GDYN - Earnings call transcript Q3 2020 | Grid Dynamics Holdings, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Grid Dynamics Holdings Inc.

Third Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation.

As a reminder, this conference call is being recorded. to conference like to now would turn over the [Ms. I of Investor Tranova] Relations. Elliot

You may begin.

Unidentified Company Representative

welcome Dynamics to earnings and afternoon Good Grid conference third call. XXXX quarter

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

Exchange measures and financial materially Commission. section the XX-Q call, of non-GAAP the reconciliations X, with that This and release the performance. is risk in the Also, the can periodic the today undertake the non-GAAP discuss could the this and statements disclosure with expectations this made our events obligation will learn from press press current at forward-looking You will Securities and and Company's call SEC. can information certain reflect we of no call. actual available filed financial our of SEC factors company GAAP earnings supplemental earnings call. provided made and the end the statements our XXXX, filed occur and more after reports refer for webcast. via are the factors update X-K Form specific risk any about All during Form to We reflect on on August filed the filed this be release in to we to Company's only, the results about today also that that X-K today's differ in with will cause and of subsequent to them information discussion

section in have all the of find Investor Relations can I just griddynamics.com. You described information the

CFO, Anil Joining CEO, the Livschitz; today are Doradla. call and Leonard us on

me the remarks, prepared open With over will questions. turn to call their that, your call we the to let Leonard. Following

Leonard Livschitz

demand share the us for highlights will share since made provide progress three Good we to of our witnessing about $XX.X I'm In quarter, of And of that’s front XX% we million you and across one thank quarter. I spoke shaping on growth and results today. history. the grew business Lilly. our third excited highest everyone. afternoon, up Today, trends revenue you with third fourth the the have are in our you, joining Thank was ago. months our the we the with quarter-over-quarter company's talk quarter sequentially,

the trends quarter both encouraging. the year. More underlying that very customer third the the demand And importantly, we're the stage from setting and were a up to favorable quarter, delivery front fourth XXXX shaped and

Although there trends, highlight would were few. I many a to like positive

industries. increasingly our not of we seeking our retail composition traditional see retailers. emerge. across revenue as CPG, an And are witnessed strong quarter. initiatives we the from transformation end we over-haul from XXXX, the and of we customers in fourth contributions witnessed we offshore customers entered took friendly will somewhat new board categories across top diversifying TMT, continue revenue we ecommerce specialized retail and rely our manufacturing clients. the level our of as trends with had Again will within to run-rate locations. succeed some with will pickup Furthermore, XXXX in our anticipate to Two, third First, approach FinTech we the as the as central retail of strong larger segments, pickup other customer activity strong quarter, These stage. on we Three, digital in engage at

leveraging data locations. lifecycle of toward on increasingly number Dynamics across efficiencies focused by increasing customers sale the Grid our for solutions. specific are the many offshore the And greater with combined cost While driven work continued has influenced their demand efficiency, acceptance four, remote improving use finally motivations of companies and operations customers

demand pre-COVID revenue Our This beyond. data grew outlook a across Gird digital one quarter, Dynamics as steady the back strong us in profitability in being sequential factors. witnessed And with specific pickup to of three front third in to On the QX key customers growing be intelligence. recovery and was verticals. third expertise, quarter, trend, from not there two widespread the by our our but we now any second of was the driven fourth we Most and leading quarter. month market, This to consecutive in coming group. their our rather industry In October, big demand the transformation. to months saw upward investments confident engineering September important level data each of to and for the science, artificial in margins expertise customers was increase momentum the same

The first greater was the increase to and rate of a second utilization across from offshoring. tied the company mix was

