Grid Dynamics - Q2 2024
August 1, 2024
Transcript
Cary Savas (Director of Branding and Communications)
Good afternoon, everyone. Welcome to Grid Dynamics' second quarter 2024 earnings conference call. I'm Cary Savas, Director of Branding and Communications. At this time, our participants are in listen-only mode. 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. Please note that today's conference is being recorded. Before we begin, I would like to remind everyone that today's discussion will contain forward-looking statements. This includes our business in a financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings with the SEC. 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 SEC. You can find all the information I just described in the investor relations section of our website. I now turn the call over to Leonard, our CEO.
Leonard Livschitz (CEO)
Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. Grid Dynamics second quarter results were above our guidance range and exceeded Wall Street expectations, both in revenue and non-GAAP EBITDA. We achieved important milestones in the quarter. I'm happy to report that our second quarter revenue was the highest in the company's history, and all of it was in organic nature. We also exited the second quarter with the highest number of billable engineers in the company history. The strong results were due to the strengths from both existing and new customers and are commendable given the recent backdrop of economic cycles. It is a clear testament that Grid Dynamics' efforts to stay the course and maintain laser focus in delivering value to our customers is paying off. Our stated goals around the company grows profitability and becoming a billion-dollar revenue company remain unchanged.
In many ways, our second quarter revenue growth of 4% on a sequential basis reflects the company's differentiation. Last quarter, I highlighted the key factors influencing our growth and discussed how we're uniquely positioned across the IT industry. These were, first, our revenue represents a small proportion of our customers' overall spend, and therefore, the opportunities for growth are significant. Second, the new deals that we're winning are tied up to our customer key area of focus and in many cases, are mission-critical. Third, across the majority of our customers, we're seeing their spending level either being maintained at a current level or increasing. And finally, fourth, the headwind we were facing last year were driven by drops at a handful of customers. This trend has reversed, and many of those customers have reverted to growth.
There are many exciting trends which are shaping our business, some of which I will share with you today. More importantly, I believe these trends will persist in shaping the company, both in the second half of 2024 and leading into 2025 to a brighter future. Now, coming to the demand environment. Similar to the first quarter, we witnessed improving demand across the majority of our customers. Incrementally, last quarter, when customers were more focused on sharing their outlook and forecast plans, this quarter, they were more willing to release the budgets to implement those plans. We benefited from the trend in this quarter and expect the such trend to continue as the year progresses. Now, coming to the third quarter. Trends that I highlighted regarding the second quarter extend into the next quarter as well.
We have already seen that in March and July, our customer activity, engineering billing, headcount, AI activities continue to be robust. We believe this formulate the basis for our continued positive outlook as we look at the third quarter and remaining of 2024. We are in what I call the post-vendor consolidation environment. As we highlighted over the last two to three quarters, customers have been scaling back on the number of IT vendors they work with. As an example, in one of the global brand, they plan to reduce the number of IT providers by more than 2/3, with Grid Dynamics being one of the remaining strategic partner. With this customer and many more in similar situations, there's a heightened interest in partnering with IT vendors that are strong in technology and catalyst for them to achieving the business goals, both on revenue and a cost side.
Time and again, our technological and operational excellence has risen to the top. I'm also thrilled to announce that in the second quarter, Grid Dynamics won four industry awards across a range of the categories, including Most Innovative Project and Best Composable E-commerce Project, among others. This widespread industry recognition reinforces our company as a benchmark for engineering excellence in digital transformation and empowering businesses to navigate the complexities of the modern technology landscape with agility and innovation. We expanded our AI capabilities considerably and now have approximately 30 solution and service offering targeting Fortune 500 companies across various industries. These solutions focus on enhancing revenue and reducing costs for enterprises. On the revenue side, our solutions focus on innovative customer experiences and enhance marketing, pricing, and product decisions. And on the cost side, the focus is centered on efficiency improvements and better regulatory compliance.
