Good day, ladies and gentlemen, and welcome to the Grid Dynamics Holdings, Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. .

I would now like to turn the conference over to Ms. [ Lilly Chernova ] of Investor Relations. You may begin. .

Good afternoon, and welcome to Grid Dynamics Third Quarter 2020 Earnings Conference 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 fourth quarter 2020 financial guidance, the growth of Grid Dynamics business, our objectives and business strategies as well as other forward-looking statements. .

You can 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 will be made on this call.

All statements made today reflect our current expectations only, and we undertake no obligation to update any of them to reflect the events that will occur after this call.

You can learn more about the specific risk factors that could cause our actual results to differ materially from today's discussion in the Risk Factors section of the company's Form 10-Q filed on August 6, 2020, and in subsequent periodic reports that the company filed with the SEC. .

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 and the 8-K filed with the Securities and Exchange Commission. .

This call is also available via webcast. You can find all the information I have just described in 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. Good afternoon, everyone, and thank you for joining us today. I'm excited to share the progress we have made since we spoke with you 3 months ago.

Today, I will provide highlights of our third quarter results, share what we're witnessing across our business on the demand front and talk about the trends that's shaping up our fourth quarter. .

In the third quarter, our revenue of $26.3 million grew 18% sequentially and was one of the highest quarter-over-quarter growth in the company's history. More importantly, underlying the trends that shaped out the third quarter, both from the customer demand and the delivery front were very encouraging.

And we're setting the stage to a favorable fourth quarter and 2021 year. Although there were many positive trends, I would like to highlight a few. .

First, in the third quarter, we witnessed strong pickup in customer activities across the board as digital transformation initiatives took central stage. These trends will continue in the fourth quarter and we anticipate revenue run rate to approach the level we had at the end of 2019, with strong contributions from our top clients. .

Two, within our retail segment, we witnessed strong pickup from specialized e-commerce friendly retailers. Furthermore, we see somewhat of an overhaul as new categories of retail customers emerge.

Again, as we enter 2021, we will not rely on traditional retail as we succeed in diversifying our revenue composition across TMT, CPG, fintech, manufacturing and other industries. .

Three, some of our larger customers are increasingly seeking to engage with our offshore locations. While the motivations are customer-specific, continued demand for the cost efficiency, combined with greater acceptance of remote work, have influenced many customers toward increasing the use of Grid Dynamics offshore locations. .

And number four, companies are increasing focus on improving efficiencies across their sales life cycle and operations by leveraging data-driven solutions. Our customers demand Grid Dynamics expertise in data science, big data engineering and artificial intelligence. .

And now coming back in the third quarter. We witnessed growing demand for our expertise as customers steadily increased their investments in digital transformation. This was not specific to any one market but rather widespread across industry verticals. In issue.

In each of the 3 months of the third quarter, our revenue grew sequentially, with September being the fourth consecutive month of the growth. Most importantly, in October, we saw the same upward trend, leaving us to be confident in Q4 outlook and momentum to a recovery to a pre-COVID level and beyond. .

On profitability front, there was a strong pickup in our margins from the second quarter. This was driven by 2 key factors. The first was tighter increased utilization rate across the company, and the second was from a greater mix of offshoring.

While we expect these trends to continue providing tailwinds to our business in the fourth quarter, reinstatement of compensation as well as strategic sales force hires may offset some of the gains. Anil will provide more color around the margin movements in the fourth quarter. .

Our non-retail business was 77% of revenue and grew 10% on a sequential basis. Also importantly, this part of the business has grown double digits sequentially in each of the third quarters of 2020. The continuous trends, even during the pandemic crisis, clearly validates the importance of digital transformation. .

Now coming to our retail segment. We witnessed a strong sequential growth from the second quarter as our retail customers opened their stores and resumed operations. That said, the growth was not consistent across retail customers, with majority of retailers still working with smaller IT budgets for the remainder of 2020.

