Grid Dynamics - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $100.4M (up 25.8% YoY; flat QoQ), slightly above the company’s $98–$100M outlook and above SPGI consensus; non-GAAP EPS was $0.11, ahead of consensus, while non-GAAP EBITDA was $14.6M, above guide midpoint (consensus values marked with asterisks below; SPGI)＊.
• Mix improved: Finance became the #2 vertical at 24.9% of revenue (up 144% YoY), Retail remained #1 at 31.4%; TMT was 23.5% and flat QoQ.
• Management maintained FY25 revenue guidance of $415–$435M (midpoint +21.2% YoY); Q2 revenue guide is $100–$102M with non-GAAP EBITDA of $12.5–$13.5M, reflecting investment timing and fixed-price milestone normalization.
• Key calls outs driving narrative: record billable engineering headcount (leading indicator), stronger enterprise-scale AI engagements, robust hyperscaler partnerships (notably Google), and M&A integration in finance vertical; non-GAAP outperformance partly benefited from fixed-price milestone timing in Q1.

What Went Well and What Went Wrong

• What Went Well

  • “Another record quarter of revenues” with $100.4M, slightly above outlook; record billable engineering headcount as a leading indicator of future growth.
  • Finance vertical momentum: +7.9% QoQ and +144.3% YoY to 24.9% of revenue, aided by fintech/insurance demand and 2024 acquisitions; Retail remained the largest at 31.4%.
  • AI moving from PoCs to enterprise-scale implementations; partnerships robust with growing data/AI pipelines; 16% of revenue partner-influenced in Q1; strong Google Next engagement.

• What Went Wrong

  • EBITDA margin eased QoQ (Q1 14.5% vs Q4 15.6%) as the company leaned into AI training/scaling and bench for upcoming demand; Q2 EBITDA guide implies another downtick before improving through the year.
  • TMT was flat QoQ and -1.8% YoY as a vertical; Healthcare & Pharma and “Other” were flat QoQ and down YoY, with softness tied to hospitality-related customers.
  • FX presented modest headwinds (~38 bps QoQ; ~26 bps YoY), slightly dampening growth conversion to reported results.

Transcript

Cary Savas (Director of Branding and Communications)

Good afternoon, everyone. Welcome to Grid Dynamics Q1 2025 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, CTO Eugene Steinberg, 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 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.

Leonard Livschitz (CEO)

Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. I'm delighted to share that Grid Dynamics delivered another strong quarter, exceeding our own outlook and Wall Street expectations on revenue and non-GAAP EBITDA. That was our second consecutive quarter of $100 million in quarterly revenue or more. There were many positive trends, several of which I will highlight on the call today. I'm sure many of you are interested in knowing how the current macro environment is impacting our company. While you're all well aware of the risks and uncertainties with the global economy, in the Q1, our performance was largely driven by customer-specific trends. In other words, the patterns in the demand from our customers and the resulting monthly billable headcount shaped the quarter, with the ongoing tariff issues having minimal impact.

Our laser focus on technology and engineering excellence continues to ensure our success with our clients. Furthermore, the $100 million quarterly milestone would not have been possible without the dedication of our global teams. I'm deeply grateful for their outstanding efforts and incredibly proud of what we have achieved together. Now, let me provide you with some granular commentary around the demand environment. Every year, the Q1 is influenced by a degree of seasonalities as our customers are establishing their yearly spend. Consequently, we typically start off slow in January. As the quarter progresses, business trends improve. Contrary to historic trends, we started January strong in terms of billable positions. That said, in February, we witnessed some changing priorities as the start of the year impacted some of the clients. In March, we signed several sizable new deals with existing and new customers.

These deals spanned across industry verticals that included automotive, financial, and CPG, and these included engagement with agentic AI, cloud migration, and supply chain applications. Also, for the first time in the company history, three of our top 10 customers are in the financial industry. After setting record levels in late 2024, the company once again attained its highest-ever billable engineering headcount, a leading indicator of future growth. Our Q2 outlook reflects these trends. I'm pleased to share that our acquisitions are performing well. As I mentioned previously, with both acquisitions, we're anticipating realizing synergies more quickly than with any of our past acquisitions, and I'm happy to report that we're well on track in delivering against the goal. Argentina-based Mobile Computing, acquired in October of last year, enhanced our follow-the-sun capabilities.

In the Q1, we enhanced our sales team and telecommunication teams to support the incremental demand. Additionally, in the quarter, we successfully integrated engineering teams to support our enterprise accounts based out of the United States. UK-based JUXT, which we acquired in September of last year, elevated our industry expertise in banking and financial services. Their focus on risk platforms, structured products, equity derivatives, and financial reporting is highly complementary to our current offerings in financial services. Since acquiring Joxt, several global banks based in the U.S. have expressed interest in working with Grid Dynamics. In the Q1, we initiated several new projects across multiple global banks. We expect the customer to continue ramping their business throughout 2025. Coming to AI, our AI initiatives continue to gain significant traction across our customer base, with our pipeline of opportunities growing steadily quarter-over-quarter.

We're seeing a clear shift from proof of concept to enterprise-scale implementations that deliver measurable business outcomes. Our primary focus areas include AI-based search solutions that consistently open doors to new accounts, agentic AI platforms being developed for clients in consumer goods and fintech industries, comprehensive knowledge systems for enterprise knowledge management, and AI-enabled productivity tools that enhance software development capabilities. These implementations underscore our ability to move clients beyond basic AI applications to sophisticated solutions that deliver substantial business impact in areas ranging from sales enablement to supply chain optimization and development productivity. Our CTO, Eugene Steinberg, who is on the call today, will provide you more color. A key element of our 2025 strategy is to ensure that our investments are aligned to the changing needs of the industry. These investments will ensure that our technological leadership is maintained.

