Grid Dynamics Holdings, Inc. (GDYN) Q2 2020 Earnings Call Transcript

Good day, ladies and gentlemen. Welcome to the Grid Dynamics, Inc. Earnings Call Q2 2020. Today's conference is being recorded. At this time, I would like to turn the conference over to Lilly Tranova. Please go ahead, ma'am.

Good afternoon, and welcome to Grid Dynamics Second Quarter 2020 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 third quarter 2020 financial guidance, the growth of Grid Dynamics business, objectives and business strategies as well as other forward-looking statements. Please refer to the disclosure at the end of the company's earnings press release and Form 8-K filed with the SEC today for information about forward-looking statements that will be made or discussed on this call. All statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that will occur after this call. You can learn 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 May 11, 2020, and in subsequent periodic reports that the company filed with the SEC. Also, during this call, we will discuss certain non-GAAP measures of our performance. GAAP and non-GAAP financial reconciliations and supplemental financial information are provided on the earnings press release and the 8-K filed with the Securities and Exchange Commission. This call is also available via webcast. You can find all the information I have just discussed in the Investor Relations section of Grid Dynamics website. 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.

Thank you, Lilly, and good afternoon, everyone. Thank you for joining us today. When I spoke with you all last quarter, we were assessing the impacts of the COVID-19 pandemic on our business. Today, we'll elaborate on how we have taken actions and adapted to this new environment. We will first discuss our assessment of demand trends, how we have been tracking and managing our business as this crisis unfolded, and our plans for leveraging opportunities in this current environment. More importantly, I want to share how the pandemic accelerated our shift away from traditional brick-and-mortar retail stores, resulting in us becoming a more diversified and robust digital transformation company. Before discussing second quarter results, I wanted to spend a couple of minutes reminding investors why global enterprises call upon Grid Dynamics to improve the most mission-critical aspects of their business over the past 10 years. So what does Grid Dynamics do? Grid Dynamics enables enterprises to automate and digitize their connection to their customers. Our clients ask for our help to be innovative and responsive in addressing their customers' changing preferences. They need to pivot to digital channels revenue. While physical stores, depending solely on foot traffic, are struggling, digital commerce is accelerating. COVID-19 has been a catalyst for online business because consumers are now all shopping from their homes. Successful competitive digital transformation commerce platforms are now mere table stakes for the companies we serve. I want to remind everyone of Grid Dynamics' mission, because while we serve multiple verticals, our value proposition to our customers continues to stay constant. I want you to take this customer example. One example of this is one of our longer-term Fortune 50 clients. This client chose Grid Dynamics because of our knowledge and expertise in customer experience. Our data teams improve online commerce outcomes by enabling artificial intelligence and advanced analytics. This customer benefits from years of experience with digital data-driven commerce. This customer and others just like them come to us because this kind of talent is almost impossible to find and we deliver on time with their needs. Whether Grid Dynamics is working with a tech company, home improvement, or a media company, we'll perform digital transformation, enabling each company to connect and better understand their customers. Demand trends. April and May were challenging for us. Some of our customers, particularly department stores, paused and had many more questions than answers about the future. And then in June and even more in July, we started to see increased customer activity across all verticals. However, as expected, a sample of our brick-and-mortar retail customers that we highlighted on our Q1 call did not start back up yet. Further, we do not count on this so-called bounce back to pre-COVID activity. We proactively shifted our resources and accounted expenses related to U.S. customers. On the positive side, while customer activity has varied across the industries, the underlying trend over the past couple of months is very encouraging. Even as recently as last week, I'm delighted that a couple of leading U.S. companies sent purchase orders that we had been waiting for. If we maintain the strength of customer confidence and decision-making, we expect to have a solid second half of 2020. While each customer and their markets are different, most use Grid Dynamics to improve their sales in some way. Right now, technology and media appear to be the most active and highest growth segments. Here are a few projects that give you a flavor of the types of projects we are working on. Let's start with an online media plan. Grid Dynamics created a digital strategy to respond to the COVID-19-related changes in their customer journeys. Our data scientists developed a machine learning model to better forecast demand and optimize offerings to maximize margins in real-time. Now about a global food and beverage corporation. Grid Dynamics enabled a direct-to-consumer model by allowing next-generation digital channel experiences. Direct-to-consumer is part of a more significant trend in the CPG industry to establish more intimate relationships with consumers. We expect to see more customers interested in this kind of work. And finally, for a large global home improvement company, Grid Dynamics designed to launch artificial intelligence search capabilities, which led to improved sales conversions. We are excited to see that through our digital channel strategies outperforming in the face of broader retail. We will see digital commerce demand innovation coming from outside of our classical verticals with new engagement in fast-food and medical devices. How has Grid Dynamics adapted? As I said a little earlier, while the mix of verticals continues to evolve, Grid Dynamics' core competence and value continue to resonate with customers. We know the demand is there. In the first quarter, we allocated resources from retail toward brokers. We also doubled down on securing our labor force for our strong demand in technologies. However, we were prudent with managing expenses; we continue to strengthen our capability in cloud, defense, artificial intelligence, and analytics as demand really is high in this fiscal year. Outlook. Before letting Anil share the financial performance review, I want to make a few correlative comments on our guidance. Most companies, and CEOs like myself, see trends in their industry plan accordingly. In our case, those strengths that we thought may have played out over 1 to 2 years occurred in less than 3 months. Grid Dynamics is a growth company with very high-quality customers operating in the growth industry. We always knew that specific verticals may grow faster or slower than others. Today, as we exit our second quarter, I'm very proud of how quickly our team adapted to the market demand shift, led to both realigning ourselves with the pause of some retail customers, closing in business, and doing it under the challenges of our current pandemic environment. A lot of hard work and successful execution made this quarter a success. Further, I am confident we'll continue to adapt to this new environment. Our growth going forward will be because of expertise that has been learned over the past 10 years sorting technology, media, CPG, fintech, and other companies that already made a shift to invest in digital. And now let me hand it over to Anil to go through the numbers. Thank you.