While we anticipate a pickup in revenue in Q4, we do not expect achieving pre-COVID levels of revenue business in retail. .

During the quarter, we had also delivered some notable projects. Number one, we assisted and enhanced the revenue of a leading search technology company by integrating its search engine at several large enterprises in the United States as a part of their partnership to improve online customer experience, both product search and placement.

Number two, at a global CPG company, we optimized their in-house cloud data platform. This resulted in 75% improvement in latency of data processing and significant reduction in costs associated with infrastructure and maintenance.

Number three, at a leading digital advertisement company, we built a marketing platform using our expertise with data science and data engineering. One of the tangible outcome of our efforts was the customer increasing their ad conversion by 44%. .

One more example. At a U.S. retailer, we built a customized loyalty platform, replacing an existing platform that was expensive and inefficient. Our implementation, focused on enhancing customer experience, leading to improvements in customer satisfaction. .

In the current pandemic environment, consumers are increasingly demanding a robust digital online experience to shop for goods and services, and this is just one example of how COVID-19 has become a catalyst to digital transformation.

Even during this time of uncertainty and uneven customer demand, we continue to execute very well in adding new customers, especially in our higher growth vertical. During this quarter, Grid Dynamics added 5 new logos through at least 4 considerable significant players.

One is in the medical device technology space, another one is in the home improvement sector, and the last but not the least one is the global financial technology payment platform system. We believe these logos have the potential of becoming large customers over time. .

Additionally, we continue to make good progress on customer diversification. During the quarter, 2 of our top 5 clients were in the technology space and 1 each in CPG, retail and in fintech. Our top clients during the quarter were Apple and Google. .

With that, let me turn the call over to Anil, who will discuss third quarter results in more details.

Anil?.

Thanks, Leonard. Good afternoon, everyone. Let me start by summarizing our third quarter 2020 results. .

Total revenue of third quarter was $26.3 million, an increase of 18% sequentially and decline of 16% year-over-year and exceeded our guidance range of $24.5 million to $26 million. Other than financial, all segments grew over the second quarter with strong quarter-over-quarter growth coming from CPG manufacturing, retail and the other segment.

Technology, media and telecom, commonly referred to as technology, was the largest vertical in the quarter. .

Our non-retail business now representing 77% of revenues in the third quarter was up 10% on a sequential basis and 47% on a year-over-year basis. Key highlights were our technology segment, which represented 48% of our revenues and grew 6% on a sequential basis and 45% on a year-over-year basis.

And CPG manufacturing that represented 13% of our revenue and grew 36% on a sequential basis and 146% on a year-over-year basis. Here are the details of the revenue mix. .

Revenue for the 3 months ended September 30, 2020, from our retail segment was 23% of our total revenue, a drop of 33 percentage points over the year ago quarter. During the quarter, we witnessed a sequential pickup in revenues from this segment as most of the retailers started engaging with some of the e-commerce retailers growing more rapidly.

The technology segment was 48% of total revenue, up from 28% of revenue in the year ago quarter. Finance was 20 -- 12% of revenue, up from 10% of revenue in the year ago quarter. And CPG and manufacturing was 13%, up from 4% of revenue in the year ago quarter. Finally, the other segment was 4% of revenue, up from 2% in the year ago quarter. .

We exited the third quarter with 1,204 employees, down from the second quarter headcount of 1,237 and at the level of 1,350 employees in the third quarter of 2019. The sequential decline was largely from the effects of the restructuring program initiated a couple of quarters ago that spilled over into the early part of the third quarter.

At the end of the third quarter of 2020, our total U.S. headcount was 249 people, or 21% of the company's total headcount; while our non-U.S. headcount, which we sometimes refer to as offshore, located in the Central and Eastern Europe locations, was 955 or 79%. .

