Grid Dynamics Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 8 speakers on the call.

Operator

Good afternoon, everyone. Welcome to Gridynamics' 3rd Quarter 2023 Earnings Conference Call. I'm Bin Jiang, Head of Investor Relations. At this time, all participants are in listen only mode. Joining us on the call today are CEO, Leonard Licious and CFO, Anil Doradla.

Operator

Following their prepared remarks, we'll open the call to your questions. Please note today's conference is being recorded. Before we begin, I would like to remind everyone that today's discussion will contain forward looking statements. This concludes our business and financial outlook and answers to some of your questions. Such statements are subject to the risks And uncertainty is described in the company's earnings release and other filings with the SEC.

Operator

During this call, We will discuss certain non GAAP measures of our performance. GAAP to non GAAP financial reconciliations and supplemental financial information provided in the earnings press release and the 8 ks filed with the SEC. You can find all the information I have just described in the Investor Relations section of our website. With that, I will now turn the call over to Leonard, our CEO.

Speaker 1

Thank you, Ben. Good afternoon, everyone, and thank you for joining us today. As you have seen from our published results, Redynamics 3rd quarter revenue and non GAAP EBITDA were within guidance range and exceeded Wall Street expectations. Our results reflect the company's unrelentless commitment to our existing clients and our continued ability to execute to our stated goals. There was a lot of activity during the quarter.

Speaker 1

This includes strong momentum with new clients, Great traction with artificial intelligent projects as it continues to garner significant interest across our customer base And progress with our Tier 2 initiatives as we continue to operationalize it across the company. On the macro, the demand environment points to a level of stabilization. While we still have some ways to go before calling it a Strong snapback or back to normalized levels of demand. I'm more optimistic than I was 3 months ago. In many ways, this is what we're not expecting as enterprises need to spend toward their business imperatives that include Digital Transformation Initiatives.

Speaker 1

In other words, for enterprises to remain competitive, they need to spend on crucial business Digital Transformation needs. Over the past 3 quarters, you have seen that our revenue has been flattish. As we highlighted before, the general trend we encountered are from the headwinds with a handful of customers, which offsets by other existing customers and new logos. Going forward, we observe The headwind trend reversal. This is incrementally positive and we anticipate company's growth in 2020.

Speaker 1

Now, if I were to look at the billable headcount trends, some positive trends are emerging. Over the past 6 weeks, we have seen a steady rise in billable headcount. Additionally, the demand for these billable headcounts started coming from Existing Logos. Last but not the least, new logos and recent logos continue to trend in the right direction. Once again, the underlying fundamentals are pointing in the right direction, which leads us to be incrementally positive.

Speaker 1

So in summary, I would like to leave you with 3 thoughts on the demand environment. First, the magnitude of resets across our customer is diminishing. Secondly, for the vast majority of the accounts business is stable. And third, momentum without new engagements is robust. Now coming to the Q4.

Speaker 1

We're more than 1 month into the Q4 and the summary thoughts I have shared with you today extend to the Q4 as well. Our billable headcount continues to grow. Our AI activity is robust and the magnitude of declines from the handful customers continue to We continue to invest in our engineering resources toward building new R and D artifacts, accelerators and AI capabilities. During the quarter, there was a lot of activities with our technology organization, including continued interest in our broad technology offering, including AI. During the quarter, we completed multiple enterprise AI and generative AI projects.

Speaker 1

With our generative AI efforts, our R and D initiatives resulting in several new solutions. These include GNI for intelligent document processes and GN AI for software development. With our billable projects, we continue to be engaged across the spectrum of our clients with a multitude of solutions. These projects Are at the different stages of development that include global financial institutions, retailers, hotel chains and automotive suppliers. Our strength has always been our engineering training around leading technology specializations.

Speaker 1

To support the strong demand for AI skill sets, We have established a comprehensive AI training program. Our AI curriculum is segmented across 3 tracks And ranges from introductory AI to more advanced features. Engineers are going through the rigorous program, which takes up to several quarters to complete the entire period. As a reminder, Grid Dynamics TI engagements are based on more than 7 years of internal research and successful implementations. With our generative AI offering, We partner with customers to employ large language models and strong guided image generation for the applications in product design and visualization, knowledge retriever, Wealth Management and Customer Support.

