Grid Dynamics Holdings, Inc. (GDYN) Q2 2021 Earnings Call Transcript

Welcome to the Grid Dynamics Holdings Inc. Second Quarter 2021 Earnings Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Lilia Chernova, Head of Investor Relations. Please go ahead.

Good afternoon. Welcome to Grid Dynamics' Second 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 third 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 SEC 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 May 6, 2021, and in subsequent periodic reports that the company files with the SEC. During this call, we will discuss certain non-GAAP measures about performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the press release and the 8-K filed with the SEC. The call is also available via our webcast. You can find all information I have just described 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. With that, let me turn the call over to Leonard.

Thank you, Lili. Good afternoon, everyone, and thank you for joining us. We had a great quarter with many positive trends shaping our results, and I am excited to update you on our progress since speaking to you three months ago. On this call today, I will provide highlights for our second quarter results, share with you what we are witnessing across our business on the demand front, and talk about the trends that are shaping our third quarter and 2021. Consistent with our guidance comments that we provided to you three months ago, the second quarter results were strong across multiple fronts. More importantly, the current demand environment is robust, and this has a strong positive backdrop for the remainder of the year. Digital transformation continues to be a central theme, with customers increasingly seeking our services for strategic digital transformation projects across different industry verticals. Now, coming to the second quarter results, I am very pleased to report the highest revenue quarter in our company's history. Moreover, the organic performance is the highest in the company's history as well. This is also reporting a record revenue in Q1. In the second quarter, we grew organically to $38.4 million, excluding $9.3 million of revenues from our recent acquisitions of Daxx and Tacit Knowledge. This was higher than our organic revenue guidance range of $35 million to $36 million. In 12 months, we have more than doubled our revenues and substantially improved our margins. I am very proud of what we accomplished, and I would like to thank all our employees for their hard work and dedication, and all our customers for their trust in Grid Dynamics. There were many positive trends in the quarter, and I want to share with you some of the notable ones. We are witnessing robust demand across all our verticals, while in the same way, as the discontinuation of the trends that we highlighted last quarter. The strength has exceeded our expectations, and it's evident in our outperformance relative to our second quarter guidance. Like last quarter, improving consumer sentiment combined with catch-up in spending, with some customers who held back in 2020, has been the key reason. More importantly, customers are being more aggressive in IT spending, as digital transformation initiatives become essential. Based on our business pipeline, we see favorable business trends with the expansion of existing new customer engagements. We remain bullish for the remainder of 2021. On the profitability front, our outperformance was even greater than expected. It was accomplished by a combination of good execution aided by favorable business tailwinds. More importantly, we achieved our long-term non-GAAP target of 40% gross margin and 20% EBITDA. During the quarter, we benefited from a favorable offshore mix and COVID-related savings that helped us in delivering a stronger-than-expected margin quarter. Demand for engineering talent remains strong, with some still witnessing supply-side constraints. This has been an industry-wide trend that has persisted since the beginning of the year. This is something we already highlighted last quarter. To continue aggressive hiring, Grid Dynamics has universal training and retraining of our employees, investing in internship programs, and expanding into new geographies. During the second quarter, we added a total of 154 people, and our headcount exceeded 2,500 employees. During the quarter, we added five new logos with our organic business, with all of them contributing revenue in the same quarter. Out of the five, one of the logos is in wellness, two companies are in fintech, one is a leading global provider of cloud-based secure mobile enterprise communications, and the final one is a dynamic cloud cost management system. Including our recent acquisition of Daxx and Tacit Knowledge, the total customer count during the quarter was 212. On