Greetings and welcome to Grid Dynamics First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded. .

It is now my pleasure to turn the conference over to [ Lilly Tranova ]. Thank you. You may begin. .

Good afternoon and welcome to Grid Dynamics First Quarter 2020 Earnings Call.

Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations and beliefs, including our second quarter 2020 financial guidance, the growth of Grid Dynamics' business, objectives and other business strategies as well as other forward-looking statements.

Please refer to the disclosure at the end of the company's earnings press release and Form 8-K filed with the SEC today for information about forward-looking statements that may be made or discussed on this call. .

All forward-looking statements made today reflect our current expectations only. We undertake no obligation to update any statements to reflect the events that occur after this call.

For a discussion of the specific risk factors that could cause our actual results to differ materially from today's discussion, please refer to the Risk Factors section of the company's Form 10-Q filed on May 11, 2020, and proxy statement filed on February 5, 2020, and in subsequent periodic reports that the company files with the Securities and Exchange Commission.

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Also, 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 issued today and the 8-K filed with the SEC. Today's call is also available via webcast.

You can find all the information I have just described on the Investor Relations section of Grid Dynamics' website. .

Joining us on the call today are CEO, Leonard Livschitz; and CFO, Anil Doradla. Following their prepared remarks, we will open the call to your questions. .

With that, let me turn the call over to Leonard. .

Thank you, [ Lilly ], and good afternoon, everyone. Thank you for joining us today. We're excited by hosting our first call as a public company, albeit under unique circumstances given the COVID-19 situation.

I would like to thank the entire Grid Dynamics global team for their dedication and hard work in achieving the significant milestone of becoming a public company, and to all our investors for their ongoing support. .

On today's call, we'll discuss our first quarter results, our assessment of the demand environment, along with the impacts of COVID-19, company-wide initiatives put in place to manage the near-term and our plans to leverage opportunities in the current crisis. .

Before we begin, however, the past few months have posed unprecedented challenges for communities around the world, and our hearts go out to all those affected by the COVID-19 pandemic. On behalf of Grid Dynamics, I want to express my gratitude to all the essential and frontline workers for their hard work and sacrifice for the benefit of everyone. .

Now turning to some first quarter financial highlights. Total revenue for the first quarter was $32.5 million, an increase of 24% year-over-year and 2% sequentially. Our GAAP net income was a loss of $4.6 million or a loss of $0.09 per diluted share, and non-GAAP net income was $1.9 million or $0.04 per diluted share.

We exited the quarter with a total customer count of 37, up from 24 in the first quarter 2019. With 13 customers that were added over the last 12 months, we're across market verticals with half of them belonging to the technology space.

Given that it typically takes 6 months to 12 months to ramp revenues at large clients, we expect the revenue contribution from these clients to continue to increase in the second half of 2020. The revenues from our top 5 customers in the quarter was 64%. That was down from 70% of our revenues in the same quarter a year ago.

It has been an important business objective for us to broaden our customer base and to reduce our large customer concentration. We're encouraged by the progress we've made and intend to continue on this trajectory. .

More importantly, we continue to execute well on our stated goal of a market diversification as our technology, financial, CPG and manufacturing segments grow at a faster pace than our overall business.

Within the top 5 clients, 2 are technology, Apple and Google; 2 are retail, Kohl's and Macy's; and 1 was the financial services client, Raymond James..

Although we had a strong first quarter performance, the strength in the quarter was offset by economic deterioration caused by COVID-19 from the second half of March onwards.

Our first quarter results would have been stronger, both on the revenue front and more so on the profitability front, had we not experienced the sharp and sudden impacts of the pandemic. As you all know, the COVID-19 pandemic is an unprecedented crisis with no comparable in recent times.

Across our customer base, the response to pandemic has been varied and driven by customer-specific as well as industry-specific dynamics. .

At our retail customers, the impact of pandemic has expectedly been more pronounced. The impacts of store closures and their consequences to their business have resulted in their brick-and-mortar retailers pulling back their spendings and going into cash preservation mode.