Thanks, Leonard. Good afternoon, everyone. One of the key accomplishments this quarter was our $1.2 million adjusted EBITDA profit despite a drop of roughly $10 million in revenue from Q1 to Q2. Within the financial operation, we acted very quickly to cut our losses and reallocated resources. By acting in such a way, we not only protected capital but also are in a much better position than if we had waited for a bounce back. Let me start by summarizing our second quarter 2020 results. Total revenue for the second quarter was $22.4 million, a decrease of 31% sequentially and 22% year-over-year and was at the high end of our guidance range of $21 million to $22.5 million. During the quarter, our retail revenues declined 75%, both sequentially and year-over-year, due to the previously discussed challenges faced by our department store customers. Our non-retail business, now representing 80% of revenues in the second quarter, was up 12% on a sequential basis and 46% on a year-over-year basis. More importantly, our technology business represented 54% of our revenues and grew 52% on a year-over-year basis. Here are the details of the revenue mix. Revenues for the 3 months ended June 30, 2020, from the retail segment were 18% of total revenue, a drop of over 38 percentage points over the year ago quarter. The technology segment was 54% of our revenue, up from 28% of revenue in the year ago quarter. Financial was 16% of revenue, up from 11% in the year ago quarter, and CPG manufacturing was 11%, up from 4% of revenue in the year ago quarter. Finally, the other segment was 2% of revenue, flat from the year ago quarter. We exited the quarter with 1,237 employees, down from the first quarter headcount of 1,357 and at the level of 1,236 employees in the second quarter of 2019. A restructuring program drove the sequential decline in headcount that we initiated in the first quarter to align the headcount with the current business environment. In the second quarter of 2020, our total U.S. headcount was 251 people or 20% of the company's total headcount, while our non-U.S. headcount, which we sometimes refer to as offshore, located in Central and Eastern Europe, was 986 or 80%. During the quarter, we had three 10% customers. Revenues from our top 5 and top 10 customers were 67% and 84%, respectively. During the same period a year ago, our top 5 and top 10 customer concentration was 68% and 86%, respectively. We exited the quarter with 37 paying customers, up from 28 in the second quarter of 2019 and flat from the first quarter of 2020. As a reminder, we only count revenue-generating customers in the quarter and do not include inactive customers. Relative to the first quarter, we added 5 new logos. Two of these were global technology companies. One was a Europe-based online grocery platform, one with a global online payment platform, and one was a global CPG. Given that new customers take 6 to 12 months to ramp, we're optimistic about the prospects for these new customers. Moving to the income statement. Our GAAP gross margin during the quarter was $8.4 million or 37.5%, down from $11.4 million or 40% in the 3 months ended June 2019. The key reason for the decline was a combination of lower revenues, increased stock-based compensation, and other costs. On a non-GAAP basis, our gross margin was 37.8%, down from 40.7% in the year-ago quarter. The year-over-year decline of 290 basis points was primarily driven by increased costs associated with the bench. Adjusted EBITDA during the quarter excluding stock-based compensation was $1.2 million or 5.4% of revenue, down from $6.1 million or 21% of revenue in the second quarter a year ago. The decline was driven mainly by higher operating costs associated with maintaining the workforce, combined with public company costs. Our GAAP net income totaled a loss of $2.1 million or a loss of $0.04 per diluted share based on 49.6 million shares compared to a GAAP net income of $3.5 million or $0.16 per diluted share based on 21.5 million shares in the same quarter a year ago. On a non-GAAP basis, our net income was $0.43 million or $0.01 per diluted share based on 49.6 million shares compared to $4.1 million or $0.19 per diluted share based on 21.6 million shares. The decline in GAAP and non-GAAP income was due to a combination of reasons highlighted earlier, both on the gross margin front and operating expense spread. Coming to the balance sheet. Our cash, cash equivalents, and short-term investments totaled $123 million compared to $42 million as of December 31, 2019. The significant increase was primarily due to the successful merger between ChaSerg and Grid Dynamics on March 5, 2020. In the first quarter, we reserved a total amount of $0.9 million for allowance of doubtful accounts. Over the past 3 months, we have received payments from several retail customers and continue to be engaged with them to ensure they fulfill their payment obligations. Based on our latest review, we are lowering our reserves to $0.8 million. Coming to the Q3 guidance, we are providing revenue guidance for the third quarter and expect revenues to be in the range of $24.5 to $26 million. We expect sequential growth across both our retail and non-retail businesses. And similar to the first quarter, we hope our technology vertical remains the largest revenue-generating vertical. And with that, I've concluded my prepared remarks. Operator, you may now open it up to Q&A.