May 29, we announced the acquisition of the UK-based Tacit Knowledge in an all-cash transaction. The company has made a mark in the industry with specialized high-end e-commerce consulting capabilities. Like our organic business, Tacit focuses on large enterprises and has built a strong reputation with clients in the retail, CPG, and technology spaces. The company's primary delivery locations are in the United Kingdom, Moldova, and Mexico. Regarding the synergies, our key reasons for the acquisition were to deepen our enterprise market presence in Europe and to enhance our digital commerce capabilities with new areas of expertise such as commerce tools and SAP hybrids. Additionally, with the acquisition of Tacit, we now have an initial presence in Mexico, which we expect to expand to leverage over time. We are excited to have the Tacit team joining Grid Dynamics, and we look forward to exciting times together. I am also happy to announce that cross-selling opportunities with Tacit are opening up with our core business clients, expressing interest in working with Tacit. Within our top five clients, two are in the TMT space, one was CPG, and two in retail. Earnings from our top five customers in the quarter were 45%. This was down from 67% of revenues in the same quarter a year ago. The diversification of customer revenues was largely driven by a combination of continued success in onboarding new logos, growing deeper with existing clients, and the recent acquisitions of Tacit Knowledge and Daxx. I am very excited about our deeper partnership announcement with Google. Last week, Google and Grid Dynamics issued two separate press releases that highlighted Grid Dynamics being selected by Google as an implementation partner for Google Cloud Retail. Grid Dynamics will continue to work with Google's retail cloud to build and implement search platforms for retail. Our experience and expertise around product discovery solutions for large enterprises is well-known in the industry. With this partnership, we will continue to help leading brands improve their customer experience. Now coming to some segment commentary. 34% of our second quarter revenues came from TMT, which remains our largest vertical. Our top TMT customers continue to focus on expanding offshore and delivery offices, resulting in healthy sequential growth over the first quarter. Going forward, we continue to expect TMT to remain our largest vertical. At 27% of the second quarter, our retail business continued to witness strong growth over last quarter, largely due to strength in our organic retail business, combined with the contribution of our recent acquisition of Tacit Knowledge. On the organic front, we witnessed a pickup across the board, with one of our top historic brick-and-mortar clients increasingly engaging our services. That said, our e-commerce-friendly brands continue to dominate the segment composition, and these clients contributed meaningfully during this quarter. 21% of our second quarter revenue came from CPG and manufacturing, which continued to show growth both on a sequential and year-over-year basis. Underpinning this was growth from logos outside our largest CPG customer and revenue from Tacit Knowledge. At one of our largest CPG customers, we are preparing to initiate a new set of significant projects expected to roll out in the second half of 2021 onwards. During the quarter, we delivered on some notable projects. We worked on a tool to manage one of the world's largest data analytics platforms for a global technology company. Grid Dynamics is developing an online portal that provides single access to manage the platform and its business intelligence, big data, and data science services. The tool is operational and has been used by tens of thousands of developers across the globe. For a large U.S.-based retailer, Grid Dynamics implemented and deployed intelligent allocation engines based on integer linear programming. This optimization model was used to completely revamp an outdated order management system. An effective algorithm created and implemented by Grid Dynamics engineers allowed the client to optimize their order fulfillment system and decrease order splits by 50%. This initiative led to significant annual savings and had a positive environmental impact. For one of the largest U.S. wealth management companies, we built a microservice application, which enabled more than 9,000 financial advisers with rapid onboarding for new clients. The single interface and coordinated process of the application resulted in a striking reduction of deal closing time from two weeks to merely 30 minutes, allowing advisors to handle more clients simultaneously and minimize client loss during the onboarding period. With that, let me turn the call over to Anil, who will discuss Q2 results in more detail. Anil?

