Grid Dynamics Holdings, Inc.

Good afternoon, everyone, and welcome to Green Dynamics' fourth quarter and full year 2022 earnings conference call. I'm Bing Jiang, head of investor relations. At this time, our participants are in listen-only mode. Joining us on the call today are CEO Leonard Lifshitz and CFO Anil Dhradala. 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 includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings with ICC. 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 the AK filed with SEC. You can find all the information I have just described in the investor relations section of our website. With that, I will now turn the call over to Leonard, our CEO.

Thank you, Bin. Good afternoon, everyone, and thank you for joining us today. 2022 was one of the best years in terms of revenue and growth in the company's history. Our revenue grew by 47% on the year-over-year basis and almost tripled since 2020, which was the first year of being a public company. This is a phenomenal achievement in spite of horrific war in Ukraine as well as macroeconomic challenges. And by the way, this week also marks the one-year anniversary of the Russian invasion of Ukraine. The last 12 months have been a test to the company's resilience and strengths, and our commitment in ensuring the safety of our employees, uninterrupted delivery of our customers' projects, and inquiry new businesses at the same time. Whether it was evacuating and relocating thousands of employees and their families, seizing all our operations in Russia, opening and expanding offices in Poland, India, Mexico, Serbia, Armenia, Romania, Jamaica, and other countries, and executing our M&A strategy with a new acquisition, as well as completing integration or acquisitions from the past years. And our accomplishments have been nothing less than spectacular. I'm very proud of being part of Grid Dynamics. I would like to thank all employees in making our company the greatest place to work for. As you can see with our results, that we published a short time ago, our Q4 2022 revenue and adjusted EBITDA exceeded our expectations that we provided to all of you in November. Most importantly, this was the second consecutive quarter of performing at our target operating model, both on the gross margin and EBITDA margin front on a non-GAAP basis. The better than expected performance was due to a couple of factors. As we indicated in early November at our last earnings call, we experienced the softness of some of our customers. During the quarter, however, we witnessed stronger than expected demand across some of our existing customers as they continued to ramp on both existing and new programs. In addition, we had a record high new logos. In a nutshell, our viewpoint of the microactive softness in the fourth quarter was more cautious than it was turned out to be. In many ways, we view the current reset across the demand environment as a significant opportunity for great dynamics. Some sectors and customers, especially in technology space, overestimated the post-pandemic demand rebound and are recalibrating their growth investments. Others are seeking ways of leveraging digital transformation solutions in achieving their revenue objectives in a cost-efficient manner. During such periods, Customers increasingly focus on value and meaningful contributions from their IT service partners. We're seeing some of these trends playing out favorably as our customers rationalize their roster of IT partners and focus on differentiated solutions. More importantly, As the industry comes out of the current downward cycle, these trends will offer significant opportunities for growth and we are positioning ourselves to benefit from this going forward. It is in this context that I'm happy to share with you for the first time, Grid Dynamics Gigacube initiative. This is our strategic blueprint that lays out the framework for a company towards a $1 billion revenue. Within the company, we have all personalized the plan, which involves all part of the organization that includes sales, R&D, marketing, engineering, operations, and M&A. I will talk about this later in my prepared remarks. Let's talk about locations. In India, we inaugurated our permanent office in Hyderabad. Our first batch of 30 plus interns from the top university across the country has started their work at our local headquarters in Hyderabad. The response and feedback from our university partnerships have been very positive and over time we expect to scale our internship program in India. Complementing to our India operations is our recent acquisition of Texas-based Mutual Mobile, which has Indian operation also centered around Hyderabad. Mutual Mobile has over 175 employees, and we're in the process of integrating the offices. We continue to ramp up hiring of engineering talents in Europe. Over the last 12 months, our headcount in Poland, Serbia, and Armenia has almost tripled. Similar to our other locations, we expect our relationship with universities and higher interns across these regions. In the quarter, there were several trends, and I want to share with you some of the notable ones. The main trend. In the fourth quarter, similar to the third quarter, we witnessed continued budget scrutiny and demand softness across some of our clients. Even at some point of our larger clients, we also have seen some slowdown. That said, from our perspective, there has been no significant changes in grid dynamics viewpoint since October on how clients are reacting to the current situation. As you may