And our first question will come from Mayank Tandon, Needham.

A few questions here. I wanted to just ask you, given the positive comments around demand, at least relative to where we were in May, intra-quarter. Could you provide some perspective in terms of bookings momentum through the quarter, what you've seen? And then also into early July? Just trying to get a handle on the sustainability of demand beyond the 3Q bump that you're calling for.

Mayank, Leonard is here. Thank you for the question. Well, I would describe our new bookings with our new clients as well as with existing clients as being in a continuous pace. I would certainly agree that it's very important to project beyond Q3. While we're not providing any guidance at this point beyond Q3, I would not call Q3 a bump. I think we've done quite an amazing job in Q2 to recover on non-department store business and gain momentum with new customers. So we can comfortably say that this is a continuous process of new bookings as well as the new revenue.

Got it. Okay. I just wanted to ask, Anil, about the revenue guidance. Can you provide any insights on the gross margin and EBITDA margin expectations for the second half of the year considering the positive momentum in revenue?

Yes. Mike, thanks a lot for the question. So if you see in the commentary, we talked about some of the temporary compensation cuts will be reversed in the second half of 2020. So from that point of view, we will see a pickup in the expenses, both from salary compensation. Also, what we'll see is that we have increased revenue activity. So there's a potential for hiring some people in the second half. So the way I would look at the model as we go from Q2 to Q3, the revenue increase will get offset by the costs that we will incur. So on a gross margin dollar point of view, it would be flat to slightly up. And we will see some of the pickup in the OpEx. So to give you a sense from a modeling point of view, we'll see a roughly $3 million pickup in total expenses, increased expenses, which includes the cost of goods sold plus the operating expense.

That's very helpful. If I can just squeeze one more in around pricing. Some of your peers have talked about some concessions, at least early in this pandemic. Maybe that's easing now. But I would love to get your perspective on pricing trends that you're seeing, especially with your new logo wins, how does that play into your thought process around growth and profitability, not just this year, but really into next year as well?

Let me take the first part; maybe Anil will give some color on specifics. There are no statistics around the pricing. We price our offering competitively. When we go into new business or we expand an existing business, there are some strategic alignments with customers who are willing to grow for a long relationship with us and will continue to grow. And there was certainly some shared pain, but that is in the short term. But I don't foresee that to be a consistent practice as we go forward. I think within our business, there is some value, which in the case of most customers, is appreciated short-term and long-term both. Anil?

