Grid Dynamics Holdings, Inc.

Good afternoon, everyone. Welcome to Grid Dynamics' third quarter 2024 earnings conference call. I'm Cary Savas, Director of Branding and Communications. At this time, our participants are in listen-only mode. Joining us on the call today are CEO Leonard Livshitz, CFO Anil Dharadla, and COO Yuri Grislov. Following the prepared remarks, we will open up the call to your questions. Please note that 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 in a 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 the SEC. During this call, we will discuss certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. You can find all the information I just described in the investor relations section of our website. I now turn the call over to Leonard, our CEO.

Thank you, Kerry. Good afternoon, everyone, and thank you for joining us today. Grid Dynamics reported another solid quarter as positive trends continued to favorably influence our business. Our third quarter results were above our guidance range and exceeded Wall Street expectations, both in revenue and non-GAAP EBITDA. More importantly, our revenue and profitability were the highest in a company's history. Similar to the second quarter, we exited the third quarter with a record billable engineering headcount. Customers, both existing and new, are contributing to our strong results which is a testament to our technology differentiation and delivery excellence. The addition of Argentina-based mobile computing enhances our follow-the-sun capabilities, and the acquisition of UK-based JAXT elevates our industry expertise in banking and financial services. With both acquisitions, our teams have started working together, and I expect them to generate immediate, scalable synergies starting in the fourth quarter. There are many trends shaping the company, both in the fourth quarter of 2024 and in 2025. Some notable ones I will share with you today. As we exit 2024, our long-term targets around the company's growth, profitability, and technical leadership remains unchanged. Now coming to the demand environment. Similar to the first half of 2024, demand trends improved across our customers. In the third quarter, we witnessed our customers funding key programs and initiatives. At many of our customers, there is a sense of urgency to complete projects by the end of the year. Numerous initiatives that were held back during the economic cycles are being prioritized for completion. This is something we witnessed across a wide range of customers and industries. In many ways, the foundation of the third quarter demand trends were set up in the first half of the year. If you recall from my last quarter commentary, I highlighted the first quarter was characterized by customers focusing on sharing their outlooks and forecast plans, but not aggressively spending. In the second quarter, customers were more willing to release budgets and implement their plans. Bottom line, the positive demand environment that we witnessed in the third quarter was a result of steady improvements over the past couple of quarters, and we expect it to continue into the fourth quarter and beyond. We set a new record for partnership influence revenues. Year-to-date, partnership revenue contribution is 18% of the total revenue. Our focus on hyperscalers paid off, with three of the largest being in the top five for the partnership revenue. As I pointed out earlier, we are thrilled to welcome JAXA and mobile computing to Great Dynamics. Each company brings in a unique set of capabilities. Founded in 2013, JAXA is known for delivering complex end-to-end solutions from design and user experience to deep functionality and ongoing managed services. Their specializations in mission-critical platforms and products for leading banks and financial institutions make them a strategically important addition to Grid Dynamics. especially as global demand for reliable, scalable, future-proof data solutions continue to grow. Their focus on risk platform, structured products, equity derivatives, and financial reporting is highly complementary to our current offering in financial services, which adds into our portfolio some of the world's richest banks and financial institutions. The acquisition of mobile computing expands Green Dynamics' global footprint and follows the Sun delivery model. Founded in 1998, mobile computing is recognized as a leader in digital transformation over a comprehensive suite of solutions spanning industries including manufacturing, CPG, and financial services. By adding this talented team in Argentina, our clients now have expanded options in Americas, complementing our established presence in the United States, Mexico, and Jamaica. During the last earnings call, I shared some insight around vendor consolidation across many of our clients. Over the past 12 months, customers have been scaling back on the number of IT vendors they work with. During the third quarter, the majority of vendor consolidation efforts across customers were completed. Grid Dynamics technology and operation excellence is highly valued and this helped us join a short list of strategic partners for those customers. Now turning to our AI initiatives. I'm pleased to report that our AI capabilities continue to gain significant traction across our customer base. We've substantially expanded our AI portfolio and now have over 30 service offerings and solutions specifically targeting Fortune 500 companies across various industries. These solutions are designed to drive both top-line growth and bottom-line efficiency for our enterprise clients. On the revenue side, we are focused on innovative customer experiences and enhanced marketing, pricing, and product decisions. On the cost side, our solutions center on efficiency improvements and enterprise knowledge management. What's particularly encouraging is the evolution we're seeing in our AI engagements. While previous quarters were dominated by POCs and user-facing pilot programs, this quarter marked a significant shift as more projects move into the full production environment. Our pipeline of AI opportunities has grown to more than 100 active opportunities, representing a 50% increase from the last quarter. This growth reflects the increasing enterprise readiness to move beyond experimentation to implementation of AI solutions at SCIM. Currently, we are seeing particularly strong demand in three areas of AI. AI-based search, conversational AI, and catalogue enrichment. This demand is driven by rapidly evolving customer expectations as interactions