Q3 2024 Grid Dynamics Holdings Inc Earnings Call
Today's discussion will contain forward looking statements. This includes our business and our financial outlook and the answers to some of your questions such statements are subject to the risks and uncertainty as described in the Companys earnings release and other filings with the SEC.
During this call we will 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 the 8-K filed with the SEC.
You can find all the information I've just described in the Investor Relations section of our website.
I'll now turn the call over to Leonard our CEO.
Thank you Carrie and good afternoon, everyone and thank you for joining us today.
<unk> reported another solid quarter as positive trends continued to favorably influence our business.
Our third quarter results were above our guidance range and exceeded wall Street expectations, both on revenue and non-GAAP EBITDA.
More importantly, our revenue and profitability were the highest in our company's history.
Similar to the second quarter, we exited the third quarter with a record billable engineering head count.
Customers, both existing and new are contributing to our strong results, which is a testament to our technology differentiation and delivery excellence.
The addition of Argentina based mobile computing enhances our followed the some capabilities and the acquisition of UK based <unk> elevates, our industry expertise in banking and financial services.
With both acquisitions, our teams have started working together and I expect them to generate immediate scalable synergies starting in the fourth quarter.
The remaining trends shaping the company both in the fourth quarter of 2024, and then 2025. Some notable ones I will share with you today.
As we exit 2020 for our long term targets around the company's growth profitability and technical leadership.
Remains unchanged.
Now coming to the demand environment.
Similar to the first half of 2020 for demand trends improved across our customers.
In the third quarter weakness, our customers funding key programs and initiatives at many of our customers. There is a sense of urgency to complete projects by the end of the year.
Numerous initiatives that were held back due to the economic cycles are being prioritized for completion.
This is something we witnessed across a wide range of customers and industries.
In many ways the foundation of the third quarter demand trends were set up in the first half of the year.
Speaker Change: If you recall from my last quarter commentary I highlighted the first quarter was characterized by customers focusing on sharing their outlooks and forecasts plans.
Speaker Change: Aggressively spending.
In the second quarter customer willing to release budgets and implement the airplanes bottomline the positive demand environment that we witnessed in the third quarter was a result of steady improvements over the past couple of quarters, and we expect it to continue into the fourth quarter and beyond.
We set a new record for partnership inflows revenues year to date partnership revenue contribution is 18% of the total revenue.
Our focus on Hyperscale is paid off with three of the largest being in the top five for the partnership revenue.
As I pointed out earlier, we're thrilled to welcome <unk> and mobile computing to great data.
Each company brings and the unique set of capabilities.
Speaker Change: 102013, <unk> is known for delivering complex end to end solutions from design the user experience to deep functionality ongoing managed services.
Speaker Change: Specializations in mission critical platforms and products for leading banks and financial institutions, making them as strategically important addition to greet and it.
Especially as global demand for reliable scalable Fisher food data solutions continue to grow.
Speaker Change: Their focus on risk platform structured products equity derivatives and financial reporting is highly complementary to our current offering and financial services, which adds into our portfolio some of the world's largest banks and financial institutions.
The acquisition of mobile computing expands green dynamics global footprint and follow the some delivery model.
Speaker Change: Founded in 1998 mobile computing is recognized as a leader in digital transformation over and comprehensive suite of solutions spanning industries, including manufacturing and CPG in financial services.
By adding this talented team in Argentina.
Speaker Change: Clients now have expanded options in the Americas.
Complementing our established presence in the United States, Mexico and Jamaica.
During the last earnings call I shared some insight around vendor consolidation across many of our clients.
Over the past 12 months.
Customers have been scaling back on the number of ATM vendors. They work with during the third quarter. The majority of vendor consolidation efforts across customers were completed.
Greta Amex technology and operation Excellence is highly valued and this helped US join a short list of strategic partners for those customers.
Now turning to our AI initiatives.
Speaker Change: Pleased to report that our AI capabilities continued to gain significant traction across our customer base.
We have substantially expanded our AI portfolio and now have over 30 service offerings and solutions, specifically targeting fortune 500 companies.
Speaker Change: Various industry.
These solutions are designed to drive both topline growth and bottom line efficiency for our enterprise clients.
Speaker Change: On the revenue side, we are focused on innovative customer experiences and enhanced marketing pricing and product decisions.
On the cost side, our solutions center on efficiency improvements and enterprise knowledge management.
Speaker Change: What's particularly encouraging is the evolution, we're seeing in our AI engagements.
While in previous quarters were dominated by few ashis and user fees and pilot programs. This quarter, Mark a significant shift as more project move into full production environment.
Our pipeline of AI opportunities has grown to more than 100 active opportunities representing a 50% increase from the last quarter.
Speaker Change: This growth reflects the increasing enterprise readiness to move be unexplored indication to implementation of AI solutions at scale.
Currently we're seeing particularly strong demand in three areas of the year.
AI based search conversational AI and catalog and reach.
This demand is driven by rapidly moving customer expectations as interaction with the AI based our systems become more commonplace in both consumer and enterprise context.
To support this growing demand, we're expanding our partnerships with Hyperscale is building specialized accelerators based on their foundational models and AI based services.
Internally, we continue to invest in our own AI capabilities.
This enhances our delivery efficiency and ensures our teams stay at the forefront of technology implementation.
Now, let me share a few examples of our AI programs at large enterprises.
