Grid Dynamics Holdings, Inc.

Ladies and gentlemen, thank you for your patience. Welcome to Grid Dynamics' fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. Please note that this is being recorded. I will now turn it over to our host, Ben Jiang, Head of Investor Relations. Thank you.

You may begin. Good afternoon. Welcome to Green Dynamics fourth quarter 2021 earnings conference call. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations, and beliefs, including our first quarter 2022 financial guidance, the growth of Green Dynamics business, our objectives and business strategy, as well as other forward-looking statements. You can refer to the disclosure at the end of the company's earnings press release and form 8K filed with the Security and Exchange Commission today for information about forward-looking statements that will be made on this call. All statements made today reflect our current expectations only, and we undertake no obligation to update any of them to reflect the events that will occur after this call. You can learn more about the specific risk factors that could cause our actual results to differ materially from today's discussion in the risk factor section of the company's form 10-Q filed on November 4, 2021, and in subsequent periodic reports that the company filed with the SEC. During this call, we will discuss certain non-GAAP measures of our performance. Gap to non-gap financial reconciliations and supplemental financial information are provided in the earnings press release and APA filed with the SEC. This call is also available via webcast. You can find all the information I have just described in the investor relations section of Green Dynamics website. Joining us today on the call a CEO, Leonard Delicious, and a CFO, Anil Dhiradlar. Following their prepared remarks, we will open the call to your questions. With that, let me turn the call over to Leonard.