While Grid Dynamics supports critical digital solutions tied to the client revenues, headwinds from the current crisis were too strong to keep these important programs out of harm's way. It's also worthwhile to mention that in spite of temporary pauses at some of these customers, we have experienced only a few immature client terminations.

In such cases, where our customers have pulled back, the impact to our business have largely been in the form of scale back of Grid Dynamics' employees and the customer projects, temporary SOW pauses and request for longer payment terms..

When we look at the broader customer base of the Fortune 1000 companies across the technology, financial, CPG and manufacturing, the impacts have been less pronounced and the reaction to the crisis has largely been driven by customer-specific factors. In some cases, customers have viewed the current situation as an opportunity to expand. .

We have also witnessed a couple of additional noteworthy trends that this crisis has unfolded. Some customers who have been less open to using offshore resources in the past have reconsidered their viewpoint and now more favorably inclined towards offshore.

We have also witnessed customer seeking greater diversification away from their overdependence on India as best outsourcing operations toward Eastern and Central Europe.

Many customers have decided to accelerate the timing of their digital transformation strategies, although the impact of this acceleration will probably not be felt until the second half of the year when the initial COVID-19 shock subside. .

In this new economic reality, virtually all of our clients are realizing that a stronger focus on digital transformation, cloud, data analytics and automation is critical to survive.

Since March, we have taken several initiatives that have positioned the company well to deal with the current crisis, and more importantly, leverage opportunities once we come out of the crisis. .

So moving quickly, to protect the health and safety of our global team members and their families and ensure we continue to provide safe and uninterrupted service to our clients, we enacted a work-from-home policy in mid-March. And today, all our personnel are working remotely from home.

Since early on, every one of our engineers have been equipped with the laptop, robust VPN capabilities and state-of-the-art collaborative tools, giving us the agility and flexibility to provide seamless support to our clients. .

We also initiated cost savings program to realign ourselves in the current environment. Some of the steps we took include salary and compensation reduction at the Board, executive and employee level; further reduction in executive cash compensation in Q2; and implemented a restructuring program through align our bench. .

Over the past couple of months, we have viewed the current crisis as an excellent opportunity for the company to invest in programs and initiatives that we believe will expand our differentiation relative to our competition. We're accelerating our R&D efforts with over 20 different programs to create multiple innovation solution accelerators.

As an example, our wealth of knowledge in artificial intelligence and machine recognition that has been used to put up online retail through catalogs is now being applied in the areas outside of retail industry.

On the machine learning front, our experience in developing pricing and promotion optimization for department stores has now been retooled to drive revenue generation at the top brands. .

With some of our marquee clients, we are co-investing to help them deliver innovative programs. As an example, we've partnered up with a top lifestyle brands to help them drive business decision from the wealth of the data that is generated by their connected products.

And we expect to be a part of the several innovation programs at this customer toward the end of the year. .

On capability fronts, we are expanding our expertise across all 3 cloud platforms, Google Cloud, Amazon Web Services and Microsoft Azure with our certifications and blueprints. This will accelerate Grid Dynamics' presence in segments outside retail. .

We also believe the current crisis has presented incremental opportunities on the M&A front. Our strong and flexible financial position allowed us to be more aggressive than many in the uncertain market environment. We are currently evaluating multiple opportunities with emphasis on geographic and vertical expansion.

Given the heightened uncertainty and diminished visibility, the current pandemic has reduced our ability to forecast our business. Consequently, we are withdrawing our previously announced guidance for 2020. That said, we are providing some color around our second quarter revenue. .

For the second quarter, we expect revenue to be in the range of $21 million to $22.5 million. We believe our second quarter revenue will be the low point and expect the company's revenue to progress on the recovery path from Q3 onwards. .

While the magnitude and timing of the recovery is still uncertain, there are a couple of things that may be incrementally positive. We have taken a conservative outlook on our revenues projection for our retail segment, which we do not expect to reduce any significant turnaround in Q2. Since the start of Q2, we have added at least 5 new customers.

These companies have global presence, of the size to our tech companies, and our engagement with them are focused around data science and analytics. .

Another customer is a European-based global online grocery platform. We're assisting them with their platform development. We also signed on a deal with a global online payment platform company, and we'll be working with them around customer data analytics.

