
Leonard Livschitz: Okay.
Leonard Livschitz: European business.
Leonard Livschitz: Our European business is steadily diversifying beyond traditional areas of strength, such as retail and CPG. Additionally.
Leonard Livschitz: Additionally, the pipeline of the business is more distributed with planned spread or mainland Europe.
Leonard Livschitz: For our global auto parts company, we're rolling out their account possible commerce modernization platform across several brands.
Leonard Livschitz: Europe supporting them by establishing a multilocation globo team structure.
Leonard Livschitz: In Q1, we successfully delivered and is G initiative for a large clean energy company.
Leonard Livschitz: As many class Gen II continues to be a door opener.
Leonard Livschitz: Additionally, several of our customers have transitioned from exploratory and proof of concepts to commercial build outs.
Leonard Livschitz: For example, as a leading lethal and Tech service company, we're building a flagship platform for their new markets.
Leonard Livschitz: For a major CPG brand, we implemented an omni-channel warehouse automation platform. This platform unifies several software interfaces, which dramatically lowers the cost of integrating new distribution centers in the client network, while also supporting the unique fulfillment requirements of wholesale, retail, and digital channels. In addition, we implemented a wholesale order platform that lowers the cost of serving new wholesale clients. Both of these platforms are expected to be expanded to multiple geographies in the upcoming months.
Leonard Livschitz: For our global International.
Leonard Livschitz: Medical device company, we continue working on multiple initiatives to improve sales efficiency.
Leonard Livschitz: Partnerships in 2023 partnerships contributed to 13% of our overall revenue and we aim to increase that share to at least 16% in 2020.
Leonard Livschitz: Partnerships with Hyperscale and lithium software vendors is a key part well Giga cube stretch in.
Leonard Livschitz: In the first quarter, we made progress with our go to market efforts with our partners and upgraded our status with a major hyperscale.
Leonard Livschitz: For a global automotive manufacturer, we began a project aimed at improving interactions with dealers. Through the use of a micro front end and AI-enabled personalized experiences, this project will enable dealers to deliver more comprehensive sales and services to their end. With that, let me turn the call over to Anil, who will discuss Q1 results in more detail.
Leonard Livschitz: And AWS, we achieved either way as well architecture partners to the program enables green dynamics to provide its clients with an audit of their platform architecture, ensuring there are configured correctly in accordance with the best practices.
Leonard Livschitz: Video, we're exploring go to market initiatives for the first day.
Leonard Livschitz: During the quarter grid dynamics delivered some notable projects for a leading global technology company, we created a desktop automation tool kit that improve the efficiency and effectiveness of the testing process.
Anil Kumar Doradla: Thanks, Leonard. Good afternoon, everyone.
Leonard Livschitz: Current collection of an independent module.
Anil Kumar Doradla: Our first quarter revenue of $79.8 million was ahead of our guidance range of $77 million to $79 million and exceeded Wall Street expectations. On a sequential basis, our revenue grew 2.2% and remained flat on a year-over-year basis. While we witnessed growth for multiple customers across every industry vertical, our finance and other verticals were the strongest, both on a year-over-year basis and sequentially. In the first quarter, retail and EMT were the two largest verticals at 30.9% and 30.1% of our revenues, respectively.
Leonard Livschitz: Each with a unified interface decline was able to streamline the testing process and they enjoy greater visibility into testing outcomes.
Leonard Livschitz: This project enables the client issue resolution.
Leonard Livschitz: Taken from days down to minutes.
Leonard Livschitz: Leading to faster time to market and ultimately enhancing the quality of the final product.
Anil Kumar Doradla: Our retail vertical remained flat on a sequential basis and decreased by 3% on a year-over-year basis. On a sequential basis, we witnessed growth from specialty retail. TMT was flat on a sequential basis and decreased by 10.4% on a year-over-year basis.
Leonard Livschitz: For a leading internet and cloud company, we streamlined the release preparation process for high priority apps and its app store.
Leonard Livschitz: We have developed tools that enabled decline to submit releases that foster better communication between the partners.
Anil Kumar Doradla: Coming to our largest customer in our TMT vertical, it grew both on a sequential and year-over-year basis. Here are the details of the revenue mix for the other verticals. Our CPD and manufacturing represented 12% of our revenue in the first quarter, a decrease of 1.2% on a sequential basis and 24.4% on a year-over-year basis. On a sequential basis, our largest CPG customer grew in the quarter, and this was offset by a decrease in other customers.
Leonard Livschitz: These tools help accelerate the app release process, which enabled the client to better predict released timing monitor update and improve the overall user experience.
Leonard Livschitz: For a major CPG brand, we implemented an omnichannel warehouse automation play.
Leonard Livschitz: This platform unifies, several software interfaces, which dramatically lowers the cost of integrating new distribution centers and their client network. While also supporting the unique fulfillment requirements of wholesale retail and digital channels.
Anil Kumar Doradla: The financial vertical represented 12.8% of revenue, an increase of 23.7% on a sequential basis and 57.2% on a year-over-year basis. During the quarter, we witnessed growth across most of our customers, which range from financial, technology, banking, and insurance.
Leonard Livschitz: In addition, we implemented a wholesale order platform that lowers the cost of serving new wholesale clients.
Leonard Livschitz: Both of these platforms are expected to be expanded to multiple geographies in upcoming months.
Anil Kumar Doradla: Our newly desegregated healthcare and pharma represented 3.8% of our revenue shortfall, a decline of 10.5% on a sequential basis and 4.5% decrease on a year-over-year basis. And finally, the other vertical represented 10.4% of our first quarter revenue and was up 4.5% on a sequential basis and 50.1% on a year-over-year basis. The sequential growth was driven by strength across multiple customers, some of them in the clean energy and legal space.
Leonard Livschitz: For a global automotive manufacturer, we began a project aimed at improving and directions with dealers.
Anil: Through the use of micro front ends and AI enabled personalized experiences. This project will enable us to deliver more comprehensive sales and services to their end.
Leonard Livschitz: Tumors.
Anil: With that let me turn the call over to Neil who will discuss Q1 results in more detail.
Anil Kumar Doradla: We ended the first quarter with a total headcount of 3,892, down from 3,920 employees in the fourth quarter of 2023 and up from 3,744 in the first quarter of 2023. In comparison to the fourth quarter, we exited our first quarter with a higher billable headcount due to improving demand. At the end of the first quarter of 2024,
Anil: Thanks Lynn good afternoon, everyone. Our first quarter revenue was $79 8 million was ahead of our guidance range of $77 million to $79 million and exceeded wall Street expectations.
Anil: On a sequential basis revenue grew two 2% and remained flat on a year over year basis, while we witness growth from multiple customers across every industry vertical our finance and other verticals are the strongest both on a year over year basis and sequential growth basis.
Anil Kumar Doradla: Our total US headcount was 332 or 8.5% of our company's total headcount versus 8.1% in the year-ago quarter. Our non-US headcount located in Europe, America, and India was 3,560 or 91.5%. In the first quarter, revenues from our top five and top 10 customers were 39.6% and 55.3%, respectively versus 40.8% and 60.4% in the same period a year ago, respectively. During the first quarter, we had a total of 210 customers, down from 218 in the fourth quarter of 2023 and 220 in the year-over-quarter. During the quarter, we added several customers, some of which Leonard referred to in his prepared remarks.
