Grid Dynamics Q3 2025: Contradictions in AI Adoption, Growth, and Revenue Outlook

Date of Call: October 30, 2025

Financials Results

• Revenue: $104.2M, up 19.1% YOY; slightly above guidance midpoint of $103M–$105M
• EPS: $0.09 per diluted share non-GAAP (Q3), down from $0.10 in Q2 and $0.14 a year ago; GAAP $0.01 per diluted share
• Gross Margin: GAAP gross margin 33.3% (vs 34.1% in Q2 and 37.4% a year ago); non-GAAP gross margin 33.8% (vs 34.7% Q2 and 38% prior year)
• Operating Margin: Non-GAAP EBITDA margin 12.2% of revenue (vs 12.6% in Q2 and 16.9% a year ago)

Guidance:

• Q4 revenue expected to be $105M–$107M and non-GAAP EBITDA $13M–$14M
• Basic share count expected 85M–86M; diluted 86M–87M
• Full-year revenue outlook $410.7M–$412.7M (17.1%–17.7% YOY)
• Q4 net billable engineer additions expected similar to Q3
• Target to improve margins by at least 300 basis points over the next 12 months

Business Commentary:

• Revenue Growth and AI Demand:
• Grid Dynamics Holdings reported revenue of $104.2 million for Q3 2025, which was another all-time high, with AI contributing over 25% of its third quarter organic revenue.

• This growth was driven by strong demand for AI services, with AI business growing 10% sequentially and 18% year-on-year.

• Billable Headcount and Workforce Strategy:

• The company recorded the highest billable headcount in its history, with plans for continued growth into the fourth quarter.

• This increase was due to renewed and new multi-quarter business contracts, particularly in technology application areas, and the strategic positioning of Grid Dynamics as a preferred vendor for several top clients.

• Investment in Partnerships and Strategic Initiatives:

• The company's partnership influence revenue exceeded 18% of its third-quarter revenue, reflecting significant contributions to its revenue mix.

• This was driven by strategic investments in partnerships, including hyperscalers and leading data and analytics platforms, which have increased Grid Dynamics' capabilities and contributed to a broader pipeline of opportunities.

• Profit Margin Expansion and Operational Efficiencies:

• Grid Dynamics announced a share repurchase program of $50 million, representing about 15% of its cash, to reflect confidence in its financial position and future growth prospects.
• The company aims to improve operating margins by at least 300 basis points over the next 12 months through efficiency improvements and leveraging AI-driven productivity gains.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted an all-time high Q3 revenue of $104.2M driven by AI (AI +10% sequential; >25% of organic revenue), Board-authorized $50M buyback, "strongest pipeline" and multi-quarter AI engagements, guidance for Q4 revenue $105M–$107M and FY $410.7M–$412.7M (17.1%–17.7% YOY), and a stated objective to expand margins by at least 300 bps over 12 months.

Q&A:

• Question from Puneet Jain (JPMorgan Chase & Co): Talk about the trends you are seeing for 2026 — can growth rates next year meaningfully accelerate versus your 2025 guidance?
  Response: Management: Record billable headcount and a pipeline of multi-quarter AI programs give confidence that growth will accelerate in 2026.

• Question from Puneet Jain (JPMorgan Chase & Co): What constraints are limiting Agentic AI adoption and what will change to unlock higher discretionary spend?
  Response: Management: Adoption constrained by evolving tech, need for re-skilling and process change; as Agentic AI proves ROI (reducing low-skill labor via AI-augmented expert teams) it will unlock incremental spend.

• Question from Bryan Bergin (TD Cowen): Can you segment Agentic work between new managed services versus SDLC-enhanced Agentic activity?
  Response: Management: Majority of current revenue stems from business-case implementations; SDLC enhancements broaden engagements but a clear split to managed Agentic services is not yet measurable.

• Question from Bryan Bergin (TD Cowen): Why does 4Q growth look below prior implied levels — is it timing/delay or client-specific issues?
  Response: Management: It's timing—ramps were delayed and two large clients (~$25–26M impact) shifted timing; no structural issue and underlying demand should drive reacceleration into 2026.

• Question from Bryan Bergin (TD Cowen): Did you scale the engineering/billable base despite overall headcount changes?
  Response: Management: Yes—billable engineering headcount rose materially; overall headcount was rationalized (bench reduction, internships timing) while utilization and billables improved.

• Question from Surinder Thind (Jefferies): Where can partner-influenced revenue go beyond the ~18% level and why has it been in that range?
  Response: Management: Partnership-influenced revenue has grown to ~18% and is targeted to reach roughly 25%–30% long term; acquisitions temporarily dilute the percentage though dollar contribution is increasing.

• Question from Surinder Thind (Jefferies): Why initiate a $50M share repurchase for a growth company and what does it signal?
  Response: Management: Buyback signals conviction that shares are undervalued while preserving capital for prioritized M&A; reflects confidence in cash generation as business scales.

• Question from Surinder Thind (Jefferies): The plan to improve margins by 300 bps over 12 months — why now and is it a one-time step?
  Response: Management: The 300bp plan is multi- lever and ongoing, driven by pricing (AI/value-based work), cost optimization (geo/headcount rationalization) and productivity from AI tools, not a one-off cut.

• Question from Mayank Tandon (Needham & Company): Are you seeing any budget flush in 4Q that could drive upside, or what are other upside catalysts?
  Response: Management: They do not expect a broad 4Q budget flush; upside comes from new higher-priced multi-quarter deals and fiscal-year renewals that primarily drive 2026 growth.