Our broad offering positions us as well to positively impact the business results of our clients. We're witnessing a significant pickup in customers wanting to engage us on MVPs and pilot programs beyond the initial proof of concepts. Our sales pipeline continues to show robust growth, with dozens active AI opportunities in progress. Enterprises are increasingly seeking to incorporate AI in their business process, as well as services and platform. It's worth noting that we continue to adopt and develop AI tools and best practices to improve the productivity of our own engineers. This goes beyond just coding copilots, extending to tools specifically designed for legacy modernization, test automation, and quick prototyping. These internal advancements, not just boosting our efficiency, but also enhance our ability to deliver cutting-edge AI solutions to our clients. Let me highlight a few noteworthy GenAI projects for the second quarter.
At a top workforce solution company, we're developing a comprehensive AIOps and data platform. This platform will host numerous AI applications for job seekers, recruiters, and business owners, significantly enhancing the efficiency and effectiveness of the workforce management process. At one of the largest U.S. auto parts providers, we're using GenAI to harmonize and enrich large commerce catalogs. This streamlines the product onboarding process, and additionally, it's analyzing product attributes, creating consistent product titles and descriptions that resonate with brand value. This leads to enhanced customer experience and higher sales through all channels. Additionally, for a leading European regulatory compliance firm, we're developing an AI-enabled solution, which streamlines the product certification process. This project showcases how AI can significantly enhance efficiency in complex regulatory environments. With our CTO organization, during the quarter, there was significant activity, both in AI and non-AI areas.
This included the completion of eight programs across AI, data, machine learning engineering, commerce solutions, and search. Some of the projects completed, including intelligent document processing tailored for the financial industry, conversation-powered interior design assistance. Like previous quarters, our architects and CTO team were instrumental in opening new accounts. In the quarter, there were several trends. I would like to share some of the notable ones with you. Logo momentum. In the second quarter, we signed new six logos, many of them being very large enterprises. Of these customers we signed in the quarter, one is a leading North America supplier of home improvement, one is a large American consumer goods focused on personal and household products, one of the largest lifestyle global company, and a European-based large department store chains.
Partnerships are at an all-time high, at 17% of revenue contribution in the first half of 2024. The quality and quantity of our partnership leads are changing. There are three noteworthy trends that are shaping our partnership business. First, our commitments to technology innovation and engineering excellence has resulted in greater appreciation by global enterprise customers. This has resulted in Grid Dynamics being chosen as many of our partners, tier one customers. Second, our relationship with our partners are evolving. We're now more engaged in strategic discussion with senior management of our key partners. Third, at an operational level, we have enhanced level of collaboration between the sales and market teams of Grid Dynamics, as well as our partners. All these translated into more opportunities that include GenAI initiatives and are entering to the global projects and program across industry verticals. Delivery location support.
During the quarter, we made progress across multiple areas with our global strategic delivery organizations. As we highlighted in the past, our follow-the-sun strategy provides the framework of scaling our global locations. With Bangalore operationalized, we now have three fully functional locations in India. India is now in our top two countries by headcount and supports multiple accounts, with over a dozen of them being key accounts. Our focus on acquiring high-quality talent out of universities and our activities with internships, hackathons, Dynamic Talks continued during the quarter. In Europe, Poland continued to be the anchor point, and in Mexico, we continue to support our customers seeking nearshore capabilities. European business. With roughly mid-teens% of our revenue, Europe continue to be strategic to our growth.
Our AI heritage and GenAI expertise continue to attract enterprise customers who are serious about adapting GenAI to enable business process efficiencies and improve customer experiences. At one of our clients, a leader in food and pharma testing, we started development of AI-based search solution. In addition to our AI wins, we provide a platform modernization roadmap to a major U.K.-based retailer customer that supports their expansion, and we were able to migrate their existing homegrown e-commerce platform to the cloud. With an existing global auto part company, we're launching a composable commerce B2C solution orchestrated using MACH technologies. We expect this effort will continue in Q3 to enable the client to consolidate their technology landscapes and scale the business. During the quarter, Grid Dynamics delivered some notable projects. At a leading global technology company, we modernized their data analytics platform, including data governance and data pipeline throughput.
