Welcome to the Grid Dynamics Holdings Inc. Second Quarter 2021 Earnings Call. As a remainder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Lilia Chernova, Head of Investor Relations. Please go ahead. .

Good afternoon. Welcome to Grid Dynamics' Second Quarter 2021 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 third quarter 2021 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 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 May 6, 2021 and in subsequent periodic reports that the company files with the SEC.

During this call, we will discuss certain non-GAAP measures about performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the press release and the 8-K filed with the SEC. The call is also available by our webcast.

You can find all 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, Lili. Good afternoon, everyone, and thank you for joining us. We had a great quarter with many positive trends shaping our results, and I am excited to update you all on our progress, since speaking to you three months ago.

On this call today, I will provide highlights for our second quarter results, share with you what we are witnessing across our business on the demand front, and talk about the trends that are shaping our third quarter and 2021.

Consistent with our guidance comment that we provided to you all three months ago, the second quarter results were strong across multiple fronts. More importantly, the current demand environment is robust and this has a strong positive backdrop for the remainder of the year.

Digital transformation continues to be a central theme and customers increasingly seeking our services for strategic digital transformation projects, across different industry verticals. Now, coming to the second quarter results, I am very pleased to report the highest revenue quarter in our company's history.

Moreover, the organic performance is the highest in the company's history as well. This is also reporting a record revenue in Q1. In the second quarter, we grew organically of $38.4 million, excluding $9.3 million of revenues from our recent acquisitions of Daxx and Tacit Knowledge.

And it was higher their organic revenue guidance range of $35 million to $36 million. In 12 months, we more than doubled our revenues and substantially improved our margins. I am very proud of what we accomplished. And I would like to thank all our employees for their hard work and dedication, and all our customers for their trust in Grid Dynamics.

There were many positive trends in the quarter, and I want to share with you some of the notable ones. We are witnessing a robust demand across all our verticals, while in the same way as the discontinuation of the trends that we highlighted last quarter.

The strength has exceeded our expectation, and it's evident in our outperformance relative to our second quarter guidance. Like last quarter, improving consumer sentiment combined with catch up in spending with some customers, who held back in 2020 has been the key reason.

More importantly, customers are more aggressive in IT spending, as digital transformation initiatives become essential. Based on our business pipeline, we see a favorable business trend with the expansion of existing new customer engagements. We remain bullish for the remainder of 2021.

On the profitability front, our outperformance was even greater than expected. It was accomplished by a combination of good execution aided by favorable business tailwinds. More importantly, we achieved our long-term non-GAAP target of 40% gross margin and 20% EBITDA.

During the quarter, we benefited from a favorable offshore mix and COVID-related savings that help us in delivering a stronger-than-expected margin quarter. Demand for engineering talent remains strong with some still witnessing supply side constraints, such an industry-wide trend persist since the beginning of the year.

This is something, we already highlighted last quarter. To continue aggressive hiring Grid Dynamics universal training and retraining of our employees, investing in internship program, and expand into new geographies. During the second quarter, we added a total of 154 people, our headcount exceeded 2,500 employees.

During the quarter, we added five new logos with our organic business, with all of them contributing revenue in the same quarter.

Out of the five one of the logo is in the wellness, two companies are in fintech, one is a leading global provider cloud-based secure mobile enterprise communications, and the final one is a dynamic cloud cost management system. Including our recent acquisition of Daxx and Tacit Knowledge, the total customer count during the quarter was 212.

On May 29, we announced the acquisition of the UK based Tacit Knowledge in an all-cash transaction.

The company has made a mark in the industry with a specialized high end e-commerce consultant capabilities, and like our organic business Tacit focuses on large enterprises and over time has built a strong reputation with the clients in retail CPG and technology space.

The company's primary delivery locations are in the United Kingdom, Moldova and Mexico. Regarding the synergies, our key reasons for the acquisition were to deepen our enterprise market presence in Europe and to enhance our digital commerce capabilities with new areas of expertise as commerce tools, SAP hybrids – commerce and others.

Additionally, with the acquisition of Tacit, we now have an initial presence in Mexico, which we expect to expand the leverage over time. We are excited to have Tacit team joining Grid Dynamics and we are looking forward to exciting times together.