Thank you, Leonard. Mayank, from a financial perspective, we built a reserve as we entered Q2, and we chose to utilize it strategically. When we discussed co-investments last quarter, it referred to this reserve, which we used to develop more than 20 R&D projects. Another way we used our reserve was through these co-investments. Looking at the investments we've made in terms of financial returns, I can confidently say that we expect to see a positive outcome. These investments should not dilute our margin structure. We organized them in a way that will benefit us in the long term without causing any harm.

Next up from William Blair is Maggie Nolan.

This is Ted on for Maggie. Can you talk about investments in the sales force and how the sales go-to-market efforts have been impacted by work-from-home and COVID?

Thank you, Ted. I think it's fair to say that nothing is typical during the stay-at-home work environment. Despite that, we actually made more investment into the sales organization, because in the case of Grid Dynamics, and I'm sure some other companies, there is still a lot of value, which we manage to bring to the clients that could be described in monetary terms face-to-face environment, there's enough truth to that. I think the expansion into the regional strategy, not just in the area across the country; we're talking about Texas, Georgia, Midwest, East Coast, Southeast and others. It's bringing more fruit. We do see that there is huge demand for digital. And with that huge demand for digital, we have a very strong demand for Grid Dynamics' services. So we're expanding on the sales organization, but also we observe a more successful conversion rate while we are talking about the engagement with the clients.

All right. That's great. And then, Leonard, in your prepared remarks, you mentioned some leading U.S. companies have sent over some purchase orders that you've been waiting for. Could you expand on that or add any color to any extent possible?

Yes. Could you please repeat the first part? It was a little bit kind of muted, so could you say it again?

So you had mentioned there's some leading U.S. companies that sent some purchase orders that you've been waiting for. I was just hoping if you'd be able to expand on that and add some color to it.

Well, to the extent what we wanted to say is that we started some of the engagement with the clients as early as Q1 of this year. And to some extent, we were somewhat concerned that they may pause or delay their projects. And to our delight, it wasn't the case. Definitely, having Grid Dynamics been a public company helps with, I would say, approval processes. So we get faster into the business model. And even though the new verticals, there's still some digital work we've done before. It's extremely congruent with what they're asking for. So I think Anil mentioned, we're across premium model for the delivery system, some major CPGs, some good financial services, etc. So that, I think the best way I can describe it is that the appreciation on the conversion that leads into the business has happened even though the COVID is underway. That's why coming back to the previous comments we have made, I don't consider Q3 to be a bump. And Anil has made it clear that the next 6 to 12 months, we continue to expand the business for the customers. We just close the purchase orders.

Okay. Thanks for the color there. And now maybe if you could explain quickly kind of just on the guidance range that you've provided and kind of what's represented at the top end of the revenue guidance range versus maybe what's represented down a bit at the low end of the range?

Sure. On the guidance front, we expect most segments to either remain stable or grow sequentially. Some smaller segments are still uncertain, but overall, we anticipate sequential movement. Technology is expected to be the primary driver of revenue in Q3. The sequential growth rates will largely depend on segments that have retracted, like retail. Retail starts from a small base, and we expect improvement over time. However, the difference between the upper and lower ends of our guidance is influenced by how these retracted segments recover and our strategy to expand within existing client relationships, which are generating significant revenue and increasing market share. These two factors will essentially shape the range of our guidance.

And if I could slip one last question in here. So you guys just assured a large balance cash on the balance sheet. How do you plan to, I guess, obviously, just capital allocation, I guess, between operations, the share repurchases that were announced in...?

Go ahead. Go ahead, Leonard.

Yes. This is a business-related question, not a financial one at this moment. First of all, we don't have enough cash. I want to emphasize that even though we invest cash into the business, our priority remains understanding our complicated Q2 situation despite showing a positive non-GAAP financial outcome. I'm not focused solely on money; my aim is to remain aggressive and make appropriate investments, but it's important that we generate profit as much as possible. The team made many sacrifices in Q2, and as Anil mentioned, there will be some sacrifices in Q3 to maintain a positive balance. Regarding the use of cash, the primary reasons for it are investment and mergers and acquisitions. It may seem a bit delayed in terms of details, but we have not halted any development; in fact, we have accelerated it. This remains our primary goal for cash investment. As for investment in strategic resources, sales, technology, and others, that has always been a priority. I want to make it clear that I will not deviate from our strategy of maintaining a 40% gross margin and 20% EBITDA. While this may sound ambitious today, we will achieve it through talent and strong fiscal discipline, supported by the foundation we have established.

