Grid Dynamics Holdings Inc (GDYN) 2021 Q3 法說會逐字稿

Greetings. Welcome to the Grid Dynamics Third Quarter 2021 Earnings Call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the conference over to your host, Liliia Chernova, Head of Investor Relations. You may begin.

Good afternoon. Welcome to Grid Dynamics' Third Quarter 2021 Earnings Conference Call. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations and beliefs, including our fourth quarter 2021 financial guidance, the growth of Grid Dynamics business, our objectives and business strategies as well as other forward-looking statements. You can refer to the disclosure at the end of the company's earnings press release and Form 8-K filed with the Securities and Exchange Commission today for information about forward-looking statements that will be made on this call.

All statements made today reflect our current expectations only, and we undertake no obligation to update any of them to reflect the events that will occur after this call. You can learn more about the specific risk factors that could cause our actual results to differ materially from today's discussion in the Risk Factors section of the company's Form 10-Q filed on August 5, 2021, and in subsequent periodic reports that the company filed 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. This call is also available via webcast. You can find all the information I have just described in the Investor Relations section of Grid Dynamics' website.

Joining us today on the call are CEO, Leonard Livschitz; and CFO, Anil Doradla. Following their prepared remarks, we will open the call to your questions. With that, let me turn the call over to Leonard.

Thank you, Lili. Good afternoon, everyone, and thank you for joining us today. Grid Dynamics had another record quarter with multiple positive catalysts shaping our results. More importantly, since speaking with you all 3 months ago, we have made solid progress across multiple fronts of our business. With that backdrop, I'm excited to share key highlights for our third quarter results, provide insights into the underlying business trends and talk about how the company is well positioned to leverage significant digital transformation opportunities, both in the near and long term.

Now coming to the third quarter results. I'm very pleased to report another record quarter of revenue in our company's history. This marks the third consecutive quarter of reporting record revenue. In the third quarter, our revenue of $57.9 million exceeded our expectations. The organic revenue of $44.1 million was higher than our guidance range of $39 million to $4.5 million and our recent acquisitions revenue of $13.8 million exceeded our expectation of $11 million. In the quarter, we witnessed strong interest across the customer base and engaging our services as digital transformation initiatives, the extender stage priority across the enterprise world.

Based on the current demand trends, we entered the fourth quarter and 2022 with incremental confidence and expect the company to continue being a preferred partner for our customers. These accomplishments would have not been possible without the efforts of our dedicated employees, and I would like to thank all of them for their continuous hard work and dedication.

There are many positive trends in the third quarter, and I want to share with you some of the notable ones. We witnessed a robust demand across our business. This was highlighted by double-digit sequential growth rates across most of our verticals. Furthermore, the strong trends exceeded our expectations, as highlighted by the outperformance relative to our forecast. Customers are investing aggressively in digital transformation initiatives with a deep sense of urgency.

As we highlighted in the past, it's been driven by several factors that include improving customer sentiment, greater shift over digital commerce and continued catch up in spending at some customers who held back in 2020. Based on our business pipeline and customer engagement momentum, we'll exit this year strong, and we'll enter 2022 with incremental confidence.

Demand for engineering skill sets continue to be robust. And during the quarter, we started to see the efforts that were put in place around scaling the talent acquisitions to be paying on. This included increasing capacity of our recruiting organization, expanding our geographic locations of hiring and aggressively ramping up the internship program. Partnering with the top universities, we expect to double the number of interns in 2021 over '20 and again more than double in 2022. During the third quarter, with a total of 374 people over the second quarter and our headcount reached 2,884 employees.

We picked up momentum on the new logo front, as we added 7 new logos to our organic business with all of them contributing revenues. This brings our total year-to-date new logo addition to 18 and is higher than 16 new logos we added in the entire 2020. Of the 7, 3 were Fortune 500 and 2 global pharma companies. The total count of the client in the quarter 3 reached 250.

