Grid Dynamics - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue reached $100.3M, up 14.7% q/q and 28.5% y/y; GAAP diluted EPS was $0.05 and non-GAAP diluted EPS was $0.12, with non-GAAP EBITDA of $15.6M, marking record quarterly revenue and profitability.
• Revenue and EBITDA exceeded the company’s October outlook ($95–$97M revenue and $13.5–$15.5M EBITDA); management also stated results beat Wall Street expectations on revenue and non-GAAP EBITDA.
• FY 2025 revenue guidance initiated at $415–$435M (+18.4% to +24.1% y/y; midpoint +21.2%) and Q1 2025 revenue guidance at $98–$100M with non-GAAP EBITDA $12.9–$13.9M; diluted share count guided to 89–90M in Q1.
• Strength was broad-based, with Finance up +63.8% q/q and +180.1% y/y; AI pipeline expanded to >130 opportunities (+30% q/q), and the company highlighted hyperscaler partnerships (18% of 2024 revenue) as growth drivers.
• Balance sheet strengthened by a follow-on offering in Q4 generating $107.6M net proceeds; cash and cash equivalents rose to $334.7M by year-end.

What Went Well and What Went Wrong

What Went Well

• Achieved highest quarterly revenue in company history ($100.3M) with gross margin of 36.9% and non-GAAP gross margin of 37.5%; non-GAAP EBITDA of $15.6M beat high end of guidance.
• Finance vertical surged (+63.8% q/q, +180.1% y/y), driven by fintech and insurance demand and recent acquisitions; CPG/Manufacturing also grew (+14.8% q/q, +16.4% y/y).
• Management emphasized AI momentum and stated results exceeded both company outlook and Wall Street expectations; “record-breaking results were fueled by customers, both existing and new” (CEO).

What Went Wrong

• Non-GAAP EBITDA margin fell q/q (15.6% vs. 16.9%), due to lower gross margin % and higher OpEx tied to organic growth and acquisitions.
• Other verticals declined 11.3% y/y; Healthcare & Pharma mix remained small (2.4% of Q4 revenue).
• Operating expenses increased (G&A, Sales & Marketing, R&D) and GAAP operating margin remained modest (income from operations $1.3M) despite scale-up.

Transcript

Cary Savas (Director)

Good afternoon, everyone. Welcome to Grid Dynamics' Q4 and Full Year 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, CFO Anil Doradla, COO Yury Gryzlov, and SVP Americas Vasily Sizov. Following the prepared remarks, we will open the call to your questions. Please note that today's conference call 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. I'm delighted to share that Grid Dynamics delivered another strong quarter, exceeding our own outlook and Wall Street expectations on revenue and non-GAAP EBITDA. Grid Dynamics' revenue and profitability was the highest in the company's history, and in the Q4, we achieved an important milestone of $100 million revenue.

These record-breaking results were fueled by contributions from both new and existing clients. To put it in perspective, when we went public in early 2020, our annual revenue was in the $100 million range, and we achieved it now just in one quarter. I'm proud of this milestone, and I thank you, global team, for the numerous efforts and unwavering dedication. Coming to the demand environment, we saw improvements across our customers and industry verticals in the Q4.

This has been a consistent pattern for our company over the past several quarters, and we anticipate it will carry forward in 2025. Furthermore, the foundations of our business model are well intact, and our long-term targets for growth, profitability, and technical leadership remain unchanged. In Q4 and into Q1 2025, we are seeing a continuation of improving trends in booking and pipeline.

In fact, we reached some of the highest levels of these metrics since post-COVID revenue acceleration in 2021, indicating robust demand for our services. In addition to growth, our new customers were witnessing new deal activity within existing customers across industry verticals. Partnerships are also playing a pivotal role in our growth strategy with a focus on hyperscalers.

After setting record levels in the second and Q3, the company once again attained its highest-ever billable engineering headcount by the end of Q4, a leading indicator of future growth, and we achieved that before factoring in contributions from recent acquisitions. Additionally, in the Q4, we witnessed the highest levels of open engineering positions during the last three years. Customers, both existing and new, are contributing to our strong results.

At our top customers, we provide a significant proportion of our revenues, which we continue to execute exceptionally well. Additionally, in the Q4, we signed three notable enterprise clients. The first one is related to the automotive industry. The second one is one of the largest global auction companies, and the third one is one of the world's largest grocery retail groups.