Speaker Change: And one iconic retailer we've launched in the EIS solution that streamlines their product catalog management by automatically extracting and harmonizing product attributes from unstructured data significantly improving operational efficiency and data quality.
For one of the largest U S auto parts provider, we are implementing in advance.
Systems that connect customers with the store associates through instant message.
Speaker Change: This solution incorporates visual aura part, Richard Nishu and conversation and part finding capabilities.
In the handling both customer experience and operational efficiency.
As one of the largest beverage company we.
We are developing a conversational knowledge platform focused on improving employee productivity by providing intelligent access to corporate knowledge and streamlining internal processes.
Speaker Change: These implementations showcase our ability to deliver AI solutions that drive meaningful business outcomes across diverse industry verticals.
As we look ahead, we remain confident in our positioning as the leader in enterprise AI implementation supported by a growing pipeline and expanding partnership ecosystem.
Speaker Change: In the quarter, there were several trends and I want to share some of the notable ones.
Speaker Change: Number one logo moment.
In the third quarter, we signed six new logos, which are large enterprises of these customers were signed in the quarter. One is a global food product and hospitality distribution company. Another one is in automotive power company and another one is one of the largest grocery.
Retailer in Europe.
Speaker Change: Partnerships.
Revenues driven by strategic partnerships have shown sustained growth contributing 18% our total revenue in the first three quarters of 2024.
In response to this positive trend, we are investing in a joint sales and marketing and collaborating closely with Hyperscale and source providers.
Speaker Change: These efforts span across critical areas, such as digital commerce application modernization data platforms, and engineering services, allowing us to tap into an even broader range of opportunities.
Additionally, our partners are emerging as critical channels for seizing opportunities in artificial intelligence and generating AI.
As demand in these areas continued to rise to.
To further strengthen our footprint, we're actively deploying our AI and generative accelerators gross hyper scaler platforms, and marketplaces, and enhancing accessibility and engagement for our clients. She can advance.
Speaker Change: Solutions.
Speaker Change: In the inspection.
Our following the Sun strategy provides the framework of scaling our global locations, India is now in the <unk>.
Our top two countries by head count.
And it is an integral part of our global delivery model.
<unk>, our third location in India is now scaling and <unk> team has been a successful addition to our Indian operation.
We're scaling relationship with India base Gcc's recently hosting.
Speaker Change: <unk> innovation forum attended by more than 1000 Gcc's.
Speaker Change: European business.
With roughly mid teens of our revenue Europe continues to be strategic to our growth we are increasing our footprint with a European division of our large global accounts.
We're also expanding our business with joint go to market strategies with Hyperscale across all our services.
Speaker Change: We are witnessing significantly adoption trend with clients engaging us to assess their AI and data platform capabilities in preparation for building AD platforms that will support our multi year business transformation.
Speaker Change: A major UK based retail customer is engaging us not only on the e-commerce transformation, but also on their cloud migration journey this year.
In Q4, we're launching a composite newcomers b to C solution for a major autopart distributor.
We are working to over to helping them further modernize and consolidate their complex technology landscape into 'twenty to 'twenty four.
During the quarter, great dynamics delivered some notable projects.
A leading global technology company.
Our solution to maintain user data in compliance with privacy regulations.
Speaker Change: Through dynamics successfully implemented the consolidated system enables centralized monitoring and management of data sets and user workflows.
They UI application has been widely adopted across multiple cross functional teams within the organization.
Speaker Change: New system provides business teams with a standardized method to ensure data sets to meet current regulatory requirements. It also maintains a comprehensive audit trails for any changes enhancing transparency and accountability.
Our leading financial and investment services company.
To enhance the experience on this.
Speaker Change: Internal web port, which serves over 10000 financial advisors.
The goal was to improve search result, accuracy by understanding financial advisers intend and delivering the most relevant information.
Speaker Change: This solution incorporates a do no harm and analysis to ensure reliability.
This feature of prioritizes accuracy over completeness by withholding results, which the system cannot confidently provide correct information.
Three dynamics implemented this solution leveraging AWS and vignette technologists.
We recently introduced a contactless payment system for a major U S DIY retailer, enabling customers to complete purchase as quickly and securely with the depth of their phone or a car.
Speaker Change: This solution enhances the shopping experience, while reducing checkout times minimizing physical plant.
Speaker Change: The rollout is underway across more than 2000 stores with overwhelmingly positive customer feedback.
This upgrade underscores the impact of re dynamics work on our client's business operations.
We successfully launched password list by a metrics based on Densification that leverages cutting edge authentication standards to enable users to securely authenticate their online payments using biometric data such as fingerprint and our facial Rick.
Cognition in Summer Olympics, starting from proof of concept to production in the record time of six months.
With that let me turn the call to our new who will discuss Q3 results in more details.
Speaker Change: Okay.
Speaker Change: Thanks, Lynn and good afternoon, everyone.
Third quarter results were solid as we exceeded our expectations both on revenue and non-GAAP EBITDA.
During the third quarter, we recognized a record revenue of $87 4 million that was organic and ahead of our guidance range of 84 million to $86 million.
Our non-GAAP EBITDA of $14 8 million exceeded our guidance range of $12 3 million and $13 3 million better than.
Speaker Change: As expected results were driven by a combination of factors that included strength from existing and new customers and operational efficiencies.