Within our top 5 clients, 2 were in the TMT space, 1 was CPG and 2 in retail. Our concentration at our top clients continued to decline as we continued to expand our business with new customers, go deeper with existing customers and leverage our new acquisitions. During the quarter, revenue from our top 5 customers was 42%, down from 60% of our revenues in the same quarter a year ago. Our continued effort around customer diversification via new logo revenue ramped up and paying off.

During the quarter, we made some strategic hires on the sales front across the United States. Additionally, we have made progress around integrating our sales organization across our recent acquisitions and organic business. The focus continues to be around implementing an enhanced value strategy by partnering with innovative clients. During the quarter, we benefited from cross-selling as customers started seeing the value of combined technical synergies and skill sets.

On the partnership front, we're executing our plan of building deeper relationships with the major cloud providers. Recently, we issued a press release highlighting Grid Dynamics earning Google Cloud Premier Partner status. Premier Partner status is a testament to the differentiation that Grid Dynamics provides. Innovative partnerships are crucial in scaling our business and accelerating new enterprise logo acquisitions.

In the third quarter, we started rolling out the pod model for our client engagement. There are many benefits of the pod engagement model that includes efficiencies, better cost control and better flexibility and deliver the services to clients. Each Grid Dynamics pod is an autonomous cross-functional team managed by a dedicated experienced team leader. Multiple pods could be working with the same customers. During the third quarter, we started rolling out the pod model at some of the larger customers. And going forward, we expect this form of engagement to continue increasing.

Now coming to some segment commentary. At 32% of the third quarter revenue, our retail business emerged our largest vertical in the quarter. Underpinning the strong sequential growth with our organic business in the fourth quarter of Tacit Knowledge revenue. During the quarter, we witnessed strong growth across our retail customers as they aggressively invested into e-commerce platforms. In many ways, the retail industry is undergoing a transformation as customers are increasingly shifting their spending better toward online.

Retailers across the industry ranging from the e-commerce friendly apparel brands, home improvement specialists and traditional brick-and-mortar retailers are positioning themselves with strong online presence. In the center of their online strategy is building our large, robust cloud platforms with specialized artificial intelligence and machine learning solutions for optimal product placements, areas where we have built a strong reputation, industry-leading expertise.

At 30% of our third quarter revenue, TMT grew 39% on an annual basis and was our second largest vertical. The growth in the quarter was across our customer base with top technology customers fueling the growth. Similar to the last couple of quarters, our top TMT customers continue to focus on expanding offshore delivery centers.

At 19% of our third quarter revenue, CPG and manufacturing continued to show robust growth, both on a sequential and year-over-year basis. Underpinning this was growth from logos outside the largest CPG customers and a full quarter of revenue contribution coming from Tacit Knowledge acquisition. Within this vertical, we continue to be involved with large global brands that are focused on enhancing direct consumer presence, as our largest CPG customers were engaged in new significant projects they are expecting to roll out in Q4 and 2022.

During the quarter, Grid Dynamics delivered some very notable projects. Number one, at a global technology company, we orchestrated and built a reactive subsystem for detecting fraudulent advertisement activities. The system is skilled to successfully provide a negative event from creation to decisions within a fraction of time from the previous situation. This system provides significant savings due to a substantial improvement in ad (inaudible).

Number two. For one of the largest U.S. home improvement retailers, Grid Dynamics delivered a visualization to for room renovation material discovery. Our team designed, implemented and rolled out a tool that allows visualization, the use of specific products and color sets in a customer environment, making it easier for a consumer to make a choice while purchasing online and eliminating the necessity to physically enter the store. This led to an increase in customer sales conversion and significantly reduced bounce rate for environment-specific product purchases.

Number three, with one of the fastest-growing telemedicine company, Grid Dynamics has implemented the initial version of a new unified platform that integrates patient-doctor communication solution, customer portal and marketing tools in a single environment. This will allow maximizing speed to market of new features as well as to keep maintenance and support costs under control.

Number four, for a major U.S. manufacturing enterprise, we have implemented a united platform based on the Grid Dynamics analytical data platform accelerated developed jointly with AWS. The platform has already been deployed for one of the largest business segments.

