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spk02: Good afternoon, everyone. Welcome to Green Dynamics' fourth quarter and full year 2023 earnings conference call. I'm Bin 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 Duranla. 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. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the AK filed with ICC.
spk08: 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 bill good afternoon everyone and thank you for joining us today as you have seen from our published results green dynamics for square revenues were above our guidance range and exceeded wall street expectations it was another quarter of solid execution and continued focus on our stated goals. The quarter witnessed a lot of activities, both in sales and CTO organizations, the two key areas within the company where we invested significantly in 2023. On the sales side, our industry-centric efforts are playing off across all the verticals. In 2023, we added 33 new logos, which is a strong testament to our differentiation in a year where customers were more selective toward business to digital providers. With respect to the CTO office, our scientists and architects are heavily engaged with clients across the spectrum of innovative solutions, including AI, to drive meaningful business outcomes. To that end, we released several new functional accelerators across industry verticals, which have resulted in greater engagements across both new and existing customers. In supply chain, manufacturing, pharmaceutical, and financial services, which is area of focus with our GigaCube initiatives, the ability to offer unique and differentiated offerings has resulted in accelerated acceptance across a wide range of customers. To support the strong demand for AI skills, we established comprehensive AI training programs. I'm happy to report that over 25% of our engineers are trained in generative AI. how AI curriculum is rigorous and is segmented across three tracks, ranging from introductory AI to more advanced topics. It may take up to several quarters to complete the entire curriculum. On the macro front, I'm happy to report that the demand environment is improving. The demand trends are directionally consistent with my commentary over the last couple of quarters. While we're yet to get back to normalized levels of growth, we're moving in the right direction. In many ways, the sequential growth with our first quarter revenue guidance reflects our sentiment. We've also seen the positive trends with our four company-specific factors. First, we see customers either choosing to maintain their current level of spending or moderately improve with increases in investment. While we witnessed a similar trend last quarter, The fact that the customers demonstrate more stability is an important step in getting back to historically normalized levels of growth. This is reflected in the steady rise in the billable headcount trends from our existing locus. Second, drops in revenue across some of our large existing customers are moderating. To put it in perspective, in 2023, the considerable revenue headwinds we faced were limited to a handful of existing customers. We anticipate this trend will diminish in 2024. This bodes well for the company's growth in 2024. Third, our partnership-driven revenues are growing steadily. In 2023, roughly 13% of our revenues came from partnerships. We accelerated the investment into partnership programs a couple of years ago. I'm bullish on expanding and monetizing more partnership opportunities in 2024 and beyond. And finally, fourth, our new logo momentum. In 2023, we accelerated investment in a broader industry-specific created dedicated sales team to pursue new logos and opportunities. We expect this to continue to be an important component of our growth in 2024. Our Follow the Sun strategy has been successful with our clients. Today we serve our customers from 18 countries and our global footprint fully aligns with our customer needs. Now coming to the first quarter of 2020. We are almost two months into the quarter and the commentary that I shared with you today extends to the first quarter too. Our billable headcount continues to grow, our AI activity is robust, and the headwinds from a handful of clients continue to diminish. We believe underlying trends are moving into the right direction. As we enter 2024, our city organization is highly focused on expanding our capabilities highlighted in our GeoCube strategy. This includes building new R&D innovations, accelerators, and AI solutions. During the first quarter, we made good progress with approval concepts and customer projects related to artificial intelligence. An internal R&D innovation lab, which we call Grid Labs, has generated several functional accelerators and AI-related artifacts. To date, AI is infused across practices and industries, as well as customers, representing over 80% of our revenues are engaged with Grid Dynamics on AI initiatives, and more than 50% of our new engagements have an AI component. These include industry verticals beyond which we have historically been strong, such as supply chain and manufacturing, financial services, and pharmaceuticals. Some of our new AI innovations include pricing applications, Internet of Things analytics, visual quality control, and industrial vision launch language models. As a reminder, Green Dynamics AI engagements are based on more than seven years of internal research and successful implementations. With our generative AI offering, we partner with customers to employ large models in a variety of applications. These include prompt guided image