Grid Dynamics Holdings Inc - Ordinary Shares - Class A Aktie

Good afternoon, everyone. Welcome to Grid Dynamics First Quarter 2026 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications.

Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; CTO, Eugene Steinberg; and SVP, Global Head of Partnerships and Marketing, Rahul Bindlish.

Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded.

Before we begin, I'd like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings 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. You can find all the information I just described in the Investor Relations section of our website.

I now turn the call over to Leonard, our CEO.

Thank you, Cary. Good afternoon, everyone, and thank you for joining us today.

We started 2026 with solid execution, delivering Q1 revenue of $104.1 million that was higher than our guidance range and ahead of market expectations. This performance reflects continued strength in our business model and validates our focus on AI-led transformation and high-value enterprise engagements.

Three trends stood out this quarter, a meaningful and growing contribution from AI revenue, a structural shift in vertical mix toward technology and financial services, and our top customers are undergoing meaningful vendor consolidation with Grid Dynamics emerging as a clear beneficiary.

Last quarter, we called 2026 a pivotal year for the accelerating adoption of our AI offerings. Our first quarter results support that conviction with AI revenue reaching 29.3% of total company revenue, growing nearly 60% year-over-year. Given this concentration and growth trajectory, AI practice has become the core of our business, fundamentally reshaping our offerings, our talent development and our client relationships. I'm confident we are well positioned to further accelerate AI revenues in 2026.

For the first time, our top 5 accounts are entirely outside of retail, reflecting meaningful diversification into technology and financial services, sectors where AI adoption is accelerating and our capabilities are highly differentiated. This group includes 2 leading global technology companies, a global fintech leader, a U.S.-based global bank and a leading financial institution. What makes this group notable is that each of these customers has undergone meaningful vendor consolidation and Grid Dynamics has emerged as a clear beneficiary. This positions us to capture greater market share in 2026 and beyond.

Additionally, we have been actively engaged in AI initiatives across all 5 customers, with some of our largest and most strategic programs driven by this group. Our size and AI technology focus are strategic advantages in a rapidly changing environment. Large enterprises are increasingly seeking highly capable, nimble partners like Grid Dynamics, who can move quickly and deliver meaningful AI outcomes rather than relying on incumbent global system integrators burdened by legacy delivery models.

In many ways, headcount leverage is no longer a competitive moat and differentiation comes from the main knowledge, AI capabilities and ability to rapidly scale relevant expertise.

We're not a systems integrator. We're a product-centric engineering company focused on solving the most complex mission-critical challenges for Fortune 1000 clients with a deliberate emphasis on driving revenue-generating capabilities, not just cost optimization. As enterprises migrate to our custom-developed solutions, the advantage shifts to partners who can build sophisticated production-grade software from concept to deployment. This is precisely what Grid Dynamics does.

AI meaningfully expanding Grid Dynamics addressable market. For example, AI-native SDLC and agentic coding fundamentally changed the economics of delivering services. With delivery time and cost compressing, we can take on larger client initiatives that were previously out of our reach. Also, AI is unlocking a wave of legacy modernization that was not previously economically viable. For years, replacing core legacy infrastructure was considered too expensive, time-consuming and risky. AI lowers these barriers.

At the leading home improvement retailer, the infrastructure for global operations is based on legacy mainframe platforms. Modernizing the legacy mainframe platform was considered risky, and required specialized and expensive talent. Using AI agents, Grid Dynamics delivered a full modernization program within the time line and budget. Grid Dynamics expertise is now extending into physical AI.

In CPG & Manufacturing, enterprises are turning to self-learning robotics and AI technologies to drive operating efficiencies. Our GAIN platform for physical AI makes intelligent robotics more accessible and economically viable. In the first quarter, we closed our first commercial engagement in physical AI with a heavy equipment manufacturer. We're enabling their mining equipment with intelligent autonomous capabilities.

We're building the company around AI. Four pillars define this transformation: AI native delivery, productized engineering, AI consulting, and internal AI automation. The first pillar, AI native delivery, marks a fundamental shift in how we work from human-led workflows to AI agent-driven, spec-based executions across our fixed bid engagements. The economics are compelling and adoption is accelerating. Early indicators point to material productivity gains in select workflows and a structurally different cost base.

In Q1, at our global bank, our autonomous AI workflows analyzed 150 green production applications and uncovered latent defects across systems, including test, and coding and correct behavior. By expanding validated behavior coverage to greater than 70%, we reduced false confidence in system integrity and mitigated production security and regulatory risk.

The second pillar, productized engineering, focused on converting our repeatable IP into AI native platform-based offering under the GAIN platforms. GAIN consists of 4 domain-specific platforms spanning from Agentic AI Commerce, SDLC, Risk and Compliance, and Physical AI. Our engineers increasingly operate as forward deployed specialists composing and customizing these platforms to each client's specific environment, data and workflows. The result is deeper differentiation and stronger client retention.

A good example is that what we achieved in one of the world's largest food distributors. Our client sales associates were spending hours on manual research and proposal preparation for their restaurant clients. We developed AI agents that compressed the preparation process to minutes while improving the quality of the reports. Our efforts resulted in 50% reduction in preparation time and 18% increase in monthly spend for the targeted accounts.

The third pillar is AI consulting. As companies undergo AI transformation, existing business workflows must be evaluated and reimagined for agentic world. Clients are seeking out domain knowledge and deep understanding of AI and data. As a leading global fintech company, our engagement focused on development of AI agents which automate enterprise workflows. Early efforts with our Forward Deployed Engineers embedded inside the client organization have identified inefficiencies and deployed AI agents to automate, optimize and scale the process with a human in the loop, resulting in 15% productivity improvement.

The fourth pillar is tied to adapting AI for our internal operations. Over the past several months, we have been adopting AI tools both off-the-shelf and internally developed in enhancing our productivity and efficiency. This includes areas such as recruitment, RFP responses, knowledge management and HR. With recruitment, we have seen a 2x productivity improvement in terms of number of applicants we can process. With RFPs, we have increased the number of responses by 50% without growing headcount.

With knowledge management, our responses to employee questions improved from hours to minutes. And with HR, multiple initiatives are being rolled out, and we expect more than 20% operational improvement.

Q1 project highlights. Our vertical execution in the first quarter is best illustrated by a few, notable client engagements.

TMT. For a global technology company operating large-scale manufacturing environments, Grid Dynamics designed and validated a unified manufacturing intelligence platform to replace fragmented, manual data flows. The solution is projected to reduce data discovery and reporting cycle times by over 95%. It also lays the foundation for enterprise-wide operational intelligence.

CPG & Manufacturing. Grid Dynamics built and deployed a unified agentic AI platform for a leading global CPG manufacturer, creating the shared infrastructure required to develop, govern and scale AI agents consistently across the enterprise. Running on a major cloud platform, the solution serves as an operational backbone for AI-driven transformation across the manufacturers' supply chain, consumer and commercial domains, the highest complexity, highest impact areas of the business.

Automotive part retailer. For a leading global retailer, Grid Dynamics led the end-to-end modernization of a mission-critical inventory and replenishment platform, migrating from legacy on-premise infrastructure to a cloud-native environment. The program delivered over 70% reduction in infrastructure costs and approximately 40% improvement in core responses time, restoring the platform's ability to support real-time replenishment decisions at the global scale.

At a premier global multi-brand restaurant company, Grid Dynamics deployed an AI coding harness to replace the manual QA workflows that struggle to keep pace with frequent enterprise changes across web and mobile. AI agents continuously simulate customer behavior and adapt automatically to UI modifications in real time, eliminating testing bottlenecks without human intervention. The platform has reduced testing time by approximately 50%.

With that, I will hand over to Rahul Bindlish, Global Head of Partnerships and Marketing, who will share some of the exciting initiatives currently underway and give you a closer look at where Grid Dynamics is headed. Rahul?

Thank you, Leon. Good afternoon, everyone. Partnerships are now a key component of how we go-to-market. Our partner inference revenues have grown to 19.1% of total company revenue in quarter 1, underscoring the value of our ecosystem-driven approach in the agentic era. The majority of our partner inference revenue is driven by Google Cloud, AWS, and Microsoft Azure, our 3 core hyperscaler relationships. They are an active go-to-market channel for our platforms and services. Our go-to-market strategy is aligned with the AI strategy described by Leonard in his comments.

We will be deploying all our platforms on the marketplace of hyperscalers. Our GAIN platform for risk and compliance is now listed on both Google Cloud Marketplace and AWS marketplace. Enterprises searching for production grade capabilities in this domain within those ecosystems will find Grid Dynamics IP directly, increasing our sales pipelines.

We also have joint sales motions with the hyperscalers to accelerate deal closures. That is a fundamentally different way to win business compared to traditional service and sales. This is the first deployment in a deliberate rollout. We are moving additional platforms onto the marketplaces of every major hyperscaler. It also deepens our co-sell relationships with these partners.

Our GAIN platforms plus Forward Deployed Engineers model is a new approach to go-to-market with the hyperscalers. The platform creates the entry point, our engineers deliver the value realization. Enterprises see this clearly and the first few engagement wins reflect their willingness to pay for it.

Each platform we bring to market addresses a specific business pain point with domain-specific IP. This changes the sales dynamics in a way that matters for our growth model. When we lead with a vertical-specific platform, whether that is agentic commerce, compliance or physical AI, we enter a client conversation with a validated solution for a specific business problem. Sales cycles compress, conversion rates improve and initial contracts expand faster because the platform's value is visible to both the business buyer and the technical evaluator. This vertical specificity is what makes our co-sell relationships with Google, AWS and Azure productive.

Grid Dynamics technical depth and domain knowledge, combined with the hyperscalers cloud infrastructure, is what allows us to win engagements against competition. Our AI revenue acceleration is the output of that combination.

We are also expanding our partnership with NVIDIA by porting our solutions onto their software stack. Our GAIN platform for physical AI is built on NVIDIA stack, including Omniverse, and we are taking it to market with NVIDIA for manufacturing and CPG companies.

Industrial AI in manufacturing environments requires simulation fidelity and sensor integration that generic AI infrastructure does not support. Building on NVIDIA's stack positions us to address that requirement and enables joint go-to-market with NVIDIA into a customer segment where the demand for production-grade physical AI is accelerating.

We have also expanded our partnership ecosystem in the AI consulting space, entering into relationships with specialized firms in business process mining and organizational change management. Effective enterprise AI deployment is more than just a technology problem. Clients who deploy agentic workflows are simultaneously reengineering the processes those agents replace and managing the organizational change that follows. By integrating specialized process mining and change management partners into our delivery model, we extend the value that Grid Dynamics offers from platform and engineering, through to adoption and measurable ROI capture.

There are 2 more trends worth noting. Many of the engagements that we are winning through partner channels are extending beyond the initial project. When an AI project delivers clear ROI and our clients are seeing this at scale, the relationship does not close, it expands. Clients return for more use cases, projects and programs. That pattern is visible in our retention data and in the expansion of existing hyperscaler co-sell accounts. At one of the largest food distributors in North America, that pattern played out across 3 distinct phases. The initial engagement was a first project delivered through a co-sell motion with Google Cloud and built on GAIN platform for agentic commerce.

The platform search capabilities were in production within weeks. The client retained Grid Dynamics immediately following go-live to extend the program, using our catalog enrichment solution built on the same platform to improve the quality of the search results. We are now in the third phase, the development of an agentic platform for the client's commercial operations with the first use case targeting sales efficiency already in production.

The margin profile of AI engagements, especially those built on GAIN platforms, is meaningfully different from the traditional services pipeline. When we win through a joint sales motion, clients are buying a validated solution at a fixed commercial structure. That changes the margin profile, higher gross margins than our blended services average. The GAIN platforms plus Forward Deployed Engineers model is not just an acquisition strategy. It's a retention and margin expansion strategy too.

With that, I'll hand it to Anil to walk through the financials.

Thanks, Rahul. Good afternoon, everyone. We recorded the first quarter revenues of $104.1 million, slightly above the higher end of our guidance range of $103 million to $104 million. Our revenues grew 3.7% on a year-over-year basis.

Non-GAAP EBITDA was $12.5 million or 12% of revenues and was at the midpoint of our $12 million to $13 million guidance range. In the first quarter, there was a negative impact from FX fluctuations on a year-over-year basis. We are exposed to a currency basket across Europe, Latin America and India. While we utilize both natural hedges and an active hedging program, the net impact on a year-over-year basis on our EBITDA was a headwind of approximately $1.2 million.

As Leonard highlighted, our top customers are global technology and financial enterprises. And this is by design. Our growth strategy is deliberately focused on verticals where AI adoption is accelerating and our capabilities are highly differentiated. In the first quarter, revenue breakdown reflects this redistribution with meaningful diversification into our TMT and financial verticals.

Looking at the performance of our verticals, TMT became our largest vertical and accounted for 29.5% of total revenues for the quarter with growth of 30.3% on a year-over-year basis. The growth was primarily driven by a combination of our largest technology customers as well as new customers. Retail contributed 28.4% of total revenues in the first quarter of 2026. The finance vertical accounted for 23.5% of total revenues in the quarter, and we witnessed strong demand from our banking and fintech customers. For the remainder of 2026, we are bullish on our outlook with our banking and fintech customers.

Turning to the remaining verticals. CPG & Manufacturing represented 9.4% of quarterly revenues. In the quarter, we witnessed growth from our manufacturing customers in North America and new engagements in Europe. The Other vertical contributed 7.1% of first quarter revenues. And finally, Healthcare and Pharma contributed 2.1% of our revenues for the quarter.

We ended the first quarter with a total headcount of 4,964, up from 4,961 employees in the fourth quarter of 2025 and from 4,926 in the first quarter of 2025. We continue to rationalize our overall headcount as we align our skill sets and geographic mix. At the end of the first quarter of 2026, our total U.S. headcount was 353 or 7.1% of the company's total headcount versus 7.2% in the year ago quarter. Our non-U.S. headcount located in Europe, Americas and India was 4,611 or 92.9%.

In the first quarter, revenues from our top 5 and top 10 customers were 40.8% and 59.7%, respectively, versus 35.6% and 56.6% in the same period a year ago, respectively.

Moving to the income statement. Our GAAP gross profit during the quarter was $36.2 million or 34.8% compared to $36.1 million or 34% in the fourth quarter of 2025 and $37 million or 36.8% in the year ago quarter. On a non-GAAP basis, our gross profit was $36.7 million or 35.3% compared to $36.6 million or 34.5% in the fourth quarter of 2025 and $37.6 million or 37.4% in the year ago quarter. On a year-over-year basis, the decline in the gross margin was from a combination of FX headwinds and higher cost structures across our delivery locations.

Non-GAAP EBITDA during the first quarter that excluded interest income expense, provisions for income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $12.5 million or 12% of revenues versus $13.7 million or 12.9% of revenues in the fourth quarter of 2025 and was down from $14.6 million or 14.5% in the year ago quarter. The sequential and year-over-year decline in EBITDA was largely due to a combination of FX headwinds and higher operating costs.

Our GAAP net loss in the first quarter was $1.5 million or a loss of $0.02 per share based on a diluted share count of 84.7 million shares compared to the fourth quarter net income of $0.3 million or breakeven per share based on diluted share count of 86.4 million and net income of $2.9 million or $0.03 per share based on 87.8 million diluted shares in the year ago quarter.

On a non-GAAP basis, in the first quarter, our non-GAAP net income was $7.5 million or $0.09 per share based on 85.9 million diluted shares compared to the fourth quarter non-GAAP net income of $8.7 million or $0.10 per share based on 86.4 million diluted shares and $10 million or $0.11 per share based on 87.8 million diluted shares in the year ago quarter.

On March 31, 2026, our cash and cash equivalents totaled $327.5 million, down from $342.1 million on December 31, 2025.

Since our fourth quarter earnings call, we repurchased approximately 1.8 million shares for a total consideration of $11.5 million. Since our Board authorized the $50 million share repurchase program, we have repurchased approximately 2 million shares for a total of $13.5 million, reflecting our continued confidence in the long-term value of the business.

M&A continues to take priority in our capital allocation strategy. We are committed to augmenting our organic business with acquisitions that strategically enhance our capabilities, geographic presence and industry verticals.

Coming to the second quarter guidance. We expect revenues to be in the range of $106 million to $108 million. We expect our second quarter non-GAAP EBITDA to be in the range of $14 million to $15 million. For Q2 2026, we expect our basic share count to be in the range of 84 million to 85 million and our diluted share count to be in the range of 85 million to 86 million. For the full year 2026, we're maintaining our revenue outlook of $435 million to $465 million.

That concludes my prepared remarks. We're ready to take your questions.

[Operator Instructions] First question comes from Puneet Jain of JPMorgan.

So Leonard, thanks for sharing updates on the GAIN framework. As these platforms become increasingly integrated in your delivery, could you talk about the impact it has on overall operations, say, like are these necessarily fixed price contracts? Do clients pay for tokens like for LLMs or are they bundled in your overall services?

You talked about like Forward Deployed Engineers. Can you train your current employees to be FTEs? Or do you have to change your hiring mix to be able to offer GAIN platform to your customers?

Let me try to unpack some of your questions. It's a lot than one. But let's go backwards, probably a little bit easier. So let's start with engineering talent and Forward Deployed Engineers.

Majority of the people who we deploy, obviously, are internally trained. We have a large number, substantial large number of very technically educated people who we internally build our services and promotions and train them in the models. And it's led by our R&D organization, so you see Eugene is going to give you some more comments, which combining with retraining the delivery organization brings the talent. Obviously, when we bring the talent from the market, it still needs to be structured so they're going to be able to adapt Grid Dynamics GAIN platforms approach.

The GAIN platforms approach is really what makes us different. So rather than talking about a very specific model for each individual customers, let me explain a little bit in the words what these new platforms means for the contracts.

So basically, we developed a lot of tools over time. And even in the last Board meeting, we introduced lots and lots of different names. And now we're maturing to the point that we can offer a suite of solutions to the client where we actually define a kind of a combination of Grid Dynamics IP and open available sources into the total solution. And the total solutions which we offer are driven by adoption of the engineers and agents in the form of the guidance, where we expect the return on investment for the client.

So answering your question, the number of non-T&M projects -- and because there is a lot, there is a tokenization, there is offering of the fixed bid, there is a performance related. They are significantly increased and they continue to increase. And you will actually see that as we continue to answer your questions today because that model itself requires not only training the FD engineers, but adapting the internal processes and the program management and delivery team to actually control a proper engagement in a different venue. So answering your question, definitely, there is a big shift toward non-T&Ms.

The training and rollout of our engineering force is going very successfully. You haven't seen right now from the absolute number of employees, how the dynamics of the headcount has changed yet because number looks flat. But if you again unpack that number, you will see a significantly higher contribution on the engineering workforce because some of them require an additional training and reclassification before we deploy them to the clients. But the good news is, overall, we have a very strong vector where we are building our position with adopting our clients, new models related to the GAIN platforms.

Got it. No, it's a big change. And so it seems like you're already doing a lot of hard work that's involved.

Let me ask Anil. So the guidance, like the full year on top line, so it does imply like a mid single digit growth even in the lower half, mid single digit average sequential growth in second half to hit the lower half of the guidance. So what drives the confidence or the visibility on achievement of this guidance for the full year?

So there are 2 or 3 factors here. Leonard, do you want to talk about pipeline, then I can take it.

Well, I will answer the easy part. And then Anil will dive you a little bit of the numbers. There are 2 parts of the confidence level we have. The number one, the demand has grown substantially. So we have the record number of demand. And I'm avoiding the word number of engineering demand because, again, we're talking about the teams, the platforms, the offering, but overall demand, the vector is very steep right now. That's a subjective factor because, again, this could happen, it may not happen or whatever, but it's a good news. It's a record high.

The more interesting factor is, and Anil will dive into the financial estimates, we are facing a larger, as I mentioned in the previous comment to you, number of non-T&M projects. This work force is defined by a different estimate, how do we qualify the revenue based on this project in which point. So when we unpack the number, we are a bit more conservative, which we're going to guide this particular quarter or the next quarter because now it becomes a little bit more of a financial exercise.

