Grid Dynamics Holdings, Inc. (GDYN) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon everyone. Welcome to Grid Dynamics Third Quarter 2022 Earnings Conference Call. I am Bin Chiang, Head of Investor Relations. [Operator Instructions] 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, 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 and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties described in the Company’s earnings release and other filings with the SEC. During this call, we’ll 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 have just described in the Investor Relations section of our website. With that, I will now turn the call over to Leonard, our CEO.

Thank you, Ben. Good afternoon, everyone and thank you for joining us today. Q3, 2022 was another record revenue quarter of $81.2 million, and this marked the ninth consecutive quarter of record revenue in the company’s history. We performed exceptionally well across multiple areas. Additionally, our third quarter results exceeded our guidance with respect to the revenue and profitability. For the first time as a public company, we surpassed our target operating model of 40% gross margin and 20% EBITDA margin on a non-GAAP basis. The better-than-expected performance was due to a couple of factors. First, during the quarter, we witnessed strong demand across some of our large technology customers, as they continued to ramp on both existing and new programs; and second, we witnessed strong momentum with recent logo wins. Notably, we enter the fourth quarter in 2023 with a very robust pipeline with the new client business. Customers are even more seeking to partner with Grid Dynamics for their strategic digital transformation initiatives, and we’re increasingly viewed as a company that can provide scalable, high-quality engineering. I’m confident of our strengths and believe the company is well positioned to grow successfully. Let’s talk about locations. In Poland, our second largest delivery country, our profile and status has been elevated, as a technology leader in the Polish business community. We’re now fully function across the 4 largest cities in Poland, Warsaw, Krakow, Gdansk and Wroclaw. Grid Dynamics internships expand across all these locations. In addition, Poland’s great support of Ukraine has resulted in our offices, posting a substantial number of Ukrainian employees. During the quarter, I’m happy to highlight that Grid Dynamics leadership team was invited by the United States Ambassador to Poland to lead the round table business discussion with U.S. corporations, Polish academia and other institution during the visit to Warsaw. This is a true testament of the company’s strengths, and we expect such recognitions to help us in recruiting high-quality talent and attracting new global customers, who are operating in Poland and other European countries. In India, we completed the incorporation and are now directly hiring on our payroll. We have augmented our leadership with across HR, delivery and operations and partnered with one of the leading universities for internships. In a couple of weeks, we’re opening our new office in one of the premium location in Hyderabad Knowledge Park and expect our presence in this location to help us in attracting and recruiting high-quality talent. We also ramped up hiring of engineering talents in several countries, such as Mexico, Serbia, Armenia, Romania and others. In each of these countries, we offer unique advantage for our global growth. During the quarter, we expanded our relationship with the university and hired our first group of interns in Armenia and Romania, while we’re expanding office in Serbia, we’re also opening 2 new engineering centers in the 2 cities in Romania. As you all know, over a couple of past quarters, we executed flawlessly in transitioning a significant proportion of our workforce, while continuing to deliver projects in a timely manner. And I’m happy to report we continue to operate across all our geographies without any disruptions. Furthermore, with our distributed delivery model, projects are spread over across different geography regions, thereby lowering the geographic delivery risks. Our company has always been at the forefront of emerging technologies. Within the IT service industry, we’re one of the first companies to embrace cloud engineering, big data, machine learning as well as other innovative products and offerings for large enterprise clients. We continue to maintain our technology leadership and always keep R&D at the center of our service offering. Our Chief Technical Officer, with his team, spearhead a number of strategic initiatives to support growing customer digital transformation demand. Regarding the personnel, we have hired subject matter experts to build expertise in selected verticals such as manufacturing, supply chain, life science and financial services as well as insurance. Regarding capabilities, we’ve made a substantial progress in building custom IP solutions, targeting specific industry verticals. This include accelerators and engineering implementation frameworks, such leveraging distributed agile, cloud and DevOps, as well as automation. Such initiatives clearly demonstrate the reduction of implementation risks and customer costs. In the quarter, there were several positive trends that