This ensured compliance with strict data privacy and security regulations. Our efforts led to reduced infrastructure costs and improved overall performance. For a leading home improvement retailer, we modernized their legacy monolithic custom commerce platform, which opened the path to implement AI-enabled services, such as search on the Azure platform. For a major CPG brand, we implemented a wholesale order platform for its North American business, significantly reducing manual labor associated with processing and validating orders. This platform integrates order flow data in a client's next-generation ERP system, streamlining operations and enhancing efficiency. For a leading automotive parts supplier, we migrated product data to automotive industry standards and consolidating B2B as well as B2C search capabilities on a common platform. This will improve overall customer experience and enhance product sales. It also the first step for the company rolling out a conversational AI shopping assistant.
For a global footwear brand, we launched 40 country-specific sites in under six months, providing localized features for in-country personalization, shipping, and fulfillment. This achievement was made possible by leveraging the underlying MACH architecture we developed, further extending our long-term relationship with the brand. With that, let me turn the call over to Anil, who will discuss Q2 results in more detail. Anil?
Anil Doradla (CFO)
Thanks, Leonard. Good afternoon, everyone. Our second quarter results were solid as we exceeded our expectations, both on revenue and non-GAAP EBITDA. Our second quarter revenue of $83 million was ahead of our guidance range of $80 million-$82 million, and our non-GAAP EBITDA of $11.7 million was ahead of our guidance range of $10.5 million-$11.5 million. The strong results were driven from a wide range of customers across industry verticals. During the second quarter, our retail and TMT were the two largest verticals, at 32.2% and 28% of our revenues, respectively. Our retail vertical grew 8.7% and 2.9% on a sequential and year-over-year basis, respectively. On a sequential basis, we witnessed growth from multiple customers in the specialty retail and home improvement space.
TMT decreased by 3.3% and 3.6% on a sequential and year-over-year basis, respectively. On a sequential basis, the decline largely came from a couple of factors that include a decline in revenue from a technology startup in the security space. Coming to our largest customer in our TMT vertical, it grew both on a sequential and year-over-year basis. Here are the details of the revenue mix of other verticals. Our CPG and manufacturing represented 11.9% of our revenue in the second quarter, an increase of 3% on a sequential basis and a drop of 9.5% on a year-over-year basis. Revenues from the top three customers in our CPG and manufacturing vertical grew on a sequential basis. Our finance vertical was the strongest, both on a sequential and year-over-year basis.
Similar to last quarter, the growth from customers across the fintech and insurance space. Our newly disaggregated healthcare and pharma represented 3.8% of our revenues and showed a 5% increase on a sequential basis and 14.8% decrease on a year-over-year basis. Finally, the other vertical represented 9% of our second quarter revenue and was down 10.6% on a sequential basis and up 26.7% on a year-over-year basis. We ended the second quarter with a total headcount of 3,961, up from 3,892 employees in the first quarter of 2024 and up from 3,862 in the second quarter of 2023.
At the end of the second quarter of 2024, our total U.S. headcount was 347, or 8.8% of the company's total headcount, versus 8.2% in the year-ago quarter. Our non-U.S. headcount, located in Europe, Americas, and India, was 3,614, or 91.2%. In the second quarter, revenues from our top five and top ten customers were 38.5% and 57%, respectively, versus 37.6% and 56.6% in the same period a year ago, respectively. During the second quarter, we had a total of 208 customers, down from 210 in the first quarter of 2024, and 216 in the year-ago quarter.
