10-Q 1 gdyn-20230930.htm 10-Q gdyn-20230930
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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 September 30, 2023
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 filerAccelerated 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 October 31, 2023, there were 75,589,953 shares of registrant’s common stock issued and outstanding.



TABLE OF CONTENTS
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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, reduced corporate spending, the geopolitical climate and other economic, business, and/or competitive factors, including the effects of the global COVID-19 pandemic; 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
September 30,
2023
December 31,
2022
Assets
Current assets
Cash and cash equivalents$253,713 $256,729 
Accounts receivable, net of allowance of $1,063 and $443 as of September 30, 2023 and December 31, 2022, respectively
46,576 48,358 
Unbilled receivables7,762 5,591 
Prepaid income taxes9,728 4,294 
Prepaid expenses and other current assets8,274 8,154 
Total current assets326,053 323,126 
Property and equipment, net10,443 8,215 
Operating lease right-of-use assets, net10,470 7,694 
Intangible assets, net27,587 20,375 
Goodwill54,633 45,514 
Deferred tax assets4,880 4,998 
Other noncurrent assets1,684 1,224 
Total assets$435,750 $411,146 
Liabilities and equity
Current liabilities
Accounts payable$3,721 $3,897 
Accrued compensation and benefits20,557 13,065 
Accrued income taxes16,737 10,718 
Operating lease liabilities, current4,205 2,505 
Accrued expenses and other current liabilities7,250 8,525 
Total current liabilities52,470 38,710 
Deferred tax liabilities3,422 3,756 
Operating lease liabilities, noncurrent6,934 5,636 
Total liabilities62,826 48,102 
Commitments and contingencies (Note 14)
Stockholders’ equity
Common stock, $0.0001 par value; 110,000,000 shares authorized; 75,588,741 and 74,156,458 issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
7 7 
Additional paid-in capital391,216 378,006 
Accumulated deficit(18,788)(14,121)
Accumulated other comprehensive income/(loss)489 (848)
Total stockholders’ equity372,924 363,044 
Total liabilities and stockholders’ equity$435,750 $411,146 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND
COMPREHENSIVE INCOME/(LOSS)
(In thousands, except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Revenues$77,419 $81,161 $234,841 $229,906 
Cost of revenue49,267 48,491 149,809 141,596 
Gross profit28,152 32,670 85,032 88,310 
Operating expenses
Engineering, research, and development3,402 4,139 10,878 11,075 
Sales and marketing6,132 5,084 17,729 14,431 
General and administrative18,475 28,197 60,940 78,200 
Total operating expenses28,009 37,420 89,547 103,706 
Income/(loss) from operations
143 (4,750)(4,515)(15,396)
Other income/(expenses), net3,159 1,450 7,849 124 
Income/(loss) before income taxes3,302 (3,300)3,334 (15,272)
Provision for income taxes2,626 3,359 8,001 7,240 
Net income/(loss)$676 $(6,659)$(4,667)$(22,512)
Foreign currency translation adjustments, net of tax(561)(872)1,337 (1,937)
Comprehensive income/(loss)$115 $(7,531)$(3,330)$(24,449)
Income/(loss) per share
Basic$0.01 $(0.10)$(0.06)$(0.33)
Diluted$0.01 $(0.10)$(0.06)$(0.33)
Weighted average shares outstanding
Basic75,464 68,623 75,026 67,566 
Diluted77,339 68,623 75,026 67,566 

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
Retained
earnings/(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 
Net income— — — 2,627 — 2,627 
Stock-based compensation— — 7,153 — — 7,153 
Exercise of stock options, net of shares withheld13 — (66)— — (66)
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards425 — (4,440)— — (4,440)
Foreign currency translation adjustment, net of tax— — — — 1,403 1,403 
Balance at June 30, 202375,334 $7 $384,969 $(19,464)$1,050 $366,562 
Net income— — — 676 — 676 
Stock-based compensation— — 7,267 — — 7,267 
Exercise of stock options, net of shares withheld97 — 547 — — 547 
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards158 — (1,567)— — (1,567)
Foreign currency translation adjustment, net of tax— — — — (561)(561)
Balance at September 30, 202375,589 $7 $391,216 $(18,788)$489 $372,924 

