10-Q 1 gdyn-20240331.htm 10-Q gdyn-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38685
Grid Dynamics Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware83-0632724
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
5000 Executive Parkway, Suite 520
San Ramon, CA 94583
(Address of principal executive offices)
(650) 523-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareGDYNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x      No ¨
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x      No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨Accelerated filer
Non-accelerated filer¨Smaller reporting company¨
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨      No x
As of April 29, 2024, there were 76,521,182 shares of registrant’s common stock issued and outstanding.



TABLE OF CONTENTS

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
the evolution of the digital engineering and information technology services landscape facing our customers and prospects;
our ability to educate the market regarding the advantages of our digital transformation products;
our ability to maintain an adequate rate of revenue growth;
our future financial and operating results;
our business plan and our ability to effectively manage our growth and associated investments, including our GigaCube growth strategy;
beliefs and objectives for future operations;
our ability to expand a leadership position in enterprise-level digital transformation;
our ability to attract and retain customers;
our ability to further penetrate our existing customer base;
our ability to maintain our competitive technological advantages against new entrants in our industry;
our ability to timely and effectively scale and adapt our existing technology;
our ability to innovate new products and services and bring them to market in a timely manner;
our ability to maintain, protect, and enhance our brand and intellectual property;
our ability to capitalize on changing market conditions;
our ability to develop strategic partnerships;
benefits associated with the use of our services;
our ability to expand internationally;
our ability to raise financing in the future;
operating expenses, including changes in research and development, sales and marketing, and general administrative expenses;
the effects of seasonal trends on our results of operations;
our ability to grow and manage growth profitably and retain our key employees;
the expected benefits and effects of strategic acquisitions of business, products or technologies;
our ability to maintain the listing of our shares of common stock on the NASDAQ;
costs related to being a public company;
changes in applicable laws or regulations;
the military action launched by Russian forces in Ukraine, the actions that have been and could be taken by other countries, including new and stricter sanctions and actions taken in response to such sanctions, and the effect of these developments on our business and results of operations;
the possibility that we have been and may continue to be adversely affected by macroeconomic conditions, inflationary pressures, the geopolitical climate and other economic, business, and/or competitive factors; and
other risks and uncertainties indicated in this Quarterly Report on Form 10-Q, including those set forth in Item 1A, “Risk Factors.”
ii

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in in Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, new risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on any forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in such forward-looking statements.
Neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. Moreover, the forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, restructurings, joint ventures, partnerships, or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
iii

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of
March 31,
2024
December 31,
2023
Assets
Current assets
Cash and cash equivalents$249,437 $257,227 
Accounts receivable, net of allowance of $1,389 and $1,363 as of March 31, 2024 and December 31, 2023, respectively
53,039 49,824 
Unbilled receivables5,649 3,735 
Prepaid income taxes5,609 3,998 
Prepaid expenses and other current assets8,768 9,196 
Total current assets322,502 323,980 
Property and equipment, net12,552 11,358 
Operating lease right-of-use assets, net10,214 10,446 
Intangible assets, net25,531 26,546 
Goodwill53,868 53,868 
Deferred tax assets7,220 6,418 
Other noncurrent assets3,374 2,549 
Total assets$435,261 $435,165 
Liabilities and equity
Current liabilities
Accounts payable$2,935 $3,621 
Accrued compensation and benefits19,914 19,263 
Accrued income taxes9,895 8,828 
Operating lease liabilities, current4,491 4,235 
Accrued expenses and other current liabilities5,885 6,276 
Total current liabilities43,120 42,223 
Deferred tax liabilities3,164 3,274 
Operating lease liabilities, noncurrent6,166 6,761 
Total liabilities52,450 52,258 
Commitments and contingencies (Note 14)
Stockholders’ equity
Common stock, $0.0001 par value; 110,000,000 shares authorized; 76,521,182 and 75,887,475 issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
8 8 
Additional paid-in capital401,541 397,511 
Accumulated deficit(19,834)(15,886)
Accumulated other comprehensive income/(loss)1,096 1,274 
Total stockholders’ equity382,811 382,907 
Total liabilities and stockholders’ equity$435,261 $435,165 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS
(In thousands, except per share data)
Three Months Ended
March 31,
20242023
Revenues$79,817 $80,080 
Cost of revenue52,152 51,505 
Gross profit27,665 28,575 
Operating expenses
Engineering, research, and development4,372 4,203 
Sales and marketing7,292 5,634 
General and administrative21,543 24,730 
Total operating expenses33,207 34,567 
Loss from operations
(5,542)(5,992)
Other income/(expense), net
2,525 1,682 
Loss before income taxes
(3,017)(4,310)
Provision for income taxes931 3,660 
Net loss
$(3,948)$(7,970)
Foreign currency translation adjustments, net of tax(178)495 
Comprehensive loss
$(4,126)$(7,475)
Loss per share
Basic$(0.05)$(0.11)
Diluted$(0.05)$(0.11)
Weighted average shares outstanding
Basic76,151 74,459 
Diluted76,151 74,459 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2

GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common StockAdditional
paid-in
capital
Accumulated deficit
Accumulated
other
comprehensive
income/(loss)
Total
stockholders’
equity
SharesAmount
Balance at December 31, 202375,887 $8 $397,511 $(15,886)$1,274 $382,907 
Net loss— — — (3,948)— (3,948)
Stock-based compensation— — 11,339 — — 11,339 
Exercise of stock options69 — 260 — — 260 
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards565 — (7,569)— — (7,569)
Foreign currency translation adjustment, net of tax— — — — (178)(178)
Balance at March 31, 202476,521 $8 $401,541 $(19,834)$1,096 $382,811 

Common StockAdditional
paid-in
capital
Accumulated deficit
Accumulated
other
comprehensive
income/(loss)
Total
stockholders’
equity
SharesAmount
Balance at December 31, 202274,156 $7 $378,006 $(14,121)$(848)$363,044 
Net loss— — — (7,970)— (7,970)
Stock-based compensation— — 13,257 — — 13,257 
Exercise of stock options1 — 10 — — 10 
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards739 — (8,951)— — (8,951)
Foreign currency translation adjustment, net of tax— — — — 495 495 
Balance at March 31, 202374,896 $7 $382,322 $(22,091)$(353)$359,885 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
20242023
Cash flows from operating activities
Net loss$(3,948)$(7,970)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization2,914 1,645 
Operating lease right-of-use assets amortization expense998 650 
Bad debt expense86 20 
Deferred income taxes(912)(923)
Stock-based compensation11,339 13,257 
Other (income)/expenses, net
(287)23 
Changes in assets and liabilities:
Accounts receivable(3,301)(2,613)
Unbilled receivables(1,914)(921)
Prepaid income taxes(1,611)(1,639)
Prepaid expenses and other current assets382 (368)
Accounts payable(728)(691)
Accrued compensation and benefits651 6,054 
Operating lease liabilities(1,105)(462)
Accrued income taxes1,067 3,306 
Accrued expenses and other current liabilities(391)2,306 
Net cash provided by operating activities3,240 11,674 
Cash flows from investing activities
Purchase of property and equipment(3,197)(1,589)
Other investing activities, net(739) 
Net cash used in investing activities(3,936)(1,589)
Cash flows from financing activities
Proceeds from exercises of stock options571 10 
Payments of tax obligations resulted from net share settlement of vested stock awards(7,569)(8,951)
Net cash used in financing activities
(6,998)(8,941)
Effect of exchange rate changes on cash and cash equivalents(96)495 
Net increase/(decrease) in cash and cash equivalents(7,790)1,639 
Cash and cash equivalents, beginning of period257,227 256,729 
Cash and cash equivalents, end of period$249,437 $258,368 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$2,495 $2,926 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

GRID DYNAMICS HOLDINGS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
Note 1 — Nature of operations and summary of significant accounting policies
Grid Dynamics Holdings, Inc. (the “Company”) is a leading provider of technology consulting, platform and product engineering, and advanced analytics services. The Company’s core business includes cloud platform and product engineering, supply chain and advanced manufacturing, and data and machine learning platform engineering. Grid Dynamics also helps organizations become more agile and create innovative digital products and experiences through its deep expertise in emerging technology, such as artificial intelligence (“AI”), data science, cloud computing, big data and DevOps, lean software development practices and a high-performance product culture. The Company’s headquarters and principal place of business is in San Ramon, California.
The following is a summary of critical accounting policies consistently applied in the preparation of the accompanying unaudited condensed consolidated financial statements. Full description of significant accounting policies is provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC on February 29, 2024.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of the Company’s management, necessary for the fair presentation of the results of operations for the interim periods. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. These interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023 included in the Company’s annual report on Form 10-K that the Company filed with the SEC on February 29, 2024.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries that are directly or indirectly owned or controlled. Intercompany transactions and balances have been eliminated upon consolidation.
The Company provides services to its customers utilizing its own personnel as well as personnel from subcontractors. One of the subcontractors exclusively supports and performs services on behalf of the Company and its customers. The Company had no ownership in this subcontractor (“Affiliate”) as of March 31, 2024. The Company is required to apply accounting standards which address how a business enterprise should evaluate whether it has a controlling financial interest in a variable interest entity (“VIE”) through means other than voting rights and accordingly should determine whether or not to consolidate the entity. The Company has determined that it is required to consolidate the Affiliate because the Company has the power to direct the VIE’s most significant activities and is the primary beneficiary of the Affiliate. The assets and liabilities of the Affiliate primarily consist of inter-company balances and transactions all of which have been eliminated in consolidation. There was minimal activity in the Affiliate during the three months ended March 31, 2024.
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with the U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and such differences could be material. Significant estimates include determination of fair value, useful lives and recoverability of intangible assets and goodwill, valuation of stock-based compensation and contingent consideration payable, determination of provision for income taxes, deferred tax assets and liabilities and uncertain tax positions.