And finally, we're increasingly finding ourselves playing central roles in influencing and shaping our customers' growth strategy. The key question every enterprise asks today is how can we scale our online presence and how do we stay relevant in the business? We believe that the effective response to these key questions rely on building high-quality robust digital commerce solutions that are scalable, adaptable and reliable. Grid Dynamics' core DNA is built around designing and implementing such solutions.

As we approach 2022, our DNA will propel Grid Dynamics to scale and strengthen our business positioning and reputation in the market.

With that, let me turn the call over to Anil, who will discuss Q3 results in more detail. Thank you.

Thanks, Leonard. Good afternoon, everyone. Our third quarter revenue of $57.9 million exceeded our guidance range of $50 million to $51.5 million and was up 21.5% on a sequential basis and 120% on a year-over-year basis. Excluding revenues from our acquisitions of Daxx and Tacit Knowledge, which contributed $13.8 million in the quarter, our organic revenue of $44.1 million was up 14.8% sequentially and 67.3% on a year-over-year basis and exceeded our guidance of $39 million to $40.5 million. The better-than-expected revenue in the quarter was driven by strong demand for our services across industry verticals.

During the third quarter, retail, our largest vertical representing 31.5% of our revenues, grew 43.5% on a sequential basis and 198.2% 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 focusing on digital transformation initiatives. Additionally, we benefited from a full quarter of revenue contribution from Tacit Knowledge.

On a year-over-year basis, the growth was driven by continued improvements in our retail vertical combined with revenue contributions from our acquisitions, which we made from the fourth quarter onwards. Our TMT vertical was our second largest vertical and represented 30.4% of our third quarter revenues and grew 9.2% on a sequential basis and 39.2% on a year-over-year basis. Growth in the quarter largely came from some of our large TMT customers who continue to ramp their offshore operations with us.

Here are the details of the revenue mix of other verticals. Our CPG and manufacturing represented 19.3% of our revenue in the third quarter and grew 13.2% on a sequential basis and 233.9% on a year-over-year basis. The growth during the quarter primarily came from ramp of new customers combined with contributions from Tacit Knowledge. Finance represented 9% of revenue and grew 28.3% on a sequential basis and 69% on a year-over-year basis. The sequential growth in the financial vertical was largely driven by a combination of growth from our large financial customers combined with ramping programs from recently added customers. And finally, the other segment represented 9.8% of our third quarter revenue and was up 15.9% on a sequential basis. Within this vertical, we witnessed continued ramps at some of our recent client wins.

We exited the third quarter with a total headcount of 2,884, up from 2,510 employees in the second quarter of 2021 and up from 1,204 employees in the third quarter of 2020. The sequential increase of 374 employees, or 14.9%, was largely due to increase in engineering headcount from improving demand. The increase from 2020 was largely due to a combination of improving demand resulting in headcount increase combined with our acquisitions of Tacit Knowledge and Daxx.

At the end of the third quarter of 2021, our total U.S. headcount was 293 employees or 10% of the company's total headcount. This was slightly down from 11% in the second quarter and significantly down from 21% in the year ago quarter. Our non-U. S. headcount, which we sometimes refer to as offshore, located in Central Eastern Europe, U.K., the Netherlands and Mexico locations, was 2,591 or 90%.

In the third quarter, revenues from our top 5 and top 10 customers were 42% and 58.2%, respectively. During the same period a year ago, our top 5 and top 10 customer concentrations was 59.9% and 77.7%, respectively. The decline was driven by a combination of new logo ramp, continued industry diversification and acquisitions of Daxx and Tacit Knowledge.

During the third quarter, we had a total of 215 customers with 55 coming from our organic business and the remaining 160 from our Tacit Knowledge and Daxx acquisitions. Our organic business customer count of 55 was up from 51 in the second quarter of 2021 and up from 42 in the third quarter of 2020. As a reminder, we only count revenue-generating customers in the quarter and do not include customers who were inactive during the quarter. Relative to the second quarter, we added 7 new logos, 2 in the TMT vertical, 2 in the financial vertical and 4 in the other verticals, which included 2 global pharma companies.