I want to share with you, few of the notable ones. Demand trends. In the Q3, we witnessed enhanced budget scrutiny across customer bases with some retail clients [being] more sensitive. We expect the trend to persist in Q4. Meanwhile, the majority of our clients continue to invest in revenue-generating programs, which tend to be more insulated from macro headwinds. In addition, Q3 revenue also benefited from our new logo business development and based on the current trends in Q4, we expect it to continue strength from the new logos. Coming to some additional third quarter segment commentary. Our Technology segment was the largest during the quarter, and similar to the Q2, some of our largest technology customers continued to ramp aggressively and support our growth, as we expanded into new geographies. Our Financial segment grew healthy, as we benefited from new programs tied to wealth management applications. Logo momentum, in the third quarter, we added several new logos across industries, which included a Fortune 500 climate control equipment manufacturer, a specialty retail and a large online consumer platform. I’m happy to report that in September, we signed new contracts and started engagement with 2 Fortune 30 companies. One is a global automotive manufacturer; and another one is the leading membership-only discount chain. We received revenues from these 2 customers starting October. European business expansion. During the quarter, we made a good progress with our European clients. Cybersecurity is one of our strategic focus areas. We expanded business with a number of cybersecurity and software companies. In addition, we witnessed a strong ramp with a global footwear company. We also continued to scale our business with the large U.K.-based home improvement chain. And finally, we secured new business with a major Nordic truck manufacturer. New business pipeline. We entered the fourth quarter in 2023 with a robust pipeline of new logos and strong demand across our non-retail verticals. On the new logo front, we’re witnessing strong momentum and expect adding more logos in Q4 than we’ve done in Q3 this year. At some of our new large customers, we also witnessed faster ramp up, as they are willing to scale business more rapidly. We’re expanding our business within existing programs, and we expect to contribute from them meaningfully in 2023. Partnerships. Partnerships are increasingly playing an important role in our ability to attract new clients. In the Q3, [to our] new logos wins came through our partnership channel. We also made progress in our large [cloud] partners with Microsoft Azure, we’ll confirm gold status. At AWS, we’re recognized, as a launch partner for their EKS delivery program, which focuses on application, modernization across enterprises. At Google Cloud platform, we have one of the largest number of specialization and [indiscernible] IT service providers. In addition to hyperscalers cloud partners, we strengthen our alliances with SaaS and product companies in digital commerce, data and advanced analytics. M&A. M&A continues to be an important component of our growth strategy. As a reminder, our M&A focuses on capabilities, key customers and delivery locations. In early September, we successfully [concluding] raising primary capital. One of the key reasons for this raise was M&A. Our current pipeline is robust, and we’re actively exploring multiple acquisition opportunities to expand our capabilities, complemented with our geographic expansion strategy. During the quarter, Grid Dynamics delivered some notable projects. Number one, for a global technology company, we proposed, designed and implemented snowflake integration to run business intelligence reports on petabytes of data. As a result, end users were provided with enhanced reporting capabilities to drive the company’s business and operational decisions. This solution met all the acquired data service level agreements for large-scale data management and resolved previously observed challenges in maintenance, capacity and scalability. For a global technology leader in the cloud space, Grid Dynamics was a key partner in the development of one of the core B2B products dedicated to artificial intelligence-driven product capabilities. Grid Dynamics contribution included end-to-end quality engineering of the product and then customer onboarding tool suite. The product gives end users a tailored product discovery experience and dramatically increases conversion through better search and recommendations relevance. At a leading financial service firm, we helped the client to modernize the primary customer portal. Our solution provides greater flexibility and speeds up integration processes with each business unit. The modernized portal provides end users also with a more streamlined experience and highlights financial products and services relevant to their needs. For one of the largest manufacturing service company, we developed an intelligent cloud-based module for their supply chain management system. This module aggregates information about excessive stock matches against the contractual terms and allows to generate claims. It’s certainly in production and has helped our client in collecting additional revenues. With that, let me turn the call over to Anil, who will discuss Q3 in more details. Anil?