3

Common StockAdditional
paid-in
capital
Retained
earnings/(accumulated deficit)
Accumulated
other
comprehensive
income/(loss)
Total
stockholders’
equity
SharesAmount
Balance at December 31, 202166,851 $7 $212,077 $15,093 $(126)$227,051 
Net loss— — — (2,667)— (2,667)
Stock-based compensation— — 8,661 — — 8,661 
Exercise of stock options72 — 292 — — 292 
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards134 — (1,802)— — (1,802)
Foreign currency translation adjustment, net of tax— — — — (283)(283)
Balance at March 31, 202267,057 $7 $219,228 $12,426 $(409)$231,252 
Net loss— — — (13,186)— (13,186)
Stock-based compensation— — 16,387 — — 16,387 
Exercise of stock options160 — 538 — — 538 
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards77 — (1,284)— — (1,284)
Foreign currency translation adjustment, net of tax— — — — (782)(782)
Balance at June 30, 202267,294 $7 $234,869 $(760)$(1,191)$232,925 
Net loss— — — (6,659)— (6,659)
Stock-based compensation— — 17,551 — — 17,551 
Exercise of stock options47 — 314 — — 314 
Issuance of common stock in 2022 Offering, net of transaction costs of $253
6,571 — 109,284 — — 109,284 
Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards87 — (1,705)— — (1,705)
Foreign currency translation adjustment, net of tax— — — — (872)(872)
Balance at September 30, 202273,999 $7 $360,313 $(7,419)$(2,063)$350,838 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4

GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Nine months ended
September 30,
20232022
Cash flows from operating activities
Net loss$(4,667)$(22,512)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization6,255 4,907 
Operating lease right-of-use assets amortization expense2,295 2,218 
Bad debt expense674 113 
Deferred income taxes(2,451)(1,032)
Change in fair value of contingent consideration issued for acquisition of business(4,220) 
Stock-based compensation27,677 42,599 
Other expenses
98 36 
Changes in assets and liabilities:
Accounts receivable3,085 (11,228)
Unbilled receivables(1,509)(40)
Prepaid income taxes(5,295)(1,553)
Prepaid expenses and other current assets28 (3,067)
Accounts payable(471)2,425 
Accrued compensation and benefits6,554 2,971 
Operating lease liabilities(2,119)(2,268)
Accrued income taxes5,638 5,821 
Accrued expenses and other current liabilities1,965 249 
Net cash provided by operating activities33,537 19,639 
Cash flows from investing activities
Purchase of property and equipment(5,593)(4,381)
Purchase of investment (1,000)
Acquisition of business, net of cash acquired(17,830) 
Net cash used in investing activities(23,423)(5,381)
Cash flows from financing activities
Proceeds from exercises of stock options, net of shares withheld for taxes491 1,144 
Payments of tax obligations resulted from net share settlement of vested stock awards(14,958)(4,791)
Payment of contingent consideration related to previously acquired businesses (6,933)
Proceeds from debt 5,000 
Repayment of debt (5,000)
Debt issuance cost (201)
Proceeds from issuance of Common Stock from 2022 Offerings 109,537 
Equity issuance cost (253)
Net cash (used in)/provided by financing activities(14,467)98,503 
Effect of exchange rate changes on cash and cash equivalents1,337 (1,937)
Net increase/(decrease) in cash and cash equivalents(3,016)110,824 
Cash and cash equivalents, beginning of period256,729 144,364 
Cash and cash equivalents, end of period$253,713 $255,188 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$9,936 $4,060 
Supplemental disclosure of non-cash activities
Acquisition fair value of contingent consideration issued for acquisition of business$932 $ 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