Moving to the income statement. Our GAAP gross margin during the quarter was $25.3 million or 43.6%, up from $19.8 million or 41.5% in the second quarter of 2021 and up from $11.2 million or 42.4% in the year ago quarter. On a sequential basis, the increase in gross margin as a percentage was from a combination of factors that included tailwinds from more working days and billable hours, favorable offshore mix and a full quarter of our recent acquisition of Tacit Knowledge.

On a non-GAAP basis, our gross margin was $25.4 million or 43.9%, up from $19.9 million or 41.8% in the second quarter of 2021 and up from $11.2 million or 42.6% in the year ago quarter. The sequential increase in our non-GAAP gross margin as a percentage was driven by the same factors highlighted earlier.

Non-GAAP EBITDA during the third quarter that excluded stock-based compensation, depreciation and amortization, transaction and other related costs was $12.5 million or 21.6%, up from $9.7 million or 20.4% in the second quarter of 2021 and up from $4.2 million or 15.8% in the year ago quarter. The sequential increase in EBITDA as a percentage of revenue was largely due to leverage on higher levels of revenue and gross margin tailwinds offset by higher operating expenses. Additionally, in the year ago quarter, our business was recovering from pandemic-related headwinds resulting in lower levels of EBITDA, both in dollar terms as well as percentage.

Our GAAP net loss in the third quarter totaled a loss of $0.5 million or a loss of $0.01 based on a share count of 63 million shares compared to a second quarter loss of $1.5 million or a loss of $0.03 per share based on 54 million shares, and a loss of $1.1 million or $0.02 per share based on 50 million shares in the year ago quarter. The sequential decrease in GAAP net loss was largely due to higher levels of revenue, both organic and acquisitions, offset by increases in operating expenses.

On a non-GAAP basis, in the third quarter, our non-GAAP net income was $7.9 million or $0.11 per share based on 69 million diluted shares compared to the second quarter non-GAAP net income of $6.1 million or $0.10 per share based on 61 million diluted shares and $2.5 million or $0.05 per share based on 52 million diluted shares in the year ago quarter. The key reason for the increase in non-GAAP net income was similar to GAAP net income, which included leverage from higher revenues and the full quarter of Tacit Knowledge revenues, offset by smaller increases in operating expenses.

Coming to the balance sheet. On September 30, 2021, our cash, cash equivalents and short-term investments totaled $199 million, up from $68 million in the second quarter of 2021. Sequential increase in our cash position was from our secondary offering and redemption of warrants.

Coming to the fourth quarter guidance. We expect revenues to be in the range of $58 million to $59 million. This includes $12.5 million in acquisition revenue. We expect our non-GAAP EBITDA in the fourth quarter to be in the range of $9 million to $9.9 million. Based on our fourth quarter guidance, for full year 2021, we expect our revenues to be in the range of $202 million to $203 million. This includes a contribution of $42 million from our acquisitions.

For fourth quarter 2021, we expect our basic share count to be in the range of 65 million to 66 million, and our diluted share count to be in the 72 million to 73 million range.

That concludes my prepared remarks. Operator, we are ready to take questions.

(Operator Instructions) Our first question comes from the line of Mayank Tandon with Needham & Co.

Congrats, Leonard and Anil, on a strong quarter. Wanted to kick things off with just based on the pipeline and the pace of deal activity, do you believe that growth can continue to run above trend? And how does that play into you're thinking about '22 at this juncture?

Thank you, Mayank, and thank you for the kind words. So if you look at the Q2 and actually the 9 months in 2021, we have been successfully executing our strategy on expanding and building the pipeline with the new customers, but also scaling our relationship with existing large clients as well.

We would like to see that momentum growing. I believe we have a strong future going forward. We're a bit of cautiously optimistic because there's still potential general market headwinds, not just necessarily in our line of business, but in general. So we believe that looking forward, our so-called 20-plus growth is something we kind of believe it's going to be the right path to look at this point. I think when we get back to you in February, there will be more clarity on 2022. At this point of time, we have a strong position and are expanding our relationship with clients.