Speaker 1

On the GigaCube initiative, we continue to make good progress. As you know, GearCube is our strategic blueprint that lays out a framework for our company toward $1,000,000,000 revenue goal. During the quarter, we made some key factors across our CTO organization and sales organization. Our effort continues to focus on industry verticals Such as Manufacturing, Pharmaceuticals and BFSI. In the quarter, there were several trends, and I want to share with you some of the notable ones.

Speaker 1

Welcome, Amit. In the Q3, we signed 10 new enterprise customers. This brings that new enterprise logos added in 2023 to a total of 28. We believe Q3 Client Acquisition As a further testament of our competency and the confidence for Life Global Enterprises to sign up with us in the current environment. Some of the more notable ones you mentioned include a global food company, global automotive parts supplier, A large direct to consumer home improvement solution provider, a large office supply retail company, A U.

Speaker 1

S.-based insurance company and European Tax Advisory Company. Our strong momentum is the testament of our differentiation and value we bring to our Delivery location support. We operate in 18 countries spanning across North America and Europe. We also continue to expand in India and adding another engineering center location, which is a testament of Grid Dynamics being a truly global company. Our follow the sun strategy enables our clients To be supported in uninterrupted fashion around the clock.

Speaker 1

Clients embrace our geographic diversification and choice of locations for the engineering segment. During the quarter, we're able to quickly put together and ramp up dedicated teams across our global delivery locations for some of the new and recent plans. Additionally, our integration with Nex Fear and Mutual Mobile is in a full swing and we have started to implement synergies across engineering operations And back at offices going into the joint sales activities. European Business. During the quarter, we made a good progress in expanding our footprint across industry verticals with the new European plans.

Speaker 1

We completed a major digital commerce platforming for a global footwear company, delivered on time and within the budget. We're leveraging experiences to develop similar competencies across other industry verticals. Additionally, we're implementing a large composable commerce modernization platform for a global specialty auto parts company and a mission to modernize their B2C business. Leveraging our expertise, partnerships and references, we expect to expand our brand in the market. For a large medical device company, we're launching initiative in data engineering and generative AI to tackle challenges related to data inefficiency and governance and the goal is to enhance the efficiency of sales reporting process.

Speaker 1

Partnerships. Partnerships continue to be a vital part of our growth and have become increasingly important in our long term plan Towards becoming a $1,000,000,000 company. We currently have over a dozen partners with whom we work. With these, only half of them contribute revenue meaningfully on an individual basis. This also means that there is a significant scope to scale As we tap into this large opportunity in the partnership ecosystem.

Speaker 1

We have extended our partnership with the hyper to their AI and GNAI offering, and we're actively developing solutions and accelerators On Bart and Verdict CI for Google, Azure Open AI for Microsoft, Amazon Bedrock from AWS. Additionally, we continue to invest in growing independent software vendor partnerships in supply chain, Digital Experience, Marketing and Commerce Domains. This effort aims to enhance the value we provide to executives In the C suite, including CEOs, CMOs and Chief Product Officer. In the Q3, our 10 new enterprise logos, 3 came from our partnership relationships. In addition, last quarter, we announced a significant global partnership with Google Cloud to develop and implement innovative generative AI solution.

Speaker 1

We have been diligently working On leveraging Google Cloud's Vertex AI, a platform that incorporates powerful foundation, large language models and Advanced Image Generation Capabilities. Don't know that this quarter we're invited to participate in Google's Next Leadership Forum, where we expanded our business relationships. During the quarter, Grid Dynamics delivered some notable projects. In manufacturing, for 1 of the world's largest tire manufacturer, we piloted an An AI based platform for tire recognition, health evaluation and predictable maintenance. The platform is based on deep learning and was delivered as a cloud based solution to the dealers.