During the third quarter, our retail and TMT, where the two largest verticals at 34, 1% and 27, 7% of our revenues respectively.
Our retail vertical grew 11, 4% and 12, 4% on a sequential and year over year basis, respectively.
On a sequential basis, we witnessed growth from multiple customers in the specialty retail home improvement space and department stores.
TMT saw an increase of four 1% and one 9% on a sequential and year over year basis, respectively.
Speaker Change: Last quarter, our largest customers in TMT vertical grew both on a sequential and year over year basis.
Here are the details of the revenue mix some other verticals.
Finance vertical was the strongest both on a sequential and on a year over year basis and grew by 12, 7% and 94% respectively. As a result its share in total revenues increased to 16, 2% in the third quarter of 2024.
Similar to last quarter, the growth was from customers across the Fintech and insurance space.
Our CPG and manufacturing representing 11, 2% of our revenue in the third quarter remained relatively flat on a sequential basis and increased one 4% on a year over year basis.
Our health care and pharma, representing two 9% of our revenues decreased 25% and $26, 9% sequentially and on a year over year basis, respectively.
And finally, the other vertical represented seven 9% of our third quarter revenue and was down six 9% on a sequential basis and up 3% on a year over year basis.
We ended the third quarter with a total headcount of 4298.
Up from 3961 employees in the second quarter of 2024 and up from 3823 in the third quarter of 2023.
At the end of the third quarter of 2020 for our total U S. Head count was 345 or 8% of the company's total headcount versus eight 4% in the year ago quarter.
Our non U S headcount located in Europe, Americas, and India was 3950, 392%.
In the third quarter in revenues from our top five and top 10 customers were 39, 8% and 59, 2%, respectively versus 36, 8% and 54% in the same period a year ago, respectively.
During the third quarter, we had a total of 201 customers down from 208 in the second quarter of 2024, and 224 in the year ago quarter.
During the quarter, we added several customers some of which Leonard referred to in his prepared remarks.
The year over year 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.
Speaker Change: Our GAAP gross profit during the quarter was $32 7 million or 37, 4% compared to $29 6 million or 35, 6% in the second quarter of 2024, and $28 2 million or 36, 4% in the year ago quarter.
On a non-GAAP basis, our gross profit was $33 3 million or 38% up from $30 1 million up 36, 2% in the second quarter of 2024 and up from $28 7 million or 37% in the year ago quarter.
The increase in gross profit both in dollar and as a percentage on a sequential basis was mainly driven by a combination of higher levels of revenue and better utilization of engineering resources.
Speaker Change: Our non-GAAP EBITDA during the third quarter that excluded stock based compensation depreciation and amortization restructuring and expenses related to geographic reorganization transaction and other related costs.
Speaker Change: Was $14 8 million or 16, 9% of sales up from $11 7 million or 14, 1% of sales in the second quarter of 2024, and $10 7 million or 13, 9% in the year ago quarter.
Speaker Change: The increase on a sequential basis was largely due to higher revenues, partially offset by increase in operating expenses.
Our GAAP net income in the third quarter was $4 3 million or <unk> <unk> per share based on a diluted share count of $78 8 million shares compared to the second quarter loss of <unk>.
Speaker Change: $8 million.
Speaker Change: <unk> per share based on a diluted share count of $76 6 million.
And an income of <unk> 7 million.
Our <unk> per share based on $77 3 million diluted shares in the year ago quarter.
Our sequential increase in GAAP net income was due to higher gross profit lower levels of stock based compensation and lower provision from income taxes.
On a non-GAAP basis in the third quarter. Our non-GAAP net income was $8 1 million or <unk> 10 per share based on $78 8 million diluted shares compared to the second quarter non-GAAP net income was $6 million or <unk> <unk> per share based on $77 9 million diluted shares and $5.
$9 million or <unk> <unk> per share based on $77 3 million diluted shares in the year ago quarter.
Speaker Change: On September 32024, our cash and cash equivalents totaled $231 three.
$3 million down from $256 million in the second quarter of 2024.
Coming to the fourth quarter guidance, we expect revenues to be in the range of $95 million to $97 million.
We expect our recent acquisitions contributing 10% of the total revenue.
Speaker Change: We expect our non-GAAP EBITDA in the fourth quarter to be in the range of $13 five to $15 5 million.
For Q4, 2024, we expect our basic share count to be in the range of 77% to $78 million.
And our diluted share count to be in the range of $80 million to $81 million.
Speaker Change: That concludes my prepared remarks, we are ready to take your questions.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Thank you Aneel as we go into the Q&A session of this call I will first announce your name.
At that point, please on mute yourself.
And turn on your camera and the.
First question is going to come from May.
From Needham.
May: Great. Thanks, Hi, Leonard Congrats on a quarter.
May: So let.
May: Let me just clarify sorry, I missed your last comment on the contribution from M&A in the fourth quarter and then just wanted to get a sense.
Related if you strip out the revenue from the fourth quarter in terms of M&A.
When can we expect this organic growth to continue and.
May: Future quarters, why would it not continue so any color on your outlook for the next few quarters would be helpful. Just given what you could add in terms of performance the last several quarters.
Speaker Change: Yes.
Some anchor we said, 10% right now I think the most important thing you have to understand as we go from Q3 to Q4 is that you had some.
Some of the working time right the number of hours.
