Core Insights - Prosper Stars & Stripes achieved a net return of +9.8% in Q3 2025, outperforming its peer group which returned +3.8% and the Russell 2000 Index which returned +12.4% [1] - Year-to-date, the fund returned +8.6%, lagging behind the HFRI's +13.6% and the Russell's +10.4% [1] - The fund's long book performed well, while the short book negatively impacted overall performance [1] Company Insights - Grid Dynamics Holdings, Inc. (NASDAQ:GDYN) was highlighted as a significant stock in the fund's portfolio, with a one-month return of 7.04% but a 52-week loss of 54.39% [2] - As of November 26, 2025, Grid Dynamics had a market capitalization of $735.261 million, with shares closing at $8.67 [2] - The company is involved in IT consulting and advanced analytics, serving Fortune 500 clients, but faces challenges due to client spending apprehension and the impact of Generative AI on demand [3] - Grid Dynamics was identified as vulnerable to disruption, trading at approximately 16x FY24 EBITDA, and the fund closed its position shortly after Q3 due to these pressures [3]

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Core Insights - Grid Dynamics (GDYN) reported quarterly earnings of $0.09 per share, matching the Zacks Consensus Estimate, and down from $0.10 per share a year ago [1] - The company achieved revenues of $104.16 million for the quarter ended September 2025, exceeding the Zacks Consensus Estimate by 0.34% and up from $87.43 million year-over-year [2] - The stock has underperformed significantly, losing approximately 63.6% since the beginning of the year compared to a 17.2% gain in the S&P 500 [3] Earnings Performance - The earnings report showed that Grid Dynamics has surpassed consensus EPS estimates two times over the last four quarters [1] - The company has topped consensus revenue estimates four times in the last four quarters [2] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.08 on revenues of $109.3 million, and for the current fiscal year, it is $0.39 on revenues of $414.62 million [7] - The estimate revisions trend for Grid Dynamics was unfavorable prior to the earnings release, resulting in a Zacks Rank 5 (Strong Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Computers - IT Services industry, to which Grid Dynamics belongs, is currently ranked in the top 25% of over 250 Zacks industries, suggesting a favorable industry outlook [8]

Financial Data and Key Metrics Changes - The company reported Q3 2025 revenue of $104.2 million, marking a 19.1% year-over-year growth and slightly exceeding the guidance range of $103 million to $105 million [30] - Non-GAAP EBITDA for the quarter was $12.7 million, within the higher end of the guidance range [30] - GAAP net income was $1.2 million, or $0.01 per share, down from $5.3 million in the previous quarter [38] Business Line Data and Key Metrics Changes - The retail vertical contributed $27.8 million, experiencing a sequential decline of 2.1% and a year-over-year decrease of 2.9% [31] - The technology, media, and telecommunications (TMT) vertical accounted for 27.4% of total revenues, growing 13.5% quarter-over-quarter and 18.2% year-over-year [32] - The finance vertical represented 24.6% of total revenues, with slight sequential growth and an 81% year-over-year increase [32] Market Data and Key Metrics Changes - The company added five times more billable engineers in Q3 compared to Q2, indicating strong demand for AI-driven solutions [7] - Partnership influence revenue exceeded 18% of total revenue, reflecting the growing importance of partnerships in driving growth [26] Company Strategy and Development Direction - The company is focused on becoming an AI-first organization, with initiatives aimed at enhancing profitability and margins by at least 300 basis points over the next twelve months [9] - The strategic framework includes three horizons: Efforts Delivery, Agenda Guide at Scale, and Physical AI, aimed at embedding AI into operations and service delivery [11] - The company is committed to disciplined capital allocation, including a $50 million share repurchase program, reflecting confidence in long-term business prospects [5] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand recovery being structural rather than temporary, with clients shifting from risk management to growth strategies [20] - The company anticipates a materially higher billable run rate by the end of the year, positioning itself well for growth in 2026 [8] - Management noted that AI initiatives are expected to yield quicker ROI compared to traditional digital transformation programs, driving demand [22] Other Important Information - The company ended Q3 with a total headcount of 4,971, down from 5,013 in the previous quarter, while increasing billable headcount [35] - The company is rationalizing its overall headcount to align skill sets and geographies, aiming for greater efficiencies [8] Q&A Session Summary Question: Trends for 2026 growth rates - Management noted that the highest billable headcount in the company's history and longer-duration programs related to AI initiatives provide confidence for growth in 2026 [44] Question: Constraints limiting adoption of AgenTeq AI - Management highlighted that the technology continues to evolve, and they are expanding capabilities to solve a broader spectrum of business problems [48] Question: Contribution of managed services versus custom build activity - The majority of revenue is currently related to solving business cases, fueling overall growth [55] Question: Share repurchase program rationale - The program signals confidence in the company's growth trajectory and is seen as a good return on investment [74] Question: Margin expansion context - Management indicated that the 300 basis points expansion target includes both gross and EBITDA margins, driven by pricing increases and cost optimization [95][100]