recall, we're very vocal in our commentary around the demand environment. We're announcing our third quarter results in November. It was also reflected in our cautious fourth quarter guidance in which we highlighted softness in demand. Additionally, in the fourth quarter, our new logos contributed meaningfully and offset some of the softness in the existing business. Coming to some additional first quarter segment commentary. Our technologies segment was the largest during the quarter. The growth in the quarter was driven by a combination of large technology customers, which are growing, as well as new logo revenue contribution. Our retail business was slightly up from last quarter and performed again better than our expectations. In the quarter, we also benefited from strong performance from a large global footwear company, a business we have recently won. And finally, our finance segment grew as we continued to make inroads from wealth management applications at our largest banking client. Logo momentum. We closed the fourth quarter with the highest number of new logos in the company's history. During the quarter, we added 13 new enterprise customers with our organic business. Some of the more notable ones to mention include two top tier global Fortune 30 companies, as well as one of the Canada's largest food and pharmacy chain. We're very proud of our achievements in the current environment, and this is a testament of grid dynamics differentiation and value we bring to our customers. Delivery location support. Another important point worth highlighting is related to our delivery operation and how supportive our customers have been in the transitional process. Over the past 12 months, we executed flawlessly in transitioning a significant portion of the workforce while continuing to deliver projects in a timely manner. More importantly, Our customers have not shifted existing programs to our competitors nor terminated business with us due to concern around our delivery locations and our abilities to meet project deadlines. Our new business development efforts are robust as indicated by record year of new logos in 2022. Bottom line. While the challenges were immense, we were not distracted in our business with existing new clients. As we look at 2023, we believe these trends will continue to persist and continue to be bullish on our prospects with new customers. European business. During the quarter, we made good progress with our European clients. As I highlighted earlier, at a global foodware company that we signed recently with a strong ramp in the fourth quarter is on the track of becoming one of our largest European customers in 2023. During the fourth quarter, we also added one of the largest automotive part manufacturing based out of Germany. At our largest European account that sells essential household goods, an industry that has been traditionally recession-proof, um we grew substantially in the fourth quarter and we are working on the three-year roadmap to move from monolith to composable architecture partnership partnerships continue to be an important part of our growth and has become a significant contributor to lead generation During the quarter, we made progress with our tier one partnership players with more competitiveness and certifications. With Amazon AWS, we're now their advanced consulting partner and on track of becoming a premier partner later this year. Additionally, we achieved the service delivery designation for Amazon EKS and AWS cloud migration. With Google, We're one of the very few premier partners with a seven specialization and 40 plus expertise related to Google Cloud. We continue to be primary partner for experimentation of discovery artificial intelligence for retail, Google solution offering for product search and recommendations. With Microsoft Azure, we launched new starter kits to accelerate enterprise migration. And finally, at Commerce Tools, our premier partnership continues to grow around composable commerce solutions that enable global brands to engage with their customers. Mergers and acquisitions. On the M&A front, as you all know, on December 23rd, 2022, we announced the acquisition of Mutual Mobile based out of Austin, Texas with delivery operations out of India. Mutual Mobile is a design and digital platform engineering service company specializing in mobile user experience, product design and augmented as well as virtual reality capabilities the company has focused on healthcare automotive and financial services industry it's also added 175 highly skilled talent to our operations we're already working on the cross-selling opportunities and expect to leverage each other customer base beyond mutual mobile our pipeline for mna opportunities is robust and we are actively exploring multiple opportunities. More importantly, recent change changes in a micro environment have led to more attractive pricing on M&A front, and we look forward to sharing more updates in 2023. As we highlighted in the past, our M&A strategy focuses on capabilities, key customers, and delivery locations. Now about Project GigaQ. Coming to our billion-dollar revenue strategic initiative, which we termed as the Grid Dynamics Gigacube Initiative. As the name implies, there are three dimensions to the plan, in which each dimension, there are three focus areas. Number one. three industry expansion. Within the industry verticals, our focus will be to expand in three areas, life science and pharma, financial services and insurance, and industrial and manufacturing. While we have clients in