Got it. That's very helpful. And then just as a quick follow-up. How are you addressing the supply side challenges of recruiting and retaining talent? Are you looking at new delivery hubs? Just maybe some thoughts around how do you address those challenges to meet the strong demand climate.

Sure, sure. Yes. Well, it's very hard to ignore the scale of the business across the entire industry, and demand continues to grow. From Grid Dynamics' perspective, I believe we're well prepared. We have expanded our recruiting capabilities on time, but we also built very strong training facilities, both virtual and in place of multiple locations. Our university internship programs are growing faster than ever.

With acquisitions, we are broadening our engineering centers, and we continue to add more, so stay tuned. I mean, obviously, we look at very high-quality places with a strong engineering talent and great university skill sets. So we're still smaller. And I think the capacity and capability and demand, we are positioning good at this point.

Our next question comes from the line of Maggie Nolan with William Blair.

I wanted to ask about the kind of onshore offshore mix at your largest clients. Is that more closely matching where it should be on a client-by-client basis or more closely matching the overall company mix? Or is there still potential for more work to move offshore at key accounts as you scale with them?

Yes, so -- thank you. This is a broader question. First of all, the numbers, which we report in some case could be a bit confusing because, as you know, especially with acquisitions, we greatly expanded the business outside of United States. So if you look at the total presence onshore in the United States, now it's not 100% by far. So we're actually growing so-called onshore presence in other locations, for example, like U.K.

But if we concentrate specifically on the United States, I think we're in a good mix as the dynamics hopefully will increase, and we'll get more opportunities to bring people on a rotational assignment to U.S. We'll have some additional people here, but we actively hire in the states. So -- and our customers are becoming more and more accustomed with our global capabilities. So as we described our business pod model, which is actually the enhancing relationship, so the customers are quite knowledgeable in terms of our team compositions on onshore technical leadership, offshore technologies, project management across the globe.

So I think this whole division between onshore, offshore becomes less, kind of, visible from the delivery capability standpoint. We're also bringing the near-shoring capability with our center in Mexico. So I believe that the balance is okay, but I would not just read the numbers. I would think about how our customers' expectations and our positioning. And it looks today, our balance with them is well accepted.

Okay, Leonard. And then on the gross margin, Anil, you talked about the bump from Tacit and the bump from the offshore mix. And do you feel like a little bit more kind of structural items. I'm wondering how attrition trends and utilization trends are factoring into how you're looking at gross margin going forward? And what's kind of the right level that we should be thinking about for the normalized business?

Sure. So as far as the Q3 is concerned, Maggie, you saw 210 bps increase, right? So we did see a pickup in some of the utilization trends, some offshore. As you rightly pointed out, we had some Tacit mix there. And of course, Q3 in terms of working days was a little bit better.

As we get into Q4, I think the key question is around utilization of our engineering resources. But I think when you look at us, we're still maintaining our long-term target model of 40-20. So should we be at our target model in the near term? I think I feel comfortable to say. But again, it's all a function of how utilization plays out, how the macro environment is there. So as we come into 2022, we'll take a look once again and update everyone on whether we have to revisit that from a long-term point of view. But for now, I think we're moving in the right direction.

Our next question comes from Bryan Bergin with Cowen.

Leonard, I was hoping you could dig in here a little bit more on the pod model that you're talking about. So can you go into details around really the operational benefits that gives the Grid? And also -- as well as the financial benefits potentially that, that structure can give you as you scale it?

Right. Thank you, Brian. If somebody would ask the question, right, he always should be you, so it's very insightful because essentially, we've been a product-oriented company servicing clients for a long time. And the question becomes where we can call it as our business model versus our execution model. I mean we do a lot of custom development. We do a lot of micro services, combining with global cloud migration, data engineering, data science, et cetera.