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

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

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

pre-COVID not retail. in and revenue a We QX. will business did anticipate achieving pickup revenue We levels of expect in

data by significant we partnership in experience in of processing large associated its science a in costs part our cloud optimize we also with one, search in-house improve and platform. a and integrating infrastructure leading technology notable engine a expertise projects. delivered digital advertising three, some with placement. at the online data build enhance Number leading a the This at for using marketing company in assisted latency the product the maintenance. quarter, will Number as several of data search States global in to data had revenue platform two, improvement their customer their United engineer. resulted reduction search and During we company Number XX% and CPG of company, enterprises

our was loyalty tangible example, efforts the the by retailer outcomes their of will inefficient. platform existing more that replacing expensive One increasing U.S. customer of as customized an One was ad build conversion a and XX%. platform

to leading how a COVID-XX transformation. experience Our services improvements on to become are digital the catalyst example uncertainty customer pandemic In demanding and experience demand. in time this focused for goods has during environment, of uneven this increasingly implementation enhancing current and online Even one satisfaction. customer shop just digital and robust of consumers to customer

new in customers our to execute higher continue in verticals. very growth We adding especially well

Grid device this the During added five technology quarter considerable place. new will logos medical reach Dynamics space. over is in One significant

last believe of the sector. And the these one not the the over system. logos home in have technology is least one becoming improvement large is customers potential Another financial time. but global platform the We payment

continue we good diversification. Additionally, make to progress customer on

quarter one each the FinTech. clients retail of in were and and the technology space in During five CPG, in in two top our

quarter call Apple Our turn this, detail. Google. over third Anil. results and me With will in top quarter discuss during clients to more the were Anil, who the let

Anil Kumar Doradla

afternoon, Thanks, everyone. Leonard. Good

referred telecom all over third exceeded segment. commonly the Let and and sequentially increase million Other Technology third and second financial million. was coming $XX of largest $XX.X range with me our and of decline summarizing guidance other growth quarter start segments XX% than XX% quarter of Total CPG media was quarter-over-quarter to an quarter. quarter year-over-year our million, by technology vertical the of XXXX from to results. the grew $XX.X the strong manufacturing, in retail as revenue

in And quarter year-over-year up basis sequential represented a business and manufacturing basis. basis. our sequential a XX% basis X% that on grew revenue XX% non-retail on of and and technology our which CPG basis XX% Our basis. on year-over-year sequential Key represented the representing on on year-over-year on and of revenues grow now a of and XX% a a XX% were highlights XX% XXX% XX% was segment, third revenues a

revenue mix. ago for three from retail revenue points Revenue over XX, ended September the percentage total the of the was drop XX details segment the our a months year are my of quarter. XX% Here XXXX of

sequential manufacturing of the was X% of from the pickup most XX% XX% revenues with the year in of in technology retailer year and some from ecommerce of XX witnessed the XX% a quarter, up XX% segment ago year ago was revenues XX% the of quarter. revenue ago up up the Finance in started revenue retailers CPG revenue quarter, total quarter. The rapidly. segment and as from engaging in we the revenue of of During was more -- from growing

sometimes third largely level the second effects of top XX%, X,XXX Revenue which the quarter at part the revenue end while of XX% non-U.S. from XX% up locations third restructuring other spilled quarters referred XXX XXXX, Europe to of quarter. the XX Finally, X,XXX down was our and We total XXXX. the was third from and the third from or of early year quarter were in Eastern of quarter that in offshore, total XXX was ago and headcount headcount, quarter the the a company's headcount, the U.S. the customers we top segment respectively. XX%. over Central of of ago program quarter. exited of couple the the our employees located the At X as the or employees from X% in into and initiated X,XXX of sequential our The decline was headcount people X% with

our top customers up from second quarter We respectively. XX%, XX%, quarter in During a third were the paying in and and XX the customer XX year XX period up top exited and from the concentrations XX of XXXX quarter same of ago, the XXXX. X customers with

As revenue we Relative five quarter, new include generating second in only do the called and we the to quarter customers inactive not a added the logos. reminder, customers.