each of these industry verticals, for the company to scale to 1 billion in revenue will require greater focus on building practices around each of these areas. To enable this vision, we're developing industry-specific solutions based on our robust consulting and co-innovation approach. These solutions are spearheaded by the subject matter experts, which we hire both from the industry and consulting worlds. Our expansion in the three core industries, in addition to serving a broad technology audience, will allow us to smoothen the typical volatility in the industry-wide innovation and technology adoption cycles. Number two, three-time geographies. Customers are increasingly seeking partners that can match the pace of their business. running 24 hours a day. This means building presence across the globe will enable organizations to realize their need with distributed yet integrated teams across three major geographies. It will significantly accelerate time to market with our clients, our onshore and nearshore presence in Americas and Central Europe, is complemented by india-based delivery as you may recall from our last quarterly commentary we continue to make investments in mexico poland and india number three business technology and data intersect leading enterprises differentiate themselves by innovating at the intersection of business technology and data. Grid Dynamics is poised to be a preferred partner for such enterprises because we possess the critical capabilities required for such innovations. Increasingly, our customers are turning to Grid Dynamics to assist with co-innovation at the business level. We're bolstering our consulting capabilities through hiring subject matter experts in selected industries. These investments are helping us to improve the positioning with existing customers and shorten the sales cycle with the new ones by offering starter kits and accelerators. Our investment in the end-to-end digital commerce have rewarded us with deep, meaningful relationships with key customers across industries. We're looking forward to introducing more domain-specific frameworks that are similar in scope. From day one, Grid Dynamics has always been known as a technology company which helped enterprises to realize the promise of cloud computing. The race to out-innovate the competition through technology continues. Our customers are navigating the change of the economic cycle and technological proneness will continue to be relevant to the clients themselves. Infrastructure prices decline while wedges continue to climb. with the help of our cloud native partners and our modern application development practice we're uniquely positioned to enable our customers to do more with less investments the wave of digital transformation brought us a flood of data best performing businesses are data driven However, this requires effectively processing data and incorporating it in the decision-making process. While fully automated decision-making process is still in the future, artificial intelligent knowledge agents are invaluable to make sense of the data. and they augment the traditional data organization practices by servicing the relevant information to the consumers in their preferred modality. AI-assisted product design driven by generative AI models is already successfully used by some of our customers. In the B2B business, we continue to incorporate AI capabilities into our manufacturing service offerings, including visual controls and predictive maintenance. We'll continue to enable our customers to face whatever shifts the future may bring with confidence, as well as prepare for them to grow. During the quarter, Grid Dynamics delivered some notable projects. For a global technology company, we built a flexible data collection platform to acquire aggregated or raw and serialized data and images from the supply chain for further data visualization and analysis. This platform allowed our client to connect around 60 suppliers and more than 150 varieties of the products to control production quality as well as equipment condition. This is the site agnostic solution, which provides strategic value to the client. At a global CPG company, we implemented controls, procedures, and automation, which enabled this customer to restrict access to personally identifiable informational data. We're still providing their engineering teams autonomy to deploy changes at will. Our solution allowed the customer to onboard one of the geographies to the global e-commerce platform, reducing costs of maintenance and bringing their business capabilities to the global standard. For a global multi-brand restaurant company, Green Dynamics helped to build a brand agnostic unified data platform that services various needs of data analysis. Our solution improves their time to market by reorganizing their PODs, improving DevOps processes and various facets of engineering discipline. We helped the client to optimize their workload and switch to more automated cluster usage to save approximately $500,000 per year spendings on data ingestion platform. At a leading membership only big box retailer, we assisted the company to improve their mobile application architecture. This application is designed to help onboard new lines of business easily and add warehouse functions onto a single application. We expect this solution will lead to major improvements in customer satisfaction, along with providing a single interface to all that this brand offers. And now, let me turn the call to Anil, who will discuss Q4 results in more details. Anil?