The work has been signed. The work is going on, but Anil probably give you a little bit better feedback. But the summary for you, the takeaway for me, 2 parts, significantly higher number of the pipeline and a very large number of the non-T&M project, which require a little bit more financial attention, how we guide the numbers for the near future for the next couple of months.

No, look, I mean, Leonard, you pretty much hit it. Let me kind of build upon that. Leonard and the team in our prepared remarks talked about a fundamental transformation on how we're moving. And the word you will see again and again is a platform. Now the historical approach we all know is that you take the engineer, you have a certain T&M rate, you multiply it by hours, days; and the formula, as you know, is very linear. We're transitioning. We're seeing that. Rahul is leading the way from a partnership and Eugene is leading the way, obviously, on the CTO.

We've introduced all these new products and platforms, and we're working on monetization. Now there are stages of monetization. There's upfront, that will get start off small. There's greater stickiness with these engineers. And as our clients become comfortable with both our products as well as our engineers in this new model, that's when we start seeing a lot more monetization there.

So when we started looking at these numbers, the obviously, revenue recognition is a key component to it, right? And we're taking, think of it as baby steps right now. We see the pipeline. I look at year-to-date from January 1 through now, compare that with last year, really good. I look at some of these initiatives we're working on, on AI, really good. But the question will be, how do we time it? Is it a linear timing or nonlinear timing? So from that context, for the full year, we're keeping it.

Now let's see the couple of quarters. Does it turn out much stronger because we have some of the recognitions or not. So we're still experimenting with this. We're working through it. So the optics of it looks slightly different from what you can see underneath from a business point of view.

Let me add one more factor, because it could be a bit missed from the first point of view. We also guide substantially better margins. So if you look at the delta between Q1 and Q2, you may ask a question, how can you grow such a steep increase of profitability on relatively modest increase of revenue? So this gives you a little bit more a story that we look at the new projects we've been awarded to us -- as Rahul was mentioning in his statement -- at a different margin profile than the current business. We just don't want to run ahead of the time and do all the financial qualification of that until we see the results. But we are very confident in the progress we're about to make.

So it seems like you are at the cusp of that monetization and that drives the confidence.

The next set of questions comes from Maggie Nolan of William Blair.

I wanted to ask about your partner revenue that crossed 19% of revenue. So where do you anticipate that going? And to what extent do you expect that to be a positive margin driver for the company?

I think the best way to start is with the person who is responding to that. I think, Rahul, you have a perfect opportunity to tell how you build the business continue to grow. So please go ahead.

Yes. Thanks for that question, Maggie. Like you have seen, partnerships have become one of our key go-to-market channels, and it will continue to be. We have a long-term goal to get to about 25% to 30% of our revenues being influenced by partnerships. And we are well on our path to achieve that. In fact, I would say we are tracking slightly ahead when we look at our internal goals to achieve that. And with GAIN platforms being deployed on the hyperscaler marketplaces, we'll probably see acceleration of that partner inference revenues in the future quarters.

Let me just add one more color maybe on this. Rahul, a bit kind of mentioned in his prepared remarks, but it's important because, again, it's new. So we talked with Puneet about the new model of the business. Now we talk a little bit different model of engagement with our partners.

In the past, we've basically been talking about hyperscalers. And that was a very consistent is, frankly, the influence revenue generated with these partnerships. Now we start adding, especially with the physical AI, some interesting new level of partnerships. And monetization is a little bit lower yet, but we see a substantial growth because now we're adding into with the heavy hitters in the industry because it adds more addressable market.

The other element, which is kind of getting also related to our GAIN platforms, it's a consultancy part. So now we're also getting partnerships with some of the business organizations which are asking us to become the lead technology implementation partner, which is adding a little bit more of the flavor from transition from the business conceptual idea to implementation related to specific AI platforms.

As you know, business leaders are a little bit more cautious about spending the budget because you can spend a lot of money on experimentation. So they would like to seek some clarity where they would have a confidence that the investment is not going to be not just risky, but send them to wrong direction. And Grid Dynamics is becoming the partner of that, their consultancy work. So I think it's another really important difference from the past.

On the TMT growth, do you think that's durable into the back half of the year? To what extent was that driven by concentration with particular clients? And what's the visibility into those clients that drove that?

Yes, Maggie, that's clearly a highlight, and it's super exciting. Not only the TMT, but if you look at some of our financial clients there, we have seen many of these customers consolidating. And the other thing is that in some of them, we have now become a preferred vendor. We were always there, but now as they were consolidating, we reached the preferred vendor status.

With the TMT, there are 2 nuances to the movement. There's obviously our work with them, what we're doing. They know what AI is, and they appreciate us. It's a very interesting thing. The smartest technology customers are the one who are seeking our AI capabilities and more, which is a little counterintuitive, right? But the other interesting thing that is going on with these customers is that there's a hyperscaler relationship too. So on both fronts, we are seeing a lot of activity.

Now every quarter, there might be some negatives moving there, but the trajectory is very strong as we get consolidated as we're one of the few vendors, as we've got a clean sheet with many of these new stakeholders and we augment that with some of the hyperscaler growth that is going on.

But I think the important color, very specific color for you, Maggie, is that Anil mentioned about selection being a preferred vendor. We're not talking about generic preferred niche vendor anymore. The AI proliferation equalize the supply base.

In other words, there is -- the size does not provide advantage to some of the largest vendors. The capability of deploying AI solution at scale has been determined as a vital part. And being a smaller company and being able to transition faster remember, again, the very first question from Puneet -- how quickly we can train people. It's amount of quality work with those specialized teams, which determine our awards on the business side. And with the TMT, it's definitely the #1 followed right now with the financial clients. We'll talk a little bit more about others as time comes. But the top 5, top 6 clients, we are in the driver seat for AI deployments.

The next question comes from Surinder Thind of Jefferies.

When we think about the non-time and materials model, how do we think about the incremental risk that you're taking on? Obviously, over the past decade, 2 decades, we moved in that direction because projects got bigger, they got more complex. There is maybe greater uncertainty about scope or changes in scope. How does that work in the new model? Because if you're looking at an outcome-based or fixed price token usage, like where is the risk in the model for you guys? Or how are you guys addressing that?

Surinder, I will actually have Eugene Steinberg, our CTO, to start talking because she is a bit of an architect of the system. And uncertainty has 2 prongs. One of them is a risk level, the second one is a reward level. And I will let Eugene talk about the coexist on both and how we handle it. Please, Eugene.

Yes. Of course, when you are taking a fixed price project, you always have to balance risk versus reward. So on the risk standpoint, the main risks in the fixed price projects are coming from uncertainty. Uncertainty is coming usually from understanding of the requirements and finding gaps in the requirements of the project. We are using very actively our AI agents and our specific game, Rosetta framework, to uncover all the uncertainties in the requirements and clarify with our sources ahead of time during the presale phase, and that builds us a very strong confidence in the understanding of what needs to be done.

During implementation, we are very actively using always AI coding assistance and our GAIN Rosetta framework, helping to accelerate the delivery of a project and building the buffer for any unknown unknowns, which usually happen in those projects.

So let me just add one thing to what Eugene just said. So Surinder, you know you've been in the IT industry, and this is a risk not unique to Grid. It's a universal risk. All I'll add is a couple of additions to what Eugene said. The first thing is that when you scope out projects, if you don't have a deep understanding of the project or as Eugene says, the risk, it's a problem.

Now when I look back at the history over the last 5 years, historically, we were a T&M shop. We moved towards fixed price. And actually, during those first year or 2 of our fixed price, we learned a lot. We have committed mistakes in the past. This is the pre-AI era, and we worked. As a matter of fact, there were times when our fixed price project margins were comparable with our T&M, and I always went back to the team what's going on. So we learned. Now when you look at our fixed price margins pre-AI, they're higher than our T&M. And those learnings are now moving into our AI.

So we really know what we're doing. I think what we've learned is that if you don't understand the problem that you're dealing with and you don't have a technological know-how, you're absolutely right, there is a heightened level of risk. We'll always have that risk. But as Leonard pointed out, there's a reward component too with that.

Yes. And I just want to close on that with one simple statement. In my prepared remarks, I mentioned clearly that Grid Dynamics is not a system integrator. We are a product-centric engineering company. And that actually gives us the higher level of confidence that we take on the projects, we have a higher probability of success.

So Eugene was mentioning Rosetta, another methodology we're using. It's all part of the GAIN platforms. Now the outcomes on a greater scale, Surinder, will be seen as we will propagate more and more results of this work. So it's not about how much money we generate in the project, but how much rate of growth we're going to see in this project going forward. Right now, at the size that we have and the scale of the tasks, we are training not only the models, but our customers, how to react on gradual, I would say, continuation of the development and approaching the goals.

So it's very, very important for the fixed bid for us to make sure we have intermediary goals because the approximation of the work and deliver results have to be iterative process. And that's very important. So we're improving not only our technology capability, but our project management relationship with the clients as well.

Maybe just a quick related follow-on. Any color or commentary on the delta between kind of the fixed price margins that you're able to achieve currently and what you're achieving on the time and materials side?

Sure. So when I look at -- now it varies quite a bit, right? So I'll throw a number out and somewhere in the ZIP code. I have seen the contribution margins when we get to some of our AI work somewhere in the 60-plus range too. Now I mean, not every project is a 60%. Otherwise, we would have been a 60% gross margin, but this is a contribution margin and then obviously, you have to offset by some of the overhead.

In general, if you look at most of our AI work, it is higher margins. If you look at the deltas between our T&M business and non-T&M business, there is a delta. So we see non-T&M in general being higher. And then when you look at AI business portions of the business, we do see some outliers, very positive outliers.

Ultimately, what does this mean from a gross margin perspective? There's obviously the near term that you're able to handle from both managing headcount. But can you talk about where utilization is relative to your headcount goals and how we should think about the evolution over not just next quarter, but the next 12 to 24 months? Because it sounds like there's a big opportunity here, and I just want to make sure I understand the component that you control through managing headcount and utilization versus the component that's ultimately going to roll out as a result of just the revenue mix itself.

Very good question. So the way I look at, Surinder, your question is there is what I call the near to intermediate areas of focus, which is part of our 300 bps margin expansion, right, Q4 to Q4, and you're already seeing that, right?

Then there's a more fundamental question that you're asking is what is this pricing model and what is the margin model. So that is a more evolutionary thing that will not happen overnight, that has a more longer term. And that is what we are all working on as we work on these AI platforms.

The whole GAIN -- as a finance guy, if you really look at what I tell Rahul from a GAIN platform and Eugene, who's always excited about technology is, what does it do to the margins and what does it do to the stickiness and what does it do to the growth? I mean, that's what it really boils down to, right? And our long-term model is to embed GAIN platforms with our customers -- that is just not human capital, but it's agents and actually IP -- create more stickiness, move towards a more fixed price model, which should result in a higher margin structure. Now what is that finally going to end up being? It's work in progress.

Yes. So I think Anil gave you a lot of financial guidance. Let me break it down to a couple of key elements, which I gauge the business.

So there are 3 elements, obviously, adoption of AI in terms of the efficiency of the business, the marginality of the business. But there's a third factor, which you guys use quite often, which is not totally irrelevant. I think it's quite appropriate. It's the revenue per person. So utilization of the test becomes more driven by the revenue per person increase. And there are 2 parts of it.

On an overall EBITDA margin on a net margin, this is the fourth pillar of the platform, how internally we utilize it. But that doesn't help with the growth of the business. With the growth of the business, it comes actually with the idea that we are going to have repeatable and kind of reusable IP intelligence of our platforms. So the utilization part comes with the utilization of humans and IP capital. So it's a new formula, which is really -- will be gauged in my opinion, which I'm going to drive the company -- is increased revenue per person.

Now saying that, there's another factor, right? It's Europe versus India versus U.S. local consultancy. Different categories of different regions create a different ratio between revenue and the margin. And I'm telling my team, it's irrelevant. The revenue per person as a guidance for utilization has to grow everywhere. The new ability to create game-based platforms Forward Deployed Engineers and the models should drive the efficiency as we already see in the early adoption regardless of the regions and the traditional T&M models, which are not going to be as much used as we go forward.

The next set of questions comes from Bryan Bergin of TD Cowen.

Maybe just at a high level to start on client sentiment. Just given the war in Iran, anything you can comment on how the conversation with enterprises has progressed over the last 2 months here? And just more recently as well, anything in recent weeks that's different?

Yes, I can do that. Thanks for that question, Bryan. So there are clear trends, Bryan, that we are seeing with our clients. Number one is whereas last year, there was clearly clients who were looking at AI projects as POCs and trying to progress them into projects. Clearly, this year, there are production projects being invested in clients across the industries, very consistent.

Second trend we are seeing is with AI, it is driving more projects and programs even for application modernization and data platforms. So we are seeing our pipeline grow in those 2 areas as well.

Third, very clearly we are saying -- whereas the last year, they were the early adopters of AI, now we are seeing a wave of fast followers. That is increasing really our pipeline as well as, in some ways, our total addressable market.

Bryan, coming to your point, the Iran war, to me, at least when I look at the business, it's a non-event at this stage, right, in the third place.

Yes, I would say I would not really comment right now because the situation is very fluid there. We don't conduct the business in an area of the direct impact. So it's very hard to say that. The secondary impact on the business, again, it's negligible. I think that we had a huge impact continuing to the impact of the Russian invasion to Ukraine, right? That's much more dear to us. I don't think we're affected as much. But the global world has changed more with the conflict of Middle East and obviously conflict between Russia and Ukraine. And there are various factors.

I mean, look, ultimately, the peace and resolution is the benefit for everyone. But how the peace is going to be achieved is very important. Right now, we're just plugging alone. And in our business model and our customer relationship, there is no detriment. There are some positive movements related to their retooling, especially in the manufacturing space because there are obviously more demand for manufacturing of certain type of products.

If we talk about our digital twin approach and about our physical AI approach, we're gaining momentum. But I would hate to say that it's really driven specifically by the individual event. But we definitely see the shift of manufacturing to the much higher retooling and scaling the production. And one of them is related to the traditional manufacturing. One of them is related to more semiconductor manufacturing.

Second question here, just as it relates to kind of the AI productivity conversation, just coming out of a lot of the larger traditional SIs, the conversation around productivity, pricing compression for them became more pronounced here in recent weeks. I fully understanding you're not competing in many of the places that they are. But just how are the enterprise conversations for you in engagements that are not transitioning under the game framework as far as that type of a dynamic?

So how the conversations are going in the framework -- so in this case, very often, we still enjoy significant productivity improvements from AI. I can give you some examples. So we just completed a project with one of the wealth management client of ours. And this is where we deployed AI agent across the CA pipelines in one of their large business units. So there, we saw 3x to 6x productivity improvements in the creation of the test coverage. And that allowed us to go wide in this customer and increase our stickiness and increase our reach to all business units of these customers going forward. That proved that we can do more with less resources and this differentiates us across other vendor base of this customer.

Yes. So let me add a couple of statements to what Eugene just said. So the question is really how is the pricing environment right now beyond the AI. So AI obviously has its own dynamics, and I will put that aside.

When I look at the business, I look at a couple of very interesting things. One is that I do not see clients coming and asking that now that same engineer give me a big discount now. I'm not seeing that. Now we can argue whether I'm seeing a premium or more premium, that's second question. But we're not seeing any pricing pressures.

Number two is that in our case, tied to Leonard's opening comments, we've seen a lot of vendor consolidation over the last 18 months. Very interesting thing about vendor consolidation, it's good news and not so good news. The good news is that they go from hundreds to dozens. The bad news is that, okay, they say that you're one of the chosen one, give me a little bit of a discount for the next year or so, something like that, right? So we've gone through that.

So I would say maybe that would be the closest thing I could come to. But the team does a very good job when it comes to new customers, new logos. They're very particular. We have a very strong discipline in terms of ensuring that the margins come in. It's with our well-established customers. And there, we're seeing some of these trends.

You have a very clear example now.

Yes. I just want to add a couple of points there, Bryan. Number one, productivity improvement in the industry is still being shown at individual developer level. When you translate that into projects, especially brownfield projects where majority of our business is, where you are integrating into legacy systems, that productivity at a project level actually falls down to significantly lower numbers, right? So from that perspective, there is less pressure because you are executing projects and programs and not providing individual engineers.

At the same time, when we have examples of consistently showing productivity improvements, we are able to go back to our customers and grab more business. So it becomes expansion of a business strategy rather than play on the margin or the rate.

I think let me just conclude. In a good environment people talk about their side cases and I kind of summarize from the global business positioning. So what I see, and this is quite promising because when I personally meet with the leaders or clients and usually, when you go to the top, the conversations on the overall spendings, and the priorities and budgets come quite clearly as a critical path, especially when those leaders coming from technology organizations, which depend to show concrete results to their business leaders. They are much more focused on productivity in terms of the overall return to the clients.

Remember, we talked about this in the past. So you agree with business people on ROI on a total budget versus outcome and then you go to the VMO, and VMO breaks it down by the rate per person. We are getting right now in a budget discussion overall projects, where the budgets are driven by the fixed bid by the deliverables. And that model, that productivity conversation usually goes on a deployment of the measurable results before somebody starts looking at productivity, because when are you going to ask productivity if it's a total budget being agreed between both sides.

So this environment a little bit better. But before when Surinder was talking about, he acknowledged, obviously, the question of the risk of the model. But that risk is not related directly to productivity anymore at those new adapted businesses.

I've got one last one for Rahul here since he's on the call. Just Rahul beyond the major hyperscalers, as you think ahead, what other types of partner ecosystems are you focused on?

So I think there are going to be at least 3 categories. I already spoke about NVIDIA. I do expect that partnership to take off from here.

The second category would be specialized partners. I talked about on the AI consulting area. But I do expect as technology evolves, there are more specialized AI firms that we will start to partner with, potentially even the likes of your LLM providers, right, as their strategies evolve.

The third category is what Leonard had talked about. We are starting to see interest from large consulting business consulting companies who are looking for technology partners to enable capabilities that they want their clients to have, right? And that's the third very interesting partnership area that I see us progressing with.

This is immediate. This is we're developing right now.

This is we're developing right now, yes.

The next questions come from Mayank Tandon of Needham.

I don't know if there's much to ask. But I'll go ahead anyway, give it a shot.

Mayank, we expect you to be the best questions.

I'm sorry, I'm running out of questions here. But I guess just very quickly, just to keep the call on schedule. The question I had was around your visibility. I think you talked about that earlier, Anil.

In terms of the revenue, how much of the business would you say is sold versus you have to still go out and win? So what is sort of potentially at risk versus what you already have in the bag in terms of your guidance?

So you recall, Mayank, we have had a very traditional model or a well-established model about 85%, 10% and 5%, right, where 85% of our revenue in any given year comes from customers who have been with us 2 years and beyond, 10% comes from over the last 12 months and 5% comes from new. That framework more or less continues to be intact. There might be some variations, especially as we ramp some of these new customers. So the way -- I look at it through this lens.

Now when you look at our whole guidance philosophy and when you look at our whole outlook philosophy, what we know well is potentially where we have some of these downside risks, right? I mean, we're dealing with these customers and these are big customers, and we have some sense of what we do.

So when we give our guidance, for example, at least in the short term, we're taking that into account. When I switch from my short-term guidance to my long-term guidance, I basically switch from a bottoms up to a top down a little bit, right, where I look at the overall pipeline, I look at the forecast, I look at our customer engagements and come up with this.

Now if you were to ask me whether I have a number that I believe is at risk, I mean, it's a whole probabilistic distribution, right, on how I look at it. I would say when I look at the business today versus 3 months ago versus 4 months ago, things are improving. So qualitatively, I would say that things are improving.

Now there's always that risk that we have with any one particular customer due to circumstances or as someone asked a question on the Iran war, there's a macro issue, consumer-sensitive industries are impacted. That's always there. But as we see right now, we feel good about where we see the overall business.