Thank you, Leonard. Good afternoon, everyone. Our second quarter revenue of $47.7 million exceeded our guidance range of $40.5 million to $42 million and was up 22% on a sequential basis and 113% on a year-over-year basis. Excluding revenues from our acquisitions of Daxx and Tacit, which contributed $9.3 million in the quarter, our organic revenue of $38.4 million was up 18% sequentially and 72% on a year-over-year basis, exceeding our guidance of $35 million to $36.5 million. The stronger-than-expected revenue in the quarter was driven by strength across all industry verticals, with greater contributions from TMT and retail verticals. Similar to the last couple of quarters, our TMT vertical was the largest vertical. TMT accounted for 34% of our second quarter revenues and grew 12% on a sequential basis and 35% on a year-over-year basis. Growth in the quarter mostly came from some of our large TMT customers who ramp up their offshore operations with us. During the second quarter, our retail vertical, representing 27% of our revenues, grew 44% on a sequential basis. Within this segment, we witnessed a pickup in business across many customers as they became more aggressive with digital transformation-related spending. Our top e-commerce-friendly retailers, combined with the pickup at some of our brick-and-mortar customers, contributed meaningfully to the quarter's growth. In the second quarter, our non-retail business, now representing 73% of our revenues, was up 15% on a sequential basis and 90% on a year-over-year basis. Our CPG and manufacturing represented 21% of our revenue in the second quarter and grew 14% on a sequential basis and 300% on a year-over-year basis. The growth during the quarter primarily came from the ramp of new customers, combined with contributions from Tacit. Finance represented 9% of revenue and grew 18% on a sequential basis and 16% on a year-over-year basis. The sequential growth in the financial vertical was largely driven by ramping programs from recently added customers and, to a lesser extent, contributions from Tacit. Finally, the other segment represented 10% of our second quarter revenue and was up 31% on a sequential basis, largely from faster-than-expected ramps at some of our recent client wins. We exited the quarter with a total headcount of 2,510, up from 2,056 employees in the first quarter of 2021 and up from 1,237 in the second quarter of 2020. The sequential increase of 454 employees, or 22%, was largely due to a combination of improving demand resulting in headcount increases and our recent acquisition of Tacit Knowledge, which added 181 employees. Excluding Tacit, the headcount increase was 273 people, an increase of 13% on a sequential basis. At the end of the second quarter of 2021, our total U.S. headcount was 264, or 11% of the company's total headcount. This was slightly down from 12% in the first quarter and significantly down from 20% in the year-ago quarter. Our non-U.S. headcount, which we sometimes refer to as offshore, located in Central and Eastern Europe, the UK, the Netherlands, and Mexico, was 2,246, or 89% of the total headcount. In the second quarter, revenues from our top five and top 10 customers were 45% and 62%, respectively. During the same period a year ago, our top five and top 10 customer concentrations were 67% and 84%, respectively. The decline was driven by a combination of new logo ramping, continued industry diversification, and acquisitions of Daxx and Tacit. During the quarter, we had a total of 212 customers, with 51 coming from our organic business and the remaining 161 from our Tacit and Daxx acquisitions. Our organic business customer count of 51 was up from 48 in the first quarter of 2021 and up from 37 in the second quarter of 2020. As a reminder, we only count the revenue-generating customers in the quarter and do not include customers who were inactive during the quarter. Relative to the first quarter, we added five new logos, two in the TMT vertical, two in the finance vertical, and one in the other vertical. Moving on to the income statement. Our GAAP gross margin during the quarter was $19.8 million, or 41.5%, up from $15.3 million, or 39.2%, in the first quarter of 2021 and up from $8.4 million, or 37.5%, in the year-ago quarter. On a sequential basis, the increase in gross margins as a percentage, came from a combination of factors that included tailwinds from more working days, a favorable offshore mix, and our recent acquisition of Tacit Knowledge. On a non-GAAP basis, our gross margin was $19.9 million or 41.8%, up from $15.4 million or 39.5% in the first quarter of 2021 and up from $8.4 million or 37.8% in the year-ago quarter. The sequential increase in the non-GAAP gross margin as a percentage was driven by the same factors highlighted above. Non-GAAP EBITDA during the quarter, that excluded stock-based compensation, depreciation and amortization, transaction, and other related costs, was $9.7 million, or 20.4%, up from $5.3 million, or 13.4%, in the first quarter of 2021 and up from $1.2 million, or 5.4%, in the year-ago quarter. The strong sequential increase in EBITDA as a percentage of revenue was largely due to leverage on higher levels of revenue, gross margin tailwinds from a favorable offshore mix, combined with stable operating expenses. Additionally, in the year-ago quarter, our business was impacted by pandemic-related headwinds, resulting in low levels of EBITDA, both in dollar terms and as a percentage. Our GAAP net loss in the second quarter totaled $1.5 million, or a loss of $0.03 based on a share count of 54 million shares compared to the first quarter loss of $2.1 million, or $0.04 per share based on 52 million shares, and a loss of $2.2 million, or $0.04 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 acquisition-based, offset by a smaller increase in operating expenses. On a non-GAAP basis, in the second quarter, our non-GAAP net income was $6.1 million, or $0.10 per share based on 61 million diluted shares compared to the first quarter, when our non-GAAP net income was $3.1 million, or $0.05 per diluted share based on 60 million diluted shares and $0.4 million, or $0.01 per diluted share based on 53 million diluted shares in the year-ago quarter. Contributing factors to the increased non-GAAP net income in comparison to the first quarter were higher organic revenue and revenue contribution from Tacit Knowledge, an increased number of working days in the quarter, and stable operating expenses in comparison to the first quarter. On June 30, 2021, our cash, cash equivalents, and short-term investments totaled $68 million, down from $100 million in the first quarter of 2021. The sequential decline in the current quarter was primarily due to the acquisition of Tacit, which was an all-cash deal. Coming to the third quarter guidance, we expect revenues to be in the range of $50 million to $51.5 million. This includes $11 million in acquisition revenue from Tacit and Daxx combined. We expect our non-GAAP EBITDA in the third quarter to be in the range of $8.3 million to $9.3 million. For the full year 2021, we expect our revenues to be at least $189 million. This includes a contribution of $38 million from our acquisition of Tacit and Daxx. For the third quarter, we expect our basic share count to be in the range of 63 million to 65 million and our diluted share count to be in the range of 69 million to 71 million shares. That concludes my prepared remarks.