Speaker 1

The goal of this solution is to significantly increase the productivity of their service centers, Simplify predictive maintenance and enable seamless integration with downstream applications. For 1 of the world's largest technology company, we successfully designed and implemented a cutting edge Intelligent tool for measuring and allocating computing infrastructure that combines on premises data centers with public cloud. Our solution measures resource utilization across department, associated costs and produces 360 view on spending. This framework empowers our client with substantial savings in their cloud and on premise infrastructure. At the leading European based footwear manufacturer, Grid Dynamics was selected as the primary technology partner for their high profile composable commerce Replatforming Board.

Speaker 1

By seamlessly integrating vessel breed cloud native products, we leverage AWS platform to architect a Cutting edge solution that boosts scalability, flexibility and future proof of capabilities. Our solution will enable the client in addressing creating Key capabilities that will drive customer acquisition and retention, branding as well as process efficiency optimization. As one of the largest beverage distribution company in the North America, Grid Dynamics built a framework for a new enterprise cloud platform. This significant program will be the basis for the company's multiyear digital transformation strategy. The program intends to enhance user experience across multiple sales channels, ensure dynamic scalability and Technology Ratings for building custom applications to enable new business capabilities.

Speaker 1

With that, Let me turn the call over to Anil, who will discuss Q3 results in more detail. Anil?

Speaker 2

Thanks, Leonard. Good afternoon, everyone. Our 3rd quarter revenue of $77,400,000 was within our guidance range of $76,000,000 to 78,000,000 and exceeded Wall Street expectations. On a sequential basis, our revenue grew modestly and was down 4.6% on a year over year basis. Relative to last quarter, we saw greater stabilization across the majority of our accounts.

Speaker 2

During the Q3, retail, our largest vertical, representing 34.3% of revenues, increased by 2% on a sequential basis and grew 5.1% on a year over year basis. Within retail vertical, on a sequential basis, We witnessed growth from areas such as home improvement, department stores and specialty retail. TNT, our 2nd largest vertical represented 30.7% of our 3rd quarter revenues decreased by 1.5% on a sequential basis and 9.9% on a year over year basis. On a sequential basis, we witnessed continued caution at some of our larger TMT customers. Here are the details of the revenue mix of other verticals.

Speaker 2

Our CPG and manufacturing represented 12.5% of our revenue in the 3rd quarter, a decrease of 11.1% on a sequential basis And 39.8 percent on a year over year basis. The decline on a sequential and year over year basis came from some of our large customers as they readjusted their spending levels to the current macro environment. That said, at our largest CPG customer, we're witnessing stabilization And this should benefit us in the Q4. The finance vertical represented 9.4% of revenue, an increase of 8.2% on a sequential basis And 20.2% on a year over year basis. The growth in the quarter came from a combination of financial technology customers and new logos.

Speaker 2

And finally, the other segment represented 13.1% of our 3rd quarter revenue and was up 6.1% on a sequential basis. The strong sequential growth was driven by both from new logos and existing customers that span across healthcare, distribution and the restaurant industries. We exited the Q3 with a total headcount of 3,823 versus 3,862 employees in the Q2 of 2023 and up from 3,746 in the Q3 of 2022. At the end of the Q3 of 2023, our total U. S.

Speaker 2

Headcount was 322 or 8.4 percent of the company's total headcount. This remained at the same level compared to 8.2% in the Q2 of 2023 and slightly decreased from 8.6% in the year ago quarter. Our non U. S. Headcount located in Europe, North America and India was 3,501 or 91.6%.

Speaker 2

In the Q3, revenues from our top 5 and top 10 customers were 36.8% and 54%, respectively, versus 44.5% and 61.1% in the same period a year ago, respectively. We witnessed continuous diversification and greater contributions from our recently acquired logos. During the Q3, we had a total of 2 24 up from 216 in the Q2 of 2023 and up from 200 in the year ago quarter. The increase in customers on a sequential basis was largely from our core enterprise business. Basis was largely from our core enterprise business.