This includes focused CTO-driven teams creating innovative artifacts, training engineers for specific flavors of AI implementation, and newer training resources with our Grid University. I'm happy to report that for 2025, we're maintaining our full-year revenue outlook that we provided to you all in February. We expect the second half to be seasonally stronger in comparison to the first half and expect the ramp-up of several deals signed recently to assist us in achieving our outlook. We acknowledge the ongoing uncertainty related to the macro environment. We're successfully navigating through the near-term volatility, and the strength of our business is reflected in our Q1 results. In the quarter, there are several trends, and I want to share some of the notable ones. Partnerships. In the Q1, partnership influence revenue represented 16% of our total revenue, and we anticipate this contribution to accelerate throughout the remaining quarters of 2025.

Mirroring our historic trends, we're experiencing increased traction with all hyperscalers, notably with Google. Our pipeline is robust and includes significant migration and modernization programs, as well as a growing number of data and AI projects. Our signature sponsorship of the Google Next event proved highly successful. We engaged in several conversations with Google, clients, and prospects, which we expect to translate into expanded revenues. Number two, European business. We successfully completed B2C multi-brand digital commerce replatforming for the European brands of a major global automotive part distributor. We successfully launched agentic code review and elaboration services, as well as a conversational AI as a part of the major internal development productivity initiative at the large investment bank. At a leading global HR solution provider, we are evaluating readiness to democratize data for business-driven AI initiatives.

At a leading meal preparation company, we continue to modernize their operational systems, including the customer service platform and security solutions in collaboration with one of the hyperscalers. Number three, India expansion. India is one of the top locations, and it continues to attract talent as our other European locations, especially in AI, Gen AI data, cloud, and cybersecurity. India serves many of our key enterprise customers across technology, CPG, retail, healthcare, and financial services industry. India has now emerged as the hub for multi-agent, multi-modal platform engineering, as demonstrated by recent wins. One of them with a leading multinational beverage company. The other one is a well-known leader in the fintech industry. As part of our global initiative, India has upskilled a majority of its engineers and delivery leaders in AI-assisted accelerated delivery with expertise across the entire value chain of agentic digital platform engineering at enterprise scale.

Number four, internship. Our internship program gained strong momentum in the Q1. We had a solid performance across all our operating regions. Our internship program typically lasts six months and trains interns in solving real-world problems. In the Q1, out of 11,000 applications received, we selected several hundred gifted individuals. Additionally, many of the interns graduating from our training were placed in billable roles at the clients. Now, let me turn over the call to Vasily, who will talk about notable projects during the quarter.

Vasily Sizov (SVP Americas)

Thank you, Leonard. I'm excited to share some key highlights from the quarter that showcase the impact of our work. First, for a leading global technology company, Grid Dynamics developed a project intelligence tool that automatically consolidates information from various sources into a centralized platform. This tool streamlines project execution by providing a single intuitive dashboard with real-time consolidated insights. Designed to support over 100 internal teams, the tool enables faster issue resolution, accelerates time to market, and enhances overall product quality. For a leading luxury retail group, Grid Dynamics transformed their search experience by implementing Google Vertex AI Search. This innovative solution delivered immediate and significant improvements across key business metrics: conversion rates increased by 9%, click-through rates by 21%, orders by 3%, and revenue per visit by 9%. Based on these impressive results, we anticipate significant interest in this solution from other clients within our portfolio.

For a leading payments technology company, we modernized a costly legacy banking integration system by transforming it into a cloud-native microservices platform on Microsoft Azure. This modern architecture significantly reduces the total cost of ownership while delivering the scalability and resiliency demanded by today's banks. With this new platform, continuous deployment pipelines now push new features to production without downtime, enabling the business to keep pace with evolving market demands and regulatory requirements. Additionally, we estimate that our solution reduced the integration cycle duration by 90%, therefore dramatically accelerating customer onboarding and driving faster revenue generation. For another client, a leading US specialty retailer with over 2,000 stores, we partnered to build a cutting-edge generative AI platform. Specifically, we developed a retrieval augmented generation pipeline powered by Google Vertex AI. That solution analyzes prior clicks, surveys, and local inventory to recommend the ideal product and bundled offers.

We estimate that this platform will drive up to a 10% increase in user engagement and up to a 3% boost in revenues. Now, let me turn this call over to our Chief Technology Officer, Eugene Steinberg. Eugene?

Eugene Steinberg (CTO)

Thank you, Vasily. Good afternoon, everyone. I'm honored to join this call as Grid Dynamics' new Chief Technology Officer. I've been with Grid Dynamics since its founding and helped establish our unique engineering culture and technology practices. I had the privilege to work with some of our best engineers to develop innovative solutions in the cloud, commerce platforms, AI, and machine learning for Fortune 1,000 clients. As Rajeev transitions to lead our APAC expansion, I'm excited to build upon his foundation and drive our technology strategy forward. Let me outline five strategic priorities that will guide our technology direction. First, industry diversification. While maintaining our strength in retail and TMT, we are developing AI and data engineering solutions for manufacturing, pharmaceuticals, fintech, and insurance. We are leveraging our strong horizontal technology capabilities and industry expertise to address specific client challenges and expand into new business domains.