5

Allowance for credit losses
The Company maintains an allowance against accounts receivable for the estimated probable losses on uncollectible accounts. The allowance is based upon historical loss experience, as adjusted for the current market conditions and forecasts about future economic conditions. As of March 31, 2024 and December 31, 2023 the Company recorded $1.4 million of allowance for credit losses.
Stock-based compensation
The Company recognizes the cost of its stock-based awards based on the fair value of these awards at the date of grant. The fair value of service-based and performance based awards without market conditions at the date of grant is based on the closing price of the Company’s shares on NASDAQ. For performance awards with market conditions the grant date fair value is measured using the Monte-Carlo model. Grant-date fair value of stock options is estimated using the Black-Scholes-Merton option pricing model. The model requires management to make a number of key assumptions including expected volatility, expected term, risk-free interest rate, and expected dividends. The Company evaluates the assumptions used to value its share-based awards on each grant date. For an award with graded vesting that is subject only to a service condition (e.g., time-based vesting), the Company uses the straight-line attribution method under ASC Topic 718 under which it recognizes compensation cost on a straight-line basis over the total requisite service period for the entire award (i.e., over the requisite service period of the last separately-vesting tranche of the award). For awards with performance conditions the compensation cost recognized is based on the actual or expected achievement of the performance condition based on the graded attribution method. Additionally, the Company applies the “floor” concept so that the amount of compensation cost that is recognized as of any date is at least equal to the grant-date fair value of the vested portion of the award on that date. That is, if the straight-line expense recognized to date is less than the grant date fair value of the award that is legally vested at that date, the company will increase its recognized expense to at least equal the fair value of the vested amount. The requisite service period, which is the vesting period, of service-based and performance-based awards is typically 4 years and 3 years, respectively. The Company made an accounting policy election to account for forfeitures when they occur.
Prior period reclassifications
The Company presented and analyzed its revenues by customer locations attributing revenues based upon billed customer location. Effective December 31, 2023, the Company attributes revenues to geographic regions based upon location of the customer served irrespective of the location billed, or the location of the delivery center performing the work. The Company believes this change allows it to more effectively analyze its geographies and associated risks. This change did not result in any adjustments to our previously issued financial statements and were applied retrospectively beginning on January 1, 2021. Comparative information for the three months ended March 31, 2023 is presented in the following table:
Three Months Ended
March 31, 2023
As reported
Reclassified
Customer Location(in thousands)
North America$63,949 $60,137 
Europe15,894 15,908 
Other237 4,035 
Total Revenues$80,080 $80,080 
Recently adopted accounting pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s ASC. The Company will adopt according these changes according to the various timetables the FASB specifies.
There were no recently adopted accounting standards which had a material impact on the Company’s consolidated financial position, results of operations, changes in stockholders’ equity and cash flows.
6

Recently issued accounting pronouncements
On November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, that expands disclosures requirements around significant segment expenses and other segment items that are included in reported measure of segment profit or loss. The guidance also requires entities to provide in their interim financial reports all disclosures about a reportable segment’s profit or loss and assets that are currently required only on annual basis. Guidance also obliges entities with a single reportable segment to provide all the disclosures under amended ASC 280 in their interim and annual financial statement. The new guidance is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods within fiscal years beginning after December 15, 2024 on a retrospective basis, The Company is currently evaluating the impact on this guidance on its consolidated financial statements.
On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) Improvements to Income Tax Disclosures, which expands annual disclosure requirements around income taxes primarily related to the rate reconciliation and income taxes paid. The new guidance is effective for annual reporting periods beginning after December 15, 2024 with early adoption permitted. The guidance will be applied on a prospective basis with a retrospective application option. The Company is currently evaluating the impact on this guidance on its consolidated financial statements.
Note 2 — Acquisitions
NextSphere — On April 18, 2023, the Company completed the acquisition of 100% of NextSphere Technologies, Inc. (“NextSphere”). Founded in 2006, NextSphere is headquartered in Tampa, FL, has an engineering presence in Phoenix, AZ, and operates two large engineering centers in India’s tech hubs of Hyderabad and Chennai. NextSphere specializes in modern application development, systems monetization, product development, cloud and infrastructure services, and quality assurance. Over the years, NextSphere has worked with several brands across numerous industry verticals with expertise in Healthcare, Fintech, and CPG/Manufacturing industries. The Company believes this acquisition will support the Company’s objectives of enhancing its technical capabilities, expanding its global footprint, and increasing its client base. The total purchase consideration is $25.2 million and consists of cash consideration of $24.3 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $0.9 million. The maximum amount of potential contingent cash consideration is $2.0 million. The contingent consideration is payable based on revenue and gross profit metrics to be achieved by NextSphere within 12 months. The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout. During the third quarter of 2023 the Company concluded that NextSphere was not going to achieve required performance metrics and has written-off all related contingent consideration liability.
Mutual Mobile — On December 23, 2022, the Company acquired 100% of the equity interest of the software company Mutual Mobile Inc. (“Mutual Mobile”). Founded in 2009, Mutual Mobile is based in the United States and India, offers end-to-end design and development of next-generation applications, combining mobile, augmented/virtual/mixed reality, and cloud edge/IoT practices. The acquisition of Mutual Mobile added approximately 180 employees to the Company’s headcount. The acquisition will accelerate Company’s strategic expansion into the India engineering market and further solidifies Grid Dynamics’ commitment to global growth. The total purchase consideration is $16.1 million and consists of cash consideration of $12.8 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $3.3 million. The maximum amount of potential contingent cash consideration is $5.0 million. The contingent consideration is payable based on revenue and gross profit metrics to be achieved by Mutual Mobile within 12 months. The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout. During the third quarter of 2023 the Company concluded that Mutual Mobile was not going to achieve required performance metrics and has written-off all related contingent consideration liability.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:
7


NextSphereMutual Mobile
(in thousands)
Current assets$9,708 $4,982 
Property, plant and equipment192 132 
Intangible assets9,906 3,749 
Goodwill9,031 8,879 
Other noncurrent assets511 102 
Total assets acquired$29,348 $17,844 
Accounts payable, accrued expenses and other liabilities(1,990)(1,576)
Deferred taxes(2,427)(686)
Total liabilities assumed$(4,417)$(2,262)
Purchase price allocation$24,931 $15,582 
Current assets acquired include cash and cash equivalents in the amount of $6.4 million for NextSphere and $3.5 million for Mutual Mobile. The purchase price for all acquisitions was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above.
The goodwill recognized as a result of the NextSphere acquisition represents the value the Company expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach as well as the assembled workforce acquired. The goodwill is not deductible for income tax purposes. The goodwill recognized as a result of the Mutual Mobile acquisition is attributable to synergies expected to be achieved by combining the businesses of the Company and Mutual Mobile, expected future contracts, the assembled workforce acquired and other factors. The goodwill is not deductible for income tax purposes.
During the fourth quarter of 2023, the Company finalized working capital adjustment for NextSphere that resulted in a decrease of original purchase price in the amount of $0.3 million and updated fair value of deferred taxes by $0.2 million. These adjustments resulted in a corresponding net change in goodwill by $0.1 million. The Company then finalized the fair value of the assets acquired and liabilities assumed in the acquisition of NextSphere.
During the fourth quarter of 2023, the Company finalized working capital adjustment for Mutual Mobile which reduced the original purchase price by $0.5 million and decreased fair value of deferred taxes by $0.2 million. These adjustments resulted in a corresponding net change in goodwill by $0.7 million. The Company then finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Mutual Mobile.
The estimated fair value, useful lives and amortization methods of identifiable intangible assets as of the date of acquisition updated for any changes as of March 31, 2024 are as follows:
NextSphereMutual Mobile
Fair ValueUseful LifeFair ValueUseful Life
(in thousands, except years)
Customer relationships$8,415 10 years$3,453 8 years
Acquired software995 2.5 years 
Trade name496 2 years152 4 years
Non-compete agreements 144 2 years
Total identified intangible assets$9,906 $3,749 
The Company used the acquisition method of accounting for all acquisitions, and consequently, the results of operations for all acquisitions are reported in the consolidated financial statements from the dates of acquisition. Pro forma results of operations have not been presented because the effect of the acquisitions on the Company’s condensed consolidated financial statements was not material individually or in the aggregate.



Note 3 — Fair value
Estimates of fair value of financial instruments not carried at fair value on a recurring basis are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The Company’s financial assets and liabilities, are generally short-term in nature; therefore, the carrying value of these items approximates their fair value. The following table summarizes certain fair value information as of March 31, 2024 and December 31, 2023 for financial assets and liabilities measured at fair value on a recurring basis, as well as estimated fair values of certain other financial assets and liabilities not measured on a recurring basis:
Fair Value Hierarchy
BalanceEstimated Fair ValueLevel 1Level 2Level 3
(in thousands)
March 31, 2024
Financial Assets:
Cash equivalents:
Money market funds
$206,363 $206,363 $206,363 $ $ 
Short-term investments:
Time deposits$739 $739 $ $739 $ 
Long-term investments:
Marketable equity securities
$731 $731 $731 $ $ 
Non-marketable equity securities
$1,250 
December 31, 2023
Financial Assets:
Cash equivalents:
Money market funds
$204,388 $204,388 $204,388 $ $ 
Long-term investments:
Marketable equity securities
$421 $421 $421 $ $ 
Non-marketable equity securities
$1,250 
Investments in equity securities
The Company holds investments in public and privately-held entities. As the Company does not have either controlling interest or significant influence over these entities investments are accounted using two different methods depending on the type of equity investments:
Equity investments in public entities are measured and carried at fair value with any changes recognized in Other income/(expense), net in the condensed consolidated statements of loss and comprehensive loss.
Equity investments that do not have readily determinable fair value are accounted for under the fair value measurement alternative. Under the measurement alternative, the carrying value is measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. All gains and losses on non-marketable securities, whether realized or unrealized, are recognized in Other income/(expense), net in the condensed consolidated statements of loss and comprehensive loss.
The Company classifies its investments in equity securities in Other noncurrent assets in the Company’s unaudited condensed consolidated balance sheets.
Investment in non-marketable equity securities held by the Company as of March 31, 2024 and December 31, 2023 represents investment in its related party, a company affiliated with the member of the Company’s Board of Directors, that does not have readily determinable fair values.
Note 4 — Property and equipment, net
Property and equipment, net consisted of the following:



Estimated
Useful
Life
As of
March 31,
2024
December 31,
2023
(in years)(in thousands)
Computers and equipment
2-6
$14,224 $13,837 
Furniture and fixtures
3-10
1,558 1,732 
Leasehold improvements
2-8
1,338 1,343 
Software
3-5
1,236 1,236 
Machinery and automobiles
4-6
581 570 
$18,937 $18,718 
Less: Accumulated depreciation and amortization(12,908)(12,441)
$6,029 $6,277 
Capitalized software development costs
2
$11,472 $9,050 
Less: Accumulated amortization(4,949)(3,969)
$6,523 $5,081 
Property and equipment, net$12,552 $11,358 