Thank you, Ben. Good afternoon, everyone, and thank you for joining today. And under any other circumstances, there'd be a phenomenal discussion about how we performed in Q4 and how successful 2021 year was for Green Dynamics. But it's not that important at this moment. We are in war. And what I'm going to do right now, I'm going to tell you how Green Dynamics operates in this condition in Ukraine, how we deal with our people, and how we provide uninterrupted work for our companies. Before I do that, I will still walk you through all these results of our year and give you an example of how we perform. And then I come back to relay the questions how Green Dynamics deals in the situation where we are right now. And then I will take questions together with Anu. On that note, I want to provide you business and financial performance for fourth quarter, full year 2021, and provide our look for the coming Q1 quarter 2022. As you have seen from our solid fourth quarter results published this afternoon, I'm very pleased to report another record quarter revenue in our history. And this marks the fourth consecutive quarter of reporting record revenue. Before I get into the highlights of Q4, I wanted to make some comments on our 2021 accomplishments and how it has been an important transformation year for the company. At over $200 million in annual revenue, we almost doubled the revenue of last year. Organic business, which grew more than 50% over the previous year, is now at quarterly run rate over two times in comparison to June 2020, which was during the pandemic. We had 22 new logos in the year, accelerated our client's new addition over the previous year, and set up a positive back drop. Our partnership announcements with cloud providers, such as Google and Amazon, have elevated our status in the history. Our two acquisitions made in December 2020 and May 2021 have enhanced our capability and offering. Retired our warrants, both public and private, resulting in a clean capital structure and successfully executed an equity offering that not only raised cash for the company, but also enhance liquidity to our shareholders. We have significantly exceeded everyone's expectation and set such a high level of execution, which is a testament to our strong fundamentals, as well as differentiation, and more importantly, the hard work and dedication of our people. I'm very proud of our entire team across the globe, their hard work, and would like to thank every one of them for the efforts in making 2021 a remarkable year. Now we come back to the war. How it relates to our business. As you all know, on February 24th, Russia launched the invasion against Ukraine. The situation is ongoing. And evolving daily, we have been monitoring very closely, but not just monitoring. We're actively participating in the lives of our people to take out of the harm wave. We have activated our business continuity plan, or BCP, that defines action to be taken by the company on a different level of risk of the business. Sadly, we had to test our plan going back to 2014 and because of our experience to continue updating. The main focus is on the safety of our employees and continuity of our client's business. As war unfolds, our top priority has been to ensure the safety of all our employees. On that front, I'm very happy to say that majority of our employees in Ukraine are safe and accounted for. Within Ukraine, we have roughly 1,400 employees stretched across the country, and we are addressing the needs in multiple ways. To begin, we have offered to all employees the choice to work out from their preferred location, And we are helping in any variety of the ways that includes transportation, shelter, food, medical help. Some of our employees have chosen to stay in their locations, and they've been sheltering in place with their families. Others have chosen to move toward the western part of Ukraine, Poland, Moldova, and others. As of today, Majority of our employees have relocated into the western part of Ukraine, and their families have been on the way to the safety of neighboring countries. Additionally, we continue to accelerate to bring the remaining of our employees and their families to safety as the situations permit. We also added delivery capacity to minimize disruption to our client projects. On this, we have been working on multiple fronts. First, we're setting up our hiring process across all the geographic locations, including Mexico, Poland, Moldova, Serbia, and Armenia. We achieved a significant milestone with our extension of delivery operations in India. This week, we announced the creation of Green Dynamics IndiaWire's strategic partnership with Sigma Infotech. We are excited that this opportunity will present to us the best path for the entry in growth in India. We anticipate to have more partnerships going forward, and we expect our first set of deliverable employees in India in a very short period of time. Over time, we plan to grow our presence in India to achieve at least 500 or more people capacity. And I stress the focus on the high talent and the goodwill and partnership with our great people who currently will work in India. And the third one, I want to highlight how our employees have done well beyond their call of duty. Across all of our geographies, all our employees have shown tremendous team spirit and have stepped up by taking additional responsibility with client projects. They work day and night. They step up to make sure that clients are satisfied with the best of all capabilities. And a percentage of our business rollout is going daily. And it's playing an important role, and it's a testament of our culture and highlights how resilient and how camaraderie our engineers are and how they care about each other. I also believe our size and delivery DNA positions us well in a difficult navigation through the current situation. Since founding the company, we have ensured client project and domain expertise to be not concentrated in any geographic location. For a smaller company, disruptions in client work due to concentrated resources would have had a major impact on the business. In case of where dynamics were distributed, and we are set to provide the best possible support to the clients. Not working, the impact is of hundreds of people, not thousands, not tens of thousands. Given that we are in over 12 countries and 15 time zones, we have access to tap into large labor pools. And bottom line, we're more nimble and can address the capacity issues as quickly as possible. It is a very difficult time. not just degree dynamics, but it's a test for the entire humanity in the world. And to my delight, our customers have proven to be outstanding partners and have shown tremendous support to the company and our employees. We're engaged with all our customers on a daily basis and have not seen any loss of customers so far. On opposite ways, our customers are stepping up, and they're helping us with logistics. They're patient. They're committed. And in addition to our business relationship, they're happy to participate and contribute to the charities established by Great Dynamics. Again, it's a testament of years of relationships, and our track record of being a reliable, intelligent, and committed partner. Now coming to the fourth quarter. We finished this year strongly with revenue of $66 million, representing 120% year-over-year growth, significantly exceeding our expectations which we shared with you last quarter. We also ended the fourth quarter with adjusted