Thanks, Leonard. Good afternoon, everyone. Our fourth quarter revenue of $80.6 million exceeded our guidance range of $77 million to $78 million and was down by 0.7% on a sequential basis and up 21.1% on a year-over-year basis. On a constant currency basis, our revenue growth on a sequential and year-over-year basis was a decline of 0.8% and a growth of 23.6%, respectively. The 248 bps headwind to revenue growth on a year-over-year basis was due to the strengthening of the dollar relative to the euro and British pound, while on a sequential basis, the stronger euro resulted in a 10 bps tailwind, respectively. The better-than-expected revenue in the quarter was driven by growth at some of our large customers combined with contributions from new logos. Our largest vertical represented 33.7% of our fourth quarter revenues and grew 3.1% on a sequential basis and 38.8% on a year-over-year basis. We continue to witness growth at some of our large technology customers. New logos also contributed during the quarter. During the fourth quarter, retail, our second largest vertical, represented 31.8% of our revenues grew 1.6% on a sequential basis and 17.4% on a year-over-year basis. The sequential increase was driven by revenue contributions from some of our recent logos. Within this vertical, we continue to see customers being cautious in spending with the ongoing macro concerns. Here are the details of the revenue mix of other verticals. Our CPG and manufacturing represented 17.5% of our revenue in the fourth quarter and decreased by 12.3% on a sequential basis and grew 3.4% on a year-over-year basis. The decline on a sequential basis came from our large customers as they readjusted their spending levels to the current macro environment. Finance represented 7.7% of revenue and increased 2.8% on a sequential basis and was up 30.6% on a year over year basis. The growth in the quarter came from our banking customers where we continue to grow with their programs tied to wealth management. And finally, the other segment represented 9.3% of our fourth quarter revenue and was down 0.2% on a sequential basis. We exited the fourth quarter with a total headcount of 3,798, up from 3,746 employees in the third quarter of 2022, and up from 3,274 in the fourth quarter of 2021. The sequential increase of 52 employees or 1.4% was largely due to increase from our acquisition of Mutual Mobile that contributed over 175 employees in the quarter. The increase from 2021 was largely due to a combination of improving demand resulting in headcount increase combined with our acquisition of Mutual Mobile. At the end of the fourth quarter of 2022, our total US headcount was 338 or 9% of the company's total headcount. This was similar to the 9% in the third quarter and was down from 9.9% in the year ago quarter. The year-over-year decline as a percentage of the total headcount was largely driven by greater mix of non-U.S. headcount. The non-U.S. headcount, which we sometimes refer to as offshore, located in Central and Eastern Europe, U.K., the Netherlands, Mexico, and other locations, was 3,460, or 91.1%. In the fourth quarter, revenues from our top five and top ten customers were 43%. versus 44.5% and 61.1% in the third quarter. During the same period a year ago, our top five and top 10 customer concentration was 42% and 57.7% respectively. The increase in concentration across our top five and top 10 on a year-over-year basis was largely driven by increase in concentration from our top customers, primarily in the technology vertical. During the fourth quarter, we had a total of 218 customers, up from 200 in the third quarter, and 221 customers in the year-ago quarter. Fourth quarter customers included 16 coming from our recent acquisition of Mutual Mobile. As a reminder, we only 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 profit during the quarter was $32.3 million, percent versus 32.7 million or 40.3 percent in the third quarter of 2022, and up from 27.3 million or 41.1 percent in the year-ago quarter. On a non-GAAP basis, our gross margin was 32.7 million or 40.6 percent versus 33 million or 40.7 percent in the third quarter of 2022 and up from 27.6 million or 41.4% in the year-ago quarter. On a year-over-year basis, the decrease in gross margin as a percentage was largely due to higher levels of bench. Non-GAAP EBITDA during the fourth quarter that excluded stock-based compensation, depreciation and amortization, Expenses related to geographic reorganization transaction related costs was 16.5 million or 20.4% down from 17.1 million or 21.1% in the third quarter and up from 11.6 million or 17.4% in the year-ago quarter. The year-over-year increase in EBITDA, both in terms of dollars and percentage of revenue, was largely due to a combination of higher levels of revenue, flattish operating expenses, and favorable FX trends. Our gap net loss in the fourth quarter total, a loss of $6.7 million, or a loss of $0.09, based on a share count of 74 million shares compared to the third quarter loss of $6.7 million, or a loss of $0.10 per share, based on 68.6 million shares and a loss of $3.7 million or 5 cents per share based on 65.7 million shares in the year-ago quarter. The year-over-year increase in GAAP net loss was largely due to higher levels of stock-based compensation and geographic reorganization costs offset by higher levels of revenue. On a non-GAAP basis, In the fourth quarter, our non-GAAP net income was 10.5 million or 14 cents per share based on 76.5 million diluted shares compared to the third quarter non-GAAP net income of 11 million or 15 cents per diluted share based on 71.9 million diluted shares and $7.1 million or 10 cents per diluted share based on 71.7 million diluted shares in the year-ago quarter. 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 higher operating expenses. On December 31st, 2022, our cash and cash equivalents totaled $256.7 million, up from $255.2 million in the third quarter of 2022, and up from $144.4 million on December 31st, 2021. The key reason for the increase on a sequential basis was operating cash flows, offset by a recent acquisition of Mutual Mobile, which closed on December 23rd, 2022. The key reason for the increase on a year-over-year basis was primarily our share offering and raised $150 million, of which $109.5 million was received by the company, and that was partially offset by the acquisition of Mutual Mobile. Coming to the first quarter guidance, we expect revenues to be in the range of $78 million to $80 million. We expect non-GAAP EBITDA in the first quarter to be in the range of $10 million to $11 million. For the first quarter, we expect our basic share count to be in the 74 to 75 million range and our diluted share count to be in the 77 to 78 million range. That concludes my prepared remarks. Bin, we are now ready to take questions.