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”) provides enterprise-level digital transformation in the areas of technology consulting, agile custom software development, and data analytics to Fortune 1000 companies. 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, 2022, as filed with the SEC on February 28, 2023.
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 and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022 included in the Company’s annual report on Form 10-K that the Company filed with the SEC on February 28, 2023.
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 September 30, 2023. 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.
Use of estimates
The preparation of the unaudited condensed consolidated financial statements in accordance with 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, stock-based compensation, contingent consideration payable, determination of provision for income taxes, deferred tax assets and liabilities and uncertain tax positions.
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.
6


Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments that was subsequently amended by ASU 2019-4, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-5, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief, and clarified with the release of ASU 2020-2 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). These ASUs replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses measured at amortized cost and certain other instruments, including loans, held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. The Company adopted Topic 326, effective January 1, 2023, using a modified-retrospective approach. Adoption of Topic 326 did not have any impact on its condensed consolidated financial statements.
Recently issued accounting pronouncements
The Company considered the applicability of all recently issued ASUs and believes their impact will not have a material impact on its condensed consolidated financial position, results of operations and cash flows upon adoption.
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. See Note 3 for further details on contingent consideration.
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. See Note 3 for further details on contingent consideration.

7


The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:
NextSphereMutual Mobile
(in thousands)
Current assets$9,708 $4,982 
Property, plant and equipment192 132 
Intangible assets9,906 3,749 
Goodwill9,119 9,556 
Other noncurrent assets511 102 
Total assets acquired$29,436 $18,521 
Accounts payable, accrued expenses and other liabilities(1,990)(1,576)
Deferred taxes(2,235)(875)
Total liabilities assumed$(4,225)$(2,451)
Purchase price allocation$25,211 $16,070 
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. Goodwill represents the value the Company expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach. Goodwill for NextSphere and Mutual Mobile is not deductible for income tax purposes. 
For the acquisition of NextSphere and Mutual Mobile, the estimated fair values of the assets acquired and liabilities assumed are provisional and based on the information that was available as of the acquisition date. The Company expects to finalize the purchase price allocations as soon as practicable but no later than one year from the acquisition date.
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 September 30, 2023 are as follows:
NextSphereMutual Mobile
Fair ValueUseful LifeFair ValueUseful Life
(in thousands, except in 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.
The following unaudited pro forma information presents the combined results of operations as if the acquisitions of Mutual Mobile and NextSphere had occurred at the beginning of the year preceding the acquisition date. Pre-acquisition results of business acquired have been added to the Company’s historical results. The pro forma results contained in the table below include adjustments for amortization of acquired intangibles and related income taxes. Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results.



These unaudited pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor are they necessarily an indication of future operating results.
Three Months Ended
September 30,
2022
Nine Months Ended
September 30,
2022
(in thousands, except per share data)
Revenue$87,290 $244,205 
Net loss$(4,773)$(19,302)
Diluted loss per share$(0.07)$(0.29)
Note 3 — Fair value
The Company measures contingent consideration payable at fair value on a recurring basis using significant inputs that are not observable in the market. Fair value of the contingent consideration liability is based on the Monte-Carlo model which is primarily based on budgets and discounted cash flow analysis. The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved. Changes in the fair value of contingent consideration payable primarily result from changes in timing and amount of specific milestone estimates and changes in probability assumptions with respect to the likelihood of achieving the various earnout criteria. These changes could cause a material impact to, and volatility in the Company’s operating results.
During the three months ended December 31, 2022 and three months ended June 30, 2023 the Company completed the acquisitions of Mutual Mobile and NextSphere, respectively, under which the Company committed to make a cash earnout payment subject to attainment of specific performance targets. The weighted average discount rates used to determine the fair value of NextSphere and Mutual Mobile contingent considerations were 15.5% and 10.3%, respectively. During the third quarter ended September 30, 2023 the Company concluded that performance targets for both acquisitions will not be attained and consequentially reduced related earn-out liabilities to zero.
The Company records contingent consideration payable in Other current liabilities in its unaudited consolidated balance sheet. A reconciliation of the beginning and ending balances of Level 3 acquisition-related contingent consideration payable using significant unobservable inputs for the nine months ended September 30, 2023 are as follows:
Amount
(in thousands)
Contingent consideration payable as of December 31, 2022$3,288 
Acquisition date fair value of contingent consideration payable - NextSphere932 
Change in fair value of contingent consideration payable included in Other income/(expense) - Mutual Mobile(3,288)
Change in fair value of contingent consideration payable included in Other income/(expense) - NextSphere
(932)
Contingent consideration payable as of September 30, 2023
$ 
Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
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 tables present the estimated fair values of the Company’s financial assets and liabilities not measured at fair value on a recurring basis as of the dates indicated:
Fair Value Hierarchy
BalanceEstimated Fair ValueLevel 1Level 2Level 3
(in thousands)
September 30, 2023
Financial Assets:
Cash equivalents:
Money market funds$201,420 $201,420 $201,420 $ $ 
December 31, 2022
Financial Assets:
Cash equivalents:
Money market funds$205,787 $205,787 $205,787 $ $ 
Non-Marketable Securities Without Readily Determinable Fair Values
The Company holds investment in equity securities of a related party that does not have readily determinable fair values. This investment is recorded at cost and is remeasured to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of the investment was $1.0 million as of September 30, 2023 and December 31, 2022, and was classified as Other noncurrent assets in the Company’s unaudited condensed consolidated balance sheets.
Note 4 — Prepaid expenses and other current assets
The prepaid expenses and other current assets were as follows:
As of
September 30,
2023
December 31,
2022
(in thousands)
Prepaid expenses$2,807 $3,323 
Guarantee deposits placed2,011 2,295 
Value added, goods and service taxes receivable1,760 1,384 
Other prepaid and current assets1,696 1,152 
Total prepaid expenses and other current assets$8,274 $8,154 