EBITDA of $11.6 million, representing growth over 3X over the same period in the prior year. On a sequential basis, our revenue grew 15%, Market is one of the strongest first quarter in terms of sequential growth rate. As you know from our previous commentary around seasonality, our first quarter grows a bit more modestly than our third. Nevertheless, the quarter has performed better than expected. We witnessed a strong demand across all our industries, all our verticals, and we've seen the growth through our organic business as well as with acquisitions. The efforts we made on the supply chain during 2021 resulted in significantly higher billable headcount. And depending on the trends was the strong customer interest in engaging our services around digital engineering as these programs take center stage priority across the enterprise world. In the fourth quarter, there were several positive trends And I want to share a few of them. Please understand that under current circumstances, some of the comments may not as important as they have seemed just a few weeks ago. But nevertheless, I want to point it out. Number one, demand trends across all the segments continue to grow, and there is a healthy demand of all algorithms. During the fourth quarter, Our large technology customers continue to aggressively dedicate their work with great dynamics. Retail has another strong sequential quarter. It was the largest vertical in Q4. We saw the strength of our home improvement clients along with e-commerce friendly apparel retailers. On the CBG and manufacturing front, we continue to leverage our expertise in digital commerce. Our investment into adjacent areas of order fulfillment and supply chain led to the interest from CBG and manufacturing clients, including some of the top players from each vertical. And within other verticals, the demand was largely driven within healthcare and pharmaceutical clients. We've seen a huge demand for talent. Demand for skill sets continue to be robust. That said, on the supply side, our worth of scaling talent acquisition since the beginning of 2021 has significantly paid off. Largely reflected by our ability to convert a number of engineers into billable positions and resulted in 15% sequential growth in revenues. On the internship front, we have made a solid progress as we partner with the top universities. In 2021, we doubled the number of internships. our 2020, and we expect to continue to grow our headcount. Logo momentum. Our new logo addition to our organic business continues to be robust. In this quarter, we added five new logos, bringing us total to 22 additions for the full year, as I mentioned to you before. And that's just on the organic side compared with 2016-2020. Of these five new logos, two were in the B2B retail, one was in healthcare, one media, and one in apparel retail. Our product-oriented delivery, or COD model, has been increasingly accepted by our larger clients. And these trends heavily drove our building capabilities of larger teams in a multiple offshore organization. I'm happy to report But during Q4, the Fortune 500 pharma company were able to pick up a dedicated offshore location as a center of excellence in the area of data science and artificial intelligence. We expect this trend in favor of POD to continue as clients across industry verticals increasingly see the benefit. Viewers of our dash and dash. Acquisition revenue in that quarter was higher than expected, as both DAX and TASID witness elevated demand across the board. I'm happy to report that integration efforts with both companies are playing out as expected. And at this point, I can report that we have fully completed acquisition and integration of DAX, and DAX is completely part of green dynamics on every facet of the business. We'll do so with TASID in a few quarters. Salesforce expansion. As you may recall, we rolled out a strategy around expanding our Salesforce in early 2021, and in Q4, we made several strategic sales hires across the United States. The focus is central around hiring senior salespeople who can leverage their experience and expertise with their industry connections. In addition to strengthening our geographic coverage, We have invested in bringing up the people with the domain knowledge and such verticals as insurance, fintech, and pharma. I'm excited to see the senior people on board and look forward to continue growing our business in 2022. R&D extension. During the Q4, we made a substantial growth in a number of major R&D initiatives. Some barrier focus include ramping up our accelerator offering, enhancing our pre-sales technology and capabilities, and scaling our consulting practices to make sure we meet all the growing demands from our clients. As we look into 2022 and beyond, we're enhancing our capabilities, creating more platform solutions, which will result in winning larger deals for the company. During the quarter, GridName has delivered some notable projects. Number one, At a global technology company, we built a complex system to predict device failure directly on the company's mission-critical production lines. The system pulled into IAT data with the use of streaming technology, analyzed the data with machine learning, modeling, and provided decisions in real time. This leads to further reduction of production maintenance costs for this large clinic. We expect the system to continue evolving over time and being rolled out on most of their product lines. Number two, at the global CPG brand, we help to integrate their systems with a third-party distribution center provider, thereby significantly increasing their retail supply chain capacity in North America. Our effort will lead to several benefits that include increasing revenues, improve customer satisfaction, and prevention of stuck-out, especially during peak demand of the holiday. Number three, as a large U.S. luxury retailer, Green Dynamics developed and delivered a new cottage-edge mobile application tailored at customer segments that historically had not adopted digital shopping. This invite-only application is experience, recommendation, and personalization-focused, which increases digital engagement and revenue in their journey to become a more digitally prominent brand. As Luxury Terror continues to make investments in this strategic initiative, which is foundational in the company's mobile service. And last but not the least example, for one of the traffic solution manufacturers, we applied data analytics technology to enhance the data management capability of their traffic control systems used by their clients. The system collects information from a wide range of IoT sensors deployed around cities and on vehicles. Redynamics implements several business cases. related to building descriptive analytics and enhanced UI. New features enabled by our solution become one of their competitive advantages and allow this customer to attract new clients. Before I turn to Anil, I want to remind you again that during the Q&A session, both of us will be happy to give you as much power as we can provide to demonstrate how incredibly resilient Redynamics remains to be in the industry and how incredibly proud I am of my employees who work day and night under very difficult circumstances, of my clients who are the most understandable and the most generous partners. And I would like to hear more from our investors Their contribution to success helps Ukraine as well. Thank you. And now we'll turn the call to Anil, who will discuss Q4 results in more details.