Thank you. We will now begin the question-and-answer session. Our first question comes from Mayank Tandon of Needham. Please go ahead.

Thank you. Good evening, Leonard, Anil, and Lili. Congrats on the quarter.

Thank you.

I wanted to start with just given the demand backdrop could you speak to pricing? What are you hearing from clients? Are they now more receptive to pricing increments? And how is that impacting your expectations for the balance of 2021 and then into 2022?

Thanks, Mayank. So, I would say that in general we see a more positive trend with our pricing. Customers understand that there's a competitive market situation and also some inflationary behavior. So, I would say that it's a little bit more favorable than usual when we work with our existing and new customers. Their demand is driven by the business KPIs, and they are more flexible in terms of their pricing negotiations with us.

Got it, that's helpful, Leonard. And then sort of related to that question would be just your expectations around gross margins and EBITDA margins being so strong in the second quarter. So, when we think about all the puts and takes on the margins, how should we think about the margin trajectory over the balance of 2021? And then sort of the same question into 2022, the trend on the margins would be helpful. Thank you.

I am going to start, and then maybe Anil can give a little bit more detail, but I just want to take this moment to reflect on the year-long journey. As you deal with us all the time, you'll recall that during the early days of COVID, we were facing a lot of pressure. And then I told you we got ourselves on a white horse again and drove our business by the end of Q4, which we did, and Q1 was a quarter of accelerating our revenue. I then mentioned that Q2 would be the quarter of financial performance. Now, I will let Anil talk about details. But fundamentally, we are maintaining our positioning on what I call 40-20 between non-GAAP gross margin and EBITDA, which really speaks to the health of the company. As you can imagine, I am very focused on the gross margin, which has driven the appreciation of the clients' perception of the capabilities and respect to what Grid Dynamics delivers. But I will let Anil finalize some of the details.