Note 5 — Intangible assets, net
Intangible assets, net consisted of the following:
Estimated
Useful
Life
As of
March 31,
2024
December 31,
2023
(in years)(in thousands)
Customer relationships
8-12
$27,839 $27,839 
Tradenames
2-10
5,324 5,324 
Acquired software2.5995 995 
Non-compete agreements2584 584 
$34,742 $34,742 
Less: Accumulated amortization(9,211)(8,196)
Intangible assets, net$25,531 $26,546 
Based on the carrying value of the Company’s existing intangible assets as of March 31, 2024, the estimated amortization expense for the future years is as follows:
Amount
(in thousands)
2024 (excluding three months ended March 31, 2024)
3,035 
20253,625 
20263,168 
20273,130 
20283,107 
Thereafter9,466 
Total$25,531 


Note 6 — Accrued expenses and other current liabilities



The components of accrued expenses and other current liabilities were as follows:
As of
March 31,
2024
December 31, 2023
(in thousands)
Accrued expenses$3,564 $2,943 
Customer deposits718 756 
Deferred revenue610 577 
Value added tax payable444 993 
Other liabilities549 1,007 
Total accrued expenses and other current liabilities$5,885 $6,276 
As of December 31, 2023 the Company had payable to its related party, a company affiliated with the member of the Company’s Board of Directors, in the amount of $0.6 million that was classified as Other current liabilities in unaudited condensed consolidated balance sheet. The Company fully settled this payable during the first quarter of 2024. There were no payables to related parties as of March 31, 2024.
Note 7 — Debt
Revolving Credit Facility — On March 15, 2022, the Company entered into a Credit Agreement (the “2022 Credit Agreement”) by and among the Company, as borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “Agent”). The 2022 Credit Agreement provides for a secured multicurrency revolving loan facility with an initial aggregate principal amount of up to $30.0 million, with a $10.0 million letter of credit sublimit. The Company may increase the size of the revolving loan facility up to $50.0 million, subject to certain conditions and additional commitments from existing and/or new lenders. The 2022 Credit Agreement matures on March 15, 2025.
At the Company’s option, borrowings under the 2022 Credit Agreement accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 1.0% to 1.5%, (ii) an adjusted term Secured Overnight Financing Rate (“SOFR”) or adjusted the Euro Interbank Offer Rate (“EURIBOR”) (based on one, three or six-month interest periods) plus a margin ranging from 2.0% to 2.5%, or (iii) an adjusted daily simple SOFR rate (or SONIA rate in the case of loans denominated in pounds sterling, or SARON rate in the case of loans denominated in Swiss francs), plus a margin ranging from 2.0% to 2.5%, in each case, with the applicable margin determined based on the Company’s consolidated total leverage ratio. The Company is also obligated to pay other closing fees, administration fees, commitment fees and letter of credit fees customary for a credit facility of this size and type.
The Company’s obligations under the 2022 Credit Agreement are required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the 2022 Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the personal property of the Company and the Company’s subsidiary guarantors.

The 2022 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments and acquisitions, make certain restricted payments, dispose of assets, enter into certain transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the 2022 Credit Agreement. The Company is also required to maintain compliance with a consolidated total leverage ratio, determined in accordance with the terms of the 2022 Credit Agreement. As of March 31, 2024, the Company was in compliance with all covenants contained in the 2022 Credit Agreement.
As of March 31, 2024 and December 31, 2023, respectively, the Company did not have any outstanding debt under the 2022 Credit Agreement.
Note 8 — Revenues
Disaggregation of revenues
The tables below present disaggregated revenues from contracts with customer by customer location, industries and contract-types. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues



and cash flows are affected by industry, market and other economic factors. The Company has a single reportable segment for the three months ended March 31, 2024 and 2023.
The following table shows the disaggregation of the Company’s revenues by major customer location. Revenues are attributed to geographic regions based upon location of the customer served irrespective of the location billed, or the location of the delivery center performing the work. Substantially all of the revenue in our North America region relates to operations in the United States.
Three Months Ended
March 31,
20242023
Customer Location(in thousands)
North America$63,740 $60,137 
Europe13,402 15,908 
Other2,675 4,035 
Total Revenues$79,817 $80,080 
The following table shows the disaggregation of the Company’s revenues by main vertical markets:
Three Months Ended
March 31,
20242023
Vertical(in thousands)
Retail$24,629 $25,396 
Technology, Media and Telecom24,033 26,811 
Finance10,243 6,515 
CPG/Manufacturing(1)
9,559 12,646 
Healthcare and Pharma
3,009 3,152 
Other8,344 5,560 
Total Revenues$79,817 $80,080 
__________________________
(1)CPG stands for Consumer Packaged Goods
The following table shows the disaggregation of the Company’s revenues by contract types:
Three Months Ended
March 31,
20242023
Contract Type(in thousands)
Time-and-material$74,820 $70,526 
Fixed-fee4,412 9,554 
Other revenues585  
Total Revenues$79,817 $80,080 
Contract balances

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. A contract liability, or deferred revenue, consists of advance payments and billings in excess of revenues recognized. As of March 31, 2024 and December 31, 2023 the Company did not have contract assets recorded in its unaudited condensed consolidated balance sheet. Contract liabilities were $0.6 million as of March 31, 2024 and December 31, 2023, respectively. These balances were classified as Accrued and other current liabilities in the unaudited condensed consolidated balance sheets.    



During the first quarter of 2024, the Company recognized $0.3 million of revenues that were included in Accrued and other current liabilities at December 31, 2023. During the first quarter of 2023, the Company recognized $0.4 million of revenues that were included in Accrued and other current liabilities at December 31, 2022.
Remaining performance obligations
As of March 31, 2024, the aggregate amount of transaction price allocated to remaining performance obligations was $4.7 million. Our remaining performance obligations represent commitments for future services for which work has not been performed and revenues are to be recorded in future periods. The Company expects to recognize approximately 50.3% of its remaining performance obligations as revenues during nine months of fiscal year 2024, and an additional 49.7% in 2025. Remaining performance obligations include currently recorded contract liability as well as amounts that will be invoiced in future periods and excludes the contracts that meet at least one of the following criteria under ASC Topic 606 “Revenue from Contracts with Customers”:
1)contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,
2)contracts for which the Company recognizes revenues based on the right to invoice for services performed,
3)variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or
4)variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property.
Many of the Company’s contracts met one or more of these exemptions as of March 31, 2024.
Customers concentration
The following table shows the amount of revenue derived from each customer exceeding 10% of the Company’s revenue:
Three Months Ended
March 31,
20242023
Customer 116.7 %13.9 %
The following table shows number of customers exceeding 10% of the Company’s billed and unbilled receivable balances:
As of
March 31,
2024
December 31,
2023
Accounts receivable11
Unbilled receivable32
Transactions with related parties
During the three months ended March 31, 2024 and 2023, the Company conducted transaction with a number of companies affiliated with the members of the Company’s Board of Directors. As a result, the Company recorded revenues from its related parties of $2.8 million and $1.8 million during the first quarter of 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023 accounts receivable from related parties were $1.9 million and $0.9 million, respectively.

Note 9 — Leases
A major part of the Company’s lease obligations is for office real estate. The Company may also lease corporate apartments, cars and office equipment. Payments on some of our leases may depend on index or rate, including Consumer Price Index. Such payments are included in the calculation of lease liability and assets at the commencement dates, all future changes are accounted as variable payments similar to other variable payments, such as common area maintenance, property and other taxes, utilities and insurance that are based on the lessor’s cost.



The Company’s leases have remaining lease terms ranging from 0.1 to 6.2 years. Certain lease agreements may include the option to extend or terminate before the end of the contractual term and are often non-cancelable or cancellable only by the payment of penalties. The Company includes these options in the lease term when it is reasonably certain that they will be exercised.
As of March 31, 2024 and December 31, 2023, the Company had no finance leases.
Operating lease expense is recorded on a straight-line basis over the lease term. During the three months ended March 31, 2024 and 2023 lease costs were as follows:
Three Months Ended
March 31,
20242023
(in thousands)
Operating lease cost$1,193 $781 
Variable lease cost76 194 
Short-term lease cost54 98 
Total lease cost$1,323 $1,073 
Supplemental information related to operating lease transactions is as follows:
Three Months Ended
March 31,
20242023
(in thousands)
Lease liability payments$1,168 $727 
Lease assets obtained in exchange for liabilities$853 $1,022 
Non-cash net change in lease assets due to lease modifications$40 $ 
Non-cash net change in lease liability due to lease modifications$(40)$ 
Weighted average remaining lease term and discount rate as of March 31, 2024 and December 31, 2023 is as follows:
As of
March 31,
2024
December 31,
2023
Weighted average remaining lease term, in years3.23.4
Weighted average discount rate7.2 %7.0 %
As of March 31, 2024, operating lease liabilities will mature as follows:
Lease Payments
(in thousands)
2024 (excluding three months ended March 31, 2024)
$3,461 
20253,700 
20262,331 
20272,015 
2028285 
Thereafter268 
Total lease payments12,060 
Less: imputed interest(1,403)
Total$10,657 
There were no material lease agreements signed with related parties as of March 31, 2024 and December 31, 2023.



As of March 31, 2024, the Company had committed to payments of $0.4 million related to operating lease agreement that had not yet commenced as of March 31, 2024. This operating lease will commence in 2024 with the lease term of 6.2 years. The Company does not have finance lease agreements that had not yet commenced.
Note 10 — Income taxes
The Company recorded income tax expense of $0.9 million and $3.7 million for the three months ended March 31, 2024 and 2023, respectively. The Company’s effective tax rate was (30.9)% and (84.9)% for the first quarter of 2024 and 2023, respectively.
The change in the effective tax rate for the three months ended March 31, 2024, as compared to the same period in 2023, was attributable mainly to Section 162(m) compensation deduction limitations, foreign rate differential, and foreign inclusion adjustments.
For the three months ended March 31, 2024, the Company used a discrete effective tax rate method to calculate income taxes due to sensitivity of the forecast. Through March 31, 2024, the Company determined that small changes in the estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate causing material distortion in the year-to-date tax provision. As of March 31, 2024, the Company is unable to produce a reliable estimate of ordinary income for the quarter and year ending 2024 due to the inability to reliably or accurately forecast 2024 operating expenses. Similarly, for the three months ended March 31, 2024, due to uncertainties created by geopolitical risks, the Company’s estimated annual effective tax rate method would not provide a reliable estimate and therefore was not used.
Note 11 — Stock-based compensation
Employee stock-based compensation cost recognized in the condensed consolidated statements of loss and comprehensive loss was as follows:
Three Months Ended
March 31,
20242023
(in thousands)
Cost of revenue$482 $460 
Engineering, research, and development1,288 1,653 
Sales and marketing1,677 1,055 
General and administrative7,892 10,089 
Total stock-based compensation$11,339 $13,257 
Stock Options
2018 Plan
Stock option activity under the Company’s 2018 Plan is set forth below:
Number of OptionsWeighted Average Exercise PriceAggregate Intrinsic Value (in thousands)Weighted Average Contractual Term
(in years)
Options outstanding as of December 31, 2023
1,486,428 $3.54 $14,552 
Options exercised(65,533)$3.54 
Options outstanding as of March 31, 2024
1,420,895 $3.54 $12,433 4.8
Options vested and exercisable as of March 31, 2024
1,420,895 $3.54 $12,433 4.8
As of March 31, 2024, the Company fully recognized stock-based compensation costs related to 2018 Plan options.
2020 Plan
As of March 31, 2024, 1.9 million shares were available for grant under 2020 Incentive Stock Plan (“2020 Plan”).