generation, product design and visualization, knowledge retrieval, wealth management, and customer support. In the fourth quarter, there were several notable trends, and I want to share with you some of them. Logo momentum. In the fourth quarter, we signed five new enterprise customers. This brings the number of new enterprise logos in 2023 to 33 ones. This is a record number of new logos for us and is a testament to our reputation with large global enterprises. Of the new enterprise customers we signed in the quarter, one is the largest omnichannel specialty retailer, one is a large insurance company, and one is a software company focused on revenue management for the healthcare industry. Delivery location support. Our Follow the Sun strategy continues to be guiding principle in enabling our clients to be served in an uninterrupted fashion around the clock. I'm proud of our ability to serve our customers across 18 countries spanning across North America, Europe, and India. In India, I'm happy to report that we're opening an office in Bengaluru. This brings the total number of Indian offices to three, which includes Hyderabad and Chennai. Our clients have successfully engaged with great dynamics in leveraging our presence and expansion in India. In Europe, we continue to expand our footprint in Poland and Romania. In Poland, our growth is increasingly driven by partnerships with the client local centers. With respect to our recent acquisitions, we complete all the engineering integration by the end of Q1. European business. Europe continues to be strategic to our growth. In 2023, our revenue from Europe was roughly 20% of our total revenue with customers across industry verticals. During the quarter, we made good progress in expanding our footprint across industry verticals with our existing and European clients. To highlight some notable achievements during the quarter, let me point out that with a leader in legal and tech services, we are partnering use GNI technology and build a global data platform to accelerate the ability to serve their customers with reviews and publishing of contracts. In a large UK-based retailer, we signed a multi-year contract to modernize their e-commerce platform. At a global auto part company, we expect to roll out their composable commerce modernization platform across other brands within Europe. For a large medical device company, we're launching initiatives in data engineering and generative AI. The goal is to enhance the efficiency of sales reporting processes. And finally, at the large clean energy company, we're enhancing their sustainable ESG initiative. Partnerships. As I highlighted before, partnerships are increasingly playing an important role in our growth and our long-term plan for becoming a billion-dollar company. Let me remind you, In 2023, partnerships contributed to 13% of our overall revenue. Again, this is impressive given that we embarked on this strategy in 2021, and within a short period of two years, we have achieved such impressive results. Notably with our partners, AI is becoming a core element of our joint go-to-market strategy. Looking forward to 2024, we have strong momentum with hyperscalers and linear digital commerce SaaS companies, as well as other specialized software providers. Our focus is to capture greater wallet share. GigaCube initiative. With GigaCube, we continue to make a good progress. As you know, GigaCube is our strategic blueprint that lays out a framework for our company toward a billion dollar in revenue. We operationalize the GigaCube via four key areas. Knowledge management. partnerships, new vertical focus, and winning larger deals. In each of these fronts, we made progress both in the Q4 and the full 2023. With our knowledge management efforts, we have cataloged over 100 important delivery case studies that are being used across pre-sales, sales, and delivery organizations. This is important. We accelerated the proliferation of our learnings from each project and program to ensure that the whole company benefits from it. During the quarter, Grid Dynamics delivered some notable projects. For a leading global technology company, Grid Dynamics enhanced the Recommendation Engine, one of the largest online streaming services, with successfully implementing cutting-edge machine learning heuristic techniques to enhance the quality of the data used by Recommendation Engine. Our engagement covered end-to-end machine learning processes, including model engineering, evaluation, deployment, and post-production efficacy monitoring. This resulted in significant improvements in the relevance of recommendations and the system's capability to self-adjust in real-time. For one of the largest auto part distribution retail company, Green Dynamics has been actively engaged in the modernization of the product catalog, which enables search and browse functionality. Our solution uses generative AI to correct product images, generate descriptions, correct categorization, enhance attributes, and highlight discrepancies in the product details. As a result, this client expects to improve customer conversion and user experiences, leading to increase in sales across both B2B and B2C channels. For a multinational financial service provider, Grid Dynamics leads a cybersecurity program to onboard over 400 custom-built application to SailPoint IdentityIQ platform. The solution enables our client with a full lifecycle of identity and access management, ensuring proper duty separation to meet the latest security compliance standards. We expect to expand this project during the next phase and onboard another over 1,000 applications to this platform. For a global automotive manufacturer, Green Dynamics developed a cloud-native e-commerce platform based on robust microservices architecture. This platform enables an intuitive end-to-end user experience and promotes in-house financing to car shoppers, which anticipates to increase the vehicle sales through the digital channel. With that, let me turn the call to Anil, who will discuss Q4 results in more
