0001628280-23-015784.txt : 20230504 0001628280-23-015784.hdr.sgml : 20230504 20230504163539 ACCESSION NUMBER: 0001628280-23-015784 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230504 DATE AS OF CHANGE: 20230504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRID DYNAMICS HOLDINGS, INC. CENTRAL INDEX KEY: 0001743725 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 830632724 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38685 FILM NUMBER: 23889438 BUSINESS ADDRESS: STREET 1: 7660 FAY AVENUE STREET 2: SUITE H, UNIT 339 CITY: LA JOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: (619) 736-6855 MAIL ADDRESS: STREET 1: 7660 FAY AVENUE STREET 2: SUITE H, UNIT 339 CITY: LA JOLLA STATE: CA ZIP: 92037 FORMER COMPANY: FORMER CONFORMED NAME: ChaSerg Technology Acquisition Corp DATE OF NAME CHANGE: 20180615 10-Q 1 gdyn-20230331.htm 10-Q gdyn-20230331
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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, 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 April 30, 2023, there were 74,896,752 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;
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, 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
March 31,
2023
December 31,
2022
Assets
Current assets
Cash and cash equivalents$258,368 $256,729 
Accounts receivable, net of allowance of $465 and $443 as of March 31, 2023 and December 31, 2022, respectively
50,951 48,358 
Unbilled receivables6,512 5,591 
Prepaid income taxes5,933 4,294 
Prepaid expenses and other current assets8,315 8,154 
Total current assets330,079 323,126 
Property and equipment, net8,840 8,215 
Operating lease right-of-use assets, net8,234 7,694 
Intangible assets, net19,694 20,375 
Goodwill45,514 45,514 
Deferred tax assets5,818 4,998 
Other noncurrent assets1,408 1,224 
Total assets$419,587 $411,146 
Liabilities and equity
Current liabilities
Accounts payable$3,206 $3,897 
Accrued compensation and benefits19,119 13,065 
Accrued income taxes14,024 10,718 
Operating lease liabilities, current3,178 2,505 
Accrued expenses and other current liabilities10,831 8,525 
Total current liabilities50,358 38,710 
Deferred tax liabilities3,653 3,756 
Operating lease liabilities, noncurrent5,691 5,636 
Total liabilities59,702 48,102 
Commitments and contingencies (Note 14)
Stockholders’ equity
Common stock, $0.0001 par value; 110,000,000 shares authorized; 74,896,752 and 74,156,458 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively
7 7 
Additional paid-in capital382,322 378,006 
Accumulated deficit(22,091)(14,121)
Accumulated other comprehensive loss(353)(848)
Total stockholders’ equity359,885 363,044 
Total liabilities and stockholders’ equity$419,587 $411,146 
1

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

GRID DYNAMICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS
(In thousands, except per share data)
Three Months Ended
March 31,
20232022
Revenue$80,080 $71,410 
Cost of revenue51,505 44,631 
Gross profit28,575 26,779 
Operating expenses
Engineering, research, and development4,203 3,096 
Sales and marketing5,634 4,215 
General and administrative24,730 19,265 
Total operating expenses34,567 26,576 
Income/(loss) from operations(5,992)203 
Other income/(expenses), net1,682 (700)
Loss before income taxes(4,310)(497)
Provision for income taxes3,660 2,170 
Net loss$(7,970)$(2,667)
Foreign currency translation adjustments, net of tax495 (283)
Comprehensive loss$(7,475)$(2,950)
Loss per share
Basic$(0.11)$(0.04)
Diluted$(0.11)$(0.04)
Weighted average shares outstanding
Basic74,459 66,919 
Diluted74,459 66,919 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3

