AI arrives on the cost line

That's how AI moves from an operating expense to operating leverage.source

We expect subscription gross margin of 81%, reflecting more customers utilizing our hyperscaler partnerships as well as accelerating AI adoption.source

The Catalyst program is designed to drive additional cost savings through facility rationalization, AI-related efficiencies, and other means, all while being certain we do not negatively impact our ability to grow.source

We're confident that our collective strategic, financial, operational and digital offerings, all enabled by AI will continue to yield positive revenue growth and margin expansion as evidenced by our continued strong backlog and pipeline.source

In addition, we've built a multiyear track record of expanding our margins by executing against multiple operating leverage inclusive of AI.source

We're deploying AI across our products and operations, and it is one of the drivers of the growth and margin expansion you see in these results.source

The customer service cost per booking is down about 16% year-over-year, in large part due to the AI agent. Second, what we're seeing is that we don't need to grow our head count at levels that we did in the past because we're getting so much more output and speed from our existing workforce, which obviously, also creates efficiencies over time.source

I would note that, yes, we are expanding margins while absorbing that increased cost.source

We see the margins and returns in AI tracking what we saw with Core at the same point of evolution, actually a little ahead.source

AWS operating income was $16.6 billion, which reflects our strong growth, coupled with our focus on driving efficiencies across the business.source

Driving more efficiency, more automation, things like that to drive margin.source

These include leveraging AI to improve software development productivity, increasing the effectiveness of our sales and marketing organization and accelerating our supply chain.source

These actions include deploying AI and automation at greater scale across the company, reducing third-party spend, improving sales and marketing efficiency, using AI to drive more efficient software development, optimizing our supply chain and enhancing services delivery.source

The customer validated the approach through a pilot with service technicians showing that ServiceMax AI can reduce technician preparation time by 50% and deliver 4% net productivity improvement across the service workforce.source

With tailwinds from AI adoption, higher sales productivity, and strong operating leverage, we are once again raising our top and bottom line guidance for the third quarter and full year.source

We have got Corey talked about some of the work we are doing on automation and technology improvements. To improve our basic mining practices, build more efficiency, the Leach initiative with scale, will go a long way to helping us because that is lower much lower cost.source

This includes sequencing the global rollout of the cost transformation program and deliver our $200 million cost target on schedule, continuing to redesign our front-office sales and recruitment processes to enhance productivity, and leveraging AI to create sustainable commercial opportunities to accelerate growth.source

And Lutz and the team are well underway with their AI driven efficiency and growth programs.source

Looking at the levers for additional margin expansion through 2030, vendor optimization, AI and other efficiency gains are included on that list.source

Looking ahead to the second half, we are going to continue to tackle parts of the business that would benefit most from automation. We are committed to delivering more than 100 basis points of macro neutral margin expansion in the back half of the year as part of our plan to deliver 75 basis points for the full year.source

And so we continue to believe that there are ways that we can use AI to create margin expansion across the enterprise.source

For the year, we expect approximately 500 basis points of margin expansion, driven by operating leverage and cost discipline, achieved while we continue to fund targeted investments in product innovation and AI.source

Growing top accounts relationships, continued AI momentum with expanded capabilities in robotic and physical AI, and solid progress toward our 300 basis point margin expansion commitment.source

In risk and compliance, we are leveraging AI powered KYC screening, which allows our team to boost their productivity by 50%.source

Our engineers have architected a multi-agentic credit underwriting process that can allow us to be ready to close commercial loans in 7 days or less versus industry norms of 30 to 60 days... that is an 85% reduction in readiness to close.source

These digital capabilities are not just operational tools, they are at-scale, strategic assets that strengthen customer relationships improve execution and are forming the basis for utilizing AI to improve customer intimacy, fine tune pricing decisions and support operating efficiency improvements and sustainability.source

The strong EBITDA margins were driven by operating leverage and AI-driven cost productivity, principally in operations.source