So let me just give you, as always, direct pointers. After listening to Anil we need some guidance on his guidance. There are 2 areas which I think are very important to understand. Number one, the retail business, which traditionally was the most volatile has been derisked and continues to be derisking because it's a smaller contribution. It's not little, but it's small. So that's area where the variance of uncertainty you are talking about. But the second risk is actually growing as we're going to grow the business is how the AI deployments will actually convert into the measurable profits and gain, not Grid Dynamics GAIN platform, but the client gain, right? And that business is growing very fast.

So we're very happy that we can actually forecast a better deployment of these projects. But again, when we talk about fixed bids, we're talking about outcome-based, we're talking about criterion, which before was not that clear, exactly it's how do you measure that ROI. So this criterion becomes a system of criteria, which is growing more and more of our business.

So I would say that the business we project is very certain that we're substantially derisking with retail. However, I see as we grow macro going forward, we need to make sure we bet on the right partners. And that's when actually the ecosystem of the partners also evolves. Remember, Bryan's question, who is going to be the next level of partners besides hyperscalers. And then Rahul mentioned 2 parts, of course, consulting is very clear gain. But then which of the other elements of the LLMs on other substantial guys who will provide us data centers, who provide us the material traffic of these deployments, the cost of these models is going to play a much bigger role.

We are tuned to the system. We're selected to be preferred in many cases. We're confident. But the whole dynamics of AI deployed deliverable value, it's still something we have to prove on a major scale for everyone.

Just to close out, Anil, you mentioned that M&A is still a priority for you. So just wanted to get some context in terms of what you might be looking for. And then, have private companies maybe sort of recognize that valuations have come down a lot and maybe are more inclined to sell versus resisting a potential sale to a company like Grid?

Yes. So as you rightly pointed out, yes, we're very focused, fingers crossed. We hope to close some deals -- and most of them are tuck-ins. What we're looking at right now are tuck-ins from a capability point of view. So obviously, technology has elevated to be very important, data, AI and certain end markets tied to our strategy.

So now when it comes to the valuation, you will always have to pay a premium for good companies. For good, capable companies, you will always have to pay some level of premium. But overall, you're right, they have come in. And things are looking better from a valuation point of view. But at the end of the day, if someone has some true differentiation, you do have to pay.

The bottom line is, the accretiveness of these acquisitions have been the vital point, and we're very close to prove to the market we can still come back and do our M&As because, again, you're right, the appetite for them has been a little bit more modest, but it's not as critical as our broader net, which we threw around the world related to the 2 elements, really 2 elements: AI-related technologies, especially the cutting-edge technologies, we can benefit more as a congruent business than the particular company on themselves. And the second part is looking for the partnership outside of the traditional path, which we're enhancing. So stay tuned. We're in good shape with that.

Ladies and gentlemen, this concludes the Q&A portion of our call. I will now turn it over to Leonard for closing [Technical Difficulty].

Q1 2026 is proof that our AI transformation is working. Our revenue reached 29.3% of total revenue. GAIN has matured from a framework to platforms with Forward Deployed Engineers. Agentic AI solutions are now in production across a range of industry verticals and are generating measurable ROI at commercial scale.

The pipeline entering Q2 is the strongest it has ever been. AI consulting and hyperscale partnerships are expanding. We're executing on our strategic road map, including AI-native delivery, productized GAIN platforms, consulting and internal automation.

We look forward to updating you next quarter. Thank you.

Good afternoon, everyone. Welcome to Grid Dynamics Fourth Quarter 2025 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications. [Operator Instructions]. Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; CTO, Eugene Steinberg, COO, Yury Gryzlov; and SVP, Head of Americas Vasily Sizov. Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded.

Before we begin, I would like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings with the SEC.

During this call, we will discuss certain non-GAAP measures of our performance. to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. You can find all the information I just described in the Investor Relations section of our website. I'll now turn the call over to Leonard, our CEO.

Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. I'm delighted to share that Grid Dynamics closed 2025 with another landmark performance. In the fourth quarter, we beat Wall Street expectations on both revenue and EBITDA delivering record revenue of $106.2 million and a strong $13.7 million in non-GAAP EBITDA.

Remarkably, we finished the full year with a record revenue of $411.8 million, which is 17.5% growth year-over-year. 2025 non-GAAP EBITDA was $53.8 million. In Q4, our top 3 customers, including two global technology companies and the largest payment technology company. All of them are leaders in the AI space. Our performance is a result of our AI expertise, the strength of our accelerators and kind domain knowledge.

In Q4, our AI revenue grew 9% over Q3 and now represents 25% of our overall revenue. For the full 2025, our revenue reached over $90 million, representing 30% year-over-year growth. In 2026, when dissipate continued AI revenue growth.

There are three key factors driving our bullish outlook on AI. First, AI coding agents and automation, significant enterprises build versus buy calculus to build at a lower cost. The shift aligns with Grid Dynamics core strengths in building solutions for Fortune 1000 companies, leveraging specialized talent and intellectual property.

Second, our efforts with [ Gain ] are resulting in a richer blend of outcome and output-based engagements. Crucially, these new engagements enable us to decouple pricing from effort. We have successfully deployed software platforms across multiple industry verticals. Our AI engagements now strategically combine the strength of our human capital with the value of our platform assets.

The market reception for these software platforms has been strong, with customer demonstrating a clear willingness to pay. This positions us well to grow recurring revenue, deepen customer retention and extend the duration of our engagements. Grid Dynamics engagement structure will contribute to our 2026 margin expansion.

Third, the speed of AI transformation is not uniform across industry verticals. While we continue to generate revenue from the retail and CPG verticals, we prioritize investments in the area of technology, financial services and manufacturing, where we see significant opportunities for customized auditable product-grade agentic AI platform.

Let me talk about Grid Dynamics vertical strengths. In the price we're learning that deploying AI at scale requires deep domain expertise. We cannot build an effective Agentic system for a production floor without understanding manufacturer. You cannot build one for a global permit network without understanding the compliance architecture. Such expertise is what we have been building vertical by vertical for nearly 2 decades. Now we're qualifying it into platforms.

Our Merchandising Experience Platform, MXP, brings our expertise to marketplaces and digital commerce. While XTDP, [ orbitemporal ] Data Platform help financial clients, specifically in capital markets with auditability and other compliance challenge. Platforms unlock IP-driven outcome-based engagements, and that's how Grid Dynamics move from billing for effort to billing for value.

Now let's talk about partnerships. Our partner influence revenue reached a significant milestone in 2025, exceeding 19% of our total revenue. So significant growth underscores our mission to keep Grid Dynamics at the forefront of modern enterprise infrastructure. We have strengthened our relationship with all hyperscalers through targeted investments in Agentic platform capabilities, earning specialized badges and building new joint solutions.

Notably, in December, we signed a strategic collaboration agreement with AWS for data foundations in AI. Our premier partnership enables Grid Dynamics to receive funding from AWS to support AI enterprise initiatives.

Our collaboration with NVIDIA on Omniverse based solutions is enabling us to deliver high fidelity industrial-grade digital twins that are essential for our physical AI expansion.

In the fourth quarter, our vertical execution is best illustrated by several notable projects. Fintech transformation. We partner with a global financial leader to launch a proprietary generative AI agent supporting more than 10,000 financial advisers. This interactive experience replaces static policies with personalized guidance as is projected to increase productivity by about 20%.

TMT Analytics for a global technology enterprise, we modernize a legacy mobility application into a scalable analytics platform. Providing centralized visibility into global travel activity and spend. The platform has materially improved usability, increased feature velocity and reduce stakeholder coordination overhead.

Discrete management. We developed a comprehensive dispute management solution for a leading financial services firm. By integrating Generative AI, the platform streamlines charge-back challenges, increasing win rate and reducing operational overhead. Financial governance. At a leading U.S.-based global bank, we're building a global agent runtime and AI orchestration platform, enabled business-focused agent to automate complex workforce starting with successful automation in internal compliance. We also deployed the age-driven executive insight capabilities that provide leadership with consolidated global operational summaries.

With that, let me turn the call over to Eugene Steinberg, our CTO, who will talk about our AI capabilities, how we are upskilling our engineering workforce and how we're using it to improve our internal operations. Eugene?

Thank you, Leonard. Good afternoon, everyone. We are actively executing across three horizons. AI first engineering, Agentic Enterprise and Physical AI. In Q4, we shipped across all three, and these foundations position our AI business for 2026.

Horizon 1, AI first engineering. Horizon 1 is the core of our current business. The engineering work that source the majority of our clients today. We are accelerating productivity across the organization through AI first native tooling and investing decisively in the continuous upskilling of our engineers.

Enterprises are no longer debating the merits of adopting AI for software development. But rather how to do it without losing control of quality, security and institutional knowledge.

It is in this context that we launched Rosetta our AI native software development framework. Rosetta is part of our [ Gain ] initiative and provides a governance layer for AI coding agents. Rosetta automates contract setup, enforces consistent workflows and manage his engineering knowledge at both the engineering and organization level. It operates within the client's own security perimeter and works across all major coding platforms.

Developers get consistent project aware agent behavior from day 1. Engineering colleagues get centralized governance and visibility across the entire agent footprint. With Rosetta clients benefit from decades of institutional expertise seamlessly embedded in the way engineering workflows. We have several engagements underway and a scaling gain as the standard delivery backbone across all engagements in 2026.

Grid Dynamics separations is client 0 for our AI solutions. Cerebra, our internally developed Agent platform launched in Q3. It is built on Google AI stack, Gemini enterprise, ADK and A2A. Within Grid Dynamics, Cerebra is being used by our sales recruitment and knowledge management organizations, automating proposal development, technical prescreening and research at scale. Clients adopt faster than the platform has already been stress tested in production. As AI revenues ramp, we expect this model to drive both revenue growth and margin expansion.

Horizon 2, Agentic Enterprise. Horizon 2 is where we are expanding and investing by leveraging our engineering debt to enterprise transformation at scale. The Agentic area is reshaping the economics of software delivery. AI native development tools are allowing the overall cost of building and deploying software, placing pressure on systems integration and configuration programs.

At the same time, client expectations are rising. Programs previously too expensive or too slow to justify are becoming feasible. Enterprises are thinking bigger and moving faster taken on significantly larger mandates. That means moving away from SI-heavy engagements and toward a regional in-house engineering.

That rotation plays directly to our strength. In the past decade, enterprises have increasingly became dependent on system integration, assembling Software-as-a-Service ecosystems, configuring cloud services, and stitching together vendors products. In the Agentic era, this changes fundamentally. Production deployments require bespoke engineering. Purpose-built agent workflows the main specific data and knowledge layers, distributed system and platform engineering.

Grid Dynamics is well known for its engineering capabilities and proprietary IP at leading global enterprises. The genic area rewards builders, and that is where we have invested.

Our go-to-market runs two tracks. For Tier 1 enterprise clients, we architect and could develop custom verticalized AI platforms built around the specific architecture, governance and compliance requirements. For Tier 2 mid-market clients, we integrate hyperscaler platforms with Grid Dynamics verticalized components on top, optimizing time to value and overall cost.

Both tracks are expanding. We have also established a partnership with temporal through the JumpStart program. This initiative positions us as a technology consultants for [ Tempur's ] customers. embedded in crucial architectural decisions from the outset.

This partnership has generated multiple new engagements across financial services, enterprise software and industrial sectors. The proof points are concrete. A notable example is our work with one of the world's largest payment networks, where we are leading a broad Agentic AI program. We have developed a required service across 17 applications, a universal enterprise assistant with agent to agent communication and centralized governance and evaluation.

Our efforts have led to an approximate 40% reduction in build time and 60% reduction in ongoing maintenance efforts. [ Visa ] platform deployed across 30,000 employees. The impact has been measurable. Specialized groups are seeing up to 15% productivity improvement, driven by faster information access and reduced manual research.

As a leading global CPG company, we developed over 20 enterprise-ready AI agents through a unified agent factory platform. This delivered 15% productivity improvement across enterprise users. These deployments confirm a pattern we see consistently. Once AI capabilities more fully in production, clients realize approximately 15% productivity gains, tangible operating leverage at enterprise scale.

We are leveraging our deep domain expertise to build vertical air platforms, co-defining patterns in the structured productized offerings. Our initial solutions have real traction and are generating revenue with enterprise clients.

MXP, our merchandising and product discovery platform illustrates its progression most clearly. It began as search engineering expertise, evolved into reusable accelerator. And in 2025, gross intel license revenue, this is a growing customer base across North America, Europe and Latin America. Its deployment for a leading European luxury retailer delivered a 7% total revenue uplift, and a 50% reduction in merchandising workload, while handling a 25% year-over-year surge in peak holiday traffic without disruption.

[ XTDB ] is our platform designed for the financial industry, a bitemporal database built specifically for regulated financial environments. As financial institutions deploy AI agents, the regulators require full point and time reconstruction of any decision. Banks deploying agents for trade processing, compliance or investigations, need systems that can capture precise information related to trading activities. [ XTDB ] addresses that with full auditability across both business time and system time. The platform has been adopted in several global banks and in Q4, we shipped a significant new version extending its capabilities for multi-entity data mesh environments.

It is this kind of deep infrastructure IP that differentiates our financial services practice from generic AI Consulting. Our engineers no longer arrive as individual contributors. The if backed by codified IP, Rosetta, MXP, [ XTDB ] and documented patterns from dozens of deployments. The client gets immediate expert deployment, not a learning curve.

Horizon 3, Physical AI. Horizon 3 is our forward-looking investment in Physical AI. Bringing the same AI engineering depth they apply in software to industrial and manufacturing environment. Our flagship platform here is Incarna, a software platform that supports the robotics industry. Incarna dramatically compresses with time required to program robots for complex manufacturing tasks, enabling robots to handle high variability physically demanding work that conventional automation cannot address.

In partnership with Smart Ray, a leader in industrial 3D vision sensors we developed and deployed the Incarna AI model for robotic weld inspection. Weld inspection is demanding. Commodity requirements are stringent and variability in materials and geometry makes rule-based automation unreliable. The result, high inspection consistency, improved quality assurance and scalable automation in environments where precision is nonnegotiable.

At the Fortune 10 manufacturer, we automated the conversion of CAD files to see in [ C ] machine instructions, a workflow that previously took 5 days now completes in hours, greater than 90% cycle time reduction, validated in production. We will have more to share as this program scale.

As we look ahead, we will build on our foundations. We are rapidly and deliberately scaling towards a multi-industry LED business transformation. [ Gain ] in [indiscernible] our engineering judgment, so its skills beyond individual engineers. MXP shows that our IP can generate revenue as software, not just as a services. [ XTDB ] gives us a technically differentiated entry into finance. Incarna, opens doors and manufacturing. And our Agentic practice is shifting from the spoke delivery to structured vertical offerings where our accelerators compress time to value and our contracts increasingly capture outcomes. We are moving from labor scale growth to IP scale growth, and that transition defines our 2026 execution.

With that, let me turn over to Anil.

Thanks, Eugene. Good afternoon, everyone. We recorded fourth quarter revenues of $106.2 million, slightly above the midpoint of our guidance range of $105 million to $107 million. This represents a sequential growth rate of 1.9% and a year-over-year growth rate of 5.9%. There were 30 bps and 22 bps of FX headwinds on a sequential and year-over-year basis, respectively.

Non-GAAP EBITDA was $13.7 million or 12.9% of revenue and was at the higher end of our $13 million to $14 million guidance range. In the fourth quarter, there was a negative impact from FX fluctuations on a year-over-year basis. We are exposed to a currency basket across Europe, Latin America and India.

While we utilize both natural hedges and an active hedging program, the net year-over-year impact on our EBITDA was a headwind of approximately $1.5 million.

On a sequential basis, there was a tailwind of approximately $160,000 to our EBITDA as the dollar strengthened relative to the British pound and euro. Looking at performance of our verticals. Retail remained our largest vertical, contributing 28.7% of total revenues in the fourth quarter of 2025. While revenues in this vertical increased by 5.3% on a sequential basis, there was a decline of 6.9% on a year-over-year basis. The sequential increase was broad-based across our retail customer base.

TMT, our second largest vertical accounted for 28.3% of total revenues for the quarter. The vertical delivered strong results with growth of 5.3% on a sequential basis and a 27.5% increase on a year-over-year basis. The strong year-over-year growth was primarily driven by our top 2 technology customers.

The finance vertical accounted for 22.9% of total revenues in the quarter, growing 5% on a year-over-year basis. This growth was primarily driven by increased demand from our large fintech customer and large banks.

Turning to the remaining verticals. CPG and manufacturing represented 10.2% of our fourth quarter revenues. This vertical remains stable in absolute dollars sequentially but declined 4.3% on a year-over-year basis. The year-over-year decline was largely due to a decline at some of our automotive customers. And this was partially offset by our CPG customers. The other vertical contributed 7.3% of fourth quarter revenues. This remained flat on a dollar basis relative to the third quarter and grew by 8.4% on a year-over-year basis.

The year-over-year growth was primarily from our meal kit client. And finally, health care and pharma contributed to 2.6% of our fourth quarter revenues. We ended the fourth quarter with a total head count of 4,961 slightly down from 4,971 employees in the third quarter of 2025 and that from 4,730 in the fourth quarter of 2024. Although our total head count was down on a sequential basis, our billable head count increased meaningfully. We continue to rationalize our overall head count as we align our skill sets and geographic mix.

At the end of the fourth quarter of 2025, our total U.S. head count was 357 or 7.2% of the company's total head count versus 7.4% in the year ago quarter. Our non-U.S. head count located in Europe, Americas and India was 4,604 or 92.8%. In the fourth quarter, revenues from our top 5 and top 10 customers were 39.7% and 58.5%, respectively, versus 35.6% and 55.8% in the same period a year ago, respectively.

Moving to the income statement. Our GAAP gross profit during the quarter was $36.1 million or 34% compared to $34.7 million or 33.3% in the third quarter of 2025 and $37 million or 36.9% in the year ago quarter. On a non-GAAP basis, our gross profit was $36.6 million or 34.5% compared to $35.2 million or 33.8% in the third quarter of 2025 and $37.6 million or 37.5% in the year-ago quarter.

On a year-over-year basis, the decline in gross margin was from a combination of FX headwinds and greater mix of U.K.-based head count from our acquisition of JUXT.

Non-GAAP EBITDA during the fourth quarter that excluded interest income expense, provision for income taxes, depreciation and amortization, stock-based compensation, restructuring expenses related to geographic reorganization and transaction and other related costs was $13.7 million or 12.9% of revenues versus $12.7 million or 12.2% of revenues in the third quarter of 2025 and was down from $15.6 million or 15.6% in the year ago quarter.

The sequential increase in EBITDA margin was from a combination of higher gross margins and FX tailwinds. On a year-over-year basis, the decline in EBITDA margins was largely due to a combination of lower gross margins and FX headwinds.

Our GAAP net income in the fourth quarter was $0.3 million or breakeven per share based on a diluted share count of 86.4 million shares compared to the third quarter net income of $1.2 million or $0.01 per share based on a diluted share count of $85.8 million and net income of $4.5 million or $0.05 per share based on 83.8 million diluted shares in the year ago quarter.

On a non-GAAP basis, in the fourth quarter, our non-GAAP net income was $8.7 million or $0.10 per share based on 86.4 million diluted shares compared to the third quarter non-GAAP net income of $8.2 million or $0.09 per share based on 85.8 million diluted shares and $10.3 million or $0.12 per share based on 83.8 million diluted shares in the year ago quarter.

On December 31, 2025, our cash and cash equivalents totaled $341.1 million, up from $338.6 million on September 30, 2025. M&A continues to take priority in our capital allocation strategy. We're committed to augmenting our organic business with acquisitions that strategically enhanced our capabilities, geographic presence and industry verticals.

Coming to the first quarter guidance, we expect revenues to be in the range of $103 million to $104 million. We expect our first quarter non-GAAP EBITDA to be in the range of $12 million to $13 million. For the first quarter of 2026, we expect our basic share count to be in the range of 85 million to 86 million and our diluted share count to be in the range of 87 million to 88 million.

For the full year 2026, we are bullish in our outlook. We expect revenues to be in the range of $435 million to $465 million.