Now, shifting our focus to AI initiatives, I'm pleased to share that our AI capabilities are gaining strong momentum across our customer base. We have significantly expanded our AI portfolio, offering tailored solutions and services designed specifically for Fortune 1000 companies across diverse industries. These solutions aim to drive both revenue growth and operational efficiency for our enterprise clients. On the revenue side, we're enhancing customer experiences and optimizing marketing, pricing, and product strategies.

On the cost side, our focus remains on improving efficiency and advancing enterprise knowledge management. There are several reasons to be optimistic in 2025. Improving trends in demand, growth in our existing new customers, growth in our hyperscale partnership business, and increasing demand for IT partners with strong technology focus are just a few examples of why we believe 2025 will be a good year. Given our incremental confidence, we're providing a full-year outlook.

For 2025, we expect our revenues to be in the range of $415-$435 million, with a potential growth of 20% plus over 2024. To achieve our 2025 growth targets, we've identified five priorities to support our GigaCube strategy. First, leveraging our strengths in data and AI to enhance productivity across client business processes. Second, increasing the portfolio of accelerators and technological artifacts to address industry-specific business needs.

Third, increasing industry diversification by enhanced focus in verticals such as finance, manufacturing, pharma, and healthcare. Fourth, ensuring our follow-the-sun strategy provides global support to our clients, and finally, fifth, leveraging our strong relationship with our partners at new and existing customers. To talk more about these five priorities of 2025, let me hand it over to our COO, Yury Gryzlov. Yury.

Yury Gryzlov (COO)

Thank you, Leonard. Let's review our priorities in more detail. First, I'm pleased to share that our AI capabilities are gaining strong momentum across our customer base. We have significantly expanded our AI portfolio, offering tailored solutions and services designed specifically for Fortune 1000 companies across diverse industries. In Q4, we identified 130 AI opportunities, a 30% increase over the Q3.

This growing demand reflects the changing expectations of customers, with AI-based systems becoming increasingly prevalent in both consumer and enterprise environments. Our top AI initiatives include search, agentic systems, and supply chain optimization. As 2025 unfolds, we expect the pipeline we've developed over the past couple of quarters to convert into meaningful projects. Second, expanding our technology offerings. Our portfolio continues to diversify, driven by our deep understanding of customer needs and aspirations.

Our core strengths in data and AI, digital engagement platforms, and modern application development remain highly valued by our customers and align closely with their strategic priorities. Our CTO organization continues to develop innovative accelerators that shorten sales cycles and improve customer speed-to-value. This investment in our technology portfolio positions us well as enterprises increase their digital transformation investments.

Third, industry diversification. Our capabilities are in high demand across verticals. This, in turn, gives us the opportunity to expand beyond our established industries, such as TMT, retail, and CPG. We achieve this organically or through acquisitions. In the Q4 of 2024, we acquired UK-based Juxt, elevating our industry expertise in banking and financial services. Their focus on risk platforms, structured products, equity derivatives, and financial reporting is highly complementary to our current offerings.

Since acquiring JUXT, several global banks based in the U.S. have expressed interest in working with us, and we expect those opportunities to convert in 2025. Fourth, our follow-the-sun strategy. This continues to be our guiding principle, enabling uninterrupted, around-the-clock client service. In just three years, we have expanded our geographic footprint substantially, and I'm proud of our ability to serve our customers across 19 countries, spanning North America, Europe, and India.

We are committed to investing in our engineers' skills and knowledge globally. We have launched a comprehensive AI training program that includes both introductory and advanced tracks, along with partnership-centric training. Thousands of our engineers are currently participating in this program, and we're excited to see the innovative solutions they will develop as they apply their AI skills in billable roles.

Since launching operations in India three years ago, the country has become a top three delivery location for the company. Most of our efforts in India are centered on supporting U.S. businesses, and we continue to work closely with many global captive centers across industry domains. In the Q4, we set up an AI innovation team to support a global financial client and expanded the team to support a global credit agency client.

Argentina-based Mobile Computing, acquired in October of last year, also enhanced our follow-the-sun capabilities. Several U.S.-based customers have already engaged us to provide engineering skills from Argentina, and we expect to significantly scale operations in 2025. By adding this talented team in Argentina, our clients now have expanded options in the Americas, complementing our established presence in the United States, Mexico, and Jamaica. Fifth, our partnerships.

In 2024, 18% of our total revenue was driven by partnerships, with hyperscalers playing a significant role. In 2025, we expect our hyperscale partnerships to continue growing significantly. Our confidence in 2025 is driven by three noteworthy trends. First, our commitment to technology innovation and engineering excellence has resulted in greater appreciation by global enterprise customers. This has resulted in Grid Dynamics being chosen by many of our partners' tier-one customers.