spk07: Thanks, Leonard. Good afternoon, everyone. Our four-quarter revenue of $78.1 million was slightly ahead of our guidance range of $76 million to $78 million and exceeded Wall Street expectations. On a sequential basis, our revenue grew 0.8% and was down 3.1% on a year-over-year basis. Relative to last quarter, we saw greater stabilization across the majority of our accounts. During the fourth quarter, retail, our largest vertical representing 31.5% of our revenues decreased by 7.4% on a sequential basis and by 4.2% on a year-over-year basis. On a sequential basis, the decline was largely from specialty retail offset by strength in home improvement. TMT, our second largest vertical, represented 31% of our fourth quarter revenues 10.9% on a year-over-year basis. On a sequential basis, the growth was largely driven by some of the large technology customers. Here are the details of the revenue mix of other verticals. Our CPG and manufacturing represented 12.4% of our revenue in the fourth quarter, flat on a sequential basis, and decreased stabilization at our largest CPG customer and growth at other customers. The finance vertical represented 10.6% of revenue, an increase of 13.4% on a sequential basis, and 32.6% on a year-over-year basis. The growth in the quarter came from a combination of financial technology customers and new logos. And finally, the other segment represented 14.5% of our fourth quarter revenue and was up 11.5% on a sequential basis. The sequential growth was driven by strength across multiple customers, some of them in the healthcare and restaurant industries. We exited the fourth quarter with a total headcount of 3,920 versus 3,823 employees in the third quarter of 2023. and up from 3,798 in the fourth quarter of 2022. At the end of the fourth quarter of 2023, our U.S. headcount was 331, or 8.4% of the company's total headcount. This remained on the same level compared to the third quarter of 2023 and slightly decreased from 8.9% in the year-ago quarter. Our non-U.S. headcount located in Europe, Americas, and India In the fourth quarter, revenues from our top 5 and top 10 customers were 39.7% and 55.3% respectively, versus 43.2% and 60.4% in the same period a year ago, respectively. We witnessed continuous diversification and greater contribution from our recently acquired lows. During the fourth quarter, we had a total of 218 customers down from 224 in the third quarter of 2023 and flat in the year-ago quarter. The declines were largely from our commercial customers offset by growth in our enterprise million or 36% and remain flat compared to 28.2 million or 36.4% in the third quarter of 2023 and down from 32.3 million or 40.1% in the year-ago quarter. On a non-GAAP basis, our gross profit was $28.6 million or 36.6% versus $28.7 million or 37% in the third quarter of 2023 and down from $32.7 million or 40.6% in the year-ago quarter. The decrease in gross margin as a non-GAAP basis was largely due to a combination of FX headwinds, costs associated with expansion into new geographies, and other investments. Non-GAAP EBITDA due to the fourth quarter that excluded stock-based compensation Restructuring expenses related to geographic reorganizations, transaction and other related costs was $10.7 million or 13.7% of sales versus $10.7 billion or 13.9% of sales in the third quarter of 2023 and down from $16.5 million or 20.4% of sales in the year-ago quarter. The year-over-year decline in non-GAAP EBITDA as a percentage was largely due to a combination of decline in gross margins, increase in operating expenses related to acquisitions, and investments into our sales organization. Our GAAP net income in the fourth quarter totaled 2.9 million, or 4 cents, based on basic share count of 75.7 million shares, compared to the third quarter income of 0.7 million, or 1 cent, based on a basic share count of 75.5 million and a loss of 6.7 million or 9 cents per share based on 74 million basic shares in the year-ago quarter. The year-over-year increase in GAAP net income was largely due to lower levels of stock-based compensation and significant decrease in geographic reorganization costs. On a non-GAAP basis, in the fourth quarter, on 78 million diluted shares compared to the third quarter non-GAAP net income of $5.9 million or $0.08 per share based on 77.3 million diluted shares and $10.5 million or $0.14 per diluted share based on 76.5 million diluted shares in the year-ago quarter. On December 31, 2023, our cash and cash equivalents totaled $257 up from 253.7 million in the third quarter of 2023. Coming to the first quarter guidance, we expect revenues to be in the range of 77 million to 79 million. We expect our non-GAAP EBITDA in the first quarter to be in the range of 9.5 million to 10.5 million. For Q1 2024, we expect our basic share count to be in the 76.5 to 77.5 million range, and our diluted share count to be in the 78.5 to 79.5 million range. That concludes my prepared remarks. Bin, we are ready to take questions.
spk02: Thank you, Anil. As we go to the Q&A session of this call, I will first announce your name. At that point, please unmute yourself and turn on your camera. Our first question comes from the line of Maggie Nolan from William Blair. Maggie, your line is open.
