On March 31, 2024, our cash and cash equivalents totaled $249.4 million, down from $257.2 million in the fourth quarter of 2023. Coming to our second quarter guidance. We expect revenues to be in the range of $80 million to $82 million. We expect our non-GAAP EBITDA in the second quarter to be in the range of $10.5 million to $11.5 million. For the second quarter of 2024, we expect our basic share count to be in the range of 77 million to 78 million and our diluted share count to be in the range of 79 million to 80 million. That concludes my prepared remarks. We are now ready to take questions.
A – Cary Savas: Hello, everyone. As we go through the Q&A session of this call, I will first announce your name. At that point, please unmute your mic and turn on your camera. Our first question today comes from Puneet Jain of JPMorgan. Puneet, the line is open. Go ahead, please.
Puneet Jain: Hi, thanks for taking my question. And a really nice set of results here. So let me ask what drove the upside relative to the guidance you grew sequentially in first quarter, and then expect growth in the second quarter as well? What drove those positive trends given many data points such as the continued sluggishness in the spending environment in this industry?
Leonard Livschitz: Let me put it. Good to having you on our call. Well, it didn’t come as a surprise to us. As you recall, at the end of the report last time when we talked about the results of 2023, I kind of hinted that the continued growth is going to happen. So I’m still bullish not only on guidance for Q2, but subsequent growth as we go forward. We’ll be happy to discuss some of those subtleties. But ultimately, what Grid Dynamics really sees is that despite continuous scrutiny around the budgets from the major global companies, there is a demand for institutionalize the additional technology spendings. So if you look at the last 18 months, a lot of companies clamped down all the spendings. Now we see the opening comes to basically innovate and generate more competitive advantages by stepping up into the unique area relates to the data management, machine learning, obviously, some AI modules.
But more important, this whole comprehensive question, how to tie the business value with a predictable nature of the digital side of the business. So that’s why we see kind of notable examples of the clients who started with us in 2023 or even more stable clients who’ve been with us for a longer time now have projection of the budgets for extended period of time with Grid Dynamics as part of their journey. The other thing which we mentioned in the remarks that we see that some of the reduction of the preferred suppliers started paying some dividends to Grid Dynamics, staying on the kind of a cutting edge of work with the clients, relentlessly pushing the proposals of tying technology and business goals. And again, they’re paying off because we are being awarded with a longer-term business to come.
Anil Doradla: And Puneet, building up on your comment on where did all the upside come, I think the way we could characterize this, when we met you guys in late February, we have a certain outlook. And as the time evolved and as the business evolved, we see improvements across. So while I would say that we saw it more widespread relative to what our expectations were. Obviously, that has showed up in the results.
Puneet Jain: Yes. No, it’s great. Like it’s just — like I was just curious because the upside or the positive trend seemed different from many other companies that have reported in this results. Let me ask longer term, like so beyond this years, we get a lot of questions from investors about AI headwinds, like that AI creates opportunities to be more productive in coding efforts. How should we think about new normal growth for the sector given increasing AI adoption?
Leonard Livschitz: Well, obviously, this question comes back every time we discuss not only with investors, but more notably with the clients, right? At this moment, the choice of the models, platforms, copilots, still remain at very broad. And as we have been engaging in as you know, well, Grid Dynamics in open source solutions, together with the more traditional models, we explore multiple venues. We work with the clients who understand and appreciate Microsoft stack or for that matter, the AWS. We — obviously, we retied with our partnership with Google in multiple fronts. But even the others, like, for example, the Meta version of the open source product like Llama, we applied our general broader knowledge of what we believe is the right for the customer, including their own capabilities, their own models, the trainability of those models, the specialization of domains and basically verticalize the proposals where we test those models and expand across the technical capabilities on a horizontal slice.
So it’s a disruptive world. And one of the good things for Grid Dynamics, if you look at our 18 years of history, we strive in a disruption time. This is where we’re talking about not just peers; we’re talking about this world of innovation. Everybody talks about it, but when it comes to the clients, they just — they don’t want to just clarity. They want to arise. And that goes way beyond the white papers and hypotheses. You need to work with them diligently to see how their attempts to build in systems actually convert into the proven results, because the variances are still large. So I would believe that we are at the forefront of those innovations, not mentioning the partnership. We have the key players, not only the hyperscalers, but actually the leaders in AI space including the hardware.
Puneet Jain: Thank you.
Anil Doradla: Thank you, Puneet.
Leonard Livschitz: Thank you.
Cary Savas: Thank you, Puneet. The next question goes to Mayank Tandon at Needham. Mayank the line is open. Please go ahead.
Mayank Tandon: Great. Hi, Leonard. Hi, Anil. How are you?
Leonard Livschitz: Good.
Mayank Tandon: Let me start with a question on the guidance. So Anil, if I take the top end of the guidance, that assumes a nice acceleration sequentially. Just building off that, should we expect further acceleration in the back half? I know you’re not giving formal guidance, but just maybe anecdotally or qualitatively, any color on what you’re hearing from clients? Is this sustained acceleration or are we still sort of in this uneven climate where it’s a little bit hard to predict?
Anil Doradla: So Mayank, let me give the official answer and Leonard will jump into more qualitative. Look, we do one quarter at a time, right? In Leonard’s prepared remarks, he made some comments, right? And again, if you look at the trends over the last couple of quarters, it’s very consistent with what we are doing. I don’t want to say anything beyond our guidance in Q2. But fair to say we are positive for 2024. But Leonard, I’ll let you talk about maybe a little bit more.
Leonard Livschitz: So Mayank, it’s always the weight is on my shoulders. So I’ll — let me tell you this. We continue to hire and expand. The headcount you see right now doesn’t fully reflect the growth because we were able to optimize the headcount toward — gearing toward new demand. So if you look at the number of billable headcount, which is constantly growing and growing week after week. I just got new results of April, right? So it all looks good. We are basically applying some of the productivity tools internally to make sure we can reach to a broader audience of engineers to reach the goals internal capabilities, and that includes all three main facets. The internship program, Grid University and Grid Lab. So on a supply side, we’re fully prepared for growth.
On the demand side, look, I’m bullish beyond Q2. That’s very clear. Now when I gave a guidance in February that it’s going to be the record quarter, that kind of fills in the range. So without speaking, you may get some conclusions where we’re going to be. Again, we’re only in the first month. So we are comfortable with our guidance, right? And if we go further, I believe we will crush the market from our capabilities. Now whether we’re going to crush the market from the numbers, that would take a little time. But some people were questioning why I was not smiling last couple of quarters. Now you got my smile off. So that’s probably the best indication where our technology capability is geared towards to our business.
Mayank Tandon: That’s very helpful. Thank you for that. Then I have a quick follow-up. Anil, I wanted to ask you about margins. If I look at gross margins, this is probably the lowest that we’ve seen in recent history. Could you sort of square that with where utilization is, pricing conversations? What’s driving that? And if demand does start to improve, should we expect margins to follow suit? Thank you.
Anil Doradla: So coming to your second part, the answer is yes, right? There is leverage in the model. Now without going through all the numbers and finer details, there are many moving parts to it. There’s an FX impact also as we have some of these costs that was a headwind. And you know over the last 12 months what is going on across the industry, right, across our evolution. That has had some impacts, and you’re seeing that. And more importantly, Q1 tends to be seasonally a quarter where you have some of the payroll-related issues, employee-related taxes hit us. So every year, you see that, obviously, with the revenue trends being the way they are, you see a little bit more, I would say, a little bit more on the margin front pressures in Q1.