Second, our partner relationships are evolving. We are now more engaged in strategic discussions with senior management at our key partners. And third, at an operational level, we have enhanced collaboration between the sales and marketing teams at Grid Dynamics and our partners. All of this has translated into more opportunities for our entry into new global projects and programs across industry verticals. During the Q4, there were several notable client achievements and updates. Let me now hand it over to our SVP Americas, Vasily Sizov.

Vasily Sizov (SVP and Head of America)

Thank you, Yury. During the quarter, Grid Dynamics delivered some notable projects. First, let me share a few examples of our AI programs at large enterprises. These implementations showcase how we are helping enterprises move beyond basic AI applications to create sophisticated solutions that deliver measurable business results. At one of the largest food distributors, our team is implementing comprehensive AI-driven catalog enrichment. Using generative AI, we are creating detailed product descriptions and high-quality product images to enhance product discoverability and appeal.

This initiative has already demonstrated meaningful business impact, with expected revenue uplift of over 5%. At one of the largest beverage companies, we are expanding our knowledge AI system into a comprehensive agentic AI platform. This platform is designed to automate various aspects of enterprise operations, significantly enhancing efficiency across the organization.

At a leading payment company, we are developing an innovative agentic AI platform that creates a multi-agent marketplace. This solution intelligently connects consumers with optimal deal offerings from card issuers, brands, and retailers, creating a more personalized and efficient shopping experience. In addition to our AI projects, I also would like to highlight some notable projects around our other capabilities.

We partnered with a leading multinational technology company to optimize their open-source machine learning compiler to implement their CPU strategy, address performance limitations, and integration challenges. The results of our work allowed it to achieve consistently high performance across various workloads. This collaboration has notably accelerated the client's product roadmap, reducing time to market from two years to one and enabling end users to benefit from this advanced implementation much sooner.

With another client, one of the top 10 global largest banks, we are working to create a cutting-edge technology platform for structured products, starting with structured notes. Instead of focusing on specific products, the platform is designed around key product features, giving the bank flexibility to create appealing offerings and quickly adapt to market changes. This approach speeds up the process of building, pricing, and launching structured products, driving business growth.

Another example, a multi-chain restaurant and hospitality client with over 33,000 locations engaged Grid Dynamics to scale their data pipeline management solution. The scope involved scaling from dozens to thousands of concurrent pipelines with modern data transformation flows. We delivered a system enabling data flows to operate at a truly massive scale with virtually unlimited growth potential due to its containerized architecture and load balancing capabilities.

Additionally, the framework we designed significantly reduced the development lifecycle for new pipelines or migrations, cutting it from days to hours. The solution is already being actively used by client data engineering teams for the development of hundreds of new pipelines to enhance their analytics platform.

Now, shifting our focus to Europe, there were some noteworthy projects. A global medical device manufacturer selected Grid Dynamics to be a strategic partner on their data and AI platforms. This multi-year engagement is expected to bring efficiencies to their business processes. Additionally, at a leading meal preparation company, we are working on modernizing their customer service platform in partnership with one of the hyperscalers. With that, let me turn the call over to Anil, who will discuss the results of the Q4 in more detail. Anil.

Anil Doradla (CFO)

Thanks, Vasily. Good afternoon, everyone. Our Q4 2024 results were solid as we exceeded our expectations both on revenue and non-GAAP EBITDA. We achieved record revenues of $100.3 million, surpassing our guidance range of $95-$97 million. On a year-over-year basis, our Q4 revenues grew at 28.5%. Excluding our recent acquisitions, our organic revenues grew by 12.8% on a year-over-year basis.

The impact of FX effects on our Q4 revenues was minimal both on a sequential and year-over-year basis. Our non-GAAP EBITDA of $15.6 million exceeded our guidance range of $13.5 million and $15.5 million. The stronger-than-expected performance, both in revenue and profitability, was driven by strength from both our organic business and recent acquisitions. The retail vertical remained the largest, accounting for 32.6% of our Q4 revenues. It showed sequential and year-over-year growth of 9.7% and 33.1%, respectively.

During the quarter, we witnessed growth across a wide range of retail customers that included specialty retail, home improvement space, and department store customers. Our TMT and financial verticals contributed 23.5% and 23.1% of our Q4 revenues, respectively. In the Q4, our TMT vertical remained relatively flat on a dollar basis compared to the Q3, as we were impacted by the typical year-end slowdown at some of our large customers.