• Question from Mayank Tandon (Needham & Company): Is the 300 bps expansion a gross margin or EBITDA target and what are the drivers?
  Response: Management: It's a company-wide P&L target impacting both gross and EBITDA margins, achieved via multiple levers across COGS and OpEx (pricing, cost structure and tech-driven productivity).

• Question from Matt Dezort (William Blair): Is the 300 bps margin target dependent on top-line reacceleration, or can you expand margins even if growth remains constrained?
  Response: Management: They expect to deliver at least 300bp even under a conservative macro/demand outlook, though favorable top-line or cost trends could increase the improvement.

• Question from Matt Dezort (William Blair): Where does your AI competitive advantage come from (GAIN, history, verticals) and is it driving traction in specific sectors?
  Response: Management: Advantage comes from long-standing AI expertise, accelerators/blueprints and GAIN; strong roots in retail/e-commerce with expanding traction in TMT, fintech and industrial verticals.

Contradiction Point 1

AI Adoption Across Verticals

It involves the adoption of AI across different verticals, which can impact the company's growth and market positioning.

Do differences exist in AI adoption across financial services, retail, healthcare, and CPG sectors? - Puneet Jain(JPMorgan Chase & Co)

2025Q3: There's no slowdown in AI adoption across verticals. Some verticals like financial services and technology are gaining momentum. In others like retail and CPG, traditional business is muted due to macroeconomic factors. - Leonard Livschitz(CEO & Director)

Are there differences in AI adoption across financial services, retail, healthcare, and CPG sectors? - Puneet Jain(JPMorgan Chase & Co)

2025Q2: There's no slowdown in AI adoption across verticals. Some verticals like financial services and technology are gaining momentum. In others like retail and CPG, traditional business is muted due to macroeconomic factors. - Leonard Livschitz(CEO & Director)

Contradiction Point 2

Growth Acceleration and Margins

It involves the company's expectations for growth acceleration and margin expansion, which are key indicators for investors.

Will 2025 guidance growth rates accelerate significantly next year based on 2026 trends? - Puneet Jain(JPMorgan Chase & Co)

2025Q3: We are at the highest billable headcount in our history. Growth is picking up, with longer-duration programs related to AI initiatives. Top 10 clients are expanding technology investments, benefiting Grid Dynamics as a preferred partner. The timing of the current demand recovery is structural, not temporary. - Leonard Livschitz(CEO & Director)

Can you provide an update on the deal pipeline and conversion rate? What percentage of revenue is already secured under contract, and what is the remaining revenue to be secured? - Mayank Tandon(Needham & Company, LLC)

2025Q2: The low end of our guidance is reached by working time benefits and about high single digits in organic growth, assuming 12% contribution from acquisitions. The pipeline is robust, with July numbers looking positive. The convergence of AI and data platforms is growing fast, supporting optimism for the second half of the year. - Anil Doradla(CFO & Secretary)

Contradiction Point 3

Growth and Demand Recovery

It involves differing perspectives on the timing and nature of growth and demand recovery, which are crucial for understanding the company's outlook and investor expectations.

Will 2024 growth rates significantly exceed current 2025 guidance based on 2026 trends? - Puneet Jain (JPMorgan Chase & Co)

2025Q3: We are at the highest billable headcount in our history. Growth is picking up, with longer-duration programs related to AI initiatives. - Leonard Livschitz(CEO & Director)

Could you detail client activity for the month and decision-making pace? Are there insights on project deferrals or cancellations? - Bryan Bergin (TD Cowen)

2025Q1: As of May 1st, there haven't been major impacts from recent economic events. Client priorities have been cautious, but key projects continue uninterrupted. - Leonard Livschitz(CEO)

Contradiction Point 4

AI Integration and Revenue Contribution

It addresses the role of AI integration in the company's revenue model, which is crucial for understanding revenue diversification and growth strategies.

What constraints on Agentic AI adoption could drive increased discretionary spending for IT services companies next year? - Puneet Jain (JPMorgan Chase & Co)

2025Q3: In terms of the adoption of Agentic AI, I think there are a couple of main constraints. One is the lack of off-the-shelf solutions when you try to scale as quickly as we would like. So lack of scalable solutions. - Leonard Livschitz(CEO & Director)

What is the revenue contribution from AI at Grid Dynamics? - Puneet Jain (JPMorgan)

2024Q4: AI is now a component of most engagements, with two trends noted: customers shifting towards revenue generation initiatives and increased AI interest. Grid Dynamics' strong AI capabilities and early recognition in the market position it well to fulfill demand. - Vasily Sizov(Senior VP & Head of Americas)

Contradiction Point 5

Growth Expectations and Constraints

It involves differing perspectives on the nature and extent of growth acceleration, which are critical for investor expectations.

Will growth rates next year significantly increase beyond the 2025 guidance, based on 2026 trends? - Puneet Jain (JPMorgan Chase & Co)

2025Q3: We are at the highest billable headcount in our history. Growth is picking up, with longer-duration programs related to AI initiatives. Top 10 clients are expanding technology investments, benefiting Grid Dynamics as a preferred partner. The timing of the current demand recovery is structural, not temporary. - Leonard Livschitz(CEO & Director)

What are the key growth drivers for 2025 revenue? - Mayank Tandon (Needham & Company)

2024Q4: Growth will come from strategic recruiting, maintaining a strong follow-the-sun strategy, and enhancing technology capabilities. Grid Dynamics plans to keep investing in AI and continue leveraging its partnerships with hyperscalers. - Yury Gryzlov(COO)