And finally, we've signed on a global CPG customer, with whom we are using data science prediction model, to assist them in the COVID recovery. With our existing large customers, in technology, CPG and manufacturing, we see it kicks off some significant programs that we expect to ramp up in the second half of 2020. .

From a financial standpoint, we are well positioned to weather the effects of COVID-19. On March 31, 2020, cash on our balance sheet was $121 million, and we have no debt.

The foundation of our long-term growth strategy is based on deep strategic relationship with our clients and our land and expand model, and the essential drivers of this model remained strong. The need for digital transformation remains universal.

Our leading strategy, consulting and digital technology services, our agile global delivery model and deep domain expertise will continue to benefit Grid Dynamics. .

With that, let me turn the call over to Anil, who will discuss our Q1 results in more detail.

Anil?.

Thanks, Leonard. Good afternoon to everyone, and I hope everyone is staying safe and healthy. Let me start by summarizing our first quarter 2020 results. Our revenues for the first quarter was $32.5 million, implying a year-over-year growth of 24% and a sequential growth over the fourth quarter 2019 of 2%.

As Leonard highlighted in his opening remarks, while business trended favorably in January and February, towards the latter part of March, we started witnessing the impacts of COVID-19 on our business. Absent that exogenous slowdown, our revenues and EBITDA performance would have even been stronger. .

Coming to the details of the revenue mix.

Revenues for the 3 months ended March 31, 2020, from retail segment was slightly less than 50% of the total revenue, a drop of over 10 percentage points over the same quarter of 2019, and the first time in Grid Dynamics' history that this vertical falls below 50%; technology was 29% of total revenue, up from 26% of revenue in the year ago quarter; financial was 12% of revenue, up from 10% in the year ago quarter; CPG and manufacturing was 6%, up from 2% of revenue in the year ago quarter; and finally, the other segment was 3% of revenue, up from 2% of revenue in the year ago quarter.

All segments of our business grew on a year-over-year basis, with technology, finance, CPG and manufacturing and other segments significantly outpacing the growth in the retail segment. .

We exited the first quarter 2020 with 1,357 employees, down from the fourth quarter headcount of 1,430 and up from 1,149 employees in the first quarter of 2019. The sequential decline in headcount was driven by a restructuring program that we initiated to align the headcount with the current business environment. .

In the first quarter of 2020, our total U.S. headcount was 264 people or 20% of the company's total headcount, while our non-U.S. headcount, which we sometimes refer to as offshore located in Central and Eastern European locations, was 1,093 or 80% of the total headcount. .

During the quarter, we had 3 10% customers. Revenues from our top 5 and top 10 customers were 64% and 86%, respectively. During the same period a year ago, our top 5 and top 10 customer concentrations was 70% and 93%, respectively.

The greater diversification in our business was achieved by a combination of new logo additions and faster growth in the non-retail segments relative to the retail segment. This happened by design, not by accident, and we expect this trend to become more pronounced in the future. .

We exited the quarter with 37 customers, up from 24 customers during the same period a year ago, and the strength in the new customer addition was more weighted towards the technology market segment. .

Moving to the income statement. Our GAAP gross margins during the quarter was $9.8 million or 30%, down from $10.3 million or 39% in the 3 months ended March 2019. The key reason for the decline was a combination of increased stock-based compensation, retention bonus and other costs.

On a non-GAAP basis, our gross margin was 36%, down from 40% in the same year ago period. The year-over-year decline of 400 bps was largely driven by increased offshore costs. .

Adjusted EBITDA during the quarter that excluded stock-based compensation was $3 million or 9% of revenue, down from $3.8 million or 15% of revenue in the first quarter a year ago. The decline was largely driven by higher operating costs associated with becoming a publicly traded company, combined with lower gross margins. .

Our GAAP net income totaled a loss of $4.6 million or a loss of $0.09 per diluted shares based on 49 million shares compared to a GAAP net income of $0.7 million or $0.04 per diluted share based on 20 million shares.

On a non-GAAP basis, our net income was $1.9 million or $0.04 per diluted shares based on 49 million shares compared to $2.5 million or $0.12 per diluted shares based on 20 million shares. .

