GDYN 2022Q1

Good afternoon, everyone. Welcome to Grid Dynamics' First Quarter 2022 Earnings Conference Call. I'm Bin Chiang, Head of Investor Relations. Joining us on the call today are CEO Leonard Livschitz and CFO Anil Doradla. After their prepared remarks, we will open the call for your questions. Please be aware that today's conference is being recorded. Before we begin, I want to remind everyone that today's discussion will include forward-looking statements, which encompass our business and financial outlook and responses to some of your questions. These statements are subject to risks and uncertainties as outlined in the company's earnings release and other filings with the SEC. During this call, we will also address certain non-GAAP measures of our performance. Reconciliations from GAAP to non-GAAP financial metrics and additional financial information are available in the earnings press release and the 8-K filed with the SEC. You can find all of this information in the Investor Relations section of our website. Now, I will turn the call over to Leonard, our CEO.

Thank you, Bin. Good afternoon, everyone, and thank you for joining us today. Q1 2022 was another record revenue quarter of $71.4 million, and this marked the fifth consecutive quarter of reporting record revenue in the company's history with an excellent precedent that we achieved this in the backdrop of the ongoing war that Russia started on February 24. Exactly 2 years ago, we encountered a different but very difficult situation. As you may recall, a significant portion of our revenue was lost due to the impact of COVID at our retail customers. When we faced the challenge, we took actions immediately and addressed the issues head-on, which resulted in a company quick turnaround and pivoting back to growth. We are taking the same aggressive approach toward addressing the challenges thrown at us with the current war, and the actions we have taken over the past couple of months have placed Grid Dynamics in a stronger position. Since speaking with you roughly 60 days ago, we have made tremendous progress on multiple fronts of our business. This includes growing our business at existing and new customers, expanding our partnerships by relocating employees and their families, expanding our global presence with new locations and ramping our hiring in our existing locations. More importantly, we executed seamlessly in ensuring continuity of services at our clients. Our clients are appreciative of our efforts, and we have received overwhelming support from all of them. During these times, our employees have stepped up and have also demonstrated tremendous team spirit. This exceptional teamwork and solid execution has resulted in our productivity levels across the entire company coming back to pre-war levels. The teams have been working relentlessly to ensure our business continued uninterrupted, and I would like to thank each and every one of them for their efforts. On this call, I will update all of you with our operations, including Eastern Europe, provide insight into our business and financial performance for the first quarter of 2022, and provide our outlook for the second quarter. First, I would like to provide an update regarding the current situation in Eastern Europe, and its relation to our business and operations. Since the war began, we have moved about 4,000 people out of harm's way, including Ukrainian employees and their family members. Roughly 12% of our engineering workforce remains in Russia as of today. The majority of them are in the process of relocating to our other engineering centers. By the end of Q2, we expect the relocation of Russian employees to be completed. Since talking to you last time, we have made significant progress in expanding our geographic footprint across Europe, North America, and Asia. In Europe, we've not only been expanding our existing locations, but also adding new ones. Given our strong presence, we opened our office in Switzerland, which will become our European headquarters. Our existing engineering locations in Poland, Serbia, Mexico, and Armenia are witnessing strong engineering growth, and we have doubled our effort in providing new talent in these locations. Our newer locations are also ramping up, and we are about to open a few more locations very soon, which we'll inform you about. In addition to hiring new employees, some locations are receiving a substantial number of relocated engineers from Russia. During the quarter, we started ramping our hiring in India, which includes the formation of our core Indian leadership team. We have chosen Hyderabad to be our Indian headquarters due to several advantages, such as location, talent, and infrastructure. With the help of our partners, we have added close to 100 engineers. Our India-based employees have started becoming billable and have been working with our teams across North America and Europe, engaging with our clients. In addition to securing talent via our partners, we have been hiring directly as we have established our brand and are developing as we speak. As we highlighted on the strategic importance of India, it will play a critical role in our long-term growth, and I expect to exit this year with approximately 1,000 engineers in the country. Our India