Anil Kumar Doradla: During the first quarter of <unk> and PMT were the two largest verticals at 39% and 31% of our revenues respectively.
Anil Kumar Doradla: Our retail vertical remained flat on a sequential basis and decreased by 3% on a year on year basis on a sequential basis, we witnessed growth from specialty retail.
Anil Kumar Doradla: PMT remains flat on a sequential basis and decreased by 10, 4% on a year over year basis.
Anil Kumar Doradla: Coming to our largest customer and our TMT vertical grew both on a sequential and year over year basis.
Anil Kumar Doradla: Here are the details of the revenue mix or other verticals are CPG and manufacturing and represented 12% of our revenue in the first quarter a decrease of one 2% on a sequential basis and 24, 4% on a year over year basis on a sequential basis, our largest CPG customers grew in the quarter and this was offset by <unk>.
Anil Kumar Doradla: The quarterly decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of non-strategic customers. Moving to the income statement, our GAAP gross profit during the quarter was $27.7 million, or 34.7%, compared to $28.1 million, or 36% in the fourth quarter of 2023 and down from $28.6 million, or 35.7% in the year-over-quarter. On a non-gap basis, our gross profit was $28.1 million, or 35.3%, down from $28.6 million, or 36.6%, in the fourth quarter of 2023 and down from $29 million, or 36.3%, in the year of the quarter.
Anil Kumar Doradla: At other customers.
Anil Kumar Doradla: Our financial vertical represented 12, 8% of revenue an increase of 23, 7% on a sequential basis and 57, 2% on a year over year basis.
Anil Kumar Doradla: During the quarter, we witnessed growth across most of our customers that range from financial technology banking and insurance.
Anil Kumar Doradla: Our newly desegregated healthcare and pharma represented three 8% of our revenues showed a.
Anil Kumar Doradla: Decline of 10, 5% on a sequential basis and four 5% decrease on a year over year basis and.
Anil Kumar Doradla: And finally, the other vertical represented 10, 4% of our first quarter revenue was up four 5% on a sequential basis and 51% on a year over year basis.
Anil Kumar Doradla: The decrease in gross margin as a percentage on a sequential basis was driven by a combination of the first quarter seasonal increase in employer-related costs and FX headwinds. Non-gap EBITDA during the first quarter that excluded stock-based compensation, depreciation and amortization, restructuring, and expenses related to the geographic reorganization, transaction, and other related costs was 10.3 million or 12.9% of sales versus 10.7 million or 13.7% of sales in the fourth quarter of 2023, and down from 10.8 million or 13.5% in the year-over-quarter.
Anil Kumar Doradla: The sequential growth was driven by strength across multiple customers some of them in the clean energy and lease up space.
Anil Kumar Doradla: We ended the first quarter with a total headcount of 3892 down from 3920 installation in the fourth quarter of.
Anil Kumar Doradla: 2020 training and up from 3744 in the first quarter of 2023.
Anil Kumar Doradla: In comparison to the fourth quarter, we exited our first quarter with the higher billable head count due to improving demand.
Anil Kumar Doradla: The decline in non-GAP EBITDA was largely due to a decrease in gross margin. Our gap net loss in the first quarter was 3.9 million or a loss of five cents based on a basic share count of 76.2 million shares compared to the fourth quarter income of 2.9 million or four cents based on a basic share count of 75.7 million and a loss of 8 million or 11 cents per share based on 74.5 million basic shares in the year above quarter. The year-over-year decrease in gap net loss was largely due to lower levels of stock-based compensation and a decrease in the provision of income taxes partially offset by depreciation and amortization.
Anil Kumar Doradla: At the end of the first quarter of 2024.
Anil Kumar Doradla: Our total U S encompassed 332 or eight 5% of our company's total head count versus eight 1% in the year ago quarter.
Anil Kumar Doradla: Our non U S headcount located in Europe, Americas and Indianapolis.
Anil Kumar Doradla: 560, or 91, 5%.
Anil Kumar Doradla: In the first quarter revenues from our top site and top 10 customers were 39, 6% and 55, 3%, respectively versus 48% and 64% in the same period.
Anil Kumar Doradla: A year ago, respectively.
Anil Kumar Doradla: During the first quarter, we had a total of 210 customers down from 218 in the fourth quarter of 2023 and 220 in the year ago quarter.
Anil Kumar Doradla: On a non-GAAP basis, in the first quarter, our non-GAAP net income was $5.2 million, or $0.07 per share, based on $78.4 million diluted shares, compared to the fourth quarter non-GAAP net income of $5.7 million, or $0.07 per share, based on $0.78 million diluted shares and $6.5 million, or $0.08 per share, based on $0.77 million shares in the year-ago On March 31, 2024, our cash and cash equivalents totaled $249.4 million, down from $257.2 million in the fourth quarter of 2020.
Anil Kumar Doradla: During the quarter, we added several customers some of which Leonard referred to in his prepared remarks, the quantity decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of non strategic customers.
Anil Kumar Doradla: Moving to the income statement, our GAAP gross profit during the quarter was $27 7 million or 34, 7% compared to $28 1 million or 36% in the fourth quarter of 2023 and down from $28 6 million or 35, 7% in the year ago quarter.
Anil Kumar Doradla: Coming to our second quarter guidance, we expect revenues to be in the range of $80 million to $82 million. We expect our non-GAAP EBITDA for the second quarter to be in the range of $10.5 million. For the second quarter of 2024, we expect our basic share count to be in the range of 77 to 78 million and our delivered share count to be in the range of 79 to 80 million. That concludes my prepared remarks. We are now ready to take questions.
Anil Kumar Doradla: On a non-GAAP basis, our gross profit was $28 1 million or 35, 3% down from $28 6 million or 36, 6% in the fourth quarter of 2023 and down from $29 million or 36, 3% in the year ago quarter.
Anil Kumar Doradla: The decrease in gross margin as a percentage on a sequential basis was driven by a combination of first quarter seasonal increase in employee related costs.
Anil Kumar Doradla: Mix headwinds.
Anil Kumar Doradla: non-GAAP EBITDA during the first quarter, then excluded stock based compensation depreciation and amortization restructuring and expenses related to the geographic reorganization transaction and other related cost was $10 3 million or 12, 9% of sales versus $10 7 million up $13 <unk>.
Operator: Hello, everyone. As we go through the Q&A session of this call, I will first announce your name. At that point, please unmute your mic and turn on your camera.
Anil Kumar Doradla: 7% of sales in the fourth quarter of 2023 and down from $10 8 million or 13, 5% in the year or acquired.
Anil Kumar Doradla: The decline in non-GAAP EBITDA was largely due to increase in gross margins.
Unknown Attendee: Hi, thanks for taking my question. A really nice set of results here. So, let me ask what drove the upsurge.
Anil Kumar Doradla: Our GAAP net loss in the first quarter was $3 9 million or a loss of <unk> <unk>.