Thank you, Leonard, and good afternoon, everyone. Our third quarter revenue of $81.2 million exceeded our guidance range of $78.5 million to $80 million and was up 4.9% on a sequential basis and 40.1% on a year-over-year basis. During the quarter, our revenue was negatively impacted by the weaker euro and British pound against the U.S. dollar. On a constant currency basis, our revenue growth on a sequential and year-over-year basis was 5.8% and 43.1%, respectively. The better-than-expected revenue in the quarter was driven by strong demand from our large technology customers and revenue contribution from recent logo wins. TMT, our largest vertical, represented 32.4% of our third quarter revenues and grew 12.6% on a sequential basis, and 49.7% on a year-over-year basis. We witnessed strength across our customer base with some of our largest technology customers, where we grew business across existing new programs. During the third quarter, Retail, our second largest vertical represented 31.1% of our revenues and decreased 0.8% on a sequential basis and grew 38.3% on a year-over-year basis. The sequential decline was largely driven by some customers, who are more cautious in spending with the ongoing macro concerns. We expect these concerns to persist in Q4 at some of these customers. Here are the details of the revenue mix of other verticals. Our CPG and Manufacturing represented 19.8% of our revenue in the third quarter and decreased 0.2% on a sequential basis and grew 43.3% on a year-over-year basis. The slight decline on a sequential basis came from the decline at some customers, and this was offset by growth at our largest CPG customer. Finance represented 7.5% of revenue, increased 20.3% on a sequential basis and grew 16.3% on a year-over-year basis. On a sequential basis, we witnessed growth across most of our customers tied to financial services, banking and insurance. And finally, the other segment represented 9.2% of our third quarter revenue and was up 1.1% on a sequential basis. We exited third quarter with a total head count of 3,746 down from 3,763 employees in the second quarter of 2022 and up from 2,884 in the third quarter of 2021. The head count reduction was driven by a couple of factors. First, at a company-wide level, we streamlined our engineering bench. Second, in the quarter, our pace of hiring moderated to align with demand. That said, our average billable head count increased on a sequential basis in the third quarter over the second quarter, and this partially contributed to the increase in revenue. At the end of the third quarter of 2022, our total U.S. head count was 322 or 9% of the company’s total head count and remained on the same level compared to the second quarter of 2022 and down from 11% on a year ago quarter. The year-over-year decline as a percentage of the total head count was largely driven by greater mix of non-U.S. headcount. Our non-U.S. headcount, which we sometimes refer to as offshore, located in Central Eastern Europe, UK, Netherlands and Mexico and other locations was 3,424 or 91% of our total head count. In the third quarter, revenues from our top five and top 10 customers were 44.5% and 61.1%, respectively. In the second quarter, our top five and top 10 customer concentration was 44.2% and 60.2%, respectively. And during the same period a year ago, our top five and top 10 customer concentration was 42% and 58.2%, respectively. During the quarter, we had a total of 200 customers, down from 208 customers in the second quarter and 215 customers in the year ago quarter. The sequential decline in our customers was largely driven by our commercial business or Daxx, which we acquired in December 2020. As a reminder, we only count the revenue-generating customers in the quarter and do not include customers, who are inactive during the quarter. Moving to the income statement, our GAAP gross profit during the quarter was $32.7 million or 40.3%, up from $28.9 million or 37.3% in the second quarter of 2022 and up from $25.3 million or 43.6% in the year ago quarter. On a non-GAAP basis, our gross profit was $33 million or 40.7%, up from $29.1 million or 37.7% in the second quarter of 2022 and up from $25.4 million or 43.9% in the year-ago quarter. The sequential increase in gross margin as a percentage of revenue was driven by a combination of third quarter seasonality with more working days and favorable FX trends with the stronger dollar. Non-GAAP EBITDA during the third quarter that excluded stock-based compensation, depreciation and amortization, expenses related to geographic reorganization, transaction and other related costs was $17.1 million or 21.1% of revenue, up from $13.3 million or 17.2% in the second quarter of 2022 and up from $12.5 million or 21.6% in the year ago quarter. The sequential increase in EBITDA, both in terms of dollars and percentage of revenue was due to a combination of higher levels of revenue, flattish operating expenses and favorable FX trends. Our GAAP net loss in the third quarter totaled $6.7 million or a loss of $0.10 based on a share count of 69 million shares compared to the second quarter loss of $13.2 million or $0.20 per share based on 67 million shares and a loss of $0.5 million or $0.01 per share based on 63 million shares in the year ago quarter. The sequential and year-over-year increase in GAAP net loss was largely due to higher levels of stock-based compensation and geographic reorganization costs, offset by higher levels of revenue. On a non-GAAP basis, in the third quarter of our non-GAAP net income was $11 million or $0.15 per share based on 72 million diluted shares compared to the second quarter of 2022 non-GAAP net income of $8.2 million or $0.12 per diluted share based on 70 million diluted shares and $7.9 million or $0.11 per diluted share based on 69 million diluted shares in the year ago quarter. The key reasons for the increase in the non-GAAP net income on a sequential basis were higher levels of revenue and flattish operating expenses. The increase in the non-GAAP net income in comparison to the year ago quarter was largely from higher levels of revenue, partially offset by higher levels of operating expenses. Now coming to the balance sheet. On September 30, 2022, our cash and cash equivalents totaled $255.2 million up from $150 million in the second quarter of 2022 and up from $144.4 million in the fourth quarter of 2021. During the quarter, we conducted a primary share offering and raised $115 million, of which $109.5 million was received by the company. Coming to the fourth quarter guidance, we expect revenues to be in the range of $77 million to $78 million. With this, our full year 2022 revenue expectations will be in the range of $307 million to $308 million or 45% to 46% growth on a year-over-year basis. We expect our non-GAAP EBITDA in the fourth quarter to be in the range of 16.4% to 17% or $12.6 million to $13.2 million. For 4Q 2022, we expect our basic share count to be in the 74 million to 75 million range and our diluted share count to be in the 77 million to 78 million range. That concludes my prepared remarks. Bin, we’re ready to take questions.