growth is not just centered around new locations. We also focus on a unified brand of high-quality engineering teams spread across the world. In this context, our India-based team will be a part of our global organizations. Now coming to the first quarter. Our revenue of $71.4 million well exceeded our expectations, which we shared with you last quarter and was higher than our mid-quarter update on April 6. We ended the first quarter with an adjusted EBITDA of $11.7 million, representing growth of roughly 3x in the same period of the previous year. The better-than-expected growth this quarter was due to several factors. First, we witnessed stronger demand across our industry verticals and customers. Second, aggressive hiring and resource allocation resulted in higher billable headcount. More importantly, underpinning these trends was the strong customer interest in engaging Grid Dynamics services around digital engineering as these programs take center stage across the enterprise world. In the first quarter, there were several positive trends I would like to share with you. First, strong demand trends. In the first quarter, demand across our verticals and customers was very strong, which was indicated by the growth across most of our industries and the majority of our customers. During the quarter, some of our largest technology customers continued to grow with Grid Dynamics as we expanded into new geographies, and we see continued interest from new technology clients. In our Retail vertical, we saw growth across e-commerce-friendly apparel retailers, along with our traditional brick-and-mortar department store customers. CPG and manufacturing were our fastest-growing verticals in the quarter as we witnessed continued growth at our largest CPG customer. Number two, continued headcount increase. During the quarter, we added about 400 employees, making it one of the largest headcount increases in the company's history, reflecting continuous demand for talent across our customer base. This increase was largely due to efforts in scaling our operations in regions outside of Eastern Europe. We continue to increase our internship programs in Central Europe and North America as well. Number three, logo momentum. Our new logo additions to our organic business continue to be robust. In the quarter, we added six new logos, four of which were in the TMT space. Number four, partnerships. In addition to our organic sales development, our efforts on the partnership front are paying off. In the first quarter, we achieved the advanced tier partnership with AWS and launched a price optimization starter kit with Google. We also built a strong network of partners like commercetools to help tier one clients transform their digital commerce platforms to modern architectures. Going forward, we believe partnerships will play increasingly important roles in our growth. Lastly, number five, expansion-related spending. As I highlighted earlier, we're in the midst of growth. We're opening new locations and offices around the world and aggressively scaling our hiring across India, North America, and Europe. While this has been part of our strategy, the war has accelerated our expansion progress. A good example is India, where we have moved our timeline forward by almost a year. We believe these actions are necessary for us to become a company with global scale. And while bringing on more locations to our global delivery footprint will add costs, we will compensate over time with our scale of operations in each of our locations, allowing us to make globally significant scalable offerings to our clients. During the quarter, Grid Dynamics delivered some notable projects. First, for a global technology company, we implemented an analytics solution that predicts customer behavior based on a machine learning approach. This system utilizes a combination of streaming and cloud technologies, providing faster execution with significantly reduced resource consumption compared to traditional approaches. This system was designed in collaboration between the data science and platform teams and manages thousands of jobs and data sets. Another example, for a large U.S. specialty retailer, we introduced cutting-edge artificial intelligence and machine learning management technology. This new cloud-based platform offers the client easier, better, and faster data management over the legacy approach, which opens new possibilities for specific recommendations, analytics, and customer behavior prediction solutions. For another retail brand, we are building a state-of-the-art software to reinvent their legacy inventory management system. Our partnership has already helped the client transform their supply chain function, further improving their digital marketplace capability, cost efficiency, inventory visibility, and ultimate customer experience. Last but not least, for a global pharmaceutical company, we implemented a customer experience recommendation solution, which analyzes historic interaction data and provides recommendations for healthcare personnel to engage across marketing automation platforms. This solution has already been deployed in four distinct markets worldwide. With that, let me turn the call over to Anil, who will discuss Q1 results in more detail. Anil?