Anil Kumar Doradla: Based on basic share count of $76 2 million shares compared to the fourth quarter income of $2 9 million.
Anil Kumar Doradla: Our <unk> based on a basic share count of $75 7 million and a loss of $8 million or 11 cents per share based on $74 5 million basic shares in midyear.
Leonard Livschitz: Thank you, Puneet. It's good to have you on the call.
Anil Kumar Doradla: Our bulk water.
Anil Kumar Doradla: Year on year decrease in GAAP net loss was largely due to lower levels of stock based compensation and decrease in provision of income taxes, partially offset by depreciation and amortization.
Anil Kumar Doradla: On a non-GAAP basis in the first quarter. Our non-GAAP net income was $5 2 million or seven cents per share based on $78 4 million diluted shares compared to the fourth quarter non-GAAP net income of $5 7 million or <unk> <unk> per share based on 78, and diluted shares and $6 5 million or <unk> <unk> per share based on <unk>.
Anil Kumar Doradla: 77 million shares in the year ago quarter.
Anil Kumar Doradla: On March 31, 2024, our cash and cash equivalents totaled $249 $4 million down from $257 2 million in the fourth quarter of 2023.
Anil Kumar Doradla: Turning to our second quarter guidance, we expect revenues to be in the range of 80 million to $82 million.
Leonard Livschitz: Well, it didn't come as a surprise to us. As you recall, at the end of the report last time, when we talked about the results of 2023, I kind of hinted that continued growth was going to happen. So I'm still bullish, not only on guidance for Q2, but subsequent growth as we go forward. Some of those subtleties.
Anil Kumar Doradla: We expect our non-GAAP EBITDA in the second quarter to be in the range of 10 five.
Leonard Livschitz: But ultimately, what Grid Dynamics really sees is that despite continuous scrutiny around the budget from the major, Global Companies, there is a demand for Institutionalize the Additional Technologies. So if you look at the last 18 months, a lot of companies have clamped down on all this, but now we see the opening to basically innovate and generate more competitive advantages by stepping up into the unique area relating to data management, machine learning, and obviously some AI modules.
Anil Kumar Doradla: 10 million to 11 5 million for the second quarter of 2024, we expect our basic share count to be in the range of $77 million to $78 million and our diluted share count to be in the range of $79 million to $80 million that concludes my prepared remarks, we are now.
Leonard Livschitz: But more important, this whole comprehensive question, how to type business value with a predictable nature of the digital side of the business. So that's where we see kind of notable examples of the clients who started with us in 2023, or even more stable clients who've been with us for a longer time, now have projection of the budgets for an extended period of time and Grid Dynamics part of the journey. The other thing which we mentioned in the remarks is that some of the reduction of the preferred suppliers started paying some dividends to Grid Dynamics staying on the kind of cutting edge of work with the clients relentlessly pushing the proposals of technology and business goals. And again, it's paying off because we are being awarded more business for the longer term.
Speaker Change: I need to take questions.
Anil Kumar Doradla: [music].
Anil Kumar Doradla: Okay.
Speaker Change: Hello, everyone as we go through the Q&A session of this call I will first announce your name at that point. Please on mute your mic and turned on your camera.
Operator: Our first question today comes from Puneet Jain.
Speaker Change: Of J P. Morgan.
Speaker Change: Your line is open go ahead please.
Pat: Hi, Pat.
Speaker Change: Thanks for taking my question.
Unknown Attendee: Really nice sector presents here.
Unknown Attendee: So let me ask what drove the upside relative to that guidance you grew sequentially in first quarter, and then expect growth in the second quarter at ESMO, what drove those positive terms given many many data points, suggesting continued sluggishness in the spending environment in this industry.
Anil Kumar Doradla: And Puneet, building on your comment on where all that said came from, I think the way we could characterize this, when we met you guys in late February, we had a certain outlook. And as time evolved, and as, you know, the business evolved, we saw improvements across. So while, you know, I would say that we saw it more widespread relative to what our expectations were, obviously, that has shown up in the results.
Unknown Attendee: In the Permian.
Speaker Change: Good to having you on our call well.
Leonard Livschitz: It didn't come to a surprise to us if you recall at the end of the reported last time, we were talking about the results of 2023 kind of hinted that the continued growth.
Leonard Livschitz: Going to happen so.
Leonard Livschitz: Too bullish not only on the guidance.
Leonard Livschitz: Guidance for Q2.
Leonard Livschitz: Yeah, no, it's, it's great. Like, it's just like, I was just curious because the upside or the positive trends seem different from many other companies that have been reported in this research. Let me ask longer term, like, beyond this year, we get a lot of questions from investors about AI headwinds, like that AI creates opportunities for companies to be more productive in coding efforts. How should we think about new normal growth for the sector given increasing AI adoption?
Leonard Livschitz: Secret growth as we go forward, we'll be happy to.
Leonard Livschitz: Because some of those subtleties, but ultimately.
Leonard Livschitz: What Greek language really she is that despite continued scrutiny around the body.
Leonard Livschitz: <unk> from the major.
Leonard Livschitz: Global companies there is a demand.
Leonard Livschitz: Four inch institutionalize, the additional technology spending.
Leonard Livschitz: So if you look at the last 18 months a lot of companies slimmed down all the specifics.
Leonard Livschitz: Now we see the opening comes to.
Leonard Livschitz: Well, obviously, this question comes back every time we discuss it not only with investors but, more importantly, with clients, right? At this moment, the choice of models, platforms, still remains and is very broad.
Leonard Livschitz: Basically innovate and.
Leonard Livschitz: Generate more competitive advantages by stepping up into the unique area relates to the.
Leonard Livschitz: Data management.
Leonard Livschitz: Machine learning obviously.
Leonard Livschitz: And as we have been engaging in, as you know well, Grid Dynamics and open source solutions, together with the more traditional models, we explore multiple venues. We work with clients who understand and appreciate Microsoft, or for that matter. EWS will obviously be very tight with the partnership with Google in multiple But even the others, like, for example, you know, the meta version of the, We apply our general broader knowledge of what we believe is a right for the customer, including their own capabilities, their own models, the trainability of those models, their specialization in domains, and basically verticalize the proposals where we test those models and expand across the technical capabilities on a horizontal slice.
Leonard Livschitz: Modules, but more importantly, this whole comprehensive question, how tight the business value with a predictable measure.
Leonard Livschitz: The digital side of the business. So that's why we see kind of notable examples of the clients who started with us in 2023 or even more.
Leonard Livschitz: Table clients who've been with us for longer time, now have projection of the budget.
Leonard Livschitz: For extended period of time, it is part of the Georgia Dock.
Leonard Livschitz: The thing, which we mentioned in our remarks that we see that some of the reduction of the preferred suppliers start playing some dividends degrees of them extend on that kind of a cutting edge of work with the clients relentlessly pushing the proposal so tiny technology business schools and.
Leonard Livschitz: Again their P&L, because we are being awarded.
Leonard Livschitz: Longer term business too.
Leonard Livschitz: Right.
Leonard Livschitz: And put into building up on your comment on where did all that upside come heightened awake.
Anil Kumar Doradla: We could characterize as when we mentioned dies in late February we have a certain outlook.