Anil? Thanks, Leonard. Good afternoon, everyone. Our fourth quarter revenue of $66.5 million exceeded our guidance range of $58 to $59 million and was up 14.9% on a sequential basis in her 2020 on a year-over-year basis. Excluding revenues from our expectations of docs and taxes, which contributed 15.2 million in the quarter and was higher than our guidance of 12.5 million, our organic revenue of 51.3 million was up 16.4% sequentially and 76% on a year-over-year basis and exceeded our guidance of 45.5 million to $46.5 million. The better than expected revenue in the quarter was driven by strong demand for our services across industry verticals. During the fourth quarter, retail, our largest vertical representing 32.9% of our revenues, grew 19.7% on a sequential basis and 182% on a year-over-year basis. The strong sequential and year-over-year growth was driven by strength across our customer base with e-commerce friendly, brick and mortar, and home improvement retailers continue focusing on digital transformation initiatives. Our TMT vertical was our second largest vertical and represented 29.4% of our fourth quarter revenues and grew 11.2% on a sequential basis and 83.3% on a year-over-year basis. Growth in the quarter largely came from some of our large TMT customers who continue to ramp their offshore operations with us. Here are the details of the revenue mix of other verticals. Our CPG and manufacturing represented 20.5% of our revenue in the fourth quarter and grew 21.6% on a sequential basis and 120% on a year-over-year basis. The growth during the quarter primarily came from large global brands along with new customers. Finance represented 7.2% of revenue and declined 8.5% on a sequential basis, but was up 62.5% on a year-over-year basis. The sequential decline in the financial vertical was largely driven by the decline at some of our insurance and banking clients. And finally, the other segment represented 10% of our fourth quarter revenue and was up 18.8% on a sequential basis. Within this vertical, we witnessed continued ramp at some of our recent climb in the healthcare space. We exited the fourth quarter with a total headcount of 3,274, up from 2,884 employees in the third quarter of 2021, and up from 1,894 in the fourth quarter of 2020. The sequential increase of 390 employees, or 13.5%, was largely due to increase in engineering headcounts and improving demand. The increase from 2020 was largely due to a combination of improving demand resulting in headcount increase combined with our acquisitions of tacit knowledge. At the end of the fourth quarter of 2021, our total U.S. headcount was 324, or 10% of our company's total headcount. This was similar to the 10% in the third quarter and down from 14% in the year-over-quarter. The year-over-year decline as a percentage of the total headcount was largely driven by greater offshoring by our clients. Our non-U.S. headcount, which we sometimes refer to as offshore, located in Central and Eastern Europe, U.K., Netherlands, and Mexico, locations was 2,950, or 90%. In the fourth quarter, revenues from our top five and top 10 customers were 42% and 57.7% respectively. During the same period a year ago, our top five and top 10 customer concentrations was 53.9 and 73.7% respectively. The diversification across our top five and top 10 were driven by a combination of factors that included new logo wrap, industry diversification, and our acquisitions. During the fourth quarter, we had a total of 221 customers with 58 coming from our organic business and the remaining 163 coming from our tacit and debt acquisitions. Our organic business customers count of 58 was up from 55 in the third quarter of 2021 and up from 43 in the fourth quarter of 2020. As a reminder, we count the revenue-generating customers in the quarter and do not include customers who are inactive during the quarter. Moving to the income statement, Our GAAP gross margin during the quarter was $27.3 million, or 41.1%, up from $25.3 million, or 43.6% in the third quarter of 2021, and up from $12.3 million, or 40.7% in the year-ago quarter. On a sequential basis, the roughly 300 bids declined in the gross margin as a percentage of revenues, was from a combination of factors that included fewer working days from the holiday season and increased hiring during the quarter. On a non-GAAP basis, our gross margin was $27.6 million, or 41.4%, changed from $25.4 million, or 43.9% in the third quarter of 2021, and up from $12.4 million, or 41% in the year-ago quarter. Sequential decrease in non-GAAP gross margin as a percentage was driven by the same factors highlighted earlier. Non-GAAP EBITDA during the fourth quarter that excluded stock-based compensation, depreciation and amortization, transaction and other related costs was 11.6 million, or 17.4% down from 12.5 million, or 21.6% in the third quarter of 2021, and up from $4.1 million, or 13.7% in the year-ago quarter. The sequential decrease in EBITDA as a percentage of revenue was largely due to a combination of decline in gross margin percentage, highlighted earlier, and higher operating expenses. Additionally, in the year-over-quarter, our business was recovering from the pandemic-related headwinds, resulting in low levels of EBITDA both in terms of dollars as well as percentage. Our gap net loss in the fourth quarter totaled a loss of $3.6 million, or a loss of 5 cents, based on a share count of 65.7 million shares compared to the third quarter loss of 0.5 million dollars or a loss of one cent per share based on 62.6 million shares and a loss of 4.7 million dollars or a loss of 10 cents per share based on 49.7 million shares in the year above quarter. The sequential increase in GapNet loss was largely due to higher stock-based compensation that included annual performance share award. On a year-over-year basis, the decrease in GAAP net loss was a combination of higher levels of revenue offset by higher levels of stock-based compensation and operating expenses. On a non-GAAP basis, in the fourth quarter, our non-GAAP net income was $7.1 million, or 10 cents per share based on 71.7 million diluted shares compared to the Third quarter non-GAAP net income of $7.9 million, or 11 cents per diluted share, based on 69.5 million diluted shares, and $2.2 million, or 4 cents per diluted share, based on 54.9 million diluted shares in the year-ago quarter. The key reasons for the decline in the non-GAAP net income on a sequential basis was higher operating expenses and the increase in non-GAAP net income in comparison to the year-ago quarter, was largely driven from higher levels of revenue, partially offset by our operating expenses. On December 31st, 2021, our cash and cash equivalents totaled $144 million, up from $113 million on December 31st, 2020. The key reason for the increase was a combination of redemption of public and private warrants, capital raised from primary offering liquidity shares, and higher cash generation in the business. Now, coming to the guidance, For the first quarter of 2022, we expect revenues to be in the range of 55 million to 60 million. We expect our non-GAAP EBITDA in the first quarter to be in the range of 8% to 12%, or $4.4 million to $7.2 million. For Q1 2022, we expect our basic share count to be in the range of 69 to 70 million, and our diluted share count to be in the range of 72 to 73 million. That concludes my prepared remarks. Operator, we are ready to take questions.