Thanks, Leonard. Good afternoon, everyone. Our first quarter revenues of $71.4 million exceeded our guidance provided in our mid-quarter update of at least $65 million on April 6 and were up 7.3% on a sequential basis and 82.5% on a year-over-year basis. The better-than-expected revenue in the quarter was driven by strong demand for our services across industry verticals and customers. During the first quarter, our largest vertical, Retail, representing 32.6% of our revenues, grew by 6.6% on a sequential basis and 163.4% on a year-over-year basis. The strong sequential and year-over-year growth was driven by strength across our customer base, with e-commerce-friendly and brick-and-mortar retailers continuing to focus on digital transformation initiatives. Our TMT vertical was our second-largest vertical and represented 30% of our first quarter revenues, growing by 9.6% on a sequential basis and 48.8% on a year-over-year basis. Growth in the quarter largely came from some of our large TMT customers, who continue to grow with us as we expand into new geographies. Our CPG and manufacturing vertical represented 21% of our revenue in the first quarter, growing by 9.9% on a sequential basis and 71.7% on a year-over-year basis. The growth during the quarter primarily came from ramp at our largest CPG customer. Finance represented 6.3% of revenue, decreasing by 5.3% on a sequential basis and growing by 31.7% on a year-over-year basis. Finally, the other segment represented 10.1% of our first quarter revenue and was up 6.9% on a sequential basis. Within this vertical, we witnessed continued ramps at some of our pharma and healthcare clients. We exited the first quarter with a total headcount of 3,671, up from 3,274 employees in the fourth quarter of 2021, and up from 2,056 in the first quarter of 2021. The sequential increase of 397 employees or 12.1% was largely due to increased engineering headcounts from improving demand. The increase from 2021 was largely due to a combination of improving demand and our acquisition of Tacit Knowledge. At the end of the first quarter of 2022, our total U.S. headcount was 318, or 9% of the company's total headcount. This was slightly down from 10% in the fourth quarter and down from 12% in the year-ago quarter. The year-over-year decline as a percentage of the total headcount was largely driven by a greater mix of offshore engineers in the overall headcount. Our non-U.S. headcount, which we sometimes refer to as offshore, located in Central and Eastern Europe, U.K., the Netherlands, Mexico and other locations, was 3,353, or 91%. In the first quarter, revenues from our Top 5 and Top 10 customers were 42.8% and 58.3%, respectively. During the same period a year ago, our Top 5 and Top 10 customer concentrations were 50.1% and 66.7%, respectively. The diversification across our Top 5 and Top 10 was driven by a combination of factors, including new logo ramp, industry diversification, and our acquisition. During the first quarter, we had a total of 213 customers, down from 221 customers in the fourth quarter. Of this, 195 came from our organic business and 18 came from Tacit. The sequential decline in our customers was largely driven by our commercial business containing the Daxx acquisition in December 2020. In the first quarter of 2021, our total customer count was 184 customers. The year-over-year increase was driven by growth in customers across our business, but did not include any customers from Tacit, as it was acquired in the second quarter of 2021. 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 margins during the quarter were $26.8 million, or 37.5%, down from $27.3 million, or 41.1%, in the fourth quarter of 2021, and up from $15.3 million, or 39.2%, in the year-ago quarter. On a non-GAAP basis, our gross margin was $27 million, or 37.8%, down from $27.6 million, or 41.4%, in the fourth quarter of 2021, and up from $15.4 million, or 39.5%, in the year-ago quarter. Non-GAAP EBITDA during the first quarter that excluded stock-based compensation, depreciation and amortization, expenses related to the ongoing conflict in Ukraine, transactions and other related costs, was $11.4 million, or 15.9%, down from $11.6 million, or 17.4%, in the fourth quarter of 2021, and up from $5.3 million, or 13.4%, in the year-ago quarter. During the quarter, one-time charges related to the conflict in Ukraine were roughly $1 million. The sequential decrease in EBITDA as a percentage of revenue was largely due to a combination of declining gross margin percentage highlighted earlier and higher operating expenses. Our GAAP net loss in the first quarter totaled a loss of $2.7 million, or a loss of $0.04 based on a share count of 67 million shares, compared to the fourth quarter loss of $3.6 million, or $0.05 per share based on 66 million shares, and a loss of $2.1 million, or $0.04 per share based on 52 million shares in the year-ago quarter. The sequential decrease in GAAP net loss was largely due to higher revenue and lower operating expenses, offset by lower gross margin and higher taxes. On a year-over-year basis, the increase in GAAP net loss was from a combination of higher levels of revenue, offset by higher levels of stock-based compensation, operating expenses, and taxes. On a non-GAAP basis, in the first quarter, our non-GAAP net income was $6.9 million, or $0.10 per share based on 70 million diluted shares, compared to the fourth quarter non-GAAP net income of $7.1 million, or $0.10 per diluted share based on 72 million shares, and $3.1 million, or $0.05 per diluted share based on 60 million diluted shares in the year-ago quarter. The key reason for the decrease in non-GAAP net income on a sequential basis was higher operating expenses. The increase in non-GAAP net income in comparison to the year-ago quarter was largely from higher levels of revenue, partially offset by higher operating expenses. Coming to the balance sheet. On March 31st, 2022, our cash and cash equivalents totaled $153 million, up from $144.4 million in the fourth quarter of 2021. The key reasons for the increase were largely from higher cash operating profit, combined with our drawdown of roughly $5 million from our line of credit. Now coming to the second quarter guidance. We expect revenues to be in the range of $72 million to $73.5 million, and we expect our non-GAAP EBITDA for the second quarter to be in the range of $9.5 million to $11 million, or 13% to 15%. For the second quarter of 2022, we expect our basic share count to be in the range of 67 million to 68 million, and our diluted share count to be in the range of 71 million to 72 million shares. That concludes my prepared remarks. Bin, we're ready to take questions.