The question becomes, at one point of time, how -- what it makes sense to structure in terms of business positioning? Would it make sense for our clients, would it make sense for us. So essentially, we are helping the client to be more clear and more specific on Grid Dynamics' deliverables. So instead of a traditional T&M business arrangement, we'll bring the combination of variety of the skills of the -- on the project led by experienced project leads, which gives the customer a better understanding of our deliverables. It gives better relationships.

On the financial side, obviously, it should be mutually beneficial. This means that clients have a better understanding of the ROI, return on investment, from the relation with Grid Dynamics, and it gives a better positioning from Grid Dynamics to deploy proper level of resources. So the product-oriented delivery is one of our forte and we're now just putting a little bit more in the formal way to let customers be aware with.

Okay. And then a follow-up here, more of a macro supply chain impact question for you. So given the magnitude of global supply chain issues, just curious if you're seeing any impact in your client budgets. I'm actually more interested if this is creating more opportunity for you in retail and CPG verticals.

Well, in terms of the demand versus supply, I would not differentiate retail and CPG from other verticals. I would say demand is everywhere. We are a notable expert delivering the experience and the digital commerce as a global. So these particular 2 verticals, others just continue to build their relationship with Grid Dynamics.

So there are major supply chain issues across the globe. But it's not what we are about. We're about the capabilities, the technical excellence and system integration we're delivering to the clients. So when they come to us, it's not just because they may struggle with certain talent, they are coming to us for full service deliverables from influencing their decision, technical consultancy, business partnership, which is growing and obviously, the delivery capability. So I would say that as the global demand grows, our relationship is getting strengthen. So it's not just because they struggle with the tones because they're becoming much more influential.

(Operator Instructions) Our next question comes from the line of Josh Siegler with Cantor Fitzgerald.

Congratulations on the stellar results. My first question is on pricing. So how receptive have your clients been in negotiations for incremental price movements recently?

Josh, well, every customer would love to give us more money. So on a serious note, it's not always the case, but more important, it's -- again, it's the value of the business. Look, there is an inflation -- pricing inflation in the market and Grid Dynamics obviously bringing more high-quality resources, engineering capabilities combined with the project excellence to enhance the customer performance.

So to me it's -- obviously, the margins are healthy. But it's because we are aligning our pricing and business offering, whether it's a pod model, whether it's a T&M model, whether it's a fixed bid model, aligned with the customer returns. So it's always a win-win. We're not just checking the prices or doing something crazy (inaudible). They understand that the value we're bringing become more and more disproportional, And that's where we feel comfortable that our relationship of mutual beneficial is the price continue to be a factor of this business relationship. And we have multiple organization, multiple service centers, broader capabilities, which just enhance that kind of partnership.

Great. That's very helpful color. And then I'd like to address the sales force side. We've been talking about this for a couple of quarters, the build-out of the sales force. You've made a couple of strategic hires there. Are you starting to see that pay off? Are they starting to bring in new logos? And what do you think that ramp will be like as we move into 2022?

Thank you. That's actually -- it's a good point. We continue to increase and enhance our sales organization. But by itself, sales organization increase, it's only one part of the medal, right? We have been investing very strongly in our technology organization, driven by our CTO technical leadership. We're enhancing our artifacts. We're enhancing our accelerators. We are enhancing our kind of in-depth technical acumen, which helps with the presales.

Now we have very aggressive targets for the client acquisitions in 2022, both in existing and new verticals. So I would say they'd rather say, yes, absolutely, it would be awesome. Let's wait to see the proof of the pudding.

So far, dynamics is good. But I'm never satisfied. I'm an aggressive person led by a very talented team. So the investments are large. Anil mentioned the margins profile. Obviously, we are conservative when we are just throwing the numbers. But for Q4 December maybe a little bit on the utilization, as you mentioned, but our investments in our technology and sales continues to grow and we expect returns.

Great. That's very helpful. And congratulations again.

Our next question comes from the line of Ryan Potter with Citi.