of the segment, one in two other. the one technology were retail, and financial One in the these the in in

costs. $XX.X third On gross ago of income of by multiple the in margins September up quarter The sequential third first decline stock-based increase a XX% was picked increased was strong combination revenues, quarter. down our bps sequential costs. XXX by driven period. The utilization three basis, from XX.X% our in a non-GAAP lower revenue the basis and reason key in a $XX.X gross for or gross XX.X% same down ended as margin gross compensation non-GAAP other the to revenues our the XX.X%, On other XXX companywide was were was included in GAAP quarter and or These of year a margin decline statement, months Moving the million movement and increased combination bps. to in The from during GAAP lower and million, XXXX. factors. due year-over-year the margin the

engineers as work with billable offshore locations. of offshore customers increasingly Second, sought share greater to their

XX% cost compensation the Adjusted place savings revenues that to decline a spenders lower due of The continue the from of operating be restrictions EBITDA revenue increase in to number $X of was in such revenue, from or million XX% with quarter public working decline year company excluded levels the ago. stock-based during Third, as in third for finally and mainly quarter million was $X.X or costs, down days. in combined increased of costs.

of was million GAAP net earlier, a decline million $X.X income due diluted or per to margin non-GAAP shares both of XX.X on operating shares the $X.X On totaled $X.X based to share, or in diluted income shares $X.XX front. gross the $X.XX a a per net based of was our $X.XX and to $X.XX GAAP based compared or on million income share ago based on loss GAAP net on a diluted XX.Xmillion reasons $X.X basis, share, million XX.X The share diluted Our million per in quarter. million and combination or non-GAAP year XX.X on million expense highlighted of a loss compared income shares. per

quarter significant Our and was our sequential to of higher balance Grid primarily aged XXXX and total second increase the generation investments positive customers. Dynamics cash, March payments from XX, on to between the ChaSerg The XX, cash and million increase $XXX.Xmillion, due The successful $XXX current cash due accounts aided was $XX risk merger December equivalents quarter receivable in XXXX. some from short-term by continued the million X, December from XXXX. in up of as

we doubtful the As of allowance a total you $X.X may quarter, in million second recall, for accounts. of reserved

be Over final we have to amount to our risk our continue received customers the engaged for concludes please from lowering obligations. the we the to their $X.X payments providing fulfill ensure revenue latest Operator, questions. to we Coming Based the to months, of million. three on QX that review, $XX.X $X.X to payment a past our high them with reserves line are in million. for open quarter and are million And million and prepared our fourth the be $XX.X guidance revenues of remarks. guidance, they expect range

Operator

Thank question. One please Instructions] for the you. [Operator moment first

question first of comes Our with line Bergin Cowen. Bryan ahead. from the go Please

Unidentified Analyst

for Ajzenman thanks. in questions. is Bryan. Appreciate This taking Hi, you the

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

Leonard Livschitz

sales at just we This of specialization more now is and senior -- as go bringing Right we the on that the senior of continue for organization. of bring the color to industrial the sales basically we force, we to looking we Leonard. position cross talent. Well geographic we have as the we invest before progress. leadership We'll as acknowledged into into kind continue the extending

marketing focused events, webinars, et cetera. moved virtual as communication far as into they're goes, on we the remote As customer more world

marketing So say sales briefing I mode on force communication up are just front, the we would of sales organization. accelerated we're

Unidentified Analyst

Understood things here and like are How think it as the just should utilization to and on you the billable sounds elevated given normalize a gross plan environment? nice some was at demand maybe follow increase we upside running levels. utilization margin to up about forward going improved staff the

Anil Kumar Doradla

Sure. Yes.

roughly our margin expansion, we So had talked as saw in bps XXX prepared you we as comments.

just utilization went Our up.

recall kind back and our revenues coming QX pre-COVID of If off, you dropped we're level. to

the So QX the that big was movement on front.

is say at of breakup increase XX% margin a it should go we how OpEx see couple should across target combined, somewhere things, between view, about QX. into two-third with into so get gross and QX one-third go between cogs we million our what would are gross and cogs looking that that’s our margin we a us we as our OpEx at point I that modeling of As roughly $X.X from

of have by at we some Now some that. spoke the summarize in go into a and tailwind remember there that you be instating that QX. are mix tailwinds as kind our When QX. be going to remarks prepared so in investments, relative is fully And to to But we his be look a, QX. compensation of tailwind Leonard what offset we offshore are are fewer in let our days going me QX doing the salaries should we working

the target in here be health put But right message underlying all is the model. the together that, you business So we of things when underlying these business, the of the should at our think our I fundamental fundamentals moving are direction.