As we continue to rapidly drive roll-outs and adoption of AI tools and agents that are delivering meaningful process improvement, we now expect run rate spending savings from these AI for EFX efforts to be about $150 million from 2026-2028, which is double the $75 million of savings we discussed with you in February.source

As an example, CoAuthor, which has been used in more than 400 regulatory submissions, now provides nearly 600 AI agents, driving 40% productivity increase in drafting quality control documents and over 90% accuracy summarizing complex databases.source

Let me highlight 3 examples from the quarter to illustrate how AI is helping us drive revenue growth and margin efficiencies.source

To support that, we'll continue investing in automation, process improvement and AI as part of our more than $1.1 billion annual technology spend. These investments are designed to create efficiencies, give advisers more time to deepen client relationships and further enhance the client experience.source

Our 4 enterprise AI priorities are focused on the areas where we see the greatest opportunity to drive growth, improve execution and expand margins.source

In merchandising intelligence, we're implying AI to improve category planning, promotions, vendor collaboration and margin management.source

One is natural scale as the business gets larger, as we continue to drive automation and leverage AI across those teams, we are seeing those benefits today, and I think we're still in the very early stages. So when you combine natural scale pricing power... and then you layer on the AI and automation, I think that gives us the confidence that on a multi-year basis, the 80% plus increased gross margin target we have is the right one.source

Now shifting to our AI strategy, where we are moving on offense in two ways: one, reducing OpEx; and two, increasing agent productivity.source

Additionally, across the technology organization, 50% to 60% of all new code is now produced by AI, which is helping us ship code faster and more efficiently.source

Non-GAAP gross margin for the quarter was 32% compared to 30.1% for the same period a year ago, demonstrating our ability to improve profitability while continuing to invest in our AI capabilities and grow our AI native revenues.source

We've been working on developing AI, especially in this area. Those tech investments have resulted in our frontline productivity improving 17% year-over-year in the second quarter, which is also enabling great results here.source

Revenue management actions were amplified by productivity initiatives, especially those supported by our ongoing technology investment and leadership in agentic AI solutions.source

Third, we manage cost while we continue to invest in a franchise, our brand, our people, our technology, and our AI-enabled productivity.source

So I think you're going to see improvements in technology, not only just on the servicing side, but also on the origination side, which is going to -- which when you think from an expense standpoint... the ability to capture a significant amount of efficiency and expense there through AI and technology is going to be pretty great for us.source

100% of our full-time employees are enabled on and using AI tooling, and we have recorded $14.9 million per year of estimated time savings and workflow optimization across our team in functions, including sales, support, customer success, product implementation, finance and engineering.source

We see the totality of our 2030 strategy as structurally engineering higher growth and margin through both faster revenue growth, higher fee rates on flows, efficient use of technology automation to create more scale and operating leverage.source

Creative piloting in key media channels is showing 25% efficiency improvement with our ability to create twice the number of assets with AI.source

And just like AI Overviews, AI mode is driving an incremental increase in search queries overall, and we are now sending billions of clicks to websites every week through AI features in Search. As we serve more of these queries, we have continued to drive efficiencies.source

Google Services operating income increased 20% to $39.5 billion and operating margin was 41.8%.source

Productivity gains from lean deployment and automation are expanding margins and the savings they generate help fund reinvestment back into the business.source

We are now over 12 months into executing against our automation pipeline, and this is also contributing to our improved profitability.source

We signed a major engagement with a leading insurance brokerage committing to more than 50% productivity improvement over five years through AI and operations operating model redesign.source

So as long as we stay ahead on AI-led productivity software engineering and business process operations, and we keep staying ahead of it we can pass on the productivity, stay competitive in the market, and still be margin accretive for ourselves.source

Investments in consolidating platforms, scaling data, AI, systems and automation are already boosting engineering and sales output, letting us streamline R&D, optimize sales and marketing, and redeploy savings into growth priorities and AI-enabling architecture. Even through this planned peak investment period, we have contained OpEx growth, and we are now targeting approximately 25% adjusted EBITDA margin by 2027.source

