Grid Dynamics Holdings, Inc. (GDYN) Earnings

Management highlights

- Core Strategic Progress - Grid Dynamics delivered solid execution across three stated priorities: improving revenue trends at key tech and financial services accounts, growing AI adoption, and expanding profitability, meeting all targets for the quarter. - Top accounts in tech and financial services (the sectors with fastest AI adoption and Grid Dynamics' strongest differentiated capabilities) delivered double-digit quarter-over-quarter growth, with clients embedding the GAIN platform as core operational infrastructure, creating more durable commercial relationships than in prior periods. - The company is on track to meet its 300 basis point margin expansion commitment, with year-over-year and sequential gross margin improvements driven by revenue growth outpacing delivery costs and improved resource utilization. - AI Capability Development - AI-first delivery is now the company default, with fixed-price contracting the preferred approach for new RFPs, delivering real productivity and margin gains. 90% of engineers are targeted to be trained on AI SDLC by the end of October 2026. - The GAIN platform now has commercial partnerships with all four top frontier LLM providers, keeping capabilities aligned with leading AI platforms and expanding reach across enterprise clients. - Clients increasingly request ongoing advisory and operational support beyond initial platform deployment, creating a new growth vector not present in the company's prior business model. - Three horizons of AI strategy are maturing: Horizon 1 (AI-first modernization and agentic platforms) has reached scale, with GAIN components like Rosetta, Allium, and GAIN Agentic Runtime delivering measurable enterprise value; Horizon 2 (agentic harness engineering and physical AI/robotics) is moving from internal validation to controlled client deployments. - Physical AI and Robotics Expansion - The company expanded physical AI/robotics capabilities via the May 2026 addition of Ekumen, a leading robotics engineering team that is a core maintainer of the open-source Robot Operating System (ROS), the foundational layer for most modern industrial robots. - Grid Dynamics offers a full-stack physical AI capability spanning foundational ROS software, AI motion modeling, simulation validation, hardware integration, and enterprise deployment via its Incarnum GAIN platform for physical AI. The company signed a strategic partnership with Doosan Robotics, opened a new engineering office in Dresden, Germany to serve European manufacturing clients, and secured early commercial engagements across autonomous construction equipment, humanoid intralogistics for life sciences, and industrial robotics. - Management believes Grid Dynamics has a unique market advantage in this space, with no other services firm matching the combination of Ekumen's decades of foundational robotics expertise and Grid Dynamics' AI modeling and enterprise delivery capabilities. - Partnership Ecosystem - Partner-influenced revenue reached 19.1% of total revenue, driven by core hyperscaler relationships. A growing share of this revenue comes from AI engagements, including the first joint Google partnership win in banking, expanded AWS work in agentic AI across CPG, manufacturing and financial services, and growing momentum with NVIDIA across agentic and physical AI. The company's long-term target for partner-influenced revenue remains 25%-30%.

Guidance

- Third quarter 2026 revenue is guided to a range of $112 million-$114 million, with non-GAAP EBITDA guided to $16.5 million-$17.5 million. - Full year 2026 revenue guidance is maintained at $435 million-$465 million, unchanged from prior guidance. - Management expects second half 2026 growth to be supported by normal seasonal higher working days, increasing billable headcount from new program kickoffs, and potential acquisition contributions. - Management is confident in sustained growth acceleration beyond 2026, driven by deepening relationships with top technology and financial services clients, expanding addressable market via larger enterprise transformation programs, and continued benefits from ongoing client vendor consolidation that is shifting larger programs to Grid Dynamics.