Thank you. And before we begin our question and answer session, I'm going to turn the floor back over to Mr. Jiang for some additional comments. Thank you.

Thank you, operator. Before we jump to the Q&A session, I would like to show you a short video clip about our employees and their families currently in Ukraine. Start. Thank you.

Thank you, operator. We are ready for any session.

Thank you. And a reminder to the audience to ask a question on the phone, press star one. Our first question comes from my young tandem with Needham. Please go ahead.

Thank you. Good evening. First and foremost, Leonard, it's good to hear that your employees are staying safe. And obviously, what's a very tragic situation. So that's very comforting to hear. Also, congrats on the quarter and on strong for this fiscal twenty one. I wanted to start by just asking you in terms of the capacity, you know, when you talk about being able to scale other markets, could you talk about how much capacity you have, sort of extra capacity in some of the other regions that are able to maybe take on the extra workload? And then as you think about expanding into other hubs, will that be more of an organic effort or will that be maybe a combination of M&A and organic?

So I would say there are several parts of this answer to this question. So first and foremost, we are scaling organizations both in Central Europe and in Latin America organically. That has been happening even before COVID. the war, we just accelerated the process as a result of the BCP plan. The scaling up the operation in India comes first with the partnerships. We have been in discussion with several companies, again, from the M&A, from BOT perspective, in advance of the events, and we accelerated them. That's where you heard about the announcements. It will continue to do so. So while in Europe and in Latin America, it's a combination of relocating people and organic growth. In India, it's going to be growing quite rapidly by leveraging the partnership we have.

Got it. That's helpful. And then maybe, Anil, I don't know if you could... Break down the 1Q outlook in terms of your expectation for March, and is it reasonable to think of March maybe the run rate there as maybe the near-term monthly run rate for at least the second quarter until the capacity builds up and then you're able to scale in some of the other regions to be able to meet demand?

Sure. Thanks for your question, Mayank. So, look, beyond the first quarter, obviously, we've not given guidance, but I'll give you a couple of points to, you know, get the perspectives. Look, the quarter, the guidance that we gave out, both on the revenue and EBITDA front, is with a full month of January and February, and obviously, we've made some expectations on March. On the EBITDA front, our EBITDA would have been much stronger. But as you know, we are spending certain amounts of money as we move people around. And we just don't know how much of it will be a one-time charge versus how much of it will be in our P&L. As we go into the course of the year, I can just leave a couple of things, and maybe Leonard can give a little bit more color. The demand environment is solid. The capacity is improving. Our operational metrics are improving. And Leonard, maybe you could add more to that.