Note 5 — Property and equipment, net
Property and equipment, net consisted of the following:



Estimated
Useful
Life
As of
September 30,
2023
December 31,
2022
(in years)(in thousands)
Computers and equipment
2-5
$12,922 $11,679 
Furniture and fixtures
3-10
1,698 1,614 
Leasehold improvements
2-8
1,286 646 
Software
3-5
1,245 1,053 
Machinery and automobiles
4-6
563 349 
$17,714 $15,341 
Less: Accumulated depreciation and amortization(11,380)(8,614)
$6,334 $6,727 
Capitalized software development costs
2-3
$7,327 $6,210 
Less: Accumulated amortization(3,218)(4,722)
$4,109 $1,488 
Property and equipment, net$10,443 $8,215 

Note 6 — Intangible assets, net
Intangible assets, net consisted of the following:
Estimated
Useful
Life
As of
September 30,
2023
December 31,
2022
(in years)(in thousands)
Customer relationships
8-12
$27,839 $19,424 
Tradenames
2-10
5,324 4,828 
Acquired software2.5995  
Non-compete agreements2584 584 
$34,742 $24,836 
Less: Accumulated amortization(7,155)(4,461)
Intangible assets, net$27,587 $20,375 
Based on the carrying value of the Company’s existing intangible assets as of September 30, 2023, the estimated amortization expense for the future years is as follows:
Years ending December 31, (in thousands)Amount
2023 (excluding nine months ended September 30, 2023)
1,040 
20244,048 
20253,629 
20263,168 
20273,130 
Thereafter12,572 
Total$27,587 


Note 7 — Accrued expenses and other current liabilities



The components of accrued expenses and other current liabilities were as follows:
As of
September 30,
2023
December 31, 2022
(in thousands)
Accrued expenses$4,097 $1,302 
Value added tax payable1,264 1,345 
Customer deposits743 754 
Contingent consideration payable 3,288 
Other liabilities1,146 1,836 
Total accrued expenses and other current liabilities$7,250 $8,525 
As of September 30, 2023 and December 31, 2022 the Company had payable to its related party in the amount of $0.6 million that was classified as Other current liabilities in unaudited condensed consolidated balance sheet.
Note 8 — 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 September 30, 2023, the Company was in compliance with all covenants contained in the 2022 Credit Agreement.
In October, 2017, the Company entered into a loan agreement for a revolving line of credit facility (the “Line of Credit”) with a borrowing capacity of $0.5 million. The Line of Credit is secured by substantially all of the Company’s assets and was secured in order to provide credit support for a letter of credit facility and balances under the Company’s credit cards. Borrowings under the Line of Credit are subject to a variable interest rate, based on changes in the Prime Rate, as calculated published by the Wall Street Journal. The Company closed the Line of Credit in March of 2022.
As of September 30, 2023 and December 31, 2022, respectively, the Company did not have any outstanding debt under the 2022 Credit Agreement.