Revenue from our top 5 and top 10 customers were 60% and 78%, respectively. During the same period a year ago, our top 5 and top 10 customer concentrations were 67% and 85%, respectively. We exited the quarter with 42 paying customers, up from 35 in the third quarter of 2019 and up from 37 customers in the second quarter of 2020.

As a reminder, we only count the revenue-generating customers in the quarter and do not include inactive customers. .

Relative to the second quarter, we added 5 new logos. One of these were in the technology segment, 1 in the retail, 1 in the financial and 2 in the other. .

Moving to the income statement. Our GAAP gross margin during the quarter was $11.2 million or 42.4%, down from $13.8 million or 44% in the 3 months ended September 2019. The key reason for the decline was a combination of lower revenues, increased stock-based compensation and other costs.

On a non-GAAP basis, our gross margin was 42.6%, down from 44.7% in the same year ago period. The year-over-year decline of 210 bps was due to a combination of lower revenues and other costs. .

first, increase in company-wide utilization as revenue picked up in the third quarter; second, greater share of offshore billable engineers as customers increasingly sought to work with our offshore locations; third, cost savings from lower levels of spend as restrictions continue to be in place; and finally, fourth, the increase in number of working days.

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Adjusted EBITDA during the quarter that excluded stock-based compensation was $4.2 million or 16% of revenue, down from $7 million or 22% of revenue in the third quarter a year ago. The decline was mainly due to decline in revenues, combined with increased operating costs, such as public company costs.

Our GAAP net income totaled a loss of $1.1 million or a loss of $0.02 per diluted share based on 49.7 million shares compared to a GAAP net income of $4.5 million or $0.20 per diluted share based on 22.7 million shares in the year ago quarter.

On a non-GAAP basis, our net income was $2.5 million or $0.05 per diluted share based on 49.7 million shares compared to $5.1 million or $0.23 per diluted share based on 22.7 million shares. The decline in GAAP and non-GAAP income was due to a combination of reasons highlighted earlier, both on the gross margin and operating expense front. .

Our cash, cash equivalent and short-term investments totaled $126.5 million, up from $123 million in the second quarter and $42 million as of December 31, 2019. The sequential increase in the current quarter was due to continued positive cash generation aided by aged accounts receivable payments from some of our higher-risk customers.

The significant increase from December 31, 2019, balance was primarily due to the successful merger between ChaSerg and Grid Dynamics on March 5, 2020. .

As you may recall, in the second quarter, we reserved a total of $0.8 million for allowance of doubtful accounts. Over the past 3 months, we have received payments from our high-risk customers and continue to be engaged with them to ensure they fulfill their payment obligations.

Based on our latest review, we are lowering our reserves to $0.4 million to a final amount of $0.4 million. .

Coming to the Q4 guidance, we are providing revenue guidance for the fourth quarter and expect revenues to be in the range of $27.7 million to $28.7 million. .

And that concludes our prepared remarks. Operator, please open the line for questions. .

[Operator Instructions] Our first question comes from the line of Bryan Bergin with Cowen. .

This is Zack Ajzenman in for Bryan.

First one, could you maybe shed a little more color on the insights around sales force expansion and how we should think about the sales and marketing strategy moving forward?.

This is Leonard. What we -- as we acknowledged before, we continue to invest into expanding sales force. We kind of go into the position of bringing the senior talent. We'll have more color on that as we progress.

Right now, we're just basically looking at the cross of the geographic and industrial specialization as we continue to bring senior leadership with the sales organization. As far as marketing goes, as we moved into the remote virtual world, they are more focused on events, webinars, customer communication, et cetera.

So I would say, on the marketing front, we just accelerated the amount of communication. On the sales front, we are beefing up our sales organization. .

Understood. And just a follow-up, some nice upside to the gross margin here. It sounds like utilization was running at elevated levels.

How should we think about utilization as things normalize and the plan to maybe increase billable staff there going forward given the improved demand environment?.