spk00: Hi, thank you. Appreciate the update. The business sounds really solid, so congrats. I know you only guide one quarter at a time, but at this point in the year, I'm wondering if there's any visibility, anything you can share with us, either quantitatively or qualitatively, about how the second quarter is coming together and beyond, if there's anything to comment there.
spk08: Thank you. Thank you for your question. Well, it's interesting to start the wrap up of 23, talk about six months going forward. But you probably sense the tone of conversation that we are a bit on a rebound and we do sound optimistic. I would say that without going into all the details, because the environment is still a bit of a complex, I would say that I expect Q2 to be our new high water mark. in terms of our revenue position at all times. Now, it doesn't sound a lot today, but if you look at the last 12 months, I think we're kind of getting ourselves back to shape to the normalized growth.
spk00: Okay, great. And then, you know, great to see that new logo commentary, the additions that you've had. I'm curious what we can expect from those in terms of the revenue ramp and the margin contribution as we see those accounts ramping.
spk08: Good. So, as you know, our model, it's a little bit beat up by now. It's 85-10-5, right? But this 5% is turning to be a little bit more predictable. And to some extent, the 10 as well. So the larger logos, which we grab upon in now, last quarter, the quarter after, they're ultimately are a bit more defined in terms of the project-based rather than pro-cancer based. So we have a little bit better anticipation of the ramp up of their locus. Saying that, again, that gives me the confidence for some of the, you know, upstream for the company, but also I see the return back to the positive momentum on our existing locus. The question on the new enterprise, Lord of the Wings, in late 2023, and what we already have actually, in 2024, combined with some of the brands with larger existing customers, gives that level of optimism.
spk00: Thank you.
spk02: Thank you, Maggie. Thanks, Maggie, for your question. Next question comes from Ryan Potter from Citi. Ryan, please go ahead.
spk06: Hey, thanks for taking my question, and good quarter here. Want to start on headcount. It was good to see headcount growing sequentially on an organic basis in the quarter. But can you help reconcile the flat-ish sequential growth in the 1Q outlook versus this headcount growth? Is it more as a sign of you see a demand recovery coming later in the year? And then also, any color you can give in terms of where you're growing headcount the fastest, whether it be India or any other geos?
spk08: Oh, a lot of questions in one. Getting demanding, right? So let me start with the last because it kind of rolls back, right? So if you notice from even our press release, we indicated a bit of a shift in terms of the diversification. We see more on the rate of growth in what I say non-retail verticals or non-retail customer verticals. It doesn't mean we're moving away from B2C, it's all B2B business, but the skills and capabilities and the more traditional skill sets in data management, cloud migrations, the bespoke tooling partnerships, you mentioned that, combined with the new developed applications related to the AI technologies, and that's a separate point of discussion, everybody's asking that, right? This gives us a bit more upswing on a fintech, pharma, we see more in the TMTO favorite tech segment. So that gives us a bit more of a, I would say, continuation of the growth. And again, those sectors are a little bit less volatile, even though the economy has not been stable again. And the first part of the question, I believe you wanted to know, specifically acknowledged. Can you just give me a little bit more, Lena?
spk06: Yeah, the headcount growth versus the flat-ish outlook on sequential basis is a sign of demand that will come later in the year.
spk08: Right, right, right. So this is about reading on tea leaves, right? So the growth of the headcount happens in India. That's one area, as we mentioned again, is picking up, I think... that our customer base has grown with understanding of our versatility of the following the sun strategy. What it means, it means that, you know, grid dynamics provides the same quality level of services, whether we're in Europe, in Latin America or in India. And, you know, access to talent in India is quite, you know, larger from the market, but, you know, everybody is there. So you see the little bit of tick part of it that it's a little bit longer time to bring the talent in India. So we need to start building the pipeline there. You know, not saying we're going to reshuffle some of the people in Europe. There are many activities there, but that's where the growth come in. And it just requires a bit more, you know, the... the capable people. And also, you notice, we talk about our presentation about rigorous training, right? So I mentioned that it takes sometimes up to a quarter to bring the talent up to speed with the new tools and capabilities specifically in an AML sector. So it's an investment of the, I would say, rounding the people and building the pipeline of capable technical execution folks.
spk06: And India is an important part. Got it. And I agree. And that was good to see the sales momentum continue in the quarter. But as the demand environment stabilizes in your existing client base, should we foresee any changes to your sales strategy in 24? Will you have to shift more to sales or work more to kind of expansion with clients versus hunting new logos? Or are you able to continue to balance both efforts?