I'll let Anil talk about the buyback part. Please, Anil. Yes, please go ahead.

We'll go to our next question. It comes from Tim Savageaux, Northland Capital Partners.

Congrats on the profitability despite the revenue decline. A couple of questions. The first one, do you start out with the new logos that you mentioned that may not have come on as paying customers? I don't know if those were some of the purchase orders that you received, but my overall question was, do you expect those new logos to contribute to revenue in calendar '20, on the one hand? And on the other, can you give us a feel for how your pipeline may be shaping up for the second half in terms of new logo additions?

Thank you, Tim. So it's a 2-part question. First of all, on new logo acquisitions, we successfully won some business, closed the deals, and they're already contributing revenue in Q3. As Anil mentioned, we do not talk about clients who either would be clients or maybe clients or used to be clients, or the ones with some paperwork that hadn't contributed to the revenue at the time of our disclosures. So everybody is making us some money as we speak. The scalability of all new brands, we find quite impressive. I'm very delighted to see that Grid Dynamics' contribution to the digital world, and qualification in data, has been recognized. So the people jump on the first projects, not just small, I would say, exploratory engagements. But with a well-needed strategic project for enrolling Grid Dynamics schemes and paid on the revenue generation in Q3 and Q4. Saying that, I want to say something which was not in the commentary, but I think it's important for you all to understand. We had quite a bit of change in our top customers. And that kind of drives an even higher level of confidence both in growth and the new mix. In a top position of our customer base right now, we have, which will be disclosed one way or another, it's Apple, Google, and Raymond James. And the following customers also have a very good mix. We have a home improvement company. We have a couple of little bits that we can choose from. So you see the existing company, the classification is very broad. And with the new logos being in a comprehensive metrics of the clients as well, we're pretty comfortable to be staying partner today.

Okay. And I know you mentioned some of the variability in the range in Q3 is driven by the extent to which retail customers come back. At a higher level, maybe by year-end or into next year, do you guys have a feel for what a new normal might look like, sort of if you look at last year as a peak or something like that? How far back do you think you can get toward that in this new retail environment over a period of time?

There are two parts to consider. First, retail is not going to disappear, and we will see new players emerging, as well as some existing ones. Currently, we are not factoring in any contributions from brick-and-mortar department stores in our Q3 guidance or estimates, as they will be minimal. Other retailers have resumed operations, and their performance may vary depending on their strategies both in line and in-store. If we were to see a significant increase in sales from any department store customers, that would be good news, and we would adjust our current models accordingly. Anil, perhaps you can provide further clarification; it’s really your decision.

Yes. So Tim, I just wanted to clarify that it is not just retail that is creating the variability between the low end and high end. It is just one of the factors. Now as Leonard pointed out, we have not assumed any aggressive out-quarter estimates when it comes to some of these brick-and-mortars. So if something comes there, then there's going to be a little bit more upside. But how we come out of this whole 2020 and how we look into 2021, time will tell how it looks like. But one thing that's very clear when we look at our end market, unlike retail that perhaps when you look at the overall market and addressable market point of view, technology is much more bigger, much more wider, and there are far more applications when you actually look at the levers within the technology. So I think at this stage, when we look out, technology will be our #1 vertical for the foreseeable future. Now we'll come back in 3 months, 6 months, and 9 months to see how retail plays out. But our strategy, our momentum, our investments, and our focus is to ensure that these healthy high-growth verticals that are out there continue to prosper. And more importantly, we end up being a more diversified company.

Bryan Bergin from Cowen is up next.

This is Zack Ajzenman in for Brian. Just a follow-up on a prior question on M&A. It sounds like the appetite hasn't changed. But just maybe digging a little deeper, curious to know if, under the current environment, anything on vertical or size or geography has evolved, again, under COVID?

Thank you, Zack, and welcome to the queue. I'm happy to take your questions today. I would say our priorities regarding mergers and acquisitions have evolved somewhat. Given the changing landscape of globalization, we are looking to expand regionally in Europe. That's definitely one area of focus. Diversification remains a key priority for us. We discussed this some time ago when our diversification was not as strong as it is now, but there are still areas where we are making significant investments. We are seeking relevant acquisitions while also enhancing our engagement capability to build skills in advance of more aggressive efforts. Additionally, we are increasingly focusing on domestic U.S. acquisitions as our presence in the U.S. has grown. I understand that some have concerns about various aspects of integration, but we feel very well-positioned in the U.S. and continue to balance our hiring efforts in Western Europe. So, to summarize, our priorities are globalization, enhancing diversification and internal capabilities, and focusing on domestic opportunities.

