GDYN - NASDAQ

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 Livschitz; CFO, Anil Doradla; and COO, Yury Gryzlov. 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, Cary. 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 U.K.-based JUXT 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 remain 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. Bottomline, 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 influenced 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 JUXT and Mobile Computing to Grid Dynamics. Each company brings in a unique set of capabilities. Founded in 2013, JUXT is known for delivering complex end-to-end solutions from design 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 largest banks and financial institutions. The acquisition of Mobile Computing expands Grid Dynamics’ global footprint and follows the Sun delivery model. Founded in 1998, Mobile Computing is recognized as a leader in digital transformation offering 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 the 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 operations 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 am 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 topline growth and bottomline efficiency for our enterprise clients. On the revenue side, we’re 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 moved 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 scale. Currently, we’re seeing particularly strong demand in three areas of AI. AI-based search, conversational AI and catalog enrichment. This demand is driven by rapidly evolving customer expectations as interactions with the AI-based assistance become more commonplace in both consumer and enterprise contexts. To support this growing demand, we’re 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’ve 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 U.S. 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 conversation and 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 a joint 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. Indian 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. Bangalore, 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’re 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 hyperscaling across all our services. We’re 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 multiyear business transformations. A major U.K.-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 datasets 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 datasets 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 technologies stack. We recently introduced a contactless payment system for a major U.S. 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 Grid Dynamics’ 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/or 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 details.

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 ten 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 GAAP net income in the third quarter was $4.3 million or $0.05 per share based on a diluted share count of 78.8 million shares, compared to the second quarter loss of $0.8 million or $0.01 per share based on a diluted share count of 76.6 million and an income of $0.7 million or $0.01 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 $0.10 per share based on 78.8 million diluted shares, compared to the second quarter non-GAAP net income of $6 million or $0.08 per share based on 77.9 million diluted shares and $5.9 million or $0.08 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 million 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 million to $15.5 million. For Q4 2024, we expect our basic share count to be in the range of 77 million to 78 million and our diluted share count to be in the range of 80 million 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 Tandon from Needham.

Oh! Great. Thanks. Hi, Leonard. Hi, Anil. Congrats on the quarter. So…

Thank you.

… Anil, let me just clarify. Sorry, I missed your last comment on the contribution from M&A in the fourth quarter. And then I just want to get a sense, sort of 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’ve had in terms of performance the last several quarters.

Anil?

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’re going through the seasonally part of the year into -- as we exit, you’ll see some variations. But the billable headcount, new customers, existing customers are continuing.

Got it. 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 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, there has nothing changed from a, what I call, some abnormal or artificial movements. So, the trends that we’re seeing, it points to more fundamental. 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-to-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, Mayank, I’ll add one more point just to make sure it’s clear. October is a great month. We are very confident. We have numbers, right? But we don’t get all the details. The conservatives in the guidance is driven by two factors. As you know, December has certain furloughs and holidays. It’s -- 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 result will be in Q4. But Q1, we’ll see the additional revenue to 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 stabilized? Maybe even uptick a little bit? Any color around what your conversations are like with clients around pricing?

All right. I’ll take this, Mayank. So, first of all, so we have Yury Gryzlov today. He’s our not only CEO, but also he runs Europe. So, I will tell you a little bit about U.S. because next time I’ll bring Vasily Sizov, who runs U.S. 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 in new business for Grid Dynamics. So, those colors are on a growing business, upgrading business. You talk about the more traditional legacy business, pretty much stable. So, you can see that -- I mean, again, Q3 was good every way you say. So, they’re proving, they’re putting. There’s a Q4, there’s Q1. Seasonality always works there and we’ll need to arise as we go toward the middle of next year significantly. For now, we enjoyed the run. We see good stable pricing. We see new, improved pricing, at least on this U.S. 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 business as usual as we see right now. And then we’ll see if Q4 and Q1 next year.

Great. Congrats on the quarter. Good to hear.

Thanks, Mayank.

Thank you, Mayank.

Thank you, Mayank. The next question comes from Puneet Jain of JPMorgan. And just give me a second and I’ll get the cameras going. Okay.

Puneet, we can’t hear you, Puneet.

Hang on a second. Go ahead, Puneet.