Leonard Livschitz: So it's a disruptive world. And one of the good things for Grid Dynamics, if you look at our 18 years of history, who is striving to disrupt. This is what we're talking about, not just peers; we're talking about this world of innovation. Everybody talks about it, but when it comes to clients, they just don't want just clarity; they want ROI. And that goes way beyond white papers and hypotheses.
Anil Kumar Doradla: And ask me.
Anil Kumar Doradla: Time evolved and as.
Anil Kumar Doradla: The business evolve we see.
Anil Kumar Doradla: Improvements across so while.
Anil Kumar Doradla: You know I would say that we signed more widespread relative to what our expectations were.
Anil Kumar Doradla: Asleep that has shown up in the results.
puneet: Yeah, no. It's it's great like it's just like I was just curious because the.
Leonard Livschitz: The upside of the positive trends seen different from many of the companies that have reported and persistence.
Leonard Livschitz: You need to work with them diligently to see how their attempts to build in systems actually convert into proven results because the variances are still large. So I would believe that we are at the forefront of those innovations, not mentioning the partnership. We have the key players, not only the hyperscalers, but actually the leaders in that AI space, including the hardware.
Leonard Livschitz: Now, let me ask longer term flex so beyond this year, we get lots of questions from investors about AI has been like the AI and creates opportunities to be more productive and coding efforts.
Leonard Livschitz: How should we think about new normal growth for the sector given infusing AI adoption.
Speaker Change: Well, obviously this question comes back.
Operator: Thank you, Puneet. Thank you.
Leonard Livschitz: Every time, we discuss not only with investors.
Leonard Livschitz: Notably with the clients right.
Operator: The next question goes to Mayank Tandon at Needham. Mayank, the line is open. Please go ahead.
Leonard Livschitz: At this moment.
Leonard Livschitz: Choice of the models platforms co pilots.
Mayank Tandon: Great. Hi Leonard, Anil, how are you?
Leonard Livschitz: He will remain in very broad.
Leonard Livschitz: Let me start with a question on the guidance. So Anil, if I take the top end of the guidance, that assumes a nice acceleration sequentially, just building off that, should we expect further acceleration in the back half? I know you're not giving formal guidance, but just maybe anecdotally or qualitatively, any color on what you're hearing from clients? Is this sustained acceleration, or are we still sort of in this uneven climate where it's a little bit?
Leonard Livschitz: As we have.
Leonard Livschitz: Been engaging in a as you know well agreement that makes sense.
Leonard Livschitz: Open source solutions together with the more traditional models we explore.
Leonard Livschitz: Multiple venues.
Leonard Livschitz: We work with our clients, who understand and appreciate it.
Leonard Livschitz: Microsoft.
Leonard Livschitz: Or for that matter.
Leonard Livschitz: AWS.
Leonard Livschitz: <unk>.
Anil Kumar Doradla: So, Mike, let me give the official answer, and Leonard will jump into more qualitative. Look, we do one quarter at a time, right? In Leonard's prepared remarks, he made some comments, right?
Leonard Livschitz: Obviously very tight.
Leonard Livschitz: The partnership with Google on multiple fronts, but even the others like for example.
Leonard Livschitz: Meta version of the corporate stores.
Leonard Livschitz: And again, if you look at the trends over the last couple of quarters, it's very consistent what we're doing. I don't want to say anything beyond our guidance for Q2, but it's fair to say we are positive for 2024. But Leonard, I'll let you talk about maybe a little bit more.
Leonard Livschitz: Like a lot, but we apply our general broader knowledge.
Leonard Livschitz: Of what we believe is the right for the customer including their own capabilities their own models. The trade ability of those models the specialization of the mains and basically verticalizing the proposals, where we test those models of expense across the technical capabilities on the Horizontals.
Leonard Livschitz: So Mike, as always, the weight is on my shoulders. So, you know, let me tell you this. We continue to hire and expand. The headcount you see right now doesn't fully reflect the growth because we were able to optimize the headcount toward gearing toward new demand. So if you look at the number of billable headcount, which is constantly growing and growing week after week, I just got new results for April, right?
Leonard Livschitz: So.
Leonard Livschitz: You said, it's disruptive world.
Leonard Livschitz: And one of the good thing for Green dynamics should really look at our 18 years of history.
Leonard Livschitz: We strive with a disruption.
Leonard Livschitz: This is where.
Leonard Livschitz: When talking about I'm just peers, we're talking about this.
Leonard Livschitz: So it all looks good. We are basically applying some of the productivity tools internally to make sure we can reach a broader audience of engineers to reach the goals of internal capabilities. And that includes all three main facets, the internship program, grid university, and grid lab.
Leonard Livschitz: World of innovation.
Leonard Livschitz: When he talks about it but when it comes to the clients.
Leonard Livschitz: Just don't want to just clarity that would've otherwise.
Leonard Livschitz: And this goes way beyond the white papers and hypothesis you need to work with them diligently to see how their attempts to building systems actually convert into the brewing results because the variances are still leverage so I would believe that we are at the forefront of those innovations.
Leonard Livschitz: So on the supply side, we're fully prepared for it. On the demand side, look, I'm bullish beyond Q2. That's very clear.
Leonard Livschitz: Now, when I gave guidance in February that it's going to be a record quarter, that kind of fills in the range. So without speaking, you may draw some conclusions about where we're going to be. Again, we're only in the first month. So we are comfortable with our guidance, right? And if we go further, I believe we will crush the market with our capabilities. Now, whether we're going to crush the market with the numbers, that would have a little tell.
Leonard Livschitz: Mentioning the partnerships.
Leonard Livschitz: We have with the key players not only the Hyperscale has been extra with leaders in there.
Leonard Livschitz: Basically with the hardware.
Speaker Change: Thank you.
Leonard Livschitz: Okay.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you puneet.
Speaker Change: The next question goes to my young tandem at Needham.
Mayank Tandon: Your line is open. Please go ahead.
Operator: Great.
Mayank Tandon: And how are you.
Mayank Tandon: Let me start with the question on the guidance. So I don't know if I take the top end of the guidance, but it seems a nice acceleration sequentially.
Leonard Livschitz: But you know, some people were questioning why I was not smiling the last couple of quarters. Now you have my smile. So that's probably the best indication of where our technology capability is going to take our business.
Leonard Livschitz: Just building off that should we expect further acceleration in the back half.
Leonard Livschitz: We're not giving formal guidance, but just maybe anecdotally or qualitatively any color on what you're hearing from clients is this sustained acceleration or are we still hold up in this uneven climate, where it's a little bit hard to predict.
Mayank Tandon: That's very helpful. Thank you for that.
Mayank Tandon: And as a quick follow-up, Anil, I wanted to ask you about margins. If I look at gross margins, this is probably the lowest that we've seen, at least in recent history. Could you sort of square that with where utilization is, and pricing conversations? You know, what's driving that? And if demand does start to improve, should we expect margins to follow suit?
Anil Kumar Doradla: Thank you.