I am also happy to announce that the cross-selling opportunity with Tacit are opening up with our core business clients, express interest in working with Tacit. Within our top five clients two are in the TMT space, one was CPG and two in retail. Earning from our top five customers in the quarter were 45%.

This was down from 67% of revenues in the same quarter a year ago. The diversification of customer revenues were largely driven by a combination of continued success in renting new logos, growing deeper with existing clients and the recent acquisition of Tacit Knowledge and Daxx. I am very excited about deeper partnership announcement with Google.

Last week Google and Grid Dynamics issued two separate press releases that highlighted Grid Dynamics being selected by Google as an implementation partner for Google Cloud Retail. Grid Dynamics will continue to work with Google's retail cloud to build and implement search platforms for the retail.

Our experience and expertise around product discovery solutions for large enterprises is well-known in the industry. And with this partnership, we will continue to help leading brands to improve their customer experience. Now coming to some segment commentary. 34% of our second quarter revenues, TMT remained our largest vertical.

Our top TMT customers continue to focus on expanding offshore and delivery offices and this resulted in a healthy sequential growth over the first quarter. Going forward, we continue to expect TMT to remain our largest vertical.

At 27% of the second quarter, revenue retail business continued to witness strong growth over last quarter largely due to strength in our organic retail business combined with contribution of our recent acquisition of Tacit Knowledge.

On the organic front we witnessed a pickup across the board with one of our top historic brick-and-mortar client, increasingly engaging our services. That said, our e-commerce friendly brands continue to dominate the segment composition and these clients contributed meaningfully during this quarter.

21% of our second quarter revenue CPG and manufacturing continued to show growth both on a sequential and year-over-year basis. Underpinning this was growth from logos outside the largest CPG customer and revenue from Tacit Knowledge.

At our largest CPG customers, we are preparing to initiate a new set of significant projects that are expected to roll out in the second half of 2021 onwards. During the quarter, we delivered on some notable projects. Number one, as a global technology company, we worked on a tool to manage one of the world's largest data analytics platform.

Grid Dynamics is developing an online portal that provides a single access to manage the platform and its business intelligence, big data and data science services. The tool is operational and has been used by tens of thousands of companies developers across the globe.

Number two, for a large US-based retailer, Grid Dynamics implemented and deployed intelligent allocation engines based on integer linear programming. This optimization model was used to completely revamp an outdated order management system.

An effective algorithm created and implemented by Grid Dynamics engineers allowing the client to optimize their order fulfillment system and decrease order split by 50%. This initiative led to significant annual savings and had positive environmental impact.

Number three, as a global CPG company, we design and deliver a solution by creating a modular and expandable platform for product discovery.

This solution boosted the revenue of direct-to-consumer business and enabled rapid experimentation for traditional and machine learning-based retrieval techniques, using a new search system, the client projects a significant increase of annual revenue.

Number four, for one of the largest US wealth management company, we have built a micro service application, which enabled more than 9,000 financial advisers with rapid onboarding for the new client.

The single interface and coordinated process of the application, resulted with a strike reduction of a deal closing time from two weeks to mere 30 minutes. Allowed advisors to handle more clients simultaneously and minimize client loss during the onboarding time. With that let me turn the call over to Anil, who will discuss Q2 results in more detail.

Anil?.

Thank you, Leonard. Good afternoon, everyone. Our second quarter revenue of $47.7 million exceeded our guidance range of $40.5 million to $42 million and was up 22% on a sequential basis and 113% on a year-over-year basis.

Excluding revenues from our acquisitions of Daxx and Tacit, which contributed $9.3 million in the quarter, our organic revenue of $38.4 million was up 18% sequentially and 72% on a year-over-year basis and exceeded our guidance of $35 million to $36.5 million.

The stronger-than-expected revenue in the quarter was driven by across the board strength across industry verticals with greater contribution from TMT and retail verticals. Similar to the last couple of quarters, our TMT vertical was the largest vertical. Coming to the TMT vertical.

It was 34% of our second quarter revenues and grew 12% on a sequential basis and 35% on a year-over-year basis. Growth in the quarter mostly came from some of our large TMT customers who ramp their offshore operations with us. During the second quarter, our retail vertical, representing 27% of our revenues grew 44% on a sequential basis.