On a non-GAAP basis, in the first quarter, using a normalized tax rate, our net income totaled $2.4 million or $0.05 per diluted share. The decline in GAAP and non-GAAP income was due to a combination of reasons highlighted earlier, both on the gross margins and operating expenses front. .

Coming to the balance sheet. Our cash, cash equivalents and short-term investments totaled $121 million compared to $42 million as of December 31, 2019. This significant increase was primarily due to the successful merger between ChaSerg and Grid Dynamics on March 5, 2020. .

Our balance sheet remained strong, and we're confident this will help us successfully to navigate through the current downturn. .

Given the risk associated with the pandemic in some of our customers' businesses, most notably in the retail sector and their ability to fulfill their payment obligations, we've taken an allowance with our accounts receivables in the first quarter.

In the first quarter, we have reserved a total amount of $0.9 million for allowance of doubtful accounts. We review our accounts receivable on a regular basis and have put in place incremental processes to ensure payments from our customers. .

As Leonard highlighted in his opening comments, the uncertainty with the COVID-19 pandemic has reduced our visibility, thereby diminishing our ability to forecast our business. We have decided to withdraw our previously announced guidance for 2020.

That said, we're providing revenue guidance for the second quarter and expect revenues to be in the range of $21 million to $22.5 million. In the future, as the business environment stabilizes for our major customers, we intend to resume our guidance practice. .

With that, let's open up the call for questions. .

[Operator Instructions] Our first question comes from Maggie Nolan with William Blair. .

I wanted to ask about your frequency of touchpoints with clients in this environment.

Are you starting to get a sense of how much of the spend reduction that you're seeing and form your Q2 guidance is kind of that initial shock from COVID versus how it may progress over time? Or is there still a large level of uncertainty there?.

Thank you, Maggie. Obviously, it's a first question and first answer on my side. So the point of view I have in the situation is kind of aligned with what you described. There was definitely a sharp and bold first reaction from the client, and that's understandable.

However, as the time settled, everybody is engaged on their own way to -- on the path of recovery. We stay in a very close touch with all our customers, some who have better clarity about how they're going to proceed. Some of them less.

As you know, as in -- the country and individual states are heading to some opening from the quarantine, will have a better results of their process thinking as we go forward. At this point of time, we're in touch. We have a good line of communication. We're waiting for more specifics. .

And then you mentioned that the customers had responded in a variety of ways, whether it be pushing out some clients asking for extended payment terms. I'm wondering what the conversations have been around pricing and your ability to see that pricing power that you've enjoyed kind of hold up in this environment.

If there's any distinction amongst customers there as well?.

Well, we don't provide a specific guidance for individual customers and the pricing. In general, I definitely see some flexibility of the way our customers, especially retail customers, respond in a situation like that. We're in cash preservations. We're making investments where it's appropriate.

But I don't see a trend on pricing pressure as much on the terms. Definitely some customers inquiring about longer terms, which will be, again, assessed accordingly as the situation with customers will be more clear, as I mentioned in the question before.

So to summarize the point is there is a pressure -- there's more pressure in terms for some of the customers. However, we act accordingly with each individual customer according to our relationship and partnership. .

And then on the expense side, you've already taken some initial actions, it sounds like to do some restructuring and protect those margins.

What was the impact of some of that, that you may have seen in the March quarter versus how we can expect that to play out in the June quarter? And then what are some of your levers, both kind of on the people-related expenses, but also on the operating side, even beyond what you may have engaged in already?.

Good. I'll have 2 parts of the answer. First, I'll do myself. Second, I'll ask Anil to jump in with the numbers. But fundamentally, even though the situation unfolded rapidly, we had some planning in place a little bit ahead just to understand how the situation will unfold.

So we made certainly a couple of very key decisions, and the first decision is we kept most of our people in place in order to return with total extent because we believe the majority of this first knee jerk reactions are going to be recovered, especially demand from digital part.

And the business continues to grow even in the -- some toughest segments, like retail department stores. .