During the quarter, we added several customers, some of which Leonard referred to in his prepared remarks. The year-over-year decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of non-strategic customers. Moving to the income statement, our GAAP gross profit during the quarter was $29.6 million, or 35.6%, compared to $27.7 million, or 34.7%, in the first quarter of 2024, and $28.3 million, or 36.6%, in the year ago quarter. On a non-GAAP basis, our gross profit was $30.1 million, or 36.2%, up from $28.1 million, or 35.3%, in the first quarter of 2024, and up from $28.8 million, or 37.3%, in the year ago quarter.
The increase in gross profit, both in dollar and as a percentage on a sequential basis, was mainly driven by a combination of higher levels of revenue and better utilization of engineering resources. Our Non-GAAP EBITDA during the second quarter that excluded stock-based compensation, depreciation and amortization, restructuring and expenses related to geographic reorganization, transaction and other related costs was $11.7 million, or 14.1% of sales, up from $10.3 million, or 12.9% of sales in the first quarter of 2024, and down from $12 million or 15.5% in the year-ago quarter. The increase on a sequential basis was largely due to higher revenues, partially offset by increase in operating expenses.
Our GAAP net loss in the second quarter was $0.8 million, or a loss of $0.01, based on basic share count of 76.6 million shares, compared to the first quarter loss of $3.9 million, or a loss of $0.05, based on a basic share count of 76.2 million, and an income of $2.6 million, or $0.03 per share, based on 75.1 million basic shares in the year ago quarter. Our sequential decrease in GAAP net loss was largely from higher gross profit, lower levels of stock-based compensation, and this was partially offset by provision for income taxes.
On a Non-GAAP basis, in the second quarter, our Non-GAAP net income was $6 million, or $0.08 per share, based on 77.9 million diluted shares, compared to the first quarter Non-GAAP net income of $5.2 million, or $0.07 per share, based on 78.4 million diluted shares, and $7 million or $0.09 per share based on 76.9 million diluted shares in the year ago quarter. On June 30, 2024, our cash and cash equivalent totaled $256 million, up from $249.4 million in the first quarter of 2024. Coming to the third quarter guidance, we expect revenues to be in the range of $84 million-$86 million. We expect Non-GAAP EBITDA in the third quarter to be in the range of $12.3 million-$13.3 million.
For Q3, 2024, we expect our basic share count to be in the range of 77 million-78 million and our diluted share count to be in the range of 79 million-80 million. That concludes my prepared remarks. We are now ready to take questions.
Cary Savas (Director of Branding and Communications)
Thank you, Anil. As we go into the Q&A session of this call, I will first announce your name. At that point, please unmute yourself and turn on your camera. The first question will come from Maggie Nolan of William Blair. Go ahead.
Maggie Nolan (Research Analyst)
Hi, how are you?
Anil Doradla (CFO)
Good.
Maggie Nolan (Research Analyst)
Congratulations.
Anil Doradla (CFO)
Thanks, Maggie.
Maggie Nolan (Research Analyst)
I wanted to ask about the talent landscape for you all. You're back to hiring. Some time has passed since you've kind of reorganized the footprint of the business, since you started talking about Follow the Sun, as well as the pod structure that you rolled out. I'm curious how you're thinking about managing margins from here, on kind of a account-by-account basis, now that you have all these different pieces in place, and how we might start to see that manifest in the P&L.
Leonard Livschitz (CEO)
Well, you just answered the question, right, Maggie? So managing the margins account per account for the key accounts is that what really it comes down to right now. As you can see, from the hiring perspective, we continue to hire across all the regions where we execute Follow the Sun program, Follow the Sun. There is definitely emphasis on India. India continues to expand. We still put a lot of effort in Europe, but we are doing a little bit more, I would say, smart hiring, because we're again adding more interns for the program, which we bring junior engineers, or we promote within. As the projects have stabilized and grow with a pod solution offering, we're able to expand on the breadth of the teams.
And when you have deeper projects, you can actually manage your cost efficiency within the teams as well. But the short answer is yes, the key is to manage profitability per key client.