Thank you, Anil. [Operator Instructions] Our first question comes from the line of Josh Siegler from Cantor Fitzgerald. Your line is open.

Yes. Hi. Thanks for taking my question. And congratulations on the results today. So with concerns over global growth slowdown, can you provide some updated color on the robust demand environment, specifically your ability to continue to win new logos in this uncertain macro environment. What commentary are you hearing from new clients that are driving them to your services? Thank you.

Thank you, Josh. It’s always good to be first. You can ask any question, right. So the feedbacks we’re getting is actually what I mentioned in my remarks that the dynamics of the growth in multiple industries continues to expand geared toward the revenue generation. As we know, we’re all kind of heading to pursue a recession, kind of inflationary point or other stuff. So it’s more about the situation, where winners takes it all. So the competition for dollar become more fierce. And we see that the digital services we offer, and at both engineering, the customer service as well as the partnership with the product companies become more vital for those – securing those revenue dollars for the clients.

Excellent. Thank you for the color. And Anil, I’d love to dive a little deeper into the strong margin we saw this quarter and the guidance for 4Q, especially considering your recent focus on building out into new geographies. Can you walk us through some of the margin tailwinds that you expect as we move into the fourth quarter?

Sure. Well, there were – I mean, you meant third quarter, right? We had – and then when we go into the fourth quarter, really, when you look at it, we – there are some puts and takes you’re right. On the pluses, we continue to expect some tailwinds from the – on the FX side, right? Now on the other side, if you look at the size of the quarter, fourth quarter, as you know, we tend to see furloughs. We tend to be having fewer billable hours. So you’re going to be a little bit seeing some of the headwinds there. So when you look at the revenue, Josh, and actually extrapolate it from Q3 to Q4, you could see we are going to have – we’re going to continue maintaining some level of OpEx control. And the drop in revenue is basically kind of flows through onto the EBITDA front, you could see that. But larger the reason for there is a number of workdays. And you’re going to be seeing some level of conservativeness in terms of some of the other customers.