Financial Performance - Revenues for the three months ended September 30, 2025, were $104.2 million, representing a year-over-year increase of 19.1%[124] - Net income for the same period was $1.2 million, a decrease from $4.3 million in the prior-year quarter, primarily due to higher cost of revenues[124] - Non-GAAP EBITDA totaled $12.7 million, or 12.2% of revenues for the quarter, compared to $14.8 million, or 16.9% of revenues in the corresponding period of 2024[124] - Total revenues for the nine months ended September 30, 2025, reached $305.7 million, reflecting a year-to-date growth of 22.1% compared to $250.3 million in 2024[137] - Gross profit for the nine months ended September 30, 2025, increased to $106.2 million, an 18.1% growth from $90.0 million in the prior year[146] - Non-GAAP EBITDA for the nine months ended September 30, 2025, was $40.050 million, an increase from $36.839 million in the same period of 2024[162] - The company generated $30.704 million in net cash from operating activities for the nine months ended September 30, 2025, up from $23.130 million in the prior year[172] - The company reported a Non-GAAP net income of $8.150 million for the three months ended September 30, 2025, compared to $10.828 million in the same period of 2024[165] - Non-GAAP diluted EPS for the nine months ended September 30, 2025, was $0.30, down from $0.34 in the same period of 2024[165] Operating Expenses - Total operating expenses for the three months ended September 30, 2025, were $34.9 million, an increase of 14.2% from $30.6 million in the prior-year quarter[135] - Engineering, research, and development expenses increased by 29.5% year-over-year, reflecting the company's commitment to innovation[135] - General and administrative expenses totaled $66.9 million for the nine months ended September 30, 2025, reflecting a 13.4% increase from $59.0 million in 2024[153] - Sales and marketing expenses increased by 6.2% year-to-date, totaling $22.7 million for the nine months ended September 30, 2025[150] Customer Metrics - The number of customers for the nine months ended September 30, 2025, was 222, a slight decrease from 229 a year ago, highlighting challenges in customer retention[129] - The top one customer accounted for 16.4% of revenues in Q3 2025, compared to 17.1% in Q3 2024, indicating a slight decrease in revenue concentration[132] - Retail vertical contributed 29.5% of total revenues for the nine months ended September 30, 2025, despite a year-over-year decline of 2.9% in the third quarter[138] - Finance vertical revenues increased to $76.0 million for the nine months ended September 30, 2025, up from $36.9 million in the prior year, representing a growth of $39.1 million[140] - Technology, Media, and Telecom vertical revenues reached $77.4 million for the nine months ended September 30, 2025, marking an 8.3% year-to-date growth[139] Employee Metrics - The total number of employees as of September 30, 2025, was 4,971, an increase from 4,298 in 2024, with significant growth in the Americas and Europe[125] Geopolitical Risks - Grid Dynamics continues to monitor geopolitical risks, particularly related to military actions in Ukraine, which could materially affect operations and business outlook[120] Currency Exposure and Hedging - Approximately 51.8% of Grid Dynamics' combined cost of revenues and total operating expenses for the three months ended September 30, 2025, were denominated in currencies other than the U.S. dollar, compared to 43.0% in the same period of 2024[180] - In the nine months ended September 30, 2025, approximately 49.4% of Grid Dynamics' $308.1 million combined cost of revenues and total operating expenses were denominated in currencies other than the U.S. dollar[182] - Grid Dynamics has implemented a hedging program to manage exposure to foreign currency fluctuations, entering into short-term foreign exchange forward contracts for Polish zloty[184] - A 10% decrease in the value of the Polish zloty against the U.S. dollar would have resulted in a $1.8 million increase in Grid Dynamics' income from operations[181] - A 10% decrease in the value of the Indian rupee against the U.S. dollar would have resulted in a $0.6 million increase in Grid Dynamics' income from operations in the three months ended September 30, 2025[181] - A 10% decrease in the value of the Mexican peso against the U.S. dollar would have resulted in a $0.3 million increase in Grid Dynamics' income from operations in the three months ended September 30, 2025[181] - A 10% increase in the value of the Polish zloty would have resulted in a $2.1 million decrease in income from operations in the three months ended September 30, 2025[181] - A 10% increase in the value of the Indian rupee would have resulted in a $0.7 million decrease in income from operations in the three months ended September 30, 2025[181] - Grid Dynamics analyzes sensitivity to the zloty and peso separately due to distinct macroeconomic and geopolitical factors affecting these currencies[183] - As of September 30, 2025, all foreign exchange forward contracts qualified for hedge accounting, with no collateral required to be posted[184] Liquidity - Grid Dynamics' liquidity is primarily supported by cash generated from operations and a recent public offering that raised $107.6 million in net proceeds[167] - The company has a revolving credit facility with $30.0 million available, with maturity extended to March 15, 2028[167] - Net cash used in investing activities decreased significantly to $11.339 million for the nine months ended September 30, 2025, compared to $41.314 million in the same period of 2024[173]

Grid Dynamics Culture Grid Dynamics Investor presentation Nasdaq: GDYN | Q3 2025 NASDAQ: GDYN © 2024 Grid Dynamics Holdings, Inc. All rights reserved. Grid Dynamics / Q4 and Full Year 2024 Disclaimer Forward-looking statements This communication contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results of Grid Dy ...