Our first question comes from Mayank Tandon from Needham.

Can you guys hear me okay?

Yes, we can hear you.

Great. First, Leonard and Anil, congratulations on the quarter. Great job navigating what was, I'm sure, a very trying environment over the last several months. I just wanted to first start with the demand side. It seems demand is really strong across the board. Could you maybe speak to the monthly trajectory that you saw through the quarter and into the second quarter? Maybe help us frame what the second half might look like even though you're not giving formal guidance. Any kind of framework to think about the rest of the year. Did you guys get my question?

I didn't because I was blocked completely, sorry. Can you just repeat it?

Why don't you repeat it?

Sure. First, congratulations on the fantastic job you've done in navigating a very challenging situation. I wanted to shift the discussion to demand, which appears to be quite strong across the board. Could you share your insights on the monthly trends you've observed going into the second quarter? Also, while you're not providing formal guidance for the second half of the year, how should we view the growth trajectory for the rest of 2022?

Thank you, and I apologize for the technical glitch. I also want to congratulate Mayank. The important point for us is that we do not provide guidance for the second half of the year due to ongoing uncertainties. Nonetheless, we remain very optimistic because we have not only addressed some initial challenges but also continue to see strong demand from our clients who value our new locations and capabilities, in addition to our existing ones. Demand is robust across nearly all sectors. Therefore, I would describe us as cautiously optimistic. Disruptions and the U.S. economy are factors to consider, but we are generally bullish about moving forward, while acknowledging the complexities of the current situation.

Got it. And maybe then I'll just switch to the pricing question. Have you seen pricing leverage come through? And is it enough to mitigate or maybe help soften the impact of the wage inflation impact that I'm sure you're seeing as you look to scale your headcount in different geographies?

Yes. I mean Grid Dynamics is still a relatively small company compared to the giants that report colossal challenges with inflation and price erosion. We're a technology company in the digital space. Our customers are favoring long-term innovative digital transformation. We mentioned before introducing our pod models and some complexities customers face can be resolved by very efficient return investment from Grid Dynamics teams. I think the customers see the value and are eager to provide Grid with significant opportunities. We do see wage inflation, driven mostly by structures when obviously you're new in locations, and you're building teams. But we expect it to taper as we scale operations. Overall, we're comfortable seeing Grid Dynamics relative to others.