Stock option activity under the Company’s 2020 Plan is set forth below:
Number of OptionsWeighted Average Exercise PriceAggregate Intrinsic Value (in thousands)Weighted Average Contractual Term
(in years)
Options outstanding as of December 31, 2023
3,165,715 $12.79 $7,197 
Options granted19,000 $13.54 
Options exercised(3,587)$7.90 
Options forfeited(43,175)$14.75 
Options expired(27,541)$17.46 
Options outstanding as of March 31, 2024
3,110,412 $12.73 $5,066 7.3
Options vested and exercisable as of March 31, 2024
1,834,453 $11.73 $4,470 6.5
The Company elected the policy to account for forfeitures upon occurrence. The total unrecognized compensation expenses related to 2020 Stock Plan options as of March 31, 2024 was $7.7 million to be expensed on a straight-line basis over the remaining 2.5 years.
Restricted Stock Units
RSUs granted do not participate in earnings, dividends, and do not have voting rights until vested.
The following table summarizes activity of the Company’s RSUs for the three months ended March 31, 2024:
Number of SharesWeighted Average Grant Date Fair Value
Unvested awards as of December 31, 2023
729,213 $11.99 
Awards granted1,411,350 $13.34 
Awards vested and released(306,063)$11.34 
Awards forfeited(1,500)$13.54 
Unvested awards as of March 31, 2024
1,833,000 $13.14 
The total unrecognized compensation expenses related to 2020 Stock Plan RSUs as of March 31, 2024 was $20.3 million to be expensed on a straight-line basis over 2.4 years.
Performance Stock Units
The following table summarizes activity of the Company’s PSUs for the three months ended March 31, 2024:
Number of SharesWeighted Average Grant Date Fair Value
Unvested awards as of December 31, 2023(1)
822,895 $11.97 
Awards granted (2)
1,626,600 $14.51 
Performance achievement adjustment (3)
200,614 $14.21 
Awards vested and released(822,895)$11.97 
Unvested awards as of March 31, 2024
1,827,214 $14.48 
__________________________
(1)Reported at the certified performance achievement of 170% of the target shares granted.
(2)Reported of 100% of the target shares granted.



(3)Reported at the estimate performance achievement of 137% for the first tranche of the target shares granted in 2024.
The total estimated unrecognized compensation expenses related to 2020 Stock Plan PSUs as of March 31, 2024 was $22.7 million to be expensed over 1.9 years.
Note 12 — Earnings per share
Basic earnings per share (“EPS”) is computed by dividing the net income applicable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the same period. Diluted EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, restricted stock units, and performance stock units. The dilutive effect of potentially dilutive securities is reflected in diluted EPS in order of dilution and by application of the treasury stock method and the if-converted method for stock-based compensation and convertible preferred securities, respectively.
The following table sets forth the computation of basic and diluted EPS of common stock as follows:
Three Months Ended
March 31,
20242023
(in thousands,
except per share data)
Numerator for basic and diluted loss per share
Net loss
(3,948)(7,970)
Denominator for basic and diluted loss per share
Weighted-average shares outstanding – basic and diluted
76,15174,459
Net loss per share
Basic$(0.05)$(0.11)
Diluted$(0.05)$(0.11)
The following table represents the number of share equivalents outstanding during the period that were excluded from the calculation of diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect.
Three Months Ended
March 31,
20242023
(in thousands)
Stock options to purchase common stock4,616 4,697 
Restricted stock units1,962 2,221 
Performance stock units2,279 1,102 
Total8,857 8,020 
Note 13 — Segment and geographic information
The Company’s business activities have similar economic characteristics and are similar in all of the following areas: the nature of services, the type or class of customer for which they provide their services, and the methods used to provide their services. In accordance with ASC Topic 280, Segment Reporting, the Company has determined it has single operating and reportable segments. This determination is consistent with the financial information regularly reviewed by the chief operating decision maker who assesses the Company’s performance and allocates resources based on the Company’s consolidated financial information.



Geographic Information
The following table presents revenues by customer location for the three months ended March 31, 2024 and 2023. The Company attributes customers to respective countries based upon location of the customer served. It differs from the prior period definition that was based upon location of the customer billed. Refer to Note 1 for more details on reclassifications.
Three Months Ended
March 31,
20242023
(in thousands)
United States$63,509 $59,761 
United Kingdom5,509 8,995 
Netherlands2,500 3,473 
Other8,299 7,851 
Total Revenues$79,817 $80,080 
Long-lived assets include property and equipment, net of accumulated depreciation and amortization. Physical locations and values of the Company’s long-lived assets are summarized below:
As of
March 31,
2024
December 31,
2023
(in thousands)
Serbia$2,575 $2,457 
United States2,498 2,174 
Ukraine2,496 2,437 
Poland1,875 1,522 
Other3,108 2,768 
Total$12,552 $11,358 
Note 14 — Commitments and contingencies
Legal Matters
The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. Management evaluates each claim and provides for potential loss when the claim is probable to be paid and reasonably estimable. While adverse decisions in certain of these litigation matters, claims and administrative proceedings could have a material effect on a particular period’s results of operations, subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that any future accruals with respect to these currently known contingencies would not have a material effect on the financial condition, liquidity or cash flows of the Company. There were no material amounts required to be reflected in these unaudited condensed consolidated financial statements related to contingencies.
Note 15 — Subsequent events
The Company performed its subsequent event procedures through May 2, 2024, the date these unaudited condensed consolidated financial statements were issued.



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion and analysis of the financial condition and results of operations of Grid Dynamics Holdings, Inc. should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2023, which has been filed with the Securities and Exchange Commission (“SEC”) on February 29, 2023.
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act) that involve risks and uncertainties. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seek,” “intends,” “plans,” “estimates,” “projects,” “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. Actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements,” included elsewhere in this Quarterly Report on Form 10-Q.
Overview
Grid Dynamics Holdings, Inc. (“Grid Dynamics,” “GDH,” the “Company,” “we,” “us,” or “our”) is a leading provider of technology consulting, platform and product engineering, and advanced analytics services. As a forefront provider of technology consulting, platform and product engineering services, and bespoke software development, we draw from over 7 years of leadership in Enterprise artificial intelligence (“AI”), coupled with profound expertise in cloud, data, and advanced analytics. Our commitment to engineering excellence, R&D leadership, a co-innovation ethos, globally efficient “Follow-the-Sun” delivery model, and an unwavering “whatever it takes” dedication to client success empower us to solve even the most complex enterprise challenges, ensuring profitable business outcomes and future-proof growth.

Established in 2006 and headquartered in Silicon Valley, Grid Dynamics partners with clients ranging from innovative start-ups to the largest companies in the world. Grid Dynamics believes the key to its success is a culture encouraging an unwavering “whatever it takes” dedication that puts client success over contract terms, products over projects, and real business results over pure technical innovation. With our proprietary processes optimized for innovation, emphasis on talent development, and technical expertise, Grid Dynamics is well-positioned for continued success.
The following table sets forth a summary of Grid Dynamics’ financial results for the periods indicated:
Three Months Ended
March 31,
20242023
(in thousands, except per share data and percentages)
Revenues$79,817 100.0 %$80,080 100.0 %
Gross profit27,665 34.7 %28,575 35.7 %
Loss from operations
(5,542)(6.9)%(5,992)(7.5)%
Net loss
(3,948)(4.9)%(7,970)(10.0)%
Diluted loss per share
$(0.05)n/a$(0.11)n/a
Non-GAAP Financial Information(1)
Non-GAAP EBITDA(1)
10,292 12.9 %10,832 13.5 %
Non-GAAP net income(1)
5,238 6.6 %6,523 8.1 %
Non-GAAP diluted EPS(1)
$0.07 n/a$0.08 n/a
__________________________
(1)Non-GAAP EBITDA, Non-GAAP net income and Non-GAAP diluted EPS are non-GAAP financial measures. See “Non-GAAP Measures” below for additional information and reconciliations to the most directly comparable GAAP financial measures.



Quarterly Highlights
Our key metrics for the three months ended March 31, 2024 are presented below:
We recorded revenues of $79.8 million that remained flat compared to the corresponding period of 2023.
Our GAAP and Non-GAAP gross profit margins during the first quarter of 34.7% and 35.3%, respectively, slightly decreased from 35.7% and 36.3%, respectively, compared to the three months ended March 31, 2023. The decline in gross profit margin, both on a GAAP and Non-GAAP basis was driven mainly by increased employee-related costs and foreign currency headwinds.
Loss from operations decreased by 7.5% reaching $5.5 million during the first quarter of 2024 compared to $6.0 million during the last year's quarter.
We managed to reduce our net loss to $3.9 million in the first quarter of 2024 largely due to lower levels of stock-based compensation costs.
We ended the first quarter of 2024 with Non-GAAP EBITDA of $10.3 million, or 12.9% of revenues compared to $10.8 million, or 13.5% of revenues in the corresponding period of 2023. The decline was largely due to decreased gross profits, combined with increased operating expenses, excluding stock-based compensation.
Operating cash inflows decreased by 72.2% reaching $3.2 million. Our capital expenditures of $3.2 million doubled compared to the prior year quarter mainly due to increased investments in computer hardware, related equipment, and office facilities caused by expansion of our geographical presence.
The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
Business Update Regarding Military Action in Ukraine
On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region has resulted and is likely to continue. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the U.S., Canada, the United Kingdom, the European Union, and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and certain regions of Ukraine, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. For example, in response to increased sanctions, Russia could attempt to take control of assets in Ukraine of companies registered in the United States, such as Grid Dynamics. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our delivery of services, impair our ability to complete financial or banking transactions, cause us to continue to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region or involving certain customers in the region.
We are actively monitoring the security of our personnel and the stability of our infrastructure, including communications and internet availability. We continue to adapt to developments as they occur to protect the safety of our people and handle potential impacts to our delivery infrastructure. We are actively working with our personnel and with our customers to meet their needs and to ensure smooth delivery of services.
In April 2022, Grid Dynamics also announced it would cease remaining operations in the Russian Federation. We have worked towards the safe and expedient relocation of willing employees and ongoing management of projects to eliminate delivery impact to clients. As of May 2023, our former subsidiary in Russia is liquidated and we are not performing any client services from Russia.
We have no way to predict the progress or outcome of the military action in Ukraine, as the conflict and government reactions continue to develop and are beyond our control. Prolonged unrest, military activities, expansion of hostilities, or broad-based sanctions, could have a material adverse effect on our operations and business outlook. For example, if Russia were to invade other countries, such as Moldova, it could adversely affect our business, including preventing the relocation of our employees from Russia. In addition, the current geopolitical situations in Armenia and separately in Serbia create additional uncertainty in the region, and could adversely affect our business.
The information contained in this section is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.