Thanks, Leonard. Thanks, Mayank. So, as you saw, we had a nice pickup from Q1 to Q2. If you look at some of the trends we shared in the prepared remarks, I won’t go through them again, but the bottom line here is that you must have seen a flattish OpEx between Q1 and Q2, and obviously, the gross profit dollars that increased all fell to the bottom line. As we go into Q3, remember we're talking about a 90-day interval, so sometimes it gets a little tricky for a company like ours, which is in a growth stage and investing. We are investing. We continue to invest. Some of the timing things move around. As we go into Q3, we're going to be investing, especially in hiring front and initiatives like sales, R&D, marketing, and things like that. From our guidance of $8.3 million to $9.3 million on the EBITDA, you'll see some of that investment playing out and showing up. To some extent, you'll see that on the gross margin front. But I think the big picture is that, as Leonard pointed out, Q2 was very important for us to come back and show the 40-20 target, and that will continue to be our long-term goal. However, we have to balance that with our growth.

Totally understand. Appreciate the responses. Thank you so much. Congrats again.

Thanks, Mayank.

Thank you.

Our next question comes from Puneet Jain of JPMorgan. Please go ahead.

Hey, thanks for taking my question and good quarter, guys. Leonard or Anil, can you talk about how client behavior is changing coming out of the pandemic? While obviously there is a benefit from pent-up spending and easy comps in the second quarter results, are you seeing increased digital imperatives among enterprise customers, which could drive higher growth over the long-term for firms like Grid Dynamics?

Thank you, Puneet, and welcome to the call. I'm excited. The situation with the clients is complex; it's very hard to measure with the same approach, and some of the enterprises have accelerated substantially, while some are more careful about investing. But overall, the environment is very healthy. More importantly than the general trend is the relationships between Grid Dynamics and our larger clients. I believe in the past 12 months, we have proven ourselves to be much more diverse and aggressive in our capabilities. We introduced a multi-solution approach, and we are increasingly taking over entire projects and delivering solutions not like we have done before, but now in a more robust way. We feel more confident with clients. Even the very top clients are now taking a much more strategic approach to scaling their financial and project relationships with Grid Dynamics. I am very bullish on that.

Understood. And many of your peers talked about seeing supply challenges during the quarter, seeing higher wage inflation and attrition rates. Can you talk about how you are seeing supply across various countries in Central and Eastern Europe?

Yes, of course. I mean, you've probably been asking this question to every call representative. I think the situation across all the countries is pretty much similar. There's a lot of demand, and some supply constraints have been noted. Unlike perhaps some of the other IT companies, we have built a strong legacy in our regions. We have been able to build loyalty programs and training for our university, and our retraining programs. Our internal data shows that while we see a general statistical increase in attrition in the industry, our rates have been largely unchanged from the last quarter. If you look at the number of people we acquired this quarter, we increased our total headcount significantly. Of course, part of it is due to the acquisition, but even on a purely organic basis, we added over 270 people. This may not sound huge for some companies, but for us, it's very stable. Using our legacy, our relationships in virtually all Central and Eastern European countries, and in the United States for that matter, we have been able to continue to maintain our hiring levels. While there are always challenges with attrition, I think our internal processes continue to demonstrate that we can stay ahead of the curve.

Got you. Thank you.

Thanks.

Thanks, Puneet.

Our next question comes from Bryan Bergin of Cowen. Please go ahead.

Hi. Thanks. This is Zack Ajzenman on behalf of Bryan. First question for us is just on the balance sheet. It sounds like it's about $150 million in cash or so as it stands today. Can you just update us on your thoughts there, M&A strategy, should we expect to see anything in the near term?

Well, yes. You picked up a few things. First of all, obviously, the balance today is different from the balance at the end of Q2, right because we successfully finished our secondary fundraising follow-up just short months ago. There is now more cash coming through the finalization of our public warrant situation. So that's pretty much the last remedy for the way we came public, but it will be gone by the end of August. We do sit on a nice chunk of cash, and I am extremely excited about it because we continue to expand our acquisition model. The acquisitions, as you know, come in three flavors—new skills and capabilities would be number one. Number two is new geographies, which is very key as we continue to expand our people base. Number three is overall new verticals. We will continue strong on the near front. For our size, I think we're kind of balancing between the integration of our acquisitions with upcoming additional acquisitions in the future.