Our next question comes from Maggie Nolan from William Blair.

Can you hear me okay?

Yes, ma'am.

Great. Congratulations from me as well. Just excellent execution and keeping us as updated as you possibly could have made things a little bit more clear during a really uncertain time. I'm curious about as you move your employees to different cost geographies and you ramp up in different cost geographies, how quickly are you engaging in pricing conversations and changes with your clients? And then what was the impact of some of that disparity on gross margins in the first quarter?

Well, the gross margins have various factors. Anil can provide some more specific comments on that. Regarding pricing, you're kind of following up on Mayank's question. Obviously, there are discussions, but there are discussions not because of wars and relocations, but due to the value of the projects we offer. We’ve become a global company with a broad service offering. Not only are we flexible with the system approach to pricing value, but also customers understand that there are key budgets driven by ROI. The competition is always fierce. What we have not seen so far is customers running away from us; they are very supportive of Grid Dynamics or trying to discuss pricing. The way we manage client discussions is comprehensive, evaluating the value we bring rather than treating each engineer's relocation as a simplistic price adjustment.

Sure. So as you know, there was about 402 basis points compression on a non-GAAP basis between Q4 and Q1. Now remember, that's seasonal. It's largely driven by the month of January, where we have a holiday season, and then we have a shorter month in February. Typically, that's what we see. So as Leonard pointed out, it is more of a seasonal trend, and you should not extrapolate anything on the pricing front. We start at a bottom in January; it picks up in February and has another pickup in March.

Okay. And then, on your ramp in India, can you give us some more detail? Are you primarily hiring experienced employees in India? And where are you sourcing talent from particularly as you think about developing partnerships to reach that goal of 4,000 employees that you mentioned?

Very good. Well, Maggie, you always ask the right question. Last time you inquired about new customers, right? It was very timely. So on Monday, I will be in India, and we have a management team. We're scaling our office. We will open our own office. We have great partners. It's not just a focus on India; it's an overwhelming concentration of effort, both from the client relationship to hiring process to onboarding process. It's early to say how scaling will affect the business. We have hired people, but not to the scale we're discussing, talking about hundreds and thousands of people over time. What's important is the first results; however, we’re glad to have some very senior people in India that have joined Grid Dynamics. When we go to the office, we'll cut the ribbon, and we will witness a strong presence of experts. To me, it's crucial that we maintain leadership in business, technical, and operational domains. We're receiving support from local authorities. Grid Dynamics is unique in many ways; as mentioned earlier, we moved the timeline by a year. We've been prepared. Time will tell how successful we will be. The initial signs are encouraging. We expect more details in one quarter.

Next question comes from Ryan Potter from Citi.

I'd like to reiterate, really impressive quarter from you guys, given the circumstances. I'd like to start with your talent strategy in some of your new geographies. As you quickly pivot your workforce into places like Armenia and India, what have you put in place to recruit the same high level of engineers, maintain that value proposition, and preserve the growth culture? Is this something that comes naturally or something that you have had to invest labor into?

Thanks, Ryan. So, obviously, pulling in the timeline by 1 year, it's unfair for me to say that it was all planned, right? We had some teams, but we have an amazing leadership team. Some of the key elements of the route come with the leadership. As I said, I'll provide more color on India in a quarter. When it comes to Armenia, we started building the location last Q3. Our global strategy involves a mix of talent. A lot of talented Armenian engineers are in the U.S., and I know quite a few of them. We chose our locations based not only on existing talent but the capability to scale talent. Armenia is a country, and in many others, you will hear from us going forward, has been in planning for a long time. Additionally, Armenia is now a destination for many relocating Russian engineers. This provides a good mix of existing talent and new talents. Our Head of Global Delivery, Vadim Kozyrkov, is right now in Europe. We're executing rapidly, laying a strong foundation, having planned for a long time.