Leonard and Anil, congrats on the good quarter. I'd like to start on the -- Yes, I'd like to start on the retail vertical here. It looks like it's back to its prepandemic run rate. So I was wondering if that means that most of the clients in the vertical have now returned back to their prepandemic run rate? Or have you been able to win incremental work here either through new logos or cross-sells.

And secondly, as the retail vertical continues to recover towards its prepandemic levels as some clients haven't got back to those levels yet, what kind of overall growth tailwind should this provide you heading into next year?

Yes. So, I think -- Ryan, it's a pretty comprehensive point of view. If you look at 3 months, we got a big jump on the retail. If you look at the 9 months, the technology still has a solid lead. I believe there is a recovery on the retail and there's continued growth on the CPG. One of the jump on the reporting was that one of our old client, which has been very affected by the pandemic, is doing well and in fact, it did very well yesterday on the market.

So there is a catch-up gain going into the e-commerce. And we have some international retail clients as well. So I think the segment is good. It's healthier. But Grid Dynamics doesn't want to fall back into the trap. Let's enjoy the ride on the digital commerce. We're enhancing our other verticals, this pharma, that's a big thing.

We're doing a B2B business. We're enhancing our insurance business. We are growing our technology scope. Our partnership level has grown tremendously. We recently announced our relationship with one of the major cloud provider to be enhanced. The other ones are doing well, so against they're tuned for that.

So it's a big growth. Of course, we are recognized experts and leaders in digital commerce, and retail had been a notably strong segment for us historically. So we'll take the business. But it by no means becomes the center of gravity. I think the expansion, diversification is something we're very excited about and we'll continue to grow.

Got it. And then I'd like to ask a question on M&A. Can you provide an update on how the Daxx and Tacit integrations have been progressing? And have you been able to gain any incremental clients or cross-sell opportunities or, I guess, in other words, any revenue synergies from these yet? And then also with the healthy level of cash that you guys have on the balance sheet now, can you provide update or an overview on how the M&A pipeline looks for you currently?

Sure, sure. Very good. You almost asked the question I would like to answer. So first of all, Tacit and Daxx are 2 different companies. Tacit Knowledge has a very similar technical kind of positioning with Grid Dynamics, a little bit different verticals, a little bit different work in terms of their partnership. They're kind of complementing us with various tool partners, commerce tools and others, especially in Europe. So they definitely have synergies, especially on the global, which is doing one of the big projects in this quarter, so we'll report with the next quarter reporting. So it's very good, and it's very close on the thought leadership.

With Daxx, we continue full integration. Basically, they help us with what we call now a commercial sales. So a lot of clients on the smaller side would like to see more as a project with a small group of people and especially globally. And I think at this point, Daxx is becoming the driver for the -- relationship more based on a commercial situation and our traditional expertise in enterprise and technology, global 500 type of relation.

So we're happy with both. We're pushing strongly on Daxx to -- being a higher generator not only of the new leads but the scalable business. I believe that there's a couple of customers which we can actually, again, maybe next quarter talk more about, which seems to be more notable. But that relationship is going well as well. Anil needs to do a little bit work on the margins with Daxx, but that's something we are in progress.

As far as new M&As, obviously, we have cash we're looking carefully to what we can add to our pipeline. We just acquired a very strong M&A talent, one of the guys from the company, which was supposed to go public, but didn't due to the largest acquisition in our segment. And he has very strong experience in our segments. So we expect more pipeline. So I would say that stay tuned. I would guess early next year, we'll see some more upside, maybe even sooner. But obviously, if you look at our segment, a lot of opportunities. We continue to look for the differentiation in the verticals. We continue to broaden our positioning on the market from partnerships and location perspective. And of course, the full service supply, including things which were less drilling outside of engineering. So it looks very exciting to me.

At this time, we have reached the end of the question-and-answer session. I'll now turn the call back over to Leonard Livschitz for closing remarks.

Thank you, everybody, for joining us on the call today. Our third quarter results were superior across the board, and we're significantly ahead of our expectations. As we enter in the fourth quarter, the demand environment continues to be robust, and we enter into 2022 with renewed enthusiasm. I look forward to giving you a business update in 3 months. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.