Second, amplify our offerings with AI. We are implementing our AI as a spice strategy, infusing AI capabilities throughout our service portfolio and engineering practices. Our engineering-led approach delivers end-to-end AI-powered business solutions rather than fragmented experiences. Our Grid U learning platform provides AI training for all engineering disciplines, enabling every team member to leverage AI in their work. Third, operational excellence through AI. We are applying our AI expertise internally with our in-house agentic AI platform that drives efficiency while showcasing our capabilities to our customers. This initiative has yielded productivity gains across multiple business functions in talent management, knowledge management, project management, and sales. It also helps to train engineers in agentic AI and demonstrates our AI competency. Fourth, strengthening technical leadership. Our CTO mentorship program expands our ranks of project and account starters, technical leaders who identify opportunities and grow client engagements.

Our global talent network across 19 countries gives us access to exceptional emerging talent that we nurture through focused development programs. Fifth, thought leadership. Our technology point of view broadcasting and dynamic talks program established Grid Dynamics as the technology partner of choice. These initiatives generate quality leads and partnership opportunities. What sets Grid Dynamics apart is our engineering-led approach and eight years of experience in ML and AI development. We've been building advanced analytics and ML solutions since 2017, giving us deeper expertise and proven methodologies for implementing AI at enterprise scale. We are seeing strong momentum in several key areas. AI-based search solutions remain a key entry point for new clients. We expand those relationships into broader engagements, including commerce platforms, front-end modernization, data engineering, and catalog enrichment. Agentic AI platforms represent a major growth area.

We are partnering with enterprises in consumer goods and payment industries to develop platforms for creating and deploying AI agents. These systems drive operational improvements and enhance customer experience. Enterprise Agentic AI solutions are seeing substantial demand. For example, we recently launched an agentic AI system for a leading specialty retailer. This system coaches sales associates through AI-powered role-playing to provide product and services knowledge and salesmanship training and improve customer interactions. AI-enabled development tools accelerate software deliveries through custom tools for legacy systems modernization and end-to-end quality engineering. These engagements often expand into broader digital transformation initiatives. I'm committed to furthering our spirit of innovation and technical excellence while expanding our capabilities in AI and platform engineering to deliver measurable impact for clients. Thank you, and let me turn back to Anil, who will talk about financials.

Anil Doradla (CFO)

Good afternoon, everyone. Our Q1 results exceeded our expectations both on revenue and non-GAAP EBITDA. We recorded revenues of $100.4 million, slightly ahead of our guidance range of $98 million-$100 million. On a year-over-year basis, this represents a growth of 25.8%. Excluding the impact of our recent acquisitions, the year-over-year growth was 10.1%. Both on a quarter-over-quarter and year-over-year basis, there were roughly 38 basis points and 26 basis points of FX-related headwinds, respectively. Our non-GAAP EBITDA came in at $14.6 million, outperforming our guidance range of $12.9-$13.9 million. In the Q1, we benefited from timing of revenue recognition with some of our fixed-price contracts in line with project milestone completions. Looking at performance of our verticals, retail remained our largest vertical, accounting for 31.4% of total revenues in the quarter.

Revenues in this vertical grew 28% on a year-over-year, with a slight decline of 3.7% on a sequential basis. The year-over-year growth was primarily driven by strong demand from our specialty retail customers, along with contributions from new client engagements. Finance contributed 24.9% of total revenues for the Q1 of 2025 and became the second-largest vertical. Finance continued its strong performance, with revenues increasing 7.9% sequentially and 144.3% year-over-year. The strong year-over-year growth was largely driven by a combination of our recent acquisitions that added global banking customers, along with strength from our fintech and insurance customers. TMT accounted for 23.5% of revenues in the Q1 and remained flat compared to the Q4 of 2024. On a year-over-year basis, TMT declined by 1.8%. Turning to the remaining verticals, CPG and manufacturing represented 10.7% of our revenues in the Q1.

It remained relatively flat on a sequential basis, but grew 12.7% year-over-year basis. The year-over-year growth was primarily from our recent acquisition. Other verticals contributed 7.1% of total revenues, remained flat sequentially, and declined 15.1% compared to the same quarter of 2024. The year-over-year decrease primarily came from customers tied to the hospitality industry. Finally, healthcare and pharma made up 2.4% of our revenues for the quarter. We ended the Q1 with a total headcount of 4,926, up from 4,730 employees in the Q4 of 2024 and up from 3,892 in the Q1 of 2024. At the end of the Q1 of 2025, our total US headcount was 354, or 7.2% of the company's total headcount, versus 8.5% in the year-ago quarter. Our non-US headcount, located in Europe, Americas, and India, was 4,572, or 92.8%.

In the Q1, revenues from our top five and top ten customers were 35.6% and 56.6%, respectively, versus 39.6% and 55.3% in the same period a year ago, respectively. During the Q1, we had a total of 204 customers, down from 211 in the Q4 of 2025 and 210 in the year-ago quarter. The year-over-year decline in the number of customers was primarily driven by our continued efforts to rationalize our portfolio of non-strategic customers. Moving to the income statement, our GAAP gross profit during the quarter was $37 million, or 36.8%, compared to $37 million, or 36.9% in the Q4 of 2024, and $27.7 million, or 34.7%, in the year-ago quarter.

On a non-GAAP basis, our gross profit was $37.6 million, or 37.4%, compared to $37.6 million, or 37.5%, in the Q4 of 2024, and up from $28.1 million, or 35.3%, in the year-ago quarter. Non-GAAP EBITDA during the Q1, then excluded interest, income, and expenses, provision for income taxes, depreciation amortization, stock-based compensation, restructuring expenses related to the geographic reorganization and transaction and other related costs, was $14.6 million, or 14.5% of revenues, down from $15.6 million, or 15.6% of revenues in the Q4 of 2024, and up from $10.3 million, or 12.9%, in the year-ago quarter. The increase on a year-over-year basis was largely due to higher revenues, partially offset by increase in operating expenses.