That concludes my prepared remarks. We're now ready to take questions.

[Operator Instructions] The first question comes from Maggie Nolan of William Blair.

So you've had impressive growth in AI revenue and you're above $90 million for 2025. So I'm wondering if projects are moving into production at scale and then what is the nature of these projects? And how is the demand among customers?

Look, we extensively discussed in various forms what AI represents to green dynamics and what is the opportunity for us going forward. Fundamentally, what makes a big difference for Grid Dynamics for 2026 on is that we're not only moving from the small development project to full scale implementation, but also we introduced our platforms, which has been noted during this particular time. And that kind of scales the confidence with the clients to give us more of the solutions where we represent our engineers combined with their own tools as a new way to building the solution faster and more affordable for the clients. Perhaps some words from Eugene.

Yes. It's a great question. And there are two main zones, which are most exciting for me. One is AI-powered customer experience. The reason behind that is that this is the zone where the impact from source personalization, Agentic commerce is very obvious and memorable by our clients. And this is where clients see ROIs in weeks, not in months or years. And that allows us to expand those accounts very, very quickly based on this successes which we see in this domain.

Second is enterprise platforms, not as visible as front end work or our customer experiences. But this is a foundational layer, which helps our companies to organize their data, build AI agent factories on top of this data and then go into developing business agents on top of those platforms. And what we see in our projects is as we taper mature and go to production clients start to scale very, very quickly building the agents, and we are helping them to develop as AI agents. And we are going from 1 to 10 to 20 of those specific customer facing, which will collect agents very, very quickly. So this expands our work and allows us to move very, very quickly.

Great. And then anything else you would comment on as you move into 2026, kind of how you expect the trend to evolve any way that you can maybe tie that back to the numbers or maybe some of your margin expansion goals you've mentioned.

Yes. So we marked you, with bunch of names during this press release, right? So we were talking about merchandise is experienced platform, we're talk about [indiscernible] Temporal Database. We're talking about Incarna robotics platform subsequent growth of the Rosetta, it's automation within game model, the platform against Cerebra, which is kind of -- which picks up our internal process, bringing Grid Dynamics as a client 0 for implementations.

What is it all about? Those are not just buzzwords. It's just a way to understand for our clients that there may be a little bit more scarce in the market of clearness what to do. But when you work with Grid Dynamics, we represent basically three key functions.

First, we are domain consultants. So we understand what the customer problems are, and we are tailoring the solutions with that as a important contribution for Grid Dynamics as a mix between Grid Dynamics trained engineers, the standard tools and platform from the market and customized tools, which will bring based on our platform and develop.

The combination of three leads to a few things. First of all, it's a shorter time to implementation for our clients. And second, it moves away from our traditional talent material offering we're putting together contribution based on the planned outcomes, which ultimately leads not only for them to gain momentum and have a better financial return but a high value add for the margin expansion for Grid Dynamics. Those are three ones.

Thank you, Maggie. The next question comes from Bryan Bergin of TD Cowen.

The first one I'll just get a high level. So just with everything that's going on in the market, services, software-based pressure, the whole kind of sets pokey fears that are out there. I want to kind of sanity check it with you first.

Based on what you're seeing in your client conversations and what they're doing in contracting, what -- like what's your perspective as it relates to enterprises increasing their custom build preference versus buy the platform solutions.

And if your clients are demonstrating a rising preference for custom builds, what are like the implications for your dynamics?

So I will start, and then I'll have Vasily to give you a few examples because there's nothing better than to show what exactly happened. So from the high-level perspective, obviously, we recognize that there is a very strong expectation that the cost of implementation will go down.

Then people start throwing some comments. There is a decline of SaaS software companies or [ Ofex ]. There is a decline of IT services needs because everything is going to measure. Well, all these statements are not false. I mean there are more and more tools available in the market. But what's the custom part is, is that creation of the tools and solutions, having our internal platforms makes Grid Dynamics much more efficient to really customize solutions for the individual clients and tests.

And the reason we're doing this because it's very nice from the high-level perspective to look at these all wonderful models, but it's experimentation going to production is quite crazy. And many of the clients are hesitant to throw a lot of money without a clear outcome. And that's where the great comes in with the combination of people, processes and tools. And that's how we believe that even though there is an overall look that over each and looked at there are potential some decline of the needs, the company will agree dynamic needs is actually growing, and I'll have Vasily bring some examples.

Sure. Thank you for the question, Bryan. You are right on point, we definitely see increased demand of our custom-built software. And if in the past, the customers were looking into improvements or enhancing their core platforms, core applications right now, given the overall kind of cost of development is getting reduced by utilizing native environment and DLC.

Companies like Grid Dynamics definitely benefit from this trend by getting involved into implementations and rebuilding of the typically SaaS, I would say, applications as a custom built and more custom tailor solutions for end customers, things like HR systems or travel dashboards and et cetera, which were traditionally work outside of the investment areas for the companies for the clients.

Okay. Okay. That's helpful. And then a follow-up. I'll kind of -- I want to dig in on the growth outlook for the year and unpack it a bit. Anil, you made a comment, you're bullish in your outlook. Just to clarify that comment, are you assuming anything meaningfully changes in the underlying demand backdrop to hit any of these targets? And help us just kind of bridge the 1Q performance here. Is there a build at dynamics or anything seasonal in the first quarter as you think about that first quarter implied growth rate relative to what you're talking about for the year?

Yes, Bryan. Q1 is a very simple story here. It's so -- and also in our time and materials business, T&M, there was fewer working days relative to Q4. So that's -- it's very simple.

Now you're absolutely right. We are positive on how we're looking at the full year. There are two components of it. One is that some of the recent trends in our pipeline growth. Second thing is all the gentlemen that have spoken about on our AI trends, right? I'll let them build up on that. But where we are today, how we look at the year we feel more positive.

And the final thing is that if you look at the range I provided, it's a little wider, right, relative to last year. we made it a little wider because we understand that during the course of the year, there's some positives, there's not so positive. So we kept a healthy range.

So let me be more specific, right? So I think Anil answer a very simple question about Q1, and it's a very substantial reduction of the working days is for. So it's not something like normally happen traditionally here.

But there is a bullish outlook for very simple reasons. The pace of adoption of AI solutions and AI applications by Grid Dynamics customers, clearly outpaces the decline maybe a little bit more hedged retail business. It happens simultaneously and this is no secret because if you look at the rate of growth of our client verticals, you can see to notable changes. It's a tack and more important, the financial vertical, which goes specifically into the fintech and capital markets, which is quite new and growing for us.

So when we look at the total equation, the rate of growth and AI-related businesses. The contribution from our partnerships. The improved our performance in terms of the new type of agreements, fixed bids, performance base, other elements. And on the back side, some of the depreciation of more of traditional paged business, we've been there for years, we came up with bullish but conservative [indiscernible].

And what's the conservative part of that? I think it's very important to understand. We've learned a little bit our lesson from 2025, right? I mean we actually believe we're going to be better than midpoint. But what it means for us? It means for us that in addition to all the facts, we need to understand the revenue dollars which are coming with the customers. And as the business grows, as you know very well, we also deploy our engineering talent across the globe, follow-the-sun strategy. And different regions have different price points and different elements of the business. So as we continue to scale our business, we want to make sure that early on, especially when we're introducing this a little bit variability of Q1, we do not get you guys question, are we saying or not. We are very safe.

Thank you, Bryan. The next question comes from Puneet Jain of JPMorgan.

So given like the recent news flow around Entropic Claude, are you seeing like any changes in your client behavior, increased urgency among your clients to embrace AI? And second, I know like you talked about the gain framework. I know it's built on proprietary as well as third-party tools. So to -- like all these developments like the evolution of ecosystem. Does that raise the bar on what gain can do for your clients in terms of productivity savings?

Very good. Let's start with, again, Vasily the last time to give a little bit more of the multilayer approach. And then from the technology perspective, I think in an comment as well.

Yes. Maybe let me start with again framework. So as you know, we announced it in the middle of 2025. And during the 6 months of 2025, we were rapidly developing this framework and running pilot implementations with our customers.

As you heard in the prepared remarks, we implemented a series of software assets, which became now the part of this platform, which we are offering to our customers.

So I would say in 2026, we see this will be the year of rapid adoption of the game platform across our customers. And in fact, it became the de facto standard approach, which we use for the outcome and output-based engagements. Essentially decoupling billable head count from the revenue growth. So we definitely see performance improvements. We transfer some of that to our customers, and some of that contributes to our improved profitability. Eugene?

Yes. And when it comes to the actual improvements which we are seeing from Agentic core [indiscernible] systems and Claude and of course Entropic kind of others -- of course, many of our customers are embracing it, and we are bringing those capabilities with done together with Rosetta, which is a layer on top of if they are not competing with those Agentic Assistance on the foundation there, but we are making them better stronger and embed our own institutional knowledge in the [indiscernible] systems with every engagement.

And of course, impact of that very much depends on the actual nature of the project. So if you are going into greenfield kind of solution, our gains are immense, like 10 fleets compared to traditional ways because you are creating in an unconstrained environment doing whatever you want.

If you are working in a brownfield project with still well-defined goals, technology modernization and migration you still have a very strong improvement because the agents are 2 years. They are doing things much faster for you. And you see maybe 2, 3x improvements in the performance of the teams. However, when you are coming to the engagement and environments where the majority of the complexity is in the communication or orchestration. This has been -- it's much more challenging to realize the improvements from pure coding and creation of artifact. So it all varies very much depending on the portfolio of our solutions.

Just quickly to add to what Eugene Sue mentioned, I think it's very important we mentioned several times in our prepared remarks as well. I think this transition from T&M based approach to outcome-based and output based. That's -- it's very important to emphasize because this is definitely real. We see that a lot. It happened during the 2025 in transition to 2026. And we see that this year, we will see much more of those -- many more of those engagements going forward. And that's why, as Vasily and Eugene mentioned, our game framework together with verticalized solutions and the platforms that we are leveraging that will be very, very important this year.

Okay. Got it. And let me ask like follow-up to Brown's question on the rest of the year beyond Q1. So based on our math, like it seems like the full year guidance at its midpoint implies like 5%, 5.5% sequential growth beyond Q1. So can you disaggregate that? Like what drives that growth like in terms of like whether it's like you talked about like earlier like the pipeline, billing days and all that. Can you talk about like what drives that 5%, 5.5% sequential growth beyond Q1 to get to the mid-quarter full year numbers?

Anil, make a few comments and, of course, we'll have an to back it up with the numbers. As I mentioned to Bryan, we do very seriously to make sure that we are reasonable but conservative in our [indiscernible] have -- Okay. The pipeline is very robust. And the pipeline which we have right now, not only robust, but it shows a quite opportunity with AI-related products and projects across multiple verticals and multiple plants.

There is always a seasonality, right? So Q2 is better than Q1, and Q3 is better Q2 and then Q4 may have some additional flows like what happens in Q4 last year and all the stuff. But we kind of dissegregate the seasonality and behavior from adoption of AI. And we look at our pipeline as it stands today. So there is a very little assumption, Puneet, that there is going to be some enormous number of white swans or some Hail Mary or something extraordinary grade happens during the course of the year. Obviously, not everything on our books today, but majority is -- and we have a very nice number on tools, accelerated and platforms, which are going to continue to roll out during the year.

So to summarize it, we are not hoping for the numbers. We have a strong pipeline to AI-related projects, particularly in the technology and fintech space. There is a growth in manufacturing, which is cutting quite robustly as well. And we see that adoption, as again, Bryan asked before, of the custom developed solution on a combination of the deployed engineers and train program and our internal tooling brings us much higher acceleration. So the same people, the same trade capacity of the people can have several terms on the execution during the year. That's kind of the high level, but very clear understanding what does that pipeline mean? But maybe Anil will back it up with some number.

Yes. Look, I think the key thing is what Leonard can rate we look at the revenues from a bottoms-up and a top down. And what we have as we go from '25 to '26 transition is this AI factor. And when we looked at that AI revenue kind of bottoms up top down and look at the trajectory, I wish I could give a number, but it's a very healthy number as we go into '26.

That is our foundation for our modeling in '26.

Now when you look at the variations we said, right, we have this wider variation this year. We understand in the course of the year, things can happen. So as you go from the high end to the low end, we bake in some level of conservativeness with some of our clients, especially on the larger side, depending upon how we look at the business today.

But again, this is top-down bottoms-up with some conservativeness, but in '26, the fundamental difference is that we've got this AI trajectory and look at, as Leonard pointed out, look at the fastest-growing segments, TMT and financial verticals. That's the key.

So just again, to put another number, Puneet, because I think it's important. I'll give you a little bit of a prequel, right? So mathematically, it does look a little bit aggressive. But realistically, it's a very unusual quarter to report, right? Is the year-end. So we are in March. So you can suspect that we're probably now numbers in Q1 a little bit better then typically when we present our earnings data a few -- 2, 3 weeks earlier.

So what happened is we see a healthy March. And the impact of this seasonality and less of the working days kind of behind us. So the rate of growth, which you see is based on the lower performance of the first, let's say, 2 months of the quarter. As I was joking, would be lovely to have a Q2 4 months then you can throw all these stuff in the first 2 months of the year, but really, really healthy quarter. So the rate of growth from March on is more, I would say, traditional, which makes us more comfortable with providing the guidance like we are.

Thank you, Puneet. The next questions come from Mayank Tandon of Needham.

Great. Thank you. Anil, you gave guidance on EBITDA for the first quarter, but not for the full year. So I just wanted to check with you, should we expect the same sort of pattern as you mentioned on revenue growth in terms of margin expansion? And do you have any sort of framework on how to think about what the levers are for margins going forward?

Yes. Thanks for that question, Mayank. So as you know, last quarter, we talked about margin expansion in 2026, right? Q4 to Q4, we talked about 300 bps. Within the company, there's several efforts right from internal productivity, right, from geographic optimization, where we're working very diligently on our margin expansion. And that's largely driven by the change of our workforce over the last 3, 4 years, which you all know about.

Along with that, we have investments to Eugene is talking -- Eugene is doing some amazing work in a number of platforms he's rolling out on AI. So it's the balance between the two.

So if you look at our trajectory, Margin expansion, margin continuation is what we are modeling. As the revenue picks up, obviously, you have a little bit more positive leverage there on the EBITDA margins. But the cadence at which these things will play out, you will see in the course of the year, I just don't want to give that level of specificity at this point. But the trajectory should be moving upwards and in line with what we had promised last quarter.

And of course, it's not constant currency situation. So you may want to come.

So the other important thing everyone should understand is that in '25 versus '24 there was a big headwind on FX. So if I look at the cost and revenue on a net basis, that was close to $8 million overall for me, year-to-year. If I look at the last day of '24 and compare what happened on '25. So we're working through that. That's another thing that we're working through.

So to summarize it, I gave you guidance direction of 3% in [indiscernible] Plus. It still stays I hope we can do better than that. There's a lot of opportunities happen. But we're not going to pull the plug and show artificially some numbers related to less investment into Agentic AI or the Physical Robotics AI. These elements are vital for our business, but operational efficiency, the contract efficiency, which we discussed with AI and also distributing workforce more efficiently around the globe. All the three elements. But the driver is fundamentally AI efficiency. That's really the #1 or 3. And I think, you want to...

Yes, I just wanted to comment on the same pretty much along the same lines as I mentioned, right, about fixed-price engagements, right, and outcome-based engagements. That's obviously come typically, with a higher margin. So that's why it's also -- it's part of this program as well. And this year, again, it will be quite substantial.

Got it. And then just very quickly, I wanted to ask about your comments around M&A, Anil. You mentioned that obviously, you have a really good balance sheet and you have the work just to go out and do acquisitions. Are you finding that with the recent market volatility, multiples have come down? Are expectation is a little bit more realistic on some of the potential targets that you might have had in mind?

Yes. Somehow the private companies, they received the memo a little later than the public companies. So the member they finally got, but it took a little time. We are having a good pipeline. Look, we've said that, but I think the number of exclusivities that we have today is as high as it's ever been. It's not done until it's done.

When it comes to valuation, things have come in, they're better than what it was 6 months or 10 months ago. But -- it's still back and forth. Again, remind the most important thing, strategic focus, strategic fit to what we're doing, especially in the AI world that we're entering. That's our bar standards are very high, and we're just not going to buy because we have to buy. We're going to do it if it's strategically fitting.

Yes. I think what Anil didn't tell you it is very obvious we're not buying revenue. This is very, very clear. The relationship we got into the exclusivity with several of the targets, there are very specific in their fashion to address two things. One is the technology components, which we need to add. And the second one is the knowledge of the verticals we would like to be strong with that. So it's not about one size fits all. It's not about just going -- swallowing a big company and report a great number, because usually, it doesn't happen like this. But it's a very specific technology plus verticals.

And it seems as the message you mentioned coming from the from somebody who tells them, okay, now has attained their expectations, I think we're going to be in a better shape because last year, it was the satisfactory.

The next question comes from Logan Chu of Jefferies.

My question revolves around your discussion of kind of moving from labor scaled IP to -- or labor scaled growth to IP scaled growth and kind of the shift from time and materials to outcome based. I'm just wondering what kind of implications that have on your plans for hiring in 2026 and beyond? And then also, where do you think the business model evolves to over the longer term? I mean we have some competitors going all in on kind of subscription-based Agentic delivery, some different competitors saying, no, we don't see it fundamentally changing. I was just wondering where you guys kind of landed on that spectrum?

Okay. So on, I will just say a couple of words, but I think this is a good question for a round table. It's almost like I feel like as a fire chat on the earnings call because there are a lot of elements, which is a very loaded question because you're right, we're kind of the last of the group to kind of present our earnings results and you have there full from everyone telling you something. So it will not be very different. We'll tell you what we think.

So look, the model has changed already. There is no way back and people who will consistently say that, A, nothing changed, or we're going to continue to build the large size of team and more people you have as merrier will probably face some challenges, especially on the large size.

Now I've been saying that for a long time, and it actually works for Grid Dynamics benefit. We're not only a technology-driven company and an innovation-driven company -- we're a nimble company. Our size is fairly optimized. Obviously, there is a place for growth. But we're not having any managed services we're not having some very low-end contracts. And some contracts which were not as progressive or technology contribution, migration all this fashion, they are falling off. And that's why you see this kind of changing of the orders in both ways.

But where we see our model, and I hope [indiscernible] a few examples, is that it's going to be a combination. So it's not the perishable goods of quality engineering. It's a combination of capabilities, trained people and the solutions we have in advance of customer needs, understanding their marketability. We continue to play our role with the partnerships. We understand deeply several key areas, and it can be expert in everything. You try to be expert in everything then you have a very kind of a shallow knowledge and you're going to struggle because you have to fill them all. The bets need to be a bit concentrated even though diversified.

So where I see it's kind of a -- it's a middle ground. One thing which I give you, again, as my input may be a little bit different from others, but it's kind of resonates with our clients very well. The definition of the senior engineer has changed.

So traditionally, the word seniors means the person with many years of experience, they do less here. But today, the definition of the senior engineer means relevancy of the technology competence and a foundational acumen around their own DNA being the moderate age of AI technology. So the age limit changes, but what really changes the depth of the knowledge of people. So the focus of Grid Dynamics is will continue to be supporting the intelligence of information programs. Grid Dynamics University training, green lab training, combination that these fellows also contribute to building on tools, so then they can become much more productive with the clients.

So summarizing my part is that in somewhere in the middle ground, we're bringing the new era of the year engineering the talent, combined with a tooling and a modern world of solving customer problems faster more efficient and combining three elements: people, industry tools and our own platforms. And with that, Vasily, maybe you'll add some...

Yes, just a few comments. Imagine if the customer has a project, let's say, which is provided as a bid for fixed price. And you come and bid for that, let's say, with the pricing 25% to 35% lower than otherwise it would be delivered with a traditional workforce in the T&M manner, let's say, we're like just regular fixed price for the regular engineers.