And our digital transformation is rearchitecting our internal operating system so that our people and AI agents can seamlessly work side by side to structurally lower our cost to scale.source

These actions, including further digitization, more ubiquitous use of technology and AI, and improvements in the customer experience alongside operational efficiencies, should help us not just adapt to volume changes in our business but also drive margin restoration over the next few years.source

With the latest significant AI advancements, we intend to create a step change in performance. We expect to capture efficiencies and generate approximately $400 million in run rate savings through an investment of approximately $625 million, reflecting a disciplined cash-cost-to-achieve ratio of about 1.6x.source

The roughly $400 million in savings will be driven primarily by process automation and by redeploying capacity from administrative work to client-facing work.source

As Rick mentioned previously, we believe that our continued focus on operating leverage through AI enables us to grow our business while keeping fixed expense largely flat, which in turn has helped driving the expense ratio improvement.source

They allow us to leverage and deploy AI-enabled acceleration and enhanced value realization to our clients which utilize our primary offerings and generate over 90% of our current lead flow. This is strengthening our ability to compete and realize higher gross margins.source

We expect sequential revenues, along with gross margins to improve due to the impact of the increasing number of new projects benefiting from value delivered and productivity enhancements from the transition to our AI delivery platforms as well as headcount actions taken to reflect productivity improvements.source

We are continuing our journey to deploy AI applications in various workflows across the organization and expect to continue to expand our EBITDA margin towards the high end of our long-term target range of 30% to 35% of care margin over the next few years.source

SaaS gross margins were up approximately 240 basis points year-over-year from ongoing optimization efforts, including leveraging AI to transform customer support.source

Across the business, our teams are applying a continuous improvement mindset while leveraging investments in technology, including artificial intelligence to raise customer service levels, improve productivity and create a stronger foundation for sustainable long-term growth.source

This application uses AI to assess images of freight placed inside the trailers and provide our dock workers with actionable feedback in real time. In the second quarter, at the pilot sites, load quality improved by more than 40%, while damages were reduced by 50%, contributing to both service quality and operating efficiency.source

I think the continued gross margin expansion into our target range of 35% to 40%, that is indeed driven by our confidence in the AI models and the continuous improvement that we are seeing them drive not just on one metric, but across the board.source

We believe we will see benefits in our operating efficiency from the implementation of artificial intelligence across the organization and believe that its implementation will enable us to create greater operating leverage and improve the speed, quality, and cost of software development projects and accelerate new product delivery.source

AI-based improvements to core business processes such as IVR and script optimization, chatbot enhancement and proactive text and e-mail engagement in just 5 contracts yielded a better customer experience and a 3.5% operating margin improvement for that group.source

Technology and development expense were $55.5 million and as a percentage of revenue was 11.2%, improving 175 basis points year over year and reflecting the benefits of embedding Agentic AI into our engineering and product team. Despite a modest increase in AI related spend, the benefits of AI related labor productivity have outweighed the direct AI spend.source

AI driven productivity has allowed us to hold headcount below plan, as I reoriented the company towards speed and tested our growth bets.source

As such, having garnered the corresponding cost reduction and when combined with the agentic platform-driven demand, we yielded an 810 basis point sequential improvement in non-GAAP software and service gross margin.source

Non-GAAP operating expenses were approximately $122 million or 42% of revenue, down from 45% in the prior quarter, reflecting both leverage in our growth model and early productivity gains from our human-centric AI investments.source

By continuously improving our customer-facing business processes, applying proven lean operating principles, optimizing business mix and pricing, and using technology and AI to improve productivity and customer solutions, we can create repeatable levers to expand margins and to support sustained growth.source

We have decreased end-to-end production time embedding AI within the full software delivery cycle, and we have prioritized geographies for investment and identified specific rationalization opportunities. We are on track to achieve at least $1.5 billion in gross run rate cost savings over the next 2 to 3 years.source