Note 9 — 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 nine months ended September 30, 2023 and 2022.
The following table shows the disaggregation of the Company’s revenues by major customer location. Revenues are attributed to geographic regions based upon billed client location. Substantially all of the revenue in our North America region relates to operations in the United States.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Customer Location(in thousands)
North America$63,276 $68,057 $189,169 $189,324 
Europe14,121 13,040 45,266 40,371 
Other22 64 406 211 
Total Revenues$77,419 $81,161 $234,841 $229,906 
The following table shows the disaggregation of the Company’s revenues by main vertical markets:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Vertical(in thousands)
Retail$26,544 $25,260 $77,972 $74,019 
Technology, Media and Telecom23,732 26,335 74,639 71,170 
CPG/Manufacturing(1)
9,668 16,058 33,186 47,127 
Finance7,299 6,073 20,562 15,649 
Other10,176 7,435 28,482 21,941 
Total Revenues$77,419 $81,161 $234,841 $229,906 
__________________________
(1)CPG stands for Consumer Packaged Goods
The following table shows the disaggregation of the Company’s revenues by contract types:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Contract Type(in thousands)
Time-and-material$69,532 $75,085 $209,201 $211,293 
Fixed-fee7,303 6,076 24,588 18,613 
Other revenues584  1,052  
Total Revenues$77,419 $81,161 $234,841 $229,906 
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 September 30, 2023 and December 31, 2022 the Company did not have material contract assets. Contract liabilities were $0.4 million and $1.1 million as of September 30, 2023 and December 31, 2022, respectively.



Remaining performance obligation
ASC 606 “Revenue from Contracts with Customers” requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of September 30, 2023 and December 31, 2022. This disclosure is not required for:
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.
All of the Company’s contracts met one or more of these exemptions as of September 30, 2023 and December 31, 2022.
Customers concentration
The following table shows the amount of revenue derived from each customer exceeding 10% of the Company’s revenue:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Customer 114.3 %13.1 %14.1 %12.1 %
Customer 2n/a11.2 %n/a10.9 %
During the three and nine months ended September 30, 2023 the Company recorded revenues from its related parties of $2.0 million and $6.0 million, respectively. During the same periods of 2022 the Company recorded revenue from related parties of $1.7 million and $4.3 million, respectively.
The following table shows number of customers exceeding 10% of the Company’s billed and unbilled receivable balances:
As of
September 30,
2023
December 31,
2022
Accounts receivable12
Unbilled receivable22
As of September 30, 2023 and December 31, 2022 accounts receivable from related parties were $1.0 million and $0.9 million, respectively.