But actually, you have the productivity of 35% to 45% higher. So that's the clear path for improvement of the profitability, but how do you do that? You implement certain as they'll see new processes on how you develop the software, you deploy a special team, which is very well trained you introduced certain artifacts and assets, which would understand or would fit their vertical we are working in, also understand the coating policies, all the existing coal base set, which would help developers to work to deliver higher productivity. And that's essentially like on the high-level wood game model and what the [indiscernible] is going with.

Essentially verticalized solution, high-performance teams, very well-educated engineers on the modern technology and delivering outcome and output based engagement.

Great. That was very clear. And then I wanted to ask about the partnerships. I know they're 19% of revenues were partner influenced. I just wanted to kind of get a sense of how those partnerships have evolved over time, maybe how you see them evolving in the future?

Okay. So the person who is possible for partnerships, we will bring him in next time, it's a Rahul Bindlish as we're looking okay. we're going to say on poles, right? Thank you for asking this question last because it's actually a very wide part of our growth.

When a few years ago, we started talking about one partnership. We're basically exploring what it means to read the next. And starting with Google, it was great. I mean we have a great experience. We have a great partnership. We have a great positioning of understanding of the modern tools, collaboration.

We have matured significantly ever since. So when we talk about the influence revenue, we're talking about our positioning where we not only contribute to the value of the clients which utilize solutions from our clients and solutions talk about cloud solutions or their modern, large language models or other features. But the elements associated how we are adding our layers, our technology know-how, our technology platforms on the top of their offering, which helps them to penetrate customers faster and helps us to understand earlier what their growth is going to be.

Saying that, we also started to contribute more efficiently to their own developments, on their own products, which is very critical because that's how it drives our business, not only having our partners our vehicle for growth within industry, but is the growing clients themselves.

So from there, we pretty much cover all the hyperscalers. And that's great because it means the customer has a value with Grid Dynamics to get a bespoke solution for the best fit for everyone. And this is good because ultimately, not every offering fits at all, and we are very comfortable to be really good friends with the clients and fair partners with our major hyperscalers.

On the top of it, we're adding more meaningful partnerships and perhaps Eugene can make one of the notable ones because I think it usually gives us a little bit more advantage to fill the gaps on the fast-growing AI implementation where the big guys allow a bit more flexibility for some specialized programs to step in. And since it's going to be probably the last time I speak where Eugene will wrap it up for you. I just want to say one thing which is important, I think, for everyone. It's going to be a good year. We believe in Grid Dynamics. We are having a strong and growing team and I really count and you guys believe in us as we do it ourselves. So thank you with that, and Eugene, please wrap it up.

Yes. Thank you, and this is a great question. And indeed, we -- as Leonard said, we are helping many of our partners to build the value-add components and penetrate new customers and new industries. One notable example is, for example, our partnership with Team Portal, which is our [indiscernible] management system at its core, very robust, very scalable and very powerful. And we apply this system at scale while building enterprise agent platforms, which opened quite a lot of interesting opportunities for temporal to grow into this sector, and we help them to go into major accounts together. And now we enjoy -- it's a good partnership as well.

Thank you, Logan. Ladies and gentlemen, this concludes the Q&A session for today. I will now pass it over to Leonard for closing comments.

This quarter, we demonstrated that AI first transformation is delivering real measurable value. We continue to scale our talent and embed AI driven efficiencies through platforms. By running our AI first operational models, we are proving the same value proposition we advocate for our clients.

We entered the next phase of our journey with a clear road map, a future approved workforce and a steadfast commitment to deliver long-term value for our shareholders. Thank you, and we look forward to updating you on our continuous progress.

Good afternoon, everyone. Welcome to Grid Dynamics Third Quarter 2025 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications. [Operator Instructions]

Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; SVP, Head of Americas, Vasily Sizov; and SVP, Global Head of Partnerships and Marketing, Rahul Bindlish. Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded.

Before we begin, I would like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings 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. You can find all the information I just described in the Investor Relations section of our website.

I now turn the call over to Leonard, our CEO.

Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. Our third quarter revenue of $104.2 million was another all-time high, fueled by AI demand. AI grew 10% on a sequential basis and contributed to over 25% of our third quarter organic revenue. New business resulted in the highest engineering billing headcount.

We remain committed to disciplined capital allocation. I'm happy to report that the Board has authorized $50 million share repurchase program, which we announced in today's press release. This represents about 15% of our company's cash. The buyback reflects our confidence in the long-term prospects of the business and commitment to investing in ourselves. We believe Grid Dynamics shares are undervalued at current market prices, making the repurchase an attractive use of capital.

In Q3, we have the strongest pipeline of new large enterprise logos since the beginning of the year. Customers are regaining confidence and beginning to accelerate their strategic initiatives. We're encouraged by the quality and duration of the new engagements. New programs are multi-quarter in nature and with budget extending well into 2026. This is a substantial improvement from the first half of 2025.

Our partnership influence revenue continued to grow and exceeded 18% of our third quarter revenue. Investments into partnerships are driving faster growth, stronger opportunity pipeline and deeper engagement with new and existing clients.

Grid Dynamics helps customers to build advanced AI and digital capabilities. In addition to the hyperscalers, we are also enhancing our efforts around AI-centric independent vendors or ISVs. In the third quarter, we added 5x more billable engineers than we added in the second quarter.

In the fourth quarter, we expect net billable engineers added to be at the similar levels as in the third quarter. This is indeed a remarkable achievement given year-end seasonal trends. We also grew our average revenue per person by 4% on a sequential basis in third quarter. We continue to rationalize our overall headcount as we align our skill sets and geographies. And this will result in greater efficiencies and higher utilization.

As a result of the strong momentum in the second half of the year, we expect to end the year with a materially higher billable run rate, positioning us well for the growth in 2026. Our 2026 revenue growth will build on the top of this higher baseline, providing a strong foundation for the continued expansion and operating leverage.

I'm also happy to share that we're in the midst of a company-wide initiative to expand our profitability and margins. Over the next 12 months, we expect to improve our margins by at least 300 basis points. We'll achieve our goals through several initiatives that we are currently operationalizing. This includes efficiency improvements with a focus on higher-margin geographies, leveraging enhanced pricing with our AI offering, rebalancing our portfolio of lower-margin business and embracing technologies with our AI-first initiatives.

In particular, we found that the AI tools and frameworks used by our engineers in software development life cycle, or in other words, SDLC are making them materially more productive. In short, they're able to produce more code of better quality in less time. We now have an opportunity to monetize this boost in productivity. AI is the fastest-growing practice in our company, acting as a powerful flywheel for our business.

I'm delighted to share our progress as Grid Dynamics advances its transformation into AI-first company. Our technology vision is clear and structured across 3 horizons: AI-first delivery, Agentic AI at scale and physical AI. This framework guides how we embedded AI into every facet of our operations and service delivery, ensuring our clients receive the most advanced production-ready solutions.

AI First delivery is centered on transforming our engineering and delivery capabilities. This is about operationalizing AI in our core processes. The adoption of AI in SDLC has exploded and our Grid Dynamics AI native service offering known as GAIN is at the heart of this transformation. We're seeing strong adoption of AI First SDLC methodologies with active pilots at major clients, including a leading home goods retailer, a major financial technology company, a prominent health care revenue management provider, a global food distributor and a multi-brand restaurant company.

AI First SDLC fundamentally changes project economics and delivery time lines. It enables us to take on labor-intensive legacy modernization projects that were previously inaccessible, substituting extensive parallel human efforts with specialized teams equipped with AI agents.

The impact on our presales process is equally transformable. Our ability to create full-fledged proof of concepts in hours instead of weeks provides a game-changing advantage, improving conversion rates and accelerate sales cycles. As we deploy these solutions, we see leaders emerging across industries verticals who are driving measurable ROI through new AI capabilities.

While some enterprises are finding success, the vast majority are waiting for commercial off-the-shelf software solutions to become available. It's evident that to achieve meaningful ROI, custom solutions must be engineered for specific business processes, leveraging the foundational capabilities provided by AI leaders such as NVIDIA, Google, Anthropic and OpenAI. This has been the core strength and DNA of Grid Dynamics.

We're a trusted engineering partner that builds from AI-first principles, and this positions us perfectly to help the clients to succeed in this new era. Our second horizon focuses on deployment of Agentic AI platforms for customers and our employees. We are partnering with large enterprises to build bespoke Agentic platforms. This platform-first approach creates significant expansion opportunities.

Our clients engage Grid Dynamics to architect their foundational platform and leverage the expertise to develop sophisticated AI agents for customers and employees, including automated operations with human in the loop. These initiatives drive Agentic customer engagement and enhance decision-making across enterprises.

Our third horizon is Physical AI. It involves integrating AI with the physical world through technologies like digital twins, collaborative robotics and edge computing. The rise of Physical AI is fundamentally transforming the industrial robotics landscape, leading to the replacement of the legacy robotics platform with modern AI-enabled solution. We're advancing our Physical AI initiative through new partnership with selected robotics platform providers.

Our recently announced SmartRay software for robotics world inspection marks an important step forward in our strategy to combine AI with robots. We plan to expand these capabilities further in the coming quarters. The key to success in enterprise AI programs is not just deploying new technologies. It's about having a deep understanding of the business and leveraging technology to solve real-world high-impact problems.

Many companies are realizing that the value of AI comes from rethinking processes, data flows and decision logic around business outcomes rather than pure technology capabilities. This is precisely where Grid Dynamics excels. Our teams combine strong technical expertise with domain influence, enabling us to translate complex business challenges into scalable AI-driven solutions that deliver measurable financial results.

AI projects and engagements serve as a critical entry point for the clients opening the door for larger, high-value platforms and modernization programs. We are seeing a familiar pattern where initial AI engagement such as search or personalization, expands into a broader work across data platform and cloud modernization.

We're capturing a higher share of these initiatives, high-margin projects as clients deploy ROI-driven AI initiatives. We're also capitalizing as the market shifts from experimental proof of concepts to enterprise scale implementations that deliver measurable ROI.

Our game framework continues to gain strong traction with the clients. The model goes well beyond simply layering tools like OpenAI's Codex or Anthropic's Claude Code for the existing engineering teams. The framework rethinks team composition, engineering workflows and best practices to maximize the productivity impact of AI.

The goal is to bring substantially higher efficiency gains than just utilizing stand-alone tools. Over the past quarter, we scaled our expert team dedicated to advancing gain, further strengthening our competitive edge in the AI native engineering space.

And now, I will turn the call over to Vasily Sizov, our Senior Vice President of Americas, to discuss some notable projects highlights from this quarter.

Thank you, Leonard. Good afternoon, everyone. As Leonard highlighted, we are seeing a clear change in customer tone compared to the beginning of the year. Clients who were previously focused on near-term risk management are now taking a more constructive and strategic view, thinking about how to position themselves for growth in 2026 and beyond.

This shift from caution to controlled optimism gives us confidence that the current demand recovery is structural, not temporary. In fact, several of our key customers begin their fiscal year on October 1. Contract renewals we observed and new committed budgets at or above prior year levels indicate maintenance of the momentum.

A significant portion of this activity is centered around AI business cases, initiatives designed to drive tangible operational and financial outcomes. As we mentioned in prior quarters, we are already executing on 2 large-scale platform programs with Fortune 500 clients that are implementing Agentic AI across the enterprise.

We are now seeing a much broader wave of discussions of similar nature and the results to date have been very encouraging. The ROI profile of these AI initiatives looks more attractive than that of traditional digital transformation programs. Unlike gradual multiyear modernization efforts, these AI business cases often target specific pain points with measurable improvements, revenue uplift, cost reduction or conversion rate gains that become visible within quarters, not years. This creates a strong feedback loop as clients see real results, their interest accelerates and demand begins to snowball, which we observe in our pipeline.

With that, I would like to highlight some notable projects from the quarter that illustrate these trends. First, we are developing an AI-driven bug triage solution for a leading multinational technology company. Our approach integrates advanced noise reduction, deduplication and intelligent routing with deep analytical models, custom lock processing and robust domain knowledge base. This combination directly addresses the challenges of engineering operations in bug triage and routing. By automating complex analysis and decision-making, the solution is expected to reduce triage time by up to 70% triage, while significantly improving accuracy and replacing the traditional manual approach for bug triaging.

Second, for a leading technology company, we've developed a system to support compliance with the Digital Markets Act by shifting data processing from server site to on device. Using modern mobileto-edge data processing workflows, the system delivers server source data to user devices for local transformation, a critical requirement under DMA, which prohibits certain server side joints and aggregations. The platform processes billions of records daily across a wide range of business domains and data sets. This initiative has significantly strengthened compliance by enabling privacy preserving non-identifiable consumer data collection at scale.

Third, a leading financial and investment services firm is modernizing its advanced search platform used daily by over 10,000 financial advisers for efficient search of the client data. The legacy interface required navigating nearly 500 filters and understanding of SQL queries and logical expressions, creating complexity and inefficiencies.

The enhanced solution leverages AI and natural language processing to enable advisers to query the firm's databases using simple conversational language. This AI-driven search experience delivers faster insights and an estimated 10% boost of financial advisers' productivity.

And the fourth example, a leading U.S. automotive parts provider had a plan to replace an outdated solar-based search engine with a goal of improving online revenues by at least 3% without disrupting operations. Great Dynamics partnered with them to implement a Google Verdicx AI search solution and successfully accomplished the project with results exceeding the expectations, a 3.33% uplift in revenue per search, generating over $600,000 in just 2 weeks at 50% traffic, outperforming their legacy system by 5%.

Looking ahead, we plan to expand Vertex AI search to B2C and in-store channels with content enrichment and cloud migration.

Now, let me turn the call to SVP Global Head of Partnerships and Marketing, Rahul Bindlish. Rahul?

Thank you, Vasily. Our partner influence revenue has grown to over 18% of total company revenue, underscoring the value of our ecosystem-driven approach. Our partnership framework is purpose-built to advance our mission of enabling enterprises to develop world-class AI and digital solutions.

As AI continues to redefine enterprise transformation, we expect these partnerships to play an even more central role in our growth, driving continued expansion in both our pipeline and market opportunities.

We organize our partners into 2 primary categories. First, platform partners. This group includes the hyperscalers, our core cloud partners as well as leading data and analytics platforms like Snowflake and Databricks. These collaborations keep us at the forefront of modern enterprise infrastructure, ensuring we deliver cutting-edge cloud, data and AI capabilities to our clients.

With the hyperscalers, we are strengthening relationships through targeted investments in AI and Agentic platform capabilities. This includes expanding certifications, earning specialized badges and building new joint solutions, complemented by coordinated go-to-market initiatives such as joint marketing and sales campaigns.

We are expanding these initiatives from the U.S. to other regions, including Europe, LatAm and South Africa. Second, ISV partners. These partners bring deep domain-specific capabilities essential for enterprise transformation. Through these specialized ISVs, we deliver tailored best-in-class solutions aligned with specific business needs.

Within the ISV ecosystem, we have expanded our partnership with leaders in middleware and workflow orchestration that underpins reliable, durable execution for Agentic platforms. Our blueprints for Agentic AI platform, incorporating such middleware developed from real-world enterprise deployments address critical challenges in scaling and managing AI workflows.

We have also expanded our platform partnerships to include NVIDIA. We are actively developing solutions on NVIDIA's advanced software stack, including Omniverse to deliver high fidelity industrial-grade digital twins and simulations.

For example, earlier this year, we launched the Interalogistics optimization starter kit on NVIDIA, enabling retailers, manufacturers and logistics companies to optimize facility layouts and picking paths, boosting warehouse efficiency and reducing labor costs.

With that, let me turn the call to Anil, who will talk about our financials. Thank you.

Thanks, Rahul. Good afternoon, everyone. We recorded the third quarter revenues of $104.2 million, slightly higher than the midpoint of our $103 million to $105 million guidance. On a year-over-year basis, this represents a growth of 19.1%.

On a year-over-year basis, there were roughly 40 bps of FX-related tailwinds. Non-GAAP EBITDA came in at $12.7 million within the higher end of our guidance range of $12 million to $13 million. In the third quarter of 2025, there was a negative impact from FX fluctuations on our costs, both on a quarterly and year-over-year basis.

Grid Dynamics is exposed to a currency basket across Europe, Latin America and India. While we have a natural hedge against some of the currencies and a hedging program with other currencies, the net impact on our EBITDA was approximately $0.6 million or $1.3 million on a quarter-over-quarter and year-over-year basis, respectively.

Looking at performance of our verticals. Retail remained our largest vertical, contributing to $27.8 million of our total revenues in the third quarter of 2025. Revenues in this vertical decreased by 2.1% and 2.9% sequentially and year-over-year basis, respectively. The sequential decline came primarily from a handful of large retail customers, while some of them have returned to growth.

TMT, our second largest vertical accounted for 27.4% of total revenues for the quarter with growth of 13.5% and 18.2% on a quarter-over-quarter basis and year-over-year basis. This growth was primarily driven by our largest technology customers. Finance vertical accounted for 24.6% of total revenues in the quarter. Revenues were slightly up sequentially and grew 81% on a year-over-year basis. The substantial year-over-year growth was primarily driven by increased demand from our fintech customers, along with contributions from our 2024 acquisitions that brought in global banking customers.

Turning to the remaining verticals. CPG and Manufacturing represented 10.5% of quarterly revenues and grew by 3% on a sequential basis and grew by 11.3% on a year-over-year basis, primarily due to contributions from our recent acquisition.

Other vertical contributed 7.4% of total revenues, reflecting sequential decline of 1.6% and 10.5% increase compared to the third quarter of 2024. The year-over-year increase primarily came from customers tied to delivery, service providers and acquisitions.

And finally, health care and pharma made up 2.3% of our revenues for the quarter. We ended the third quarter with a total headcount of 4,971, down from 5,013 employees in the second quarter of 2025 and up from 4,298 in the third quarter of 2024.

During the quarter, we increased our billable headcount meaningfully. That said, we rationalized our overall headcount as we aligned our skill sets and geographic mix. At the end of the third quarter of 2025, our total US headcount was 370 or 7.4% of the company's total headcount versus 8% in the year ago quarter.

Our non-U.S. headcount located in Europe, Americas and India was 4,601 or 92.6%. In the third quarter, revenues from our top 5 and top 10 customers were 40.1% and 58.3%, respectively, compared to 39.8% and 59.2% in the same period a year ago, respectively.

During the third quarter, we had a total of 186 customers, down from 194 in the second quarter of 2025 and 201 in the year ago quarter. The decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of nonstrategic customers.

Moving to the income statement. Our GAAP gross profit during the quarter was $34.7 million, or 33.3% compared to $34.5 million or 34.1% in the second quarter of 2025 and $32.7 million or 37.4% in the year ago quarter.

On a non-GAAP basis, our gross profit was $35.2 million or 33.8% compared to $35.1 million or 34.7% in the second quarter of 2025 and $33.3 million or 38% in the year ago quarter. On a year-over-year basis, the decline in gross margin was from a combination of factors that included FX headwinds, higher utilization, lower working time and mix shift from our U.K.-based acquisition.

Non-GAAP EBITDA during the third quarter that excluded interest income expense provision for income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $12.7 million or 12.2% of revenues versus $12.7 million or 12.6% of revenues in the second quarter of 2025 and was down from $14.8 million or 16.9% in the year ago quarter. The decrease of $2.1 million on a year-over-year basis was largely due to higher operating expenses and FX headwinds.

Our GAAP net income in the third quarter was $1.2 million or $0.01 per share based on diluted share count of 85.8 million shares compared to the second quarter net income of $5.3 million or $0.06 per share based on a diluted share count of 86.4 million and a net income of $4.3 million or $0.05 per share based on 78.8 million diluted shares in the year ago quarter.

On a non-GAAP basis, in the third quarter, our non-GAAP net income was $8.2 million or $0.09 per share based on 85.8 million diluted shares compared to the second quarter non-GAAP net income of $8.3 million or $0.10 per share based on 86.4 million diluted shares and $10.8 million or $0.14 per share based on 78.8 million diluted shares in the year ago quarter.