Anil: So Mike let me give the official answer in a letter that was jump into more quantitative, but we do one quarter at a time right inland Leonard's prepared remarks. He made some comments right and again, if you look at the trends over the last couple of quarters, it's very inconsistent what we're doing I don't want to say any.
Leonard Livschitz: So coming to your second part, the answer is yes, right. There's leverage in the model. Now, without going through all the numbers in finer detail, there are many moving parts to it. There's an emotional impact also, as we have some of these costs that were a headwind. And, you know, you know, over the last 12 months what has been going on across the industry, right, across our evolution. That has had some impacts, and you're seeing that.
Leonard Livschitz: Beyond.
Leonard Livschitz: Our guidance in Q2, but fair to say we are positive for 2024, but Leonard I'll, let you talk about maybe a little bit more.
Leonard Livschitz: Mark is always the way it is on my shoulder.
Leonard Livschitz: No.
Leonard Livschitz: Let me tell you. This we've continued to hire and expand that they had column you see right now.
Leonard Livschitz: It doesn't fully reflect the growth because we were able to.
Leonard Livschitz: And more importantly, Q1 tends to be seasonally a quarter where you have, you know, some of the payroll-related issues, employee-related taxes hit us. So, really, every year you see that, obviously, with the revenue trends being the way they are, you see a little bit more, I would say, a little bit more on the margin front pressures in Q1. But again, as the year evolves, and you can see this even with our guidance, we will move in the right direction. Again, from a long-term perspective, our model has not changed, but we'll just have to work through it over the next couple of years.
Leonard Livschitz: Optimize.
Leonard Livschitz: Head count toward gearing towards need demand. So if you look at the number of billable has gone which is constantly growing week after week.
Speaker Change: New results of April grades so looks good.
Leonard Livschitz: We are basically.
Leonard Livschitz: Clyde.
Leonard Livschitz: Some of the productivity tools internally to make sure we can reach to a broader audience of engineers to reach.
Leonard Livschitz: The goals internal capabilities and that includes all three main facets to endure ship program Green's universe and grid. So on a on a supply side, we're fully prepared on the demand side.
Leonard Livschitz: Do you want more details, or are you okay with the intro? So, you know, if you do want more details, the thing is, Central Europe is more expensive than Eastern Europe. Everybody knows that. It's a well-known secret.
Leonard Livschitz: Look.
Leonard Livschitz: I'm always beyond Q2.
Leonard Livschitz: Very clear now when I gave a guidance in February, but it's going to be.
Leonard Livschitz: So, as we grew our position in Poland and other countries around the region, obviously, there was a penalty associated. When we added the variants in Mexico, we had a... The key resolution for our business, obviously, with the growth of India, where we're dealing with all marginalities, obviously improving. But there is another thing. We're actually striving right now for a significant improvement in marginality in Europe as well. Now, we have brought a country with a more stable workforce.
Leonard Livschitz: The record quarter.
Leonard Livschitz: That's kind of fills in a range. So without speaking you got some conclusions where are we gonna be again, we're all in the first month. So we are comfortable with our guidance, Brian and if.
Leonard Livschitz: If we go further I believe.
Leonard Livschitz: Crush the market from our capabilities now, whether we get a crushed the market from the numbers that would tie will little tell but you know.
Leonard Livschitz: Some people were questioning why was not smiling last couple of quarters now you've got them by smile. So that's probably the best indication.
Leonard Livschitz: Our technology capability.
Leonard Livschitz: Sadly enough, the war in Ukraine continues to ravage, but we are reducing our dependency and, you know, you continue to invest in the more, what I call, stable territories. So I would say that seasonality, which Anil told you about, reflects our current status quo. I believe in Q2 we will see some pickup. But also, to me, this 2040 model, even though it seems quite remote right now, revenue will need to demonstrate our catch-up on the margin, not adversely planted.
Leonard Livschitz: Year to wealth business.
Speaker Change: That's very helpful. Thank you for that and I have a quick follow up on it.
Mayank Tandon: I wanted to ask you about margins if I look at gross margins. This is probably the lowest that we've seen it at least in recent history, but do you sort of square that with where utilization is pricing conversations.
Anil Kumar Doradla: Driving that and if demand does start to improve should we expect margins to follow suit so coming to you.
Anil Kumar Doradla: The second part of the answer is yes, right there's leverage in the model now.
Leonard Livschitz: Without going through all the numbers and finer details there are many moving parts to it there's an FX impact also.
Leonard Livschitz: We have some of these costs.
Leonard Livschitz: That was a headwind.
Leonard Livschitz: We are not intending to buy the business because technology is so critical, then the value of what we do has to propagate to the results, right? So, as revenue grows, I see the margin improvement. The other part of this, not only on the marginal EBITDA side, you know, we have not lowered our technology investment, which, again, is a trade-off. You need to persevere with the flatness, which was quite long. Over to
Leonard Livschitz: And Oh, you know you know over the last 12 months, what is going on across the industry right.
Leonard Livschitz: Across our evolution that has had some impacts and youre seeing that and more importantly, Q1 tends to be seasonally a quarter, where you have some of the payroll related issues employee related taxes.
Leonard Livschitz: So everybody every year, you'll see that obviously with the revenue trends being the way. They are you will see a little bit more I.
Mayank Tandon: Perfect. Very helpful. Thank you so much. Great job on the quarter. Thank you, Mike.
Leonard Livschitz: I would say a little bit more on the margin front pressures in Q1, but again as the year evolves and you can see this even with our guidance.
Operator: The next question comes from Bryan Bergin of Cohen. Bryan, the line is open. Please go ahead.
Leonard Livschitz: I'm a move in the right direction again from a long term our model has not changed but we'll just have to work through it over the next couple of quarters.
Operator: Hey, thanks. Good afternoon. Zach Ajzenman on for Bryan. First question on demand: Are you comfortable that historic large clients that have caused pressure in the recent past are at least stable here, offering that foundation for growth reacceleration as new enterprise logos run over the next 12 months continue to scale?
Speaker Change: Do you Wanna more details of European with them.
Leonard Livschitz: So.
Leonard Livschitz: As you do on more detail, but the thing is central Europe is more expensive than everybody knows it's not it's a well known too as we grow our position in Poland.
Leonard Livschitz: Other countries.
Leonard Livschitz: All right, let me take the first part. I think Anil will go. There is no evidence today of any large cost decline with Grid Dynamics. We're in April. We kind of understand the trend of this year. It's not going to work out.
Leonard Livschitz: The region.
Leonard Livschitz: There was a penalty associated with the incremental cost with.
Leonard Livschitz: The variance in the.
Leonard Livschitz: The Mexico.
Leonard Livschitz: Okay.
Leonard Livschitz: Completed passive situation, but the key resolution for all business, obviously with the growth.
Leonard Livschitz: Things do happen, but it's stable to positive. So we continue to generate new enterprise clients. If you notice, we did reduce a bit of those smaller clients on the commercial side because there is a dichotomy going on, you know, survival of the fittest. So some of the small guys. [inaudible] good step into the insurance business. And it happens on a stable to positive foundation of our major lead clients.
Leonard Livschitz: Where we believe our marginality.
Leonard Livschitz: Evidently improving but there is another thing is we're actually.