Our GAAP net income in the Q1 was $2.9 million, or $0.03 per share, based on a diluted share count of 87.8 million shares, compared to the Q4 net income of $4.5 million, or $0.05 per share, based on a diluted share count of 83.8 million and a net loss of $3.9 million, or $0.05 per share, based on 76.2 million diluted shares in the year-ago quarter. Our sequential decrease in GAAP net income was due to higher levels of operating costs, including stock-based compensation.

On a non-GAAP basis, in the Q1, our non-GAAP net income was $10 million, or $0.11 per share, based on 87.8 million diluted shares, compared to the Q4 non-GAAP net income of $10.3 million, or $0.12 per share, based on $83.8 million diluted shares, and $7.6 million, or $0.10 per share, based on 78.4 million diluted shares in the year-ago quarter. On March 31, 2025, our cash and cash equivalents totaled $325.5 million, down from $334.7 million on December 31, 2024. Coming to the Q2 guidance, we expect revenues to be in the range of $100 million-$102 million. We expect our recent acquisitions contributing roughly 12% of the revenues. We expect Q2 non-GAAP EBITDA to be in the range of $12.5 million-$13.5 million.

For Q2 2025, we expect our basic share count to be in the range of $84 million-$85 million and our diluted share count to be in the range of $88 million-$89 million. For 2025, we are maintaining our full year revenue outlook of $415 million-$435 million that we provided in February. The revenue outlook represents a growth of 18.4%-24.1% on a year-over-year basis. At the midpoint of $425 million, we expect our 2025 revenues to grow by 21.2% on a year-over-year basis. That concludes my prepared remarks. We are now ready to take questions.

Operator (participant)

Thank you, Anil. As we go into the Q&A session of this call, I will first announce your name. At that point, please unmute yourself and turn on your camera. The first question comes from Bryan Bergin of TD Cowen.

Bryan Bergin (Managing Director and Equity Research)

Hi, guys. Good to see you. Thank you.

Hey, Bryan. I'll kick off. Why don't we try digging in more on client behavior? If we can dig in as far as client's activity through the month, I know, Leonard, you had some of that commentary, but then into April, can you go into more detail as it relates to the pace of client decision-making? Just on the margin, kind of that deferral cancellation question. Obviously, you guys affirm the outlook for the year, so it sounds good, but if you could give more detail on that behavior, it would be helpful.

Leonard Livschitz (CEO)

All right. I'll answer the first part, and I'll have Anil comment on that margin. As I mentioned about the clients in general, we just finished April, so we're going to have data for three months of the Q1 and some more information about April as well. Obviously, it's a very fluid situation, but right now, we haven't seen any major impact of the recent economic political activities. Our clients obviously exhibit some cautiousness in terms of the long-term projections, but in general, the projects, especially the project of strategic importance for our clients, continue uninterrupted. Saying that, we don't know what's going to be happening soon with additional impacts, but I tell you that with my personal conversation with the leadership of the clients and my executive team conversation with other executives of our clients, pretty stable and confident.

That's pretty much the best way I can do. I'm sure you'll have some follow-up questions, but let's Anil address the questions.

Anil Doradla (CFO)

Bryan, you said some deferral. Can you—I'm trying to understand. Are you talking about—

Leonard Livschitz (CEO)

Let's see.

Anil Doradla (CFO)

Can you just go through that?

Bryan Bergin (Managing Director and Equity Research)

Yeah, yeah, sure. I didn't mean kind of like deferred expenses. I was talking more so about project deferrals or anything like that, which it doesn't sound like you're experiencing, which is good. Maybe, though, I will follow up, Leonard, a little bit on the guidance for the year. Just based on what you do see for 2025 and the growth guidance midpoint that you have, how much of that work is in hand, so to speak, so contractually committed? You mentioned some of these deals you've signed that will ramp. Can you just talk to that dynamic as far as contractually committed versus pipeline conversion that you may need to get still?

Leonard Livschitz (CEO)

Yeah. I mean, you know our business dynamics well. Contractually committing only works if there is a more stable business, right? Obviously, all the budgets which we are talking about, they are being committed, right? There is a longer-term arrangement on the deliverables. We seldom do a few months' projects anymore. It's not like 5, 10 years ago. All the programs, especially on platforming, on implementation of the AI technologies, on moving forward with various cloud solutions. Recently, agentic AI is a little bit different, but they're all part of the longer-term plan. The plan comes from the business decisions. Again, the business decisions have been made for 2025, and that resulted in a good January, unseasonably good January. We've seen a little bit of February. It's kind of a reaction to some of our clients, as you know, some of the retail CPG-related clients.

They have the adjustments because most of them, the fiscal year starts in February. Overall, the ramp-up, which we expected in March, continues into April and with plan to May as well. As far as annual guidance, Bryan, I think there are a couple of important points I have to mention. Look, we haven't been in a guidance world for the full year for a very long time. You guys have been asking us, so when are we going to build the confidence? We shared the confidence in our guidance with a high level of conservatism when we did it a quarter ago. That conservatism still presents, but maybe not to the same level of conservatism as a quarter ago. We have still a pretty good run in terms of understanding how we're going to arrive with the numbers.