On September 30, 2025, our cash and cash equivalents totaled $338.6 million, up from $336.8 million on June 30, 2025. As Leonard mentioned, the Board has authorized a $50 million share buyback, which we announced in today's press release. This represents roughly 15% of our cash. M&A continues to take priority in our capital allocation strategy. We are committed to augmenting our business organically through our acquisitions that strategically enhance our capabilities, geographic presence and industry verticals.

Coming to the fourth quarter guidance, we expect revenues to be in the range of $105 million to $107 million. In the fourth quarter, all our business will be considered organic in nature. We expect our fourth quarter non-GAAP EBITDA to be in the range of $13 million to $14 million. For the fourth quarter of 2025, we expect our basic share count to be in the range of 85 million to 86 million and our diluted share count to be in the range of 86 million to 87 million. Based on our fourth quarter revenue outlook, we expect our full year revenue outlook to be between $410.7 million to $412.7 million. This would represent a 17.1% to 17.7% growth on a year-over-year basis.

That concludes my prepared remarks. We're now ready to take questions.

Thank you, Anil. [Operator Instructions] The first question comes from Puneet Jain of JPMorgan.

So, it was good to see increase in number of billable headcount this quarter, which you also expect to continue into 4Q. Talk to us like about the trends you are seeing for 2026? Like can growth rates next year meaningfully accelerate from like the broad set of clients compared to what you are guiding for 2025?

Thank you, Puneet. It's good to talk at the time when we can be comfortable to discuss the growth. First and foremost, we are the highest billable headcount in the history of the company. The rate of growth has also picked up quite a bit, and we see that going into the Q4. But why we're comfortable looking forward for the next year at this point?

First and foremost, the programs we have recently renewed or we signed for are longer in nature. They're not going on a short duration. They're going on multi-quarters. The second part of that is that the programs are related to the AI initiatives, a lot of technology application, which brings the core of us bread and butter of our business.

The other part, which is important is that we don't get only stuck with the traditional renewals in the beginning of the year because some of our clients now have the sliding schedule for the new fiscal year. So notable clients had their fiscal year starting in October, which means that we are very comfortable to see the growth coming through, again, longer duration.

And finally, as we have told you guys before, we have a number of our top 10 clients who elect Grid Dynamics to be a preferred vendor. It wasn't as evident in the last few quarters because they were a little bit slow on expanding their technology investments. Now they're full swing, and we're taking advantage of that benefiting from being a preferred partner.

Understood. And then a question on Agentic AI, like the benefits to clients from transitioning to Agentic AI-based solutions, it's clear. But perhaps talk to us about the constraints that are limiting adoption? And what will change that? Like could that unlock higher level of discretionary spend among clients for the overall IT services companies next year?

Very good. I would let Vasili talk about some specific cases because obviously, we're in the midst of the big transformation. And there are a lot of talks about what agentic AI can do. And cannot remember, it's our Phase 2 of horizon, the AgenticI is at scale. So, Vasily?

Yes. Thank you, Puneet, for the question. Yes. So Agentic AI and AI in general is the fastest-growing practice for us. So -- and we definitely see the expansion with the business cases, which we already kind of applied during the last few quarters. But the technology doesn't stay on where it is and it continuous evolving. And we are expanding our capabilities to a broader spectrum of business problems to solve. And there are a few notable examples, which we already mentioned during the prepared remarks.

And some of them, for example, apply to the cases where lower skilled employees can be replaced with higher skilled employees in a lower number of, I would say, people augmented by sophisticated AI solutions. And for one of the core clients of us, we are implementing right now the Bug Triage Solution, which is basically assumes a small number of highly expert team augmented by AI, replacing hundreds of engineers of low skilled who are basically don't possess enough skills to requalify and can be really replaced by the more sophisticated processes and solutions.

The next question comes from Bryan Bergin of TD Cowen.

I wanted to follow up actually a little bit on that last question as it relates to the Agentic work and some of the TAM expansion. So particularly this Agentic managed services activity that seems like it's brand new as far as an opportunity for you versus the custom build activity that you're known for. When you think about the work, the Agentic work that you're doing for clients, is there a way to segment how much of it is in this kind of new managed services area versus what would be kind of just SDLC-enhanced Agentic activity? Because I think, obviously, that's a huge market, the IT managed services industry that you could penetrate here in a new way.

Yes. So, thank you so much, Bryan, for the question. I would say, currently, majority of the revenue, which we see are actually related to solving the business cases. As SDLC, I would say, expansion of existing programs and helps to open new accounts, but this is broad in nature. So, it's actually -- it goes through majority of our engagement. So, it's very difficult to discern what exactly would be the incremental gain, I would say. It just fuels overall growth, which we saw in Q3 and was significant.

Yes. So just to comment more specifically, the complexity of scaling the business with the Agentic AI lays in the fact that we cannot just take off-the-shelf program and apply it to the client. When we talk about AI first deployments or more commonly known as forward deployed engineers, it's more or less straightforward.

The Agentic AI unveils a very strong combination of the traditional hyperscalers, with their tools, solutions, their ISVs or some specialty tools and there are -- tools created in-house by Grid Dynamics. And mind you, quite a few initiatives are actually driven by Grid Dynamics to be the client zero, which is now very popular within the company.

So, we train the programs within the company on a business process as an example, and then we carry out to the clients. So, we're expanding rapidly the market because it's a combination of our traditional kind of open sourcing world, but with embracing the partnership and a big players. That's, by the way, one of the reasons I brought Rahul to the call because the success of enrollment into broader base and Gen AI application is driven by how many cable solutions are developed by our partners in conjunction with us doing something in the middle of their preparation for releases.

Okay. That's helpful. That's clear. My follow-up, I'll touch on the numbers here. So just help us with reconciling the 4Q growth view that comes in here a little bit below versus what the prior implied would have been on the fiscal '25 outlook. With all the optimism you're conveying here on billable base on client behavior, is there -- is it just some of the signed work is not immediately starting and it's kind of '26 and thereafter? Is it any client-specific issues? Just anything just on the near-term numbers set up.

Yes. So Bryan, very simple. It's a timing thing. So, there are three layers of this timing. The pickup in ramp, right? We thought it would be a little earlier. It just was a little delayed, but we're getting to the same point. Second thing is that in the year, we had 2 significant clients that had an impact on us. That was about, what, $25 million, $26 million roughly there. And these 2 things -- and the third thing was that if you look at the high end, there was certain M&A also plugged in.

So, when you look at these 3 things, there's nothing structural. As a matter of fact, one of the client, a top 10 client that gave us a little bit of a headache early in the year, that's coming back strong. So, it's all about timing. And that's why when Leonard started off with his opening question, what we are seeing right now going into the fourth quarter sets up very well as we get into '26.

But just to clarify, Bryan, even when we were meeting with you a quarter ago, we could not pinpoint exactly the time of the inflection point. We were reliant first on some time during Q2, then we were not sure. And then finally, the second half of Q3, it happened. So, when Anil refers to the timing difference, if you trace the rate of growth, not from Q1 to Q1, but from Q2 to Q2, you will see significant upside.

And what's very important, again, what Anil said, taking away these 2 clients and some delays we had with them, we're in a fantastic organic rate of growth. Now there always something happens. So, we can't say it will never happen with anyone again. Of course, it happens. But what really carried us out into the more success rate of growth is a broader base of clients. With the application of technology tools we were less dependent on certain variations, especially from our traditional legacy retail and the service business around retail customers as a total.

Okay. Just one clarification. Did you scale that engineering base, the billable base that's up? I know you've got some things flowing through the net headcount from 3Q. Did you scale the engineering side?

So this is very, very simple because when we do reporting, we're trying to follow the same numerical disclosures, right? So, if you look at the number of the billable headcount, it's significantly higher. So, what happened? -- there are 2 things happen. Number one, we're much more aggressive of optimizing the OpEx, right?

The other -- so OpEx is really a big thing. So, we're reducing the bench or anything like that. The second part is it's a small variance of our internship programs. We continue to hire interns, but it happens in the beginning of the quarter. So, when they come to the end of the quarter, it's really not less meaningful, but we really have a robust pipeline of projects and also trained engineers, both from the internship program, Grid Dynamics University, et cetera. But it really -- it looks a bit weird because how you can grow when you have overall headcount. But when you see our engineering headcount, building headcount, utilization, we're extremely positive going forward.

The next questions come from Surinder Thind of Jefferies.

I'd like to start off with a question about the partnership program. Can you talk a little bit about -- when you think about the future of where those numbers could get to, I feel like we've been kind of stuck in the 16%, 17%, 18% range as a contribution or a percentage of revenues. Can you talk about where we are in that process and where you think you can ultimately get to and why the numbers are what they are today?

Thank you for that question, Surinder. A little bit about myself. I was the first salesperson who joined the company more than a decade ago, and we started the partnership program about 4 years ago with the intention to grow our business, increase pipeline, accelerate the sales cycle. And we are doing pretty well on all those parameters.

Now, specifically in terms of percentage of revenues influenced by partnership, we have grown pretty nicely to about 18%. We started off with a goal of getting to about 21-odd percent. But given the growth we have had, I do expect in the long term, we'll end up somewhere between 25% and 30%.

Now, you did make a statement that we have been stuck between the 16%, 18%. In fact, if you look at the trajectory, we are growing from 16% to 18%. If you look at we have also done acquisitions. And a lot of our acquisitions, when they come in, they don't come with partner influence revenues. So, our overall percentage is still growing on a total basis, including acquisitions. Effectively on a dollar basis, our rates are significantly higher.

And then maybe a question on the decision to go with the share repurchase program. Any color there in terms of -- I realize it's not a very large percentage of the cash. But for a growth company, just can you talk about that and what you're trying to signal there? Obviously, I think people recognize valuations are generally depressed, but what's the benefit here?

So Surinder, I think the first and foremost thing is a signal that we're sending to the markets. We believe that we -- our deployment of this capital at these levels is a clear good return on investment. You're absolutely right. We are a growth-oriented company. So, there is a second aspect of our whole story, which is M&A. And we're fully committed towards M&A. This year, we thought we'd close 1 or 2 deals. It took a little longer. But the second aspect of our capital allocation is definitely M&A.

Just to add on this point, I think it's very important. We believe we really passed from the trough. We're in a clear growth inflection point. And we listen to our investors. We understand the market trends, and we believe it's a value which we will coordinately bring to the market, to our shareholders while maintain a very good position on the cash. And also, there's another added factor. We believe we'll generate more cash as the business grows.

And those questions are related to how we're going to improve our EBITDA margin. Why is it important? Why we specifically said something in our commentaries about how actively we're going to do that because we're not just giving away cash. We're making a business-wise decision while demonstrating ability that we'll replenish the cash as we grow with the M&A process forward.

The final quick question here. Just on the margins and the idea of generating 300 basis points of expansion over maybe the next 12 months. I understand this was a year of investment, but can you put that into context why now? Why not continue to invest given all of the change? And is that kind of a onetime step function change that we should then build off of? Or how do we think about the decision to kind of focus on margins at this point in the cycle?

Yes. No, no, great question, Surinder, and that's a perfect question. Look, there are a couple of things that are going on here. The first thing is the timing of it. So, on that one, we believe that the macro is going to be what it is. And we're assuming that we're taking a little bit of a conservative outlook on the macro front and saying that given what it is right now, let's look at the way the business is.

We've also reorganized our headcount. There was many non-repeatable one-off things, whether it is a sudden expansion of geographies, whether one-off discounts as we went through vendor consolidation with some of our big clients and nonrepeatable events, which we've landed with. So, we're taking a look at that.

And the final thing is that, we're embracing these new technologies. So, as we embrace many of these new technologies, we believe that we could get some of the returns. So, where we are on the macro front, on almost like now we are in this new world where we're at 19 countries. Remember, about 3 years ago, we're at 7. We rapidly expanded. So, we're now taking a look at, okay, how should the company look like? What is the optimal model. And we're looking at it on an account-by-account level or region-by-region level.

Let me just add more strategic comment on that. So, there are 3 ways you can manage cost. Number one is on the pricing side. Number two, on the cost. And in this case, Anil alluded to specific regions, which have been affected by the unfavorable exchange rate, and also the transition we had to India as an example. And the third one is a technology investment. And I think you alluded to make sure that we understand how to balance it.

So, answering that question. We are definitely bringing the value to the clients, which is reflected in our new contracts. We're bringing our game model, which helps us to identify the business solutions, which is giving us a bit more run rate on the favorable pricing. The cost is what priority is for Anil to work on. We're not slowing down on a technology investment. Had we slowed down technology investments, it will be a significantly higher number. But my goal in life to bring in Grid Dynamics in the future of the growth with the same or better technology improvements as we had before. So out of those 3 elements, we pursue first 2.

The next question comes from Mayank Tandon of Needham.

Great. I had a couple of quick ones. First is, are you getting any indication from your clients around a potential budget flush in 4Q? If there is upside to your numbers, would that be the main driver? Or are there other factors that could also be potential upside catalysts based on your guidance?

So, Mayank, this is a question that I challenge our teams internally, right, in the timing of it. So, some very interesting things are happening here. Number one is that -- and the gentlemen have alluded to, but let me rehash it. Number one, if you look at all our new deals that we're signing, we're signing at levels, the pricing at that level or higher. Second thing is that all these fiscal lending deals, we're now talking about 2026. So, people who are starting the new fiscal year, that's a very fundamental thing. And the third thing, which Leonard pointed out, see, the year of 2024 going into '25 was all about vendor consolidation. And in some many cases, we went from several to a handful and we've succeeded. We had to give one-off discount. But now they are looking at ramping us, and we're talking about 2026.

So, if you look at my top 10, top 15, which is what, 50% to 80% of my revenues, we're now talking about 2026. That is a fundamental thing. But you're absolutely right, this is something I challenge the team. At this stage, we do not believe it's a budget flush. I'm sure there might be some marginal things, but our fundamental tone here is driven by what we're seeing in '26.

And what's more important from the business standpoint, this is a financial -- very good financial from the business support, we open new programs. When you have traditional what you define as a budget flush, it's unused funds, which are used for some existing projects. This is not the case. We're opening big multi-quarter programs now, which tells you that it would be very difficult for people to appropriate sums just related to the end of the year. So, we're very bullish that this is not a just budget for short term.

Got it. That's very helpful. And then just a quick follow-up on margins. I wanted to just clarify. So, the 300 basis point expansion that you're calling for in 2026, is that gross margins? Or is that EBITDA margins? And then, Leonard, you did go through the levers. Could you just go through them again? I think you went through them a little bit quickly for me, at least. So, I would love to get a little bit more granularity on what the drivers are.

All right. So, I'll let Anil first talk about his favorite topic. Gross margins with EBITDA margin. He loves to talk about it. I'm the one who needs to make it happen. Let him talk about.

All right. Well, look, at the end of the day, Mayank, EBITDA margin -- the gross margin is part of the EBITDA margin, right? So, look, we are looking at the whole P&L holistically, including the cash generation. So, we're looking at the costs. We're looking at the OpEx. We're looking at capitalization. We're looking at every aspect of it. We have at least 300 bps that we're talking about, so by the fourth quarter of next year. We have some aggressive internal targets, and we're balancing that with some of our investments in technologies.

So, I don't want to say it's coming from this, this and this. It's coming from everywhere. And the bottom line is that you'll see expansion. The bottom line, I'm hoping that expansion both on gross margin and EBITDA margin, but we'll see the final numbers.

So now I'm going to repeat what I tried to say to Surinder with a little bit more granularity. So be a little bit patient with me. So, there are 3 elements. One of the pricing increase. The second is a cost optimization. And the third one is the technology investment, okay?

So on the pricing side, there are a couple of elements which are critical. One of the main one is application of our game model. game model for us as we talked about it before. It's all about Grid Dynamics AI application solution enhancements. We talked with Brian about ageentic AI and other elements. So ,some of the programs we're signing now become more favorable. It's not because we're just hammering on the dollars per employee. I mean, that happens or some renewals, but it's not the most effective way.

You actually need to make sure that ROI plays a huge role. And ROI was a bit up term for a long time because when you have a traditional T&M business, what is ROI. Now when you start applying the business solutions and business practices and eliminating a lot of waste on the client side, it becomes tangible. So that's on increasing the profitability of the pricing side.

On the cost side, you asked a very important question. And on the 2 parts, on the gross margin part, Obviously, with -- especially with the dollar versus euro swing, some of the European locations, particularly in European Union zone, become less favorable. So, we're looking at that, how we're going to improve our gross marginality. Of course, you increase the price, but you also look at some of those less favorable locations of the business. That's one of the part.

The second part is, if I mentioned before, if you recall, Grid Dynamics is a client 0. For a lot of internal initiatives, we're testing efficiency on our own business process, and then we transfer to the clients. It would be unreasonable for us to just investigate them and don't take advantage of it. So that's an operational efficiency. that operational efficiency in HR, recruiting, hiring, finance and all these elements of the business, which don't fit traditionally into the COGS, it's all OpEx.

So that's an element. The second big part of element of the cost efficiency. We are putting a lot of effort here because we see that the trend for Grid Dynamics in recent months and quarters after the start of the war, 3 years has been there already, has not been favorable. And it's time for us to tighten the balance from the operational efficiency, but more importantly, the tools. We have a lot more tools. So, it's not just say, okay, you just get rid of this group of people and hire this group. It's a lot of more intelligence.

The third part, we're not touching. -- actually, we're increasing the investment. And again, Surinder asked this question. He wanted to make sure we are not stopping deployment of cash into our technology area. For one way or another, there is -- it's a full P&L. So, whatever we invest in technology is a part of the same EBITDA margin, right? And we invest into all 3 horizons, including the third horizon, which is the physical AI, robotics automation. We work with on the proof of concept and some first project with a very large industrial companies that all takes investments. The partnership work takes investments.

So, we are investing in technology, partnership, 3 horizons of AI, maintaining a strong focus on innovation while looking at the efficiency, both on our COGS and OpEx, and we're pushing the game model to improve the rates on the client side. If I'm still slow, I think we need to talk offline.

The next question comes from Matt Dezort from JPMorgan.

No, no, from William Blair.

Sorry, from William Blair.

William Blair. Matt, you just got bumped up to JPMorgan. Is that an insult or is that a complement?

It's Matt on for Maggie Nolan over at William Blair. I guess to ask another one on margins, Anil, maybe a slightly different way. I guess it doesn't sound like it, but is it -- is that 300 basis points of expansion dependent on your growth reaccelerating next year? Or can you guys expand margins even if budgets and growth remain constrained into next year?

Look, there is some leverage that you get and benefit from a top line growth, right? But as I said in the opening comments, we're not assuming anything much on the macro, not a big positive, not a big help, so to speak. So even if the macro -- even if the demand environment stays the way it was in 2025, we think we -- yes, we are going to expand at least 300 bps.

Right. And I think what's important, again, and you mentioned it before, Matt, we have actually stated this is kind of a bare minimum. So, the market favorable conditions should lift it further. The technology optimization lifted further. It's -- we look with Anil today, it's our 24th earnings call together. It's the first time we're so specific on the margin part because we believe that Grid Dynamics kind of been looked a bit on a negative front from the margins and kind of a little bit tuned down our technology excellence. And we'll look at that and we say, look, we want to make sure that investors truly understand from the granularity how we're going to move forward with a growing business, improving our technology and become really rigorous on our cost-effective initiatives.

Makes sense. Congrats on 24 calls together. Maybe as a follow-up, can I ask about your guys' AI advantaged? I guess, within AI, where does your competitive advantage come from versus your peers? Is it gain? And I guess, is that helping drive the outsized traction and pipeline within any specific verticals where you guys have historical expertise like e-commerce, for instance?

Thank you, Matt. Our history of utilizing AI and in the past, everyone was talking about data analytics, predictive analytics and machine learning. The story started from 2012 when we first started implementing natural language processing for the search engines for the biggest e-commerce and retail companies in the United States.

In 2017, we wrote the first book on AI called Marketing. And we have a long story and a lot of investment into building this expertise, and that's what creates a differentiation for us. So, when the truly AI boom started, we were ready. We had business cases. We had accelerators, blueprints, understanding on how to implement that technology on scale. And essentially, with utilizing LLMs, it's just another tool in our toolbox, which helped us to tackle things which were not possible to tackle before.