Unidentified Analyst

very Thanks Great. much.

Leonard Livschitz

Thanks.

Operator

the from Canaccord. Our question next go Joseph of Vafi ahead. Please with line

Joseph Vafi

guys good Hey, afternoon, good results.

Just a couple of questions.

quick out those to I that that forward? of items sequential increase or [indiscernible] with call relative to compared idea want that of just relative other a growth particular you out an push follow-up. bit be And expansions strength that about TMT on seasonal have this can and may kind moving vertical to customers to get it think perhaps in any and how you quarter, with share First to customers to

Leonard Livschitz

Sure.

more pretty programs, the to recent. artificial not level processing, an clients data there much So nature term which data, the as -- some Dynamics data related well of or number and partnership record of are from more as qualification. they think marketing affected situation related Grid but [indiscernible] as with is a it's side it analytics, accelerated in I call plan are of straightforward. to amount the to big of the I spending tech the it as business, the projects intelligence, expectations as the many well There's invest long were picture -- broader seasonal, increased clients institutional, the projects either from major of may newer would some with reflect the are COVID high not more

will So capabilities. going I would that's, broad say to And comprehensive it's I a would wave very very segment, the forward. expand say continue

Joseph Vafi

towards sector Clearly, Great, your going in the sales and retailers of need that's we open particular models kind from especially more. with of that with the just changing stores their time to a perspective, of dynamics your store, or some see quick and you this forward? a lot. Do rely there's follow perhaps, business see more you models? side bit do bounce how more do sales we helpful And underlying on can just their relative Leonard. Thanks time, moving the, customers, retail but types alike, of then opportunity over on department just business on-premise changing quarter up, those versus business e how of brick-and-mortar with retail to to commerce ecommerce and brick-and-mortar locations over some understand materially back a their the more

Leonard Livschitz

question. very a long That's

obviously, So, it segment, goes, perhaps see And as sense, emerging greatly We things. few able partners some it a some into promote CPG not of new but ecommerce retail of let extends it sales. their and to trend up clients projects me aggressively a also the who living which are in are driven try products. more their as to to feels break retail well ecommerce as that

least you recall, stores operating trend relationships and were a and So Macy's they to return customers I that in And pre-COVID coming the largest the are with times. of more CPG under lower budgets, capabilities At the Certainly of a within continue the aggressively being kind lesser two same their time. companies offering brick-and-mortar product the large to guys. rapidly. [indiscernible] compared Kohl's from into back positional any three [indiscernible] department footprint far our our quarter at think be more certainly investment enhances with own index with IT time, if

into with question. brick-and-mortar hope budgets segment. big smaller more that I CPG So answers players, activity IT your budgets very expansion smaller broad in summarize exploration a the it the ecommerce, [indiscernible], more to base, world,

Joseph Vafi

helpful. That's Thanks, Leonard.