Thank you, Anil. As we go to the Q&A session at this moment, I will announce your name first. Please unmute yourself and turn on your camera. Our first question comes from the line of Josh Sigler from Cantor Fitzgerald. Please go ahead, Josh.

Yes, hi, thanks for taking my question today and congratulations on the strong execution this quarter. You know, this quarter you added the most new logos you've ever achieved in a single quarter. So I was wondering if you could provide some additional color on how you've been able to achieve such a significant new logo growth and how your current pipeline looks like into 2023.

Thank you, Josh. Well, it just didn't happen overnight. We've been basically given the guidance throughout 2022 that despite all the challenges related to the war and other impacts, we continue to deploy more focused offerings to the clients. And we diversify the broader base of our clients. When we announced right now our, you know, Breed Dynamics VigaCube, our billion-dollar plan, it's basically a beginning of the... kind of rationalizing the value of the company, which is driven by more depth of the specific knowledge related to the verticals and the clients. And it kind of comes down to when the key core, you know, potential clients were focusing on the budgets for 2023, were able to secure the positions.

Understood. Appreciate the color there. And then Anil, how are you thinking about your capital allocation strategy as you progress into 2023? The company is sitting on a significant amount of cash. So would you consider increasing the pace of M&A in the future, perhaps faster than what we saw in 2022?

Well, Josh, you saw late December, we had one announcement, right, which added certain capabilities and certain delivery strategies. Leonard, in his prepared remarks and his press release, clearly highlighted that M&A is an important area and the pipeline is robust. Some of these prices are coming to a little bit more reasonable level, so we're absolutely going to be very focused. Also, the key point here is that We've got some initiative of growing our company to a billion dollars, right? So we are going to be prioritizing our focus on growth. And that's going to be another aspect. I think between these two, that'll keep us pretty busy in 2023 and beyond.

Understood. Thank you. And congratulations again. Thank you, Josh.

Thank you, Josh. Our next question comes from Ryan Potter from Citi. Please go ahead.

Hey, thanks for taking my question, and congrats on the good quarter. I'd like to start off with the macro. Regarding the macro, how have client conversations kind of evolved over the last few months, given the implied kind of sequential decline in revenue and outlook? Are you seeing any growing delays in decision-making or any kind of bad ways that your peers are called out? And also, any kind of color you can give on trends you've seen for the first few weeks of 1Q? Yep.

Well, there are a number of the questions, right? And one question, right? So as we mentioned in the Q3 earnings call, we foresaw some of the weakness coming from the market. We're a little bit, maybe too cautious, but we hit the timing right. So starting December, and as the company's growth and pretty much in a consumer related business specifically start planning their budgets for 2023, they took a very precautionary defensive, you know, standing. So we've seen those declines. Like I said, we were prepared to most of them and You go through a bit of a downturn with one client by addressing more priorities to the other growing clients. But overall, the situation of December definitely expanded into January and February. I can't say we're already at the bottom of that event situation or not, but most of the budgets are pretty clear. I believe that actually the guidance tells you that Even though there's a little bit of organic sequential decline, it's not a very, you know, unexpected at all. And if you add some of the new potential with new clients, we're actually looking bullish for the year, but for the quarter, we do see a little bit of a softness with some of the clients.

Got it. And thanks for providing all the color and commentary on the DVP initiative. On the vertical expansion and the increased focus on consulting in particular, How much of the subject matter expertise would you say you already have in-house versus you need to still go out and hire? And also the three verticals you wanted to expand into, what about exposure do you already have to those verticals?

So if you look at the results of 2022 from the cost perspective and even Q4 for that matter, the largest growth of the spending happened in a city office. And that's an area of building more artifacts and solutions around accelerating some of the project with the clients, specifically in new areas, but also attracting number of the specialized subject matter experts. SMEs come from, you know, various forms and shapes. The best way to do is to actually get them engaged with the clients and building this kind of consultative rapport, which results in a growth of the business based on a defined roadmaps. And that's where we're doing. I couldn't say that we're, you know, completed, we're fulfilled. I think there'll be continuous growth. expansion but this is the progress there already resulted in capturing uh some of the new uh clients in the lifestyle space specifically in pharma i was very glad to see that um as far as um financial services right now it's more fintech and some very notable fintech pavement system clients which is again it's a great space for us you know because a lot of foundational horizontal expertise are there we just need to turn more into the application for that specific vertical depth in the area industrial industrial and manufacturing has been always my kind of area of my personal knowledge but also kind of distilled to the company capabilities of managing ever-changing and now ever streamlining with the grossly distributed supply chain so supply chain on the top of the data knowledge data management and getting more and more into the AI capabilities related to industrialization helps us to grow those space too. So all the new stuff we're talking about is already present, but focus is there. And the SMEs investment is particularly in those verticals.

Got it. Thanks again.

Of course. Thank you, Brian.

All right. Thanks, Brian. Next question comes from the line of PME Jam from JP Morgan. Your line is open.

Hey, thanks for taking my question and a nice quarter. Is much of like the employee relocation behind you and more importantly, are your client facing and client delivery teams in a steady state right now?

Okay, well, it's never over till it's over, right?

