Grid Dynamics Holdings, Inc. (GDYN) Earnings Call Transcript & Summary

Steinberg and CFO, Anil Doradla. 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 delivered a solid second quarter, consolidated revenue of $108.2 million, above the high end of our guidance range and ahead of Wall Street expectations, with non-GAAP earnings of $14.7 million, which also is beating consensus. As you may recall from my last quarter commentary, there were three areas I highlighted. First, improving revenue trends, especially with key accounts in the areas of technology and financial services; second, our AI adoption and growth; and third, improving profitability trends. I'm happy to report that on all three fronts, our execution is solid, and we're seeing the benefits, growing top account relationships, continued AI momentum with expanded capabilities in robotic and Physical AI and solid progress toward our 300 basis point margin expansion commitment. For the second consecutive quarter, our top accounts are in technology and financial services. Technology and financial services now define our most strategic customer relationships and those precisely the sectors where AI adoption is moving fastest and where our capabilities are the most differentiated. Our top accounts continue to drive our growth. Several delivered double-digit quarter-over-quarter growth with standout performances. There are no incremental gains, they reflect expanding programs, deeper program adoption and the compounding effect of our capabilities that keep finding the opportunity inside each client's organization. Several of these clients are now embedding our GAIN platform as core infrastructure in their own operations, not just a project tool, but as a sustained capability. This is a fundamentally different and more durable commercial relationship than what we've had two years ago. AI revenue reached 30.7% of the total company revenue in the second quarter, growing 54.6% year-over-year and crossing the 30% threshold for the first time. Two consecutive quarters of the year-over-year growth over 50% tells us something important. This is not a spike. It's a sustained shift. The trajectory is clear, and we intend to build on it. Driving this strong performance is a combination of multiple factors. Our GAIN platforms are winning wider enterprise adoption. Our clients continue to transition enterprise AI workloads from pilots to production. Our engineers are more deeply embedded inside client organizations. Bottom line, we're winning entirely new programs that gives us confidence in growth ahead. AI-first delivery is now the default, not the aspiration. Fixed price is a preferred approach on new RFP responses. The productivity and margin gains are real. We're executing well and delivery projects successfully. Our focus on executing larger AI platforms is aligned with significant progress we're making in upskilling our engineering talent. By the end of October, we plan to have 90% of our engineers trained on AI SDLC. Our GAIN platforms have expanded LLM partnerships meaningfully this quarter. We're now working with several of the world's leading AI companies, including the top four frontier providers with whom we are under commercial agreements. This approach ensures our GAIN platforms stay aligned with the leading AI platforms with broader reach across our enterprise client base. GAIN remains the backbone through which we bring AI capabilities to market. Its partner depth makes us stronger every quarter. Our client relationships are evolving too. Clients who came to us for platform deployments now ask us to stay. They want us to be involved in advisory execution ongoing operations. This meaningful shift is opening a growth vector that did not exist in our model two years ago. On the partnership front, partner influence revenue reached 19.1% of the company total revenue in the second quarter. That was driven primarily by our three core hyperscaler relationships with Google Cloud, AWS and Microsoft Azure. A growing proportion of that revenue is coming from AI engagements. We are running Agentic AI workshops across our Google Vertex AI search customer base, converting search engagement into broader agentic commerce programs. We extended our Google partnership in banking and financial services, closing our first joint win this quarter at a leading global bank. As we are deepening our AWS relationship around application modernization and Agentic AI in CPG manufacturing and financial services. Our NVIDIA partnership is gaining momentum across both Agentic AI and Physical AI. Our longer-term target remains 25% to 30% partner influence revenue, and we're confident of achieving this target. Last quarter, I introduced our Physical AI capabilities and our first commercial engagements in the space. Physical AI requires a deep understanding of multiple disciplines that include modeling real-world robotics movements, digital twins, verification and simulators and integration with hardware systems. Our active programs span humanoid robotics for pharmaceutical intralogistics, autonomous driving stacks for construction equipment and policy control platforms for manufacturing clients. We signed a strategic partnership with Doosan, a leading robotics manufacturer this quarter, elevating our NVIDIA relationship and opened an engineering office in Dresden, Germany to support our European manufacturing clients. Grid Dynamics enhanced robotics offering by welcoming Ekumen, a leading robotics engineering team that joined us in May. Their expertise resides in a Robot Operating System, a foundational open source standard that powers the vast majority of the world's industrial robots. Over the past decade, the company has built an invaluable list of some of the world's most respected robotics companies. Grid Dynamics brings advanced AI modeling, policy control and enterprise scale delivery capability. Ekumen brings deep knowledge of the foundational software layer that robot manufacturers depend on. Together, the combination is formidable, spanning the full stack from the foundational software layer through simulation, hardware integration and enterprise scale deployment. We believe no other service company in the market today matches this combined footprint and technical depth. Now let me pass on to Vasily Sizov, Chief Revenue Officer, who will expand on key business aspects of Grid Dynamics client engagements. Vasily?