Sure. Yes. So as you saw, we had roughly 490 bps margin expansion, as we talked in our prepared comments. Our utilization just went up. If you recall, Q2 revenues dropped off, and we're kind of coming back to our pre-COVID levels. So that was the movement on the Q3 front. .

As we go into Q4 from a modeling point of view, what I would say is that a couple of things. Across our COGS and OpEx combined, roughly we should see about a $2.5 million increase, with the breakup between 2/3, 1/3 between COGS and OpEx. So that should get us our gross margins somewhere at our target gross margins, 40%.

That's how we're looking at it as we go into Q4. .

Now there are some tailwinds, offset by some of our investments. So let me kind of summarize that. When you look at the tailwind, the offshore mix that Leonard spoke in his prepared remarks should be a tailwind as we go into Q4. But what we're going to be doing is that we're going to be fully reinstating our salaries and compensation in Q4.

And remember, we have fewer working days in Q4 relative to Q3. So when you put all these things together, we should be at our target model. But I think the fundamental message here is that the underlying health of the business, the underlying fundamentals of our business are moving in the right direction. .

Our next question comes from the line of Joseph Vafi with Canaccord. .

Good results. Just a couple of questions. First, on the sequential increase in TMT this quarter.

Could you parse that out relative to perhaps a bit of it may be seasonal strength compared to share of wallet or expansions with customers and any particular other items that you want to call out that -- just to kind of get an idea relative to how to think about growth with those customers in that vertical moving forward? And then I have a quick follow-up.

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analytics, artificial intelligence, data processing, big data. The broader number, 2, more of marketing-related projects as well as some of the partnership with qualification. So I would say it's a very broad segment. Very comprehensive capabilities. And that's -- I would say, the rate will continue to extend going forward. .

Great. That's helpful, Leonard. And then just a quick follow-up. Just to understand kind of some of the underlying dynamics in the retail sector a bit more clearly, there's more on-premise sales going on this quarter with stores open and the like. But just from your perspective and perhaps, especially with some of your department store retail customers.

How do you see their business models changing over time towards more e-commerce versus brick-and-mortar sales? And how do you see that opportunity with those particular types of retailers changing over time relative to their business models.

Do we need the brick-and-mortar locations to bounce back materially or can we rely more on the e-commerce side of their business moving forward?.

Sure. That's a very long question. So let me try to break it up in a few things. We see a new trend of emerging projects as well as clients who are a little bit more e-commerce driven and e-commerce savvy.

And it goes, obviously, into retail, but it also extends greatly into the CPG segment, which, in some sense, feels that perhaps some of their retail partners are not as aggressively able to promote their products, so they invested [ their ] capabilities that kind of enhances the position of Grid Dynamics in CPG more rapidly. .

At the same time, coming back to brick-and-mortar guys. Certainly, the company is with a lesser investment into footprint more aggressively with dynamic product offering. I think the trend of large department stores continue to be operating under lower IT budgets, at least compared with the pre-COVID time.

And if you recall, our 2 largest customers were Macy's and Kohl's, and certainly, our relationships are far from being pre-COVID times. .

acceleration in e-commerce, very broad-based, smaller players, more active in e-commerce, more budgets into the IT world, smaller budget for the big brick-and-mortar expansion in the CPG segment. I hope that answers your question. .

Our next question comes from the line of Maggie Nolan with William Blair. .

I was wondering -- it was great to see the new customer additions.

Are you viewing these -- any of these, in particular, as more high-potential accounts than the others, reaching certain milestones in a certain number of years? And then how long or large are some of these initial projects? And what is the pathway for additional work with some of these customers?.

Very good. Good to hear you Maggie. So there are, again, a couple of factors. I -- in my presentation, I kind of named that some of those new customers are very large enterprises. And pretty much all of them had a potential for growth.

If you recall, we still continue to execute a $2 million, $5 million, $10 million strategy as we go and extend past the earlier engagements with the client. And certainly, all of them fall into the category of more than $2 million, but a couple of them definitely are good candidates to go past $5 million and perhaps $10 million. .