Leonard Livschitz

you. Thank

Operator

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

Maggie Nolan

certain milestones additional initial others, a these of Hi, was you see projects reaching more the potential some wondering, thank additions. number to customer of is high you. accounts pathway the these I these and years? for the particular of or certain in And – viewing work was these some how great Hi, and of larger as it any customers? long the Are then what -- with new than

Leonard Livschitz

good. Maggie. Very you Good hear to

pretty them my are very sectors. that of much -- -- named for new in all growth. a customers those enterprises. of some kind I I are of there potential again, So And couple presentation, of had a large

the and from willing recent projects, the to more recall, customers offshore as them is, go just and in and into couple technology technology small the you $X candidate million task to the and are when as limited. going quarter, the notice, into we than and of not the favorable million $XX is] past news were capability, early with as they They're also this of good you we execute to go to expense with Saying engagements dollar two, a a still the into they speak. million but engagements customer some we more we're for tasks But engagements with automation, much within solutions, to and capability, continue services first certainly bigger million. But kind up they're around capabilities, moved a come of project. If clients. nature. fall beginning, good strategy earlier the broader $X of all them still quarter, [driven as always in $XX emphasized only and in more moving they're much its definitely much more interested acknowledged stage data that, the some from somewhat But category a digital lender the go from them mix extend perhaps which into we And the the pretty offshoring and challenging of mix. picked

favorable, clients. So the broad very potentials very all nice enterprise

Maggie Nolan

you this to is some forward on that to implemented. the in then the the have there I to an slightly public they've an companies costs structurally And And company business about due the Grid, talking heard things, rolling going in differently earnings pandemic. somewhat in particular, have we've side know good. and of going Very and changes cost dynamic the costs because coming on. opportunity lot opportunity think a cycle, of year? different the lower forward costs But managing the a opportunity for expenses this is, here about of

Anil Kumar Doradla

question, for yes. your Yes, Thanks Maggie.

working So home. at right, you as would expect, everyone are

host In not restrictions. a So of move are travel IT costs. have of you company, hotels, expect, traveling, services we're would people around, accommodations, mean, I of lot as there a you variety an there's

So roughly right example some those the Even QX, you in if our, to and a QX half percentage our of and a QX. quarter the quarter of benefits from what it at that to ago, the would now, you a be, if right. second third year, way extent our already I drop this travel running they were are off expenses, my showing, look travel they're QX, quarters a good dropping of into seeing couple expenses, all with mean, we're in off biggest of as of drop revenue. look lesser

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

today, us. know, So seeing a public benefits. as you out we're going reverse. costs we And the all you're Furthermore, those those up revenue, but there some some see there also going XXXX, at to costs providing leverage that's costs in was think to we're to looking as on pick I these be company of

past that growth to XXXX, some [audio sustainability digital demand sense. get on just in able seem near-term is it handle to pain and of services of these what be companies So to might a which you call normalized to And a you trying we gravitating come once get points? back overlapping] of be the towards parts, of get into a ‘XX. months, we've going got couple moving we'll give back three when better

Leonard Livschitz

Yes.

So Mike. thank you

you of little it. And take you'll to sure a few thoughts. the Let give I'm happy more, first be bit part me

mean all, usual now, of at don't turnaround very, CEO, year. a pre-COVID get revenue And on a XXXX variables. QX, started We go very But and First this is see point, of the you clear very right you want see understand doesn't above both more low know, there are as in including and we idea an on performance we profitability. above don't I to what's going in a and experience lot as not a have profitability. was significant XXXX a guidance basically very we to I want ambitious go levels with much bar to pre-COVID levels a and

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

a of of we're early XXXX, premature to little in So let the pre-COVID bit the too the of we all, happen little reach you QX. the bad somewhere is obviously, going What's in about in contracts, tell talking November, going anticipate side, year, by of Even to to up. of in talk level revenue this me start first that it terms my late during December end budgeting and from a bookings the coming [indiscernible] sense, November. bit times people about early new the

hard more know, as say little the up But So overall bit you but quantitative give complex little very it's that than I bit you it numbers. segments. other easier shapes would to positive,

fluctuation COVID In fall last work XX% hard season we prepared world growth and the more and of during believe year. the XX%, increase terms than I winter for, the is

not or I'm be professional on person complicated means it not as but medical may from, may the the in field. So impact industry,