For additional information on the various risks posed by the military action in Ukraine and the impact in the region, as well as other macroeconomic factors affecting our business, please read “Part II. Item 1A. Risk Factors” included in this Quarterly Report on Form 10-Q.
Key Performance Indicators and Other Factors Affecting Performance
Grid Dynamics uses the following key performance indicators and assesses the following other factors to analyze its business performance, to make budgets and financial forecasts and to develop strategic plans:
Employees by Region
Attracting and retaining the right employees is critical to the success of Grid Dynamics’ business and is a key factor in Grid Dynamics’ ability to meet customers’ needs and grow its revenue base. Grid Dynamics’ revenue prospects and long-term success depend significantly on its ability to recruit and retain qualified IT professionals. A substantial majority of Grid Dynamics’ personnel is comprised of such IT professionals.
The following table shows the number of Grid Dynamics personnel (including full-time and part-time employees and contractors serving in similar capacities) by region, as of the dates indicated:
As of March 31,
20242023
Americas(1)
550515
Europe(2)
2,7372,952
Rest of the world(3)
605277
Total3,8923,744
__________________________
(1)Americas includes personnel located in North, Central and South America.
(2)Europe includes personnel located in Western, Central and Eastern Europe.
(3)Rest of the world includes personnel located in India and other countries not included in regions described above.
Attrition
There is competition for IT professionals in the regions in which Grid Dynamics operates, and any increase in such competition may adversely impact Grid Dynamics’ business and gross profit margins. Employee retention is one of Grid Dynamics’ main priorities and is a key driver of operational efficiency. Grid Dynamics seeks to retain top talent by providing the opportunity to work on exciting, cutting-edge projects for high profile clients, a flexible work environment and training and development programs. Grid Dynamics’ management targets a voluntary attrition rate no higher than the mid-teen percentages, in line with the industry.
Hours and Utilization
As most of Grid Dynamics’ customer projects are performed and invoiced on a time and materials basis, Grid Dynamics’ management tracks and projects billable hours as an indicator of business volume and corresponding resource needs for IT professionals. To maintain its gross profit margins, Grid Dynamics must effectively utilize its IT professionals, which depends on its ability to integrate and train new personnel, to efficiently transition personnel from completed projects to new assignments, to forecast customer demand for services and to deploy personnel with appropriate skills and seniority to projects. Grid Dynamics’ management generally tracks utilization with respect to subsets of employees, by location or by project, and calculates the utilization rate for each subset by dividing (x) the aggregate number of billable hours for a period by (y) the aggregate number of total available hours for the same period. Grid Dynamics’ management analyzes and projects utilization to measure the efficiency of its workforce and to inform management’s budget and personnel recruiting decisions. 
Customer Concentration
Grid Dynamics’ ability to retain and expand its relationships with existing customers and add new customers are key indicators of its revenue potential. During the three months ended March 31, 2024, the total number of customers was 210, down from 220 customers in the same period a year ago. Grid Dynamics’ procurement of new customers has a direct impact on its ability to diversify its sources of revenue and replace customers that may no longer require its services. Grid Dynamics has a relatively



high level of revenue concentration with certain customers and constantly works toward decreasing those levels. During the three months ended March 31, 2024 and 2023, one customer accounted for 10% or more of Grid Dynamics’ revenues in each of the periods indicated. We expect to continue our focus on maintaining our long-term relationships with customers while diversifying our customer base.
The following table presents revenues concentration by amount and as a percentage of our revenues for the periods indicated:

Three Months Ended
March 31,
20242023
(in thousands, except percentages)
Top one customer$13,313 16.7 %$11,157 13.9 %
Top five customers$31,583 39.6 %$32,667 40.8 %
Top ten customers$44,141 55.3 %$48,391 60.4 %
Top twenty customers$54,989 68.9 %$57,981 72.4 %
Customers below top twenty$24,828 31.1 %$22,099 27.6 %
Results of Operations
The three months ended March 31, 2024 compared to the three months ended March 31, 2023
The following table sets forth a summary of Grid Dynamics’ consolidated results of operations for the interim periods indicated, and the changes between periods:
Three Months Ended
March 31,
Change
20242023DollarsPercentage
(in thousands, except percentages)
Revenues$79,817 $80,080 $(263)(0.3)%
Cost of revenues52,152 51,505 647 1.3 %
Gross profit27,665 28,575 (910)(3.2)%
Engineering, research, and development4,372 4,203 169 4.0 %
Sales and marketing7,292 5,634 1,658 29.4 %
General and administrative21,543 24,730 (3,187)(12.9)%
Total operating expense33,207 34,567 (1,360)(3.9)%
Loss from operations
(5,542)(5,992)450 (7.5)%
Other income/(expense), net2,525 1,682 843 50.1 %
Loss before income taxes
(3,017)(4,310)1,293 (30.0)%
Provision for income taxes931 3,660 (2,729)(74.6)%
Net loss
$(3,948)$(7,970)$4,022 (50.5)%
Revenues
On a year-over-year basis, our revenues remained flat during the first quarter of 2024. On a year-over-year basis, we witnessed growth in our Finance and Other verticals from both existing and new clients, offset by decline in the remainder of the verticals.
Revenues by Verticals. We assign our customers into one of our five main vertical markets or a group of various industries where we are increasing our presence, which we label as “Verticals”. In the first quarter of 2024, we disaggregated Healthcare



and Pharma as a separate vertical due to its growing importance and materiality to the Company. The following table presents our revenues by vertical and revenues as a percentage of total revenues for the periods indicated:
Three Months Ended March 31,
2024% of revenue2023% of revenue
(in thousands, except percentages)
Retail$24,629 30.9 %$25,396 31.7 %
Technology, Media and Telecom24,033 30.1 %26,811 33.5 %
Finance10,243 12.8 %6,515 8.1 %
CPG/Manufacturing9,559 12.0 %12,646 15.8 %
Healthcare and Pharma
3,009 3.8 %3,152 3.9 %
Other8,344 10.4 %5,560 7.0 %
Total$79,817 100.0 %$80,080 100.0 %
During the first quarter of 2024, Retail decreased by 3.0% compared to the prior year but continued to be our largest vertical with $24.6 million, or 30.9% of our total revenues. On a year-over-year basis, we witnessed a slight decrease in Retail revenues from our European clients offset by the US based customers.
The Technology, Media and Telecom (“TMT”) vertical with $24.0 million of revenues decreased by 10.4% on a year-over-year basis. We saw growth in our largest customer in TMT vertical which was offset by a decrease from a few of our technology customers.
Our CPG and Manufacturing vertical, representing 12.0% of our revenues for the three months ended March 31, 2024, showed decrease of 24.4% compared to the three months ended March 31, 2023. The key reasons for the decline were a combination of macro-related uncertainty resulting in a more cautionary outlook towards spending and customer specific factors at some of our larger customers.
The Healthcare and Pharma vertical remained flat with $3.0 million, or 3.8% of total revenues during the three months ended March 31, 2024 compared to $3.2 million, or 3.9% of total revenues a year ago.
Our Finance and Other verticals, representing 12.8% and 10.4% of total revenues, respectively, continued to steadily grow with each increasing by more than 50.0% during the three months ended March 31, 2024. Revenue growth was driven by increased demand from existing as well as new clients.
Cost of Revenues and Gross Margin
Our cost of revenues consists primarily of salaries and employee benefits, including performance bonuses and stock-based compensation, and project-related travel expenses of client-serving professionals. Cost of revenues also includes depreciation and amortization expenses related to client-serving activities.
During the three months ended March 31, 2024 our cost of revenues was $52.2 million, a slight increase of $0.6 million from $51.5 million in the corresponding period of 2023. Our gross profit decreased 3.2% on a year-over-year basis reaching $27.7 million during the first quarter of 2024. The key reason was the higher cost associated with delivery professionals accompanied by foreign currency headwinds.
Expressed as a percentage of revenues, our gross margin for the first quarter decreased 1.0% to 34.7% from 35.7% in the three months ended March 31, 2023.
Engineering, Research and Development
The principal components of engineering, research and development expenses are salaries and employee benefits including performance bonuses and stock-based compensation for personnel engaged in the design and development of solutions, as well as depreciation and amortization expenses related to engineering, research and development activities.
Engineering, research, and development expenses were $4.4 million and $4.2 million during the three months ended March 31, 2024 and 2023, respectively. Expressed as a percentage of revenues, engineering, research, and development expenses were 5.5% during the first quarter of 2024 compared to 5.2% in the corresponding period of 2023.