spk08: Well, that's one of the area which you again noticed from our conversations was the point of investment in 2023. It's a bit, I would say sometimes maybe ambiguous when the company invests into R&D and sales during the year of being flat, right? But at one point of time, it's beneficial to reach for the resources when they're available in the market, right? So when the market is a bit stagnant, you have a broader selection of the talent. On the R&D side, it takes more time for people to come to speed, both on the architecture side, SME side, You know, grade the materials, industry-specific artifacts, accelerators. So when we talk about sales, it's a combination of sales and technical pre-sales and first level of engagement. When it comes to the funding, per se, we actually added funding capability for the first time. Typically, as a company, we're still relatively small compared with many, many others. So we focused on a diversity of the responsibilities for the same individuals. Right now, we have dedicated Salesforce people in the United States with hunting accounts, but we also doubled down on farming of the new business lines within existing large accounts. So that's pretty much the list. Now, the proof is in the pudding. But I think even though we're a little bit sweated in the margins last year, I think that gives us a bit more runway, not just, you know, kicking the can to the second half of the year, talk about 2025, but more immediate targets as early as now.
spk06: Great. Thanks again.
spk02: Thank you. Thank you, Ryan. Next question comes from the line of Zachary Arzaman from TD Cowen. Zach, please go ahead.
spk04: Hey, thanks. Zach Arzaman for Brian Bergen. First question we had was just on the overall demand backdrop. So good to hear more of the stabilization commentary evident in the Q1 guide. I was hoping to further dig into the dynamics that have actually changed from three months ago. Is it just the higher prevalence of more optimistic client conversations Or have you seen a change in actual signings or willingness to go ahead with new programs? Just trying to get a better sense of recent client behavior and how that's informing your view into 2Q, which sounds like it's going to be even better than what we're seeing into 1Q.
spk08: Very good, Zach. Well, you have to fill big shoes because Brian, one of the most talented analysts, so welcome. The question is about what is really happening in the forefront of our business. And as you know, traditionally, at least from grid dynamics perspective, from our client perspective, there is always what I call the bit of a turnover from the projects and business directions between the late Q4 and early Q1. I wouldn't call it a pit stop. but it's released more than just budgets, the reassessment of their own performance, tuning the business. A lot of disruption happened with AI tools. So we had to go last year and start making a lot of proposals, how to get viable conversion of their top line with more economic budget leveraging various AI technologies. And again, it's not just you plug in chatbot and it gives you more money, right? So it's a very complex process of using private data and public access tools, various clouds, how green dynamics know how and understanding of their business based on previous expertise, even in machine learning, transition from machine learning to AI. We see the conversion on a contractual basis. I think that's very important. So not just the words. Again, we're still in February and we are not completely out of the spirit of retooling of our clients. But the new logos and existing logos on the demand side are contractually driven. So we're not talking just about the proof of concept. Let's run another, you know, one, two, three months of the tests. What are the initiatives to trend up? This is on a B2C business. On a B2B business, it's a bit different, right? Because there's no more, like, people understand that new technology, first and foremost, needs to bring the better results. And their models are not as trivial because it's a complex of supply chain, logistics, you know, the demand on the various products. So that business... probably going to keep in a little bit more on a later part of this year because they're still more in a steady state learning and adoption. But because we have both markets, we see an immediate remuneration as well as potential upside with existing clients.
spk04: That's helpful. Maybe we'll go to margins. We were hoping to dig into the factors that have been weighing more recently. How long are these items expected to be headwinds, and what are the controllable levers that grid can pull to partly insulate, including maybe any color on pricing or utilization?
spk07: Sure. So, Zach, again, that's a loaded question. There are many moving parts of it, right, from, you know, COG's point of view and OPIC's point of view. I'll let Leonard talk about the pricing, but let me talk about a couple of moving parts as we move in the course of the year. Now, year over year, you've seen the difference, right, on our gross margins. Half of it came from FX. The other half of it came from the fact that, you know, we've expanded into some of these new geographies and there's a certain cost structure there. If you look at our OPEX, you know, 2023, as Leonard pointed out, was a year of investment because we are investing into our future. As we move in 2024 and beyond, Let me talk about OpEx and we'll talk about COGS. On the OpEx front, the focus for me internally is to keep the growth rate lower than the revenue growth rate. So you're going to see leverage on that front. Now, there will be times when you'll have to invest, but that is my focus right now. On the COGS side, as you can see, we're in all these different geographies. We're scaling in each of these geographies. And as we scale into some of these geographies, some of them identified in all of the Sun strategy, you're going to get some benefits there. But as far as the focus, again, is obviously go back to customers, but operationally also reorganize ourselves. We have TNM, we have pods, we have fixed price, we have the pyramid. There's so many operational aspects which we can work on. And Leonard, do you want to talk about pricing?
