Grid Dynamics Holdings, Inc. Class A Common Stock 2026 Q3 Earnings Call

Good afternoon, everyone. Welcome to Grid Dynamics' third quarter 2026 earnings conference call. I'm Cary Savas, Director of Branding and Communications. At this time, our participants are in listen-only mode. Joining us on the call today are CEO Leonard Livschitz, CFO Anil Doradla, and CTO Eugene Steinberg. 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. Q3 2026 was a pivotal quarter with record financial results. Revenue of $114.3 million is the highest in our history and came in above the high end of our guidance range and well ahead of Wall Street expectations. Non-GAAP EBITDA was $22.9 million, also a record. Our efforts are paying off. We are growing faster, more profitable, and in the verticals and applications where AI enterprise spend is centered. We enter the fourth quarter with confidence and with a scalable client demand, setting a positive backdrop for 2027. In the third quarter, our AI revenues grew by 45% on a year-over-year basis. This marks the third consecutive quarter where our AI revenue has grown over 45% on a year-over-year basis and is now approaching 32% of our total revenue.

Companies that recently initiated AI exploratory projects are now signing multi-quarter production programs with us. Last quarter, I set a goal, 90% of our engineers trained on AI SDLC by the end of October. I'm happy to report we're currently at 93% and continue to expand. Grid Dynamics has always been a technology-first engineering company, and investing in our people ahead of client demand is simply how we operate. Going forward, I'm optimistic about our revenue growth trajectory, and that optimism is grounded in the structure, not sentiment. As we look in 2027, we expect to revert to healthy double-digit growth and sustain that momentum over the following years. Our AI revenue is compounding on an even larger base. As it approaches and exceeds 40% of our total revenue, the growth rate of the overall business will increasingly reflect the growth rate of the AI practice.

Our AI-based GAIN solutions continue to grow. We generate more revenue per headcount at an accelerated pace. We expand our physical AI and capital markets offerings, and our hyperscaler and NVIDIA partnerships create a co-sell motion that complements our direct sales. Altogether, they are the reasons to be optimistic. We committed to 300 basis points of margin expansion in the fourth quarter of 2026 over the fourth quarter of 2025, and we exceeded our goal a quarter early. The structure drivers are a greater mix of AI projects, higher billing rates, optimal location strategy execution, and disciplined OPEX management. These margins represent a new norm, and in 2027, we'll continue to execute on the same operating framework. One of the most important trends in our business this year is the growing revenue per employee. In the third quarter, we exceeded $100,000 for the first time.

Let me remind you that this is based on a total headcount and not just billable engineers. In the second quarter, revenue grew 7% year-over-year, with headcount declined 3.5%, a divergence of more than 10 percentage points. In the third quarter, the gap widened further. Revenue grew 9.7% year-over-year, while headcount declined 8.3%, a divergence of 18 percentage points. We believe this is one of the strongest headcount-to-revenue decoupling metrics in the IT services industry today. These diversions reflect systematic changes across how we run our operations and deliver to our clients. Internally, AI tools are transforming every non-engineering function. Recruitment, RFP responses, knowledge management, finance, and HR. We are processing more candidates, responding to more proposals, and managing more client relationships with the same or fewer people. Doing more with less is becoming the signature of every AI-native program we run.

Beyond operations, the shift toward platform-based, fixed price, and output-based engagements means we're monetizing intellectual property alongside the headcount. When clients engage with our GAIN platforms, they get a combination of talent, processes, and IP. As such component of our revenue grows, the link between headcount and revenue weakens by design. In a sector where headcount and revenue have historically moved in lockstep, Grid Dynamics is demonstrating that the two can and should be decoupled. Now about AI-native delivery. 12 months ago, AI-native delivery was the direction we were heading toward. Today, it's how we deliver. A few examples. At a leading global technology company, we secured a large AI-native fixed price project. At one of the largest food distribution company in the world, we delivered a production solution in half the planned time with 40% fewer engineers.