I'm talking about the business we're not just observing today, but we know not just in the pipeline, but in execution stage, right? When we see a little bit more dynamics between May and July, it will give us a little bit more factual assessment of where we're going to be. The confidence is there, but ultimately, we're not reading on the coffee grounds, which is based on what the world is and where we are. We're not really naive in terms of what's going on around us. It's just been a little bit smaller, more nimble, more technology-focused on customer revenue creation. We have maybe a little bit more confidence than some others.

Bryan Bergin (Managing Director and Equity Research)

Okay. Okay. That's clear. That's helpful as it relates to the initial outlook you gave. Understand that. One more for you. Just as it relates to hiring, so nice to see the record, billable employee base. Talk about your hiring intentions here in Q2 and maybe for the balance of the year. How are you thinking about that versus balancing utilization and bench optimization?

Leonard Livschitz (CEO)

Look, the hiring machine, as you know, with Grid Dynamics, has been pretty consistent. We've been blessed not to go through a lot of rationalization up and down, depending on the flavor of the day. We've been very consistent with the internship program, with Grid Dynamics University, with Grid Dynamics Labs, with rotational technology, with expansion technology. The technical talent is harder to acquire, but tend to stand longer if the projects are there, right? Obviously, region to region depend. There's no secret. There are certain regions you need to put a little bit more effort to build that stability. In terms of expanding the hiring, it's never been a big issue with us. It's just relevance of technical skills.

What we do, Bryan, many times more now, we really do not depend on the market capability from hiring of the specialty talent, but internal kind of polishing and honing the skills as they present. Because as you know, dynamics of the technology stacks change quite fluidly. That helps us to kind of stay strong on the streamline of hiring.

Bryan Bergin (Managing Director and Equity Research)

Okay. Okay. Makes sense. Thank you for all the detail.

Leonard Livschitz (CEO)

Of course.

Anil Doradla (CFO)

Thank you, Bryan.

Operator (participant)

Thank you, Bryan. The next question comes from Puneet Jain of JPMorgan. Puneet, please turn on your camera and unmute yourself. Thank you.

Puneet Jain (Equity Research Analyst)

Hey, thanks for taking my question and very nice quarter. I understand the macro environment, it's uncertain, but are you seeing any change in your client behavior, maybe especially in the retail vertical, TMT vertical, Apple being the largest customer there? Are you seeing clients could be prioritizing more cost-cutting deals instead of revenue-generating? Any change that you have seen in the last one month versus in Q1?

Leonard Livschitz (CEO)

I'm going to answer your question in generic, but I will have Vasily to talk about Apple as his baby, been from the day we started the account. I had a pretty substantial client tour in the past three, four weeks myself. Plus, we've been a pretty substantial contributor to Google Next. There was a nice booth, and we met many clients there as well, not just specifically related to individual projects. We can have a pretty good assessment of where we are. First of all, our client base is not really China-dependent. I think it's very important for the industry to understand that dependency on labor in China is much lesser than it used to be. In our clients, we ask this question specifically. It's usually high single digits. Again, this is not my field of competition. That's what they tell me.

Now, the other countries are also a bit more questionable, but we're not feeding Amazon and Stein to Shein with some kind of very low-end products. So we're pretty stable there. Again, the supply, the logistics, we all know we read the news that the amount of the containers is lowering. What does it mean? We certainly believe that we need to be very careful in terms of understanding the business. As of today, May 1, we're good. Now, Apple is a bit interesting story, which is, again, it's quite good for us, and you see the announcements and all this good stuff. I don't want to steal the thunder from Vasily. Please, Vasily.

Vasily Sizov (SVP Americas)

Yeah, sure. Talking about Apple, I mean, without disclosing much detail, I would say that we've historically been working on the part of business which is more related to online services and things which are less dependent on the supply chain side of things. Therefore, as one of the, I would say, probably fastest-growing profit centers, I would say it's going to be less affected. That's our expectation, at least. So far, as of today, we haven't heard anything related to any expected slowdowns. That's the fact.

Puneet Jain (Equity Research Analyst)

Got it. No, that's very helpful. It seems like on delivery side, like your rest of the world, which I'm assuming most of it is India, grew nicely in the quarter, added like 100-plus employees on a sequential basis. With Rajeev also focusing more on India delivery from here on, how should we think about your India as a delivery center? Can it ramp? How large can it become? Can it become the largest location for you over the next few years?

Leonard Livschitz (CEO)

For people who don't know who Rajeev is, Rajeev Sharma was our CTO for a while. Now we have our first and only first CTO of the company, Eugene Steinberg, who took the role, and he came back to the role many years later. He is more matured and definitely positions and technology capabilities as a leader, not just a scientist. You guys know Eugene well. There are a couple of reasons why Rajeev is going to be in India, but it's not delivery. The number one priority is scaling technical talent in a region. I mean, he is a fantastic technology spiritual leader of not just the global world, but specifically in India, and many people look upon him with the greatest level of respect. That's one region which we need to scale technology capabilities because we are truly following-the-sun strategy.

I would not deviate it from one region to another, whether it's Latam, India, Europe, or whatever we're going to end up in next, because if we're not the same, it's no Grid Dynamics DNA. We continue to push hard with many facets to grow India with an equal level of technology capabilities. We have three locations, right? Whether Bangalore or Hyderabad or Chennai, you know very well that they're not the same, but for the size of Grid Dynamics, we have enough brilliancy to tap it. That's his number one priority. Number two priority, obviously, we have a large number of GCCs. GCCs are very critical for our business because many decision-making processes are happening right now in India. Rajeev was instrumental in working there, and it's easier when you're home-based in Bangalore. We have a nice office there.