Within this segment, we witnessed pickup in business across many customers as they became more aggressive with digital transformation-related spending. Our top e-commerce friendly retailers combined with the pickup at some of our brick-and-mortar customers contributed meaningfully to the quarter growth.

In the second quarter our non-retail business now representing 73% of our revenues was up 15% on a sequential basis and 90% on a year-over-year basis. Here are the details of the revenue mix of some other verticals.

Our CPG and manufacturing represented 21% of our revenue in the second quarter and grew 14% on a sequential basis and 300% on a year-over-year basis. The growth during the quarter primarily came from the ramp of new customers, combined with contributions from Tacit.

Finance represented 9% of revenue and grew 18% on a sequential basis and 16% on a year-over-year basis. The sequential growth in the financial vertical was largely driven by ramp in programs from recently added customers and to a lesser extent contributions from Tacit.

And finally, the other segment represented 10% of our second quarter revenue and was up 31% on a sequential basis, largely from faster than expected ramps at some of our recent client wins. We exited the quarter with a total headcount of 2,510, up from 2,056 employees in the first quarter of 2021 and up from 1,237 in the second quarter of 2020.

The sequential increase of 454 employees or 22% was largely due to a combination of improving demand, resulting in headcount increase and our recent acquisition of Tacit Knowledge, which added 181 employees. Excluding Tacit, the headcount increase was 273 people or increase of 13% on a sequential basis.

At the end of the second quarter of 2021, our total US headcount was 264 or 11% of the company's total headcount. This was slightly down from 12% in the first quarter and significantly down from 20% in the year ago quarter.

Our non-US headcount, which we sometimes refer to as offshore, located in the Central and Eastern Europe, UK, the Netherlands and Mexico was 2,246 or 89% of the total headcount. In the second quarter, revenues from our top five and top 10 customers were 45% and 62% respectively.

During the same period a year ago, our top five and top 10 customer concentrations were 67% and 84% respectively. The decline was driven by a combination of new logo ramp, continued industry diversification and acquisitions of Daxx and Tacit.

During the quarter, we had a total of 212 customers, with 51 coming from our organic business and the remaining 161 from our Tacit and Daxx acquisitions. Our organic business customer count of 51, was up from 48 in the first quarter of 2021 and up from 37 in the second quarter of 2020.

As a reminder, we only count the revenue-generating customers in the quarter and do not include customers, who were inactive during the quarter. Relative to the first quarter, we added five new logos, two in the TMT vertical, two were in the finance vertical; and one was in the other vertical. Moving on to the income statement.

Our GAAP gross margin, during the quarter was $19.8 million or 41.5%, up from $15.3 million or 39.2% in the first quarter of 2021 and up from $8.4 million or 37.5% in the year ago quarter.

On a sequential basis, the increase in gross margins as a percentage, both from a combination of factors that included tailwinds for more working days, favorable offshore mix and our recent acquisition of Tacit Knowledge.

On a non-GAAP basis, our gross margin was $19.9 million or 41.8% from $15.4 million or 39.5% in the first quarter of 2021 and up from $8.4 million or 37.8% in the year ago quarter. The sequential increase in the non-GAAP gross margin, as a percentage was driven by the same factors highlighted above.

Non-GAAP EBITDA during the quarter, that excluded stock-based compensation, depreciation and amortization, transaction and other related costs, was $9.7 million or 20.4%, up from $5.3 million or 13.4% in the first quarter of 2021 and up from $1.2 million or 5.4% in the year ago quarter.

The strong sequential increase in EBITDA, as a percentage of revenue was largely due to leverage on higher levels of revenue, gross margin tailwinds from favorable offshore mix, combined with flattish operating expenses.

Additionally, in the year ago quarter, our business was impacted by pandemic-related headwinds, resulting in low levels of EBITDA, both in dollar terms and as a percentage.

Our GAAP net loss in the second quarter totaled $1.5 million, or a loss of $0.03 based on a share count of 54 million shares compared to the first quarter loss of $2.1 million or $0.04 per share, based on 52 million shares and a loss of $2.2 million or $0.04 per share, based on 50 million shares in the year ago quarter.

The sequential decrease in GAAP net loss was largely due to higher levels of revenue, both organic and acquisition, offset by a smaller increase in operating expenses.