Thank you, Leonard. Let me begin with three demand trends we observed during the quarter. First, clients are prioritizing AI investments that deliver clear, measurable business outcomes. Second, as clients move from isolated use cases to enterprise scale initiatives, they realize that the underlying technology layers must be modernized to support AI adoption. Third, clients increasingly recognize that successful AI transformation requires more than technology alone, driving interest in AI process consulting, performance benchmarking and change management. These trends align closely with our strategy and the capabilities we are building. Let me discuss each of them in more detail. First, the demand environment remains constructive with clients directing AI investments toward practical application with tangible business impact. We are seeing particular interest in AI-enabled automation that improves operating efficiency, scalability and speed. Importantly, these investments are increasingly moving beyond experimentation with clients deploying AI capabilities into production to automate complex manual processes, improve customer service, reduce operating costs and create new sources of revenue. Second, as clients move from isolated AI use cases toward enterprise scale transformation, they are finding that their data, application and core platforms must be modernized and made AI ready. As a result, AI adoption is creating broader demand across the underlying technology landscape. This trend aligns closely with our core expertise in data engineering, application modernization, cloud and platform engineering and reinforces the relevance of these capabilities in the era of AI. Third, we are seeing growing demand for AI process consulting, performance benchmarking and change management as clients focus on converting AI investments into measurable business value. They need to identify the business processes where AI reengineering can create the greatest value, establish clear performance baselines, redesign those processes, build the technical enablers and drive enterprise-wide adoption. We have been deliberately strengthening these capabilities to help clients realize measurable value from AI across the enterprise. These trends are reflected in our client work. Let me highlight a few engagements from the quarter that demonstrate how these capabilities are being applied in practice. For a leading food service distribution company, we built and deployed an AI-powered product credit claims platform that automatically validates customer claims against photographic evidence. The platform cross-checks product, manufacturer label and shipping label images against the claims reason code in real time, replacing a fully manual salesperson-mediated review process. In performance testing, the system processed approximately 400 claims supported by 1,000 images end-to-end in under 15 seconds per claim. The capability is now live in production, and the client has approved a long-term road map to further enhance the system and extend automated decision-making into more advanced credit adjudication scenarios. For a leading home improvement retailer, Grid Dynamics enabled next-day delivery by designing and deploying a high load service that modernize the retailers' logistics operations. The solution includes an AI-powered routing capability that assigns fragile items to the appropriate vehicle types, eliminating hundreds of delivery errors each week. As a result, the solution cuts average delivery time by more than half from 3.5 days and is expected to support up to $0.5 billion in incremental annual revenue for the clients. For a global technology company, we modernized large-scale data processing infrastructure, migrating more than 1,000 data pipelines to a serverless execution model. This reduced idle compute capacity, reduced infrastructure costs and improved scalability. Our proprietary AI-powered automation accelerated the migration and established a reusable delivery approach that is now being applied across broader initiatives at this client. Now let me turn the call to Yury Gryzlov, our Chief Operating Officer.