Note 10 — 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 0.5 to 4.6 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 September 30, 2023 and December 31, 2022, the Company had no finance leases. Operating lease expense is recorded on a straight-line basis over the lease term. During the three and nine months ended September 30, 2023 and 2022 lease costs were as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)
Operating lease cost$1,065 $845 $2,785 $2,397 
Variable lease cost56 (16)318 (88)
Short-term lease cost92 133 288 400 
Total lease cost$1,213 $962 $3,391 $2,709 
Supplemental information related to operating lease transactions is as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)
Lease liability payments$1,024 $602 $2,664 $2,220 
Lease assets obtained in exchange for liabilities$369 $1,729 $5,005 $3,243 
Non-cash net change in lease assets due to lease modifications$(8)$(129)$18 $(1,015)
Non-cash net change in lease liability due to lease modifications$8 $129 $(18)$1,015 
Weighted average remaining lease term and discount rate as of September 30, 2023 and December 31, 2022 is as follows:
As of
September 30,
2023
December 31,
2022
Weighted average remaining lease term, in years3.43.8
Weighted average discount rate6.5 %5.0 %
As of September 30, 2023, operating lease liabilities will mature as follows:
Years ending December 31, (in thousands)Lease Payments
2023 (excluding nine months ended September 30, 2023)
$1,084 
20244,140 
20253,206 
20262,214 
20271,816 
202889 
Total lease payments12,549 
Less: imputed interest(1,410)
Total$11,139 
There were no material lease agreements signed with related parties as of September 30, 2023 and December 31, 2022.
Note 11 — Income taxes
The Company recorded income tax expense of $2.6 million and $3.4 million for the three months ended September 30, 2023 and 2022, respectively. The Company’s effective tax rate was 79.5% and (101.8)% for the third quarter of 2023 and 2022, respectively. On a year-to-date basis, the Company recorded income tax expense of $8.0 million and $7.2 million for 2023 and 2022, respectively. The Company’s effective tax rate was 240.0% and (47.4)% during the nine months ended September 30, 2023 and 2022, respectively.



The change in the effective tax rate for the three and nine months ended September 30, 2023, as compared to the same period in 2022 was attributable mainly to Section 162(m) compensation deduction limitations and foreign inclusion adjustments.
For the three and nine months ended September 30, 2023, the Company used a discrete effective tax rate method to calculate income taxes due to sensitivity of the forecast. Through September 30, 2023, the Company determined that small changes in 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 September 30, 2023, the Company is unable to produce a reliable estimate of ordinary income for the quarter and year ending 2023 due to the inability to reliably or accurately forecast 2023 operating expenses. Similarly, for the three and nine months ended September 30, 2023, 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 12 — Stock-based compensation
Employee stock-based compensation cost recognized in the consolidated statements of income/(loss) and comprehensive income/(loss) was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)
Cost of revenue$502 $367 $1,482 $888 
Engineering, research, and development1,005 1,834 3,678 4,336 
Sales and marketing854 1,239 2,732 3,117 
General and administrative4,906 14,111 19,785 34,258 
Total stock-based compensation$7,267 $17,551 $27,677 $42,599 
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, 2022
1,598,811 $3.54 $12,279 6.0
Options exercised(62,795)$3.54 
Options outstanding as of September 30, 2023
1,536,016 $3.54 $13,271 5.2
Options vested and exercisable as of September 30, 2023
1,529,816 $3.54 $13,218 5.2
The total unrecognized compensation expenses related to 2018 Plan options as of September 30, 2023 was $0.8 thousand to be expensed on a straight-line basis over 0.1 years.
2020 Plan
As of September 30, 2023, 7.2 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, 2022
3,003,611 $13.22 $3,883 8.3
Options granted642,000 $11.59 
Options exercised(111,869)$8.25 
Options forfeited(251,407)$15.11 
Options expired(28,841)$21.61 
Options outstanding as of September 30, 2023
3,253,494 $12.85 $4,898 7.8
Options vested and exercisable as of September 30, 2023
1,492,386 $11.47 $3,864 6.8
The Company elected the policy to account for forfeitures as these occur. The total unrecognized compensation expenses related to 2020 Stock Plan options as of September 30, 2023 was $10.2 million to be expensed on a straight-line basis over the remaining 2.7 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 nine months ended September 30, 2023:
Number of SharesWeighted Average Grant Date Fair Value
Unvested awards as of December 31, 2022
2,245,968 $11.99 
Awards granted185,500 $11.36 
Awards vested and released(1,293,759)$12.18 
Awards forfeited(101,883)$11.22 
Unvested awards as of September 30, 2023
1,035,826 $11.71 
During the nine months ended September 30, 2023 the Company net withheld and returned to the 2020 Plan pool 0.6 million shares to cover $6.9 million tax obligations for RSU releases. The total unrecognized compensation expenses related to 2020 Stock Plan RSUs as of September 30, 2023 was $9.6 million to be expensed on a straight-line basis over 0.9 years.
Performance Stock Units
The following table summarizes activity of the Company's PSUs for the nine months ended September 30, 2023:
Number of SharesWeighted Average Grant Date Fair Value
Unvested awards as of December 31, 2022
1,328,482 $39.41 
Awards granted523,938 $11.97 
Awards vested and released(1,328,482)$39.41 
Awards forfeited(32,375)$11.97 
Unvested awards as of September 30, 2023
491,563 $11.97 
During first quarter of 2023, the Company withheld 0.7 million shares to cover the $8.1 million tax obligations related to the release of vested 2022 PSU shares certified at 256% performance goal achievement on February 21, 2023. The total estimated