Speaker 2

Moving to the income statement. Our GAAP gross profit during the quarter was $28,200,000 or 36.4 percent and remain almost unchanged compared to $28,300,000 or 36.6 percent in the Q2 of 2023 and down from $32,700,000 or 40.3 percent in the year ago quarter. On a non GAAP basis, our gross margin was $28,700,000 or 37% versus $28,800,000 or 37.3 percent in the Q2 of 2023 and down from $33,000,000 or 40.7 percent in the year ago quarter. The decrease in gross margin as a percentage on a year over year basis, both for GAAP and non GAAP, was largely due to a combination of FX headwinds, Cost associated with expansion in new geographies and investments in AI related expertise. Non GAAP EBITDA during the Q3 that excluded stock waste compensation, depreciation and amortization, restructuring And expenses related to the geographic reorganization, transaction and other related costs was $10,700,000 or 13.9 percent of sales, down from $12,000,000 or 15.5 percent of sales in the Q2 of 2023 and down from $17,100,000 or 21.1 percent of sales in the year ago quarter.

Speaker 2

Our GAAP net income in the 3rd quarter totaled $700,000 or 0 point 0 $1 Based on a basic share count of 75,500,000 shares compared to the 2nd quarter income of $2,600,000 or $0.03 Based on a basic share count of 75,100,000 and a loss of $6,700,000 or a loss of $0.10 per share based on 68,600,000 basic shares in the year ago quarter. The year over year increase in GAAP net income was largely due to lower levels of Stock based compensation and significant decrease in geographic reorganization expenses. On a non GAAP basis, in the 3rd quarter, Our non GAAP net income was $5,900,000 or $0.08 per share based on 77,300,000 diluted shares Compared to the Q2, non GAAP net income of $7,000,000 or $0.09 per share based on 76,900,000 diluted shares and $11,000,000 or $0.15 per diluted share based on 71,900,000 diluted shares in the year ago quarter. Coming to the balance sheet. On September 30, 2023, our cash and cash equivalents totaled $253,700,000 up from $246,200,000 in the Q2 of 2023.

Speaker 2

Coming to the Q4 guidance, we expect revenues to be in the range of 76 $1,000,000 to $78,000,000 We expect non GAAP EBITDA in the Q4 to be in the range of $10,000,000 to $11,000,000 For the Q4, we expect our basic share count to be in the range of 76,000,000 to 77,000,000 shares And diluted share count to be in the range of 78,000,000 to 79,000,000. That concludes my prepared remarks. Then we're ready to take your question.

Operator

Thank you, Anil. At this moment, once we start the Q and A session, I'll first announce your name. And please unmute yourself and turn on the camera. Our first question comes from the line of Mayank Tandon from Needham. Please go ahead.

Speaker 3

Thanks, Bin. Good evening, Leonard and Anil. Good job on the quarter. Let me start with just the guidance And then any framework for how to think about fiscal 'twenty four? I imagine you have maybe a few less billing days in 4Q.

Speaker 3

So That would suggest clearly stability from 3Q to 4Q. But then as you look ahead into the early part of 2024, I imagine 1Q has higher billing days. So trying to get a better read on what you expect in terms of recovery as we go into 2024?

Speaker 2

So, Venk, thanks for your question. You're right with your observation on Q4 versus Q3. And if you look at Leonard's comments about billable Headcount, which is a steady increase, our flattish outlook suggests or you can extrapolate from that is that we expect these trends to play out. So if you look at the foundations of our business, core enterprise business, we're seeing across the board stabilization. We're seeing increased headcount.

Speaker 2

So right now, when we look at it, we're incrementally bullish. Now, as you know, Mayank, we do 1 quarter at a time. So let's come back in 3.5 months and give A lot of incremental color on Q1. So for now, let's just deal with Q4.

Speaker 3

Got it. Okay. I'll save my Gen AI questions for the analysts, so I won't go there. I'll save them for that. I want to focus more on just Some of the financials.

Speaker 3

So Anil, kind of related and maybe Leonard too, just on the both revenue and then of course FX profitability too, Is where is utilization today and how much gas do you have left in the tank to expand utilization before you really have to crank up hiring when demand does come back to hopefully credit levels Sometime in 2024.

Speaker 2

So, Manik, in terms of utilization, we've done a good job in general. So utilization Numbers obviously have held up within our range and it hasn't changed from quarter to quarter. As you know, we've seen We put in place a little bit more disciplined approach towards we have we look at our engineering headcount and as well as non engineering headcount. Now you're right. It's a very good question.