spk08: We just covered it. I don't want to double down. Actually, I want to walk you a little bit on a visualization of pricing to cost and back, because there are two things actually very well connected with each other. In order to us get to the higher profitability, it's not directly margin related, but it's a contract related, right? So pods, fixed bids, delivery performance associated with a certain major milestone, expanding budgets, signing now longer-term budgets. We see that happening. It doesn't mean that individual rates, for example, are going to be aggressively moving up. I mean, the market is still, I would say, demand-driven than supply. And the The value we're bringing while we are increasing some of the basic rates, we're offering more and more system, which I just described with, which Anil pointed out, which ultimately brings a better architecture of the team structure. In other words, within the team, our cost benefit is evident to us, but for the customer, it's a result driven. So they're getting better efficiency with understanding their pocketbook spending without constantly going back and forth and looking at each individual rate. In many cases also, we gain the trust of the customer sufficiently that they allow us to pick a proper tip formation and it's getting more and more on the scale. That also helps us. So, you know all the evils, right? Moving from Eastern Europe to Central Europe, scaling the number of offices, opening new offices in India, that's well understood. But our model of 40-20, no matter how difficult it sounds today with where we are, it's under relentless pursuit. And I see the trend is coming. The numbers can't say there yet, but judging by the contracts we're signing, I'm quite bullish.
spk02: Thanks for all the color. Thank you. Thank you. Thank you, Zach. Next question comes from Puni Jin from JP Morgan. Puni, your line is open.
spk01: Thanks for taking my question. I wanted to ask about GigaCube. It looks like great progress in financial services. The vertical was up nicely. Can you also share the contribution from other verticals such as healthcare? And do you plan to share progress like you make in India, in Europe, as well as smaller verticals on a quarterly or annual basis there?
spk08: All right.
spk07: So as you see, the other segment was about 14 and a half percent. Right. And that had a nice growth. So what you're going to see starting from next quarter, we're going to break down the other segment because we're going to have the health care part. So, you know, health care life sciences, that's becoming an increasingly bigger part that has actually been one of the contributors in our growth. And, you know, as we evolve in the course of the year. Some of the sectors that you talked about, financial services, I mean, there's a lot of activity going on there, and we're bullish on that.
spk08: So, Guneet, that's a formal way, informal way. I like to have statistical significance before I claim the flag at the top of the hill. I can tell you confidently that in the fintech world, our investment is turning to the factual material improvement. When we talk about pharma and healthcare, the number of accounts is growing. But I can't say that we are a dominant player yet. We understand the capability. We're learning new ways of adding business value. You will see that trend. There are wealth management and insurance part of the BFSI, right? You know, for a long time, we had one of the very large partner in the wealth management. Those segments will grow too. And why we grow is because you guys, to some extent, helped us to assess four years ago that what does it mean to be a public company, right? That you need constantly to challenge yourself, not just on the growth, but on the hedge, right? How you build a business. So we were very heavy, depending on the brick and mortar. So that's a long history we were having. depending on certain brands. Again, it's a history. The tech is also diversifying. But I would give the more specific material content when I see at least two or three quarters of consistent signing of the new plans. And I think the biggest right now division for me is B2C application and B2B application. We'll continue to break it down, as Anil said, as we feel that they're statistically significant.
spk01: Got it, got it. Now that's very helpful. And let me ask like second question, like, so now that the macro headwind appears to be behind you and you're seeing stabilization in some of the large customers. So some of those, like the largest of your large customers, like I think they peaked at somewhere around like 30, 35 million, maybe 40 million. Like how high is addressable market at those clients? Like how large those customers can get given your current service mix?