Sales and Marketing
Sales and marketing expenses represent spending associated with promoting and selling of our services. These expenses comprise of personnel costs, including performance bonuses and stock-based compensation, marketing events, travel expenses, as well as depreciation and amortization expenses related to such activities.
During the three months ended March 31, 2024, our sales and marketing expenses increased by $1.7 million as compared to the same period of 2023 and reached $7.3 million. Sales and marketing expenses as a percentage of revenue during the first quarter of 2024 increased by 2.1% to 9.1% from 7.0% in the corresponding period of 2023. The changes were largely driven by increases in sales personnel and new sales initiatives.
General and Administrative
General and administrative expenses include costs to support the business and consist primarily of administrative personnel and officers’ salaries, employee benefits including performance bonuses, stock-based compensation, legal and audit expenses, insurance, operating lease expenses of office premises and other facility costs, workforce global mobility initiatives, restructuring and employee relocation cost not directly related to customer projects, and depreciation and amortization expenses related to such activities. General and administrative expenses include a substantial majority of Grid Dynamics’ stock-based compensation costs for the financial periods discussed herein.
General and administrative expenses decreased from $24.7 million in the first quarter of 2023 to $21.5 million in 2024. The year-over-year decline was largely due to lower levels of stock-based compensation expenses. As a result, expressed as a percentage of revenues, our general and administrative expenses decreased by 3.9% to 27.0% during the three months March 31, 2024 compared to 30.9% a year ago.
Other Income/(Expense), Net
Other income/(expense), net represent interest earned on our cash and cash equivalents, including money market funds, interest expense related to our borrowings, foreign exchange gains and losses as well as changes in the fair value of contingent considerations and investments in equity securities.
During the three months ended March 31, 2024 other income/(expense), net, was $2.5 million, an increase of $0.8 million or 50.1% compared to $1.7 million recorded during the first quarter of 2023. Main drivers of increase continue to be income generated by our money market funds accompanied by unrealized gain from our marketable equity investments recognized in the first quarter of 2024.
Provision for Income Tax
Grid Dynamics follows the asset and liability method of accounting for income taxes. The provision for income taxes reflects income earned and taxed in the various U.S. federal and state and non-U.S. jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
During the three months ended March 31, 2024 we recognized a provision for income tax of $0.9 million compared to $3.7 million in the same period of 2023. The difference in the tax provision was attributable mainly to Section 162(m) compensation deduction limitations, foreign rate differential, and foreign inclusion adjustments.
Non-GAAP Measures
To supplement Grid Dynamics’ consolidated financial data presented on a basis consistent with U.S. GAAP, this Quarterly Report contains certain non-GAAP financial measures, including Non-GAAP EBITDA, Non-GAAP net income and Non-GAAP diluted earnings per share, or EPS. Grid Dynamics has included these non-GAAP financial measures because they are financial measures used by Grid Dynamics’ management to evaluate Grid Dynamics’ core operating performance and trends, to make strategic decisions regarding the allocation of capital and new investments and are among the factors analyzed in making performance-based compensation decisions for key personnel. These measures exclude certain expenses that are required under U.S. GAAP. Grid Dynamics excludes these items because they are not part of core operations or, in the case of stock-based compensation, non-cash expenses that are determined based in part on Grid Dynamics’ underlying performance.
Grid Dynamics believes these supplemental performance measurements are useful in evaluating operating performance, as they are similar to measures reported by its public industry peers and those regularly used by security analysts, investors and other



interested parties in analyzing operating performance and prospects. These non-GAAP financial measures are not intended to be a substitute for any GAAP financial measures and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.
There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare our performance to that of other companies. Grid Dynamics compensates for these limitations by providing investors and other users of its financial information a reconciliation of non-GAAP measures to the related GAAP financial measures. Grid Dynamics encourages investors and others to review its financial information in its entirety, not to rely on any single financial measure and to view its non-GAAP measures in conjunction with GAAP financial measures.
Grid Dynamics defines and calculates its non-GAAP financial measures as follows:
Non-GAAP EBITDA: Net income/(loss) before interest income/(expense), provision for income taxes and depreciation and amortization, and further adjusted for the impact of stock-based compensation expense, transaction-related costs (which include, when applicable, professional fees, retention bonuses, and consulting, legal and advisory costs related to Grid Dynamics’ merger and acquisition and capital-raising activities), impairment of goodwill and other income/(expense), net (which includes mainly interest income and expense, foreign exchange gains and losses, fair value adjustments, potential loss contingencies, and other miscellaneous expenses), and restructuring costs.

Non-GAAP net income: Net income/(loss) adjusted for the impact of stock-based compensation, impairment of goodwill, transaction-related costs, restructuring costs, other income/expenses, net, and the tax impacts of these adjustments.
Non-GAAP diluted EPS: Non-GAAP net income, divided by the diluted weighted-average number of common shares outstanding for the period.
The following table presents the reconciliation of Grid Dynamics’ Non-GAAP EBITDA to its consolidated net loss, the most directly comparable GAAP measure, for the periods indicated:
Three Months Ended
March 31,
20242023
(in thousands)
GAAP net loss
$(3,948)$(7,970)
Adjusted for:
Depreciation and amortization2,914 1,645 
Provision for income taxes931 3,660 
Stock-based compensation11,339 13,257 
Transaction and transformation-related costs (1)
454 788 
Geographic reorganization (2)
501 691 
Restructuring costs (3)
626 443 
Other (income)/expense, net (4)
(2,525)(1,682)
Non-GAAP EBITDA$10,292 $10,832 
__________________________
(1)Transaction and transformation-related costs include, when applicable, external deal costs, transaction-related professional fees, transaction-related retention bonuses, which are allocated proportionally across cost of revenue, engineering, research and development, sales and marketing and general and administrative expenses as well as other transaction-related costs including integration expenses consisting of outside professional and consulting services.
(2)Geographic reorganization includes expenses connected with military actions of Russia against Ukraine and the exit plan announced by the Company and includes travel and relocation-related expenses of employees from the aforementioned countries, severance payments, allowances as well as legal and professional fees related to geographic repositioning in various locations. These expenses are incremental to those expenses incurred prior to the crisis, clearly separable from normal operations, and not expected to recur once the crisis has subsided and operations return to normal.



(3)We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprises of severance charges and respective taxes, and are included in General and administrative expenses in the Company’s unaudited condensed consolidated statements of loss and comprehensive loss.
(4)Other (income)/expense, net consist primarily of gains and losses on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses as well as other income consists primarily of interest on cash held at banks and returns on investments in money-market funds.
The following table presents a reconciliation of Grid Dynamics’ Non-GAAP diluted EPS and its Non-GAAP net income to its consolidated net loss for the periods indicated:
Three Months Ended
March 31,
20242023
(in thousands,
except per share data)
GAAP net loss
$(3,948)$(7,970)
Adjusted for:
Stock-based compensation11,339 13,257 
Transaction and transformation-related costs (1)
454 788 
Geographic reorganization (2)
501 691 
Restructuring costs (3)
626 443 
Other (income)/expense, net (4)
(2,525)(1,682)
Tax impact of non-GAAP adjustments (5)
(1,209)996 
Non-GAAP net income
$5,238 $6,523 
Number of shares used in the GAAP diluted EPS
76,151 74,459 
GAAP diluted EPS
$(0.05)$(0.11)
Number of shares used in the Non-GAAP diluted EPS
78,374 77,129 
Non-GAAP diluted EPS
$0.07 $0.08 
__________________________
(1)Transaction and transformation-related costs include, when applicable, external deal costs, transaction-related professional fees, transaction-related retention bonuses, which are allocated proportionally across cost of revenue, engineering, research and development, sales and marketing and general and administrative expenses as well as other transaction-related costs including integration expenses consisting of outside professional and consulting services.
(2)Geographic reorganization includes expenses connected with military actions of Russia against Ukraine and the exit plan announced by the Company and includes travel and relocation-related expenses of employees from the aforementioned countries, severance payments, allowances as well as legal and professional fees related to geographic repositioning in various locations. These expenses are incremental to those expenses incurred prior to the crisis, clearly separable from normal operations, and not expected to recur once the crisis has subsided and operations return to normal.
(3)We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprises of severance charges and respective taxes, and are included in General and administrative expenses in the Company’s unaudited condensed consolidated statements of loss and comprehensive loss.
(4)Other (income)/expense, net consist primarily of gains and losses on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses as well as other income consists primarily of interest on cash held at banks and returns on investments in money-market funds.
(5)Reflects the estimated tax impact of the non-GAAP adjustments presented in the table.
Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital needs, capital expenditures, contractual obligations, and other commitments with cash flows from operations and other sources of funding. Our current liquidity needs relate mainly to compensation and benefits of our employees and contractors and capital investments to support our growth and geographical expansion. Our ability to expand and grow our business will depend on



many factors including our capital expenditure needs and the evolution of our operating cash flows. We may need more cash resources due to changed business conditions or other developments, including investments or acquisitions.
Our principal source of liquidity continues to be cash generated from our operations. Additionally, on March 15, 2022, we entered into an agreement establishing a revolving credit facility with JPMorgan Chase Bank, N.A., as an administrative agent for the lenders. The revolving credit facility provides us with $30.0 million of available borrowing capacity. See Note 7 “Debt” in the notes to our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” of this Quarterly Report for information regarding our debt.
As of March 31, 2024, Grid Dynamics had cash and cash equivalents amounting to $249.4 million compared to $257.2 million at December 31, 2023. Of this amount, $22.1 million and $21.2 million, respectively, was held outside the United States, and included among others the U.K., Netherlands, Switzerland, Poland, India, Mexico, Armenia and other countries. We did not have any debt outstanding under the revolving credit facility at any balance sheet date presented. We believe that our cash and cash equivalents balance and cash generated from operating activities will be sufficient to fund currently expected levels of operating, investing and financing expenditures for a period of twelve months from the date of this filing. However, if our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing, which may be subject to conditions outside of our control and may not be available on terms acceptable to our management or at all.
See Note 7 “Debt”, Note 9 “Leases” and Note 14 “Commitments and contingencies” in the notes to our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” of this Quarterly Report for detailed information on our contractual obligations and commitments.
Cash Flows
The following table summarizes Grid Dynamics’ cash flows for the periods indicated:
Three Months Ended
March 31,
20242023
(in thousands)
Net cash provided by operating activities$3,240 $11,674 
Net cash used in investing activities$(3,936)$(1,589)
Net cash used in financing activities
$(6,998)$(8,941)
Effect of exchange rate changes on cash and cash equivalents$(96)$495 
Net (decrease)/increase in cash and cash equivalents
$(7,790)$1,639 
Cash, cash equivalents (beginning of period)$257,227 $256,729 
Cash, cash equivalents (end of period)$249,437 $258,368 
Operating Activities. Net cash provided by operating activities for the three months ended March 31, 2024 decreased by $8.4 million to $3.2 million from $11.7 million provided in the same period of 2023, driven by changes in timing of the employee-related compensations in some of the offshore locations and timing of some customers’ payments.
Investing Activities. Net cash used in investing activities during the first quarter of 2024 primarily reflects our сapital expenditures that increased from $1.6 million during the three months ended March 31, 2023 to $3.2 million in the current year quarter.
Financing Activities. Net cash used in financing activities in the three months ended March 31, 2024 was $7.0 million and reflected the tax withholding obligations due to issuance of shares in connection with vested awards that was $1.4 million lower compared to 2023. We also benefited from proceeds from exercise of stock options that increased by $0.6 million compared to the first quarter of 2023.
Off-Balance Sheet Arrangements and Commitments
We do not have any material off-balance sheet commitments or contractual arrangements other than those disclosed in Note 9 “Leases” and Note 14 “Commitments and contingencies” of our condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” of this Quarterly Report.