Leonard Livschitz: Striving right now for a significant improvement over the March north in <unk>.
Leonard Livschitz: Europe as well now we have a broader country, we're more stable workforce.
Leonard Livschitz: Suddenly now the war in Ukraine confused too Rob.
Leonard Livschitz: Broadridge, but we are reducing our defenses.
Leonard Livschitz:
Leonard Livschitz: Continue to invest into the more what I call stable territories. So I would say that our seasonality of which annual told you about.
Leonard Livschitz: It reflects our current status quo I believe in Q2 see some pick up but also to me. This 2040 model, even though it seems quite grew more right now.
Leonard Livschitz: The revenue will need to demonstrate a catch up on the margin not.
Leonard Livschitz: Adversely planted we're not intending to buy the business.
Anil Kumar Doradla: So Zach, building upon that, I'll just reiterate it slightly differently: your observation is astute and right on. If you look at our second quarter guidance, we're reverting to year-over-year growth right after that trend is reversed after a couple quarters, and the underlying trend points that out very well, both in terms of existing and new ones. New clients were always good for us, but existing clients moved the needle for us, and that is changing.
Leonard Livschitz: Because technology is so critical then the value of what we do has to propagate through the results right. So.
Leonard Livschitz: <unk> growth I see the margin improvement.
Leonard Livschitz: The other part of this and not only in the margin or EBITDA side, you know, we have not lowered our technologies last week, which again.
Leonard Livschitz: It's a trade off you need to pursue here of the flatness, which was quite long. So we're bullish but the numbers will tell you that through store.
Speaker Change: Perfect very helpful. Thank you so much great job on the quarter. Thank you Mike.
Zachary Ryan Ajzenman: Very helpful. And then to follow up on Gen AI, obviously, interest here continues to swell. We've also heard anecdotes that it has impacted the pace of client decision making as customers try to figure out what to do with the technology. If you're seeing this, what do you think needs to happen for this trend to loosen up?
Speaker Change: Thank you Mike.
Mayank Tandon: The next question comes from Bryan Bergin of Cowen Brian. The line is open. Please go ahead.
Bryan C. Bergin: Hey, Thanks, Good afternoon, Xactly hasn't been on for Brian first question on demand are you comfortable that historic large clients that have cost pressure in the recent past or at least stable here offering that foundation for growth Reacceleration as new enterprise logos one over the next to last 12 months continuing.
Leonard Livschitz: A very loaded question. I can keep you entertained with having this, you know, distinguished CFO answering. One for me to watch.
Operator: To scale.
Anil Kumar Doradla: So I mentioned in the first remarks when we talked with Puneet that Grid Dynamics goes very broad, and the benefits are sometimes not trivial from the purely direct savings. So we have one very large legal customer, and they're doing a lot of, you know, simplification of the work. That will tell how good the savings will be.
Speaker Change: Alright, let me take the first part I think Neil will go.
Leonard Livschitz: There is no evidence today of any large customer declining with degrees in it.
Leonard Livschitz: We are in April we kind of understand the trends that you are not going to work.
Anil: Things do happen, but.
Leonard Livschitz:
Leonard Livschitz: They want to partner.
Leonard Livschitz: We will continue to generate the new enterprise clients. We have you noticed we did reduce.
Leonard Livschitz: We implemented a big portion of the work with, with the financial wealth management plan, but they're an enterprise-type solution when it comes to purely, you know, the journey of AI. It's almost anecdotal right now, which projects will combine some of the work from the communicational part, right? So there are many things Grid Dynamics has done in the past with natural language for vector search. We're doing all kinds of features now enabled by AI.
Leonard Livschitz: Reduce a bit.
Leonard Livschitz: Those smaller clients on the commercial side because there.
Leonard Livschitz: There is a dichotomy goes on survival the fitness with some of the small guys who.
Leonard Livschitz: Actual struggling with their innovation with funding, but nevertheless, we expand that.
Leonard Livschitz: The market to see if you look at our growth. It goes not just traditionally you know where the CPG.
Leonard Livschitz: And retail, but it's also expanding quite a bit into the fintech part of the five are gaining.
Leonard Livschitz: Gaining momentum in the.
Leonard Livschitz: Life Science supply chain.
Leonard Livschitz: We got our first.
Leonard Livschitz: Good stepping into the insurance business and.
Leonard Livschitz: So I would say that, to be very precise, the scale of the results with the models being more solidified with the BISPO custom solutions is becoming more evident. But if you use a generic model without proper understanding of the ways, then people may not see all the results right.
Leonard Livschitz: It happens on a stable to positive.
Leonard Livschitz: Foundation, well major league clubs.
Leonard Livschitz: So that building upon that I'll just reiterate it.
Anil Kumar Doradla: A different your observation is astute and write offs.
Anil Kumar Doradla: If you look at our second quarter guidance, we're reverting to year on year growth rate after.
Zachary Ryan Ajzenman: Which are helpful, thanks.
Anil Kumar Doradla: That trend has reversed after a couple of quarters.
Anil Kumar Doradla: And the underlying.
Operator: Thank you. Our next question comes from Josh Siegler at Cantor Fitzgerald. Josh, the line is open, please. Yeah, hi guys, thanks.
Anil Kumar Doradla: Trends point that out very well both in terms of existing and new ones new clients were all compressed right.
Anil Kumar Doradla: Existing clients move the needle for us and that is changing now.
Joshua Michael Siegler: Yeah, guys. Thanks for taking my question today. I appreciate it. First and foremost, you know, congratulations on the strong results here. I was wondering if you could dive a little bit deeper into any geographies that you're particularly excited about as you've progressed through the year from a demand perspective.
Anil Kumar Doradla: Okay.
Speaker Change: Very helpful. And then the follow up on Gen. AI, obviously interest here continues to swell. We've also heard anecdotes that it has impacted the pace of client decision, making as customers try to figure out what to do with what's the technology.
Leonard Livschitz: Well, as a demand, the U.S. market remains to be the most critical for us, so there's no question. If you look even at centers of gravity... We are actually scaling our technical competence centers beyond the Bay Area. We zeroed in on Dallas for a while.
Zachary Ryan Ajzenman: If you are seeing that's why do you think needs to happen for this trend to loosen up.
Speaker Change: It's a very loaded question I can get you in 13 with heavy.
Leonard Livschitz: You know distinguished before that's right.
Leonard Livschitz: Fermenter watch.
Leonard Livschitz: We're adding our office and capabilities in the Atlanta area. We are very strongly present in Jersey, Boston's expansion, and of course, in the Midwest, as well as not only California but also Arizona, following the trend of the expansion of some of our clients as well as the trend of the stacks on the software side driven by the major hardware companies. So it's a... It's a revolutionized technology in the US, where we are stronger. So that's very clear.
Leonard Livschitz: So.
Leonard Livschitz: I mentioned in the first remarks, when we talk with two needs that Green dynamics goes very broad.
Anil Kumar Doradla: And the.
Anil Kumar Doradla: The benefits.
Anil Kumar Doradla: Sometimes are not trivial from the purely.
Anil Kumar Doradla: Direct savings. So we have one of the very large legal customer and where they're doing a lot of.