spk08: Yeah, so you're getting me into trouble. All right. You know, there is quite a bit of a ceiling on those clients. Why? Because we're changing our attire too, right? You know, maybe the market cap is still not there. but we're a much more mature company, not just from performance perspective, but the stable capability perspective and resilience perspective, right? Every client, every large client, they look not just into the supplier capability, but as, you know, again, hedging against certain unforeseen events, right? So I think they're getting more comfortable without reach and without touch. So I would say that the ceiling is less driven by our capabilities, which are proven, and more opening up when people start to become comfortable that coming back to the gigafuge strategy. One day, we are a billion-dollar company. So yeah, if you judge from that perspective, I'm not going to throw numbers of $100 million account today. Again, it would be a bit premature. But there's nothing stands between us and having a number of accounts that which are that $30 million to $50 million range at now, and then time will tell how much we can go further. You know, having just one account, you know, being so much bigger than everything else, that's another bit of a challenge. So we've seen others struggling. So we want to do not only diversification on the verticals and the skill sets, but having large, driven partners to be somewhat, you know, diversified as well.
spk01: Yeah, no, totally agree. Multiple clients that are comparable in size. Like, I think we totally get it. Like, that's unique. Appreciate the comments. Thank you.
spk02: Thank you. Thank you, Puneet. Thank you, Puneet. Next question comes from Josh Sigler from Kendra Fitzgerald. Please go ahead.
spk03: Hi, guys. Thanks for taking my question today. Nice to see the strong KPIs in the quarter and business stabilization throughout this more difficult macro period. I wanted to touch on the partnerships specifically because they seem to be a big contributor over the past year. How are you thinking about how partnerships will contribute as we progress through 2024 with a more positive macro potentially at our tailwind? Thank you.
spk08: Well, I'm glad you pointed out that, I mean, we tried to repeat the you know, the favorite number 13, long enough for people to memorize. It wouldn't be not as exciting if it was 12 or 14. But anyways, the factor with Anil mentioned of having just a few years behind the belt is not truly about the partnerships per se. I mean, we always have partnerships, you know. I think There are a couple of fundamental changes happened a couple of years ago. The number one is we realized that sitting only on an open source is not enough to increase the breadth of the customer relationships. We need to become a bit of an advisory on buy and build as a combination. It's basically a stage of maturity, right? everything requires investment. So it's not only about hyperscale. It's also about the ability to stitch multiple software products. So we started with the areas where we have done most of the work, which is commerce. We've done major progresses, both in Europe and the US. And we're expanding number of the products we are offering. So that part is very clear. So it's not just open source, it's a combination. The other one is going back to hyperscalers, right? The hyperscalers represent a very complex system, right? And, you know, you come in, knock on the door and ask them, give me the clients, typically it goes backwards. You bring the clients, we'll see, right? I'm happy to report that it goes two ways. When you're doing two ways on top of building the capabilities and contributing to the hyperscalers themselves, then you start getting the attractions because it's a joint client effort. So not only understanding the systems, but understanding the customer ability to have us as a partner of choice, not just integration partner. That just added this number. How big is the number going to be? Honestly, I can't tell because we're going into new verticals. And again, it's investment. You can't just come with the open source and drop all these ideas on the laps of the big decision maker and other verticals. But it's certainly the model which we are expanding at this point.
spk03: Understood. I appreciate that color there. And then, Neil, real quickly, can you give us an update on how you're thinking about capital allocation as we progress through the year? Thanks.
spk07: Well, look, I mean, the focus obviously is M&A internally. And, you know, I know this is a question that comes up very often. The, you know, at any given point, you know, we're evaluating. Obviously, you know, we will tell you when we actually get something done. But the priority obviously is, you know, our cash usage is going there. Beyond that, it's all about cash generation. It's all about ensuring that we get back to our 40-20 and we convert it, right? I mean, as you know, we don't have any debt on our balance sheet, but these are the two elements in terms of how we're looking at our balance sheet.
spk08: And just to get a little bit of a color on my knees, I know you've been patiently waiting for us. I mean, it's been a long time since We collected enough funds, right? And our cash generation exists, but it's not super large. But we sit on a nice pile of cash. So we completed all the conversions. Again, if you look at our press release and reporter ones, so we have no lingering issues or necessary investments into any of those four acquisitions we've done. It's all integrated, knock on wood. And when I mean integrating, you need to integrate both sales and engineering. Engineering sometimes takes a little bit longer on the skill sets. So we are exploring deals across all these verticals and geographies. Again, there is a range. Obviously, we're not going to burn all the money in one swoop, but it has to be more focused on a hill development. So we're big enough to train people in what we know. Some customer acquisition obviously is good, but we really want to add the skills in the AI revolution part, right? So there are new areas which open up by building those skills. So it's not about just the marketing. We understand what we're good at and what it makes sense for us to complement from acquisition. So that's kind of a shift you may see from like six months ago.