Sitting in Jersey and going back and forth, it made a lot of sense. Third one, he's really a Managing Director of APAC. I just don't want people to think it's just a glorified title because we are expanding on a business relationship with other countries in the region, particularly more near-term Singapore. It's a very fundamental thing. I trust Rajeev. He's a very good friend. The delivery remains as a global organization, and Vadim Kozyrkov is there. By the way, very likely you will hear from him next time. As you noticed, I tried to rotate the executives, and there's the size of the table. It's only right now. It used to be two. Now we have two tables. It's four, right? I just want you guys to understand it's not 25th.

It's not going to be 25th event for Anil and Leonard. We have a really great team in the company. Vadim is at help. He is a great leadership person in India. We trust him wholeheartedly. He will continue to do his work. The growth is going to be very consistent because, again, we're not offering India as a low-cost alternative to other regions. We are basically working to complement local decision-making in India. Very seldom would we have just an Indian team or just a European team or just a Latam team because we're trying to build this McKinsey management idea. For GCCs local, it makes sense to have more talented people in India. It's not a staging of growth. Whether it's become the number one country in the world, absolutely it will.

I mean, yes, it's like on a country basis, who can compete? There are only two populous countries in the world, and we're not in China today. The answer is absolutely yes. Now, on the regional level, I mentioned many times we're going to do the balance work because it depends on our customer base. The growth in India, not absolute numbers, but percentage numbers, is greatly driven by scaling technology capabilities. Sorry, it's a long answer, but I just wanted to use the whole overview of what we do in India.

Puneet Jain (Equity Research Analyst)

It's okay. If I can quickly squeeze in another one, like follow-up to Bryan's question on the guidance. It seems like the guidance implies flat growth, like 0-2% sequential growth in the Q2, followed by quite a nice ramp in the second half. We calculated 4%-9% on an average sequential basis in the second half. What drives this visibility on the second-half ramp? Which type of customers, existing, new, which vertical regions will drive that high growth in the second half of this year?

Leonard Livschitz (CEO)

Do you want to get the financial answer or business answer? That is your choice. Which one?

Puneet Jain (Equity Research Analyst)

I'll have both.

Leonard Livschitz (CEO)

All right. We'll have your friend answer first. Anil, please give the financial answer.

Anil Doradla (CFO)

Look, let's look at the range that we have, right? $450 million-$435 million. Very simple. I know what you're trying to do is you're trying to understand the risk, right, to those numbers. Let's start with a very basic math, right? You have 100, 102, that's 203, right? If you look at the first half versus the second half, you have 3%-4% purely on working days. If I do not add a single person for the rest of the year, don't add a single client for the rest of the year, that'll give me some tailoring. The second part is if you look at Leonard's commentary, right, he talked about January through March and April. As we said, we're dealing with some record billable headcount.

If I take that number as I have today and extrapolate even for the second half, what you'll see is that there's another level of tailwind, so to speak. Right there, you'll get minimum your low end of the guidance right there. Obviously, I'm not taking into account any other things. There are many other business aspects that I'm not taking into account and many other positive things, but I'll pass it on to Leonard, who will talk a little bit about what is going on there. Our guidance, we can get to that range by taking some very conservative approaches to the numbers.

Leonard Livschitz (CEO)

All right. You heard the financial answer. Now, the business answer. We've grown on all the fronts. Even in Q1, if you look at Q1 versus Q4, it's a flattish quarter, right? I mean, numbers don't lie. The dynamics was very interesting. A couple of clients, there were some resets from February because of their internal challenges, which we're on our way to recover from there. We had a growth. Now, Q2, we do plan quite nice growth in a few accounts, but we also anticipate one or two ramp-downs. That usually happens. By the end of this Q2, we definitely expect a ramp-up. Now, which way it's going to go? Is it going to be, again, a slower ramp-up or a faster ramp-up? We don't have it right now. We don't anticipate a slowdown in the second half unless hell breaks loose.

Excuse me, there are some other non-anticipated events happening. We are not really conservative internally because we continue spending, but we want to be very careful not to do what sometimes happens. People get excited too much about throwing numbers. They have to restart the guidance. They have to modify something. Dealing with you guys is not as a significant challenge as internally to disturb the process. We are bullish on our growth. We believe it is happening right now. We are bullish on our growth in not just traditional retail and CPG, but other segments, which is giving us nice diversification. When it comes to number, Anil is a king. He wants to be something which we will not be looking with excuses later. That is pretty much where we are.

Mayank Tandon (Senior Analyst)

That's good. Thank you so much.

Anil Doradla (CFO)

Thank you, Puneet.

Mayank Tandon (Senior Analyst)

Thank you.

Operator (participant)

The next question comes from Mayank Tandon of Needham. Go ahead, Mayank.

Anil Doradla (CFO)

Great. Thanks. Good to see you guys. Congrats on the quarter.

Thanks, Mayank.

Mayank Tandon (Senior Analyst)

Leonard, I might have missed this. Did you comment on new logos? If you could just go through that again, if you did, apologize for that. Which verticals did you see the most traction in terms of new client activity?

Leonard Livschitz (CEO)

Of course. By the way, guys, next time, I'm not going to bring CTO. You're not going to ask him. So he feels like an award here. Yeah, yeah.

Anil Doradla (CFO)

Mayank, you ask one question on AI, please.