At a leading global technology platform, an agentic solution reduced defect review time from 30 days to four hours. Our GAIN platforms are deployed across multiple active projects, and our embedded engineers arrive with codified IP that clients are paying premium for. The commercial headline is clear. The AI-native model is validating its economics. Our CTO will take you deeper into the technology progress in a moment. Our vertical diversification continues to reshape the composition of our business. Technology and financial services now dominate our top account relationships. The retail exposure that once defined our revenue mix is now smaller, and we are less dependent on them for growth. The growth engine of the business is firmly in the sector where AI adoption is accelerating, and this is precisely where we have concentrated our investments and our talents over the past few years.

Our capital markets practice is growing rapidly, with expanding teams across U.S., U.K., and India. In manufacturing and supply chain, a leading global energy infrastructure company selected us for AI-native application modernization. A major automotive part retailer is expanding its modernization program. A leading global construction and industrial equipment manufacturer is advancing from a discovery to implementation autonomous system program. In physical AI, our first intralogistics humanoid deployment is on track for delivery at a global pharmaceutical company. The last couple of years have been a period of transition and execution as the company focused on growing revenue, enabling AI expertise, and improving margins. During this time, our targeted approach to capability-driven acquisition in capital market and robotics served us well. We will enter 2027 in a stronger position.

The business is growing, margins are expanding, and strategic clarity we have built around AI-native delivery, productized engineering, and physical AI gives us a sharper lens for evaluating acquisition targets. We are acquiring capability, domain knowledge, and engineering depth that either accelerates an existing practice or opens a new one. In 2027, our focus is on building a pipeline of larger and more strategically impactful opportunities. After two years of disciplined execution, we are ready to acquire larger companies in 2027. During the quarter, Grid Dynamics delivered some notable projects. For a leading global technology company, Grid Dynamics built the data foundation for the launch of a new subscription package that brings together multiple online services as a bundle. The new system enables accurate tracking of the entire subscriber life cycle, including acquisition, retention, churn, and transition between subscription offerings, while ensuring reliable revenue attribution and engagement analytics across multiple services.

Delivered in time for the global launch, the engagement involved modernizing interconnected production data pipelines, ensuring data accuracy at scale, and establishing a scalable foundation for additional subscription models. The solution provides the critical analytics and financial reporting capabilities needed to support the successful launch of the new bundle offering across more than 100 markets, serving millions of subscribers worldwide. For a leading U.S.-based global bank, Grid Dynamics continued expanding the enterprise AI platform that powers AI-driven productivity and automation across the organization. This quarter, we delivered new capabilities that enable employees to launch long-running AI agents directly from their AI productivity workspace, as well as a centralized service analytics platform that provides management with detailed visibility and control over AI adoption, access permissions, and costs.

These innovations enable employees to delegate complex, time-consuming tasks to AI agents, freeing up their time to focus on higher value work, while giving management greater transparency and control over AI operations at scale. These enhancements extend the capability of an AI workspace used daily by more than 180,000 employees across the bank. For a leading global payment company, Grid Dynamics modernized its core financial crime prevention platform, introducing machine learning, fraud detection models, self-service anti-money laundering capability, and agentic AI tools for sanctions research and alert prioritization. The modernized platform now screens approximately 14 million cross-border transactions annually for financial crime, which is 20% increase year over year, while reducing screening time per transaction by nearly 70%. Compliance false positives dropped by more than 90%, significantly reducing unnecessary manual reviews.

AI power automation saves compliance analysts more than 1,200 hours annually, while self-service capability enable teams to launch new ML rules in minutes instead of weeks. The platform also achieved 99.99% availability, supporting reliable continuous payment process. For an advanced humanoid robotics company, we are leading simulation effort using NVIDIA Isaac Sim and Google DeepMind MuJoCo. We are focused on advanced physics-based simulation to refine complex articulated movements for industrial applications such as welding automation. Leveraging our broader robotics capabilities, our technical scope quickly expanded into autonomy and manipulation architecture. Next, we plan to extend our engagement by helping the robots better perceive their surroundings and develop more dynamic movements. With that, let me turn the call over to our CTO, who will present our exciting technology offerings and AI-driven innovations.

Eugene? Thank you, Leonard. Good afternoon.