If So the are we in I business significant assume there it can't future. and impact do tell. on no the

it's next for But next XX% year. year to say, optimistic, difficult it. of doable looking the the from I'm QX the diversification XX% in very again, clients is easily this about very because, this point, think think But I all is to growth us at and variances. both just

of big company, we're guys, pause not positive. Our that the the the turnaround actually while breath budget of was expanding [indiscernible], bought and because

you we will XXXX. the give sense. for for color next, and Let's makes much wait call That more

Unidentified Analyst

Absolutely, helpful and that's either one you up much. Leonard Anil. I very have you just or thank color. for so follow

your revenue breakdown to just some environment thinking is a of forward going increments between How that the be wanted driving to And there? growth improvement? of about normalized show then level get you I'm utilization get much As the signs to I'm to demand is if whenever impact How forward, assuming I to does hiring going starting can we more take any sense. the key of pricing up? going back

Anil Kumar Doradla

So, so in two that, three of parse Mike, there know or I were questions let's it. kind

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

Unidentified Analyst

Right.

Anil Kumar Doradla

so the is going nothing, as seeing But line Okay, upon some a the had unusual pointed our you not build we this up. Leonard can out, front, that look, really had And any that big that not think, reversing. I mean, pricing we're that. changes, not I the is we one, on utilization discounts on we've but in punch seen environment, earlier this, really here anything anything from of part pricing are on there's rightly year that there's

you view, that to Leonard, it's I from neutral. whether point of [audio overlapping] any. want So to know add don't

Operator

Savageaux Northland with Capital ahead. Our the Timothy of next comes Markets. go Please [Operator from line Instructions] question

Unidentified Analyst

into was you actually kind of Steven look is on if of give us Tim. first some Thanks. you up it should half of this kind Hi, color QX more I wondering ramp ‘XX? second going Is in for think could look half thinking we discuss of guys retail or like? ‘XX be the will what to recovery

Anil Kumar Doradla

question? kind bit? having we're repeat of Can the you. little you me? Hey, a I hear Steven, can lost And you

Leonard Livschitz

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

Anil Kumar Doradla

Okay.

Leonard Livschitz

driven already are less I during doing previous more better. were companies covered situation as Q&A basically, understand, believe specialized So, more the you're the ecommerce talking footprint, I about retail. of But about with retail smaller recovery with we

far large brick-and-mortar as, store [indiscernible]. As department

more a So than full would a have sites, mentioned acceleration because now, be think I we there's seen. good don't I also see clarity so. brick-and-mortar, large from on recovery CPG I to a right what remain that still

little to you some So that anyway, can part. color answer numbers to bit maybe of give if help a

Anil Kumar Doradla

Okay.

opening remarks his comes year talked at So levels, run Leonard, a rate to in when recovery, to year last right. about it, exiting the I close think,

XXXX, we think will different. the company I of when Now, whole the slightly into composition look be

in time, spoke quarter, this retail. I Today, than were XX%, As our current roughly. revenues the around half more of it's XX%,

proportion So showing of thing a customers, we're XX the is, to retail, if at the XX, customers also look at much think top I are -- remember into next and the in our XX both year, top and number look are setup from for actually, that lower. going with you top example, the XX, this number, absolute top the key of up

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

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

Unidentified Analyst

thank Great, you.

Leonard Livschitz

you. Thank

Anil Kumar Doradla

Thank you.

Operator

Q&A our That concludes session.

just will call you. back [indiscernible] I So to over

Leonard Livschitz

you, Thank everybody us for call the joining on today.

giving and the picking our as disruptions caused the coming advantage we you resulted of you months. up quarter take work COVID-XX elevated three team in are and I'm very all. with acting well, market. so contain to results entering business achieving quarter forward the and our our dimensions Thank the steadily Demand fourth back. the and hard proud And were for is third year, fast of guidance. a in in in their We're toward look strong us continue business. we Customers part confidence The to earlier update diversify executed by entire Our to bulk again we continuous uncertainties of goals.

Operator

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

Grid Dynamics (GDYN) 8 Nov 202020 Q3 Earnings call transcript