The billable head count will grow from Q3 to Q4.
Speaker Change: So.
Speaker Change: If you look at.
Speaker Change: The underlying foundations, which is at the end of the day is driven by billable head count of course, working time moves around rate as we go into the seasonal part of the year into as we exit.
Speaker Change: You'll see some variations, but the the billable head count new customers consisting customers are continuing.
Speaker Change: So just to be clear in terms of the organic trends. It sounds like that can continue based on the demand climate I'm just trying to get a sense. If there's anything on the horizon in terms of budget flush for companies going through their budgeting process for next year that could maybe change the dynamic in terms of.
The current organic growth trajectory, you've seen quarter to quarter.
Speaker Change: Yeah.
There is nothing changed from a.
What I call, some abnormal or artificial movements. So the trends that we're seeing it points to more fundamental.
Speaker Change: As we get into next year, obviously, we will talk next year, we don't guide beyond the quarter, but our underlying results, which was 5% sequential growth. There is an acceleration in quarter over quarter rate. This was all driven by fundamentals. It was not driven by budget flush it is not driven by some artificial.
They are in the organic business. It is across the board as Leonard pointed out both from our existing customer and new customers.
So Mike I'll add one more point just to make sure it's clear.
October is a great months, we're very confident we have numbers right.
Yes, all the details there.
Speaker Change: The Conservatives in the.
In the guidance is driven by two factors as you know December is certain for low certain holidays.
We want to be a little bit more careful and also the revenue coming from the new customers will be unique and I'm sure. We'll talk more with the other guys who are asking similar questions and thats driven by the fact that we started.
Speaker Change: To collaborate even before we closed.
Speaker Change: This is different from the previous acquisitions were too.
I'm not sure how much.
<unk> will be in Q4 versus Q1, we will see the additional revenue to the synergies. So we're bullish on both fronts.
Got it can I squeeze one more in sure.
Speaker Change: So just wanted to get some perspective on pricing, it's been a point of debate in the services industry just given some of the demand headwinds are you seeing pricing stabilize maybe even an uptick a little bit any color around what your conversations are like with clients around pricing.
I'll take this one so first of all.
Speaker Change: So we have your agrees with me today is our.
And not only Seo, but also here on Europe. So I will tell you a little bit about you asked because nexobrid virtually issues over there obviously is the euro.
Speaker Change: Few color on Europe.
Fundamentally we do see a bit of a improvements in terms of the pricing performance.
With new clients also related to this obviously more engagements on the technology side, we will talk more about hopefully again other people ask questions about how technology drives the differentiation of the new business for Green dynamics. So those colors are on the.
Speaker Change: Growing business upgrading business you can talk about.
The more traditional legacy business are stable. So you can see again Q3 was good everywhere you say so the approvals that are putting their Q4. This Q1.
Speaker Change: Seasonality always works there.
We will need to be and our rights as we go towards middle of next year significantly right for now we enjoyed the wrong, we see good stable pricing with senior improved pricing and at least this year. So the USP for the first hour annualized talk for 20 times together.
Speaker Change: Yes, I think I just wanted to add that it's the same in Europe I think that.
As Ron just mentioned the pricing has been stable and.
We don't see those fluctuations anymore. So it's pretty much business as usual as we as we see right now and then we'll see you know Q4 and Q1 of next year.
Speaker Change: Congrats on a quarter, but tahira. Thank you. Thank you Martin Thank you miles.
Speaker Change: The next question.
Comes from Puneet Jain of J P. Morgan and just give me a second and I'll get the cameras.
Speaker Change: Good morning.
Speaker Change: [laughter].
Speaker Change: Okay.
Speaker Change: Yes.
We can hear you puneet.
On a second.
Speaker Change: Go ahead please.
You're still on mute yourself.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Go ahead, Sir we can hear you.
Okay, we can come back to you.
Speaker Change: In the second.
Okay, I think we're going to come back to you.
Speaker Change: Homer.
Homer: As you mentioned you took a molecule.
Speaker Change: Sure.
Speaker Change: Period.
Speaker Change: Try again.
Speaker Change: Alright.
So why don't you Mike.
Mike: Putting it wanted to do one thing just diamond.
Through the model.
And then I will get back to you, but just just calling you don't have to do the video so Carrie let's just go ahead.
Speaker Change: And <unk> you just comment.
Our calls me I'll put you on speaker phone.
Speaker Change: [laughter].
The next question comes from Bryan Bergin of tea.
Speaker Change: Now please turn on your camera.
Speaker Change: I'll make sure Europe.
Hi, guys, hoping you can hear me.
Speaker Change: Yes.
Speaker Change: Good.
Speaker Change: Let's all of the demand recovery. So you conveyed a sense of urgency here from clients before year end, it's definitely different from what we've heard from peers.
Just as far as the urgency to complete deals are there any particular types of programs are a subset of clients that are demonstrating that behavior or is it more broad based and just as you think about that dynamic are there any implications from that as we think about just the early 'twenty five spend potential in those types of accounts.
Speaker Change: Okay.
Hi, Brian.
Speaker Change: Always good questions. So.
I don't want to get too broad.
Scope of their clients not everyone is in this accelerated more to spend.
We know there are some cases with people, who would like to kind of flush their own budgets and all that stuff, but that's a minor minority what happened was.