At the same time, the challenge always comes with the fact that March, typically in our business, is the -- kind of amounts of inflection of the growth. As you know, our business, there's some -- a little bit of seasonality, and March promises to be the growth, which is it has been, but not to the extent we obviously expected a couple of weeks.

So it impacted our numbers on Q1 profitability, but also it required us some of the realignment of the extra resource we planned for growth in Q2 compared with Q1. So we did have some adjustments. We implemented some other cost actions I talked about.

But most important, there's no dramatic impact on our capability and we decided that we're going to weather the storm with the balance sheet we have. We have a lot of good indicators on the promises of growth, particularly from non-retail business, which has grown quite a bit. .

And the second part of the question in terms of the numbers and outlook for June, I would let Anil to speak.

Anil?.

Yes, Maggie, Leonard qualitatively summarized what our efforts were. As you can see, we had a little bit of a restructuring that we kicked off in late Q1. The minute we saw the kind of outlook, we reacted very quickly and we kicked off a little restructuring program. And the benefits of that, obviously, will fall into Q2. .

On Q2, what we've done is, as Leonard pointed out, the workforce has been kept intact based on our outlook. But what we've done is that we've tied up -- on the spending front, all discretionary spending has been put on hold. So when it comes to the levers, it's -- as we go into the second half of the year, obviously, we'll see how things play out.

But in terms of going from Q1 to Q2, we have taken some of these initiatives to align our costs with the current business environment. .

And are there further initiatives that you intend to push forward? And what are some of those potentially that could still take place going forward?.

Well, look. I mean right now, as we said, we've given some Q2 guidance. We have a couple of models that we have laid out towards the second half of the year. We have several options that we could look at. But for now, we're just focused on Q2, ensuring that we execute well on Q2.

But we do have a couple of options, and it will depend upon how the environment looks like and the return of the demand environment. .

I want to add one more thing to Anil. So Maggie, I have a strong belief, aligned with the management team of the company, that we see a good opportunity for Grid Dynamics to leverage the situation, where more and more businesses are turning into the digital transformation, accelerating it.

So as we're expanding our customer projects, we're adding more fuel in the fire with capabilities in data science, data engineering, machine learning, artificial intelligence, the number of projects we're doing. So I would say my priority right now is to invest to grow. And this is -- includes, first, recovery and then expansion.

So while Anil gives you the -- kind of what I call defensive-conservative approach, which is absolutely critical, I'm more bullish on our capabilities to expand more of the business' new customer acquisitions. .

Very good. Congrats on this first quarter even in unusual circumstances. It's exciting to hear your voices. .

Thank you, Maggie. .

Thank you, Maggie. .

Our next question comes from Drew Kootman with Cantor Fitzgerald. .

I was hoping, since this is the first call, you briefly touched on it.

But maybe just a little more color on the broader dynamics that you see in digital? And what gives you guys the competitive advantage over peers?.

Thank you, Drew. It's good to hear you, and thank you for bringing a question, which is very critical for our existence. We are a unique company in the sense that we are pure-play digital company. We have a very strong technical capabilities, ability to solve complex issues with our clients.

We build our vertical knowledge in retail, which we scaled now outside of retail. It's not only about individual technology knowledge, but about the strong teams and project manager associated with that. We leveraged our onshore/offshore model quite well and continue to do so. .

We invested not only to build a strong engineering team across Central and Eastern Europe, but also build local capabilities in the United States. As you noticed, we have more than 20% of our engineering workforce working from the United States.

So a combination of technical skills on the senior -- the client system management, adding more new capabilities as well as a strong onshore presence makes us feel very good going forward. And on top of it, obviously, our cash availability helps us to build stronger and weather the storm as we always do. .

Great. And then maybe you could provide some color on what you're seeing over the last few weeks, maybe even by like a week-by-week basis. Just trying to -- I know everything kind of fell off at the end of March.

But just around how clients are reacting? What you saw in April, did it start to recover? Are you starting to see stabilization? Just any color maybe in April and even as we start in May. .

All right. Well, thank you, Drew. I will not be storytelling more because it's a little bit hard to go by -- week-by-week. But of course, my wife as a CEO, I do day by day. I would say that there are a couple of key milestones in this world where -- is that in late March was obviously a big surprise.

