Grid Dynamics Holdings, Inc. Q3 FY2024 earnings call

• Grid Dynamics had solid third quarter results with revenue and non-GAAP EBITDA above guidance, marking the highest in company history.
• Acquisitions of Mobile Computing and JUXT enhanced capabilities: Mobile Computing expands global footprint and follows the Sun delivery model; JUXT adds expertise in Banking and Financial Services.
• AI initiatives gained traction with over 100 active AI opportunities, a 50% increase from the previous quarter, with projects moving into full production.
• Partnership-influenced revenues were 18% of total revenue, with focus on hyperscalers.
• India is integral to the global delivery model, with Bangalore scaling its team. Europe remains strategic, with growth in European business and AI adoption trends.
• Notable projects included a global tech company's privacy compliance system and a financial services company's enhanced web portal.

In the third quarter, Grid Dynamics reported a record revenue of $87.4 million, exceeding guidance. The Retail vertical was the largest at 34.1% of revenues, followed by TMT at 27.7%. The Finance vertical saw significant growth, reaching 16.2% of total revenues. CPG and Manufacturing accounted for 11.2%, Healthcare and Pharma for 2.9%, and the Other vertical for 7.9%. The Retail vertical grew 11.4% sequentially and 12.4% year-over-year. The Finance vertical grew 12.7% sequentially and 94% year-over-year. CPG and Manufacturing were relatively flat sequentially but up 1.4% year-over-year. Healthcare and Pharma decreased 20.5% sequentially and 26.9% year-over-year. The Other vertical was down 6.9% sequentially but up 3% year-over-year.

• Q4 2024 revenue expected to be in the range of $95 million to $97 million, with acquisitions contributing 10% of total revenue.
• Non-GAAP EBITDA for Q4 expected to be in the range of $13.5 million to $15.5 million.
• Basic share count for Q4 expected to be in the range of 77 million to 78 million, and diluted share count in the range of 80 million to 81 million.

• Uncertainties in the business environment that could impact financial results.
• Dependence on key customers and market conditions affecting revenue.
• Integration risks associated with recent acquisitions.

Q: Clarification on M&A contribution to Q4 revenue and organic growth outlook A: Anil Doradla stated acquisitions contribute 10% to Q4 revenue, and organic growth is driven by fundamentals like billable headcount and new/existing customers Q: Pricing trends A: Leonard and Yury Gryzlov mentioned stable pricing with improvements in new client engagements, with traditional legacy business stable Q: Demand recovery and vertical trends A: Leonard and Yury discussed broad-based demand recovery with urgency from clients to complete projects, and growth in verticals like Finance and potential in fintech Q: AI scaling and contracting A: Leonard talked about performance-based compensation in AI projects, with clients balancing between different contracting models Q: End markets and global expansion impact A: Leonard and Yury discussed global expansion effects on client conversations, with India and Europe being key areas of growth Q: Demand separation vs peers A: Leonard and Yury explained Grid Dynamics' AI solutions, technology investment, and client trust as drivers of separation from peers Q: Client work allocation between GCCs and vendors A: Leonard discussed collaboration with GCCs and client dynamics, where Grid Dynamics is seen as part of the team Q: AI spend reclassification A: Leonard talked about incremental spend in AI offerings and tectonic shifts in how clients invest in AI