Speaker Change: When it relates to new activities and then just if not just AI AI. It's a good excuse to spend more money from the you know when the your boardroom wants you to be more aggressive.
<unk> C and keep abilities.
Speaker Change: And what I mean by efficiency and capability there are more demand.
Right now from very broad base of the customers to have a better reach with lower costs. So basically working on various overwhelms and copilot as in all of the program just demonstrated to the clients what could be done with a good data, but data needs to be properly.
Analyzed it needs to be properly adjust.
Speaker Change: Adjusted there need to be proper for Manning. So they start getting to understand does this is not just a magical pools, which turned their business in Q hugely profitable enterprise. So they're opening the coffers for a longer term activities.
And the focus is on applications.
As proof points that some models work when it comes to AI assistant of course, it's clear it's about conversation point, we were talking about transforming for example verdict searched vector verdict and many other features.
A much broader base. So we see a lot of activities data related as well as customers right now, having a little bit more confidence generally in the industry wide right. So there's a little bit more planning going on so you're absolutely right. Most of the activities on the spend usually comes around February April.
Speaker Change: Entry.
Speaker Change: Usually received this uplift last year is actually was push more into the April may but this year, we see it starting as early as the middle of the third quarter.
Speaker Change: Okay. Okay. That's helpful.
Speaker Change: If we shift the profitability now if revenue improvement continues to materialize do you expect to see a commensurate improvement in margin or are there offsets that we need to consider here just near term such as needing to scale at a bench just tea and puts and takes as you go into <unk> here on the profitability front.
Sure very good so.
And you would view the numbers in a second because you always.
Like numbers.
Speaker Change: <unk> most of the meeting.
Speaker Change: He has everything.
But I wanted to go a little bit on the <unk>.
Speaker Change: A more fundamental philosophical because it's important.
Are we adding new regions.
India becomes big part.
Technology solutions, and adding more accelerators.
Speaker Change: More.
Speaker Change: At home and how it developed Coles your efficiencies are right and you bring out ROI to the clients. So you've got a little bit better margin on it.
Now again third quarter was.
Somewhat unique from the overall availability perspective, as you know very well and when we went to.
Speaker Change: July we always were.
40, <unk> the magic number so.
Speaker Change: We felt the taste of the target now.
This is Matt.
October is going to be very good as well, but it's not just a bench. Some branches are a function of our long term visibility so.
So theres always a swap of the bench, but there is a training our enormous army of the AI related specials and it comes from the German ships agreement.
Green dynamics Universe, and then drill <unk> west.
Expand more investment into our AI labs for various functionality our partnerships with the Hyperscale is <unk> and a few other guys are taking a more space. So this is not a linear investments, which I can allow myself to do even maybe not giving your immediate short term. This glorious 2040 because.
Speaker Change: I see the return return on robotics.
Speaker Change: And so there is not true.
Through robotics.
<unk> for various clients how to improve their production efficiencies AI system. So we do balance would breakdown how bench is contributing and how innovation is contributing and how skillset modernization is contributing but overall of course, if we don't get efficient.
And longer term why we're in this game right.
Speaker Change: Like EMEA and all the shareholders want to see their profit.
Speaker Change: Yeah.
Brian just adding to what <unk> said, you got the gist of it but this is something that we.
Brian: We highlighted a couple of quarters ago right. So there are three or four factors that we're working on right.
Speaker Change: As <unk> pointed out we're doubling an internship programs. So so so the cost optimization for me.
From that point of view helps us.
We're scaling India too.
Speaker Change: The nature of our programs from TNF I'm going to pause to fixed price that also helps and Leonard and Youre really just pointed out the pricing environment is improving.
So all these things put together point to the underlying fundamentals of our business improving.
Now that has to be judged against what Leonard pointed out investments for growth. So that's but again, what I want to convey the underlying.
Price cost.
Speaker Change: Element is improving and our business.
Okay, Okay and growth investments are appreciated there for sure.
Speaker Change: My commentary last question here, the AG commentary as far as actually scaling now beyond kind of the POC and the science projects.
As you are scaling are there any changes to the contracting structures or more of the same you know getting more productivity.
Incremental volume of work just talk to us about that nuance as these programs are becoming bigger.
Speaker Change: So.
Speaker Change: There is no magic bullet there either right. So the customers are still a bit shy from between technology visionaries and say lets have performance based compensation outcome based organization <unk> versus <unk>. It happens at a very rare occasion, because most of the time.
<unk> programs when they ramp up into the production implementation there are part of the bigger initiatives.
So we're trying to excellent it's worked favorably for both sides.
Speaker Change: But it is still in limited base now as well.
We become smarter and we do more homegrown stuff. There is a maybe a somewhat change to our model offering as well, but I know how you guys are.
Speaker Change: Cautious about when the service companies started throwing some different models of compensation. So we're still being there, but we certainly offered our clients.
Various methods, which make a little bit more performance based not offering to be competitive, but we see that those solutions actually result in more efficient so glenn immediate.
So hopefully I can give you a better news that we do get more.
Speaker Change: <unk> based.
Speaker Change: Outcome.
The upcoming quarters.
Alright, very good thanks for all the detail sure.
Speaker Change: Brian.
Ryan: My name is Ryan Thank you for your questions Brian.
Speaker Change: The next <unk>.
<unk> comes from Maggie Nolan.
William Blair Maggie Please turn on your camera on mute your mic.