The finance vertical showed the strongest performance with sequential and year-over-year growth of 63.8% and 180.1%, respectively. Strength in the financial vertical was driven by a combination of increased demand from fintech and insurance customers, as well as our recent acquisitions. Here are the details of the revenue mix of other verticals. Our CPG and manufacturing, representing 11.2% of our quarter revenues, grew sequentially by 14.8% and 16.4% on a year-over-year basis.

Strength in this vertical was driven by both our organic business and recent acquisitions. Our other vertical, which represented 7.2% of our Q4 revenues, grew slightly on a sequential basis but declined by 11.3% year-over-year. And finally, healthcare and pharma vertical represented 2.4% of our revenues. We ended the Q4 with a total headcount of 4,730, up from 4,298 employees in the Q3 of 2024 and up from 3,920 in the Q4 of 2023.

The sequential growth in headcount was driven by both our organic business and recent acquisitions. At the end of the Q4 of 2024, our total U.S. headcount was 351, or 7.4% of the company's total headcount, versus 345, or 8% in the Q3 and 331, or 8.4% in the year-ago quarter.

Our non-U.S. headcount located in Europe, Americas, and India was 4,379, or 92.6%, up from 3,953, or 92% in the Q3 and 3,589, or 91.6% in the year-ago quarter. In the Q4, revenues from our top five and top ten customers were 35.6% and 55.8%, respectively, versus 39.8% and 59.2% in the Q3 and 39.7% and 55.3% in the same period a year ago, respectively.

During the Q4, we had a total of 211 customers, up from 201 in the Q3 of 2024 and down from 218 in the year-ago quarter. The increase during the quarter was mainly due to customers coming from the acquisitions. 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 $37 million, or 36.9%, compared to $32.7 million, or 37.4% in the Q3 of 2024 and $28.1 million, or 36% in the year-ago quarter. On a non-GAAP basis, our gross profit was $37.6 million, or 37.5%, up from $33.3 million, or 38% in the Q3 of 2024 and up from $28.6 million, or 36.6% in the year-ago quarter.

Our non-GAAP EBITDA during the Q4, which excluded interest income, expense, provision for income taxes and depreciation amortization, and was further adjusted for the impact of stock-based compensation, restructuring expenses related to geographic reorganization and transaction and other related costs, was $15.6 million, or 15.6% of revenues, up from $14.8 million, or 16.9% of revenues in the Q3 of 2024 and $10.7 million, or 13.7% in the year-ago quarter.

The dollar increase on a sequential basis was largely due to higher revenues, partially offset by increase in operating expenses. As a percentage of revenues, the decline in Non-GAAP EBITDA margin was primarily driven by a combination of lower gross margin as a percentage and higher levels of Q4, both from organic business and our recent acquisitions.

Our GAAP net income in the Q4 was $4.5 million, or $0.05 per share, based on a diluted share count of 83.8 million shares, compared to the Q3 income of $4.3 million, or $0.05 per share, based on a diluted share count of 78.8 million and an income of $2.9 million, or $0.04 per share, based on 78 million diluted shares in the year-ago quarter.

On a Non-GAAP basis, in the Q4 of 2024, our Non-GAAP net income was $10.3 million, or $0.12 per share, based on 83.8 million diluted shares, compared to the Q3 Non-GAAP net income of $10.8 million, or $0.14 per share, based on 78.8 million diluted shares and $7.5 million, or $0.10 per share, based on 78 million diluted shares in the year-ago quarter.

On December 31, 2024, our cash and cash equivalents totaled $334.7 million, up from $231.3 million in the Q3 of 2024. The increase in cash was largely driven by our follow-on offering in November of 2024. Coming to the guidance, for the Q1 of 2025, we expect revenues to be in the range of $98-$100 million, or growth of roughly 23%-25% on a year-over-year basis.

At the midpoint of $99 million, we expect our Q1 revenue to grow by 24% on a year-over-year basis. We expect our non-GAAP EBITDA in the Q1 to be in the range of $12.9-$13.9 million. For Q1 2025, we expect our basic share count to be in the range of 84-85 million and our diluted share count to be in the range of 89-90 million.

For the full year 2025, we expect revenues to be in the range of $415-$435 million, representing a growth of 18.4%-24.1% on a year-over-year basis. At the midpoint of $425 million, we expect our 2025 revenues to grow by 21.2% on a year-over-year basis. That concludes my prepared remarks. We are now ready to take questions.

Operator (participant)

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. And the first question is going to come from Puneet Jain from JPMorgan.