Maggie Nolan (Research Analyst)
Thank you. And then you also talked about maybe an increased willingness of customers to either maintain or even increase their spend. I'm wondering if there is a notable change in the scope of projects, type of projects, duration of projects, as you see that resurgence of willingness to spend, and any thoughts you might have on why this is slightly different from some of your competitors in this space?
Leonard Livschitz (CEO)
Well, sorry, there was some noise there. Sorry about that. So, I think that fundamentally, when we talk about our differentiation, it's always been the marquee for Grid Dynamics to be focused on technology projects. And when we do technology projects, the scope is around solutions which greatly impact the sales. So, there is a, if you noticed, a big part of my conversation was about AI. It's not about just being fashionable, but it's also we have a possibility to implement the number of the internal solutions which we continue to roll out, which I also noted from just the proof of concept standpoint to the implementation on a broader base. So yes, technology still stays the core focus.
We are quite broaden the number of platforms which we use for our innovative AI projects, starting from the, you know, open source products, to specialized solutions, to the private models, building the Copilots together with the clients. And also, as we expand our partnerships, there is a deeper breadth of, again, implementation of those project with, with the clients. So just to summarize: technology focus, breadth of AI, moving from the conceptual stage to broader implementation, and certainly reputation which come with that, over years of Grid Dynamics managing various data aspects of our clients.
Maggie Nolan (Research Analyst)
Great. Thanks, Leonard and Anil. Congrats again!
Anil Doradla (CFO)
Thank you.
Leonard Livschitz (CEO)
Thank you so much, Maggie.
Anil Doradla (CFO)
Can we go to the next question?
Cary Savas (Director of Branding and Communications)
Hello, the next question goes to Gates Schwarzman from Citi. Please go ahead, Gates. Gates, are you there?
Anil Doradla (CFO)
Okay, we'll come back to him. Cary, why don't we go to the next-
Cary Savas (Director of Branding and Communications)
We'll come back to him. The next question comes from Bryan Bergin of TD Cowen. Bryan, please go ahead.
Bryan Bergin (Managing Director)
Hi, guys. Thanks. Good to see you. I wanted to start on the guidance here. So nice to see the sequential performance in the 2Q, and then what's implied in the 3Q, the continuing momentum there. As you develop the 3Q plan and consider kind of the balance of the year into 4Q, can you kinda just share some perspective on whether there was thought to reinstating that full year outlook? I'm asking just curious as a signal around overall business visibility.
Anil Doradla (CFO)
So, Bryan, this is a very good question because this is a constant discussion. I think, let me leave a couple of thoughts here. Number one is that things are improving, so the likelihood of me issuing a full year guidance is higher than what it was maybe a month ago, two months ago, or three months ago. So we're moving in that right direction. Look, we tend to be conservative, right? When we are ready for it, we will put it out, but the bias internally is for a full year guidance. Leonard's inclination is to try to give as much visibility as we can for the street. So, that's what we're working on.
So at the right time, we will go out and put it, but definitely we have more of a bias to get to that point.
Bryan Bergin (Managing Director)
Okay. Okay, that makes sense. And then just on the new logos, can you speak to some of the pace of the scaling of these larger enterprise logos? You've had good momentum in each quarter here, signing several. For those that are ramping faster too, can you maybe speak to some of the trends in those new relationships that may be common?
Leonard Livschitz (CEO)
Well, the story is not any different from the years of growth, Bryan.
When you engage with a client on a rapid scale, and I'm talking about rapid scale, usually there is a familiarity with Grid Dynamics from the past. So when you sign a logo where you come from the, I would say, new relationship or partnerships, typically, the projects start relatively small, so it's still land and expand, right? Usually, it's from highly technical field. Basically, the big enterprise approach Grid Dynamics on referrals to become their technology partners. In a couple of instances, they thought that help from very large and reputable firms, perhaps they didn't find that reflection of the specific needs or maybe focused, I would say, attention, and we rapidly picked it up. And you know, we're kind of shifting our relationship with the clients also to understanding their business models.