With commercial activity increasing, operational momentum building and AI and automation scaling across our network, we're well positioned to drive growth and expand margins through the balance of 2026 and beyond.source

In all 3 examples, our AI-led modernization approach is accelerating transformation timeline and improving efficiency, strengthening the resilience of their mission-critical technology environments.source

From a macro perspective, we believe that banks can effectively adopt AI have the potential to structurally shift their efficiency ratios lower by around 500 basis points.source

When we think about how much or what the composition of that 500 basis points is going to be, in my mind, it's more along the efficiency ratio, but it's really driven probably around 65% coming from expenses and around 35% coming from revenue.source

We continue to expect full-year 2026 corporate costs to be between $450 million-$500 million as we continue investing in AI, robotics, and automation to drive productivity over the medium and long term.source

In early July, we completed an acquisition of Robotech Automation, a specialized team of engineers that can accelerate deployment of robotics and automation across GEV. This is a small transaction, but one that can help us improve our productivity.source

Whether it is in the supply chain, or in AI enabled efficiency across the P&L.source

We built an AI-powered solution using OpenAI that transforms survey notes into structured findings and recommendations that fit seamlessly into existing workflows. As a result, the client is realizing more than $400,000 in annual productivity savings, reducing report preparation time from several hours to less than an hour.source

By operating as one global team, we can deliver the full breadth of Insight's capabilities to clients, deploying AI at scale internally, improve execution, accelerate decision-making and create greater operating leverage across the business.source

Additionally, we're underwriting significant AI-related growth and efficiency initiatives across the areas we invest in.source

We're continuing to invest in automation and robotics to improve efficiency and expand margins.source

Diversifying revenue and income within and across our 3 insurance segments and further leveraging data, analytics and technology including artificial intelligence, to drive operational efficiency, and improve underwriting and claim outcomes.source

And then you saw us announce AI and how AI can have a role in not only helping us on our gross margin side, but also on our cash flow side as we think about taking inventory down going forward.source

For gross margin, we expect that the combined company will remain above 70% gross margin by leveraging the scale, operational infrastructure, and AI capabilities we have built.source

Our focus on disciplined expense management, particularly in personnel and operating expenses as well as continued efficiency gains across the business, including early benefits from AI and other expense initiatives contributed to the increased profitability in Q2 2026.source

Supporting these growth drivers enhanced data capabilities, automation, and operating efficiency initiatives are expected to enhance execution and help to deliver approximately 100 basis points of enterprise margin expansion over the medium term.source

The result is meaningful efficiency gains from simplification automation, and AI enablement.source

This engine is sophisticated, multichannel, AI-powered tool that leverages a mix of national and local offers and delivers a higher degree of personalization. We believe that once fully deployed, this technology will allow us to better tailor communications and offers to our customers, drive incremental purchases from both new and lapsed customers, and preserve restaurant margins while offering customers compelling value in key moments.source

At the same time, we continue to advance operational improvements through AI-enabled efficiency and continuous improvement initiatives helping us work more effectively and strengthening execution across the business.source

For example, on the work we are performing in one of our [ attest ] services, for year 1, our AI-based data extraction workflow is producing 20% efficiency with our anticipation in subsequent years that this efficiency will grow to 40%.source

We believe that companies that successfully implement AI and automation will reap the benefit of significant efficiency gains with the savings following through to the bottom line, resulting in margin expansion.source

Our automation and efficiency program reduced headcount by 10% as of the end of June with additional automation expected to be operational by year-end, providing incremental headcount efficiency.source

We continue to be pleased with the productivity gains that we are realizing as a result of the investments we are making in AI, in service tools, and in product innovation.source

With continued healthy new business pipelines and increasing adoption of AI tools in our product set, service operations and sales, we enter fiscal 2027 confident in our ability to continue winning new deals and create operating efficiencies that will help drive adjusted EPS growth.source