Speaker 2

As some of the demand trends unfolds and we'll of course see how it plays out, The hiring, the acquisition of talent, these are important elements. And yes, we are looking at that. But again, It's 1 quarter at a time, right? We have to plan on that. We have in all these countries, we're now we've got teams And we are constantly focused on some of these movements and depending upon that we will act upon.

Speaker 2

So but yes, this is something we're discussing.

Speaker 3

Got it. Well, thank you so much.

Speaker 4

See you

Operator

in a few weeks.

Speaker 1

Thank you, Wei.

Speaker 2

Thank you.

Operator

Hi, Mayank. Thanks for your question. Next question comes from the line of Josh Sigler from Cantor Fitzgerald. Please go ahead.

Speaker 5

Yes. Hi, guys. Thanks for taking my question today and congrats on the results. Leonard, on the call, you mentioned that you've grown more optimistic over the past 3 months. I was curious, Are those more positive discussions with some of your logos largely driven by AI demand?

Speaker 5

Or is there a broader Thought process about returning to that general digital transformation spending?

Speaker 1

Well, Mayank mentioned that we'll have much more Debrief on AI just in 2 weeks in New York on our Analyst Day and we'll have a very large team there. So I will save a little bit of mystery of that, but fundamentally, it's a great door opener at this point. There are multiple projects. You noticed there's something unusual even in Anil's statement in financial that there's some additional investments in going on of training people. And by the way, that's also kind of addressed potential growth because we take more senior people, retain them and we're building with more capable teams because In our assumption that more juniors who are trained through internships or direct hire will be easier to attract to scale that Maintain the large core of the technology people.

Speaker 1

So that's about AI. In terms of my confidence level, Basically, again, and you mentioned it one quarter at a time. But what happens is, we give very careful statistics Not only on a rate of change of the billable people, but the content of the project. So AI was one part, but We're doing so much more complex work, not only in retail in the past and CPGs, but in the broader base of the market, in manufacturing, In Pharmaceutical, we're in insurance business. We're going into this life science.

Speaker 1

We're doing so much more. And we are able to start converting our horizontal expertise into vertical recommendations. So I see deeper level of discussions. In addition to that, we have become a little bit more selective. I mean, there is Always expression that beggars cannot be choosers, right?

Speaker 1

We've been going through a lot of frankly tough times for the clients. Now we see that As we plan our business today going into 2024, we'd like to bet on partners Who will carry the implementations of complex systems throughout the bigger project. We expect that our commitment He's going to be matched with their commitment to the business. So that gives me a little bit more, I would say, complex, comprehensive positive outlook.

Speaker 5

Understood. And that's great to hear. Clearly, as you alluded to, there's a lot of organic reinvestment going on in the business right now with the accelerating billable headcount. But I was also curious if you could give an update on how you're thinking about the M and A environment right now and any updates on that regard?

Speaker 1

Yes. So it would be nice to tell you we have a deal coming right at the closing tomorrow, but It's probably not there yet. I'm not going to comment the answer more. But in reality is, again, the market is very interesting. We are becoming more selective with the deals.

Speaker 1

As I mentioned, we did a couple of deals in India and then we start doing broader. We look at Europe. We look at the depth of the relationship with potential bespoke clients. We look at Latin America. We're not giving up, of course, on the Indian part, but We have a bigger roster with a deeper engagement.

Speaker 1

We are also attracting more like advisory side. Don't call me every day now, the bankers over in the services. We're becoming more selective. And the capital we will deploy, as you can imagine, that the We will deploy, as you can imagine, that the cost of capital has increased, right? So We would like to make sure we are going to get the right targets.

Speaker 1

But I'm actually, again, it's still a little bit of a turn to the good, what I say, better targets right now.

Speaker 5

Understood. That's very helpful. Thank you very much for taking my questions and looking forward to the Analyst Day.

Speaker 1

Thank you, sir. Thank you.

Operator

Thank you, Josh. Next question comes from the line of Brian Bergin from TD Cowen. Please go ahead.