Financial Performance - Third quarter 2025 revenues reached $104.2 million, reflecting a sequential growth of 3.0% and a year-over-year growth of 19.1%[2] - Revenues for Q3 2025 reached $104,163 thousand, a 19.0% increase from $87,435 thousand in Q3 2024[28] - Gross profit for Q3 2025 was $34,711 thousand, compared to $32,729 thousand in Q3 2024, reflecting a 6.0% increase[28] - Net income for Q3 2025 was $1,177 thousand, down from $4,282 thousand in Q3 2024, indicating a decline of 72.5%[28] - Non-GAAP net income for Q3 2025 was $8,150 thousand, compared to $10,828 thousand in Q3 2024, a decrease of 24.7%[34] - GAAP net income for the third quarter was $1.2 million, or $0.01 per share, compared to $4.3 million, or $0.05 per share, in the same quarter of 2024[8] - Non-GAAP EBITDA for the third quarter was $12.7 million, down from $14.8 million in the third quarter of 2024[9] - The company reported a GAAP diluted EPS of $0.01 for Q3 2025, down from $0.05 in Q3 2024[34] Revenue Breakdown - The Retail vertical contributed 27.8% of total revenues, while the Technology, Media and Telecom (TMT) vertical accounted for 27.4%, marking a 13.5% sequential increase and an 18.2% year-over-year increase[3] - AI revenue grew by 10% sequentially, contributing over 25% of the third quarter's organic revenue[4] - Revenue from the Finance vertical increased significantly to $25,623 thousand in Q3 2025, up 80.5% from $14,158 thousand in Q3 2024[37] Cash Flow and Assets - Cash provided by operating activities for the nine months ended September 30, 2025, was $30.7 million, compared to $23.1 million for the same period in 2024[15] - Cash and cash equivalents stood at $338,553 thousand as of September 30, 2025, slightly up from $334,655 thousand at the end of 2024[30] - Total current assets increased to $440,673 thousand as of September 30, 2025, up from $423,304 thousand at the end of 2024[30] - Total assets grew to $613,169 thousand as of September 30, 2025, compared to $592,192 thousand at the end of 2024[30] Future Outlook - The company expects full-year 2025 revenues to be between $410.7 million and $412.7 million, representing a year-over-year growth of 17.1% to 17.7%[11] - The company anticipates a net-billable engineer increase similar to the third quarter for the fourth quarter[4] - A $50.0 million share repurchase program has been authorized, representing approximately 15% of the company's cash[7] - The company aims to improve its margins by at least 300 basis points over the next 12 months through various operational initiatives[6] Operating Expenses - Operating expenses for Q3 2025 totaled $34,952 thousand, an increase from $30,593 thousand in Q3 2024, reflecting a rise of 14.4%[28]

Core Viewpoint - Grid Dynamics (GDYN) is currently rated as a Zacks Rank 5 (Strong Sell) despite having recently posted earnings that met expectations, indicating underlying issues with earnings estimates and market sentiment [1][6]. Company Overview - Grid Dynamics Holdings, Inc. specializes in technology consulting, platform and product engineering, and advanced analytics services, operating in the United States, United Kingdom, Netherlands, and other regions. The company was founded in 2006 and is headquartered in San Ramon, CA [2]. Earnings History - The company has beaten the Zacks Consensus Estimate in two of the last four quarters, with the other two quarters resulting in meeting earnings estimates. However, this performance alone does not justify a strong buy or sell rating [4][5]. Earnings Estimates - Recent trends show a decline in annual earnings estimates for Grid Dynamics, with the current fiscal year consensus dropping from $0.46 to $0.39 and the next fiscal year estimate decreasing from $0.52 to $0.45 over the past 90 days. This negative movement in earnings estimates is a significant factor contributing to the stock's Zacks Rank of 5 (Strong Sell) [6]. Market Context - A broader trend within the Zacks universe indicates that many stocks are experiencing negative earnings estimate revisions, which is leading to a rise in the number of stocks falling to a Zacks Rank 5 (Strong Sell) [7].

Group 1 - The new temporal agentic AI platform and AI-powered engagement model launched by Grid Dynamics Holdings, Inc. could enhance cash generation [1] - The company has a long-term position in the market, indicating stability and potential for growth [1] Group 2 - The analysis focuses on cash flow statements and unlevered free cash flow figures, which are critical for assessing the company's financial health [1] - The financial models may include various metrics such as cost of capital, cost of debt, WACC, share count, and net debt [1] - The company is not typically associated with growth stocks, suggesting a focus on established financial performance [1]