A lot of things happened in a very uncertain way, so as the first week of April, I would say. As April unfolded, there are more and more understanding in terms of how the business is going to be going forward. And to our success in terms of retooling, we made almost instant transformation to a work-from-home environment. So people were safe.

People -- we have all their laptops and all the environments at home, and that certainly helped us to kind of stabilize and to stay in the business. The customer -- some of our customers were very understanding that environment is different. So they trust our security capabilities, trust our teams.

So we were able to, in some sense, to build the business, working from home without loss of productivity. .

And as you go to the late April and early May, I definitely see some of the recovery modes. Don't forget that we added some customers in late Q1, but I would say also now as well. So there's definitely a positive trend. Now you saw our forecast, that's already the guidance in Q2 right now.

So time will tell how all these initiatives will come into the financial capitalization on that. But in terms of structure or control, I think Grid is operating in, I would say, a good and reliable operation environment.

Anil, do you have anything to add?.

No, no. I think, Drew, the key point that Leonard pointed out was that the 5 accounts that we talked about, and I think that we should not overlook because these are global accounts that have a significant impact in the long-term on our business.

And to witness these 5 new accounts in this environment coming to us is a core testament of our expertise, our ability to assist these global companies in their journey for digital transformation, and more importantly, us tied to revenue-generating opportunities.

So all these things put together, I believe, we're seeing in a subsegment of our customers even an acceleration of some of their digital transformation. So we have seen, like we've seen in the financial crisis, coming out of this, companies like us come out stronger. So I think that's what I believe. .

Perfect. And then final question for me.

Just any color on how you see the impact to the pipeline? Or if it does strengthen in the near term, just as people look to digital if it takes a little hit? And then how quickly it gets back?.

Well, again, I think -- we'll explain it. I will talk about the strategic part and Anil probably can give a little bit more color on the specifics, if he chooses so. I do see a return on the pipelines from new opportunities. Now some of them are not immediate.

What I'm trying to say is, as we have large Fortune 1000 companies and big enterprises, some of the planning started immediately now. But we probably will see some of the fruits of that in the second half of the year. .

Also, like I mentioned in one of the previous questions from Maggie, great expertise in the depth of digital and cloud and data sectors attracted those big guys, who realized that they can go slow into the digital world. And then just -- it's not just a traditional e-commerce.

We're talking about things like brands, which are stepping up, and in some cases, extending beyond the retail department stores. We're talking about manufacturing companies, with supply chain become absolutely vital, did not so work but we're expanding on that.

There are some very unique opportunities and skills we apply into the platforms related to the ad tech. So it's a very broad initiative.

Anil, anything from your side?.

No, no. I think you summarized it well. I think the key message here, from my point of view, it is across the industries.

The other thing that we've seen is, and Leonard talked in his opening remarks, the knowledge and the experience that we've developed over the years with the retail, we're seeing the benefits with many of these other industries right now. And that's what we've been seeing in the near term and will continue to see. .

And the last but not the least, Drew, is technology sector. I would say that, that's the fastest growth we see there, even right now. So it's an incredible dynamic in this particular sector we observe. .

Perfect. Appreciate the color, and congrats on the first quarter. .

Thanks a lot, Drew. .

Thanks. .

Our next question comes from Tim Savageaux with Northland Capital Markets. .

A question, I want to focus back on retail for a moment. And I think you made a comment on this, so I'm not sure I got it. In terms of the guidance, are you -- is all that weakness focused on retail? Are you -- I thought you might have commented you're essentially taking it out of the numbers.

And beyond that, recognizing kind of the initial reaction is to cut, are you seeing any indications of any kind of secondary reactions to sort of refocus on e-commerce and digital transformation amongst your retail customers? And I have a follow-up. .

So... .

Thanks, Tim. Well, I would let Anil to answer the first part. I will do the second one.

How about that, Anil?.

Yes. Yes. So Tim, so when you look at our guidance, yes, we're not going to get into specific breakdowns by segment. But it's fair to say that we've taken a very conservative look on retail. And we believe that there's little or no downside from what we've said. So we've derisked some of the retail part as we go into Q2. .