So, I would say that, that's the key differentiation. Right now, we are embracing more and more different business cases, different verticals with specific solutions, specific applications of the technology, I would say. And right now, it's difficult to say which industry benefits the most. I would say, everywhere where we are present, we understand how the technology can help and help with figuring out the strategy and the road map for the implementation of AI technology and going more and more into implementing AI platforms, which can help to implement AI technology on the scale of the enterprise.

So just to also look at the bigger picture, Vasily was very good to define some of the application part. You're absolutely right, you have to start from something. And e-commerce and foundational part of the retail business drove us to expansion into the other areas like CPGs, which is very similar in the application side.

But if you look at the recent -- more recent growth, where the applications of AI are becoming more and more prudent, we'll start looking at our growth in a technology TMT segment. We're looking at definitely in fintech. That's been a very successful endeavor for us to expand. And now it's picking up on the industrial side. So, it started from the foundations, but now it expands in the area.

And the second part to your question, look, everybody tells that they have the best position for AI. You can talk to the company which is now valued $5 trillion, or you can call a company which values very little today from what it's supposed to value, which is Grid Dynamics. And everybody tells you almost the same thing, maybe not the jacketed the leather. But the thing is we are very, very laser-focused on the key technology foundational elements, which, as you alluded, was built in the past 12 years, 13 years.

So, we're not going for the super broad-based clients. We're always on a top 1,000 clients in the world. And you can see that, we are tailoring to the programs with the scale in our past experience can benefit the most to the client. So, you have somewhat narrower band at some of the bigger guys who we're competing with. But where we get into the business, we are getting an excellent job and partnering. And that's where the partnership program also expand us, because we started with Google, Microsoft, AWS and NVIDIA. We have those fantastic partners. And when they see the value of Grid Dynamics, then it really speaks for what we are. But the time will tell who is going to be better. So, we're very bullish, but thank you for checking on this point because you need to be us and everybody else honest how good we and others are at AI.

Thank you to our analysts for all your insightful questions. With that said, this concludes the Q&A session for today. I will now pass it over to Leonard, our CEO, for closing comments.

Thank you for joining us today. Our results highlight the strength of Grid Dynamics business expansion and formidable position in AI-driven industry. We have many reasons to be optimistic about our outlook.

A meaningful increase in billable headcount in the second half of 2025 positions us well for the growth in 2026. We focused on double-digit growth in our AI business, scaling our partnership ecosystem, implement margin expansion. All of these underscore our confidence in the long-term potential. Grid Dynamics will continue to deepen its differentiation through technological leadership in the quarters ahead. I look forward to updating you on the next earnings call.

Good afternoon, everyone. Welcome to Grid Dynamics Second Quarter 2025 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications. [Operator Instructions] Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; CEO, Eugene Steinberg; COO, Yury Gryzlov; and SVP Americas, Vasily Sizov.

Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded. Before we begin, I would like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC.

During this call, we will discuss certain non-GAAP measures of our performance. to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. You can find all the information I just described in the Investor Relations section of our website.

I'll now turn the call over to Leonard, our CEO.

Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. I'm delighted to report another record quarter in revenue. Our second quarter revenue of $101 million was another all-time high, driven by the continued growth in our engineering billing headcount.

More importantly, we're witnessing a strong pipeline of opportunities across industry verticals. I will talk more about it in my prepared remarks. Grid Dynamics is aligning every aspect of its business with an AI-first approach. This includes infusing AI into go-to-market strategies, service offering, delivery and talent management. We're doing that while preserving and expanding our core assets around high-caliber technology, consulting and engineering services.

While traditional programs face increased crude innovation-centric initiatives are being prioritized from a spending perspective. Enterprises are actively seeking AI-native partners capable of driving and leading adoption within the enterprise environment. Furthermore, traditional functional structure within large enterprises are also lacking the adaptability needed for efficient cross-functional decision-making regarding AI implementations encompassing both technology and business aspects. This is precisely where Grid Dynamics plays a crucial role in powering organizations to accelerate AI adoption at an enterprise scale.

I'm happy to report that the first half of 2025 AI and data was 23% of the company's overall organic growth. The AI and data practice is growing almost 3x faster than our overall organic business. I'm excited to see the growth in pipeline of opportunities as we enter the quarter with accelerated business momentum. This is the basis for our positive business outlook, even though macroeconomic uncertainties persist.

I'm also pleased to report on the progress with our recent acquisitions. JUXT has significantly elevated our industry expertise in banking and financial services. attracting considerable interest from global banking based in the United States. In the second quarter, a U.S.-based global bank continued to be a top 10 customer. And that was the reason the financial services vertical remained our second once.

Mobile Computing has enhanced our follow-on capabilities and the acquisition efforts, successfully integrating engineering teams to support our U.S. enterprise accounts. Our partnership influence revenues reached 17.9% of the total revenue in Q2 2021, and we continue to experience increased traction with all higher scales, not only with Google.

In our European business, we begin implementing a marginal B2B digital search solution built on Microsoft Azure for one of the largest worldwide brewing companies. We also have launched expert agents and a Tier 1 investment bank to perform index called quality and security reviews as a part of the software development life cycle.

Our India expansion continues to be a strategic highlight. India is now among our 2 top countries by the headcount and has emerged as a hub for multi agent multimodal platform engineering, demonstrating a strong talent attraction and upscale. Our internship program also saw strong momentum with over 16,000 applicants and high placement rates into the billable roles.

Across the majority of our customers, there is a profound impact of AI on the way they are planning their future initiatives and programs. Customers now expect a flavoring of AI across all of their service offerings given traditionals. We firmly believe the workforce pyramid of the IT industry space and shifting to our senior talent in AI-centric agents.

As you know, Grid Dynamics workforce pyramid is more weighted towards senior more experienced engineers and compares to our peers in industry. Our alignment in the workforce, along with the technology-centric DNA, positions us well as enterprises and brace air. Given the critical role of I would like to emphasize Grid Dynamic's unique market position.

It's important for investors to remember that our company's core values have built upon a strong foundation in data and data platforms as well as expertise in large-scale data engineering for Fortune 1000 enterprises.

I will now turn the call over to Eugene Steinberg, our CTO, to elaborate on the important topic of you, Eugene?

Thank you, Leonard. Good afternoon, everyone. I'm delighted to share how Grid Dynamics is actively returning for an AI-first future. where AI capabilities are embedded in every aspect of our operations and service delivery from the ground up rather than added as an operation.

We are methodically building on a strong foundation of educator data MDI experience. We are expanding our key AI capabilities and strategic partnerships. We are delivering production-ready solutions with proven ROI for enterprise clients. We are innovating with major customers and building considerable experience across Agentic AI platforms and solutions and AI plus software delivery life cycle.

The investments we made are using positive results, many of which I'll discuss today. Grid Dynamic's whole AI framework is based on 4 foundational pillars. Let me walk you through each. First, Power business transformation. We are delivering immediate and measurable impacts from our engagements in the areas of customer engagement, enterprise operations and manufacturing. Connusational commerce is redefining customer engagement by driving hyper personalized customer experiences.

Our solutions have become a key empty point for many new client relationships in retail and CPG industries. From there, we often expand to build conversational commerce capabilities. Our efforts routinely yield conversion improvements of over 5%. This success leads to a full-on engagement per average 3 the initial project value as clients expand the AI adoption across additional business units.

We have specialized domain solutions for many sub-verticals that have been particularly differentiating. Take out of part search, for example, our part search capabilities have established dynamics as a preferred partner for most leading auto-parts retailers. This over 150 AI search specialists deployed across customer projects, we are demonstrating our ability to grow with an existing accounts while delivering measurable business impact.

Agentic AI significantly enhanced efficiency for a major financial services company by automating insurgent processes in facilitating data driving decisions. Previously, the cost of covering through vast number of Tier 3 customers was prohibitive for digital sales. Our B2B customers 60 agents now conduct exhaustive research aggregating client data from diverse sources such as CRM, contract databases and spreadsheets.

These detailed profiles integrate automated risk colors powers in sites and intelligent recommendations informed by prior interactions, ultimately leading to improved customer retention and business growth. This initiative is expected to free up about 20% of seller capacity, allowing for high-touch approach with more clients and the curated time to revenue.

The vendor manufacturing sector, we implemented the remaining Q4 life prediction system for a leading industrial equipment manufacturer, which enhances maintenance planning and reduces unplanned downtime. We have also delivered facility modeling with [indiscernible] generation for a global technology company, optimizing manufacturing processes and improving production efficiency.

The right for physical AI is fundamentally transforming the industrial robotic landscape, leading to the replacement of legacy robotic platforms with modern enabled solutions. We collaborate with innovative perform providers such as Randle Boats, enhancing care offerings with advanced BI components for inspection, welding and preceding manufacturing applications. This represents a new and promising care team for our company.

Second, AI and agentic platforms. We partner with large enterprises to develop in-house bespoke agentic AI platforms. For instance, we are collaborating with a leading global payment technology company and a multinational beverage giant to consult comprehensively at less. These platforms empower our clients to create a full spectrum of agents both local and high growth within a secure, scalable environment.

They offer an expanding CapEx system of tools for agents to access enterprise data and systems. This platform for strategy enables us to see substantial expansion opportunities by building AI solutions and top of the platforms we developed. Third, AI first -- as enterprises embraced AI-first mentality, the entire approach to the software development life cycle as DLC is shipping.

Last month, we introduced our proprietary AI-centeric dynamics I mentor engagement model, and we are driving strong adoption of faster deal hematologists across the dynamics. What is particularly exciting is that this enables our expansion into previously unaccessible market segment.

Labor-intensive legacy modernization projects that additionally require large volume of relatively low skilled labors are now within our reach. This represents a significant market expansion opportunity as we can now compete for projects that were previously economically unfeasible.

For example, we are migrating 16,000 data processing jobs for a global technology leader using a small specialized team equipped with first DLC tooling. The Alcodis has dramatically improved our presales and client acquisition. We now create hyper quality pot of concerts and produces in hours, not weeks, significantly boosting conversion rates and shoring sales cycles.

For example, by a leading specialty pet retailer requested a computer vision solution to automate fish counting in acquirents previously acquiring manual fees transferees our AI development team delivered a working prototype the next day. And finally, fourth, Grid Dynamics beyond client-facing complications, we are leveraging AI to transform our own internal operations. Our in-house Agentic AI platform is transforming and automating early aspects of our operations, including knowledge management, talent sourcing, project management, contracting use and functions.

AI is fundamental to driving our client business forward. Our continued commitment to the AI-first future is and I am excited about the I will now turn the call over to our SVP of Americas to discuss some notable project highlights from the quarter.

Thank you, Jim. Good afternoon, everyone. I am pleased to highlight some important accomplishments from the quarter that illustrate the value of our work. For a leading global technology company, we modernize their data processing infrastructure by migrating Spark and Scala workflows from a legacy scheduling system to a next-generation cloud platform.

We developed a comprehensive data validation framework to ensure data consistency, optimize compute resource usage and created reusable templates that accelerate future migrations to continuized environments. This initiative significantly improves platform stability and performance. reduced operational risks and established the foundation for scalable, efficient development of future data-driven capabilities.

Another example -- we partnered with a leading multinational technology company to develop hermetic C++ 2 shades for their ML portfolio. This foundational initiative established a highly reproducible, reliable and efficient C+ Plaza build environment across their machine learning programs. Our team led the strategic architectural shift to a fully hermetic C++ build system, delivering a tenfold improvement in build reliability a 25% reduction in operational costs and significant developer velocity gains for complex CPU and GPU accelerated workloads.

We are developing an AI platform for a leading home improvement retailer, serving as the foundation for generative PI tools that assist customers with how to guidance and product inquiries already in production, the spiritual assistance offers project inspiration, design concepts, product comparisons and expert recommendations for both do-it-yourself and professional users.

The solution is expected to drive significant improvements in conversion rates and average order value, particularly in maintenance and repair and aesthetic upgrades. For one of the top fintech companies, we developed a spectrum of a initiatives to showcase advancements across domains a multi-agent marketplace validates Temporal as a scalable execution platform for complex multi-agent interactions, offering robust observability and reliability.

The travel desk agent creates stateful agents with advanced memory components that generates personalized long-term itineraries overcoming context limitations through self task execution. Another AI-based solution leverages public reviews to accurately categorize miscoded merchants identifying system is used and potentially increasing revenue through corrected interchange fees. Thank you.

With that, let me turn the call to Anil, who will talk about our financials.

Thanks, Vasily. Good afternoon, everyone. We recorded the second quarter revenue of $101.1 million, slightly higher than the midpoint of our $100 million to $102 million guidance. On a year-over-year basis, this represents a growth of 21.7%. Excluding the impact of our recent acquisitions, the year-over-year growth was 6.3%, both on a quarter-over-quarter and year-over-year basis, there were roughly 73 bps and 40 bps of FX-related tailwinds, respectively.

Non-GAAP EBITDA came in at $12.7 million, within our guidance range of $12.5 million to $13.5 million in the second quarter of 2025, negative impacts on our cost from FX fluctuations both on a quarterly and year-over-year basis. As you know, over the past months, the U.S. dollar has weakened against most of the currencies. Grid Dynamics is exposed to currency basket across Europe, Latin America and India.

We have a natural hedge against some of these currencies and the net impact of it was approximately $1.4 million. Looking at the performance of our verticals. Retail remained our largest vertical, contributing 29.2% of total revenues for the second quarter of 2025. Revenues in this vertical grew 10.4% year-over-year, primarily driven by demand from our existing specialty retail customers and new customer engagements.

On a sequential basis, however, revenues declined by 6.2%, largely from home improvement customers. We finance vertical accounted for 25.1% of total revenues in the quarter and remained our second largest vertical. Revenues grew 1.4% sequentially and doubled year-over-year. The substantial year-over-year growth was primarily driven by increased demand from our fintech customers, a lot of with contributions from our 2024 acquisitions that brought in Global Banking customers.

TMT accounted for 24.9% of total revenues for the quarter, with a growth of 6.7% quarter-over-quarter and 8.4% compared to the same period last year largest growth driver was increased demand from our technology customers. Turning to the remaining verticals. CPG and manufacturing represented 10.5% of quarterly revenues while revenues remained flat in absolute value sequentially, it increased 7.7% year-over-year, primarily due to contributions from our recent acquisition.

Other vertical contributed 7.8% of total revenues, reflecting sequential growth of 10.1% and 4.6% increase compared to the second quarter of 2024. The year-on-year increase primarily came from customers tied to agriculture, marketplace and service providers and verticals. And finally, the Heath Care and Pharma made up 2.5% of our revenues for the quarter. We ended the second quarter with a total headcount of 5,013, up from 4,926 employees in the first quarter and up from 3,961 in the second quarter of 2024.

At the end of the second quarter of 2025 our total U.S. headcount was 359 or 7.2% on the company's total headcount versus 8.8% in the year ago quarter. Our non-U.S. headcount located in Europe, Americas and India was 4,624 or 92.8%. In the second quarter, revenues from our top line and Top 10 customers were 37.5% and 57.3%, respectively, versus 38.5% and 57% in the same period a year ago, respectively.

During the second quarter, we had a total of 194 customers down from 204 in the first quarter of 2025 and 208 in the year ago quarter, the decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of nonstrategic customers.

Moving to the income statement. Our GAAP gross profit during the quarter was $34.5 million, or 34.1% compared to $37 million or 36.8% in the first quarter and $29.6 million or 35.6% in the year ago quarter. On a non-GAAP basis, our gross profit was $35.1 million or 34.7% compared to $37.6 million or 37.4% in the first quarter of 2025, and up from $30.1 million or 36.2% in the year ago quarter.

On a sequential basis, the decline in the gross margin was largely from FX headwinds, increased engineering headcount to support future growth and timing of costs related to some fixed price contracts. Non-GAAP EBITDA during the second quarter that excluded interest income, expense provision from income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $12.7 million or 12.6% on of revenues, down from $14.6 million or 14.5% of revenues in the first quarter 2025 and up from $11.7 million or 14.1% in the year ago quarter.

Sequential decline in EBITDA was largely due to the decline in gross profit and FX segments. The increase on a year-over-year basis was largely due to higher revenues, partially offset by an increase in operating expenses in FX fluctuations.

Our GAAP net income in the second quarter was $5.3 million or $0.06 per share based on a diluted share count of 86.4 million shares compared to the first quarter, net income of $2.9 million or $0.03 per share based on a diluted share count 87.8 million and a net loss of $0.8 million or $0.01 per share based on 7.6 million diluted shares in the year ago quarter.

On a non-GAAP basis, in the second quarter, our non-GAAP net income was $8.3 million or $0.10 per share based on 86.4 million diluted shares compared to the first quarter non-GAAP net income of $10 million or $0.11 per share based on 87.8 million diluted shares and $8.5 million or $0.11 per share based on 77.9 million diluted shares in the year ago quarter.

On June 30, 2025, our cash and cash equivalent was $336.8 million, up from $325.5 million on March 31, 2025. Now coming to the guidance. Over the past couple of quarters, the majority of our enterprise clients across industry verticals have taken a certain degree of caution with traditional digital transformation spending. This is something we've seen across our customer base. The said, innovation and projects, our client priorities from a spending point of view and Grid Dynamics has been one of the key beneficiaries of this trend.

Coming to the third quarter guidance, we expect revenues to be in the range of $103 million to $105 million. We expect our recent acquisitions contributing approximately 12% of the revenues. We expect our third quarter non-GAAP EBITDA to be in the range of $12 million to $13 million. For the third quarter of 2025, we expect lease share count to be in the range of 84 million to 85 million and our diluted share count to be in the range of 87 million to 89 million.

We are maintaining our full year revenue outlook of $415 million to $435 million, all of this despite an estimated low double-digit annual percentage reduced revenue from cautionary spending on traditional business, which we projected early in the year and it was affected by uncertainty with the macro environment.

In spite of these events, we continue winning innovation with projects and grow overall revenue. As Leonard pointed out, roughly 23% of our business is tied to AI and data, this momentum around AI business is growing, and we expect this to be higher in the quarters to come. That concludes my prepared remarks. We are ready to take questions.

Thank you, Anil. [Operator Instructions] First up is Mayank Tandon of Needham.

I wanted to just maybe focus a little bit more on the pipeline and the pace of deal conversion. And if you could just talk about -- as you look at the guidance for the rest of the year, and let's take the midpoint, for example, how much of the revenue would you say is in the bag under contract?

And how much do you actually still have to go out and win? Just kind of give us a sense of your confidence level in terms of getting to your guidance range.

So maybe, Bernard, if you want, I can kick off and then we can add. Yes. So Mayank, look, last quarter, there was this question, right? When we talked about $415 million to $435 million. And what we talked about is when you look at the low end of our guidance, that will be reached by some of the working time benefits that we see.

And we still maintain that. There is obviously organic growth. So if you look at the low end of our guidance, for example, if you model something to the effect of high single digits for the full year in organic growth and we maintain this momentum of about 12% from our acquisitions that gets you to the low end of the guidance, which is a good place to be.

Now we also said that there is -- there are 2 things that are happening. There are other new pipeline business, which I'm sure Leonard and the team will talk about. But there's other opportunities that are there. As you go from the low end of the guidance to the high end of the guidance, obviously, there is a little bit more on expectations on the acquisitions. So with that, I'll pass it on.

Should I continue? Or...

Yes, yes, go ahead, continue on.

Okay. I guess my follow-up question would be around just so the key underlying drivers of the model. So how should we think about the pricing climate? How much more leverage do you have on utilization? And what are your hiring plans just given some of the demand trends you talked about. So if you could just touch on those 3 metrics, that would be helpful from a margin standpoint.

Let me take it because Anil is not in the room, and that's connection itself. So first of all, let me finish the first part of your question. So -- the pipeline is very robust. We have a little bit of a conservative point of view because if you remember, when we were last time in the earnings call, we were talking about very good -- and indeed, there was a very optimistic part of the growth, but we want to be cautious because we don't know.