Got it. That makes sense. And I guess sticking to some of those newer geographies. In terms of the margin front, are you initially happy to offer more competitive wages to attract talent other than those employees that might be relocating from Russia? How do the gross margins in some of these newer geographies compare to what you've seen in your more established geographies over time?

There is no clear formula. The evidence is driven by the reputation of leadership in the location and the size of the team. There are always some opportunistic people who exploit nonlinear personal benefits. Without specifying all the details, we have been engaged in Armenia for a few quarters, scouting talent on a small scale. We have some amazing partners in Armenia. They’re very enthusiastic. Grid Dynamics is seen as a beacon of technology, and we are receiving overwhelming support. It's not just another call center or outsourcing scenario. To attract top-tier talent, there is inevitably the need for some investment but our focus is on long-term growth with quality talent. It's challenging but critical to gain that top talent, ultimately balancing out the increased expenses. It’s essential to have a quantitative leap for Grid Dynamics, especially as locations become established. As we venture westward, pricing pressures will increase, which is why we're expanding to Latin America and Mexico. However, talent is becoming increasingly competitive.

Next question comes from Puneet Jain from JPMorgan.

Let me also congratulate you on navigating these issues, and it's commendable that you added higher organic revenue on a year-on-year basis in Q1 than you did in Q4. That's not what we expected, given the challenges you faced. Let me ask about the demand environment, specifically in the context of today's market reaction and multiple overhangs in the macro economy like inflation, oil price, and supply challenges. Are you seeing any signs of slowing macro economy in any of the verticals? If you can remind us how the business expects to operate in the case of a slowdown or recessions in the near term?

Yes. There is always talk about gloom and doom. We went through gloom two years ago with COVID, which rapidly impacted Grid Dynamics. One of the lessons learned is the importance of differentiation. The TMT sector is showing strong quantitative numbers while Retail is picking up. This is a different Retail. We’ve learned from the brick-and-mortar experiences and are diversifying into pharmaceuticals and manufacturing. It’s crucial to consider discretionary spending. It’s worth noting that today, Facebook freezes hiring. We understand, as inflation rises, adjustments will occur. But the depth of the recession or the complexity remains unknown. Thus, we need to be cautious. This cautiousness is reflected in our conservative forecast. We recognize that we need to diversify our markets, thus we have established Switzerland as our European headquarters. There will be an impact, and we realize that. Some may try to think it is just a blip, but we believe being conservative means being flexible and ensuring we have the right approach in areas of client impact.

Let me switch gears a bit. When thinking about margins, given the changing delivery mix, how should we think about normalized margins for the company in steady-state next year or thereafter? How should we consider incremental margins if there is revenue upside in the near term?

Okay. I'll let Anil address the margins. I live with margins daily; it's the lifeblood of the company. Regardless of claims of revenue growth, earnings are key. The first indicator is gross margin. If gross margins wobble, there will be reasons that warrant exploration. Measuring margin health reflects how well customers respect you. Adjustments are acceptable, but our onetime charges were minimal last quarter. It will fluctuate slightly next quarter. Overall trends indicate that early investments in new locations are showing promise, and while some are cautious, I maintain my focus on gross margin. EBITDA margin is significant. Our investments in engineering are strategic, not just in technology or structures, requiring wise financial management. Of course, external factors like war can introduce complexities but I'm optimistic overall, especially in regions like Ukraine.

Yes. Puneet, what Leonard shared with you is the company’s true DNA. We maintain strict guidelines on margin structures. Currently, there are no revised long-term margin targets. In the short term, we will invest in new regions, but it's manageable on a grand scale, as our engineering approach prioritizes value.

Next question comes from Bryan Bergin from Cowen.

This is Zach Ajzenman on for Bryan. First question from us is just kind of looking to get some more on-the-ground insights, perhaps as it relates to client conversations. The revenue trajectory speaks for itself; I’m trying to get a sense of what clients are saying now. Larger clients continue to grow. Where else are these large clients taking you? How much nervousness is there as it relates to doing business out of Ukraine today?