Maggie Nolan: Hi, how are you.
Maggie Nolan: And I think it might be on here.
Nice quarter congratulations.
I wanted to ask a little bit about the end markets and I know you gave some commentary or this quarter, but any thoughts on how your verticals might trend as you exit this year and then over the course of next year are there particular areas, where you anticipate growth is going to come from.
Okay, well I'll start then maybe you remove chairman and Europe into slightly different and to some extent indefinitely in India with Gcc's, we have some more dynamic so.
The three drivers for our business today pretty much <unk>.
Speaker Change: And retail.
The notable addition to the grocery vertical is actually there is financial services.
Maggie Nolan: Payment system to Fintech.
The other guys.
Manufacturing and life science, and others are a little bit behind now.
Maggie Nolan:
Maggie Nolan: The addition of insurance and other things through vehicles.
Maggie Nolan: And with the acquisition in a matter of fact in Europe, and that's why we're here talking about there is a very big potential.
Potential upswing.
She top tier financial institutions.
Maggie Nolan: <unk>.
Maggie Nolan: What is actually happening is very interesting the dynamic of additional shifts.
On the vertical now its coming from our partners.
Particularly with the very notable hyperscale or who were doing a lot of initiatives together. So what happened is the shell successes in one or two industries and they are kind of passing the baton to their salespeople.
Maggie Nolan: Adjusted industry so.
For example capability around knowledge of the major factors in the major practices cloud behavioral record migration, various AI initiatives and now even going into the.
At least in the early stages of our go into today into the <unk>.
Maggie Nolan: Various application specific which is basically connected devices and everything around it that creates the potential. So we are actually a retuning. Our it's more about sales right because engineering services are more or less expandable and then our specialization in neutrals. So we're investing in part of the private partnerships.
With the industry specific software providers.
And that training is have has been happening actually from Q1. So we'll see that dynamics early next year, but that's pretty much. The big players are still there the new players come into existing industries, but expanding one of the biggest notable expansion I would say it's a fintech.
Could you, yes, just yesterday FMC intact, I think thats again, our distribution of <unk>.
Maggie Nolan: Industries in Europe are pretty much the same and stable.
But obviously with the addition of just right. So that we just acquired.
That brings us into kind of expanded into fintech and <unk>.
Maggie Nolan: Banking and financial services overall, so justice as well.
I had mentioned in terms of it today.
Maggie Nolan: Ah specializing in <unk>.
Data intensive systems for banking and financial services and Thats. It is a highly complementary area to what we are operating in.
Maggie Nolan: This field so from that perspective, I think we will see the immediate synergies and opportunities to go beyond that and of course their capabilities to our existing clients and obviously, adding more clients in this area, but at the same time transitioning to the U S as well as very very important because while against this.
Maggie Nolan: <unk> accelerates the growth in Europe, but we see a very high potential immediate expansion into the largest U S financial institutions as well. So I think that's pretty exciting. So we will see the shift I think in Europe in particular because of the size.
But that will be Q4 and beyond.
Okay that makes sense. Thank you and then I know you mentioned balancing investments as we're thinking about profitability.
Where are we in the investment cycle or you've made some investments in recent past and the sales force how do you feel.
The return is on those or are those folks ramping up nicely now how are you thinking about your ability to add new logos.
Maggie Nolan: The demand environment recovers are you well set up to the scale of the business from here are there additional investments ahead.
Very good so the biggest investment which pays off as the technology moves.
Speaker Change: That makes it a differentiator we remember always when you talk about green eggs being that kind of a canary in the lean times and the good times and with our technology capabilities aligned with the market Upswing then its creates a double whammy and we grow faster so technologic capabilities bespoke partnership capability there.
Speaker Change: As a significant investment which is again.
In the process as a matter of fact, the good news is.
Maggie Nolan: Our partners' demands.
To invest and they are kind of really vigorous about making sure we're balancing our investments with the solutions. They provide them certification associated with it. So that's going on in terms of the new logo acquisitions, a traditional week right. So.
It is still a lot of.
New opportunities come because remember again, we work with a very large fortune 500 companies is at most comes from either our referrals. That's still the best way industry is dynamic so that works well or in.
Maggie Nolan: Sure.
Maggie Nolan: Clients, where our technical solutions implementations of the applications become unreachable.
They want to do something very rapidly and Thats, where sales forces needed. The good news about our sales force, especially in U S. We are positioned well virtually in every region, but the rate of return. So far is more driven by individual clients rather than a plan I can say that.
Some other productivity in certain southeast and Thats, what im getting that.
Investment in all the areas. So then what do we do with the sales force and account management force.
Main investments.
To make sure once we get into the first programs the execution floors.
And because people are in rush right now on the client side to do something we'll spend more time deliberately.
Maggie Nolan: Defining statement of works to defining the milestones because they are getting new clients is no longer a problem for us how to make this $510 million to $20 million revenue works driven by flawless execution today is not only on engineering as you always been engineering has to be.
Great delivery has to be great, but in the account management and from visionary organization, we seek time and aligned with their clients. So we're hitting more consultancy on architectures.
Speaker Change: Any more color.
Management specialized engineering background and understand coming from the execution beggar long before it would trade deliberate management guys towards not just the timeline, but changes in the scope.
Speaker Change: Giving you a lot of kitchen for a very small question, but this is not about acquisition about right now, but rapidly scaling those top guys with the existing capabilities.