Yeah, as Anil mentioned, we've been quite conservative in the Q1, not necessarily because of all the capacity constraints, but because of the costs associated with all the logistics. We haven't sorted out what is going to be one-time charge, what we continue to do. Obviously, there are costs associated with the continuous scaling of the organizations. At this point, I really want to appreciate the fact and understand bring my full heartfelt gratitude to our clients because they're very patient and they work very diligently with us to continue to see that accelerated utilization and efficiency of our organizations, not only in Europe, but around the globe.

Thank you, Leonard and Anil. Appreciate you taking my questions.

Thank you.

Thank you. And our next question will be coming from Josh Siegler with Cancer Fitzgerald. Please go ahead and unmute yourself and your camera. Thank you.

Yes. Hi. Thank you for taking my question. And we just want to reiterate our thoughts are with your affected employees today and for the past month. So my first question is following along that line of thought. Has there been any disruption in your ability to actually pay these impacted employees, both in Ukraine as well as in Russia as well?

Oh, okay. Not at this point. Again, the BCP plan planning has happened in advance of the events. The situation, as you know, in the region has been mounting for some time. So we provided sufficient cash reserves in both of those countries.

Understood. Thank you. That's super helpful. And then, you know, with the recent decrease in valuations across public markets, how is grid viewing the private markets right now? Has the acquisition market improved? Do you have any updated thoughts along those lines?

Thank you. Well, frankly, right now, the acquisition is not my top priority in the last six days, right? But the partnerships are. So the market situation, the market deterioration, and, of course, the impact on grid dynamics stock is not equal, right? We had our peak on December 27th, and then we had a correction associated with the market. And then there is a bit of a panic related to the Eastern Europe. Some coverage was, you know, increasing even more by pointing that grid dynamics is a weaker link. which as you see today, and you will see in a continuous event, is by far not the case. Well, we were in a blackout period. What can I say, right? Today, I can say with a high confidence that our resilience from 2014 and other very disruptive events continue to build up. So partnerships, relationships, we will see when we get out of all this situation of the war, how we're going to resume. Obviously, the list is growing, but the regions of investment for M&A obviously shifted.

Great. Thank you very much for taking my questions.

Thank you. And our next question comes from Maggie Nolan with William Blair. Please go and unmute yourself and open your camera. Thank you.

Thank you. I wanted to acknowledge your strong results and more importantly, everything that you're doing for your employees. And thank you for taking my questions. The first, I wanted to know if you could give us maybe quantitatively or qualitatively some idea of the economics of your deal with the partner in India. There's obviously going to be a lot of puts and takes on the margin of those projects. So any color you could provide there would be helpful.

Well, what you saw in the announcement, it's just the tip of the iceberg. There are a number of partnerships in India in progress. If you noticed, our CTO has been assigned as the acting head of Green Dynamics of India. He is on his way. We started with our very generous partner to kick off the process. We have several more in the next weeks to come. The economics of the relationship will depend how well we are able to conclude the hiring because it's really hiring under Green Dynamics Hospices as a partnership. And the most important part is we are as demanding on the quality and capability of our Indian colleagues as we've always been, has been with the company. So obviously the pool is tight. However, we're confident that the number of hires will go into the hundreds.

Okay, thank you. And then do you think you'll have the ability to bring on new clients in the coming year as you kind of balance that with your focus on business continuity with your existing client base?

Well, we just got a new customer today. You know, it's a very interesting world. You know, I'm I believe in a humanity and humanity must prevail. But at the time of the world, we need to be visual. At the same time, if we don't plan for the great hope of the future, we would not succeed. And in terms of the client base, I can give you an allegory. During the evacuation of the people, We got the first child delivered during the transition in our office. So we have a great dynamic child. So we can deliver kids in our office. We can bring new customers to great dynamics. I'm very committed to continue to grow the business.

That's incredible. Thanks for the answers. Thank you.

Thank you. And our next question from the phone comes from Puneet Jain with JP Morgan. Please state your questions.

Hey, thanks for taking my question. So glad to hear, like, the actions you took to ensure safety of all of your employees. But from risk management perspective, how quickly you can remix delivery away from Russia, Ukraine, Moldova, if clients start attaching, like, a higher risk profile to those regions over the long term? Like you talked about on the call, like, Ukraine is about 42% headcount So where do you see that mix going over the long term?