Puneet Jain (Executive Director and Senior Equity Research Analyst)

Hey, very good quarter, guys. So today, it's kind of unique. So all of your peers, yourself reported results on the same day. And among the four companies, your results, particularly for 2025 guidance, definitely is well above your peers, right? So, what's driving that strength that your peers are not seeing? What's driving this outperformance in Grid Dynamics for this year?

Leonard Livschitz (CEO)

Thank you, . I can't comment for my colleagues. That's what's on Grid Dynamics. I believe what we've been consistent in the story in 2024, we're just continuing to pick up our business relationship with a number of clients, the top clients, as well as the new clients we acquired. And the introduction of technology, integration of AI, and scaling the solution offerings and hyperscale relationship just gave us a confidence, which we decided it's time for us to revert back and issue the annual guidance. So, we're comfortable about where we are.

We feel comfortable about the appreciation by the customer of capabilities. And more important, we feel really good about our returning back to the scale of the GigaCube strategy with our follow-ups on employment and servicing. So all the indicators look good.

Puneet Jain (Executive Director and Senior Equity Research Analyst)

Is the growth for 2025, will it be broad-based? Which verticals and perhaps which client will drive the outperformance, like 20% growth?

Leonard Livschitz (CEO)

Yeah, of course. So I would not name a specific client because it may give them some kind of leverage. So basically, we're strong in our CPG, We're strong in our technology, TMT I think we see a really good ramp-up in our fintech business. That kind of helps us.

We also see a pickup from our relationships with, I would say, the GCC clients, and particularly in India. So we're adding more people both US and India, Europe is picking up too. But fundamentally, the appreciation of our technology, which comes from the actual implementations, gave a very broad-based positioning, Now, you fully understand, we've been around for a long time, that you must have growth from the top ten clients.

We see that happening. We also see a pickup of the newer clients, Now, how much of new business is going to come up? That's something we will talk about next couple of quarters, But overall, we do see a broad-based TMT, CPGs, fintech.

Puneet Jain (Executive Director and Senior Equity Research Analyst)

And AI, like you talked about, Agentic AI and helping your clients embrace Generative AI solutions. How should we think about revenue contribution that AI generates for you, whether it's Agentic AI or implementation of GenAI solutions for your clients, whether it's for code efficiency or whatnot?

Leonard Livschitz (CEO)

So, I will let Vasily Sizov to have his first answer for the questions, We have a privilege having him on the c,ll. So, Vasily.

Vasily Sizov (SVP and Head of America)

Sure. Thank you for the question, Puneet. So, AI becomes a component for almost every engagement right now. So, if we were talking about POCs like last year, right now, it's a component of every big program. So, it's very difficult to discern which particular piece belongs to AI.

Actually, I would say it can be attributed to most of the bigger engagements. But I can tell for sure that there are two general trends. So first of all, our biggest customers are changing the balance from looking into optimizing the cost to more revenue generation initiatives. And that historically has been a very strong area for Grid Dynamics that actually represents our positioning.

And secondly, AI becomes a big interest. And that's where Grid Dynamics historically has been very, very strong if you recall, we wrote the first book about AI in 2017, and right now everyone is talking about that as a new thing. So having both components, actually, we see a lot of opportunity for us to grow and fulfill that demand which exists on the market.

Puneet Jain (Executive Director and Senior Equity Research Analyst)

Thank you.

Leonard Livschitz (CEO)

Thank you, Puneet.

Operator (participant)

Thank you, Puneet. The next question comes from Mayank Tanden. Puneet, go ahead, Mayank.

Mayank Tanden (Analyst)

Great. Thank you. Congrats, Anil and Leonard and the team. Great quarter. As Puneet said, you guys are the outlier today. All your peers are stumbling, and you guys have put up another really strong quarter and guide for 2025. So, I'll ask you sort of more on the drivers of revenue growth. As we think about that 21.2 midpoint growth for 2025, how do you think about that in terms of recruiting, impact of pricing, and then is there any utilization improvement built in as well? How would that underlying growth come from these three key drivers of growth?

Leonard Livschitz (CEO)

Okay, great. Well, let me start with giving the floor to Yury. He's wearing two hats. He's been head of Europe, but also COO. So it's one of the key responsibilities he carries, So Yury.

Yury Gryzlov (COO)

Yeah, thank you, Leonard. Thanks for the question, Mayank, I think that, obviously, as Leonard mentioned, when I'm talking from the perspective of operational activities that we have and the priorities that we have, as you just mentioned, right, recruiting is a big thing and obviously.