Thank you, Vasily. Let me build on the Physical AI and robotics work Leonard introduced. Physical AI needs a full technology stack, and we operate across everything between the robot and the enterprise. The devices themselves come from our hardware partners. At the foundation is the Robot Operating System, ROS and ROS 2, the open source layer the majority of the world's modern robots are built on, connecting the hardware to everything above it. Through acumen, we are not just users of it. We are among its maintainers and the founding member of the alliance that governs it. On the top of that sits the intelligence, the AI models that let a robot perceive its surroundings, generate its own motion and handle real-world variability. We design and validate that in simulation before it ever runs on a real robot. And our own platform Incarnum, our GAIN platform for Physical AI is where enterprises bring it all together, building manipulation and inspection workflows, deploying those models and monitoring robotic lines with digital twins. What unifies it is our focus on the enterprise, expanding this capability to the companies that have robots deployed at scale. Here are a few examples that illustrate our work across the stack. For a leading manufacturer of construction and mining equipment, we are building a next-generation stack for autonomous driving, loading and excavation. We are helping them design the platform, onboard the first use cases and add capabilities like policy-based control. What began as our first commercial Physical AI engagement is now a multiyear program across several regions. With Ekumen, we've proven two-arm manipulation, grasping and assembly trained entirely in simulation and then run reliably on a real robot. Bridging that gap from simulation to the physical robot is one of the hardest problems in the field. Humanoids are the next step. A leading life sciences company is piloting humanoid robots for intralogistics, moving and repacking containers of chemicals, work that was out of reach only a couple of years ago and is now possible, thanks to new AI models that generate motion. We provide the platform those robots run on working with Wandelbots and on NVIDIA stack. The customer calls it a lighthouse project for their industry, and it's the opening step in a much wider program. We are also building the channels to scale. This quarter, we announced a strategic partnership with Doosan Robotics, a global leader in collaborative robots deployed across 45 countries. It's a full stack collaboration. Our platform plus the foundational AI components, integration services and engineering around it paired with Doosan's cobots and our combined global reach. Together, we can provide what traditional robotic software can't, dual alarm assembly, inspection of complex geometry parts and packing of deformable items. It sits alongside our elevated NVIDIA partnership, and we are in active talks with several more hardware and software vendors. Considering the economics of software services in this space and our positioning, we are confident that we have a material market advantage. Reliable performance in the physical world takes engineers who understand simulation, control and hardware variability, working through problems that have no templated solution and so can't be easily automated. This combination is hard to assemble. Ekumen's decade of foundational robotics depth together with our strength in AI modeling, simulation and enterprise delivery. We don't believe another services company matches it today. Closing that gap isn't a matter of hiring a team. It's years of hard-won experience, which we are now putting to work for our customers. In summary, robotics and Physical AI is a growing market measured in the trillions over the coming decade. Our expanded capability is helping us capitalize on the early traction we saw last year reflected in a rapidly growing pipeline from both existing customers and new logos. Another important part of my update is tied to our capital markets focus, where a similar pattern is playing out in software rather than robots. As our banking clients push Agentic AI deep into their engineering, the hard part is no longer producing code, it's doing it safely with quality, security and control they can provide to a regulator. This quarter, that showed up most sharply around security. Banks want the speed of frontier models and AI-generated code without introducing new vulnerabilities. Our answer is spec-driven Agentic engineering led by Allium, part of our GAIN platform for AI SDLC and is exhibiting real traction across our banking clients. The clearest example is at one of the world's largest banks where Allium is being used to build new tools as part of a bank-wide initiative to modernize business operations. Working across London, New York and India, we are bringing specification-driven development to both new and existing systems, starting with tools for AI-assisted productivity and extending to agents that automate operational work. Taken together, Physical AI reaching the enterprise and AI native engineering scaling inside the world's largest banks, this is the frontier work that keeps Grid Dynamics differentiated. Over to you, Eugene.