Speaker 5

Hey, guys. Good to see

Speaker 4

you and good to hear the momentum here. Thanks for taking the questions. I want to start on the new logos I see you're bringing it. So can you just talk about when some of these new enterprise logos in this quarter will begin to ramp? And then any change in the pace or really the starting point from some of those other attractive large logos that you signed earlier

Speaker 1

in the year? Well, again, Brian, what Anil mentioned, there are some additional revenues that are coming what he called recent levers. Remember, from the very old time, I was talking about 'eighty five, 'ten-five, we're starting to get more dynamics in a similar fashion. So there is There are some payouts already happening. Also some of the more older, more mature owners are coming back.

Speaker 1

The inventory of the technology development, which happened, let's say, a year ago, started to decline and they Return back for competitive positioning in their correspondent fields. So that's kind of one thing. The other one is how to turn The big enterprise logo of the consistent long term deployment and make sure it doesn't happen just by staffing. So again, we see more and more engagements are coming in the form of the partnerships. And that's been consistently a good story for us.

Speaker 1

In addition to that, we invested into SMEs and we do quite a bit of white papers and also educating our clients on the relevancy on the specific initiatives. So that's number 2. And number 3 is we are playing a very broad based relationship as we invested into more Sophisticated sales force, which you haven't heard from me probably ever, but I'm getting finally a little bit more satisfied. So all three things Combined with what we invested into R and D and accelerators, start crunching on a bit more confidence of the acquisition because it's not just Momentum is just higher you got a logo and it goes away. No, we see more traction than stability.

Speaker 4

Okay. Okay. That's good to hear. And I'll do a follow-up here on kind of 2 of your key industries, One's a little more variable for you. So as we think about tech and CPG, just on tech, can you talk first about how the conversations with some of those large That clients are evolving and how is the outlook there?

Speaker 4

And then for the CPG, I heard the comment about the largest CPG client stabilizing. Do you have visibility to the balance of that book of business stabilizing in other CPG and manufacturing clients yet?

Speaker 1

Yes. Let me start with the second. It's easier. We see more RFPs and we see more QBR discussions and they're not just Discussion on the formal level, you were doing a good job. The attendance of those discussions is overwhelming.

Speaker 1

And because We, in a time of a drought, invest in the relationship with the broader base teams, not just engineering team, but also the logistics guys, the marketing team, Experience team. So there's a broader base of interest for us. So and it's not just with the top one. With the top one, it's a notable difference Indeed, but we see others are becoming more diversified in terms of what conversation they have with us. So that's kind of a broader base, right?

Speaker 1

And I forgot, sorry, first one.

Speaker 4

So that was the CPG Half of that question. The large PMT ones, yes.

Speaker 1

Yes. So that part, the reason I forgot because Nothing extraordinary bad is happening. So I usually the angel people run to me when something happening. And The number one is doing very well. And we are capturing more and more position there.

Speaker 1

And we're a preferred supplier to some And again, I want to be very modest. Preferred supplier for the giants, it's still not a dominant force. It's just a more contributing value force. But the other one, we'll soon start there are projects which we won recently. That's another interesting thing.

Speaker 1

Remember I mentioned to you that it was a rapid change? There won't change and there won't be layoffs. Again, if you're patient enough and you retain relationships, We win some programs now. That's an inviting change. It's not projects, it's programs.

Speaker 1

But it puts more responsibility on us. And that's what again, Anil said like 1 quarter at a time and we have a few more weeks this time to talk because we want to make sure that those programs Our financial success. And I mentioned before, as you, we really play a much more deep dive On the sustainability of those relationships, it's very important that it's not just give a few people and hope for the best. I think There's much more sustainable analytics beyond the relationship.

Operator

Thank you, Brian. Next question comes from Maggie Nolan from William Blair. Maggie, your line is open.

Speaker 6

Thanks, Ben. Hi, Mel. Hi, Leonard. I wanted to dig into that more positive outlook comment as well. I'm curious if there's any nuance Between how you're looking at Europe versus North America, maybe over the next couple of quarters, just given that Europe is becoming a larger part of your business?