Anil Kumar Doradla: Simplification of their work.
Anil Kumar Doradla: I will tell how good the savings will be implemented.
Leonard Livschitz: Big portion of the work with them.
Leonard Livschitz: Saying that Europe is starting to pay some dividends. It's a bit below my ambitions yet in terms of growth in Europe, but we see that the traction in Europe and the first winds come outside of our traditional retail sense, and I'm not talking about small deals; I'm talking about consistent growth, and we see that pick up in manufacturing, we see that pick up in growing into the approaching automotive industry, and outside of these two regions, we have, I would say, the first, I would say, It's not; it's not tangible yet.
Leonard Livschitz: With the.
Leonard Livschitz: Financial wealth management plan, but there are into price.
Leonard Livschitz: Type of a solution when it comes to <unk>.
Leonard Livschitz: Germany right.
Leonard Livschitz: It's almost anecdotal right now which projects will come.
Leonard Livschitz: Combined some of the more from the from.
Leonard Livschitz: From the communications Mark right. So there are many things <unk> done in the past you know what.
Leonard Livschitz: Natural language box with Vectra search we're doing all kinds of features now enabled by AI. So I would say that to be very precise.
Leonard Livschitz: The result was the models.
Leonard Livschitz: But the big part of our growth engagement happened with our clients, both United States and European captive centers in India. So India has become our revenue growth through the influence of the local innovative technology centers, which are part of the global companies. We just announced hiring our head of India as well. So I would say there's a brushstroke. That's how I see the demand environment.
Leonard Livschitz: More solidified with the bespoke custom solutions are becoming more evident, but if you use a generic model without proper understanding of the ways that people may not feel the results right away.
Speaker Change: That's very helpful. Thanks.
Speaker Change: Of course.
Zachary Ryan Ajzenman: Okay.
Speaker Change: Thank you. Thank you.
Zachary Ryan Ajzenman: Our next question comes from Josh Sigler.
Joshua Michael Siegler: Cantor Fitzgerald.
Joshua Michael Siegler: Josh Your line is open. Please proceed.
Joshua Michael Siegler: Yeah, Hi, guys. Thanks for taking my question today I appreciate it first and foremost congratulations on the strong results here I was wondering if you can dive a little bit deeper into new geographies that you're particularly excited about as you progress through the year from a demand perspective.
Joshua Michael Siegler: Mhm.
Speaker Change: Well that's the demand.
Joshua Michael Siegler: U S market remains to be the most critical for us. So there's no question about it if you look even at centers of gravity to us.
Leonard Livschitz: Well, you see, M&A at the end of the day is when we announce, we announce, and the proof is in the pudding when we have. If you look at the pipeline, if you look at the activity, it continues to be robust. If you and I look back at the last seven, eight months, and you know, we did a little bit of analysis on what is going on in our M&A, we would have liked to announce a couple of deals before we
Leonard Livschitz: Our Xtra was scaling.
Leonard Livschitz: So the technical competence centers beyond the Bay area, we zeroed in on Dallas for a while.
Leonard Livschitz: Getting our office.
Leonard Livschitz: [noise] abilities.
Leonard Livschitz: Glenda area.
Leonard Livschitz: Our very strong presence in Jersey.
Leonard Livschitz: Boston expansion and of course, you know Midwest.
Leonard Livschitz: As well as not only the <unk>.
Leonard Livschitz: Fortunately, but also Ah resona following the trend.
Leonard Livschitz: Spencer in for some of our clients as well as the trend of the stacks on the software side driven by the major hardware company. So.
Leonard Livschitz: It's.
Leonard Livschitz: And so revolutionizing technology in U S, where we are strong.
Leonard Livschitz: Very clear, saying that Europe is starting to pay some dividends.
Leonard Livschitz: It's a bit below my ambitious yet.
Leonard Livschitz: In terms of the growth in Europe, but we see that the traction in Europe and the first wins come.
Leonard Livschitz: Outside of our traditional retail Sims and I'm not talking about small deals I'm talking about consistent growth and.
Leonard Livschitz: Yeah, I understand. Thanks, Neil.
Leonard Livschitz: We see that pick up in manufacturing should pick up and growing into the approach.
Joshua Michael Siegler: Thank you, Josh. Thank you, Josh. Our next question comes from Ryan Potter of Citigroup. The line is open. Go ahead, Ryan. Hey, thanks for taking my question.
Leonard Livschitz: Industrial Park.
Leonard Livschitz: Outside of these two regions, we have I would say the first.
Ryan Edward Potter: Hey, thanks for taking my question. You mentioned in your prepared remarks some of the successes you've had with some of your larger enterprise clients in terms of earning volunteers. What do you believe are some of the drivers of this success? Do you believe it's solely based on your capability that you're continuing to take share? Or do you believe some of these clients are also turning to you more because of your more global presence?
Leonard Livschitz: I would say.
Leonard Livschitz: Discussions.
Leonard Livschitz: It's not tangible.
Leonard Livschitz: But the big part of our growth and usually what happened with our clients, both the United States and European kept two centers.
Leonard Livschitz: India has become.
Leonard Livschitz: Our revenue growth through the influence of the local innovative technology centers, which are part of the global companies, We just announced.
Leonard Livschitz: You know, it's a bit of both. We definitely see the turnaround in customers, as I mentioned earlier in one of those Q&A discussions, that our clients need to invest in innovation. So that's kind of a demand driven from, But on the other hand, those smaller projects on the technology side, AI, still digital, some of the migration partnerships, enhancing their features, their implementation parts have been proven successful. So when it comes to the budgeting innovations, at the same time. If nothing else, that's Q1S4.
Leonard Livschitz: Ahead of India as well, so I would say is a brush strokes, that's how issues a demand environment to regionally.
Speaker Change: Great. That's really helpful color Larry I appreciate that and then I was also curious you know I, probably asked us bark too often but would love to get a better understanding for how youre thinking about M&A currently if theres been any shift in terms of your perspective on inorganic growth and possibly talk.
Leonard Livschitz: Okay.
Leonard Livschitz: But you see.
Leonard Livschitz: M&A at the end of the days, when we announced we announced that the proof is in the pudding than we have.
Leonard Livschitz: If you if I look back at the last call it seven or eight months and.
Leonard Livschitz: Remember, in the old days, it was a Q4 deal, right? People kind of start defining their budgets in Q4. Now, it's happening more in the Q1 time frame, which is kind of a tale of some of the proof of concepts and the smaller innovation projects from us because those models and the expansion of the, you know, tools-related technology actually work very well. And I would say that at least six or seven clients. They actually created this demand for innovation. And then you have to be, in some cases, a bit more proactive.
Leonard Livschitz: We see certain trends.
Leonard Livschitz: Whether it is true.
Leonard Livschitz: Some of our.
Leonard Livschitz: In some cases, you participate in the bids. But more important than not, the technical leaders of the client. Look at us from the history of recent engagements to understand what we suggest. So, things are changing. And this may not be a very straight answer to the question you asked, but just to summarize it, both the client wants more, and we offer more. And that combination helps us to stay on a growth trajectory.
Speaker Change: Yeah understood. Thanks Neal.