Appreciate the color. And just one follow-up from us. Clearly, you heard the commentary on SG&A trending higher in the second half of the year. But again, with the current backdrop, have there been some OpEx savings under the work-from-home environment? Will you see opportunities to sustain some of these savings in the medium to long term?

Good question. Please go ahead, Anil.

Yes, we are experiencing some benefits. In the services industry, where our workforce travels to client locations, there are significant travel and entertainment expenses, and we have saved on those. However, in a company our size, about 70% to 75% of our overall costs are related to labor, which does not change much. That said, there are minor benefits on the edges, and some of that will be reflected in Q2. Once travel restrictions are lifted and people start traveling again, we expect some of those expenses to increase. But currently, we are seeing some advantages from the situation.

Next up is Joseph Vafi, Canaccord.

I'm relatively new to this, but could you provide more details about the financial services sector this quarter and the dynamics involved? I'd also like to ask a quick follow-up question.

Thank you. So on the financial segment. The financial segment has not been our largest growing segment for a long time, and we have it so with some of the more engagements recently. One of our stable clients, as I mentioned, is advisory services, not traditional banking. We acquired several banking clients in the past, and we continue to expand and work with them, really focused on automation processes in terms of the decision management, and some security elements. So that market has been under kind of expansion to us. If you look at the history of the company, we started working with the banking industry in the financial sector, well, between 2006 and 2008. And then as the financial crisis impacted, all that we had to do it. And then e-commerce became a focal grid. So there's certain recovery there as well over the years, but our top priority at this point is focused on technology, CPG sector, some of the key customers, obviously, information, manufacturing as well as upcoming edtech and others, but I would not call ourselves solely focused on fintech. As number one, it's growing, but it's not a top segment for us.

That's helpful. And then just one other quick question on the supply side of things. Given where the cost structure is now, if we do see a rebound here sooner rather than later, what are some of the thoughts on scaling back on headcount and the ability to scale that in a timely manner?

Of course. Well, it's always a tough decision, right? This whole impact of the few very large brick-and-mortar retail customers' response almost instantly created a very large nonvulnerable bench, and it did happen at the time when we typically an upstream. So going from Q1 to Q2, it's the best time for growth. So we had to deal with the utilization as broad as we had to graduate. Some of the customers came back, but I had to make some choices. And truth #1 was to retrain or up-train some of our engineers, and we created a number of new projects. There was a big investment that it's working because we had people. The #2, certifications. We have a massive number of additional certifications, especially in any of our partnerships with the major cloud companies, like Microsoft, Google, and Amazon. So that took a big toll to retain all of these people. We had to let some people go, some into longer translocations. So that's definitely a recent level aspect of adjustment. Now we're firing on all 8 cylinders; we expanded hiring in offshore and onshore. The situation is not exactly the same in all of those different locations that are getting under impact. Some of them may cross the number of effects from the pre-COVID days. We acquired a dip because whatever we've done with people was very reasonable. Everybody in the company took some cuts. And of course, that started with leadership, myself included. People understand it. We felt very hard to maintain as much engineering as possible in the last, but not least aspect. We've kept a very strong internship program. So despite all, there was not a single intern who was let go, and we continue to expand on training using the Grid University program. So the pipeline for new engineers is pretty strong. We view our engineers, and we are getting sufficient from the market and senior people, retained as much as possible to go into the expansion. I hope that answers your question.

And ladies and gentlemen, that does conclude our question-and-answer session for today. At this time, I would like to hand the conference back to Leonard Livschitz for any additional or closing remarks.

Thank you, everyone, for being on the call today. The goal of today's call was, first, to share the demand trends; second, explain how we responded to the decline of brick-and-mortar retail business and how we adapt, and the most important one, to set the expectation and then demonstrate why Grid Dynamics will continue to be a growth story. Since many of our customers and employees may be listening, I want to thank everyone for their hard work and hope that everyone stays safe as we ride out this pandemic. Thank you very much.

Once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.