with AI-based assistants become more commonplace in both consumer and enterprise contexts. To support this growing demand, we are expanding our partnerships with hyperscalers, building specialized accelerators based on their foundational models and AI-based services. Internally, we continue to invest in our own AI capabilities. We have made significant strides in improving our engineering productivity through the implementation of AI coding assistance. This enhances our delivery efficiency and ensures our teams stay at the forefront of AI technology implementation. Now let me share a few examples of our AI programs at large enterprises. At one iconic retailer, we've launched an AI solution that streamlines their product catalog management by automatically extracting and harmonizing product attributes from unstructured data, significantly improving operational efficiency and data quality. For one of the largest US auto parts provider, we are implementing an advanced AI assistant that connects customers with the store associates through instant messaging. This solution incorporates visual auto part recognition and conversational part finding capabilities, enhancing both customer experience and operational efficiency. At one of the largest beverage companies, we are developing a conversational knowledge AI platform focused on improving employee productivity by providing intelligent access to corporate knowledge and streamlining internal processes. These implementations showcase our ability to deliver AI solutions that drive meaningful business outcomes across diverse industry verticals. As we look ahead, we remain confident in our positioning as a leader in enterprise AI implementation, supported by a growing pipeline and expanding partnership ecosystem. In the quarter, there were several trends and I want to share some of the notable ones. Number one, logo momentum. In the third quarter, we signed six new logos, which are large enterprises. Of these customers, we signed in a quarter, one is a global food product and hospitality distribution company, another one is an automotive part company, and another one is one of the largest grocery retailers in Europe. Partnerships. Revenues driven by strategic partnerships have shown sustained growth, contributing 18% of our total revenue in the first three quarters of 2024. In response to this positive trend, we're investing in adjoined sales and marketing and collaborating closely with hyperscale and SaaS providers. These efforts span across critical areas such as digital commerce, application modernization, data platforms, and engineering services, allowing us to tap into an even broader range of opportunities. Additionally, our partners are emerging as critical channels for seizing opportunities in artificial intelligence and generative AI. as demand in these areas continue to rise. To further strengthen our footprint, we're actively deploying our AI and generative AI accelerators across hyperscaler platforms and marketplaces, enhancing accessibility and engagement for clients seeking advanced AI solutions. In the expansion, Our Follow the Sun strategy provides the framework of scaling our global locations. India is now in our top two countries by headcount, and it is an integral part of our global delivery model. Bandalore, our third location in India, is now scaling its team, has been a successful addition to our Indian operation. We're scaling relationship with India-based GCCs. Recently hosting a technology and innovation forum attended by more than a dozen GCCs. European business. With roughly mid-teens of our revenue, Europe continues to be strategic to our growth. We are increasing our footprint with the European division of our large global accounts. We're also expanding our business with joint go-to-market strategies with hyperscale across all our services. We are witnessing significant AI adoption trend with clients engaging us to assess their AI and data platform capabilities in preparation for building AI platforms that will support multi-year business transformations. A major UK-based retail customer is engaging us not only on the e-commerce transformation, but also on their cloud migration journey this year. In Q4, we're launching a composable commerce B2C solution for a major auto part distributor. We're working toward helping them further modernize and consolidate their complex technology landscape into 2025. During the quarter, Grid Dynamics delivered some notable projects. A leading global technology company sought a solution to maintain user data in compliance with privacy regulations. Grid Dynamics successfully implemented a consolidated system, enabled centralized monitoring and management of data sets and user workflows. The UI application has been widely adapted across multiple cross-functional teams within the organization. The new system provides business teams with a standardized method to ensure data sets meet current regulatory requirements. It also maintains a comprehensive audit trails for any changes, enhancing transparency and accountability. A leading financial and investment services company, aimed to enhance experience on its internal web portal, which serves over 10,000 financial advisors. The goal was to improve search result accuracy by understanding financial advisors' intent and delivering the most relevant information. The solution incorporates a do-no-harm analysis to ensure reliability. This feature prioritizes accuracy over completeness by withholding results which the system cannot confidently provide correct information. Grid Dynamics implemented the solution leveraging AWS and NVIDIA technology stack. We recently introduced a contactless payment system for a major US DIY retailer, enabling customers to complete purchases quickly and securely with the tap of their phone or a card. This solution enhances the shopping experience by reducing checkout times and minimizing physical contact. The rollout is underway across more than 2,000 stores with overwhelmingly positive customer feedback. This upgrade underscores the impact of Redynamic's work on our clients' business operations. We successfully launched passwordless biometrics based identification that leverages cutting edge authentication standards to enable users to securely authenticate their online payments using biometric data such as fingerprints and our facial recognition in Summer Olympics, starting from proof of concept to production in the record time of six months. With that, Let me turn the call to Anil, who will discuss Q3 results in more detail.