unrecognized compensation expenses related to 2020 Stock Plan PSUs as of September 30, 2023 was $3.8 million to be expensed over 0.4 years based on projected 160% performance goal achievement estimated as probable.
Note 13 — 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
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands, except per share data)
Numerator for basic and diluted income/(loss) per share
Net income/(loss)676 (6,659)(4,667)(22,512)
Denominator:
Weighted-average shares outstanding – basic75,46468,62375,02667,566
Net effect of dilutive stock options and restricted stock units
1,875    
Weighted-average shares outstanding – diluted77,33968,62375,02667,566
Net income/(loss) per share
Basic$0.01 $(0.10)$(0.06)$(0.33)
Diluted$0.01 $(0.10)$(0.06)$(0.33)
The following table represents the number of share equivalents outstanding during the period that were excluded from the calculation of diluted net income/(loss) per share attributable to common stockholders because including them would have had an anti-dilutive effect.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
(in thousands)
Stock options to purchase common stock2,167 4,416 4,845 4,326 
Restricted stock units20 2,484 1,686 2,042 
Performance stock units 1,251 904 1,264 
Total2,187 8,151 7,435 7,632 

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 November 2, 2023, 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, 2022, which has been filed with the Securities and Exchange Commission (“SEC”) on February 28, 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 rapidly expanding platform engineering services company, specializing in enterprise-level digital transformations for Fortune 1000 corporations. For enterprises that create innovative digital products and experiences, Grid Dynamics closely collaborates with its customers to provide digital transformation initiatives that span strategy consulting, development of early prototypes and enterprise-scale delivery of new digital platforms. Established in 2006 and headquartered in Silicon Valley as a cloud consultancy firm, Grid Dynamics has quickly established itself as a provider of choice for technology and evolved to become a leading force in digital innovation, with a strong focus on artificial intelligence (“AI”), data, analytics, cloud, and customer experience.
As a leading global digital engineering and IT services provider with engineering centers in the United States, Mexico, India, Jamaica and multiple European countries, Grid Dynamics’ core business is to deliver focused and complex technical consulting, software design, development, testing and internet service operations. Grid Dynamics also helps organizations become more agile and create innovative digital products and experiences through its deep expertise in emerging technology, such as AI, data science, cloud computing, big data and DevOps, lean software development practices and a high-performance product culture. Grid Dynamics believes that the key to its success is a business culture that puts products over projects, client success over contract terms and real business results over purely technical innovation. By leveraging Grid Dynamics’ proprietary processes optimized for innovation, emphasis on talent development and technical expertise, Grid Dynamics has been able to achieve significant growth.