On a non-GAAP basis, in the second quarter, our non-GAAP net income was $6.1 million or $0.10 per share, based on 61 million diluted shares compared to the first quarter, non-GAAP net income of $3.1 million or $0.05 per diluted share based on 60 million diluted shares and $0.4 million or $0.01 per diluted share, based on 53 million diluted shares in the year ago quarter.

Contributing factors in the increased, non-GAAP net income in comparison to the first quarter were higher organic revenue and revenue contribution from Tacit Knowledge, increased number of working days in the quarter and flattish operating expenses in comparison to the first quarter.

On June 30, 2021 our cash, cash equivalents and short-term investments totaled $68 million, down from $100 million in the first quarter of 2021. The sequential decline in the current quarter was primarily due to the acquisition of Tacit, which was an all-cash deal.

Coming to the third quarter guidance, we expect revenues to be in the range of $50 million to $51.5 million. This includes $11 million in acquisition revenue from Tacit and Daxx combined. We expect our non-GAAP EBITDA in the third quarter to be in the range of $8.3 million to $9.3 million.

For the full year 2021, we expect our revenues to be at least $189 million. This includes a contribution of $38 million from our acquisition of Tacit and Daxx. For the third quarter, we expect our basic share count to be in the range of 63 million to 65 million and our diluted share count to be in the range of 69 million to 71 million shares.

That concludes my prepared remarks. Operator, we are ready to take questions..

Thank you. We will now begin the question-and-answer session. Our first question comes from Mayank Tandon of Needham. Please go ahead..

Thank you. Good evening Leonard, Anil, and Lili. Congrats on the quarter..

Thank you..

I wanted to start with -- just given the demand backdrop could you speak to pricing? What are you hearing from clients? Are they now more receptive to pricing increments? And how is that impacting your expectations for the balance of 2021 and then into 2022?.

Thanks Mayank. So, I would say that in general we see more positive trend with our pricing. Customers understand that there's a lot of competitive market situation and also the some of the inflationary behavior. So, I would say that in some sense it's a little bit more favorable than usual when we work with our existing and bringing new customers.

They're driving -- their demand is driven by the business KPIs and they are more flexible in terms of their pricing negotiation with us..

Got it, that's helpful Leonard. And then sort of related to that question would be just your expectations around gross margins and EBITDA margins being so strong in the second quarter.

So, when we think about all the puts and takes on the margins, how should we think about the margin trajectory over the balance of 2021? And then sort of the same question into 2022, the trend on the margins would be helpful. Thank you..

I am going to start and then maybe Anil can give a little bit more details, but I just want to take this moment to reflect on the year-long journey. As you deal with us all the time, you'll recall that we're going through early days of COVID, we were facing a lot of pressure.

And then I told that we got ourselves on a white horse again and just going to drive our business by the end of Q4 which we did and Q1 was a quarter of accelerating our revenue. And then I mentioned that Q2 would be the quarter of financial performance. Now, I will let Anil to talk about details.

But fundamentally, we are maintaining our positioning on what I call 40-20 between non-GAAP gross margin and EBITDA which really speaks to the health of the company. As you can imagine I'm very focused on the gross margin which has driven the appreciation of the clients the capabilities and respect to what Grid Dynamics delivers.

But I would let Anil to finalize some of the details..

Thanks Leonard. Thanks Mayank. So, as you saw we had a nice pickup from Q1 to Q2. And if you look at some of the trends we shared on the prepared remarks, so I won't go through them again. But the bottom-line here is that you must have seen a flattish OpEx between Q1 and Q2 and obviously, the gross profit dollar increase all fell to the bottom-line.

So, look as we go into Q3 -- and remember we're talking about 90-day interval, so sometimes it gets a little tricky for a company like us that is in a growth stage and investing. We are investing. We continue to invest. Some of the timing things move around.

So, as we go into Q3 we're going to be investing, we're going to be investing recently on the hiring front as well as on our initiatives which is sales R&D marketing and things like that. So, as you saw -- as you can see from our guidance of $8.3 million to $9.3 million on the EBITDA, you'll see some of that investment playing out and showing up.

To some extent, you'll see that on the gross margin front. But I think the big picture is look we -- as Leonard pointed out, Q2 was very important for us to come back and show the 40-20 that will continue to be our long-term. But again, we have to balance that with some of our growth.