So it helps to be technically astute, but also a bit more business savvy. But a couple of instances where we had the leadership of the clients kind of known us for a long time. And those kind of past trust, because you don't need to prove yourself anymore. You basically get to the point that you're given business based on your past performance, but you have to rapidly adapt and deliver, and there are a couple instances of that has happened. As we grow, you know, we've been around for 18 years, those instances are more common. So three cases, the new relationships as well as the partnerships, they grow from technology up. The existing relationship, rapid scale in terms of the major implementation across multiple fields.
Bryan Bergin (Managing Director)
Okay. That's helpful. Thank you very much.
Leonard Livschitz (CEO)
Of course.
Anil Doradla (CFO)
Thanks, Bryan.
Cary Savas (Director of Branding and Communications)
Thank you, Bryan. The next question comes from [audio distortion] Needham. Mayank, please unmute yourself, and you can start your video.
Anil Doradla (CFO)
Did we just lose Mayank? I just saw him.
Mayank Tandon (Senior Analyst)
I'm here. Can you, can you guys, hear me?
Anil Doradla (CFO)
Okay. There you go. Yes, Mayank, we can hear you.
Mayank Tandon (Senior Analyst)
I'm trying to restart my video, but let's see, anyway.
Anil Doradla (CFO)
Oh, there you are.
Mayank Tandon (Senior Analyst)
Here I am.
Anil Doradla (CFO)
Yeah.
Mayank Tandon (Senior Analyst)
All right. Great. Thank you for taking my question. Good evening, Leonard and Anil. Congrats on the quarter. I wanted to ask you on the revenue growth for the third quarter, and as you look ahead, could you unpack the growth in terms of headcount additions, utilization? How much more room do you have to expand it? And also pricing, you know, is there more leverage on the upside, or is pricing basically running flattish at this time?
Leonard Livschitz (CEO)
Okay. Well, unpacking is the privilege of Anil - because obviously, he will unpack such way, you will never understand what he has unpacked. But, let me try to focus on the key areas because it's, it's a very fundamental question, right? So I don't see a, a rapid increase of the pricing per client. There are some instances they do, but there's - it's not about increasing the pricing, it's about, fair value for the solutions. So when you go T&M, it's seldom, but when you go into the project base, when you offer a customer a, complete proposals, that does happen, some of the impact, because again, it's ROI. At the end of the day, it's total amount of dollars, looked at how much business, how competitive our clients stay. So, so the, the unpacking part is there's no miracle there. Nobody.
The demand is still to the point we have to be smart about pricing, but we see some of those improvements, definitely. The other thing is balancing the teams, as I mentioned, when Maggie asked the question, bringing this broader, vertically integrated organizations created a higher, I would say, utilization of the broader base people. You know, when you are starting projects, and, you know, Brian asked this, how you, and who grows and how that impacts, you typically start with very experienced people, right? And that is not the best margin solution unless you build a broader capabilities with all the clients, and we see those broader capabilities coming into play. So if I summarize some of the unpacking of the growth, demand is definitely present to Grid Dynamics.
When we purely focus on one area, then, maybe there's no, like, a big change of the financial performance, but we're expanding now into multiple areas. We see the efficiencies, and the efficiency comes with a pyramid of talent, which is, you know, we, even during the most direst downturns, we did not slow down on the internship program, on the training program, on the internal university program. So those kind of things picked up. And of course, the investment in R&D, when we build more than 30 solutions, they're not just 30 solutions. Some of the, you know, it's almost like auction. You know, my people say, "I did 100, I did 200, some, you know, 5,000." You know, we're more conservative.
When we talk about solution, it's a fundamental, actionable, set of rules which drive immediate customer implementation. When you talk about Fortune 500, that brings that kind of implementation to both performance and financial efficiency. I hope I gave you a little bit of flavor enough.