Same that first engagements are pretty much always land and expand. They come around some technology solutions, a challenging task, which customer likes Grid Dynamics for its technology capability, digital capability, data services capability, automation, and they're a little bit smaller into the nature.

But the good news is as of more recent, and you know that we picked up and emphasized this kind of moving more into offshore and mix. They're not only willing to go with more favorable offshoring mix from the project, but they're also interested in going into much broader tasks from the beginning. They are still somewhat limited.

But in some of the customers we acknowledged in the quarter, just within the quarter, they moved from the early-stage projects to much bigger engagements as we speak. So very favorable, very broad, all good potential, nice retail -- I'm sorry, nice enterprise clients. .

Very good. And then on the cost side of things, we've heard a lot of companies this earnings cycle talking about managing costs in the pandemic, and in particular, the opportunity to have structurally lower costs going forward due to some of the changes they've implemented.

I know that this is a slightly different dynamic for Grid because you have the public company costs rolling on.

But is there an opportunity going forward to think about the business and expenses somewhat differently and an opportunity here in the coming quarters and years?.

Yes. Thanks for your question, Maggie. So as you would expect, right, everyone are working out of home. So we're not traveling. There are a lot of travel restrictions. In an IT services company, as you would expect, people move around, you have accommodations, hotels -- I mean, there are a host of variety of costs.

So the benefits of those, to some extent, are already showing if you look into our second quarter and third quarter. A good example would be our travel expenses, right? I mean, if you look at our travel expenses right now, they're running at roughly half of what they were a couple of quarters ago as a percentage of revenue.

Even from Q1 of this year, all the way to Q3, we're seeing that dropping off, with the biggest drop-off in Q2 and a lesser drop in Q3. .

So those are something -- all those things that we are benefiting for. And as we get into 2021, as we plan our budgets, it's obviously a function of when some of these restrictions on COVID move away, some of those costs are going to come back. And then there is also everything about our offices. We're distributed across the world.

So we're looking at all these costs out there today, but we're seeing those benefits. And I think you're going to see in 2021 some of those costs reverse. .

Furthermore, as you know, as we pick up on the revenue, there was a public company cost that's also going to be providing some leverage to us. So we've got a couple of moving parts. We'll come back in 3 months and give you a better sense. So….

Yes. Maggie, I want to add to that. I think it will be good to also realize that as we're expanding our offshore hiring and it accelerates very quickly, there are obviously some costs associated with revenue, will increase, but look very healthy from the -- looking at the margin perspective from that point of view.

The other thing which is very interesting as we continue to expand our teams, we also get some of the benefit of efficiency by bringing utilization higher, because we hire people matching supply and demand is rather good.

And I would say, so one of the key factors, even though Anil acknowledged to you that the end of Q3 had somewhat lower headcount and engineering headcount, I can tell you, by now, we surpassed all these numbers, and we are moving rather quickly into the more pre-COVID performance.

So while the costs will continue to expand, it will be corresponding to the new expansion as well. I think that's important to note. .

One more.

And I know -- I don't know if you would have this number in front of you yet or not, but as we're thinking about next quarter in comps, do you know what the non-retail revenue was in Q4 of last year?.

So if you look at -- if you give me a minute, I can find it out. But -- just a second, I'll look it up. So if you look at in the third quarter of -- so we did roughly….

We can follow-up off-line, too. I wasn't sure if you'd have the 4Q yet. .

Yes. So it's basically, roughly -- we had about 77 per -- about roughly $17 million of our $31 million was retail. .

Yes. I got to add something. So remember, we migrated from early 2019 to early 2020 from 60% -- 65% retail to about 50% retail at the time when we went public, and you can see that the contribution of retail today is significantly lower. .

So Maggie, I got the exact number, 56.3% in the third quarter of last year. .

Exactly. .