That's helpful. Just to follow-up on that note, the recent M&A obviously expands the operating footprint. Can you talk about some of these new regions that you're in now, such as Mexico? It looks like you may have picked up Singapore and just kind of the investment philosophy to get those regions up to scale over time?

Well, you stated the story straight—the core acquisition was around the capabilities of Tacit Knowledge in our financial, retail, and CPG sectors and some of the partnerships with SAP and other core software products. It's a UK-based company, and they do have two additional EGM centers. The center of gravity in the UK still remains key, but they have centers in Moldova to service primarily European customers, and they also have a gravity center in Mexico for North American clients. We have already jumped on the bandwagon of partnerships with them. We have some projects both in the U.S. and in Europe running with Tacit. Regarding Mexico, it's a great opportunity for us to scale our nearshoring; it's just a big front. It's almost like our business strategy to lend and expand. We're already working on our first project, which we're going to coordinate with our team in Mexico. Again, we need to be careful. We need to make sure we fully understand the relationships with the acquisition team because they come from a very rich culture with their own client relationships. We want to complement our interaction without moving too quickly. When it comes to Singapore, we will need to look at our strategy in the Far East. It's not ruled out for Grid at this point, but I would say it's a little bit too early to talk about.

Got it. Thank you.

Thanks, Zack.

Our next question comes from Joseph Vafi of Canaccord. Please go ahead.

Hey, guys. Good afternoon. Nice results. Just a couple for me. First, could you comment on your new logo wins in the quarter and their potential in terms of size? Secondly, just an update on where your sales force is now and hiring on that front? Thanks very much.

Of course. Thank you. To answer the first part of your question, typically, our logos tend to be a little bit on the larger side. I would say in general there isn't much deviation on that. However, we do observe a pickup in some innovative clients that I would call midsized because they are playing instrumental roles in relationships with enterprise clients. It’s a bit of a mix between those we acquired in Q2 and a preview similar to what we maintain for Q3. For the smaller clients, as you know, many of them would be the smaller startup clients that we acquired through Daxx, which was done late last year; they tend to be on the smaller side of the spectrum. The second part was about the sales force. Yeah, that's one of the two main areas of Grid Dynamics' investment. We continue to invest in our technology capabilities, solutions, and service delivery relationships with clients. Recently, we brought on a new CTO to support our increased industry recognition. We are continuing to add senior management with industry specialization on the regional side. We added a few key people in Q2. While I’m a bit reserved from making declarations and boasting about our people, you will see that. I can tell you that we've been investing resources particularly in the Southwest and Northwest, especially around Texas, where we see exponential growth in client relationships from the East Coast all the way from the Southeast to New York.

Thank you very much.

Okay.

Our next question comes from Maggie Nolan of William Blair.

Hi, thanks. On the five new organic customer additions, are these customers starting out with a more global delivery model, or are you primarily serving them from onshore? Should we expect any additional expansion of offshore delivery from your large tech clients or other clients going forward?

Thank you, Maggie. Even with new clients on the lend-and-expand approach, I would say that in the current environment some engagements start directly from offshore. We do have very occasional face-to-face meetings, but most of them have been virtual. Because they demand rapid deployment, some of these engagements proceed directly with our offshore teams, which are quite diverse in dealing directly with the customer stateside. On the other hand, some clients prefer people with specific backgrounds in their particular field. They tend to have resources not just on-site but also local within the area. Again, we plan the situation so we will be able to come back to the offices on a broader scale one day. Those people will be the core of expanding our leadership within the client premises. In terms of the scaling of offshoring, it’s absolutely a huge momentum across virtually all our offices, and we are adding virtual offices to our core locations. If we look at the number of cities and countries we serve, we have incrementally increased the number of places where our people operate while still having our core cities on the map with physical offices.