As a result of analysis related to Grid Dynamics’ functional control of its subcontractors one was determined to be a variable interest entity (“VIE”) and is therefore consolidated in Grid Dynamics’ financial statements. The assets and liabilities of this VIE consist primarily of intercompany balances and transactions, all of which have been eliminated in consolidation.
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted accounting pronouncements are described in Note 1 to Grid Dynamics’ condensed consolidated financial statements in “Part I. Item 1. Financial Statements (Unaudited)” of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Grid Dynamics has in the past and may in the future be exposed to certain market and credit risks in the ordinary course of business, including exposure related to fluctuations in foreign currency rates, and on occasion and to a lesser extent, changes in interest rates and concentration of credit risk. In addition, Grid Dynamics’ international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions. See the section titled “Risk Factors” for additional information.
Foreign Currency Exchange Rate Risk
Grid Dynamics is exposed to foreign currency exchange transaction risk related to funding its non-US operations and to foreign currency translation risk related to certain of its subsidiaries’ cash balances that are denominated in currencies other than the U.S. dollar. In addition, Grid Dynamics’ profit margins are subject to volatility as a result of changes in foreign exchange rates. Grid Dynamics’ functional currency apart from the U.S. dollar includes EURO, British pounds, Mexican pesos, Moldovan leu and Indian rupees. When and where possible, Grid Dynamics seeks to match expenses of each entity to currencies in which revenues are generated creating natural hedge. In future periods, Grid Dynamics may also become materially exposed to changes in the value of Serbian dinars and Moldovan leu against the U.S. dollar, due to continuous expansion of operations in these countries.
In the three months ended March 31, 2024, approximately 39.1% of Grid Dynamics’ $85.4 million combined cost of revenues and total operating expenses were denominated in currencies other than the U.S. dollar. Comparatively, approximately 34.9% of Grid Dynamics’ $86.1 million of combined cost of revenues and total operating expenses were denominated in currencies other than the U.S. dollar in the three months ended March 31, 2023.
In the three months ended March 31, 2024:
a 10% decrease in the value of the Polish zloty against the U.S. dollar would have resulted in a $1.3 million increase in Grid Dynamics’ income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.5 million decrease in income from operations.
a 10% decrease in the value of the Mexican pesos against the U.S. dollar would have resulted in a $0.4 million increase in Grid Dynamics’ income from operations, while a 10% increase in the pesos’ value would have resulted in a $0.4 million decrease in income from operations.
In the three months ended March 31, 2023:
a 10% decrease in the value of the Polish zloty against the U.S. dollar would have resulted in a $0.8 million increase in Grid Dynamics’ income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.0 million decrease in income from operations.
a 10% decrease in the value of the Mexican pesos against the U.S. dollar would have resulted in a $0.3 million increase in Grid Dynamics’ income from operations, while a 10% increase in the pesos’ value would have resulted in a $0.4 million decrease in income from operations.



Grid Dynamics analyzes sensitivity to the zloty and pesos separately because, in management’s experience, fluctuations in the value of these currencies against the U.S. dollar are frequently driven by distinct macroeconomic and geopolitical factors and have the largest effect on our results during the first quarter of 2024.
Grid Dynamics does not currently hedge its foreign currency exposure, although it seeks minimize it by limiting cash transfers to amounts necessary to fund subsidiary operating expenses for a short period, typically one week. Grid Dynamics’ management may evaluate new hedging strategies in future periods.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Our management, including the CEO and CFO, confirmed there have been no changes in our internal control over financial reporting during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not currently a party to any material legal proceeding. In addition, we are not aware of any material legal or governmental proceedings against us or contemplated to be brought against us. Future litigation may be necessary, among other things, to defend us or our customers by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. The results of any litigation cannot be predicted with certainty and, regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risk factors set forth below. The risks and uncertainties described in this Quarterly Report on Form 10-Q are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also affect our business. See the section titled “Special Note Regarding Forward-Looking Statements” of this Quarterly Report on Form 10-Q for a discussion of the forward-looking statements that are qualified by these risk factors. If any of these known or unknown risks or uncertainties actually occurs and have a material adverse effect on us, our business, financial condition and results of operations could be seriously harmed.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company, as fully described below. The principal factors and uncertainties that make investing in our company risky include, among others:
We have a relatively short operating history and operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to be successful and may adversely impact our stock price.
We may be unable to effectively manage our growth or achieve anticipated growth, particularly as we expand into new geographies, which could place significant strain on our management personnel, systems and resources.
Our revenues have historically been highly dependent on a limited number of clients and industries, and any decrease in demand for outsourced services in these industries may reduce our revenues and adversely affect our business, financial condition and results of operations.
We have incurred significant net losses in recent years, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.
The impact of the military action in Ukraine has affected and may continue to affect our business.
Macroeconomic conditions, inflationary pressures, and the geopolitical climate could adversely affect our operating results and growth prospects.
Our revenues are highly dependent on clients primarily located in the U.S. Any economic downturn in the U.S. or in other parts of the world, including Europe, or disruptions in the credit markets may have a material adverse effect on our business, financial condition and results of operations.
We face intense competition.
Damage to our reputation may adversely impact our ability to generate and retain business.
Our failure to successfully attract, hire, develop, motivate and retain highly skilled personnel could have a significant adverse effect on our business, financial condition, and results of operations.
Our business operations may be severely disrupted if we lose the services of our senior executives and key employees.
Failure to adapt to changing technologies, methodologies, and evolving industry standards may have a material adverse effect on our business, financial condition, and results of operations.
Social and ethical issues relating to the use of artificial intelligence (“AI”) in our offerings may result in reputational harm or liability.



Security breaches and incidents, system failures or errors, and other disruptions to our networks and systems, could result in unauthorized access to, or disclosure or other processing of, confidential information and expose us to liability, which would cause our business and reputation to suffer.
Undetected software design defects, errors or failures may result in loss of business or in liabilities that could have a material adverse effect on our reputation, business and results of operations.
War, terrorism, other acts of violence, or natural or man-made disasters may affect the markets in which we operate, our clients and our service delivery.
Our global business, especially in CIS and CEE countries, exposes us to significant legal, economic, tax and political risks.
Acquisitions could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our financial condition and results of operations, we may not achieve the financial and strategic goals that were contemplated at the time of a transaction, and we may be exposed to claims, liabilities and disputes as a result of the transaction that may adversely impact our business, operating results and financial condition.
Risks Related to Our Business, Operations and Industry
We operate in a rapidly evolving industry, which makes it difficult to evaluate future prospects and may increase the risk that we will not continue to be successful and may adversely impact our stock price.
The technology services industry is competitive and continuously evolving, subject to rapidly changing demands and constant technological developments. As a result, success and performance metrics are difficult to predict and measure. Since services and technologies are rapidly evolving and each company within the industry can vary greatly in terms of the services it provides, its business model and its results of operations, it can be difficult to predict how any company’s services, including ours, will be received in the market.
While many Fortune 1000 enterprises, including our clients, have been willing to devote significant resources to incorporate emerging technologies and related market trends into their business models, they may not continue to spend any significant portion of their budgets on services like those provided by us in the future. Neither our past financial performance nor the past financial performance of any other company in the technology services industry is indicative of how we will fare financially in the future. Our future profits may vary substantially from those of other companies and our past profits, making an investment in us risky and speculative. If clients’ demand for our services declines as a result of economic conditions, market factors or shifts in the technology industry, our business, financial condition and results of operations would be adversely affected.
Our stock performance is highly dependent on our ability to successfully execute and grow the business. Consequently, our stock price may be adversely impacted by our inability to execute to our plan, our inability to meet or exceed forward looking financial forecasts, and our inability to achieve our stated short-term and long-term goals.
We may be unable to effectively manage our growth or achieve anticipated growth, particularly as we expand into new geographies, which could place significant strain on our management personnel, systems and resources.
Continued growth and expansion may increase challenges we face in recruiting, training and retaining sufficiently skilled professionals and management personnel, maintaining effective oversight of personnel and delivery centers, developing financial and management controls, coordinating effectively across geographies and business units, and preserving our culture and values. Failure to manage growth effectively could have a material adverse effect on the quality of the execution of our engagements, our ability to attract and retain IT professionals, as well as our business, financial condition and results of operations.
In addition, as we increase the size and complexity of projects that we undertake with clients, add new delivery sites, introduce new services or enter into new markets, we may face new market, technological, operational, compliance and administrative risks and challenges, including risks and challenges unfamiliar to us. We may not be able to mitigate these risks and challenges to achieve our anticipated growth or successfully execute large and complex projects, which could materially adversely affect our business, prospects, financial condition and results of operations.
All of these risks are heightened as we continue to expand geographically, including through acquisitions. As we grow, we continue to explore other geographies for expansion. This may result in higher costs affecting our profitability levels. Furthermore, as we expand to new geographies, we may not be able to sustain the level of competitiveness, including high