Thank you, Yury. Good afternoon. Last year, I described our AI strategy through three horizons. This quarter, I'll describe them by maturity. What has reached scale and what is beginning to scale. Horizon One, scaled, AI first modernization and the agentic platform. Modernization remains the foundation of our business, but AI is changing how the work gets done. Agents can now accelerate work across most of the modernization life cycle, particularly code generation and testing. The remaining work, business acceptance, production scaling and complex consummation still depends on human judgment and accountability. An agent can write a code, a person still makes a call and stands behind it. We have invested in a set of GAIN tools that support this life cycle. Rosetta governs how agents operate. Allium analyzes legacy systems to create reliable specifications for their replacements. And SpecFlow, our latest open source contribution uses those specifications to support autonomous feature implementation. Rosetta has progressed from its first lighthouse clients to larger engagements across retail, financial services and manufacturing. At a Fortune 30 U.S. home improvement retailer, approximately 550 of our clients' engineers are working with the platform. In one program, seven COBOL services were moved to a modern technology stack with approximately 90% of the code generated by agents. All seven services entered production this quarter. The client already had capable engineers and access to many of the same AI tools we use. What it needed from us was domain knowledge, governance and control, the capabilities between powerful agents in the dependable enterprise systems. This productivity is helping us expand client relationships. It is also creating opportunities to use more fixed price and outcome-based commercial models when the scope and accountability are clearly defined. Allium also reached an important milestone this quarter. It has been piloted across five major banks and has begun moving into its first commercial banking engagements. Allium analyzes legacy code to help establish reliable functional specifications for replacement systems. It also supports controlled migration and rollback, reducing the operational risk of moving critical applications on to modern platforms. At one major North American bank and one-hour GAIN demonstration in February led to a signed contract in April. The bank was managing 150 applications with limited test coverage and a ground security backlog. We translated identified issues into failing tests inside the bank's own touring, allowing its engineers to independently reproduce and assess each finding. At another Tier 1 bank, the same approach is supporting a security modernization program spanning more than 100,000 systems. This part of the modernization work co-founded by the client's cloud provider. Our differentiation is not limited to code generation. Our agents can also incorporate context such as security advisories, dependencies and upstream changes. That broader context helps identify problems that code-only tools can miss and provides the traceability and evidence regulated enterprises expect. We deliberately make selected GAIN platforms open source. The immediate objective is adoption and technical credibility, not software license revenue. Open code allows engineering leaders to evaluate our capabilities directly and strengthen our position when client needs help deploying those capabilities and enterprise scale. The same pattern applies to data. Enterprise AI cannot deliver reliable results without accessible well-governed data. That is increasing demand for data platform modernization. Our new AI data migration accelerator released this quarter is already being deployed in data lake modernization program for global consumer products manufacturing. The second scale component of Horizon One is GAIN Agentic Runtime. Enterprise agents need access to trusted data, evidence that their behavior is controlled and governance over operating costs. For a global payment client, we brought these capabilities together as shared services with retrieval layer now supporting 25 enterprise consumers. We also converted the client's dispute architecture, including fraud, chargebacks and KYC to configuration-driven workloads. A common foundation now supports four use cases. By automating much of this configuration, the program rebuilt a decade of business logic in just six months and reduced integration and release cycle times by 96%. At our largest banking client, an internal platform built with our support now centralizes the registration, governance and operation of AI agents across the organization. The client reports regular adoption by more than 80% of its employees across more than 80 markets. As adoption grows, we are also developing the operational tooling needed to govern and support the platform at that scale. Across these engagements, the pattern is consistent. AI accelerate production, but enterprise value comes from the domain knowledge, governance and accountability required to put it all into production responsibly. Horizon Two, scaling. Harness engineering and Physical AI. Horizon Two covers capabilities that are moving from research and internal validation towards repeatable client deployment. The first is agentic harness engineering. Traditional agentic workflows are most effective when the task and sequence of step are already known. Harnesses are designed for more dynamic work, situations in which an agent must select tools, adjust its approach and respond to new information while remaining with defined controls. The harness provides those controls. It records what the agent need, test its output, manages exceptions and introduces human review where accountability requires it. This allows enterprises to apply agents to more complex work without giving up oversight. During the second quarter, our engineering center developed nine harness-based solutions. Following our client zero approach, we are testing them first with our own operations. The objective is to establish evidence of reliability, define the necessary controls and improve the solutions before introducing them into client environments. The second area is Physical AI and robotics. We are investing here because the engineering challenge is fundamentally different from conventional software development. A coding agent can generate software and test it in digital environment. A physical system must also operate safely and reliably in the real world. It must account for geometry, motion, changing condition and the behavior of physical environment. Validation, therefore, has to take place both in simulation and in hardware. A language model alone cannot close this loop. Our research is focused on bringing physics, geometry, simulation and continuous validation into the agent's operating environment. That is also the strategic rationale for the robotics engineering team we acquired in May. Members of this team have long contributed to core infrastructure in the Robotics Operating System ecosystem with particular expertise in simulation and validation. Their capabilities are now contributing to gain for Physical AI, our platform built on Incarnum. During the quarter, we released three new components, tools for composing robotic policies, a continuous improvement loop and Sandbox environment for control testing. We are beginning to validate the platform through early client and partner deployments. A leading life cycle company is piloting humanoid robots in its warehouse operations using our platform. Separately, a robotics partner has incorporated the platform into its own offering, creating a distribution channel for our Physical AI technology. Horizon Two is not yet the same maturity as our modernization and Agentic platform business. Our focus now is to demonstrate repeatability, convert technical validation into production deployments and establish scalable commercial models. The opportunity is to build a differentiated intellectual property in areas where success requires not only generating software, but providing how the software behaves in the physical world. Across both horizons, the pattern is clear. The cost of producing software is falling, while the value of governing it, validating it and taking responsibility for it in production is increasing. This quarter, more components of gain moved from tools and pilots into broader enterprise adoption. At the same time, our investments in Agentic harnesses and Physical AI progressed from research towards controlled client deployments. As these capabilities mature, they allow us to reuse more of our engineering, deploy solutions faster and take greater responsibility for measurable outcomes. Our advantage is not simply that our agents can generate code. It is that they combine those agents with domain knowledge, operational controls and the engineering discipline required to make them dependable at enterprise scale. That is where we believe durable value will be created the agentic era and where Grid Dynamics is positioned to lead. Anil, over to you.