Speaker 1

Yes. So we still have fans in Europe. There's always a cycle, right? So we put a lot more investment into U. S.

Speaker 1

Too because it's a larger portion. We're investing into Europe, But I would tell you that I will drown success when we are going to be significantly diversified from UK. Again, everyone can say the good thing and the bad thing, right? So we love our U. K.

Speaker 1

Clients, but it's Hopefully similar to the distribution of the business in the U. S. In the early days, right? So we are now working with automotive suppliers, manufacturers Insurance Companies, those businesses which will make it much more distinct in terms of the position in Europe. So some of the projects in Europe So we're a bit rolled off.

Speaker 1

Some of the new projects started, but I would say that there's a little bit of Uncertainty, of course, the political situation, the Middle East in addition to Eastern Europe puts a little bit extra pressure as well. I'm positive, actually, we just came back from Europe. We met quite a few customers. I'm positive on the growth, but I would be a little bit more cautious On the near term growth in Europe compared with my more bullish positioning on our main plants in the United States.

Speaker 6

Got it. That's helpful. And then you've made some recent investments in the sales force. Can you just talk about how you're incentivizing Wins and existing clients versus new logos, particularly in this type of environment? And then in general, just how the integration of some of those new hires is going?

Speaker 1

Okay. Very good. So again, I invite you even though you're hoping the snow will chase you to New York. But And the Investor and Analyst Day, in addition to great spiel about technology, we'll talk about The other aspects and sales is not the least one, right? We actually have a quite a good representation of sales.

Speaker 1

Look, Salespeople, in my opinion, and I'm not going to take the whole story of this, because they divided by Hunters and farmers, right. So the people who work on existing accounts. And we've done quite well on existing account relationship. We could have done better and we're doing better. But spring into the new clients and expanding new slice and positioning, that's in you.

Speaker 1

That's something we invested And we recently brought a Head of the Hunting Sales in the United States and that start picking up as well. So the quality of approach start turning on. Now Incentives, it's certainly a very different disposition than regular account management for the account performance itself. It's very much driven by incentives on the performance. Now I'm very excited about it because I like to see when people put more bets aligned with the company.

Speaker 1

So they would like to get rewarded as my executive team awarded on something you guys never liked, this stock based compensation. I see salespeople here, They must put more emphasis on their board on the performance of their accounts. So again, please join us on the 16th. We'll do more. But I just feel much more attached.

Speaker 1

I mean, I love my old experience with the big companies like HP and Philips. And I've seen some amazing people in the hardware business. But this is we're not in a product, we're not in a hardware. And I see that level of quality is coming back.

Speaker 6

Thank you. See you soon.

Speaker 1

Thank you.

Operator

Thank you, Maggie. Our next question comes from the telephone line from Ryan Potter from Citi. Ryan, please go ahead. Brian, can you hear us? Okay.

Operator

Not sure about the technical issue from telephone line. Let's switch to the next analyst. Next one is from Puneet Jain from JPMorgan. Puneet, please go ahead.

Speaker 7

Hey, thanks for taking my question. So Leonard, can you talk about like the potential of 28 new enterprise customers that you added this year. Looks like these are large companies, But is the scope and nature of work any different from what you would have done in the past? And should we expect Like maybe higher contribution from such clients than typical 85, 105 model?

Speaker 1

Well, I would not run ahead of the numbers, right? That's expectations. I mean, remember I mentioned before We need to make sure that the programs are performed, right? So we have more client commitment to us, And we have a higher commitment to the clients, but it means that the deployment of the projects are longer and the performance of these projects are required The proof in the pudding, not everybody will survive obviously. There are some people are a bit also jittery about technology.

Speaker 1

Now Again, in some cases, we go with our partners. We want to make sure our partners also sustain their value. But in many cases, Our clients look at great dynamics. What I always dreamed about, okay, well, you come with a partner, but what's your point of view on the world? And We make an agreement that it's a great dynamics business.