Segment performance

Grid Dynamics reported consolidated Q2 2026 revenue of $108.2 million, 7% year-over-year growth, with non-GAAP EBITDA of $14.7 million (13.6% of revenue). By vertical segment: 1. TMT: Largest segment, 31.8% of total revenue, 11.7% sequential growth and 36.4% year-over-year growth, driven by large technology customers and vendor consolidation leading to higher wallet share. 2. Retail: 26.5% of total revenue, flat year-over-year in absolute dollars, 3.1% sequential growth, supported by demand from key accounts including a major specialty retailer. 3. Finance: 22.9% of total revenue, 1.2% sequential growth, with solid demand from fintech engagements offsetting completed engagements with insurance and consumer credit reporting clients. 4. CPG and Manufacturing: 10.9% of total revenue, 2.1% sequential growth and 4.2% year-over-year growth, with robust demand from a leading wholesale food distributor and growing contributions from manufacturing customers. 5. Other Verticals: 6.0% of total revenue. 6. Healthcare and Pharma: 1.9% of total revenue. By offering segment: AI revenue reached 30.7% of total revenue, growing 54.6% year-over-year, crossing 30% for the first time. Partner-influenced revenue reached 19.1% of total revenue, driven primarily by hyperscaler relationships with Google Cloud, AWS, and Microsoft Azure.

Risks & headwinds

- Acquisition closing timelines and outcomes are uncertain: potential acquisitions may close earlier or later than expected, or may not close at all, creating variability around second half 2026 growth contributions. - Physical AI and robotics capabilities are still in early commercialization, with revenue growth from this segment expected to materialize over the longer term rather than in the near term. - Client AI adoption still requires client acceptance of new fixed-price and outcome-based commercial models for full margin expansion benefits to be realized. - Complex enterprise AI transformation creates client uncertainty, requiring increased on-premise client presence that shifts headcount mix toward higher-cost onshore locations. - Legacy non-strategic client engagements will continue to roll off, creating near-term revenue volatility in non-AI segments until AI-driven new growth fully offsets these declines.

Analyst Q&A

• Q: Asked whether AI will be a net positive for growth and profitability over the next 12-24 months, addressing investor skepticism that AI could be a net negative for the business. /

  A: Management notes that AI investments in upskilling, fixed-price project models, and technology consulting are all accretive to the business. The GAIN platform model, tailored to client needs, is designed to deliver strong ROI for clients and Grid Dynamics. Growth from AI and physical AI already substantially exceeds declines from older legacy businesses, and the company is able to take on more total engagements as AI improves productivity rather than being displaced by in-house client AI adoption. Early market traction for physical AI confirms that large industry players view Grid Dynamics as a leader in this emerging space.

• Q: What is the difference between new AI/robotics partnerships with firms like NVIDIA and traditional hyperscaler partnerships, and how do revenue and ownership models differ? /

  A: Management values the NVIDIA and new AI/robotics partnerships, which open a large new pipeline of opportunities for manufacturing and industrial transformation driven by agentic and physical AI. These new partnerships create entirely new types of transformative engagements for traditional manufacturing clients, expanding the company's total addressable market, and growing this new opportunity is a top strategic priority.

• Q: How is the new AI-focused consultancy business developing, how does its competitive landscape differ from traditional work? /

  A: The consultancy offering is a natural extension of Grid Dynamics' existing technology-focused DNA, not an entirely new business. It expands beyond pure technology consulting to include AI infrastructure, tool and hardware selection, and process change management: clients want help identifying which business processes deliver the highest AI value, building the required technical enablers, and driving enterprise-wide adoption to capture full value. The business competes with large traditional consulting firms, and leverages Grid Dynamics' deep technical delivery expertise to win engagements. It also grows from client requests to help deploy GAIN platform methodologies inside their own internal software factories.

• Q: AI revenue is 30% of total revenue, why is the remaining 70% of revenue declining, and is this cannibalization from AI work? /

  A: The decline in non-AI revenue is driven by project completion volatility from smaller and midsize legacy clients, not cannibalization. For example, brick-and-mortar retail legacy engagements have seen softer demand in recent quarters. All AI work gained with top clients is incremental to existing work, and no pricing compression is observed in the legacy business. AI actually delivers higher productivity that enables more total projects rather than reducing revenue from existing work.