You’re still on mute.

You’re still on mute yourself.

Go ahead, Puneet. We can’t hear you. Okay, we can come back to you.

No.

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. Oh, here we go.

Very good. Give it a try again.

All right. So, why don’t you -- Puneet, why don’t you do one thing? Just dial in through the mobile and then we’ll get back to you. But just call in. You don’t have to do the video. So, Cary, 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 Bryan Bergin of TD Cowen. Please turn on your camera, please. And I’ll make sure you are in.

Hi, guys. Hope you can hear me.

Yeah. Yeah.

Yes.

All right. Very good. Let’s talk on 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 2025 spend potential in those types of accounts?

Hi, Bryan. Yeah. Always good questions. So, I don’t want to get too broad on the scope of the clients. Not everyone is in this accelerated mode to spend. And there -- we know there are some cases where people would like to kind of flush their old budgets and all that stuff. But that’s a minority. What happened was, when it relates to new activities and it’s just -- it’s not just AI. AI, it’s a good excuse to spend more money from the, 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 co-pilots and all the program 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 a longer term activities and the focus is on applications, not just proof points that some models work. When it comes to AI assistant, of course, it’s clear. It’s about the conversational part. We were talking about confirming, for example, verdict search, vector search, the verdict 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 are -- 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 on 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 to 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.

Yeah. Very good. So, Anil, will give you numbers in a second, because he always likes numbers and you can torment him after the meeting, by the way, he has everything for you.

Okay.

But I want to go a little bit on more fundamental philosophical skill, because it’s important. So, we’re adding new regions, India becomes a big part. We’re doing 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 billability perspective is you know very well. And we went to July, we are always were as 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, Grid Dynamics University and then Grid 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 non-linear investments, which I can allow myself to do, even maybe not giving you an immediate short-term, this glorious 20-40, because I see the return, return on robotics and it’s not as a true robotics automation for various clients, how to improve their production efficiency, 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 efficiency longer term, why we’re in this game, right? You’re like me and all the shareholders want to see the profit in the end of the day. Anil?

Yeah. Bryan, just adding to what Leonard said, you got the gist of it. But this is something that we highlighted in 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 for me, that point of view helps us. We’re scaling India too. The nature of our programs, from T&M 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, 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 from, 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 a 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 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 to the client immediately. 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, Bryan.

Thanks, Bryan.

Thank you for your questions, Bryan. The next question comes from Maggie Nolan of William Blair. Maggie, please turn on your camera and unmute your mic and.

Hi. How are you? I’m 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 Yuri 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 a TMT, 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, the addition of insurance and other things to be emphasized. 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 is 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 today into the various applications specific, which is basically connected devices and everything around it. That creates the potential. So, we are actually retuning, 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 it’s a 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 kind of expanded into fintech and Banking and Financial Services overall. So, JUXT, as Leonard mentioned earlier today, they are specializing in data-intensive systems for banking and financial services. And that’s -- it’s a highly complementary 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 U.S. 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 U.S. 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, right? That makes us differentiate. We remember always when 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 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, 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 sales force is needed. The good news about our sales force, especially in the U.S., 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, Southeast, and that’s what I’m getting. Now, we have investment in all the areas, so that what we do in the sales force and account management force, the main investments is to make sure once we get into the first programs, the execution is flawless. And because people that are in rush right now on the client side to do something, we spend more time deliberately on defining a statement of works, to defining the milestones, because the getting new clients is no longer a problem for us. How to make this $5 million, $10 million, $20 million revenue works driven by flawless execution? Today, it’s not only on engineering, as you’ve always been, engineering has to be great, delivery has to be great, but in account management and front-facing organization, we seek time and align with the clients. So, we’re getting more consultancy on architecture side. We’re adding more account management specialized with the engineering background and understand coming from the execution background before and we train delivery management guys towards 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 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 our 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 now we have customers in Latin America, right? But if we talk about our traditional U.S. business, they rush in and then they want to have the same quality, the same performance, and the same conversation as they’ve had with the U.S. colleagues. Well, it’s not always happened that way, right? And in our case, our Mexican team is very good, but PASA was appreciating for a long time now, it’s a bit declining. So, there was not as much productivity when good people, good people cost you money no matter what. System solutions, an approach that that matters. So, what happened, we started, as you know, Mexico, started Jamaica, now we have first green shoots in Canada, some consultants, we’re not opening yet offers, but that’s not 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 peer in the industry. I mean, they might like us to call them peers, but I treat them as peers who come from Argentina and they’re doing a great job. They extended Columbia, 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, to people in Argentina, it’s just very close. And the connection with them, it’s also strong with the European organization. So, I see that our clients, again, remember I mentioned we started working on integration in advance. So, with the clients from JUXT, we were talking about our 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 finished 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.