Thanks, Leonard. Good afternoon, everyone. Our third quarter results were solid as we exceeded our expectations, both on revenue and non-GAAP EBITDA. During the third quarter, we recognized a record revenue of 87.4 million that was organic and ahead of our guidance range of 84 million to 86 million. Our non-GAAP EBITDA of 14.8 million exceeded our guidance range of 12.3 million and 13.3 million. The better than expected results were driven by a combination of factors that included strength from existing and new customers and operational efficiencies. During the third quarter, our retail and TMT were the two largest verticals at 34.1% and 27.7% of our revenues respectively. Our retail vertical grew 11.4% and 12.4% on a sequential and year-over-year basis respectively. On a sequential basis, we witnessed growth from multiple customers in the specialty retail, home improvement space, and department stores. TMT saw an increase of 4.1% and 1.9% on a sequential and year-over-year basis, respectively. Similar to last quarter, our largest customers in TMT vertical grew both on a sequential and year-over-year basis. Here are the details of the revenue mix of other verticals. Our finance vertical was the strongest, both on a sequential and on a year-over-year basis, and grew by 12.7% and 94% respectively. As a result, its share in total revenues increased to 16.2% in the third quarter of 2024. Similar to last quarter, the growth was from customers across the FinTech and insurance space. Our CPG and manufacturing representing 11.2% of our revenue in the third quarter remained relatively flat on a sequential basis and increased 1.4% on a year-over-year basis. Our healthcare and pharma representing 2.9% of our revenues decreased 20.5% and 26.9% sequentially and on a year-over-year basis respectively. And finally, the other vertical represented 7.9% of our third quarter revenue and was down 6.9% on a sequential basis and up 3% on a year-over-year basis. We ended the third quarter with a total headcount of 4,298, up from 3,961 employees in the second quarter of 2024, and up from 3,823 in the third quarter of 2023. At the end of the third quarter of 2024, our total U.S. headcount was 345, or 8% of the company's total headcount, versus 8.4% in the year-ago quarter. Our non-U.S. headcount located in Europe, Americas, and India was 3,953, or 92%. In the third quarter, revenues from our top five and top 10 customers were 39.8% and 59.2% respectively versus 36.8% and 54% in the same period a year ago, respectively. During the third quarter, we had a total of 201 customers down from 208 in the second quarter of 2024 and 224 in the year ago quarter. During the quarter, we added several customers, some of which Leonard referred to in his prepared remarks. The year over year decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of non-strategic customers. Moving to the income statement, our GAAP gross profit during the quarter was 32.7 million or 37.4% compared to 29.6 million or 35.6% in the second quarter of 2024 and 28.2 million or 36.4% in the year-ago quarter. On a non-GAAP basis, our gross profit was 33.3 million, or 38%, up from 30.1 million, or 36.2% in the second quarter of 2024, and up from 28.7 million, or 37% in the year-ago quarter. The increase in gross profit, both in dollar and as a percentage on a sequential basis, was mainly driven by a combination of higher levels of revenue and better utilization of engineering resources. Our non-GAAP EBITDA during the third quarter that excluded stock-based compensation, depreciation and amortization, restructuring and expenses related to geographic reorganization, transaction and other related costs, was 14.8 million or 16.9% of sales up from 11.7 million or 14.1% of sales in the second quarter of 2024 and 10.7 million or 13.9% in the year-ago quarter. The increase on a sequential basis was largely due to higher revenues, partially offset by increase in operating expenses. Our gap net income in the third quarter was 4.3 million or 5 cents per share based on a diluted share count of 78.8 million shares compared to the second quarter loss of 0.8 million or 1 cent per share based on a diluted share count of 76.6 million. and an income of 0.7 million, or one cent per share based on 77.3 million diluted shares in the year-ago quarter. Our sequential increase in GAAP net income was due to higher gross profit, lower levels of stock-based compensation, and lower provision from income taxes. On a non-GAAP basis, in the third quarter, our non-GAAP net income was 8.1 million or 10 cents per share based on 78.8 million diluted shares compared to the second quarter non-GAAP net income of 6 million or 8 cents per share based on 77.9 million diluted shares and 5.9 million or 8 cents per share based on 77.3 million diluted shares in the year-ago quarter. On September 30th, 2024, our cash and cash equivalents totaled 231.3 million, down from 256 million in the second quarter of 2024. Coming to the fourth quarter guidance, we expect revenues to be in the range of 95 to 97 million. We expect our recent acquisitions contributing 10% of the total revenue. We expect our non-GAAP EBITDA in the fourth quarter to be in the range of 13.5 to 15.5 million. For Q4 2024, we expect our basic share count to be in the range of 77 to 78 million. and our diluted share count to be in the range of 80 to 81 million. That concludes my prepared remarks. We are ready to take your questions.

Okay. Thank you, Anil. As we go into the Q&A session of this call, I will first announce your name. At that point, please unmute yourself and turn on your camera. And the first question is going to come from Mayank Tandem from Needham.