Understood that makes a lot of sense and then you've just I mean, you've transformed the business so much even since becoming public.
Speaker Change: I'm used to kind of incredibly glut of all as a company and.
And you continue to have that at the forefront of your acquisition strategy and.
Speaker Change: Our imperatives.
Speaker Change: I'm wondering how that's global expansion has an impact and conversations with your clients.
Speaker Change: Any comment on how adding Argentina for instance, that's a delivery location.
Speaker Change: Has impacted conversations with clients alright.
Speaker Change: Alright, well near shoring has been overdone or Lisa.
Clients right and for many of them, especially in America over near Shoring now being a global company I assume the clients are in the United States because of the customer in Europe, Theres, a different near shore on the customers now in India as near shoring.
Speaker Change: We have customers Latin America, right, but if you're talking about.
Speaker Change: Traditional U S business.
Speaker Change: The rush in.
And then they want to have the same quality the same performance in the same conversation.
As they've had with the U S.
Speaker Change: Alex.
It always happen that way right and.
In our case, our Mexican team is very good but the peso was appreciating for a long time now it's a bit declining. So it was not as much productivity. What are good people. Good people cost you money and no matter what system solutions and approach that that matters. So what happened.
We started as you know Mexico started in Jamaica now we have first green shoots in Canada. Some consultants, we're not opening get offers that.
Speaker Change: It's not an impossibility because we have now clients in Canada, but Argentina is kind of unique for a long time it was.
Speaker Change: There is a very very successful.
Speaker Change: Our.
Speaker Change: Here in the industry.
The Gorgon peers, but treat them as peers, who come from Argentina, and they're doing a great job the extended Columbia now, they're investing into India, and eastern Europe, right and for that matter.
Speaker Change: I always had a strong affinity to the culture to the education to people and Argentina is just very close and the connection with them is also strong with our European organization. So I see that our clients again remember I mentioned that we started working on the integration in advance so when the clients from <unk>.
Just we're talking about our positioning for a while already but with the clients in the U S.
Obtain an approval for expanding in Argentina before.
In drive on their contract. So once we finish the acquisition there really a demand coming for our supply from Argentina organization, which is critical.
Thank you for taking my questions.
Speaker Change: Thank you again.
Speaker Change: Inspiring exactly let me put in a client note.
Speaker Change: Nonetheless, pretty it's pretty it's alright.
Speaker Change: Yes, it's pretty Theres, there alright, I hope you can hear me now we can hear you, yes, ophthalmic [laughter], but hasnt been please go ahead.
Speaker Change: Either of them.
They didn't make us happy Diwali, mainly because it should not be working today, but it's a deal for spirit tackling rollout right. So let's make it prosper.
Bye Bye baby mobile pumping.
But I need to.
Speaker Change: No Barry.
Strong quarter.
Speaker Change: So let me out.
But overall demand like many peers.
Blackberry report that they are not talking about <unk>.
Speaker Change: <unk>.
Your tone your growth rate definitely indicate that things are better now than what they were six months ago, So what's driving that.
Speaker Change: And we'll take what you like.
I do like about 13% year on year third quarter.
Speaker Change: But what's driving the thought they send them to you but.
Speaker Change: Many of your peers.
So I mentioned before a few things.
AI solutions opens the door for bigger implementations, so thats obviously.
Speaker Change: Okay.
Speaker Change: Okay.
Our goals and our guarantees as my good friends from other companies, where they are told the same story right.
Speaker Change: I read one of the reports yesterday, we thought it was 100.
Early engagement people turn themselves.
<unk> right.
Speaker Change: The reality is.
Speaker Change: We are truly a technology partner and as we mature and grow and become more global.
More people learn about us.
Speaker Change: Early.
Somebody about this concentration right so.
Speaker Change: The reality is we still have some of it.
The top clients to some extent.
May actually invest more to us because they trust us more on special limits innovative approach when we see some rapidly increasing.
Speaker Change: Demand from certain clients, which are new.
First and the reason is the ramp up happens because they put more back from us what I told me.
Speaker Change: We need to make sure we have not only flawless execution.
But a very well establish expectations.
Rush to have some results and it's all about applications.
Speaker Change: Probably well.
Trust me, we live through that.
The customer wants to do something immediate.
And we are kind of pulling back and we're talking about longer roadmap.
Once they appreciate what we do and that happened not just Q3 years had been even earlier there are more comparable to late larger dollars in front of us so to some extent as steel size, but more important is.
And in times of investment of technology will ramp up quicker and we are more in their strategic critical applications for the business.
Because it's very important that people always okay Hugo fast that you forecast.
We'll see how next turn cycle goes, but I think we're holding our aligned pretty well because we are.
Speaker Change: We're having the stream of technology innovation into the larger.
Speaker Change: And also.
You mentioned, probably before to you as well some of the clients who are measured to decline in 2023 now also on the rebound.
Speaker Change: Right. So that helps so it is the combination of the factors I know you or anyone else mentioned something notable year alright. Thank you.
You guys have pretty much aligned with what I had mentioned I just wanted also to ask.
Speaker Change: Inorganic strategy as well right every time when we're looking at those companies. Those two that we just acquired no exceptions I think that we are always trying to understand.
Speaker Change: If they can bring some value to us right in terms of Quaker <unk> strategy technology expertise.