We are definitely done with Russia for a long time. The situation with Ukraine is more fluid. I mean, we've done quite a bit of work in Q4. As you know, it was a little bit of a scare from the global information about Russian attack against Ukraine infrastructure. We've been preparing for the potential of that issue because we're kind of from that region, so we build a lot of Capacity on you know generators, you know skylinks and other equipment necessary to operate, but fundamentally the contribution of the total headcount from Ukraine continues to decline, because we expand other areas, saying that all the people knock on wood operating in a. full operational environment and the safety of various distributed locations. We are going to be at one year anniversary of the starting of the war. So if you look back, it's an incredible transformation. But we are not looking to be a victim. The winners are not victims. Winners are people who put their effort and succeed. both in a war environment and in the company itself. So we listen to the clients. We expand our location. India has been our growth area. Mexico has been growth area. But the European priorities and the Central Europe continue to expand as well. So I would not say we ended already with all the relocations, but we're certainly in a much more controllable way than perhaps some other companies. And we don't see that as a detriment to fulfill our client obligations.

All right. And then the new logos that you won recently, 13 new clients added in 4Q and expansion at existing customers. How should we think about the ramp at those accounts, like the add-on work or additional work you might get? And can those new business, can that drive sequential growth starting from 2Q?

Very good. I would probably start from the end just because there's a little poison pill about putting Q2. I can't say Q2 or Q3 or maybe even Q1 for some of them because you see there's a little variance on the guidance for Q1. But fundamentally, what's very important, I think this is key. As we grow, as we expand and mature, you've been with us for a while. I've been always talking about 2, 5, 10 strategy, 2 million, 5 million, 10 million in terms of the customer positioning. As we are maturing in the business for the big enterprises, we're kind of switching. It's not really something in the script today, but you ask a very valuable question. So I'm driving the team into the new formula, which is more like 5, 10, 20. I'm not talking squares or any other multiples. It's just basically the new clients need to get to 5 million instead of 2 million because they're very substantial clients. And in doing this, actually, there are several folds. One of them is our increased average relationship on partnerships, both with the hyperscalers and some notable software integrators, which kind of gets us in the midst of their client keyword. The other one is, as I mentioned, one of the earlier questions, there was a good prep work done. Now, I hate infant mortality. This is just one of those, the biggest disappointment. You put a lot of, you know, effort and then something happened. I can't say it will never happen, but I think we're much more optimistic with the approach we're taking now than ever. And also the machine, the marking machine, the marking machine started working because it's not anymore just word of mouth or all this stuff. There's a, some of the approaches we have accepting our major potential accepting our methodology, especially with consultancy and reach out to us. So the bottom line, I can't say the date, but I definitely see this. Keep in your mind this 5, 10, 20. And when the time comes, you can actually poke my eye and say, are you there yet?

Thank you.

Thanks. Our next question comes from the line of Maggie Nolan from Will and Blair. Please go ahead.

Hi. Thanks. Congrats, guys. Anil and Leonard, can you talk a little bit about the cadence of the year and anything we should keep in mind for seasonality or year-over-year comparisons or just in general, like first half versus second half expectations?

Sure. Well, Anil... told me very clearly, do not get drift from the script. So basically, you know, obviously we do, everything we do is, you know, bottom-up analysis and analytics. And just because we are analytical and we think through the process in advance, doesn't mean it guarantees that whatever we think is gonna happen. Everybody talks about that second half of the year will be significantly more cadence than first half of the year. To me, I'm not an economist and I'm not a hockey player, so hockey stick is not my favorite approach. I think what's transparency of the customer relationship on the budgets give us some understanding where we are in first half of the year. It's a tough period of time, but as we grow a number of customers and we also get some of the already budget reverted to us, some of the few customers, which I didn't mention before, they came as a result of switching some of the work to green, which is especially amazing during the time when people tightening the budget so we do see some progress there i think we're gonna we're gonna fight tooth and nail for the q1 q2 and also as anil mentioned there will be some good notable acquisitions coming in but uh the approach we take with the this great giga giga cube plan is we are diversifying more and more from um not just you know consumer focused business but from b2c to be b2b and globalization of our approaches with our clients and um you know i'm bullish i'm bullish for the year and you've seen my um my statement at the at the you know press release i thought through that and uh People are getting tougher through the years, and I believe our customers are getting more and more respect for who we are and what Green Dynamics is. So yeah, that's probably the best guidance I can give you at this point.

Sure. Thanks, Leonard. And then what about just the pricing environment and your expectations for 2023, as well as any impact from the changes in your delivery footprint versus last year?