Thank you, Maggie.

Let’s try.

Puneet?

Mayank again.

Puneet. Puneet.

Mayank.

No. No. Not Mayank. Puneet, Puneet, sorry.

Oh! Puneet. Yes.

Yes. Puneet is there.

All right. I hope you can hear me now.

Go ahead.

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…

Exactly.

… 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, no, very strong quarter. So, let me ask, like, about overall demand. Like, many peers who have reported, they all are talking about seeing steady trends. Your tone, your growth rates definitely indicate, like, that things are better now than what they were six months ago. So, what’s driving this separation in growth rate for you? Like, you grew about 13% year-on-year this quarter, right? So, what’s driving this separation in growth for you versus many of your digital peers?

So, I mentioned before a few things. The AI solutions opened the door for bigger implementations. So, that’s obviously. But I’m sure you sit through many, many, earnings calls, and I guarantee that my good friends from other companies, regardless where they are, tell the same story, right? And I read one of the reports yesterday. We’re talking about 100 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, the reality is we still have some of it. The top clients, to some extent may actually invest more with us 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 a ramp up happens is because they put more bets on us. What I told Maggie, we need to make sure we have not only flawless execution, but a very well-established expectations. People rush to have some results 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, and at times of investment of technology, we ramp up quicker and we are more in a strategic critical applications for the business, 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 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 factors. I know Yuri, you want to mention something notable in Europe?

No. I think it’s -- yeah, 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, footprint expansion and things like that. I think it’s also very, very important. And if you look at those and as Anil mentioned, right, they’re contributing some amount of revenue already. I think it’s very important for us to stay focused. And if we go too broad, then we will kind of fall into the same category of many bigger players. But if we stay focused, I believe that’s the, that’s the key.

And the other thing I think worth mentioning, the GCCs is not just ultimate definition of India, it’s also Europe. So some of our big U.S. notable clients…

Yeah.

… 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 recent. And all we’re doing is a fighting for talent and to some extent, successful because people are curious about us and there’s a good, having three major areas good, but we also have a very large pool from the GCCs in India. But recent pool from, they don’t even call themselves GCCs, 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 like the work that should go to like a vendor like yourself, especially like a digital vendor like yourself, versus their in-house operations? I understand like you’re working more with GCCs there, but like how like 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 base recruiting, there are very two different desks, 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 the third line. So some of the GCC guys, what they’re saying is, we want to give you a part partial work. And we say, look, we need to be cooperating. So we want to 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. 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 send their participant, there were more than 30 technical and business executives and 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 or 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 client spending on AI projects, like they’re getting ready for AI projects, investing in data and all that. Does that 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 spend in this?

Well, they’re both, right? Some people are mesmerized by a demonstration from, 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, that’s very critical. Some of the clients, because they’re revolutionizing the things around our daily work, consumer work, recruiting, as you know, assistance, AI assistance, 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 applications, they want to be very, very specific. I have this number of journey cases I want to improve it. I have this veterinary clinic I want to increase the throughput. I want to, as you know, pets don’t speak. So there’s a lot of things we go around that. Some clients say, look, we would like to have a lot more bundle inventory. And a wealth management system, we are revolutionizing the conversational AIs, basically, video search assistance 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 proof of concepts. But both are important, because the impact of the of the dreamers is significantly larger over time and we talked about our investment into it, we can 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 a future business positioning comes from the -- those tectonic shifts.

That’s great. Thank you.

Thank you so much.

Thank you, Puneet.

Ladies and gentlemen, this concludes the Q&A session for today. And I’ll turn it over to Leonard for closing statements. Give me one second.