Oh, great. Thanks. Hi, Leonard. Hi, Anil. Congrats on the quarter. So let me just clarify, sorry, I missed your last comment on the contribution from M&A in the fourth quarter. And then just want to get a sense related. If you strip out the revenue from the fourth quarter in terms of M&A, then can we expect this organic growth to continue in the future quarters? Why would it not continue? So any color on your outlook for the next few quarters would be helpful, just given what you had in terms of performance the last several quarters.

Yes. So, Mayank, we said 10%, right? Now, I think the most important thing you have to understand as we go from Q3 to Q4 is that you had some of the working time, right, the number of hours. The billable headcount will grow from Q3 to Q4. So... If you look at the underlying foundations, which is at the end of the day is driven by billable headcount, of course, working time moves around right as we go in through the, you know, seasonally part of the year into as we exit, you'll see some variations, but the billable headcount new customers, existing customers are continuing.

So just to be clear, in terms of the organic trends, it sounds like that can continue based on the demand climate. I'm just trying to get a sense if there's anything on the horizon in terms of budget flush or, you know, companies going through their budgeting process for next year that could maybe change the dynamic in terms of the current organic growth trajectory you've seen quarter to quarter.

So look, you know, there has nothing changed from a you know what i call some abnormal or artificial movements so the trends that we're seeing it points to more fundamental um as we get into next year obviously we will talk next year we don't guide beyond a quarter But our underlying results, which is 5% sequential growth, there's an acceleration in quarter on quarter, right? This is all driven by fundamentals. It was not driven by budget flush. It is not driven by some artificial behavior in the organic business. It is across the board, as Leonard pointed out, both from our existing customer and new customers.

So, Mike, I'll add one more point just to make sure it's clear. October is a great month. You know, we are very confident. We have numbers, right? But we don't guide yet all the details. The conservatives in a guidance is driven by two factors. As you know, December has certain furloughs, certain holidays. We want to be a little bit more careful. And also the revenue coming from the new customers will be unique. And I'm sure we'll talk more with other guys who will ask me similar questions. And that's driven by the fact that we started to collaborate even before we closed. This is different from the previous acquisitions we had. So I'm not sure how much, you know, resolve will be in Q4, but Q1 we'll see the additional revenue do this synergy. So we're bullish on both fronts.

Got it. Can I squeeze one more in? Sure. So just want to get some perspective on pricing. It's been a point of debate in the services industry, just given some of the demand headwinds. Are you seeing pricing stabilize, maybe even uptake a little bit? Any color around what your conversations are like with clients around pricing?

All right, I'll take this one. So first of all, so we have Yuri Grislov today. He's our not only CEO, but also he runs Europe. So I will tell you a little bit about US because next time I'll bring Vasily Sizov who runs US, but Yuri will give you a few color on Europe. Fundamentally, we do see a bit of improvements in terms of the pricing performance. With new clients, also relate to this, obviously, more engagements on the technology side. We'll talk more about, hopefully, again, other people ask questions about how technology drives the differentiation, the new business for Green Dynamics. So those colors are on a growing business, upgrading business. You talk about the more traditional legacy business trail, pretty much stable. So you can see that, again, Q3 was good every way you say. So they're proving their pudding. There's a Q4, there's Q1, you know, seasonality always works there. And we'll need to be on the rise as we go toward middle of next year significantly, right? For now, we enjoy the run. We see good stable pricing, we see new improved pricing, and at least on this US. So let Yuri speak for the first time. I knew I talked for 20 times together already. So Yuri.

Yeah, I think I just wanted to add that it's the same in Europe. I think that as Leonard just mentioned, the pricing has been stable and we don't see those fluctuations anymore. So it's pretty much, you know, business as usual, as we see right now. And then we'll see, you know, Q4 and Q1 next year.

Congrats on the quarter. Good to hear. Thank you, Mayan.

Thank you, Mayan. The next question is, comes from Puneet Jain of JP Morgan. And just give me a second and I'll get the cameras going.

Okay. We can't hear you, Puneet.

Hang on a second.

Go ahead, Puneet. You're still on mute. You're still on mute yourself.

No, no, no, hold on. Give him a second. Okay, I think we're going to come back to him.

Hold on. Did he mute himself?

He took him off camera. Okay. Here we go. Give it a try again.

All right. So why don't you, Puneet, why don't you do one thing? Just dial in, you know, through the mobile, you know, and then we'll get back to you. But just call in. You don't have to do the video. So, Kerry, let's just go to the next one. And, Puneet, you just call in. Or call me. I'll put you on speakerphone here.

Okay, then. The next question comes from Brian Bergen of TD Cone. Cal, please turn on your camera, please. And I'll make sure you're... Hi, guys.

Hope you can hear me.

Yeah, yeah.