Yes. I just want to add, Josh, that the Q3 result, by and large, when I was giving the guidance to the public when we were heading IPO more than 2.5 years ago. The 40/20 is our Board deal [indiscernible] and very few companies can accomplish that. It wasn’t a strange goal then, but we were hitting a lot of obstacles over time. If world normalizes, that’s where we want to be, that’s what we will be. When the time comes to a little bit more stable growth, I think we just gave the inspiration to the community to show, where we actually able to deliver.

Great. Thank you very much.

Thank you, Josh. Thanks for your question. Next question comes from the line of Ryan Potter from Citi. Please go ahead.

Hey, guys. Thanks for taking my question. I want to start by touching on the situation in Ukraine and with the recent escalations there and with infrastructure instability and some plant blackouts, have you seen any incremental headwinds in terms of productivity or utilization of Ukraine and has that impacted your client conversations at all?

Right. So the short answer is no, but it would be too simple to answer, Ryan. Months and months ahead, we were preparing for the time what is called in Eastern Europe, the heating season, right? There is a lot of centralized activities. We, of course, did not know about the hurriedness attacks of Russians twice during October. But we knew when this whole situation, where the infrastructure being a little bit more stressed during the war, we need to be prepared in advance, which we have been, knock on wood, our people are safe. We’re adding more micro offices throughout the country. We actually plan to add up to nine of them just by the end of November, which are providing even further autonomous control over the power generators, water supply, food supply, Internet connectivity and then [indiscernible] StarLink and Other services. So we have a relatively smaller size of people. It’s still the largest location by number. But if you look at how we drive our business, the dependency of enterprise businesses in parallel has been greatly reduced from the Ukrainian operation. There are some of the – more of the business acquired from Daxx, little bit more driven by smaller companies, start-up companies, so commercial, what we call. But by and large, we are blessed to be better prepared, but you never know what’s going to happen in the future. Today, we’re comfortable to say we are in good shape.

Got it. That’s good to hear. And then touching on verticals and the Retail and TMT vertical, in particular, could you just provide an overview of like the overall trends you’re seeing? And for Retail, in particular, is the softness you’re seeing kind of industry vertical theme or is it more kind of client specific than TMT, you have like the focus on cost or hiring freezes has that led to any change trajectories with your clients?

Well, we’re not immune. Retail is retail. As we learned lot of lessons during the early COVID days with such an incredible decline of our relationship for a short period of time with us and department stores, we took it very seriously. Majority of our retail customers are not as much dependent on brick-and-mortar stores. So they are a little bit less affected. They are more efficient. And there is a planning to go into the recession mode, plus, don’t forget we’re close to the holiday season. At the same time, the usual suspects are putting restrictions, same suspects, who were there 2 years ago [indiscernible] 2 years, 3 years ago, so there is a sequential decline driven by cost savings. We expect it’s going to last some period of time, but we are compensating that we’re scaling other businesses. And another very important point on Retail, the [Technical Difficulty] work we do, again, is majority driven by features related to the revenue generation. So we – I wouldn’t found the chest and say we’re the most critical supplier we have. But in many cases, the core team still remains intact, which means gives you more expectations when the industry comes back, we will rebounce faster in those particular retail customers.

Got it. Thanks again.

Thank you, Ryan. Next question comes from Maggie Nolan from William Blair. Please go ahead.

Hi, thank you. Maybe to follow-up on that last topic a little bit. Can you talk about how your retail client base compares to what it maybe looked like a couple of years ago in terms of any notable differences in the type of clients that you’re working with now or the type of projects that you’re working on?

Yes. So you know us quite well by now and we’ve been in constant communication. So the critical path client relationship on the retail comes from the pricing, logistics, supply chain management, some key data analytics factors, areas of efficiencies on rebalancing supply, price optimization, etcetera, etcetera. So those were key areas of our relationship. When it comes to general distribution of the clients, we actually by reducing overall revenue from the [Technical Difficulty] on the retail, we brought a number of clients, both in the U.S. and in Europe. And these clients tend to be more modernized in terms of their relationship or minimizing the impact, for example, of very painful layoffs, right? So during the COVID time, they had to shut down the stores. So the massive number of people had to be let go as employers, employees of the retailers. We don’t see it – again, distribution is different, focus of the product is different. Other thing, which you’ve noticed, again, it’s some subtlety, but I think it’s notable, we have a fewer U.S.-based employees. There is a good and better with it. But with retailers, in particular, we started with a lower cost base, and it comes from nearshoring such as Mexico and Jamaica, but it’s also offshore. And we are adding Indian contingent to that. So, we are not only prepared from the client base, type of product base, but from the cost efficiency when we relate to the retailer clients.