Thanks, Eugene. Good afternoon, everyone. Second quarter came in at $108.2 million, slightly above the higher end of our guidance range of $106 million to $108 million. That represents 7% year-over-year growth, including de minimis contributions from Ekumen. Non-GAAP EBITDA was $14.7 million or 13.6% of revenues and was closer to the high end of our $14 million to $15 million guidance range. Looking at the performance of our verticals, TMT remained our largest vertical and accounted for 31.8% of total revenues for the quarter with a growth of 11.7% sequentially and 36.4% on a year-over-year basis. The growth was primarily driven by our largest technology customers. We continue to benefit from vendor consolidation at these customers, which has driven increased wallet share across new and existing programs. Retail contributed 26.5% of total revenues in the second quarter of 2026. The vertical was flat in absolute dollars on a year-over-year basis and grew 3.1% sequentially. The sequential growth was supported by demand from key accounts, including a major specialty retailer. Our finance vertical accounted for 22.9% of total revenues in the quarter and grew 1.2% on a sequential basis. Within this vertical, we witnessed solid demand from our fintech service engagements, including increased contributions from a major payments network, which helped offset the successful completion of engagements with insurance and data analytics and consumer credit reporting clients in North America. Looking ahead to the remainder of 2026, we remain bullish on our growth outlook within this vertical. CPG and manufacturing represented 10.9% of quarterly revenues and grew 2.1% on a sequential basis and 4.2% on a year-over-year basis. Within this vertical, we are witnessing robust demand from a leading wholesale food distributor, along with growth from some of our manufacturing customers. Turning to our remaining verticals. Our other vertical contributed 6% of our second quarter revenues, while health care and pharma contributed for 1.9% of our revenues for the quarter. We ended the second quarter with a total headcount of 4,838, down from 4,964 employees in the first quarter of 2026 and from 5,013 in the second quarter of 2025. We continue to rationalize our overall headcount as well as align our skill sets and geographic mix. At the end of the second quarter of 2026, our total U.S. headcount was 379 or 7.8% of our company's total headcount versus 7.2% in the year ago quarter. Our non-U.S. headcount located in Europe, Americas and India was 4,459 or 92.2%. In the second quarter, revenues from our top five and top 10 customers were 43.5% and 61.5%, respectively, versus 37.5% and 57.3% in the same period a year ago, respectively. Moving to the income statement. Our GAAP gross profit during the quarter was $39.6 million or 36.6% compared to $36.2 million or 34.8% in the first quarter of 2026 and $34.5 million or 34.1% in the year ago quarter. On a non-GAAP basis, our gross profit was $40 million or 36.9% compared to $36.7 million or 35.3% in the first quarter of 2026 and $35.1 million or 34.7% in the year ago quarter. On a year-over-year basis, the increase in the gross margin percentage was primarily driven by revenue growth outpacing delivery cost. On a sequential basis, the increase in gross margin percentage was due to a combination of working time and improved resource utilization. Non-GAAP EBITDA during the second quarter that excluded interest income, expenses, provisions for income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $14.7 million or 13.6% of revenues versus $12.5 million or 12% of revenues in the first quarter of 2026 and was up from $12.7 million or 12.6% in the year ago quarter. The sequential and year-over-year growth in EBITDA was largely due to a combination of higher revenues and strong operating leverage across our non-engineering overhead. Our GAAP net income in the second quarter was $2.9 million or $0.03 per share based on a diluted share count of 83 million shares compared to the first quarter net loss of $1.5 million or a loss of $0.02 per share based on a diluted share count of 84.7 million and net income of $5.3 million or $0.06 per share based on 86.4 million diluted shares in the year ago quarter. On a non-GAAP basis, in the second quarter, our non-GAAP net income was $9 million or $0.11 per share based on 83 million diluted shares compared to the first quarter non-GAAP net income of $7.5 million or $0.09 per share based on 85.9 million diluted shares and $8.3 million or $0.10 per share based on 86.4 million diluted shares in the year ago quarter. On June 30, 2026, our cash and cash equivalents totaled $298.4 million, down from $327.5 million on March 31, 2026. Since our first quarter earnings call, we've repurchased approximately 2.6 million shares for a total consideration of $17.3 million. Cumulatively, since our Board authorized a $50 million share repurchase program, we have repurchased approximately 4.4 million shares for a total of $30.8 million, reflecting our continued confidence in the long-term value of the business. Coming to the third quarter guidance, we expect revenues to be in the range of $112 million to $114 million. We expect our third quarter non-GAAP EBITDA to be in the range of $16.5 million to $17.5 million. For the third quarter, we expect our basic share count to be in the range of 81 million to 82 million shares and our diluted share count to be in the range of 83 million to 84 million shares. For 2026, we're maintaining our full year revenue outlook of $435 million to $465 million. That concludes my prepared remarks. We are now ready to take questions. Cary? [Audio Gap]