All right, very good. Let's talk about demand recovery. So you conveyed a sense of urgency here from clients before your end. It's definitely different from what we've heard from peers, just as far as the urgency to complete deals. Are there any particular types of programs or subsets of clients that are demonstrating that behavior, or is it more broad-based? And just as you think about that dynamic, are there any implications from that as we think about just the early 25 spend potential in those types of accounts?

Hi, Brian. Always good questions. i don't want to get too broad on the scope of the clients not everyone is in this accelerated mode to spend and uh you know there's we know there's some cases where people would like to kind of flush their old budgets and all the stuff but that's a minor minority what happened was uh when it relates to new activities And it's not just AI. AI is a good excuse to spend more money when your boardroom wants you to be more aggressive. It's the efficiency and capability. And what I mean by efficiency and capability, there are more demand right now from very broad base of the customers to have a better reach with lower costs. So basically working on various LLMs and copilots and all the programs just demonstrated to the clients what could be done with the good data. But data needs to be properly analyzed. It needs to be properly adjusted. There needs to be proper formatting. So they start getting to understand. that this is not just a magic bullet which turned their business into a hugely profitable enterprise. So they opened the coffers for longer-term activities And the focus is on applications, not just proof points that some models work. When it comes to AI system, of course, it's clear. It's about, you know, the conversational part. When we're talking about consuming, for example, vector-searched vertex AI and many other features, it's just a much broader base. So we see a lot of activities data-related. as well as customers right now having a little bit more confidence generally in the industry-wide, right? So there's a little bit more planning going on. So you're absolutely right. Most of the activities and the spend usually comes around February, April timeframe. That's usually we see this uplift. Last year, it actually was pushed more to the April, May. But this year, we see it started as early as the mid of the third quarter.

Okay. Okay. That's helpful. If we shift the profitability now, if revenue improvement continues to materialize, do you expect to see a commensurate improvement in margin or are there offsets that we need to consider here just near term, such as needing to scale the bench? Just key inputs and takes as you go into 4Q here on the profitability front.

Sure. Very good. So, and you will give your numbers in a second because, you know, you always like numbers. And you can torment him after the meeting, by the way, you know, he has everything for you. But I want to go a little bit on a, you know, more fundamental philosophical scale, because it's important. So we're adding new regions, you know, India becomes a big part, but in more technology solutions, and we're adding more accelerators. When you have more at home, at house developed codes, your efficiency is higher, right? And you bring the ROI to the client so you get a little bit better margin on it. Now, again, third quarter was somewhat unique from the overall, you know, billability perspective, as you know very well. And when we went to July, we almost were at 40-20, the magic number. So we felt the taste of the target. Now, this is not, and I bet October is going to be very good as well. But it's not just the bench. So bench is a function of our long-term visibility. So there's always a swap of the bench. But there is a training of enormous army of the AI-related specialists. And it comes from the internships, Green Dynamics University, and then Green Dynamics Labs. We expand more investment into our own AI labs for various functionality. Our partnerships with the hyperscalers and NVIDIA and a few other guys are taking more space. So this is nonlinear investments, which I can allow myself. Even maybe not giving you an immediate short term, this glorious 2040, because I see the return, return on robotics. You know, it's not true robotics automation for various clients, how to improve their production efficiencies. AI systems. So we do balance, we would break down how bench is contributing, and how innovation is contributing, and how skill set modernization is contributing. But overall, of course, if we don't get, you know, efficiency longer term, why we're in this game, right? You like me and all the shareholders want to see the profit in the end of the day.

Brian, just adding to what Leonard said, you got the gist of it, but this is something that we highlighted a couple of quarters ago, right? So there are three, four factors that we're working on, right? As Leonard pointed out, we're doubling on internship programs. So the cost optimization from that point of view helps us. We're scaling India too. The nature of our program's From TNM going to pod to fixed price, that also helps. And Leonard and Yuri just pointed out the pricing environment is improving, right? So all these things put together point to the underlying fundamentals of our business improving. Now, that has to be judged against what Leonard pointed out, investments for growth. So that's the thing. But again, what I want to convey is the underlying price-cost element is improving in our business.

Okay. Okay. Yeah, growth investments are appreciated there for sure. The AI commentary, last question here, the AI commentary as far as actually scaling now beyond kind of the POCs and the science projects, as you are scaling, are there any changes to the contracting structures or more of the same, you know, getting more productivity? incremental volume of work. Just talk to us about that nuance as these programs are becoming bigger.

Yes, so there's no magic bullet there either, right? So the customers are still a bit shy between technology visionary who say, let's have performance-based compensation, outcome-based compensation versus fixed bids and T&Ms. It happens on a very rare occasion because most of the time, those programs, when they wrap up into the production implementation, they're part of the bigger initiative. So we're trying to actually, it works favorably for both sides, but it's still a limited base. Now, as we become smarter and we do more homegrown stuff, there's maybe somewhat change to our model offering as well. But I know how you guys are cautious about when a service company starts throwing some different models of compensation, right? So we're still being there, but we certainly offer our clients, right? various methods which make a little bit more performance-based. Not often to be compared. But we see that those solutions actually result in more efficiency decline immediate. So hopefully I can give you better news that we do get more performance-based outcome in the upcoming quarters. All right.