As far as we get into 2022, Mayank, let's come back wrap up 2021 and we'll give a little bit more color. But remember our growth has to be balanced with some of the strategic investments..

Totally understand. Appreciate the responses. Thank you so much. Congrats again..

Thanks Mayank..

Thank you..

Our next question comes from Puneet Jain of JPMorgan. Please go ahead..

Hey, thanks for taking my question and good quarter guys. Leonard or Anil can you talk about like how client behavior is changing coming out of the pandemic while obviously there is a benefit from pent-up spend easy comps in 2Q results.

But are you seeing increased digital imperative among enterprise customers, which could drive higher growth over the long-term for firms like Grid Dynamics?.

Thank you, Puneet and welcome to power grid. I'm excited. So, the situation with the clients obviously, it's very hard to measure with the same approach and some of the enterprises accelerate substantially. Some of them are a little bit more careful investing mode. But overall it's a very healthy environment.

I think more important than look at the general trend is to look at relationships between Grid Dynamics and the larger clients. I believe in the past 12 months, we have been proven ourselves to be much more diverse and much more aggressive and the capabilities.

We introduced our multiple solution approach part models, we increase more and more taken over the entire projects and deliver solution not like we have not done before, but now it's more stronger way we feel more comfortable with the clients.

So, even the very, very top clients are now taking a much more strategic approach with scaling the financial and project relationship with Grid Dynamics. I am very bullish on that..

Understood. And many of your peers talked about seeing supply challenges during the quarter seeing higher wage inflation attrition rate.

Can you talk about how you are seeing supply across various countries in Central and Eastern Europe?.

Yes, of course. I mean you've probably been asking this question to every call representative. I think the situation across all the countries are pretty much similar. There's a lot of demand. And some of the constraints with the supply has been noticed. Unlike perhaps some of the other IT companies, we have built very, very strong legacy in our regions.

And we have been able to build the loyalty programs, the training our university, our retraining program. So I would say that while we see general increase -- statistical increase of attrition in the industry, you would look at our rates very much have been unchanged from the last quarter.

If you look at the number of people we acquired this quarter, we increased the total headcount quite a bit. Of course, part of it is due to the acquisition. But even on a purely organic basis, it's over 270 people, it doesn't sound huge for some other companies, but for us it's very stable.

So using our legacy, our relationship in pretty much across all the Central Eastern European countries and the United States for that matter in all the centers which we are, we are able to have a nice pickup of the hiring and while the lease always challenge our attrition, I think our internal processes continue to demonstrate that we are able to stay continue at the front of the behavior..

Got you. Thank you..

Thanks..

Thanks, Puneet..

Our next question comes from Bryan Bergin of Cowen. Please go ahead..

Hi. Thanks. This is Zack Ajzenman on for Bryan. First question for us just on the balance sheet. It sounds like it's about $150 million in cash or so as it stands today.

Can you just update us on kind of your thoughts there, M&A strategy should we expect to see anything in the near-term?.

All right. Yeah. So you picked up a few things. First of all, obviously the balance today is different from the balance at the end of the Q2, right because we successfully finished our secondary fundraising follow-up just short months ago. So that kind of -- there is more cash.

There's some more cash coming through the finalization of our -- the public warrant situation. So that's pretty much the last remedy of the way how we came public, but it's going to be gone by the end of August. So we do sit on a nice chunk of cash. I'm extremely excited about it, because we continue to have and expand our acquisition model.

The acquisitions as you know come in three flavors, which have been repeated in the past. It's new skills and the capabilities that would be number one. Number two is the new geographies. I mean, it's very key as we continue to expand on the people. And number three is overall on new verticals, right.

So we're trying to continue to diversify especially in verticals where we're not strongly present then being a testament of our most reacquisition with Tacit. So we will continue strong on the near front. I would suggest not to look at the rearview mirror try to guess what's next will be.

But for our size, I think we are kind of balancing by integration of our acquisitions with upcoming additional acquisitions in the future..

That's helpful. And just to follow-up on that note. The recent M&A, obviously you've expand the operating footprint.

Can you talk about some of these new regions that you're in now such as Mexico, it looks like you maybe have picked up Singapore and just kind of the investment philosophy to get those regions up to scale over time?.