[Operator Instructions] Thank you, Anil. [Operator Instructions] The first question today comes from Mayank Tandon of Needham.

Congrats on the quarter, Leonard and Anil. So there was a lot of detail around AI. So just to step back, Leonard, could you maybe talk about the AI efforts and the implications for both growth and profitability over the next, say, 12, 24 months? Maybe you can help reassure investors that AI will actually be a net positive for you because there's still a lot of skeptics out there that I think is going to be a net negative over time.

Right. Thank you, Mayank. Well, it's a pretty comprehensive question. And if I answer all of the parts, there will be probably nothing left for the other. So I'll try to be concise in terms of the key elements, and then we can talk a little bit more in detail. So first of all, we are reaching many aspects of AI implementations. We talked about it in the past, we're adding those features now. We're talking about directly or indirectly about forward deployed engineers. We make announcements. We train a substantial number of the people in the workforce. And these people are basically driving a new way of implementing our solutions because as we tend to get more focused on fixed bid and fixed budget projects, it helps us to identify not only the execution of the various modernization projects, but also create a technology consulting. So that's with respect of the people and why it's accretive to us. When it comes to Agentic AI and a part of the, again, implementation of the suite of our solutions, we are driving our customers to adopt our GAIN platform model. All the elements of the model are driven by internal tested and development, but also tailored to our customer needs. So they will need to adapt the solution where the -- they see the most fee for themselves, but also we guide them through the process to create the best ROI for that. So that's the second part. And before I talk about the physical, I want to bring -- to address your point in terms of net positive versus net negative. If you look at the increased growth in just these two areas, that substantially exceeds the -- some of the aged businesses, which would eventually drop out because the gloom and doom from many facets were about that engineering and consultancy is less relevant. Moreover, people would say it's easier to train FTEs. We embrace FTEs. We embrace our clients. At the same time, as many of the leaders in interest is saying, we can do more work. We can do more engagements, which we prove with all the listed examples. And I'm not going to go through all of that because we have a lot of people who can give you more details on that. So as a consolidated effort as we go today through further discussions, we will demonstrate on specific examples where this accretiveness works. But I want to emphasize forward deploy engineering and Agentic AI. And the third part, which is also super critical for us, which actually drives the adoption and partnership enhancement of our relationship to the next level is actually our preparation for Physical AI work. We not just made a small acquisition. We not just made announcement about opening additional robotics labs. We're working -- we've been working with our clients for a long enough time to understand what it means for their own platform, what it means for their application and solutions from various world from industrial, from modern machineries to logistics companies to even work in industrialization of various new solutions. So the material side, the remuneration for the Physical AI is still to come. But now we have an evidence of substantial more players looking at Grid Dynamics again in a leadership role by expanding our capabilities to the practical world of their usage. So this is pretty much a summary and of course, we'll go in more detail.