As we are continually following our GigaCube strategy, and in particular, follow-the-sun delivery model, I think the key point here is how do we make sure that we continue to recruit the best talent, right, that we can get, and go through the same machine of training the talent and basically getting the right talent from the market and also, again, from the universities, going back and going back to the training and putting back into the system.

So I think this is where, on one side, it's a challenge, but on the other side, obviously, growing from just a few countries a few years ago to 19 countries as of today is kind of relatively still straightforward because we have the machine and if you go back and look at our composition of our locations within those countries even before, you will see that we had a relatively big amount of relatively small countries. So from that perspective, the machine is there.

And I think that it's quite natural, And as we are guiding right now, we're not doing anything extra kind of outside of our kind of comfort zone in a way of bringing the talent, training the talent, and putting that through the billable engagements.

And also, the big portion of what we do is tied to our R&D work and CTO office activities. That, I think, is the most important because we have to make sure that in each and every location that we have, we have the portion of the people assigned to those R&D projects, assigned to those CTO activities. So that, I think, is quite normal for us so, I don't believe that we're doing something extraordinary here, to be honest. I think it's just a normal gradual growth as we've been doing over the last few years.

Mayank Tanden (Analyst)

Okay, terrific. For my follow-up, I'll just ask a softball question from Anil. Anil, can you please just repeat what you said in terms of the M&A impact in the Q4? And then what's embedded in your guide for 1Q and fiscal 2025?

Anil Doradla (CFO)

Yeah. So, for the Q4, Mayank, what we said, the organic was 12.8% year-over-year growth. So that was roughly about 1% sequential growth rate, right? Now, when you look at the Q1, I'll just kind of give you a little bit of a sense.

We expect on the high end of the guidance, the organic business to be flattish from Q4. So there's a $2 million spread there. So really, we're talking about organic will be around 86-88. And then for the full year, the organic business will be in the teens. We're starting the year. Let's start off with low teens, and we'll come back and hopefully continue talking about some positive trends.

Mayank Tanden (Analyst)

Terrific. I'll get back in queue. Thank you so much. Congrats again.

[crosstalk] Thank you, Mayank.

Operator (participant)

Thank you. The next question comes from Jared Levine of TD Cowen.

Jared Levine (VP and Equity Research Analyst)

Thank you, Jared Levine for Bryan Bergin. In terms of your top customer digital app performance in 2024, is higher growth relative to the company average expected to continue here in 2025, and if so, can you share more color on what gives you the confidence there?

Leonard Livschitz (CEO)

As I mentioned before, we had actually Puneet asked this question, where does the revenue growth come from? It comes from top five, It comes from top ten. It comes from the broader base. But when you look at the confidence we put in in terms of the ability to guide numbers, we obviously believe the growth in the top five.

And when I mentioned the areas, so they kind of cover three parts, right? It's a technology. It's CPGs, and it's fintech. So since we have representation in top five from all three categories, there are certainly drivers. When it comes to the broader base of clients, I must say that relationship with the hyperscalers, their AI platform, their models create this necessary engagement with the newer clients to demonstrate the capabilities of not just enhancing their value, but become supreme into capturing the market.

We've seen some amazing results from the first production implementation of increase of the revenue. That touches not only the existing clients who trust us anyways, right, but with the new broad base of the clients, which we partner either with hyperscalers or drive ourselves. And attraction is it's like an early day of the cloud migration, automation, any kind of digitalization.

The first runners get the best results, so we are at this early phase of the implementation of various products, and Agentic AI is one of them, but there are many more. And that just gives us the broad base. So hopefully, I answered the question. It comes from top five, but it comes from the broad base on the technology implementations.

Jared Levine (VP and Equity Research Analyst)

Got it. And then wanted to touch on margins for FY25 here. Can you discuss what are the key puts and takes here as 2025 progresses? And anything regarding cadence here would be helpful. Anil?

Anil Doradla (CFO)

So look, for 2025, we've given you a full year revenue guidance. Over time, we'll give you a little bit more color on the margins. What I've told over the last couple of months talking to investors, don't model any margin compression of 25 over 24. So the slope of the curve will come back. We'll give you a little bit more color. But that's how we would set up the margin profile for 25.

Jared Levine (VP and Equity Research Analyst)

Got it. Thank you.

Leonard Livschitz (CEO)

Thank you, Jared.

Operator (participant)

Thank you, Jared. The next question comes from Jesse Wilson from William Blair.