Speaker Change: Our footprint expansion of things like that I think it's also very very important and if you look at those.
As you mentioned right, they're contributing summer months.
Speaker Change: Alright.
I think it's very important for us to stay focused and if we go to <unk> then.
We will kind of fall into the same category.
These are the players, but if we stay focused I believe that's the best.
Speaker Change: That's the key and the other thing anything worth mentioning in the GCC uses not just from the definition of <unk>.
Speaker Change: India. It's also.
Speaker Change: Europe, So some of our big U S. Notable clients.
Trust us with a strong position in European organization as well, so and India is a big fear the Bangalore office was the best investment recently.
We're doing it as a fighting for talent and to some extent.
Successful because people are curious about us as a good you know.
Speaker Change: Having three three major areas good but we also have been.
Very large pool from the GCC, but recent pull from they don't recall this adjacencies, but from the big clients their engineering organization in Europe becomes quite valuable as we continue to balanced growth in Europe with the growth in these.
Speaker Change: Okay.
Let me come back like how would imply deciding.
Between like the work that could go to like that like Youll start affecting that are deferred.
Speaker Change: The first looked at that in house topics and I understand like you're working more with DTC Dan.
But like how like the world allocating.
Linda: And Linda.
Yes, so working with the U S centers of excellence are definitely easier than the other GCC is indeed I mean this is perfect because we are very smart.
Linda: You guys are in thus far but the people who that naturally been brought in for GCC is in India.
They are doing a pretty good job themselves, but remember when you have a client base recruiting and.
Linda: And you have a supplier base recruit recruiting there are varying two different desks right. So there are some very notable clients, which may go very broad and the competition is very fierce when it comes to suppliers. They know the job will stay for one client with another client with a third leg. So some of the GCC guys.
Linda: What they see in us.
We want to give you a part partial work I'm going to say look we need to be incorporating so that we want on some project work as well, we're not a staffing company.
There was a bit of a discussion on that but over time, they give us more because they feel we're part of the <unk>.
Sometimes we work in their offices.
By the way reverse back to their offices, so little bit remote is not as helpful. But also the competition for the specific talent when we doubled down on fewer narrowed but extremely deep expertise driven by the technology experts locally.
They open up but I agree with you. We just finished a really nice Tech conference.
In Bangalore.
Other than a dozen.
Linda: <unk> guys send their <unk>.
For future than there were more than 30 technical and business executives and this is the first one so I'm sure next year, we'll have a we are in these guys. Sometimes just derived the notes there is a lot of active discussions so that's to give us a bit of a testament or respective capabilities.
That's good to know and thanks for.
Linda: And then.
Speaker Change: The declines in London, you talked about like the client spending AI projects like they are getting ready for AI startups investing in data and all of that.
Speaker Change: Does not represent incremental.
Which represents an overall improvement.
Speaker Change: Well I think the likelihood lots of Banco shifting by different bundling area.
Speaker Change: Debt.
Well they are both right some people are mesmerized by.
Speaker Change: Demonstration from.
Our mosque, having a robot is working on this stage right lateral everybody knows exactly what goes into that.
At that level, but it gives you the perspective.
Speaker Change: Of level of automation, which goes into the foundation of our society.
And that's that's very critical to some of the clients because they are revolutionizing the things around our daily work.
Speaker Change: Consumer reward our recruiting.
<unk> AI assistance. So robotics just start changes there are a few of them there are.
Speaker Change: Experiencing obviously, but there's a big cost in our regulatory stuff, but most of the guys would they expand and applications. They want to be very very specific endless number of Jody kinesis I want to improve it I have this.
Speaker Change: Veterinary clinic, I want I want to increase the throughput.
As you know.
Pest don't speak so theres a lot of things we go around at some.
Speaker Change: Some clients, saying look.
We would like to have a lot more bundled inventory.
Speaker Change: Wealth management system, we are revolutionizing their conversational AI.
Basically video search assistance and putting the data together so.
You know, it's a lot more.
Speaker Change: Fewer capabilities, but people would like to <unk>. So.
So those drips.
Now has a mainstream of the new larger implementations, where this big in a world.
A world of Dreamers are doing more of the Broadcom bought are important because the impact of the of the dreamers is significantly larger over time.
We've talked about our investment into it we can compare with the big guys, but there are certain areas, where we believe is fundamental and we're going to continue to opponents shifts the offering for the future because it's not traditional it's not only that particular software development skill that and if we need to cannibalize on the business, we will but right now the revenue come through.
The applications and our future business positioning come from those.
Tectonic shifts.
That's great and thank you.
And consumers meet their complaint.
Speaker Change: Ladies and gentlemen, this concludes the Q&A session for today.
Speaker Change: And then I'll turn it over to Leonard for closing statements.
Speaker Change: Yes.
Speaker Change: Give me one second.
Speaker Change: Oh.
Thank you everybody for joining us on the call today.
Speaker Change: Right.
Today's results reinforced our strengths and unique position within the AI and digital transformation industry.
Speaker Change: Great dynamics.
Coach is the end of 2024 with strong momentum across our business and we are set up well for a solid 2025.
There are many reasons to be optimistic about our future and I'm confident agree the name and solid execution.
I am looking forward to updating you all during our next earnings call. Thank you.
Speaker Change: Yeah.
Speaker Change: [music].