How are our large clients responding? In terms of revenue, that's the quickest answer. Our larger customers have been with Grid Dynamics for a significant time. This situation involves not only the customers but also the leadership within these companies. Larger clients are increasingly supportive of Grid Dynamics due to our strong historical performance during challenging periods. Many have experienced our strategies during past crises and trust our decisions. We are aware of the risks stemming from the ongoing conflict; however, we are proactive with our contingency plans. Numerous large clients recognize that while there are operational risks, they also understand that safety is a global issue. Our expanding client base includes reputable names alongside our current customers. Smaller clients remain cautious but still recognize the value in what we offer. Overall, our larger clients continue to be excellent partners.

That's helpful. Switching gears, can you talk about how Grid is using partnerships formed over the past month or two to sustain delivery capabilities? Can you provide some color around the economics as it relates to these relationships?

You're specifically referring to the partnerships related to India, correct?

Yes. And there were also some announcements related to partnerships in the U.S.

I'm not sure about the partnerships in the U.S. The partnership announced relates primarily to India. What we were making comments about earlier involves how we can scale our business in India. We have several partners who have been very integral to our initial success. We anticipated how to build those relationships, turning them into sustainable partnerships and ensuring continuity of our workforce. As of now, everything appears to be favorable. The year 2022 will show tangible results as we go forward with our planning.

Next question comes from the line of Josh Siegler from Cantor Fitzgerald.

Leonard, Anil, I'd like to reiterate congratulations on the very strong execution this quarter. I wanted to dive a little deeper into this outperformance. With the strong results and excellent guidance, can you walk us through some specific areas of your business that are currently outperforming your initial expectations for the year? Are there specific verticals driving higher demand than you initially expected? Do you believe the demand environment is still benefiting from a post-COVID tailwind?

Well, very philosophically put. Post-COVID discussions show the industry's fluctuations. We mentioned the ongoing recovery and the impact of inflation on markets. Demand for Grid Dynamics services spans all the industries. While we've traditionally excelled in e-commerce, the ecosystem has evolved. Our reputation has shifted; our focus is now on digital transformation, cloud migrations, data analytics, artificial intelligence, mobile technologies, and automation processes. Yes, e-commerce remains significant, but we've gained traction in manufacturing, finance, and pharmaceuticals. Our prospects expand where companies seek ways to enhance experiences and efficiencies across their operations. Just working with logistics in these new locations is our priority, and Q2 will reflect our response to these dynamics moving forward.

Great. The other issue I'd like to touch on is logo growth. New logos remained very strong this quarter despite ongoing geopolitical headwinds to your supply. Are you starting to see the impact of your sales force build-out? Can you provide some insight on how you expect the pace of new logos to continue into Q2?

I met with the Head of Sales yesterday. The short answer is I’m never satisfied with growth scale. It’s crucial that we ascertain that demand does not taper while adjusting our model for both expanding existing plans and bringing growth for new clients. The sales force is indeed growing. We've matured structurally. Our success reflects that we presently offer ample materials, proof of concepts, and improved test cases resulting from our sales force improvements. An important change is investment into a global technology organization that enhances pre-sales activities. This evolution leads to quicker client engagements with less necessity for direct hands-on management from senior technology staff. It's a sign of improvement.

That will conclude the Q&A session for today. I will now turn the call back to Leonard for closing comments.

Thank you, everybody, for joining us on the call today. Our first quarter results and our second quarter guidance prove that we're a company that can deliver under difficult situations. This is a testament to Grid Dynamics' capabilities and offerings that clients continue to seek and appreciate. The demand environment is robust, and our expansion to different geographies has played well and continues to be on track. As I said in my previous interactions, while the current geopolitical situation causes uncertainty, I'm confident in Grid Dynamics' strengths and our ability to navigate successfully. I look forward to giving you a business update in the next three months. Thank you.