Very good. Thanks for all the detail. Sure.

Thank you, Brian.

The next question comes from Maggie Nolan. William Blair Maggie, please turn on your camera and unmute your Mike and.

Hi, how are you trying to get my video on here? Nice quarter. Congratulations. I wanted to ask a little bit about the end markets. And I know you gave some commentary for this quarter, but any thoughts on how your verticals might trend as you exit this year and then over the course of next year? Are there particular areas where you anticipate growth is going to come from?

Okay, well, I'll start and maybe Uri will chime in. And Europe may be slightly different to some extent. And definitely in India with GCCs, we have some more dynamics. So the three drivers for our business today pretty much are unchanged, right? So it's the TMTs, CPGs, and retail. The notable addition to the growth vertical is actually various financial services, the payment system, the fintech. The other guys like manufacturing and life science and others are a little bit behind. Now, their addition of insurance and other things to the BFSI, and with acquisition, as a matter of fact, in Europe, and that's what you were talking about, there's a very big potential upswing on top-tier financial institutions. I think What is actually happening is very interesting. The dynamic of additional shift on the vertical, now it's coming from our partners, particularly with a very notable hyperscaler who we are doing a lot of initiatives together. So what happened is they see our successes in one or two industries, and they are kind of passing the baton to their salespeople in adjacent industries. So the horizontal capability around knowledge of the major factors, and the major factors is a cloud behavior called migration, various AI initiatives, and now even going into the at least in the early stages, we're going to the today into the various applications specific, which is basically connected devices and everything around it, that creates the potential. So we are actually retuning our it's more about sales, right? Because engineering services are more or less expandable, and then a specialization in new tools. So we're investing in partnerships with the industry specific software providers. And that training has been happening actually from Q1. So we'll see that dynamics early next year. But that's pretty much. So the big players are still there. The new players come in existing industries, but expanding on. The biggest notable expansion, I would say, is Fintech. And Yuri, could you?

Yeah, just to add on Fintech, I think that, again, our distribution of industries in Europe are pretty much the same. They've been stable. But obviously, with the addition of Juxt, right, that we just acquired, I think that brings us into, you know, kind of expanded into fintech and banking and financial services overall. So Juxt, as you know, as Leonard mentioned earlier today, they are specializing in data intensive systems for banking and financial services. And that's, you know, it's a highly complimentary area to what we are offering in this field. So from that perspective, I think we will see the immediate synergies and opportunities to go beyond that and offer their capabilities to our existing clients and obviously adding more clients in this area. But at the same time, Transitioning to the US as well is very, very important because while, again, this acquisition accelerates the growth in Europe, but we see a very high potential of immediate expansion into the largest US financial institutions as well. So I think that's pretty exciting. So we'll see the shift, I think, in Europe in particular because of the size, but that will be Q4 and beyond.

Perfect. That makes sense. Thank you. And then, Anil, you mentioned balancing investments as we're thinking about profitability. Where are we in the investment cycle? You've made some investments in recent past in the sales force. How do you feel the return is on those? Are those folks ramping up nicely? How are you thinking about your ability to add new logos? As the demand environment recovers, are you well set up to scale the business from here or are there additional investments ahead?

Very good. So the biggest investment which pays off is a technology investment. I mean, that makes a difference. Remember, I've always made you talk about green eggs being a kind of a canary in the lean times and the good times. And when our technology capabilities align with the market upswing, then it creates a double whammy and we grow faster. So technology capability is bespoke. Partnership capability, there's a significant investment, which is, again, in the process. As a matter of fact, the good news is our partners demand us to invest, you know, and they're kind of really vigorous about making sure we balance our investments with the solutions they provide and certification associated with it. So that's going on. In terms of the new logo acquisitions, a traditional way, right? So it's still a lot of new opportunities come because remember, again, we work with a very large fortune 500 companies as the most comes from either referrals, that's still the best way, you know, industry is dynamic, so that works well, or in the clients where our technical solutions implementations of the applications become reachable, and they want to do something very rapidly, and that's where Salesforce is needed. The good news about our Salesforce, especially in the US, we're positioned well virtually in every region. But the rate of return so far is more driven by individual clients rather than a planned area. I can say that you want X amount of productivity in certain, you know, Southeast. And that's what I'm getting. Now we have investment in all the areas. So then what we do with the sales force and account management force, the main investments is to make sure once we get into the first programs, the execution is slow. And because people that are in rush, right now on the client side to do something. We spend more time deliberately on defining uh statement of works to defining the milestones because the the getting new clients is no longer a problem for us how to make this 5 10 20 million dollar revenue works driven by flawless execution today it's not only on engineering as you always been engineering has to be great delivery has to be great but in account management and front-facing organization we take time and align with their clients so we're getting more consultancy on architecture side We're adding more account management specialized with an engineering background and understanding coming from the execution background before. And we train delivery management guys to watch not just the timeline, but changes in the scope. Now, I'm giving you a lot of kitchen for a very small question, but it's not about acquisition about right now, but rapidly scaling those top guys with the existing capabilities.