Our next question comes from the line of Mayank Tandon with Needham. .

Great job on the quarter. So I have a few questions around demand.

So any early thoughts on '21? Maybe -- I was just wondering if you could share some insights into the bookings momentum that you've seen, just the backlog buildup? I know those are not metrics you actually provide, but maybe qualitatively, what the TVs are telling you about sustainability of demand going into '21.

And just trying to get a handle on when you might be able to get back to that normalized growth of, call it, 2025, which is what the digital services companies seem to be gravitating towards once we get past some of these near-term pain points?.

Yes. So thank you, Mayank. Let me take the first part of it, and I'm sure Anil will be happy to give you a little bit more -- few thoughts. .

First of all, as you understand right now, we don't give a very clear 2021 guidance at this point. It doesn't mean we don't have an idea what's going on. Basically, there are a lot of variables. And as you know, 2020 was not a very usual year.

We experienced a very significant turnaround in Q3, both on revenue and profitability, but we started with a very low bar and being a ambitious CEO, I want to see much more. I want to see to grow above pre-COVID levels and to grow above-pre-COVID levels on the performance, including profitability.

So we need to do a lot of more aggressive stuff, but it was a great quarter. .

So let me tell you a little bit of my sense. First of all, we anticipate that on the revenue side, we're going to reach pre-COVID level by the end of Q4. What's going to happen in early 2021 in terms of the bookings and the new contracts? Obviously, this is a little bit super mature to talk about it in early November.

Even in the best times of the year, people start talking about budgeting somewhere during late November, early December, that's where we're firming up. So a little bit easier on the tech, little bit more complex on other segments. But I would say that overall it shapes up positive, but it's very hard to give you the quantitative numbers. .

In terms of the growth, 20%, 25%. I believe the world is more prepared for COVID fluctuation and increase during the fall and winter season that we were caught last year. So it may or may not be as complicated from impact on the industry. But I'm not a professional person in the medical field, so I can't really tell.

If we assume there is no significant impact on the business in the future, I think this 20%, 25% growth is easily doable for us next year. But at this point, it is very difficult to say because, again, there are variances. .

But I'm looking very optimistic both in Q4 and the next year from the diversification of our plan. As you think about it, our turnaround was not because of the guys paused the budget and brought back to [ us ], but we're expanding the breadth of the company.

So while I see positive, let's wait for the next call and we can give you much more color for 2021.

Does it make sense?.

Absolutely. That's very helpful color, Leonard. I just have one follow-up and -- either for you or Anil.

As I'm thinking about revenue going forward, I just wanted to get a sense, how did that break down between the impact of any pricing increments going forward if the demand environment is starting to at least show some signs of improvement? How much more can you take utilization up.

And then I'm assuming hiring is going to be the key to driving back to your normalized level of growth whenever we get there. .

So Mayank, so I know there were 2 or 3 questions in that. Let's kind of parse it.

So your first question was, what is the pricing environment, right?.

Right. .

Okay. So on that one, look, I mean I think Leonard can build up on this, but the punch line here is that, from a pricing environment, we have not seen any big changes. There's really nothing. There's not really anything unusual on the pricing front. We had some discounts that we had in the earlier part of the year that are reversing.

And as you rightly pointed out, our utilization is going up, but we're not seeing anything on that. So from that point of view, it's neutral. Leonard, I don't know whether you want to add anything to that. .

Yes. So the word normalization and other things, it's all relative. One thing is for sure, we're entering in a more normalized behavior, both from the pricing standpoint and from the cost standpoint. So I think we can -- I mean, I'm sure Anil can build a good model going forward, how it's going to bring our positioning on the revenue. .

On the headcount perspective, what I'm doing, I'm growing carefully. We invest into the -- in the relevant skill sets of people. We never slowed down on internship programs in Grid Dynamics universities. So we're coming into the demand with some of the capabilities and backgrounds of people we even -- we're holding as investment during the slow time.