Yeah, so... It's always the toughest question, right? Historically, we've always seen that there are two extremes come in, right? There's always wage inflation. And we mitigated wage inflation by building stronger and stronger internal program on the grid dynamics internships with universities, grid dynamics training process. So you kind of balance some of this. Cost increases with homegrown teams. Now we moved to some of the more expensive locations from, let's say, from Eastern Europe to Central Europe. So yes, there's a certain impact in working with the clients. We need to prove and we are proving that the value we're bringing is exponential. So more work results instead of TNN working in a fixed projects and pod relationships. So it's really not about the cost per engineer, but ROI on the project basis. The other challenge we're taking for this year going forward to prove that our Indian operation is a state-of-the-art capability organization, just judging by what interns were taking from the schools. So again, there's a little bit of reactionary from VMOs when it comes to all your needs, so you got to be really cheap. And we're just working through the, value of our organizations globally. On the pricing side, I'm sure some of you guys will torture Anil after the postmortem. So what's going on? So I'll tell you right away. We are very strategic in terms of how we approach the pricing. Yes, there are a few contracts where we're just on the cusp to become a premier supplier. which reflects to the building a significantly larger opportunity for years to come. And obviously the pricing is different for different revenue ranges. So that's not related to the microeconomics. It's related to the growth of relationship. But there are some projects with very long and very loyal clients where instead of them to basically freeze some of the critical for their own business developments, we step up and we do some co-investment. It happened in the past. And it happens only on the type of work we believe it's very critical for both of us in the client. So this is as broad as I could say about both the cost base and the price base.

Thank you.

Of course.

Thanks, Mike.

Thank you. Next question comes from Brian Bergen from Cowan. Your line is open.

Hey, guys. Good to see you. I wanted to start on the outlook first. So can you just talk about some of the underlying assumptions as it relates to the key industries in that 1Q outlook, particularly the tech clients just want to get a sense of current contracting dynamics there and just your visibility into their spending plans?

I knew he does not answer a single question, so I'll give him a few seconds. I'll jump in. Okay.

All right. Well, you see, if you look at our Q1 guidance, right, as Leonard pointed out, we have, you know, some contribution from the acquisition and for modeling purposes, you know, you can have, you know, it's an insignificant contribution, less than two and a half percent, somewhere in that range in Q1. So if you look at, you know, as we go into Q1 now, going from Q4 to Q1, there's some you know, seasonal aspects of the business. So I'll just put that aside. But beyond that, what we are seeing is a couple of moments. You know, we have our new logos, right? So that's actually contributing and that's providing us a little bit of a cushion. And the new logos is kind of spread across, you know, across the, you know, the landscape. When you look at the more consumer-centric businesses, right, I mean, you're seeing a little bit of a flattening to some extent, but, you know, there is a certain amount of, you know, conservativeness, caution, whatever it is in some of the things. When you look at some of our, you know, tech guys, you know, as the prepared commentary pointed out, you know, we're moving in the right direction. We're getting more and more. And again, within that also, we've got some new clients too. So I think, you know, the theme out there is we continue to be a little bit more, you know, cautious on some of the consumer centric businesses. We have some new logo contributions and our tech guys are kind of moving along.

So I'll just add a color, as I promised, Brian. So I've been asked this question when I was in Bloomberg Radio, what's going on with your friends from Silicon Valley? They're firing left and right, right? And the comment is, well, nobody really knows what's going on in the individual minds of leaders in America. I'm humbled to even make a comment publicly about what I think about it. But there was a little bit of overextension, right? Grid Dynamics is a very conservative company. And when we approach our clients, we don't think only what is happening now, but what type of work will carry us through the good and bad times, right? And there are certain risks. There are always risks. But what we see with the selection of work with the same notable clients, I'm not talking just the number one, the most conservative premier client, but other tech clients, they suddenly see a bit of void because they rush to hire, now they rush to... Let those people go. And it doesn't mean they're not profitable and doesn't mean their budgets are less. We're not directly tied to the ad commercial revenue stream. So it means that our work is more distributed. So I don't see that kind of, let's say, rammed down of the work, which was noticeable with like a retail kind of client. So we're overall, I would say, tech takes the front line of all the big news. for our position is more controllable than for the overall industry, I would say. That's my clear answer. So I don't see that decline.

Okay. Okay. I appreciate all that. And then just from a delivery standpoint, so can you talk about how your delivery operations are evolving, if at all, as you add more scaled new regions? So I'm curious if the pod structure, the pod model that you have, if that structure has evolved a bit, as you bring in these new regions on stream and how you're bringing the teams together.