That’s very helpful, Leonard. Thanks. And then my follow-up question is just can you elaborate a little bit on what you did to streamline the engineering bench, as Anil referred to? And then are these efforts going to continue into the coming quarters?

Yes. So, some of the bench relates to the transition from Q2 to Q3 when we exited Russia was kind of catch up some of those tools. So, that was one area. The other area is that we tend to look at, again, our bench with the skill set, which we project to be less relevant for the recession time to be more efficient. But at the same time, we have an incredible investment into internship programs, so everywhere across all the countries, obviously, including Ukraine and others. We signed university partnership in India already and in Mexico, and of course, Poland, Romania and Armenia. There are other investments, which we do quite a bit. We believe it’s a perfect storm for us to continue to invest into the R&D, into the sales and development, subject matter expertise. There is much more upfront preparation for our innovation proposals. So, one thing which I mentioned in the remarks, but I think it’s very important to reiterate in answering the first question was, as our clients come to the time, where winners take it all, I think on our peer group, it is also relevant for our business. So, having stronger and more efficient front-end organization with more customer consultancy capability, architecture capability just adding like life science and pharma just keep coming. It’s a great entry. We had one big customer. Now, we have two customers. This is doing quite an acceleration. That’s the factor. So, when you look at the total headcount, that’s one thing. The other one, which is not noticeable here, but it’s also relevant. There were some commercial clients from the former Daxx, which had some headcount. We had to replace or reduce because they were less relevant or several customers, which we decided not to continue relationship mutually because we were virtually renaissance of the old pre-acquisition time, which made no sense for both parties. So, if you look at the billable employees and a relevant bench, it actually has grown. But if you look at overall, you see a modest decline.

That’s very helpful. Thank you and congrats.

Thank you very much.

Next question comes from Puneet Jain from JPMorgan. Your line is open.

Thanks for taking my question. So, Leonard, like the work, the projects that typically gets delayed like in retail vertical or other verticals, given the macro environment. What’s your line of sight, maybe based on the past experience when stuff got delayed? What’s your line of sight on when clients come back with those projects typically like how much like of a lag or a duration should we consider in terms of like the work that gets delayed?

Somewhat savvy with that. So, there are some, some few notable declines, which may be longer term not as material. Most of them happens more temporarily. So, we get ourselves into conversation with the senior leadership because obviously, we want to make sure not only our businesses continued, but their project will be continued because we can’t guarantee to keep the bench just to wait for the miracle has returned, right. So, as I mentioned earlier, Puneet, we most of the time, negotiate the core team. And they understand from the past recessions and declines, it’s very critical to maintain continuity. And that’s what we provide. But then in some cases, we find alternative projects. There are some more critical area, and our customers would like to retain their workforce. If you look at it from the big pressure perspective, we are still a fairly small company and as one of the very key client said, you guys are good and will be good across all your geographies, one of the big contentious area discussed by many of them is India because you are to sigma will be shifted to the right. In other words, the standard deviation of the value of our people will remain to be much more technically sophisticated regardless of the location. So, that gives us a little bit of leverage with the clients. And of course, there are many more color points I would be able to provide by the end of Q4 because there are some discussions to undertake. But we are entering this difficult for the industry period a bit more confident. By the way, yesterday, I was privileged to be in a small conference by your distinguished leader, Jamie Dimon and a small group of people, he was saying that regardless all the world challenges, United States is probably the more shielded one because we owe that to ourselves. We spend money, which we built into our savings account more than ever. And when other people need to cover the debt with the dollars, they need to earn, we covered the debt with dollars we have. That very much resonates with my thinking about how we approach our business.