Okay. And then Leonard, in several of your client examples, you referenced measurable outcomes like expense reductions, reduction in closing time, and annual revenue increases. Are you discussing with clients at all about outcome-based compensation arrangements that would supplement the time-and-material engagements that you have?

Well, it's more than time and material. There are fixed bids and project-based rewards too. The outcome-based relationships are getting more popular. There are some customers that are testing the waters with us, so they don’t go across the entire platform, but rather on specific projects. However, different people call outcome-based compensation by different criteria. While they might call it outcome-based, the way cancellations are handled is still more of a standard payment approach. So, I would say when we communicate this offline, I would be happy to have Anil walk you through many more examples. But I would say that as we grow, our relationships will become more long-term, which includes more modern ways of remuneration for the projects. Most of our recent engagements have produced measurable results based on specific KPIs. The easier way for us is to do that since we have more and more completed projects, which allows us to drive the performance metrics associated with Grid Dynamics' contributions.

All right. Thanks, Leonard.

Thanks.

Our next question comes from Josh Siegler of Cantor Fitzgerald. Please go ahead.

Hi, Leonard and Anil. Congratulations on the fantastic quarter. It's really nice to see such strong results in the retail segment. We were wondering, as the Delta variant spreads, are you seeing any initial change in sentiment from some of your retail customers, or are they still pursuing digital transformation in force?

Thanks, Josh, for your kind words. Across all the retail space and CPG, as well as other consumer goods spaces, anyone who believes they can operate without digital commerce is unlikely to succeed. It’s more about their successful implementation of digital practices and reliance on their legacy brick-and-mortar business. The pure-play digital e-commerce still drives growth. Since some of the re-openings occurred in the last few months, we see more foot traffic in stores. So I would say there is a pickup in investment from even broader brick-and-mortar stores, but their investment still focuses on digital. In other words, they are allocating their hard-earned dollars toward driving digital platforms for their corresponding businesses.

Great. Thank you. That's very helpful. Shifting gears a little bit, the Google Cloud partnership seems like it could be a strong contributor. So can you provide a little more color and speak a little more on the deal and how it may impact the business moving forward?

Well, we don't usually go into the details of implementations, but I can give you a few insights. First of all, it's a multiyear development conceived from some of the ideas in the Grid R&D project and our ideation work. Of course, all the main components belong to our client. But being mentioned in Google’s own press release and receiving gracious acknowledgment tells you they appreciate Grid Dynamics’ contributions. A big part of this partnership is our expertise in retail. It’s one of those things where you don't just create ideation on the cloud side. You manage the migration from legacy to on-premise, through private and public cloud systems, as well as automation. So by implementing a successful project alongside multiple retail clients as Google Cloud partners, it serves as a testament to Grid Dynamics' comprehensive capabilities developed over the past 10 to 12 years.

Excellent. Thank you very much, Leonard, and congratulations again.

Thank you so much.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Livschitz for any closing remarks.

Thank you, everybody, for joining us on the call today. Our second quarter results were strong, and we executed well against our guidance. We've had an eventful 1.5 years and have accomplished a lot since going public in March of 2020. I am very proud of the entire Grid Dynamics team for their continued hard work in achieving those goals. In the past 12 months, we doubled our revenue. More importantly, the second quarter highlight was our ability to deliver at a profitable level consistent with our long-term targets than pre-pandemic levels. In Q2, we completed our second meaningful acquisition. Furthermore, we conducted a successful follow-up offering in June that enhanced the company's cash flow and provides substantial cash on the balance sheet for future growth. Additionally, as of July 23, we announced the redemption of all remaining public warrants, which will be completed by August 30, streamlining our capital structure. As we enter the second half of 2021, the demand environment is robust; customers continue to prioritize their digital transformation initiatives, and we are working diligently to ensure we continue to expand our engineering capabilities and resources. I'm excited about the opportunities that lay ahead of us and look forward to sharing new business updates in three months. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.