Jesse Wilson (Research Analyst)

Hi guys. It's Jesse Wilson on for Maggie Nolan. Thanks for taking our questions and congrats on the results this evening. I wanted to start by asking, of the five initiatives you laid out to achieve 2025 guidance, which do you think you've gotten a head start on, and which do you think require a bit more focus or muscle this year? Sir.

Vasily Sizov (SVP and Head of America)

Yeah. So definitely further investment in AI and technology is probably one of the maybe top priorities because we definitely see a big pickup on the market of the adoption of AI technology. As I mentioned, if we were talking about POC, now we are talking about massive implementations and finally about implementation of platforms, GenAI platforms.

And we started seeing particular business impact from implementation of those things. So just to give you an example, things like which would generate revenue when we're talking about, let's say, a typical B2C business, like browsability of the products, discoverability of the products. We implement things like catalog enrichment.

Let's say you have a catalog with subpar quality meta information. And we use GenAI to generate proper descriptions, images, and etc., which allows the customers to better pick the product. It directly impacts the revenues of our customers because more products in the cars are getting converted and generate additional revenue.

So I would say that would be the number one priority. Our CTO office invests into development of artifacts, accelerators to help with that. So I would say that kind of would be the number one. Just wanted to add that I think that after that, I think the next priority, and this is a little bit new, right, over the last couple of years, is obviously our close relationship with hyperscalers. Leonard mentioned that. I mentioned that before.

I think that's also kind of, think about it as a kind of, something new that we are focusing on right now. I think we started last year. We moved very, very quickly with hyperscalers in particular, and this is where I believe the further investment will be required across the globe on one side, but so far, we mentioned that we have 18% of our revenue driven by those partnerships and hyperscalers playing a very big role, so I think this is an incremental change on one side, but I think strategically, it's very, very important for us to continue investing in this area.

Leonard Livschitz (CEO)

So just to summarize, if you look at the technology offering and follow-the-sun strategy, those have been happening for a while, So we are pretty strong on that. And technology becomes always the pivotal part of our new engagements. Now, as guys mentioned, basically, the AI is very critical. Hyperscalers, which is kind of warming up, but there's some very strategic partnerships.

And you will see this year, we are part of this very strong initiatives and participate with a very core relationship with the key players. And when it comes to diversification in the industry, frankly, to be a serious player in some new industries, that's where acquisitions come into play. So the recent acquisition really puts us more on the map with the various large financial institutions. So it's outside of fintech. So diversification is really the fifth and the most kind of up-and-coming.

Jesse Wilson (Research Analyst)

Got it. And then just to involve everyone, I had a follow-up for Anil. So you've previously talked about your efforts to rationalize your portfolio of accounts so that you can focus on those accounts with the most potential over time. And now you're talking about enhanced collaboration between Grid Dynamics salesforce and your hyperscalers' salesforces. So do you expect to get any benefit on the SG&A line from those two developments?

Anil Doradla (CFO)

Good question. The answer is yes, but there's always some investments. It's never a straightforward thing, so if your question, Jesse, is the amount of efforts that we would have to put in to receive some of these marquee global customers, yes, we're getting huge value, right, but on the other hand, as you said, we are co-investing with our partners, so there's going to be a little bit of that.

I think if the question is, as you look at our growth vector over the next couple of years, is our going to grow faster than the revenue growth? The answer is no. Our revenue is going to outgrow the OpEx trends, but I don't know, Vasily, you're in sales. You might want to add something.

Leonard Livschitz (CEO)

He's smiling.

Vasily Sizov (SVP and Head of America)

No, I concur with what you've just said. I mean, our partnerships will definitely give us a boost on the introduction of new relationships. Talking specifically about the Salesforce, I would say we, of course, do some reshufflings internally from the perspective of a little bit more focus on developing those relationships with partners and supporting them with their pursuits and also bringing them leads. I would say it's more of a qualitative change, which should result in better future outcomes overall, but it's a little difficult to say quantitatively the impact for the 2025.

Leonard Livschitz (CEO)

So I'm going to use the earnings call as a little bit of marketing for Grid Dynamics. For salespeople with a good technical background and understanding of the core hyperscale capabilities, please apply. So that actually works very well with your question, Jesse, because we actually would need to increase the positioning with the sales force and a technology-supported program management and implementation team, not just high-quality engineers.

And that pace needs to accelerate. So I would say that Anil answered the question the most pragmatically. The rate of growth revenue will surpass, but you will see quite a rate of growth of the front-facing organization, both on the sales account management and delivery management side. Thank you for a good question.

Jesse Wilson (Research Analyst)

Thanks, everyone. Nice job.