And then second, for your tech vertical, it was great to see like the vertical being so strong despite all those news flow around hiring freeze, layoffs at some of the large tech companies. How should we think about like the defensiveness of the work you do for your technology clients? Is it like the nature of work that you do that’s driving growth or that’s relevant for clients, or is it like just the type of projects like that’s changing within that vertical, maybe you are doing more cost saving projects for them instead of maybe digital transformation in the past. Like what’s driving strong growth impact? And how defensive that can prove to be?

Well, I don’t want to anger my big customers that I am going to go into a lot of details. They are probably going to read the transcripts as well. So, I am not going to say my guys are the best in the world. That’s kind of a cheap topic [ph]. We have very high capable team. The most important part, I know there are some of the other earnings calls in the past few days, and I kind of read some – most of them. I don’t see that turns into cost savings from the big tier guys. Of course, the cost saving is there, but it’s all about mainstream operational capabilities. So, when I talk about one of the largest customer, there is a lot of articles, where the headsets – the handsets are produced and how it works and what’s the supply chain logistics. We have been way front of those kind of elements. Also, very humbled, we have been elevated to a very senior level people. Sometime it’s scary when you get to the front of this very large decision-maker, multibillion-dollar project, but they take it seriously because, again, we are technically contributing to very strategic elements, and those elements are growing. So, I would not say we are on a defensive development for the cost savings. I think we are, again, driving the key elements, which necessitate areas, which today relates to the manufacturing, supply chain, logistics, their e-commerce, their optimization areas. And that’s just what we do. So, digital is still there, which we can talk forever, what elements are involved. But I believe very bullish that all these challenges, our core value remains to be unwavered.

Thank you.

Thank you, Puneet. Next question comes from the line from Bryan Bergin from Cowen. Please go ahead.

Hi guys. Good afternoon and thank you. So, you had good strong momentum here in the new logos that you were citing there. I am curious, are the priorities of these new clients, the programs that you are engaged with them, is it any different with these new engagements relative to your existing base as it relates to efficiency programs versus those typical growth and revenue generation initiatives?

Yes, Bryan, the disadvantage to be later in the queue, right. Yes. I tried to answer this question already several times. But I know where it’s coming from and I respect it. I think the efficiency portion was beyond the revenue generation. It’s just the way how revenue is being generated for some of those notable clients are very different. I would not divulge into the specifics because it’s very sensitive to their specific strategies. But I have to assure you what they are asking us to do is revolutionary different how – from how they generate the business before. We don’t get call a very senior leadership to provide services for something linear because they have plenty of suppliers of doing this. So, it’s really truly aligned what we have done in some other businesses as well.

Okay. And then just talk about current visibility in the business that you have, is it any different right now versus a typical year at this stage of the year? Any early indications as you think beyond 4Q, any guideposts?

Yes. I have been prepared for that. You already asked this question in my earlier conference today, right. So, I could ask Anil to repeat the question. We see the growth of the return to profitability and – sorry, to the increased revenue starting second half of next year will be a pleasure isn’t. So, I ask you not to say that to you. But we see similar trends. In terms of the Q4, you’ve noticed we came out with a very modest decline from Q3 to Q4 sequentially. It’s a bit unusual for us. And the reason we have done it is because even there is a little bit of a variance of visibility [Technical Difficulty] we can have December with few furloughs. Again, we are still a smaller company and the big company variance in around holiday season may make an impact. So, I am not implying that our numbers are way too conservative. They are somewhat conservative. But I believe that there will be some fight for battlefield for the ground with many customers will remain in Q1. Again, now you are talking about not guidance, but Leonard Livschitz. What I do believe, my company goals for 2023 are quite aggressive. And before I was surprising all of you guys because Anil, you mentioned what 45% to 46% year-over-year. In my better years, I would have never dared to say that because anything over 20% year-over-year, you are not, well, we are. And I have a very streamlined, that’s why I was like crazy into the sales, marketing, SMEs, technology innovation. Thank god we have money for both innovations and for M&As, as we come in soon. But the short-term tactics, we have prepared for the very, very tight competitive work for the Q1 as well. It doesn’t limit my optimism, but this makes our ground work much more useful for us.