quality and low cost, of our workforce that has enabled us to succeed with our customers. Additionally, we do not have a long history of operating our business, including recruiting, training and retaining employees, in these new geographies, and our competitiveness may decline if we are not able to effectively manage these risks.
Our revenues have historically been highly dependent on a limited number of clients and industries and any decrease in demand for outsourced services in these industries may reduce our revenues and adversely affect our business, financial condition and results of operations.
Our revenues have historically been highly dependent on a limited number of clients. In the first quarter of 2024 and 2023, we generated a significant portion of our revenues from our largest clients. For example, we generated approximately 55.3% and 60.4% of our revenue from our 10 largest clients during the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024 and 2023 we had one client in each of the periods, respectively, that accounted for greater than 10% of our revenues for the periods indicated. Since a substantial portion of our revenue is derived through time and materials contracts, which are mostly short-term in nature and cancellable by our customers on limited notice, a major client in one year may not provide the same level of revenues for us in any subsequent year. In addition, a significant portion of our revenues is concentrated in our top four industry verticals: technology, retail, finance and CPG/manufacturing. Our growth largely depends on our ability to diversify the industries in which we serve, continued demand for our services from clients in these industry verticals and other industries that we may target in the future, as well as on trends in these industries to outsource the type of services we provide.
Our business is also subject to seasonal trends that impact our revenues and profitability between quarters, driven by the timing of holidays in the countries in which we operate and the U.S. retail cycle, which drives the behavior of several of our retail clients. Excluding the impact of growth in our book of business, we have historically recorded higher revenue and gross profit in the second and third quarters of each year compared to the first and fourth quarters of each year. In addition, many of our retail sector clients tend to slow their discretionary spending during the holiday sale season, which typically lasts from late November (before Thanksgiving) through late December (after Christmas). Such seasonal trends may cause reductions in our profitability and profit margins during periods affected.  
A reduction in demand for our services and solutions caused by seasonal trends, downturns in any of our targeted industries, a slowdown or reversal of the trend to outsource IT services in any of these industries or the introduction of regulations that restrict or discourage companies from outsourcing may result in a decrease in the demand for our services and could have a material adverse effect on our business, financial condition and results of operations.
We have incurred significant net losses in recent years, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.
We have incurred significant net losses in recent periods, including net losses of $3.9 million for the three months ended March 31, 2024 and $8.0 million for the three months ended 2023. We may continue to incur significant losses in the future for a number of reasons, including unforeseen and high-levels of operating expenses, expansion into higher-cost geographies, increased costs due to wage inflation, and costs related to the Russian invasion of Ukraine.
We anticipate that our operating expenses will increase in the foreseeable future as we invest in our business for growth. This includes, but is not limited to acquisition related integration costs, costs associated with maintaining compliance as a public company, and increased spending related to sales, marketing, and R&D. These increased expenditures may make it more difficult to achieve and maintain profitability. In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient revenue to offset increased operating expenses. If we are required to reduce our expenses, our growth strategy could be materially affected. We will need to generate and sustain significant revenue levels in future periods in order to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability.
Accordingly, we cannot assure you that we will achieve sustainable operating profits as we continue to expand our business and infrastructure, further develop our marketing efforts, and otherwise implement our growth initiatives. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving and maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, results of operations and financial condition would be adversely affected. In the event that we fail to achieve or maintain profitability, this could negatively impact the value of our common stock.
The impact of the military action in Ukraine has affected and may continue to affect our business.



On February 24, 2022, Russian forces launched significant military action against Ukraine. The conflict has impacted our business and may continue to pose risks to our business. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the United States, European Union, the United Kingdom, Canada. and other countries against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. For example, in response to increased sanctions, Russia could attempt to take control of assets in Ukraine of companies registered in the United States, such as Grid Dynamics. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our delivery of services, impair our ability to complete financial or banking transactions, cause us to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region or involving certain customers in the region.
We are actively monitoring the security of our personnel and the stability of our infrastructure, including communications and internet availability. We have adapted to developments as they occur to protect the safety of our people and handle potential impacts to our delivery infrastructure. We are actively working with our personnel and with our customers to meet their needs and to ensure smooth delivery of services.
In April 2022, Grid Dynamics also announced it would cease remaining operations in the Russian Federation. We have worked towards the safe and expedient relocation of willing employees and ongoing management of projects to eliminate delivery impact to clients. As of May 2023, our former subsidiary in Russia is liquidated and is not performing any client services from Russia.
We have no way to predict the progress or outcome of the military action in Ukraine, as the conflict and government reactions continue to develop and are beyond our control. Prolonged unrest, military activities, expansion of hostilities, or broad-based sanctions, could have a material adverse effect on our operations and business outlook. In addition, the current geopolitical situations in Armenia and separately in Serbia create additional uncertainty in the region, and could adversely affect our business.
The information contained in this section is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.
Macroeconomic conditions, inflationary pressures, and the geopolitical climate could adversely affect our operating results and growth prospects.
We operate globally and as a result our business, revenues and profitability are impacted by global macroeconomic conditions. The success of our activities is affected by general economic and market conditions, including, among others, inflation rate fluctuations, interest rates, tax rates, economic uncertainty, fluctuations in consumer spending, political instability, changes in laws, and trade barriers and sanctions. Recently, inflation rates in the US have increased to levels not seen in several years, and there are concerns of a recession. Further, a federal government shutdown resulting from failing to pass budget appropriations, adopt continuing funding resolutions, or raise the debt ceiling, and other budgetary decisions limiting or delaying deferral government spending, may negatively impact U.S. or global economic conditions, including corporate and consumer spending, and liquidity of capital markets. Such economic volatility could adversely affect our clients' business, as well as our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us. Because of our concentration on our clients’ capital-intensive digital transformation programs, our clients, and therefore our business, may be particularly sensitive to rising interest rates. Geopolitical destabilization could continue to impact global currency exchange rates, commodity prices, trade and movement of resources, which may adversely affect the technology spending of our clients and potential clients.
Our revenues are highly dependent on clients primarily located in the U.S. Any economic downturn in the U.S. or in other parts of the world, including Europe, or disruptions in the credit markets may have a material adverse effect on our business, financial condition and results of operations.
The IT services industry is particularly sensitive to the economic environment and tends to decline during general economic downturns. We derive the majority of our revenues from clients in the U.S. In the event of an economic downturn in the U.S. or in other parts of the world, including Europe, our existing and prospective clients may reduce or postpone their technology spending significantly, which may in turn lower the demand for our services and may have a material adverse effect on our business, financial condition and results of operations. In addition, if a disruption in the credit markets were to occur, it could pose a risk to our business if clients or vendors are unable to obtain financing to meet payment or delivery obligations to us or if we are unable to obtain necessary financing.



We face intense competition.
The market for technology and IT services is highly competitive and subject to rapid change and evolving industry standards, particularly around the use and development of AI solutions, and we expect competition to persist and intensify. We face competition from offshore IT services providers in outsourcing destinations with low wage costs such as India, China, CEE countries and Latin America, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations. Industry clients tend to engage multiple IT services providers instead of using an exclusive IT services provider, which could reduce our revenues to the extent that our clients obtain services from competing companies. Industry clients may prefer IT services providers that have more locations or that are based in countries that are more cost-competitive, stable and/or secure than some of the emerging markets in which we operate.
Our primary competitors include global consulting and traditional IT service providers such as Accenture plc, Capgemini SE, Cognizant Technology Solutions Corporation, Infosys Technologies, Wipro, and digital transformation providers such as EPAM Systems, Inc., Globant S.A., Endava plc, and Thoughtworks Holding, Inc. Many of our present and potential competitors have substantially greater financial, marketing and technical resources, and name recognition than we do. Therefore, they may be able to compete more aggressively on pricing or devote greater resources to the development and promotion of technology and IT services and we may be unable to retain our clients while competing against such competitors. Increased competition as well as our inability to compete successfully may have a material adverse effect on our business, prospects, financial condition and results of operations.
Damage to our reputation may adversely impact our ability to generate and retain business.
Since our business involves providing tailored services and solutions to clients, we believe that our corporate reputation is a significant factor when an existing or prospective client is evaluating whether to engage our services as opposed to those of our competitors. In addition, we believe that our brand name and reputation also play an important role in recruiting, hiring and retaining highly skilled personnel.
However, our brand name and reputation is potentially susceptible to damage by factors beyond our control, including actions or statements made by current or former clients and employees, competitors, vendors, adversaries in legal proceedings, government regulators and the media. There is a risk that negative information about us, even if untrue, could adversely affect our business. Any damage to our reputation could be challenging to repair, could make potential or existing clients reluctant to select us for new engagements, could adversely affect our recruitment and retention efforts, and could also reduce investor confidence.
Our failure to successfully attract, hire, develop, motivate and retain highly skilled personnel could have a significant adverse effect on our business, financial condition, and results of operations.
Our continued growth and success and operational efficiency is dependent on our ability to attract, hire, develop, motivate and retain highly skilled personnel, including IT engineers and other technical personnel, in the geographically diverse locations in which we operate and into which we are expanding. Competition for highly skilled IT professionals is intense and as a consequence, we may witness increasing challenges around employee retention, talent shortages, and attrition rates. While our management targets a voluntary attrition rate (expressed as a percentage) no higher than in the low-twenties, the significant market demand for highly skilled IT personnel and competitors’ activities may induce our qualified personnel to leave and make it more difficult for us to recruit new employees with suitable knowledge, experience and professional qualifications. High attrition rates of IT personnel would increase our operating costs, including hiring and training costs, and could have an adverse effect on our ability to complete existing contracts in a timely manner, meet client objectives and expand our business. Failure to attract, hire, develop, motivate and retain personnel with the skills necessary to serve our clients could decrease our ability to meet and develop ongoing and future business and could materially adversely affect our business, financial condition and results of operations.
Our business operations may be severely disrupted if we lose the services of our senior executives and key employees.
Our success depends substantially upon the continued services of our senior executives and other key employees. If we lose the services of one or more of such senior executives or key employees, our business operations can be disrupted, and we may not be able to replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and we may be unable to retain such personnel or attract and retain such personnel in the future, in which case our business may be severely disrupted.



Failure to adapt to changing technologies, methodologies, and evolving industry standards may have a material adverse effect on our business, financial condition, and results of operations.
We operate in an industry characterized by rapidly changing technologies, such as generative AI, methodologies and evolving industry standards. Our future success depends in part upon our ability to anticipate developments in our industry, enhance our existing services and to develop and introduce new services to keep pace with such changes and developments and to meet changing client needs. 
Development and introduction of new services and products, including generative AI, is expected to become increasingly complex and expensive, involve a significant commitment of time and resources, and subject to a number of risks and challenges, including:
difficulty or cost in updating services, applications, tools and software and in developing new services quickly enough to meet clients’ needs;
difficulty or cost in making some features of software work effectively and securely over the internet or with new or changed operating systems;
difficulty or cost in updating software and services to keep pace with evolving industry standards, methodologies, regulatory and other developments in the industries where our clients operate; and
difficulty or cost in maintaining a high level of quality and reliability as we implement new technologies and methodologies.
We may not be successful in anticipating or responding to these developments, including generative AI, in a timely manner, and even if we do so, the services, technologies or methodologies we develop or implement may not be successful in the marketplace. Furthermore, services, technologies or methodologies that are developed by competitors may render our services non-competitive or obsolete. Our failure to adapt and enhance our existing services and to develop and introduce new services to promptly address the needs of our clients may have a material adverse effect on our business, financial condition and results of operations.
Regulatory issues relating to the use of AI may adversely affect our business, financial condition, and results of operations.
As with many technological innovations, artificial intelligence presents risks and challenges that could affect its adoption, and therefore our business. Uncertainty in the legal regulatory regime, relating to AI, may require significant resources to modify and maintain business practices to comply with U.S. and non-U.S. laws, the nature of which cannot be determined at this time. Several jurisdictions around the globe, including Europe and certain U.S. states, have already proposed or enacted laws governing AI. Other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging. These obligations may make it harder for us to conduct our business, lead to regulatory fines or penalties, require us to change our business practices, or prevent or limit our use of AI or our customers’ demand for AI solutions. If we cannot use AI or our customers’ demand for AI so