That's very helpful. And sorry, if you can't see me, I'm having an issue with my video, maybe I can help with that. So I'll try to get that fixed eventually. And then just a very quick follow-up, Anil, for you. In terms of the guide, I just want to get a sense of the visibility that you have today versus last quarter. And what I mean by that is, is the pipeline now converting faster? Have you seen evidence of that? Does that maybe give you more confidence in the sustainability of growth acceleration once we get beyond fiscal '26 into fiscal '27?

You're talking about next year. Well, let's talk about this year and then we'll get to next year. When you go into the second half, Mayank, you see -- if you look at our visibility and our second half, there are a couple of factors. Number one, remember, the 85/10/5, most of our revenue comes from customers who have been with us for two years and beyond. That's formula more or less stays well intact. And that you're seeing in the top five, top 10 customers, right, because most of the absolute dollar and year-over-year growth is coming there. So that stays intact. As you go into the second half, there are three layers as you go. First is the working time. Second half is higher than the first half. Second thing is that the billable headcount. So we're seeing new programs kicking in. So maybe without addressing your pipeline question directly, indirectly is that, yes, we're seeing an increased billable headcount as we go into the second half. And the third thing is that we are planning some acquisitions. So all these three add up to layers. Now when you look into 2027, I think I'll let the business guys chime in here. But from my point of view, I see two things that are very interesting. Number one, the relationships that we're having with our technology customers, our financial customers, our top 10 and 20 customers is going deeper and deeper. Things that we've not done, we're doing. Application modernization programs, which we've not done, we're addressing. The addressable market that we're going after is larger. And I overhear these conversations week after week, which leads me to believe as you go into 2027, if we continue winning at the rate that we're winning, it should play out incrementally positive. But I don't know, Vasily or Yury, whether you want to add anything to that?

Yes. Let me chime in. So yes, I would say that our position with most of our biggest clients is -- has been strengthening over the last few years by -- through vendor consolidation. And what we see is that we should benefit in the coming years from this consolidation, which means bigger programs would come our way by customers cutting lose the long tail of vendors, which are no longer relevant. And given our strong technology positioning in Agentic AI, which is a very, very hot topic for most of our customers, we are really well positioned to benefit from that.

The next question come from Bryan Bergin, TD Securities.

So maybe just to start, a follow-up on that last question as it relates to kind of that second half, more of a near-term question. Just as it relates to you gave us 3Q guide, implied 4Q is still a decent ramp. Are you seeing a broadening of momentum in other sectors? Obviously, doing quite well in technology. Are you seeing a broadening of momentum elsewhere that gives you that confidence? And then as it relates to kind of potentially some M&A requirements, any way you can share with us how you're thinking about maybe the organic contribution remaining versus any needed M&A that you have to go get?

Right. So Bryan, let me point out that, as you know, there's a certain seasonality in our business, right, as we go into Q3, Q4, that's established. As I said, there are three levels at which we're operating. Number one is just the working times of the second half of the year, and you guys know it's better. Second thing is that the billable headcount and the trends are positive and all our prepared commentary should lead you to conclude that. And the third thing is that there is a certain amount of acquisition. And we do have a pipeline. It varies -- I always joke, right? An acquisition is not done until the money is transferred to their bank, right? We've seen acquisitions that we thought are not going to happen -- they happen. We've seen acquisitions that were locked and loaded, and we just are not able to. So -- if you look at that second half, I don't want to comment too much on Q4 other than saying that, look, we have a seasonal pattern for the year. But as we go from the low end of our full year guide to the high end of the guide, the first component of working time stays intact. The second component of billable headcount, we have variable calculations. And the third component perhaps picks up a little bit more is the acquisitions.

Okay. Understood. My follow-up is kind of a margin and a tie-in with the delivery model question. So it's -- you reiterated the confidence in the 300 basis point expansion, so that's good to hear. I'm just curious how much of this margin improvement is coming from structural changes, automation and efficiencies in the delivery versus traditional kind of cost control cutting measures. And I think it's notable you had like 7% revenue growth, while headcount was down 3%. Is there a lasting -- I know you're saying you're going to add double headcount, but is there a lasting change in this delivery model? So just maybe talk about that AI-driven efficiency and delivery that you're seeing.