But of course, the strong hiring is under way, and then we'll be turning our position in on the revenue. .

Finally, I want to add one more thing, which is important for Grid. We invested time and resources into a number of very interesting R&D projects, which now become kind of a solution approach to the customer tests, including some of the technical project part.

We integrate into the customer demand, especially with increased penetration on the data side of the business. So I think it will result in a healthy pricing position as we go forward. .

Got it. That's -- again, very helpful. Sorry, one quick question, follow-up.

On the M&A side, given the stability of the business and your war chest now that seems to be growing nicely, do you feel, at this point, maybe it's time to do some tuck-in M&A, more capability-driven or geographic-driven? Or is it really all about organic growth right now?.

So it's always been relevant, to your question about deploying cash for M&A. We've been considering and actually consider very strongly some of the key opportunities, both on geography and industry verticals as well as some of the specialization. So that machine is working.

We really don't talk about specific amount of capital we're going to deploy, but we're active. And as soon as the first deal comes in, we'll let you guys, of course, know. .

It'd be a little bit more premature to say specifically because there's a pipeline of opportunities. And we just want to make sure that we continue our due diligence efficiently. And as you can imagine, in COVID days, it's a little bit more convoluted, but we are confident. So we're looking at U.S., Europe, a number of verticals as we speak.

So again, let's be a little bit patient when the results come. .

[Operator Instructions] Our next question comes from the line of Tim Savageaux with Northland Capital Markets. .

This is actually [ Stephen ] on for Tim. I was wondering if you guys could kind of give us some more color, discuss what you think the recovery in retail will look like.

Is it going to look kind of ramp up into Q4? Or should we be thinking of first half '21, second half '21?.

Stephen, can you hear me? I kind of lost you. Can you repeat the question? I was -- we were having a little bit….

Well, let me jump in, I got his first part. .

Okay. .

So basically, as I understand, you're talking about recovery of retail. But I believe we already covered during the previous Q&A about the situation with retail where more e-commerce-driven companies, smaller with a less footprint, more specialized, are doing better. As far as large department store brick-and-mortar, time will tell.

So I also mentioned there's more acceleration on the CPG side, it is what we see. So I don't have a good clarity right now on a full recovery from large brick-and-mortar. I think that would still remain to be seen. So Anil, if you can give a little bit color maybe on some numbers to help to answer that part. .

Okay. So when it comes to recovery, I think, Leonard, in his opening remarks, talked about exiting the year at a run rate close to last year levels, right? Now I think when we look into 2021, the whole composition of the company will be slightly different. As I spoke, around this time, more than half of our revenues were retail.

Today, in the current quarter, it's 20%, 23% roughly. So we're going with this setup into next year.

I think the key thing to remember also is, if you look at the -- our top 10, top 15 customers and look at the proportion of retail, for example, both from an absolute number -- and actually, the number of customers that are showing up in the top 10, top 15 are much lower.

So I think where I'm going with this is that our dependence on some of our historical large brick-and-mortar companies are just not there. And then as we go into this new year, we've got more opportunities with different customers and different end markets as some of the non-retail growth. .

So we'll see how these things play out on the retail front. Definitely, we're not at pre-COVID levels, and we'll see in 3 months where we stand. .

That concludes our Q&A session. Mr. Livschitz, I'll turn the call back over to you. .

Thank you, everybody, for joining us on the call today. Our third quarter results were strong as we executed well against our guidance, and I'm very proud of our entire team for their continuous hard work towards achieving our goals. .

Customers are steadily coming back, demand is picking up, and we continue to diversify our business. The disruptions caused by COVID-19 in the earlier part of the year resulted in us acting fast and bold to contain the uncertainties and take advantage of [ main ] shares in the market.

We enter the fourth quarter with elevated confidence, and we look forward to giving you a business update in 3 months. Thank you all. .

Thank you. That does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines..