Release Date: October 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Grid Dynamics Holdings Inc (NASDAQ:GDYN) reported record revenue and profitability, exceeding both guidance and Wall Street expectations.
• The company achieved a record billable engineering headcount, indicating strong demand and operational capacity.
• Recent acquisitions, including Argentina-based Mobile Computing and UK-based Jux, are expected to generate immediate synergies and enhance industry expertise.
• The company has expanded its AI portfolio with over 30 service offerings, showing significant traction and a 50% increase in AI opportunities.
• Strategic partnerships, particularly with hyperscalers, have contributed to 18% of total revenue, showcasing successful collaboration and growth potential.

Negative Points

• The company's cash and cash equivalents decreased from $256 million in Q2 2024 to $231.3 million in Q3 2024.
• There was a decline in the number of customers from 224 in the year-ago quarter to 201, due to efforts to rationalize nonstrategic customers.
• Healthcare and pharma verticals saw a significant decrease in revenue, down 20.5% sequentially and 26.9% year-over-year.
• The company faces challenges in maintaining stable pricing amidst demand headwinds in the services industry.
• There is uncertainty regarding the impact of new acquisitions on Q4 revenue, with potential variability in expected synergies.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with GDYN.

Q: Can you clarify the contribution from M&A in the fourth quarter and whether organic growth can continue in future quarters? A: (CFO) We expect M&A to contribute 10% of total revenue in Q4. The organic growth is driven by fundamentals, not artificial factors, and we anticipate it to continue. October was a strong month, and while we are conservative in our guidance due to seasonal factors, we are bullish on both organic growth and synergies from recent acquisitions.

Q: Are you seeing any changes in pricing trends within the services industry? A: (CEO) We are seeing improvements in pricing performance, particularly with new clients and technology-driven engagements. The pricing environment is stable, and we expect it to improve as we move into next year.

Q: What is driving the urgency from clients to complete projects by year-end, and what are the implications for early 2025 spending? A: (CEO) The urgency is driven by a broad-based demand for efficiency and capability improvements, not just AI. Clients are more confident and planning more, with spending typically increasing around February to April. This year, we saw it start as early as mid-Q3.

Q: With revenue improvement, do you expect margin improvements, or are there offsets to consider? A: (CEO) We are investing in technology and expanding our capabilities, which should lead to better margins. While there are short-term investments, the underlying fundamentals of our business are improving, and we expect efficiency gains in the long term.

Q: How are clients deciding between using vendors like Grid Dynamics versus their in-house operations, especially with GCCs? A: (CEO) Working with GCCs in India is competitive, but we offer deep expertise and technology solutions that differentiate us. We focus on building partnerships and demonstrating our capabilities, which leads to more project work and integration with client teams.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.