I think where a lot of our AI focus has been is on submission automation, document intelligence, claims workflow automation, AI enabled recorded statements, which improves claims handling efficiency and customer experience through automated summarization and insights and broad deployment of AI tools across the organization today.source

And lastly, we are reorganizing our internal structure, centralizing teams and embedding AI tools to streamline processes, thereby reducing the cost base of this business. To sum up, we are actively addressing near-term headwinds... and capturing meaningful efficiencies across our operations through planned AI.source

...which we think is one of the areas that has the most opportunity in terms of AI, automation, scalability and all of which we believe results in improving margins and improving scalability in every one of our divisions.source

Finally, we're beginning to see real AI-driven productivity gains, including $25 million in fiscal '27 and we're just getting started.source

In May, we announced the rollout of our agentic AI partnership model, offering up to 30% day 1 operational cost reduction with additional savings over time.source

Some of those are AI operating leverage type initiatives that create improvement in gross margin, which I think you see show up in our P&L, also continued expansion of our adjusted EBITDA margin as noted in the quarter.source

Utilizing better process, AI, and a lot of other innovative thinking. And the combination of those things is, you know, somewhere between 75 and 100 basis points in margin for owners.source

Lastly, to drive long-term margin improvement, we're aggressively implementing AI, artificial intelligence, initiatives to address our operating expenses cost base.source

Our Copilot attach rate on larger deals exceeds 70%, our products allow customers to adapt to an agentic world quickly and achieve measurable IT efficiencies faster.source

It is here, and it is funding our investments in EX and AI. And we expect to sustain our GAAP profitability.source

And we said that AI is just another lever in that toolkit. So that drove about 90 basis points of operational margin expansion in the quarter.source

Customers are now served faster and better through our stores and AI-powered virtual try-on experiences and the cost savings are flowing into higher returning investments that support customer growth and margin expansion.source

Even as we integrate that business, we remain on target through rigorous expense management and productivity gains from AI and other technologies.source

When completed, the full program is expected to result in annualized savings of $300 million to $350 million. This program extension expands our ongoing transformation agenda driving further organizational health, capturing efficiencies from AI adoption across the enterprise, and creating additional capacity to reinvest in our highest-return growth opportunities.source

In the quarter, adjusted SG&A expenses decreased across all 3 segments as we continue to drive durable and sustainable efficiencies in our operating model through technology enhancements and process efficiencies, including leveraging AI.source

Of the $150 million target, we expect approximately $60 million in savings from our automation initiatives, $15 million from strategic sourcing, and $20 million from our targeted fixed cost actions in our corporate center.source

We've invested in automation and technology to drive productivity and support margin expansion over time.source

For gross margin, we now expect to end the year closer to 70% as compared to the 69% we initially expected as we drive more AI content into our products offset by AI cost savings.source

What we're basically saying is by going up about 1.5 points on that adjusted EBITDA margin, we are seeing AI cost savings that will give us a bit structurally a better margin.source

Our conviction of the drivers of our long-term margin expansion potential - operational efficiencies, supply chain optimization, continued investment in automation and technology, and the scaling of our margin-accretive categories and offerings remains firmly in place.source

In the servicing side of things, we have put in some agentic capabilities that allowed us to take our manual tickets down by 70% and our triage time down by 75%.source

I think margins should improve as we get better productivity out of technology, including AI.source

Looking forward, we remain focused on driving margin improvements through our supplier diversification, productivity and automation initiatives.source

...being that much more efficient in the way we go to work for our customers, and that can be leveraging AI that can just be more effective call-time response that drives incremental margin as well.source

The scale advantages created through ABS, including AI-enabled productivity improvements and disciplined expense management, continue to lower unit costs across our operations, while increasing our capacity to invest.source

We will leverage AI and technology to drive productivity, through all aspects of our business.source

Higher technology-driven spend relates to investments to support our infrastructure, AI-enabled efficiencies, and ongoing business growth.source

As we look to expand margins and drive margins higher, automation is going to be a key lever associated with that.source