Leonard Livschitz: That'll make sense. And you touched a couple times on the finance vertical, in particular; you saw pretty strong growth there in the quarter. So obviously, could you comment on some of the drivers of the success you're seeing there? Is it with certain types of clients, certain types of projects, and then kind of the opportunity you see in that vertical going forward? Yeah, so it is, it's just FinTech to the larger.
Ryan Edward Potter: You believe some of the drivers of this six months, but it's solely based on your buildings that you're continuing to take share or are you pretty soon as clients are also turning to be important because with your more.
Leonard Livschitz: Size of the group and There are, as you know, Grid Dynamics still has certain, you know, scope of its strategic clients, or they're not infinite. So, but they're very formidable.
Leonard Livschitz: So, and a few of them, we see continuous growth and, you know, and actually, to some extent, exponential growth. Now, we're reaching, I would say, a critical mass. And why aren't we creating a new, you know, FinTech models, right? We just work on the projects, and we combine the open source capability with the partnership, which will continue to expand on their specialized tools, which, based on our internal development, allows us to offer the pods.
Leonard Livschitz: So the teams of people who are basically driving not just innovation but given ROI successes. And that actually turns, as a result, into scalable revenue. So FinTech is by far the biggest impact and will continue for the foreseeable future. The other area which I like, you know, again, it's less evident from the numbers, but it starts creeping up. It's wealth management and a broader sense, in the broader sense, because, as you know, more and more people are kind of putting money into various investments, and technology drives it, automation beyond belief, right?
Leonard Livschitz: So many, many things go beyond the advisors who have only so much. So, the whole industry is going through a breakthrough of innovation. It's a little bit too early to talk about our contribution to insurance, but it's another lack of the growth we see. FinTech, Wealth Management, Insurance.
Operator: Hi. The next question is from Maggie Nolan. Maggie, your line is open. Please proceed.
Margaret Marie Niesen Nolan: Hi, thank you. Do you continue to have nice new logo additions? I was curious about the pace of conversion to revenue. Are there any patterns in either delays in the conversion or a pickup in the conversion time for new logos or any bookings across your client base?
Leonard Livschitz: So in Q1, I was a pick-up. You know, every quarter there, we talk about trade-offs between acquiring new clients and then potentially maybe tightening the budget with existing clients, right? When we have a more stable platform of existing clients, the pickups are more audible because we can actually double down on the work with these guys without firefighting on an existing logo. It doesn't mean we don't keep an eye on the existing clients. It's just because it's a more predictable process.
Leonard Livschitz: So we have more capabilities on the technology side. We have a better approach, again, with our own AI tools for hiring so that we are bringing people on board and training them at a much faster pace than ever, and keeping them on board, by the way. And we also have the reputation, which helps us with some of the new clients through, obviously, referrals. That's always the big thing.
Leonard Livschitz: The other one is through our marketing, I would say technical marketing, and the third one is through our partnership. So if you look at the scale, the rate of growth, and, of course, in each of those channels, it's a bit different propagation. But the traditional land and expand model, going from innovation projects to scalable businesses, is a bit improved. And now some of those projects scale virtually from the get go.
Anil Kumar Doradla: And Maggie, adding one point, if you recall in Leonard's prepared remarks, he talked about some large fields, right? And some of this was even with new logos that helped.
Margaret Marie Niesen Nolan: And then it seemed like to me the theme of the quarter is maybe stabilization and even slight improvement. So I wanted to double-click on the CPG and manufacturing verticals to better understand the dynamic there on one of maybe the more pain points and whether or not you expect that trend to continue from here.
Anil Kumar Doradla: So, as you know, over the last couple of quarters, the CPG vertical had a certain cadence of growth driven by some of our larger CPGs. What we are seeing there is there are many moving parts. But the good news is that number one, one of our largest CPGs, has not only stabilized, but has reverted to growth in the quarter. And obviously, that has, you know, aiding to that we've had a couple of other slow. How it plays out every 90 days, every vertical, as you know, Maggie, it depends, right? I mean, but it's fair to say that in CPG manufacturing, like the rest of the industry, things have stabilized, and we are more positive.
Leonard Livschitz: Tradeoffs between acquiring new clients, and then potentially maybe tightening the budget with existing clients right. When we have more stable platform of existing clients. The pickups are more notable because we can actually doubled down on our work with this.
Leonard Livschitz: Prior financing on the <unk>.
Leonard Livschitz: This new logo front.
Leonard Livschitz: It doesn't mean, we're reducing I on the existing clients. It's just because it's more predictable process. So we have more capabilities on the technology side, we have a better approach again with our own AI tools for the hiring so that we.
Leonard Livschitz: Yeah, I don't know why both guys use the word stabilization. I mean, some of the numbers go up and down, but there's a tremendous upside. I mean, the logos we just acquired, for example, from that particular field, they not only go from get-go, but the tasks are extremely ambitious. So I think if you look at, for example, Junior February, they may kind of mask the dynamics a bit.
Leonard Livschitz: We're bringing people on board and train them much faster pace than ever and routine by the way as well and we also so we can scale more.
Leonard Livschitz: But I see that this whole spectrum of CPG clients is expanding. Now, manufacturing, I agree with you. We're not stable yet. So I would actually separate those two things. So CPG. [inaudible]
Leonard Livschitz: Of course in each of those channels.
Leonard Livschitz: The traditional land and expand model going from innovation projects to the scalable business.
Margaret Marie Niesen Nolan: Very helpful. Thank you. Thank you very much.
Anil Kumar Doradla: And Annette Maggie, adding one point if you recall in <unk> prepared remarks, he talked about some large deals in spring.
Operator: Ladies and gentlemen, this concludes the Q&A session for today's call.
Anil Kumar Doradla: And some of this was even with me knows that.
Anil Kumar Doradla: Yes.
Speaker Change: Very good.
Anil Kumar Doradla: And then it seemed like to me that the theme of acquirers, maybe stabilization and even slight improvement.
Leonard Livschitz: Thank you everybody for joining us on today's call. Our first quarter results continue the theme we highlighted earlier, steady improvement in our business. While the current economic uncertainties cannot be overlooked, we're highly focused on execution and wallet share at our new and existing, The rise of AI and the paradigm shift in the way enterprises use technology to leapfrog from their current levels requires them to work with a competent partner. Our capabilities, history of solving complex business problems with technology, and our track record of making positive effects on our customers positions Grid Dynamics well. Our future looks bright, and I look forward to sharing all the exciting news on the next earnings call. Thank you.
Margaret Marie Niesen Nolan: So I wanted to double click on many of the CPG and manufacturing vertical call to better understand the dynamic there and what are maybe the more of a pain points and whether or not and do you expect that trend to continue from here.
Margaret Marie Niesen Nolan: Yeah.
Speaker Change: So as you know.
Anil Kumar Doradla: CPG vertical had a certain cadence of growth driven by some of our larger CPG.
Anil Kumar Doradla: One of our largest CPG has not only stabilized but it has reverted in growth in the quarter and obviously that has.
Anil Kumar Doradla: Adding to that we've had a couple of other.
Leonard Livschitz: [music].