Mayank Tandon (Senior Analyst)
Sure.
Leonard Livschitz (CEO)
I tried.
Mayank Tandon (Senior Analyst)
Very helpful. As a, as a quick follow-up, Leonard and Anil, I wanted to also dive into the clients where you have top five, top ten. Where do you see them, in terms of penetration? Is there more headroom to grow within these clients, or do you think the growth is gonna really come from your non-top ten as you look beyond 2024 into 2025 and further?
Leonard Livschitz (CEO)
Well, let me start. We just went through our internal executive reviews because, you know, it's good on a semiannual basis, kind of assess where you are. So we just finished it. Our strategy comes threefold. The top clients, the second most potential clients, meaning the large companies where our footprint is still smaller, and the new innovative clients coming either through the hunting or the partnerships, right? And as you look at our breakdown, you know, no matter what we do, there is still concentration, right? And this is different form of shape, not the same as it was some years ago. We're more diverse on a industry basis, but still, we have heavy hitters.
And with those heavy, heavy hitters, you need to make sure you leave with them 24/7, because your, our success and their success so tightly coupled, and when some of them went down in the past, you know, quarters, it hurt them, it hurt us. We carefully selecting the companies together with the client, which not only kind of inspired to grow and have funds to grow, but the market they're naming for their own markets help them. So that's from the top tier. From the second tier, we have growth with every account potential. Because if you're, you know, if you only have, you know, some million dollars, and those are large clients, then it's our responsibility to offer them competitively, something which makes their business more successful. And this is where we double down on technology penetration.
So the first group is 24/7. The second one, very selective. And, you know, we have those green shoots already start to fruition, which means some of them take off, some of them don't, and then we need to understand why not. And the third group, you know, we are spending disproportionate amount of attention to the partnerships, because those logos are amazing, but the scope of projects are limited, so we have enough trust with our partners that we can work with them on their own implementations, but also look in parallel to something completely unrelated and compatible with their mission, but help us and direct clients to grow together. So together, that's kind of focused. It's a one, two, three.
Mayank Tandon (Senior Analyst)
Perfect. Thank you so much, Leonard. Thank you, Anil.
Anil Doradla (CFO)
Thank you.
Cary Savas (Director of Branding and Communications)
Thank you, Mayank. Appreciate your questions. The next question comes from Puneet Jain of JPMorgan. Go ahead, Puneet.
Leonard Livschitz (CEO)
You're on mute.
Anil Doradla (CFO)
Puneet, you, I think you're on mute.
Cary Savas (Director of Branding and Communications)
Puneet, go ahead, sir. Can't hear you. Your audio is not connected, sir.
Anil Doradla (CFO)
All right, let's see.
Puneet Jain (Associate of Equity Research)
All right, let's try.
Anil Doradla (CFO)
There you go.
Puneet Jain (Associate of Equity Research)
All right. I just asked all my questions, but answered then. Anyway, so great quarter. So last couple of years, you have added, like, around 50, 60 enterprise customers. Some of them, for example, the one in financial services, have done really well. But give us, like, the state of union on rest of those enterprise clients that you added. Or some of them, like the, the, specifically the ones that might still, still be somewhat under scale, like what keeping them from ramping up and what the potential is of those clients?
Leonard Livschitz (CEO)
All right. You basically expanding on the previous question with Mayank about the second group. Right? Not the top one. You know, everybody boasts about successes. What happened with the quiet group, right? The silent majority. Okay, well, that, that's why we had this very deep account-by-account review. And because, again, you know, there are not a huge number of them. You know, there are maybe 25-30 of those clients who kind of stuck in this position of, you know, kind of transitioning from two, five, 10 to five, 10, 20, but still more between five and 10 instead of 10 and 20.
This is exactly where the, I would say, the thrust is. Because once you pass a certain level of capacity relationship, you suddenly become a preferred supplier. And in an age of the consolidation, which we also mentioned, you know, staying relevant, you have to be useful not just to one team, but to many.