Well, you said the story straight the core acquisition was around the capabilities of Tacit Knowledge as our financial retail and CPG sectors and some of the partnership with SAP and other core software products. It's a UK-based company. They do have two additional EGM center.

By the way the center gravity in the UK sounds still remain to be the key, but they have centers in Moldova to service primarily European customers. And they also have a central gravity in Mexico for the North America clients. So we already jumped on the bandwagon of the partnerships.

So by -- we have some projects both in the US and in Europe generally with Tacit. When it comes to Mexico, of course it's a great opportunity for us to scale our nearshoring. I mean, it's just a B front.

It's almost like our business strategy of lend and expand, we're already working on our first project which we're going to work together with our group in Mexico. Again, it need to be careful. We need to make sure we fully understand the relation with acquisition team. They have a very rich culture of their behavior and customer relationships.

So we want to complement without just stepping too fast. But we are excited about it. When it comes to Singapore we will need to look at our -- the strategy in the Far East. It's not zero for Grid at this point. But I would say it's a little bit too early to talk..

Got it. Thank you..

Thanks, Zack..

Our next question comes from Joseph Vafi of Canaccord. Please go ahead..

Hey, guys. Good afternoon. Nice results. Just a couple for me. One could you comment on your new logo wins in the quarter and their potential in terms of size? And then secondly, just an update on where your sales force is now and hiring on that front? Thanks very much..

Of course, of course. Thank you. So to answer the first part of your questions. So as you know typically our logos tend to be a little bit on larger side. No, I would say in general there's no much deviation on that.

However, we do observe to pick up some innovative clients of the what I would call midsized because they are playing some instrumental roles of the relationship with the enterprise clients. So it's a bit of mix and match between the guys we acquired in Q2 and kind of a preview similar we maintain the same position for Q3.

For the smaller clients, as you know Moderna be the smaller start-up clients we have Daxx acquisition which was done late last year. So from the reporting organic growth what we call organic it's without acquisition of mid to large clients. When it comes to Daxx, they tend to be on a smaller side. And the second part was -- sorry you have to repeat..

Sales force..

The sales force. Yeah. Sorry. Okay. So that's one of the two main areas of the Grid Dynamics investment, right. Anil already mentioned that we're continuing to do that. So we invest in our technology capabilities, our solution and artifacts upward mobility with a relation with the clients, which also drive more technology consulting relationship.

I mean recently we brought onboard, new CTO which kind of supports the fact that we're trying to build more experience industry recognize team. When it comes to the sales side, we continue to add the senior management on the regional side with some industry specialization. We added a few key people in Q2.

I'm a bit reserved from making loud the press releases and boost about our people. On the sales side I believe salespeople are proven by the delivery on their clients as we see a pickup of the clients across the country then you will see that.

But I can tell you that two regions we've been mastered to invest additional resources in the Southwest and in the Northwest especially around Texas area. And we see exponential growth on the sales relationship on East Coast all the way from Southeast to New York region..

Thank you very much..

Okay..

Our next question comes from Maggie Nolan of William Blair. .

Hi, Thanks.

On the new five organic customer additions are these customers starting out with a more global delivery model, or are you primarily serving them from onshore? And then should we be expecting any additional expansion of offshore delivery from your large tech client or other clients going forward?.

Well. Thank you, Maggie. Even with new clients on the lend and expand I would say, in the current environment some of the engagements start directly from the offshore. I mean we do have very occasional face-to-face meeting but most of them are still been virtual.

And in this case because they demand the rapid deployment some of those engagement directly proceed with our offshore teams which is quite diverse in dealing directly with the customer in the state.

On the other hand there are some clients they would like to have, people with a proper background in their particular field and they tend to be not just on-site but more or less local within the area. Again we plan this one day we will be able to come back to the offices in a broader scale.

Those people will be the core of expanding our leadership within the client premises. The terms of the scaling offshoring it's absolutely. It's a huge momentum, across virtually all our offices and we are adding virtual offices to our core locations.

I think if we really look at the number of cities and the countries we are we have increased incrementally the places where our people work while we still have the core cities marked on the map where our physical office is located. We have been adding people from the virtual offices within the region..