Okay. It makes sense. Thank you, guys.

Thanks Bryan. Next question comes from Mayank Tandon from Needham. Your line is open. Go ahead.

Hi, Leonard. Hi Anil. I wanted to just maybe drill into utilization. Where was it in the current quarter? What is the trend line you are expecting given maybe some of the moderation in demand? And then I guess what I am really getting at is when do we see hiring ramp back up in terms of when you see demand start to improve, how much sooner do you have to start ramping up recruiting to be able to meet that demand? So, maybe a couple of questions sort of all lumped in around utilization and recruiting plans.

Right. Let me answer the easy part and I have Anil to struggle with the numbers, right. So, the recruiting ramp has not been slowing down. It’s just been modified in terms of the regional strategy. There are areas, where we continue to push very hard for the growth. One of the notable example is India. You know that contractually people are required to stay for several months before they can change the job. So, those offers are being made. So, those places we are definitely continuing to push for expedite roll out. Poland is another good example, obviously, because we believe that down there, early part of next year, we will see that kind of a – the churn, and then we need to run very quickly. And I don’t want to run unintelligent though we need to prep people with very high technical level of training. So, you see a little bit of this gap because we are not only hiring insurance, but we are planning for the bench. Now, as we become bigger, we needed to become more intelligent because my inspiration is going to a significant increase of the revenue of the company. So, we need to play a little bit of long passes, little throws, right, so, to catch in – the zone of your competitors. So, we need to run very prepared the new capabilities. So, the bottom line we have not slowed down on the strategic hiring. We are not slowing down on training of the people. You just see the same readjustment of the workforce so to see. And of course, another thing is we are much more competitive of scaling of hiring, so we can hire on that in various locations better before. We will be adding new countries. Again, I want to save some sensations in three months, otherwise too boring. But we planned that way ahead of the time in various locations as well. But now the floor is yours.

Yes. So, Mayank, when it comes to utilization this quarter, it trended up relative to last quarter. In my prepared comments, I did talk about the billable headcount going up, and we talked about the bench and all of that, so a lot of moving parts. Net-net, our utilization went up.

Alright. And then maybe just turning to the supply side, given that, again, there seems to be some moderation in demand that does tend to ease some of the supply pressures, so, could you just talk about where attrition is today, your expectations around that? And do you think wage inflation might also start to maybe ease a little bit, which should help profitability in the face of maybe slightly slowing demand?

Again, it’s interesting. If you look at the cyclical behavior during the Q3 and starting in Q4, demand is not slowing. Demand is continuing to be strong. On some of the existing business, there is some softness, right. So, there is kind of reallocation of assets, right. And that’s even more difficult task than just flat, right. So, we are doing well. In terms of the supply attrition is probably one of the lowest level, the voluntary attrition as we experienced, again, in certain regions, there are comfort region, we are helping people tremendously. There is no reason for people to run. In other regions, that people anticipate some of this. In some other places, we’re a little bit newbies with a very well, newly hired, very advanced leadership team. So, people are kind of walking to us to see if we are going to be any different from the other employers. So, Anil, do you have any color on the [Technical Difficulty]. Overall, I feel very comfortable at this point now. Anil?

So, from a number of point of view, we are not going to quote it, but directionally, voluntary went down. Last couple of quarters, obviously, we had some involuntary component, as we moved out of some places. But as Leonard pointed out, it was a nice drop from a voluntary point of view this quarter.

Alright. Thank you so much for taking my questions.

Thank you.

Thank you, Mayank. At this point, we have no more questions in the queue. That will be all of the Q&A session for today. I will now pass the call back to Leonard for the closing comments.

Thank you everybody for joining us on the call today. Our solid results and performance highlight our company’s strong value to customers and incredible resilience. Our track record of successfully delivering large and complex projects and our reputation as a high-end engineering provider is driving our growth. I am confident that in the course of 2023, we will continue to see strong momentum, as the company continues to expand our relationship with global enterprise customers. I look forward to giving you a business update early next year. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you so much for participating. You may now disconnect.