Leonard Livschitz (CEO)

I'm soliciting you guys to not only worry about what's going to happen with the tariffs, but also understand what value we're bringing because there's a lot of really cool stuff. Again, maybe it's going to be better to talk next quarter than you just give me a couple of encouragements that I'll keep CTO on the call. I didn't forget your question. The new logos. There are two parts of new logos. As you know, Grid Dynamics, and you've been with us for a very long time from the beginning, has a fairly generic strategy, which is called 80-15-5. 80, it's a stable business with the growth of the mature accounts of the revenue. 15%, something we acquired from the previous calendar year, roughly, and 5% in new logos, like brand new logos.

On the brand new logos in Q1, it was a very minimal financial impact, which usually it is the case. If you look at the ramp-up, if we do not get a lot of contribution by Q3, then this 5% is going to be very difficult. We did see the numbers, but they are small. What did very well for us is those 15%. Some of the key logos we acquired last year are giving us really nice ramp-up in Q1 and going into Q2 as well. The reason being is we are much more diversified in verticals. It is not just the verticals. When we talk about the fintech, we talk about technology. When we talk about CPGs, now we start talking about manufacturing.

We didn't forget even the healthcare because some of the payment systems, the new acquired accounts, they're directly tied to the medical field, health insurances. When we take insurance business, which we were very muted because it was not a huge revenue, now we're picking up in health insurance payment, logistics, and all this stuff. The business are becoming more compounded. Pharma, still small, but the number of accounts growing. Why? Because, again, we apply the same algorithms and now the AI accelerators, which we put in place. The short answer for your question, we got a good uplift from the accounts from last year, especially the second half of last year. It's just an initial stage of the logos, which we're working on as a brand new logos in 2025.

Anil Doradla (CFO)

Let me add one thing to that, Mayank. You see, the definition of our logo addition when we come are significant enterprises. In the quarter, we did add. We did add logos, but internally, we do not want to each time we have a logo, we are just not going to come out and talk about it. Leonard makes his comments, and we make these are significant enterprise logos. In the quarter, we had, and we did not believe that it elevated to talk, but there were additions.

Leonard Livschitz (CEO)

When there is a big logo and a big enterprise, we just started. We also be a little bit careful because you guys, as we do, we do not like [informal] mortality, right? I do not want to go through that, "Oh, we had these great guys, and they are a fantastic business, and they have $50 billion revenue," and then something, and we are silent two quarters later. Now we have a pleasure and a choice to be selecting what we call new business acquisitions. I would rather have this 80-15-5 continued. Of course, there is addition on the top of the acquisition, all the stuff, but I am pretty satisfied with this rate of growth of innovative clients, which we acquired from 2024.

Mayank Tandon (Senior Analyst)

That's very helpful, color. Thank you so much for that. I have one quick follow-up for you, Anil, around margins. How should we think about the cadence of gross margins? What are the puts and takes? The same question for EBITDA margins. Your guidance implies a downtick in the Q2, but any perspective you can share for the full year? I know you haven't given formal guidance on EBITDA margins for the year, I believe, but any thoughts around how that will trend would be helpful.

Anil Doradla (CFO)

Yeah. Sure. Let's talk about the Q1 to Q2, right? Now, as I said in my prepared remarks, we benefited from the timing of some of my fixed-price contracts, right? As you can see, Q1 was what, 37.4%, which is kind of flattish over Q4. Historically, you always see as we go from Q4 to Q1, there's compression, right?

Now, if you look at that moment, there were 100 plus basis points and over-margin movement because of that particular thing. That is one thing. Now, as we go from Q1 to Q2, this year, we do not have a little uplift on the number of days, so it is kind of flattish. Again, year to year, it might depend on that. The other thing is that we are making investments as we speak right now. There is a lot of stuff going on on AI. There is a lot of work going on on AI scaling and training. There are some investments that we are working on. That has an impact on some of the COGS and OpEx. As you can see, business is picking up. There is a question about the bench has to adjust to the upcoming demand.

There is a little bit of that also going there. When you put all those things together, yes, you're right. We see a little bit of this, but a large portion of it is a little bit of a timing, and it would have been more the cadence would have been normal if some of these things didn't play out. Now, as I look into the full year, right? Last year, we did about 15% EBITDA margins for the full year. Look, the way you have to look at the business is the margin profile should improve as we go quarter to quarter. The only question is, what do I need to do to support the growth? What do I need to do to support the investments? That's the only question that we debate. As we progress in the course of the year, yes, you should see margin expansion.

Leonard Livschitz (CEO)

Right. Mayank, I also want to give you again a business answer. It is usually Anil's domain, right? We need to ask the question of how quickly we're going to ramp up India, right? There is another fact, obviously, from the war we started more than three years ago. We are having a bit excessive number of countries to really clamp down on operating costs beyond the technology. We're not going to slow down technology, right? This is no way. This is our key, and we want to rule the world in our business. We're not going to slow down investment into quality engineering, operational excellence on delivery management, and all this good stuff. However, we anticipate the scaling of the key locations, which is not just India. I mean, Latam was a great investment into Argentina.

We would like to think the way how we planned that convergence on successful locations as we grow will actually give us meaningful impact. This is on the back-end stuff. On the front-end stuff, we continue to push hard on the from the 2, 5, 10 to basically 5, 10, 20 strategy, which means we want to build the clients' $5 million to $20 million annual revenue as a core, at least $5 million. That successful implementation is actually picking up a bit too because it's not about client concentration. It's a client-meaningful work. And operational efficiency, not just a margin, but operational efficiency is driven by the depth of the relationship. We see that picking up too. Those are kind of three elements which we kind of look from the business perspective to increase.

When it comes to variation quarter to quarter, Anil will tell you 20 convincing stories. The next quarter, he'll find another convincing story. I am not terribly worried about it. I just want to make sure we continue to grow the business. We have a net cash generation, which is very critical. We need to be in a business of self-sustainable position. Anil is doing a fantastic job on controlling the costs as we continue to expand into the technology world.