Right, right. So I would say European countries, it's a negligible disruption. But frankly, if you look, Brian, in terms of whether it's Poland, Romania, Serbia, or Armenia. First of all, it's mixed with employees which were relocated from Russia and Ukraine, but also there is a contingency of work. We've been in an area where we understand locations, There's a well developed processes. As you know, Mexico has been with us for a while. So again, it's a more or less involved It's more connected to the near shoring approach. So it's a work between US and Mexico more than just necessarily Mexico and Europe. When it comes to India, that's very logical questions. How are we dealing with India, especially in growing numbers? And the answer is the same I've been doing in integrating businesses 30 years ago when I was driving my research labs in Midwest with adding big contingency from Europe, Asia, in particular, India. I was involved with the service business for 30 years. And the number one solution is, first of all, very clear communication. Second of all, we moved some of the key people from Europe to India for the rotational, very significant assignment. So they actually work with the team With the projects and with also capabilities of adjust the hiring, recruiting and delivery process, we were able to attract a very high level talent with a delivery leadership in India. We're coming with a global experience in US, Canada, Singapore, Australia. So far, we haven't seen glitches. The speed of work, we can do better. But with the quality of work, I have not seen issues till now.

OK. I appreciate all the color. Thank you.

Thanks, Brian. Thank you, Brian. Next question comes from from Needham. Please go ahead.

Great. Thanks. Congrats on the quarter. Thanks for squeezing me in at the end. guys, but just very quickly, I just wanted to ask in terms of your revenue growth. So even though you're not giving guidance and Leonard talked about the pricing environment, how do you think about utilization and headcount growth organically? Is that something you expect to drive at this point or is it maybe a little premature given some of the visibility issues because of the macro?

So, thank you for kind of giving me a little bit broader question because there's a big difference between the utilization and the headcount growth. Utilization-wise, we're always focused on the maximization of utilization. You know, our engineering capabilities, when they're managed, whether it's a direct involvement in the T&M work or the more complex project is one of the key I would say factor for the delivery. So I'm pretty bullish on utilization. The second factor though has a little bit different connotation in the first half of the year. I made an investment in to retain some of the key employees which have been potentially downsized from the some of the work in the last months or two because of their very strong knowledge and their historic capability and we redeploy them on some of the specialized work relates to the creating accelerators and some core work. And I call it like, basically, internal acquihire of talent. And that work has been in the planning prior to, obviously, the time when the economic micro impacts are having issues with the industry. So when we talked about it in Q3, we're already in the you know, we're very well planning. So we basically address the team. So I would say that on the total organic, not even a organic account growth, I don't necessarily see a huge drive in early of the year because we do have a good, you know, senior pipeline. We did not slow down the internships. We just be more selective on a new hiring. And of course with the, Utilization and engineering that's a key metrics with the clients were holding it so it's kind of three aspects right powder utilization and top talent to build their more vertical capabilities for our new initiative.

got it that's very helpful and then just maybe a quick word Leonard or on on the supply side. How is the environment today? I would imagine it's a little bit easier to find quality people given the skillset requirements and then any comments on attrition levels that you've seen recently. Just give us some context around that. Thank you.

So on the attrition side, You don't need to be a wizard, right? It's lower, right? When the time's tough, people don't run away, right? But for green dynamic, it's not as dramatic. And remember, even in very good times, we didn't have major spikes on volunteer attrition. You know, there was a spike of involuntary attrition with the transition out of Russia. But, you know, on volunteer attrition, we're more or less balanced. So we see some drop. But it's also important to understand what type of talent we retain and grow. We embarked in late 2021 on the heavy internship programs. That's our main feeding line for the young talent. Senior people, they are growing from within and retraining. And most of the attention to the market is twofold, either kind of Mid-level people who need to be deployed for the special skills or those very specialized architects, you know, and subject matter experts for the new industries or new verticals. So that kind of talent we acquire. I think in the last one become way more easier, right? Because there is a great talent of people thing to roll. redeployment from those big tech specifically, but everything else is more or less balanced. So I don't think it's a huge drop or huge increase right now. I think we're just in a moral operating day and perhaps the pressure, the financial pressure is a little bit less rather than talk about the number of capable candidates.

Thank you so much. Thank you.

Thank you, Mike.

Thank you, Mike. Ladies and gentlemen, that will be all of the Q&A session today. I will now pass the call back to Leonard for the closing comment.

Thank you everybody for joining us on the call today. We exit 2022 with many accomplishments, and while we start off the year with some macro-related uncertainty, I'm confident that our strong technological foundation and value that we bring to our clients will position Grid Dynamics stronger. Green Dynamics has been a net beneficiary post-economic down cycles and based on our pipeline of the new client engagements and discussions we're having with our existing clients on the large and complex platforms, I'm optimistic of our prospects. I look forward to giving you a business update in May. Thank you very much.

This concludes today's conference call. Thank you all for participating. You may now disconnect.