As a reminder, these actions represent the first phase of our 3-year plan to deliver approximately $20 million of cost reductions through manufacturing footprint optimization, increased automation and procurement efficiencies across our global supply chain.source

Our early adoption of open source has enabled us to scale AI efficiently to serve our 640 million users while also expanding margins and generating significant free cash flow.source

...so those are the things that we've been doing to make sure that we've got not only the monetization, but the margin profile that we want from leveraging AI.source

Excluding the tariff refund, gross margin increased approximately 90 basis points year-over-year, fueled primarily by successful AI and data-driven recalibrations of our markdown algorithm.source

You can expect us to continue to invest in our superpowers and advance innovation and other growth initiatives while driving supply chain savings through automation, AI, and other efficiencies.source

Non-GAAP operating margin was 23.3%, up from 22.1% in the second quarter of last year, driven by disciplined execution and the operating leverage we are building across the business, including efficiency gains from our own use of AI in internal operations.source

In engineering, AI is now embedded across the development life cycle. Across the majority of our teams, our internal measurements indicate a 34% improvement in engineering efficiency with pull request merge rates increasing 30% from our January baseline.source

Our targets are supported by several factors: the size and quality of our pipeline, the launch of new products, partnerships and AI-enabled capabilities and the operating leverage we expect to see as revenue scales through the second half.source

At that point, we also expect AI to have created a real and tangible impact on margin expansion.source

Operating margins are expanding in 2026 even as we invest aggressively in AI innovation.source

This expansion reflects our continued disciplined approach to head count spend, partially offset by AI costs. GAAP operating margin was 5% in Q2 compared to a negative operating margin of 3% in the year ago period.source

Our OpEx held flat year-over-year, both AI-driven efficiency and just what I would call operational efficiency in general is converting growth into earnings.source

Adjusted SG&A as a percentage of revenue was 8.6% which improved 20 basis points year over year, and outperformed the midpoint of our implied guidance range by 40 basis points, even as we continue to invest in our automation and scalability initiatives.source

Beyond its potential to unlock efficiencies in our cost structure, AI represents a meaningful opportunity to further enhance our care model, and support providers.source

On the investment side, guidance reflects continued investment across several fronts, new products and the proprietary intelligence layer that they're built on, AI-driven automation and efficiency initiatives, continued build-out of our Ignite and interoperability platform and the migration efforts already underway.source

Adjusted EBITDA of $46 million came in above the high end of our guidance range, driven by a significant improvement in gross margin, as we leverage AI and automation to improve both the quality and efficiency with which we deliver our services to our customers.source

Our profitability outlook expects continued gross margin improvement focused expense management and the benefits of our evolving AI enabled operating model.source

Approximately 90% of AI expenses will focus on responding to increased demand for our clinical AI suite, this will be recognized in cost of revenue, and we expect gross margins to trend in the mid- to high 80% range throughout the year.source

We're proving you can still post best-in-class software margins while investing heavily in clinical AI.source

Importantly, in the quarter, core margins across our software segments were down a modest 10 basis points, which includes investment in our AI team.source

Non-GAAP adjusted SG&A and R&D expenses, both grew 11%, with the increase in SG&A driven by higher expenses for Modeyso and Ziihera first-line GEA, and to a lesser extent, by investments in key commercial capabilities and digital and AI.source

We delivered 45.9% for the quarter, down 750 basis points versus the prior year, primarily reflecting continued pressure within the capital equipment-oriented portions of the segment, including automated stores and cryogenic systems, where lower volume levels, unfavorable fixed cost absorption and quality remediation activities continue to impact profitability.source

Our updated non-GAAP operating income outlook represents a $12.5 million reduction at the midpoint, reflecting the revenue adjustment, as well as targeted R&D investment and higher infrastructure costs associated with AI-driven discovery, which is partially offset by additional operating efficiencies.source

We saw margin tailwinds from incremental revenues and hosting efficiency programs offsetting the increased use of compute, including higher AI and ML usage.source