The following tables sets forth a summary of Grid Dynamics’ financial results for the periods indicated:
Three Months Ended
September 30,
20232022
(in thousands, except per share data and percentages)
Revenues$77,419 100.0 %$81,161 100.0 %
Gross profit28,152 36.4 %32,670 40.3 %
Income/(loss) from operations143 0.2 %(4,750)(5.9)%
Net income/(loss)676 0.9 %(6,659)(8.2)%
Diluted income/(loss) per share$0.01 n/a$(0.10)n/a
Non-GAAP Financial Information(1)
Non-GAAP EBITDA(1)
10,733 13.9 %17,086 21.1 %
Non-GAAP Net Income(1)
5,861 7.6 %10,976 13.5 %
Non-GAAP Diluted EPS(1)
$0.08 n/a$0.15 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.
Nine Months Ended
September 30,
20232022
(in thousands, except per share data and percentages)
Revenues$234,841 100.0 %$229,906 100.0 %
Gross profit85,032 36.2 %88,310 38.4 %
Loss from operations(4,515)(1.9)%(15,396)(6.7)%
Net loss(4,667)(2.0)%(22,512)(9.8)%
Diluted loss per share$(0.06)n/a$(0.33)n/a
Non-GAAP Financial Information(1)
Non-GAAP EBITDA(1)
33,550 14.3 %41,743 18.2 %
Non-GAAP Net Income(1)
19,380 8.3 %26,154 11.4 %
Non-GAAP Diluted EPS(1)
$0.25 n/a$0.37 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
During the third quarter of 2023, our revenues of $77.4 million decreased by $3.7 million compared to the three months ended September 30, 2022, and remained flat compared to the prior quarter of 2023. The year-over-year decrease in revenues was largely due to the impact of macroeconomic conditions, which resulted in lower customer demand.
During the three months ended September 30, 2023 our Retail vertical comprised 34.3% of our third quarter revenue and grew by 5.1% compared to the same period of last year. The increase was due to a combination of new customers, existing business and acquisitions. Our Technology Media, and Telecom (“TMT”) vertical comprising 30.7% of our quarterly revenues decreased by 9.9% on a year-over-year basis largely due to decreased activity in some of our larger customers. During the three months ended September 30, 2023, our Consumer Packaged Goods (“CPG”)/Manufacturing vertical continued to decline falling by 39.8% and 11.1% on a year-over-year and sequential basis, respectively. 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. During the third quarter of 2023, Finance, and Other verticals contributed to 9.4%, and 13.1%, respectively. Revenues from our Top 5 customers during the quarter decreased by 21.1% to 36.8% compared to the same period a year ago mainly due to a decrease in revenues generated from one of our larger customers.



We ended the third quarter of 2023 with $0.7 million, or 0.9% in GAAP Net Income, a decrease from a GAAP Net Income of $2.6 million, or 3.4% in the three months ended June 30, 2023 and a change from a GAAP Net Loss of $6.7 million, or 8.2% in the third quarter of 2022. The year-over-year increase in GAAP Net Income was largely driven by a combination of lower stock-based compensation expenses and a decrease in geographic reorganization and relocation costs. We ended the third quarter of 2023 with $10.7 million, or 13.9% in Non-GAAP EBITDA, down from $12.0 million, or 15.5% in the second quarter of 2023 and from $17.1 million, or 21.1% in the three months ended September 30, 2022. The sequential decrease in Non-GAAP EBITDA was largely driven by increased operating expenses. The year-over-year decrease was largely driven by a combination of lower levels of revenue and increased operating expenses.
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 executed our business continuity plan and have adapted to developments as they occur to protect the safety of our people and handle potential impacts to our delivery infrastructure. This includes moving affected employees to safer locations in Western Ukraine and, where permissible, outside Ukraine, and reallocating work to other geographies within our global footprint. 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. In addition we announced our expansion to a new European hub with an office in Zug, Switzerland, a new engineering office in Yerevan, Armenia and workforce expansion in India. As of June 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.
Recent Acquisitions
On April 18, 2023, we acquired NextSphere Technologies Inc. (“NextSphere”), a full-service custom application development firm. NextSphere is headquartered in Tampa, FL. It also has an engineering presence in Phoenix, AZ, and operates two large engineering centers in the India tech hubs of Hyderabad and Chennai. The acquisition of NextSphere will support our objectives of enhancing our technical offerings, expanding our global footprint, and increasing our client base.
On December 23, 2022, we acquired Mutual Mobile Inc. (“Mutual Mobile”), a company based out of Austin, Texas and with delivery operations in India. Mutual Mobile offers end-to-end design and development of next-generation applications, combining mobile, augmented/virtual/mixed reality, and cloud edge / IoT practices. It has developed wide-ranging, technical solutions for prominent global brands across numerous industry verticals, with Technology, Healthcare, Automotive, and



Financial Services representing the top verticals by revenue. The ac