Okay. And then Leonard in several of your client examples you were referencing measurable outcomes like expense reductions, reduction in closing time, annual revenue increases, those types of things.

Are you talking with clients at all about outcome-based compensation arrangements that would supplement the time and material engagements that you have?.

Well it's more than time and material. There is obviously, the fixed bids and project-based reward too. The outcome-based relationships are getting more popular. There are some customers, which I would say test the water with us. So they don't go across the entire platform but some specific projects.

But different people call the outcome based on different criteria. So there are still -- they may call it outcome based but then the way how the cancellation works it's still more of a standard way of payment. So I would say when we go offline you dig in with Anil, he will walk you through many more examples.

But I would say generically, as we grow our relationship become a long-term, which includes the other more I would say modern ways of settlement on the projects. But most of our engagement we have been recently produced those measurable results one way or another based on the KPIs.

So whether it's a monetary reward or it's measuring the progress of the relationship. The easier way for us to do that become because we have more and more parts implemented. So there's more project ownership on our side it's easier to drive the performance metrics associated with the contribution from Grid Dynamics..

All right. Thanks, Leonard..

Thanks..

Our next question comes from Josh Siegler of Cantor Fitzgerald. Please go ahead..

Hi, Leonard and Anil. Congratulations on the fantastic quarter. Really nice to see such strong results in the retail segment.

And we were wondering as the delta variant spreads, are you seeing any initial change in sentiment from some of your retail customers, or are they still pursuing digital transformation in force?.

Thanks Josh for kind words. So I think the -- across all the retail space and CPG and other consumer goods space, anybody who believes that they can deal without digital commerce they probably no longer in business.

I think it's more or less in terms of their successful implementation of the digital practice and their reliance on their legacy brick-and-mortal business, right? So I would say that the pure-play digital e-commerce still drives the growth.

But in one sense because some of the re-openings happened in the last months, we see more foot traffic in the stores. So I would say that there is a pickup of investment coming from the even more broad-based brick-and-mortar stores but their investment still in the digital.

So in other words they put all their hard-earned dollars into driving the digital platforms for their corresponding business..

Great. Thank you. That's very helpful. Shifting gears a little bit, the Google Cloud partnership that seems like it could be a strong contributor.

So can you provide a little more color and speak a little more on the deal and how it may impact the business moving forward?.

Well, obviously, we don't go into the details of the way how things are implemented. But it's -- I'll give you a few things. First of all, it's a multiyear development. It was conceived some of the ideas in the Grid R&D project and our ideation work. Now of course all the main putters belong to our client.

But being mentioned actually by Google in their own press release and giving graciously to us the citation of press release tells you that they too appreciate Grid Dynamics' contribution. A big part of it is our expertise in retail. It's one of those things. You just don't create ideation on the cloud side. You don't just create the transformation.

You go back from the legacy on-premise, the private, the public cloud, the combination, the migration, the automation.

So by putting in a successful implementation and readiness to enroll with a multiple retail customers side-by-side with Google Cloud partners, it's just -- it's a testament of a very comprehensive in-depth capabilities within Grid Dynamics over the past 10, 12 years..

Excellent. Thank you very much Leonard, and congratulations again..

Thank you so much..

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Livschitz for any closing remarks..

Thank you everybody for joining us on the call today. Our second quarter results were strong and we executed well against our guidance. We've had an eventful 1.5 years and have accomplished a lot since going public in March 2020. I am very proud of Grid Dynamics' entire team with their continued hard work in achieving the goals.

In the past 12 months, we doubled our revenue. More important and the second quarter highlight, we were able to deliver a profitable level consistent with our long-term targets than pre-pandemic. In Q2, we completed our second meaningful acquisition.

Furthermore, we conducted a successful follow-up offering in June that resulted in enhancing the company's flow and its substantial cash on the balance sheet for the future growth. As recent as July 23, we announced the redemption of all remaining public warrants.

The redemption will be completed by August 30 and this will streamline our capital structure. As we enter into the second half of 2021, the demand environment is robust, customers continue to prioritize their digital transformation initiatives and we work very hard to ensure that we continue to expand our engineering capabilities and resources.

I'm excited with the opportunities that lay ahead of us, and look forward to give a new business update in three months. Thank you..

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..