I thought you meant 24%, not 42%. But it's close enough, right? So yes, we had 24%. Now, obviously, we have a lesser number. And as far as other countries you mentioned, the process involved the BCP plan, Both countries you mentioned are associated with that particular plan. We have increased our capacity in Serbia significantly. We have increased our capacity to scale into Romania as well as Armenia and a few other countries and also Mexico. But because of the safety and security of our employees of other countries, I would not get into the very specific details who goes where. But as the plan unfolds, we'll keep you brief. But it's a multi-faceted, multi-phase process. So when you talk about long-term, I'm talking about the mid-term.

Understood. Now that's helpful. And with many companies trying to relocate employees to Poland, Romania, and increasingly ramp at those locations, can you talk about, like, supply environments in those countries, especially in Poland, for you?

Well, we have three locations in Poland. We have three offices. We have Krakow, we have Wroclaw, and we have Gdańsk. The supply is always tied for the smart people, no matter where they are. The question is that intellectual alignment with the companies. the quality of the relationship, and in our case, it's also camaraderie. We continue to hire people in Poland on a regular basis, and not only among the local Polish population, but among people who migrated earlier. People can talk about neutrality. I'm a straightforward person. There's no neutrality. who stand strongly behind Ukraine in their defense against the aggressor, it's a war time. So people who chose the freedom a long time ago, they see that maybe we are one of the beacon of that support, and it helps us in the country. Now, Romania, I think the time will tell. We just scratched the surface, so I don't want to speculate until we get facts.

Understood. Thank you. I appreciate the comments. and all the best.

Thank you.

Thank you. And our next question comes from Ryan Potter with Citi. Please go ahead and unmute yourself.

Hi, thanks for taking my question. Can you guys hear me? Yes, please. Thanks for taking my question and I'd like to reiterate, hope all your employees are staying as safe as possible. Just want to get an update on client sentiment thus far. I guess, how have clients reacted to the situation thus far? Is there any way you can characterize or quantify how many clients have asked for work to move out of Ukraine and Russia versus how many are more in kind of a wait and see approach?

um and from people who have asked to move if any uh how much do you think is like permanent like risk off situation versus kind of a temporary move very good so there are like three or four questions you have in this one right so let me start with the first one uh how do clients feel about green dynamics you know I would, you know, bring a citation of one of the leader of one of the clients who sent me today. I wanted to keep your talent. You are incredible. You have great people. So we'll do as much as we can to maintain that continuity, which means that so far we're blessed with all of our customers. Having relationship going over the years gave us the breathing room in how the customers react. First, they stand strongly behind us. They support us. They're patient. We work on continuity plans. The productivity in majority of the clients went from 50% to 80% plus. And we monitor them daily. So there's a trust in us. They want to see progress. But they're resilient, they're generous with their donations, and they're generous to support our billings and continue to grow with us. So that's what comes to the clients. The risk and permits and all this stuff. Look, it's a case by case. People displaced, but people are not away from networks. We have built a significant redundancy in our networking capability globally. So even people who are displaced, and again, from safety and security, I would not mention all the places we are, they're functional. And in many cases, redundancy comes in when they go to the safety area. they work in a much more comfortable environment, especially when their families, their kids, and their pets are also taken care of. So it's a psychological plus infrastructure capabilities of greater neighbors.

Got it. That's good to hear. And on Russia, in terms of impact of sanctions, have you guys seen any impact from the announced sanctions so far on your Russia business? And could you, I guess, broadly kind of go over financially how business in Russia is kind of conducted, if there's any cash held there? or how you pay your employees and whatnot. And I guess just one more thing, if you could quantify how many employees are in Russia. I know you said 1.4K in Ukraine, but if you could put it on Russia too, that'd be helpful.