Anil Doradla (CFO)

Thank you, Jesse.

Operator (participant)

Ladies and gentlemen, this concludes the Q&A part of our call. Now I'm going to turn it over to Anil Doradla.

Yury Gryzlov (COO)

Hold on, Cary. Cary, hold on. Mike might have had a follow-up. Mike, do you have a follow-up question?

Yes, please. Thank you for squeezing me in here at the end. Great. Two quick ones. I just wanted to clarify one thing I think Vasily gave me a very detailed response on the recruiting efforts, but I didn't quite catch any comments around utilization, if there is still some room to expand it. And also, any commentary around pricing? Because we've been hearing sort of mixed reviews from some of your peers around pricing. That would be one question. And I have another one after that.

Leonard Livschitz (CEO)

All right. Well, Mike, since you came extra, I'm not going to give you a chance to torture my guys anymore. It was actually Yury who talked about recruiting, but we'll learn the names that's fine. So first and foremost, when you start talking about the recruiting and scaling people and pricing and all this good stuff, well, as you know, when you grow with the clients, the positioning of the value becomes more critical because you become mutually more dependent, right?

So we continue to implement our fixed bid offering, pod solutions, and Vasily is right at the forefront of that. So that's kind of incrementally positioned us for a good value on the pricing. Now, when it comes to manual negotiation and positioning, obviously, there's a pressure from the vendor management. How we position ourselves? Very simple.

If we ever commoditize our business, it's going to be a problem. So when we do our negotiation, we're doing our positioning, we really strictly follow the sound strategy that regardless of where the people agreement has come from, they bring the value. Now, that comes from not just traditional European organizations, but also from India and now Americas.

So we see generally that the trend continues to be positive. Of course, there's also the rate of inflation because some of the cost improves for the engineers, but we compensate that with a very strong internship program and retraining. So basically, what we're trying to do to optimize on the pricing, but also optimize on basically the utilization, is to do heavy retraining people. We're not afraid of bench, but we see that the churn on the bench needs to accelerate.

The people who have experience with our clients and have good talent, they're easier to retrain. A lot of training now goes around advanced technology and the tools. So I would say on utilization, there's always an upside, but we're quite diligent of that. On the pricing, the vector is that you can't just go to the client and ask for increases, That just doesn't work. It's very competitive. But the logical conversation, which includes three parties.

Grid Dynamics, the technical leadership, and the business leadership from the clients give us a pretty good vector, So I would not say it's mixed i think it's actually a pretty comfortable and Grid Dynamics pricing positioning.

Got it. And one final question. By the way, thank you for that, color. Very helpful. One final question for me is the fact that you're giving full year guidance, and again, it's very healthy growth that you're forecasting at this stage for 2025. That would suggest that you have pretty good visibility. Does a lot of that have to do with the fact that deals are larger in scope and size? Is that part of the equation here, or is there more to it just based on client interactions?

Sure. Since you're the one who drives a lot of those numbers.

Vasily Sizov (SVP and Head of America)

Absolutely. Yeah. Actually, both components were just mentioned. So from one perspective, we definitely have, I would say, historically better positioned with many of our customers where we were recognized as a preferred vendor, So we have high confidence not only on continuation of the work, but also on the gradual growth of this amount of the work we do together.

The second thing, which you already also mentioned, is the size of the opportunities. I would say historically, we have probably the biggest number of opportunities of what we consider to be big deals, which means not small teams here and there, but actually programs which require coordination, implementation, and which have a longer tenure by its nature.

Leonard Livschitz (CEO)

So basically, Mike, to summarize it, there's one more important factor. We're in many more large RFPs. So that kind of opens up us for the success.

Excellent. Again, thank you so much. Congrats.

[crosstalk] Thank you. Thank you. Thank you, Mike.

Operator (participant)

Thank you, ladies and gentlemen this concludes the Q&A part of our call. I'm now going to turn it back to Leonard for closing statements.

Leonard Livschitz (CEO)

2025 is off to a great start. The demand environment is improving, and these results highlight our strengths and unique position in the AI-driven digital transformation industry. With our GigaCube framework in mind, we have identified our key priorities.

We're implementing numerous technology enhancements around AI and other advanced computing technologies. We continue to expand our follow-the-sun strategy, adding more capabilities worldwide. We're deepening our vertical expertise and significantly enhancing our partnership capabilities. In summary, Grid Dynamics has a strong foundation and is well-positioned for continued growth in 2025, and I'm confident in our ability to execute. I look forward to updating all of you on our next earnings.