Understood. That makes a lot of sense. And then you've just I mean, you've transformed the business so much, even since becoming public. You've become incredibly global as a company and you continue to have that at the forefront of your acquisition strategy and business. imperatives. So I'm wondering how this global expansion has impacted conversations with your clients. Maybe comment on how adding Argentina, for instance, as a delivery location has impacted conversations with clients.

All right. Well, Near-shoring has been always on the list of clients, right? And for many of them, especially, and when I talk about near-shoring now, being a global company, I assume the clients are in the United States because of the customer in Europe, there's a different near-shoring. The customers now in India is near-shoring and, you know, and now we have customers in Latin America, right? But if we talk about our traditional US business, they rush in and then they want to have the same quality, the same performance, in the same conversation as they've had with the US colleagues. Well, it's not always happened that way, right? And, you know, in our case, Our Mexican team is very good, but, you know, PESA was appreciating for a long time. Now it's a bit declining, so there's not as much productivity when you're good people. Good people cost you money no matter what. System solutions and approach, that matters. So what happened, you know, we started in Mexico, we started in Jamaica. Now we have first... green shoots in Canada, some consultants. We're not opening an office, but you know, that's not an impossibility because we have now clients in Canada. But Argentina is kind of unique. For a long time it was, you know, there's a very, very successful our, you know, peer in the industry. I mean, they might like us to call them peers, but, you know, I treat them as peers who come from Argentina and they're doing a great job. They extended Colombia. Now they're investing into India and Eastern Europe, right? And for that matter, I always had a strong affinity to the culture, to the education, and to people in Argentina. It's just very close. And the connection with them, it's also strong with our European organization. So I see that our clients, again, remember I mentioned we started working on integration in advance. So with the clients from JAXT, we were talking about positioning for a while already. But with the clients in the U.S., we obtained an approval. for expanding in Argentina before the ink dried on the contract. So once we finish the acquisition, there's already a demand coming for a supply from Argentinian organization, which is pretty cool.

Thank you for taking my questions.

Of course. Thank you. Let's try buying again, right? No, no, not mine. Puneet, sorry. Yes, Puneet is there.

All right. I hope you can hear me now.

We can hear you. Yes.

Awesome.

What happened? You tell us.

i don't know maybe because happy diwali maybe because you should not be working today but it's a day of prosperity for all of us right so let's make it prosper this was a sign this was a sign maybe my wife did something here but anyway um no very strong quarter um So let me ask about overall demand. Many peers, like you have reported, they all are talking about seeing steady trends. Your tone, your growth rates definitely indicate that things are better now than what they were six months ago. So what's driving this separation in growth rate for you? You grew about 13% year-on-year this quarter. So what's driving the separation and growth for you versus many of your digital peers?

So I mentioned before a few things. The AI solutions opened the door for bigger implementation. So that's obviously. But, you know, I'm sure you sit through many, many, you know, earnings calls, and I guarantee that my good friends from other companies, regardless of where they are, tell the same story, right? And, you know, I read one of the reports yesterday. We were talking about 100, you know, early engagement. People talk about thousands. Size matters, right? The reality is we are a truly technology partner, and as we mature and grow, and become more global. More people learn about us early. Remember about this concentration, right? So, you know, the reality is we still have some of it. The top clients, to some extent, you know, may actually invest more of that because they trust us more, especially when it's innovative projects. But we see some rapidly increasing demand from certain clients, which are new, much faster. And the reason is the ramp up happens is because they put more bets on us. What I told, you know, Maggie, We need to make sure we have not only flawless execution, but very well-established expectations. People rush to have some result, and it's all about applications. You know probably well, and trust me, we live through that. The customer wants to do something immediate. And we are kind of pulling back and we're talking about longer roadmap. Once they appreciate what we do, and it happened not just Q3, it happened even earlier, they're more comfortable to lay larger dollars in front of us. So to some extent it's still size, but more important is, you know, in a times of investment of technology, we ramp up quicker and we are more in a strategic critical applications for the business. You know, because it's very important. People always say, okay, you go fast, you fall fast. We'll see how next turn cycle goes. But I think we're holding our line pretty well because we are, you know, we're having this stream of technology innovation into the larger execution. And also, Anil mentioned probably before to you as well, some of the clients who measured to decline in 2023 now also in a rebound. Right. So that helps too. So it's a combination of the fact that I know you want to mention something notable in Europe.