So from that perspective, we selected about half of those clients, because you can't run after everyone, right? Which they're from different industries, but they have couple of major, I would say, factors. First of all, we have an alignment on technology roadmap. You know, with all the greatness of technology, technology by itself, even AI, makes zero value unless it's fully supported and expanded and, you know, kind of planned for with the clients, right? They, they need to have mindset, they need to have capability, they need to have willingness, business cases, and patience, right? You know, it's very easy to do proof of concept, and then they kind of report to the top management saying, "Okay, we've done it." It's not business. So with about half of those clients, I would say 18 or something like that.
We wanna go much deeper to actually engage into the more business case studies, answering ourselves and them the question is, why not? We're not changing our business model. We're not doing, like, BPOs or any kind of loan services. So for us, expansion, it means how to proliferate the data business, the cloud business, assessment of cyber securities, learning from that horrible lessons of the, you know, IT challenges which happen on the clouds. How to create mission-critical solutions with all the predictable models, but still relevant to them. So that group, which we're gonna continue to focus, and that's where the, I would say, short-term growth comes from.
Puneet Jain (Associate of Equity Research)
Okay. No, that's very helpful. And then, you have, like, about $250 million in cash on balance sheet. And, in the press release, I noticed, like, you talked about that most of the growth or all the growth is organic now, meaning that it's been more than a year since you last did an acquisition. So talk to us about your use of cash priorities over the near term, and, what are you looking for in potential M&A targets?
Leonard Livschitz (CEO)
Yes. Yes. So the person you don't see in the room, because he's kind of behind the scene, is our head of M&A group, right? So I'm not gonna put him on the stage and tell you what to do, because he may tell you way too much than we want to tell you. But I think that the level of engagement is tremendous right now. I think there are a couple reasons for this. First of all, remember the geographic. We talked about technology with clients and geography. I think the stars kind of aligned. We have all the geography we're looking for, all of them right now, and technology is pretty decent. I would not say we're gonna make a breakthrough. If everybody can make a breakthrough, then why would companies exit, right? They need to have.
We found the companies which need to have help from the, strangely enough, call me a big brother. I mean, we're still a fairly moderate-sized company, but from technology perspective, we're quite formidable, and they're passionate about to continue the journey as a part of the bigger teams. Now, I can't tell you when the day is gonna come. What did you say about that's going for an annual report? You're more inclined to do now than before.
Puneet Jain (Associate of Equity Research)
Than a month ago.
Leonard Livschitz (CEO)
It sounds like, you know, we're all waiting for Feds to change the rate. So I'm also inclined to be very positive in the next couple of, you know, weeks and months, but you have to be very patient. And the reason we're very bullish on it is because I think we found the rhythm. That was very important because, you know, we look at the past of our four acquisitions. We look at the value where we need to bring in 2025 and on. And I think the company, when it goes through this period of the slowdown, it matures. You know, like an old saying, "If you can't find a job, go ahead, extend your education," right? So it's kind of worked for the last 12 months. I believe we're on a very good path now.
Puneet Jain (Associate of Equity Research)
That's good to know. Thank you.
Anil Doradla (CFO)
Thank you, Puneet.
Leonard Livschitz (CEO)
Thank you.
Cary Savas (Director of Branding and Communications)
Ladies and gentlemen, this concludes the Q&A session of our call today. I will now turn it over to Leonard for closing comments.
Leonard Livschitz (CEO)
Thank you, everybody, for joining us on the call today. Our message today is consistent with the commentary over the past couple of quarters: steady improvement in Grid Dynamics business. Visibility is getting better. Customers are more willing to put their plans into spend, and more importantly, customers are laser focused on evaluating the technological competencies of their IT partners. I'm excited about these opportunities in the second half of 2024, as well as the coming 2025. Looking forward to giving you all updates in the next earnings call. Thank you.