Then a lot of that happen next couple of months. And even though we finished the quarter had a solid record number. Still, it was not to the full expect. The pipeline, which was created in Q2 is extremely good. again, jumping forward, the July numbers player, but I don't want to jinx it again, but we look optimistic for the second half of the year quite a bit because the convergence of the projects, especially related to any kind of data and AI platforms is growing fast.

We're talking about 3x more than regulate business, but reality is almost all the customers across our universe are taken on the business associated either with a innovative project or with a substantial migration. And we're talking about not just POCs or quite good projects some hyperscaler with it as well. So when we look at the -- how much in the net versus how much is a bit of a stretch. And you mentioned to you that the low end to getting from low end to the midrange or require quite a bit of effort.

And at this point, we just stay in the range, and I think we'll have much better view by the end of the quarter. But right now, we're very optimistic is. At the same time, coming back to your second part, how we structured the pricing around the business associated with it. There are several aspects -- so first of all, we won't talk about our So when we are engaged with the technology innovated projects, as you can imagine, the price were fall because clients are trying to reach the goal of their internal value add to the business and to also the cost system. So there's a little bit of a competition for the talent.

And as you know, is quite well positioned. Now -- on the traditional business, there are various factors. We see a lot more pressure right now from the clients to scale the business with disparity the cost structure, the price structure being is different. So as you see, we continue to grow our headcount but it's not -- it's highly more proportional at least at this point to what we were when we were purely driven by the European engineering. Also with this global follow-the-sun model, we're signing the deals across various regions, particularly in Europe and in LatAm, which again has a different pricing model. So very hard to kind of create a common dynamic informed sectors.

But we see the vector is solid. We went through negotiations, most of all for this year. But there are some time negotiations for 2026. But very importantly, we're also addressing that with the weakening U.S. dollar some of the value factors for the European engineering cannot be addressed by purely time materials. So see our pads -- and now the game work is becoming very, very much into the into the solution base and that kind of gives us more positive attributes to how we build the business.

But overall, to summarize it, we embed heavily on our AI data business to grow, and it's a fantastic positioning where we are today with our technology capable. If you want to clarification, I'll do more, but I tried to cover a very growth base in 1 answer.

Next up is Puneet Jain of JPMorgan.

I wanted to ask about how like, Eugene, I think you talked about like how AI is changing the nature of work, specifically in this traditional SBLC cycle. But can you talk about like need for training or hiring employees differently. And it feels like your high experience within your workforce could be helpful, but I'd like to know your thoughts like I'd like to hear like how you think you might have to hire or train employees different as it prepared with animators the changes to traditional SBLC.

Yes. Thank you, Puneet. Great question. And this is not something which we started to do just today, right? We started to do it quite some time ago preparing for future. And as we already said, we've always been a little bit of hiring on our talent, making a strong preference to the more senior, more capable, more, I would say, broad engineers. And in the new AI software development life cycle, the engineers who are working on the actual projects supported by the EEI agents, which are actually writing code and making modification to the code base, we are, I think, at the judges, right?

And the deep experience of engineered help to determine the nerve suggestions, which are made by the agent is good or bad suggestion. And this is where we see a lot of value, which is coming from more senior engineers. And at the same time, we invested quite a bit in the I would say, make engineers who grown with agents from the very beginning of their careers and we very natively coming out of our internship already armed with the understanding of these sales.

Our platform, which we are developing technology called game. It's a combination of the technology. It's not only about porting right, it's all through the whole cycle of development. starting from requirement understanding and doing and ending with deployment and testing conversation and production. It's all supported by the different kinds of AI agents. And engineers, seniors engineers and AI engineers are supervising those agents and them and guiding them to And of course, our review training program is preparing is engineers with like the traditional set prompt engineering, but right now, it's more like a context engineering like a little bit new term in the industry, which to help those agents to be successful and to drive on further. So that's a short-term business.

That context engineering this year we've been here impact a lot of the is. No, I appreciate the response. And obviously, like from investor standpoint, like we take a lot of questions on the reasons for slower growth in broader IT services, like whether it's macro, whether it's AI, let me ask that question -- this is like you have, like, say, verticals, say, for example, financial services, which has been doing great. And then verticals like retail, health care, CPG, not as great.

So are there any differences in AI adoption across these verticals? Or would you see like that growth difference across those verticals is purely like a function of macro or sector-specific challenges.

So Puneet, I'll let talk about more specific. I think it's a very fundamental question. There's no slow down on AI adoption across all the verticals. What happened is in certain verticals, we're gaining momentum because the existing business, the traditional business, the cloud migration, new platforms and software development continues to expand while they adopt AI.

And the AI platform, their own homegrown platform to use our partnership, there's a lot of stopes going on. We even started getting some press from participation reduction in physical area. So we're really at the cutting edge of all the. There are some other verticals where the traditional business has been somewhere more. And obviously, because the retail and CPG was a substantial part of our business, and there are some traditional large legacy business, which has participation in Not mentioning all these promotions around the tariff strategies they're slowing down on a traditional software development, infrastructure and expense all the stuff. They continue to invest into AI front.

But what -- if you noticed Anil brought in some flavor talking about what could have been at that business will be slow down, it will be way above the upper range of the guidance. but it wasn't. And what we see right now is the redeployment of resources in a more traditional conservative fuels, which the, I would say, potential expansion is very limited where the other more aggressive expansion combined with the traditional So the bottom line conclusion AI growth supports very dynamic growth wholeheartedly. We have more than 1 platform. We have internal platform in external the world. We participate in many activities, which actually take decent does. So that's muted current business in terms of the more traditional areas start dragging a little bit down and is driven by those matters.

Next up is Brian Bergin of TD Cowen.

I wanted to ask on the AI-powered engagement model. Can you talk about the early client testing and reception to that model? And how are you thinking about how fast JUXT ultimately gets adopted in your business. So what I'm specifically curious about it as it gets adopted by more, what's the impact going to be on the financial profile of the business as we think about growth and gross margin? .

All right. Maybe let me answer these questions. Thank you, Brian, for the question. So I would say first that we definitely see increasing demand for new types of engagements and AI-powered engagements. So this definitely should fuel future growth. So that's the first statement.

As for the particularly gain implementation. So as Eugene mentioned, it's a very comprehensive a holistic approach and how you approach the software and development life cycle by embracing those processes, technical tools, team composition and also the new commercial model. As a matter of fact, right now, we already apply certain aspects of this new platform at selected customers.

Primarily the easiest thing for us is basically to bring this platform in process to fixed-price engagements, which basically doesn't require the customer to rethink the EMO process on how they engage us. So from that perspective, we already see benefits by reducing -- primarily reducing the time line, which allows us to be more competitive also on the pricing side, right?

As for the full-fledged game implementation, including the commercial, we are in the phase of fine-tuning this whole model because it's truly innovative things. So DMOs are not ready to be a learning curve for them and it will be a learning experience for us to fine-tune that. But the good thing is that we are talking to actually, 2 out of our top 15 customers right now started starting piloting this model as soon as we make it as the process as smooth as possible to go into production.

Margin portion. I think what at is kind of a foundational father of the model. So in running Americas, gives them a bit of upper hand with others. And when I was in Chicago the conference, first kind of briefly mentioned the ideas and turn that we're not alone. But what's important is the proven how much business we generate -- but what's more important, how they officially becomes to require a premium.

I would not talk about directly gross margin. I was talking -- I would refer to the profit margin as we grow. And you can really translate it back because it includes the partial ownership of the people, the platforms are proving pulling the conceptual business basically become a technology consultant to the client, understanding their business flavor of those verticals.

So we're trying to prove -- there are interesting points which you guys were touching us from the beginning of AI. Well, the engineers will disappear and how the new world is going to work. What is going to do to us, and this is going to be very important if we scale this program properly. It will substantially increase revenue per person. And why would it be is because we can use our top talent is just growing, but obviously never enough, right?

I mean, you see some of the notable big companies growing with 8-digit 9-digit numbers, right, into the people. Now for us, since they have such a good going up reinforce the clients to see what's important to that. And what's important to them is not only individual talents, but having a partnership with Grid Dynamics which makes measurable results. And those 2 clients, which was mentioned, we are far along the way.

And the reason they realize why it's important is because the pace of innovation substantially increases for the time and surpass their ability internally to conceptualize the business. So we're innovative, deploying and analyzing business at the same time. And the key point of that today, actually, if you look at the cross of the game offering and gain the data platforms because without a reliable and logical dedicated data platform on the client side of the business will be risky because the conversion may not be as valuable for the business.

So I would look at the revenue per person as we scale our company rather than fuel the margin, which obviously will be addressed by increasing margins.

Okay. Okay. Makes sense. I also follow up just in the near term, the -- we'll talk about near-term margin and just understanding demand is choppy, you do have -- you've increased head count against how are you balancing keeping quality bench for a growth recovery and potentially investing around kind of nonbillable R&D right now versus kind of optimizing cost structure. Can you just talk about that dynamic in the near term, specific to '25.

As you would expect -- I'm asking, Brian, because this is exactly what we're doing day in and day out right now. So it's something very interesting that we are doing within the company. There are 2 very important things that I'm working on. One as I pointed out is there is a certain degree of financial discipline that we have to embark upon right, in the short term to ensure that as a public company we have to just work on.

But there's another mandate that Leonard has given me, which is we have to double down and invest into future technologies, into future platforms and future personnel. So there are 2 parts of my whole kind of balancing app, so to speak. The focus that we're looking at is we are creating specialized pools of labor that are targeting certain specific technologies, and I'm sure the group here, they can talk a lot more whether it is a hyperscaler, whether there's some AI specific things.

We've developed internal platforms. So there's a lot of activity going on, on the tooling side to build these accelerators and platforms on the AI side. While we're doing that, we're taking a very closer look at our utilization bench on our more traditional side of business. And from that point of view, obviously, we're ensuring that we are a little bit more cost optimized.

So that's how we're working on it. And actually, if you look at from Q2 to Q3, some of my increased costs is because of investments in some of these engineering talent.

So Brian, let me be very blunt because Anil was trying to be a little bit This is my absolute concrete determination we will need to be the top leaders in AI implementation offering to the clients. I know as Anil mentioned the public company need to do a single up, and we're doing it up. But we're doing the cleanup only to open up more capabilities. As far as I'm concerned, as you know, how remain stock has deteriorated for whatever reason you guys decided to consider to me, it's like I don't want to go back to where I was 3 months ago. I want to go 5x more than I was 3 months ago.

And the reason is the value we add to the system is going to be disproportional to everything we've done until the digital transformation with the cloud migration and public cloud to go up and we're actively participating by codeveloping the key products with our major partners. So answer your question, we will do the housekeeping, and I know we'll have to make sure that we don't do it randomly.

But I have a huge line strategy with technology organization. The development of the delivery capabilities following the sun, we have here on the table next time we'll hear also from some Indian representative there. But we have to make sure that in the U.S. and Europe, we're going to have a bespoke application platform.

And as of today, we want a major program actually will look out as well. So you will not hear for me for a quarter or 2 that we're going to be cautious -- we're going to be aggressive, intelligent and you will hold us back when things have become a little bit more -- but the way how we've been doing it for the last 18 months, even going through the liberation and all the other macro parts and run through ups and downs it would not reflect our determination in the modern AI, Agentic AI, physical AI the solution practices, we're going to be a goal.

Next up is Maggie Nolan of William Blair.

This is Matt on for Maggie. Congrats on the quarter. I wanted to ask about the partner program and the impressive growth there. What's your outlook for partner growth into the second half of the year? Can that continue to accelerate? And I guess where are you seeing the most new traction today amongst partners outside of Google and the hyperscaler is it primarily those hypers?

All right. So you kind of accelerated that question. So that was my agenda for the next quarter. We're going to bring you ahead of the global partnerships to get very specific details on the partnership program because the model of an so operated today for Grid Dynamics is the focus on innovation, customer partnerships and a wide distribution of the game market.

So regions AI technology, internal platforms and a scaling partnership. So you asked a question where are we beyond hypers? First of all, hyperscalers is also in -- there are no longer hyperscaler is traditionally fighting for the space on the spending dollars on the cloud platforms only.

They're very actively participating on merging the platforms they built with the IT tile. Second part is we are also important with the Colossus guys, the major players, which enable the foundational capabilities like NVIDIA world because you need to have another layer without the physical layers with our capabilities -- it's hard to scale. But we are public with We are participating in a revolutionary way of changing the industrialization and again, industrialization is very important.

We're building aging tools and aging factors within the clients and partnering with their own teams as well with third parties, which are bringing AI tools. Now forget the fact is that some of the very, very innovative creative ideas come from the myriad of the new form AI, I was calling it some of those cargos getting capitalization were agreed today. This is where I love the world people throw money and then something works, right?

But these guys are brilliant and our job, Eugene job and some of the key people and the team job is to select the ones actually make sense. Now I don't want to issues It's great that you guys have so much money. But for us, we need to select the winners. So the three ways that the hyperscales in new models the big players who are bringing their own home own models as our customers.

We're enjoying efforts with partners and their own sale helping them to build the solution. And that's on one which is kind of exploding it's the industrialization point of the world with the fiscal year.

Just want to add on the large traditional private sellers world talking from the European perspective, with the use traction, for example, with oil price, we are a little bit later compared to the U.S., but definitely, I see the traction right now. And it's high expect to both our more traditional search capabilities and comparison well around that. And on the other side, that Agentic AI platforms as well. So that's definitely a big portion of what we are doing right now. And I know reported the numbers, right, that we between got from partnerships in terms of the revenue.

Great color. Can I follow up with a question on client count. I think obviously declined quarter-over-quarter and year-over-year, I think, primarily due to the rationalization of your portfolio. How long is that going to take a meal? And when do you expect we can see stabilization in that line item?

So Matt, very good question. If you see over a pattern of several quarters, this has been kind of marginally going down. So if you look at it, there are a couple of parts with. The first part is that most of the decline comes from our acquisition-related clients. We've had 6 acquisitions in the past several years. And many of them have smaller clients.

And our whole focus is to look at the world through the lens of whether they are an enterprise customer or commercial customers. Our focus tends to be more on the enterprise, which is where we manage the program. We have more focus, whereas the commercial side of it could be just a cost plus as we had through some of our acquisitions or some of the smaller ones.

So at this stage, what we do is that as those projects roll off, many at times, we don't invest back in -- there are some cases from quarter-to-quarter. Some of our enterprise customers are also falling off, but that's not a very big portion of it. And we do have a little bit of a flavor of when we even come through the partnerships. There are some clients that try out work with us through the hyperscalers, and there's a little bit of an infant mortality there as they're pausing into the next round. So when I the way we define, we have a little bit of a structure at close towards defining what a client is.

If I do not get a dollar revenue in the quarter, and I just don't call them a client. Although there might be an MSA, there might be something out there. And within the 12-week month period, if they come back again, they're not a new client, so to speak. So a client can go now 3 quarters later, they come back, they're not a new client for me, they're within that 12 months, right? So we have a little bit of a strict approach towards this.

So I think you will continue seeing some of these things. At the end of the day, we can look at our top 30, top 40 customers that going to draw most of the value. Some of these smaller clients over time have come in the top 30 for us, but do expect at least in the near term, to see a trend like that.

Let me just conclude that part of a very important message. As you go to see Grid Dynamics we believe that AI implementation in various forms will remain to be the key business. And there will be a huge value with a proper combination of the platform and the service providers. And I would say the classical form service consult very strong technology flavor with the number that Brian mentioned about how you manage it. We look at some of decline from the tail, and we don't invest into that relationship, too, because we feel they don't have capabilities to become a viable player in the near future. It doesn't mean way just tell you to divide.

But if they don't fit in the model of the new AI era, and we try hard to convince them there. You just don't have that priority from our focus. So you will see that some of the clients will grow exponentially because it's a meeting of the minds. We've done the clients in the segment are being paid as we go forward.

Next up is Surinder Thind of Jefferies.

Picture question here. Let as you look forward to all of the changes that you guys are making in the transformation, what is the scenario that you're actually solving for meaning what is the level of AI capability? Are you planning for a scenario where 50% of software development and 75% is done by AI.

Like what are the kind of the framework what you're moving towards? Well, first of all, so the development is not the only area of well, as an example, right, that's a conceptual idea of the environment that -- because one of the things that's happening is changes have to be very rapidly, right?

And so if you're solving for something here and X, but by the time you get to X were it why you're going to be based on the constant evolution. How are you thinking about the evolution of the firm over the next 3 to 5 years?

Yes. So the evolution will take more than 3 quarters. This is going to -- it's a combination of adoption of the technologies, capabilities of the distributed systems and ability to generate the value of each individual in each individual case. 50% -- it's just a number. 30-50 -- and so enrollment, but please -- in my opinion, again, it's a small percentage of the change. There's a change of creating the value for the business and just trying to improve the quote.

I think that human touch will continue to be a big part of all the key decisions, but it's going to be in a different form. Now writing the code is all as well. And I think Eugene can comment more on that. There is ability to understand the deployment of the systems reverse compatibility of the systems.

Security to manage and control the future expansion of the systems. And we will have to nails on each of that separate. And the low how is going to take way more. It will take way lower than 50%. It's going to go substantially a large percentage of the co-development. As we continue to monitor and tend on the capabilities the progression will take a much longer time than some of those people want to make sure they have instant conversion.

So the people, the humans who are probably trained and assistants will have to define with ability to -- what is the future? Otherwise, you're going to move with -- we will have to say that we're in target, which is not a good solution because you continue to invest in something which is going to be aged in 6 months.

So to summarize that, on the basic coding level, value way more than 50%. On a system management integration, data compliance is going to be lower, but the effect tends to be proven on that analytical part of the system is going to be a combination of people and projects. And just another point, when people are talking about tests -- some of them will be 100% tasked by the agents. And when we're talking about the total system implementation, the percent you do well.

So I think it would be a good segue that Eugene, you can make comments.

Yes, of course. And I understand that currently, in the matter for the examples of white coding, we're hanging full-fledged Facebook anybody who really kind of performing production bonding projects understand that building a prototype and putting something in production under old physician reticles in very different things.

And what we absorbed in our business is that I'm in charge of presales, for example, as a company. And our reserve is completely transformed by us. We are able to turn really very good prototypes and pilots very, very quickly to the customers. But then we are going into the real thing and implementation of the scalable systems, implementation of the system underload in secure environment with deployment and scaling requirements which are needed for production is completely in body.

And even the most sophisticated AI agents are very quickly losing their contracts and starting to the site. And they still need a lot of the human supervision and human design and thinking and the activity behind them to very simple like they are smart, they are smart, but as -- and this is why we are still kind of in -- we're still.

You opened the quarter is trying for action.

We had multiple conversations on the topic. And 1 color I wanted to add is that AI has different flavors that it's in different stages of adoption because things like, for example, copies still an engineer write the code, but AI suggest to things, it will be widely adopted. Maybe if it's not 100%, maybe 95% or whatever, more kind of dependent actually on the security protocol within the customer, whether they want to be exposed to external the list. But this thing is like it's a done -- so what Eugene was talking about is more of agent-based I coding, and that's kind of the more complex topic, which will have for the kind of adoption curve for sure.

Ladies and gentlemen, this concludes the Q&A session of our call today. I will now turn it over to Leonard Livschitz for closing comments.

As we conclude our second quarter earnings call, I want to leave you with 3 key takeaways. Number one, Grid Dynamics AI-first strategy is driving our growth. The AI and data initiatives now account for a quarter organic revenue in the first half of 2025 growing nearly 3x faster than our overall organic business.

Number two, AI is fundamental to driving our clients' business forward. Enterprises are seeking AI native partners with the expertise to lead AI adoption at scale. This is the dynamic strength. Our expanded pipeline aligns with enterprise investments. And finally, Red Dynamics is built for sustained differentiation. We have a proven track record of emerging stronger through industry transitions. Based on reaccelerating client demand, we are confident in our outlook and our ability to empower Fortune 1000 enterprises and their AI journey. We're excited about the path ahead and the value we're creating. I look forward to giving you an update on the next earnings call.