I think it's pretty much aligned with what Leonard mentioned. I just want to also to add that the inorganic strategy as well. Right. Every time when we're looking at those companies and those two that we just acquired. no exceptions. I think that we are always trying to understand if they can bring some non-linear value to us, right? In terms of like our giga cube strategy, technology expertise, you know, footprint expansion and things like that. I think it's also very, very important. And if you look at those and, you know, as Anil mentioned, right, they're contributing some amount of, you know, revenue already. I think it's very important for us to stay focused. And if we go too broad, then, you know, we will kind of fall into the same category of many bigger players. But if we stay focused, I believe that's the, you know, that's the key.

And the other thing I think worth mentioning that GCCs is not just ultimate definition of performance. It's also Europe. So some of our big U.S. notable clients trust us with a strong position in European organizations as well. So in India, it's a big thing. The Bangalore office was the best investment recently. And, you know, all we're doing is fighting for talent. And to some extent, you know... successful, because people are curious about us. And there's a good, you know, you know, having three, three major areas good, but we also have a very large pool from the GCs in India, but recent pool from, you know, they don't recall the same GCs, but from the big clients, their engineering organization in Europe becomes quite valuable as we continue to balance growth in Europe with the growth in India.

And let me ask on that, like, how are clients deciding between the work that should go to a vendor like yourself, especially a digital vendor like yourself, versus their in-house operations. I understand you're working more with GCCs there, but how is the work allocated between GCCs and vendors?

Yeah, so working with the U.S. Centers of Excellence is definitely easier than with GCCs in India. I mean, this is perfect because we have very smart, a lot like U.S. guys are not smart, but the people who naturally have been brought in for GCCs in India, they're doing a pretty good job themselves. But remember, when you have a client base recruiting, And you have a supplier-based recruiting. There are very two different tasks, right? So there are some very notable clients, which may go very broad. And the competition is very fierce. When it comes to suppliers, they know the job will stay for one client with another client with a third client. So some of the GCC guys, what they're saying is, we want to give you a partial work. And we say, look, We need to be cooperating so that we want some project work as well. We're another staffing company. There was a bit of a discussion on that. But over time, they give us more because they feel we're part of the team. You know, sometimes we work in their offices. There's a big, by the way, reverse back to the office thing. So a little bit remote is not as helpful. But also the competition for the specific talent, when we double down on a fewer narrow but extremely deep expertise, driven by the technology experts locally, then they open up. But I agree with you. We just finished a really nice tech conference in Bangalore. More than a dozen GCC guys sent their participants. There were more than 30 technical and business executives. This is the first one. So I'm sure next year we'll have a bigger. And these guys don't come just to write the notes. There's a lot of active discussion. So that gives us a bit of a testament of respect of the capabilities.

Yeah, no, that's good to know. And thanks for the answer. And then. Like the clients, Leonard, you talked about like the clients spending on AI projects, like they're getting ready for AI projects, investing in data and all that. Does this represent incremental spend which should result in overall increase in budget for clients? Or are they just like reclassifying or shifting budget from one area to spending this?

Well, they're both, right? Some people are mesmerized by a demonstration from, you know, Elon Musk having robots walking on the stage, right? Not everybody knows exactly what goes into that, and I will leave it at that level. But it gives you the perspective of level automation, which goes into the foundation of our society. And that's very critical to some of the clients because they're revolutionizing the things around our daily work. Consumer work, recruiting assistants, AI assistants. So robotics just start changing. There are a few of them. They're experimenting, obviously, but there's a big cost in the regulatory stuff. But most of the guys, what they expend in application side. They want to be very, very specific. I have this number of generative eye cases. I want to improve it. I have this veterinary clinic. I want to increase the throughput. I want to, you know, as you know, you know, pets don't speak. So there's a lot of things we go around that. Some clients say, look, you know, we would like to have a lot more bundle inventory. And a wealth management system, we are revolutionizing the conversational AIs, basically video search assistants, and putting the data together. So it's a lot more with the fewer capabilities, but people would like to have a repetitive. So those drips, now has a mainstream of the new larger implementations where this big world of dreamers are doing more as a pro concepts. But both are important because the impact of the dreamers is significantly larger over time. And we talked about our investment into it. We can't compare with the big guys. But there's certain areas where we believe it's fundamental. And we're going to continue to hone and shift the offering for the future. Because it's not traditional. It's not only that particular software development skill. And if we need to cannibalize some of the business, we will. But right now, the revenue comes from the applications, and the future business positioning comes from those tectonic shifts.

That's great. Thank you. Thank you so much.

Thank you, Panit. Ladies and gentlemen, this concludes the Q&A session for today. I now turn it over to Leonard. Give me one second.

Thank you everybody for joining us on the call today. Today's results reinforce our strengths and unique position within the AI digital transformation industry. Grid Dynamics approaches the end of 2024 with strong momentum across our business and we are set up well for a solid 2025. There are many reasons to be optimistic of our future and I'm confident of Grid Dynamics' solid execution. I'm looking forward to updating you all during our next earnings call. Thank you.