Yes. And I believe the second part, Tim, if I'm not mistaken, was about some color of the e-commerce. So e-commerce exist and will exist and will continue to expand. There are absolute vital initiative from every retailer to recover and continue to exist is -- in e-commerce.

The visiting players and new players, even in some of the most difficult times, our retail clients use our application. They're absolutely vital for their business today. And they will be continuing investing in those ones.

We can't provide exactly the color because, frankly, it's -- again, maybe in the very beginning, we have -- we are staying in touch, but we need to see how the environment will unravel. But from the perspective of e-commerce, I would not cross it out at all. It's a big part of our DNA, and we'll continue to invest and grow e-commerce. .

Okay. Great. And I want to follow-up on the new customer additions, which is pretty impressive in this environment. But -- and you mentioned these are pretty large organizations that may take a little time to get going.

But is there any way relative to your current customer base or in any way that you choose to kind of size the potential aggregate contribution from those new customers, either this year or down the line, as they ramp to what you think their full potential might be? And then I have one more follow-up after that. .

Yes, of course. So there are 2 parts of it. We always talk about that we are focusing on large enterprising, and our strategy is to build large relationship with the customers, higher revenue, meaning stronger relationship and more strategy with that.

And that's been always reflected in how many customers we have, 1 plus million, 2.5 plus, 5 plus and all those stuff. So by default, majority of our focus on this customer, in the upper category to be $5-plus million, $10-plus million is a potential.

Very seldom when we go and look at smaller customers, we do the -- we have some technology innovation, which helps our customers to utilize with, agreed -- and have agreed to understand that particular trend. So I would say that all 5 customers fall in the category of the upside and upper size of the revenue going forward.

How soon it's going to happen, obviously, time will tell. But all of them continue to be in the -- category part of around $10-plus million of our business from the upside for Grid Dynamics. .

Great. And then last question from me. I mean it would seem to be a pretty opportune environment for acquisitions given potential disruptions among smaller organizations and a strong balance sheet that you're coming into this with.

Should we expect that it's likely that we'll see something along those lines in calendar '20? And I wonder if you could comment on the type of -- the profile of your target acquisition, maybe in general, not necessarily specific to this.

But what our expectation should be with regard to kind of the size of organizations you might be looking at?.

Thank you, Tim. So it's a great question, and it's obviously a very important part of our strategy. We are centered both on geographic expansion as well as expansion in the new verticals. We believe that the part of the M&A strategy has -- will bring us opportunities, both in 2020 and going forward.

At this point, it's very hard to specifically zero on individual yields because we're exploring a broad number of opportunities. Again, we're not trying to fish at the bottom of the pond. We're looking for the great synergy and great upside, which comes from, like I mentioned before, the verticals and new geographic expansion.

And we'll continue to brief the investor as we progress. So that's my position right now.

Anil, do you want to add?.

No, no. I think that's the key thing. My observation, Tim, has been that -- as you know, I've been here for a short time. The opportunities that this company has in terms of the M&A is pretty robust. I mean there are a lot of opportunities. And you're right, in this environment, we'll have more opportunities.

So it's a question, as Leonard says, ensuring that we get the right fit, which is the right size. And more important, the DNA is consistent with our DNA. .

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Leonard Livschitz for closing comments. .

Thank you, everybody. This concludes Grid Dynamics first earnings call. We had a turbulent quarter behind us, wrestling with the dual challenge of building a newly minted public company while experiencing the unprecedented disruption of COVID-19.

Our strong Q1 performance, combined with a swift and decisive action to help alleviate the near-term unpredictability, gives me confidence in midterm business recovery. We have implemented a number of external and internal initiatives designed to boost our competitiveness.

The number of new clients and new programs under such a strict quarantine environment is a testament of Grid Dynamics' value in the world of accelerating digital transformation. .

I want to thank my customers for their trust in Grid Dynamics, our employees for unconditional support and intelligent contribution, and our shareholders for their patience and support. Stay healthy, everyone. .

This concludes today's conference, and we thank you for your participation..