spk03: Great, thank you. I really appreciate the caller and thanks for taking my question today.
spk07: Thanks, Josh.
spk02: Thank you, Josh. Next question comes from Sam Selvis from Needham. Please go ahead.
spk05: Thanks, Ben. Thanks for taking my questions today, guys. Most of my questions have been asked, but are there any AI-related metrics Anything you can share in terms of the number of projects or engagements or logos? Just any color you can give us to get some kind of sense into the demand you guys are seeing from AI.
spk07: So the question, Sam, was that what are the AI-related metrics, right? And so Leonard is the AI expert. But I'll tell you that from my point of view, when I look at the activity, we talk about in the analyst day, in the press release also we talked about, there's a lot of activity going around with both existing and some of our new. What I am very impressed with is that many of our new engagements has some level of AI component to it. So there is a lot of interest. AI is infused across our practices, but if you're talking about when are we going to reveal the standalone revenues and everything, when the time is right, we'll do that. But AI is pretty active across the company.
spk08: Well, I'm glad that Anil stepped in because I wasn't sure exactly what you were asking. Sorry about that. Now, what I know, I can tell you a little bit more color, right? So first of all, The areas where we have progressed a lot, it's conversation AI, it's recommendation AI, catalogs, compliance. We do quite a few of the forum solutions. What happened is having expertise in the verticals, especially things related to e-commerce, but now it's growing, helps us to tune the proper models, help to get the visual parts, help us to guide the internal client marketing and business teams to understand the ability to reach certain business results the number of cases is growing for a very simple reason they are factual the models change the conversion rates are changed the you know we can't promise results unless the client understands the reasonable target so the the catalog in understanding their existing environment, cleaning up their code, sometimes switching from the old models to the modern. First, we need to get the code capable of accepting the new things. So we do that conversion to augmentation. And of course, very close work with all the offerings related, the AI models on the cloud, as well as the new upcoming standalone solutions. So I'm sure we'll do more presentation webinars. You guys can look at our website. We have a ton of demos, but those demos typically are something open to people to look. I had a question, why one of the press releases we did with certain clients and certain projects, And mainly because a lot of the work is so cutting edge at the front of the customer DNA that we're grateful the ones who are willing to open to share, but many more are preferring to maintain the total proprietary approach to their development.
spk05: Yeah. Okay. Yeah, that's helpful. I appreciate all the commentary there. And then just one quick follow-up from me. The weakness in the retail vertical disorder, was that one larger specialty retail client, or was that kind of broad-based?
spk07: So the question, Sam, because the volume is not clear, your question was, we talked about... How many retail clients do we have?
spk08: Is that always the question? Yeah, the weakness in the retail... Like, was that one big triumph? Oh, no, it's not a weakness of retail. It's just others grow fast. It's not an absolute dollar situation in general. I mean, you see the trends, but there's more investment to the modernization where we are participating is a way. I mean, again, I mentioned people who work with us know that the brick and mortar business was a dominant part of our business. And then it becomes brands and, you know, CPGs. We are not dismissing this business, but we put eggs in different baskets, right? So many years ago, when we had a market dependency on retail, like three-quarter of our business, people were saying, you know, can you grow and bring the market to 20%? So we're not there at 20, but we're certainly much more comfortable position. So we want to grow it numerically as the company grows, but we want to focus on proper brands, which have the growth capabilities and also on various platforms related to retail, because platforms also come and go. You're probably aware there's a big reshuffling in the industry going on right now. So we actively pursuing value add businesses like home improvement businesses, various products and services which are growing in our industry, both in the United States and in Europe, but we're a little bit less excited to go into something we developed six, eight, 10 years ago because that market is a bit diminishing. So I think that's a better scope for what's happening.
spk07: Okay, thank you. Thanks, Sam.
spk02: Thank you, Sam. Great. Thank you, Sam. Ladies and gentlemen, that will be all of the Q&A session for today. I will now pass the call back to Leonard for the closing comments.
spk08: Thank you, everybody, for joining us on the call today. We entered 2024 with a marked improvement in sentiments from a year ago. We're focused on our goals of getting back to our long-term model, both from growth and profitability perspective. The last 12 months have proven that grid dynamics is a depth in navigating uncertainties. Existing customers appreciate our value, and in 2023, we established a record number of new customers. I'm getting more and more bullish. I'm looking forward to see you all in the next quarter. Thank you.
spk02: This concludes today's conference call. Thank you all for participating. You may now disconnect.
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