So there are three, four parts of this question. Let me take the first part and then when it comes to some of the AI trends, I'll pass it on. But when you look at what we set out to do, we said that on a year-over-year, we're going to deliver 300 bps margins on a Q4 by Q4 on a year-over-year basis. Part of that effort is efficiency is just the way we're organized. As you know, we've ramped from a handful of countries to 19 countries. We've got many incorporated entities. So there's a little bit of an efficiency that we brought in, and some of those are onetime, but we operate at a certain level, right? The second part that we are seeing here is we're embracing a little bit more change in the way we're doing business, whether it's AI, whether it's fixed price, whether it's a greater -- embracing more tools. And that is creating a certain level of -- I would say it's not so visible now, but over time, you'll see a non-linearity perhaps that is in. The movement that you've seen on the headcount right now was largely driven by efficiency improvements on non-engineering headcount. So people should not worry, it's not that we let go some billable headcount. No, it's just non-engineering, non-billable headcount, we cleaned it up. But from this point onwards, beyond the 300 basis points that you'll have from Q4 to Q4, as you go into 2027, there is a plan for us to leverage more of these tools. There is a plan of bringing a certain level of non-linearity. We have the plans. The clients have to accept it, and we have to proceed with that. Go ahead, Leonard.

Yes. Let me add a couple of things. First of all, just to complete answer on the very first question about diversification of the platforms. I think it's very critical to understand that this is not overnight we selling diversified verticals. First and foremost, we've been in the payment system, we've been in financial services, we've been industrial and modernization. The second of all is what you can actually see from the previous comments about us what Vasily said we're replacing some incumbent vendors is because we're playing in a big boys league, in a higher level. I mean, in the past, look, there were always couple top guys and there were a couple mid-level vendors. Now we only compete with the top guys. And the reason being is I think AI adoption and technology implementation equalize the field a bit. So we've always been prepared for the big tasks and a big program, big transformational solutions, but we also gained the reputation of this consultancy part. So as we get more admittance to the bigger projects, inevitably, what happened with that, it's a better visibility, better projection, better position. So we're saving with the tools. We're adding more capabilities. And we're looking back and we say, what of these internal systems, which we had for a long time are less efficient. We accepted to live on a world of uncertainty. That's very important. We don't see the world changing so dramatically. We'll go back immediately to the luxury of being very consolidated in very few locations. We're adding not only India, and we're adding investment into India and the technology capability, but also LatAm. And we -- as we do more, we create a global platform internally to optimize this efficiency. So it's a cost structure, it's performance-based, it's tooling, it's removing redundancies from the past. I hope, Bryan, I covered a lot.

The next question comes from Puneet Jain of JPMorgan.

So how are your AI and robotics partnership different from your traditional hyperscaler relationships like with Google, AWS, Microsoft Azure that generate much of your 19% of partnership revenue? So the partnerships you got with NVIDIA model companies, do they differ -- or do they offer like a different revenue trajectory potential or client ownership structure than your other partnerships?

All right. Thank you so much for the question, Puneet. Let me address this question. So we definitely value our relationships with NVIDIA and believe that's a great partnership to build a pipeline of future opportunities on. As you understand, right now, the industry, the manufacturing is going through a massive transformation and new tools like Agentic AI or Physical AI definitely brings new technology to more like a traditional manufacturing. And we see this as a great opportunity to build a new pipeline of opportunities and new type of engagements, which would help us to transform those manufacturers on a bigger scale. So just an example. So for example, right now, we have an active engagement with one of the world's largest industrial equipment manufacturer on building a Agentic AI platform, which allows to manage the fleet of autonomous vehicles and deploy Physical AI capabilities on the edge devices. And we see more and more interest to such opportunities. So it's definitely one of the top priorities for us to grow.

Got it. And I'd like to follow up on the prior question, specifically around headcount. I noticed like your non-U.S. headcount was down despite like the Ekumen, which probably contributed employees in Argentina. And the U.S. headcount by comparison was up on a sequential basis. So should we expect this remix to continue like as you do more AI-based services, will that require more on-site headcount or U.S. headcount compared to in the past? And if that's true, what does that mean for margin and change management within your employee base?