Speaker 1

We're obviously going to promote where we came from, but we're building much more comprehensive roadmaps. So I will not promise you that next quarter I can definitively say that all 24 or 28 plans We'll be there, expect some level of incrementality because there are too many of them, very good ones. But I would say that mid next year, I think that contribution may grow. Now what's the 10%, remember, it would not be the 5%. It would be increase of this kind of Recent acquisition, which has to be because if you really think about it, the 85% would not work anymore.

Speaker 1

We had 1 year of stagnation, Right. So we're going to maintain the same course. We're going to go on a much slower ramp up when things Become more aggressive. So it's a combination of the technical capabilities, technical presales, programs with the clients and the relevancy of the logos Should give us the boost in this middle of recent clients to be able to achieve this desired 2 digit plus growth as we always expected from ourselves.

Speaker 7

Got it. Thanks for explaining that. And many of your peers have talked about seeing margin headwinds from pricing and wage and Dynamics, which could potentially continue into next year. So can you share your thoughts what you are seeing at your client base?

Speaker 1

First of all, now we have a very angry Anil. And so your friend is becoming much More clear in terms of the very detailed action items going into next year. You don't always take the Wishful thinking for implementation. I mean we moved from Russia Some countries in Central Europe, right, there was a bulk, right? We moved and we continue to expand in India, And we need to see that margin profile to capitalize because still there is a significant contribution It's growing organically and that's why remember I spoke, let me prove that I can do more organic before I can keep jumping in any companies.

Speaker 1

But You probably noticed we mentioned the 3rd center, right? I mean, I'm sure you don't have to be a super genius to know where the 3rd See, it is. If you're aware in Chennai, we're in Hydro, but it's Bangalore, right? And there's a good reason why it's Bangalore, right? So it gives us the momentum on this margin profile because we need to I'll address this Follow the Sun strategy.

Speaker 1

The other thing is when we expand in Europe, we're becoming more selective on Not going to many digitized countries. It's a tough call, right? People love to collect the countries and we have 18, right? But Smaller is merrier. We can control the internship programs, training programs, maintenance the depth in the offices Where we are, I think that's another way.

Speaker 1

But now go back to most the hardest part, it's the pricing, Right. So we started making some calls and those are tough calls. Again, there's always Bill, as in my life, I've seen multiple times, you can chase revenue, you can chase profits. Neither is successful. So the way to chase revenue is to chase stable long term revenue, at least how you plan it, and then bring them down into the clients, The Nick actually paid for it, right?

Speaker 1

We signed some really interesting contracts. But I'm not a little boring guy too. I'm trying to be honest and I want to make sure Gridynamics' Brent, it remains that we are going into the fair relationship. So that means a few of the projects could have been the feathers May not be there because we want to start on the proper pricing position. But in case, some of cases we had to Do some more aggressive investment into the and I don't like the word investment because to me investment is technologies, people You invest in a customer, you invest in their ROI, not at the discount.

Speaker 7

Agreed. Thank you so much.

Speaker 1

Of course. So maybe we can go back and see if Ryan is still there.

Operator

Sure. Let me try one more time. Ryan, Can you please try your telephone line, see if it works? I guess there's some technical limitation for Zoom panelists. Okay.

Operator

At this moment, that will be all of the Q and A session for today. I will now pass the call back to Leonard for the closing remarks.

Speaker 1

Thank you everybody for joining us on the call today. I'm more bullish than I was 3 months ago. Our core business is rebounding and revenues from our new logos and recent logos continue to grow. Our goals are clear to leverage our GigaQ roadmap to become a $1,000,000,000 revenue company. We're diligently focused on executing the stated goals.

Speaker 1

More importantly, our clients continue to place their confidence in Grid Dynamics' abilities. This is a testament Well, there's hard work across the entire company and I truly appreciate the contribution from each and every of our employees. On November 16, we'll be hosting our 1st Investor and Analyst Day. I would highly recommend you to attend in 1st. It will be a great opportunity to meet the expanded management team.

Speaker 1

We plan to delve into our capabilities and our service offerings. We plan to have demos around generative AI that will provide some insights into our technology division. I also believe the investors will find the event insightful. I'm looking forward to seeing all of you in 2 weeks. Thank you.

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Earnings Conference Call
Grid Dynamics Q3 2023
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