Mayank Tandon (Senior Analyst)

Great. Thank you so much. Appreciate all the color. Congrats.

Anil Doradla (CFO)

Wait, you had a question, Mayank.

Leonard Livschitz (CEO)

No, no. It's okay. Let him go.

Mayank Tandon (Senior Analyst)

Let me pass it on to the others. They're waiting.

Leonard Livschitz (CEO)

Yeah. Yeah.

Operator (participant)

The next question comes from Maggie Nolan of William Blair. Go ahead, Maggie.

Maggie Nolan (Research Analyst)

Hi.

Anil Doradla (CFO)

Thank you.

Maggie Nolan (Research Analyst)

I'll ask a somewhat engineering question. You talked a lot about your agentic AI solutions in several of your examples. Are these custom-built by Grid Dynamics? To what extent are there kind of pre-built solutions by your partners? Is this a primary driver of your partner revenue growth?

Eugene Steinberg (CTO)

Yeah. Thank you for the question. This dynamic is mostly working in a mode when we are developing some of the solutions in a kind of from the first principles. Some of the solutions, of course, we are using a lot of the open-source components. In some of the cases, we are also leveraging cloud-native technologies. Pretty rarely, we are deploying solutions which are completely kind of black box end-to-end solutions because this is mostly work for the system integrators. We are mostly an engineering company. We are building solutions for larger enterprise organizations with unique requirements when it comes to security, when it comes to access to very diverse and very proprietary data sources, when it comes to very specific workflows, and official solutions do not fit them. In these cases, we are building custom solutions.

We are building custom agentic platforms, leveraging a lot of open-source components and cloud-native services, which deliver and automate those workflows.

Maggie Nolan (Research Analyst)

Thank you for that. Maybe, Anil, quick follow-up to that. Are you discussing different fixed-price or outcome-based pricing models to go along with that with the clients?

Anil Doradla (CFO)

That's a good question, Maggie. I don't have an exact answer at this stage because these are new things that are moving around. Yes, we are open to everything. My preference is more fixed price because we have more control. This is as we speak right now. Many of these new things are happening. I don't know whether.

Leonard Livschitz (CEO)

Hold on. Hold on. Maggie, I know you asked Anil. He's the wrong guy to ask this question. He's assigning the checks. The guy who really is driving the scale of the fixed-bid arrangements, which Anil really alluded to, is Vasily. Let Vasily answer because it's very, very critical to understand. It's not just we innovate technology. We're not doing technology for technology. It has to be a good business value proposition for the clients to check on ROI and for us to be able to enjoy the fruits of the partnerships. Please.

Vasily Sizov (SVP Americas)

Sure. Thank you, Maggie. Yeah. When we were talking last time, and maybe like a year ago, we were talking about small POCs to see how the technology really helps the business. Those engagements were pretty small in size, I would say. Almost 100% were fixed-bid. Nowadays, there is a good understanding of what the technology can do for the business. Therefore, there are more popular, I would say, fixed-capacity type of engagements when we set up the team, which develops the platform. There is a roadmap for building business cases on top of that. Of course, the customers are not interested in losing the team which built the platform after the implementation just to come up with an idea that we need to, oh, we need to gather the team together now to build the business cases.

We see nowadays AI drives more of a kind of long-term engagements which are linked to specific business impacts. Of course, as Leonard said, business cases and financial impact is one of the key decision factors when the customers are making decisions on investment in certain areas. That for sure surely happens.

Maggie Nolan (Research Analyst)

Thanks, Vasily. If I could just squeeze one in on talent. Are you comfortable just given all the recent hiring? Are you comfortable with the balance of junior versus senior talent? Are you trying to rebalance the pyramid and maybe tie that back to your margin commentary? Thanks.

Leonard Livschitz (CEO)

We're never satisfied with our pyramid, Maggie. Our historic business requires a lot of seasoned, experienced people, not just foundation. This is an inverted pyramid, right? The inverted pyramid cannot scale as efficiently as a traditional pyramid. We observed that at the time, we have actually the bimodal distribution. We have a lot of senior people and quite a few junior guys, and we squeeze the middle guys, right? What Vasily alluded to, when you start building more longer-term fixed-capacity programs and projecting on the business, you create a more normalized distribution. As a matter of fact, the brightest and the best of interns are the best addition to the more junior people instead of bringing them from the market. What we start doing is we, obviously, from the hiring perspective, focus on the mid-level people. Why?

Because good mid-level people become more senior people. Senior people, usually, you train yourself together with an R&D team. The junior guys finding on the market, they sometimes do not possess all the skills we need to bring them into the actions right away. The interns who become part of this fixed-capacity pods, they are wonderful because in a very few months, and they are brilliant, remember, using our AI tools, we reach out to thousands now, 10,000s of applicants to create this full body of the top-notch intellectually technical interns. That process propagates. I am not super happy yet for the full distribution, but I think it is becoming a little bit more normalized as we speak.

Maggie Nolan (Research Analyst)

Thank you.

Anil Doradla (CFO)

Thank you, Maggie.

Leonard Livschitz (CEO)

Thank you, Maggie

Operator (participant)

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

Leonard Livschitz (CEO)

I have complete confidence in Grid Dynamics' ability to execute with excellence. While we must navigate the uncertainties of the current global economic environment, I'm confident that Grid Dynamics will continue to uphold the qualities that set us apart. We're building strong momentum across our business, and I look forward to giving you an update on the next earnings call. Thank you.