Very good. So, you know, sounds like you're from the intelligence office. All right. So first of all, we do not conduct any business in Russia with Russian clients and never have been. So there's no relationship between with any sanctions or unsanctioned companies in Russia. Number two, at the peak time, even obviously pre-war, the count in Russian engineering was substantially smaller than Ukraine, and it continues to decline. Again, for sake of them, I don't want to know, I don't want to tell where they are and what they do because it's not just sanctions from outside. It's inside of the Russian behavior. One thing I can tell you, that all my engineers are grid dynamics engineers. And we put outmost care to get them on the harm's way, and harm's way are not necessarily coming from the battlefields. So I stand behind all my engineers, even though my heart and soul is stand with Ukraine as a country. So part of the BCP plan, moving people around. As far as payments concerned, again, we had sufficient information Reserves in Russia. But part of the BCP plan and payments are associated with optimizing the living of the engineers, not only today, but there will be with the families in the future. So I would say, like, follow me in some point of time. We'll keep you updated. That's one of the top priorities. Obviously, after the safety and security of our people in Ukraine.

Got it. Thank you.

Thanks, Josh.

Thank you. And our next question comes from Brian Bergen with Cowan. Please go ahead and unmute yourself.

Hi, Leonard. Hi, Anil. Thank you for taking the question. Nice work on the quarter and in keeping your people safe. First question I have for you, just Mexico and LATAM, can you talk about your development efforts there? And is the model that you're going to pursue in India with this strategic partnership, is that also something you can leverage there as well to help

Thank you, Brian. Well, let's split it on two parts. The strategy has been to grow organically in LATAM, and we started with Mexico through the acquisition, and that office in Guadalajara is growing very nicely. However, as always, you're very proactive of your thinking, and there are discussions, which again, part of the BCP plan, for several very strategic relationships. It doesn't just go into the specific countries, it goes into this, I would say, broader Latam, which includes also various countries, right? It also extends into Europe, into the Southern Europe. Those relationships are being, I would say, conditioned over time because of our strategic plan. You know, again, had it not been for the war, I would be talking about my $1 billion vision plan, which is very comprehensive. So we just had to carve the chunks of excitement and go very disciplined to execute the scale and continue it. So that's what I would say today.

Okay. And just given the custom nature of the work, we understand it's obviously a challenge to move, you know, from team to team and new members. You did talk about the distributed nature of your teams, though, which certainly helps. Are there also other methods or learnings that you've had from COVID and other prior events that, you know, enable you to be as resilient as you are here in navigating this operational disruption?

Thank you. That's a very good point. So yeah, so our team has been distributed way before COVID. My strategy has been for years, not a single team, a single project, single location. There are many risks associated with a concentration, right? So the number one objective was all the locations, all the capabilities, all the trainings have to be distributed. That was reflected without university training, right? The internship programs, Green University. So we created a lot of custom classes. which are obviously online and allow people to go and learn indirectly somewhere. The big part is the coaching. Our top senior talent obviously is the most senior one from the company experiences. And they have been moving very, very broadly into the consultancy model. That's why some of the investments you've seen in Q4 are was associated with Rajiv and his team when we moved a substantial number of people to scale the R&D, not from just innovative perspective, but also to be able to consult and train people across multiple locations and multiple clients. That's where we are experiencing right now.

Okay. Thank you very much, and good luck to you.

Thank you, Bernie. Thank you, Bernie.

Thank you. And ladies and gentlemen, that appears to be our final question. I'll now turn the floor over to Mr. Leonard Lipschitz for closing remarks. Thank you.

Thank you, everybody. In such difficult time, it's hard to undermine any effort of everyone around me. I want to say special thank you to the amazing Green Dynamics team. You guys are my heroes. I want to say thank you for our partners who are very generous. Again, today I didn't name all of them, but there are incredible amount of goodwill and appreciation and respect. I want to thank our customers. This is the amazing group of people. I've been accessing the senior leadership of such magnitude, which we have not even experienced during the regular times. I've seen so many clients, individuals who contributed to our charity. But more than that, they act as business people, understanding that resilience of Green Dynamics will be resulted in the success of our business going forward. I also want to give an opportunity to investors to join the forces and to provide Green Dynamics support. With your support, with your attention, we'll be able to rebound and grow faster than we ever experienced. Again, I want to thank all the good people around the world. We need not only pray for peace, we need to fight for peace. The peace is the future, not only of our businesses, but our children and generations to come. And I thank you again for everybody to stand with Green Dynamics. So with that, I want to say that every human being is Ukrainian today. because that's association with a future hope. And I want to say, which is becoming not just the words, but the symbol, glory to Ukraine. Thank you very much. Thank you.

Thank you. And with that, that concludes today's webcast. Have a great evening.