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 

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 
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)
For the three months ended
March 31,
20232022
Cash flows from operating activities
Net loss$(7,970)$(2,667)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization1,645 1,589 
Operating lease right-of-use assets amortization expense650 636 
Bad debt expense20 45 
Deferred income taxes(923)(87)
Debt issuance cost amortization23  
Stock-based compensation13,257 8,661 
Changes in assets and liabilities:
Accounts receivable(2,613)(2,573)
Unbilled receivables(921)(866)
Prepaid income taxes(1,639)(199)
Prepaid expenses and other current assets(368)(1,268)
Accounts payable(691)159 
Accrued compensation and benefits6,054 5,384 
Operating lease liabilities(462)(987)
Accrued income taxes3,306 1,898 
Accrued expenses and other current liabilities2,306 (208)
Net cash provided by operating activities11,674 9,517 
Cash flows from investing activities
Purchase of property and equipment(1,589)(1,653)
Net cash used in investing activities(1,589)(1,653)
Cash flows from financing activities
Proceeds from exercises of stock options, net of shares withheld for taxes10 292 
Payments of tax obligations resulted from net share settlement of vested stock awards(8,951)(1,802)
Payment of contingent consideration related to previously acquired businesses (1,933)
Proceeds from debt 5,000 
Debt issuance cost (194)
Net cash (used in)/provided by financing activities(8,941)1,363 
Effect of exchange rate changes on cash and cash equivalents495 (283)
Net increase in cash and cash equivalents1,639 8,944 
Cash and cash equivalents, beginning of period256,729 144,364 
Cash and cash equivalents, end of period$258,368 $153,308 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$2,926 $643 
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 months ended March 31, 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. The most significant subcontractor as of March 31, 2023 is GD AM, LLC (“Affiliate”), third-party contractor located in Armenia. The Affiliate exclusively supports and performs services on behalf of the Company and its customers. The Company has no ownership in the Affiliate. 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 Affiliates because the Company has the power to direct the VIEs’ most significant activities and is the primary beneficiary of the Affiliates. The assets and liabilities of the Affiliates 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
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.
Tacit — On May 29, 2021, the Company acquired 100% of the equity interest of the global consultancy company Tacit Knowledge Inc. (“Tacit”). Founded in 2002, Tacit is a global provider of digital commerce solutions, serving customers across the UK, North America, Continental Europe, and Asia. The acquisition of Tacit added approximately 180 employees to the Company's headcount. The acquisition will augment the Company’s service offerings and will strengthen its competitive position within the market. Additionally, the acquisition will also enable the Company to leverage near-shore capabilities with Tacit’s presence in Mexico. The total purchase consideration is $37.6 million and consists of cash consideration of $33.6 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $4.0 million. The maximum amount of potential contingent cash consideration is $5.0 million. 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:
Mutual MobileTacit
(in thousands)
Current assets$4,982 $9,145 
Property, plant and equipment132 466 
Intangible assets3,749 12,913 
Goodwill9,556 21,268 
Other noncurrent assets102  
Total assets acquired$18,521 $43,792 
Accounts payable and accrued expenses(1,576)(3,675)
Deferred taxes(875)(2,500)
Total liabilities assumed$(2,451)$(6,175)
Purchase price allocation$16,070 $37,617 
Current assets acquired include cash and cash equivalents in the amount of $3.5 million for Mutual Mobile and $3.0 million for Tacit accordingly. The purchase price for both 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 Mutual Mobile and Tacit is not deductible for income tax purposes. 
For the acquisition of 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.
During the fourth quarter of 2021, the Company finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Tacit.
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, 2023 are as follows:
Mutual MobileTacit
Fair ValueUseful LifeFair ValueUseful Life
(in thousands, except in years)
Customer relationships$3,453 8 years$11,737 12 years
Trade name152 4 years1,176 4 years
Non-compete agreements144 2 years 
Total identified intangible assets$3,749 $12,913 
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 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
March 31, 2022
(in thousands)
Revenue$74,402 
Net loss$(1,970)
Diluted loss per share$(0.03)
Note 3 — Fair value
The Company’s financial assets and liabilities, with the exceptions of contingent consideration payable described further herein, are all short term in nature; therefore, the carrying value of these items approximates their 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 year ended December 31, 2022 the Company completed the acquisition of Mutual Mobile under which the Company committed to make a cash earnout payment subject to attainment of specific performance targets. The weighted average discount rate used to determine the final fair value of Mutual Mobile contingent considerations was 10.1%.
The Company records contingent consideration payable in Other current liabilities in its unaudited condensed consolidated balance sheet. There were no changes recorded for Level 3 acquisition-related contingent consideration payable in unaudited condensed consolidated financial statements for the three months ended March 31, 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)
March 31, 2023
Financial Assets:
Cash equivalents:
Money market funds$168,607 $168,607 $168,607 $ $ 
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 do 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 March 31, 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
March 31,
2023
December 31,
2022
(in thousands)
Prepaid expenses$3,817 $3,323 
Guarantee deposits placed2,092 2,295 
Value added tax receivable1,679 1,384 
Other prepaid and current assets727 1,152 
Total prepaid expenses and other current assets$8,315 $8,154 

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


Estimated
Useful
Life
As of
March 31,
2023
December 31,
2022
(in years)(in thousands)
Computers and equipment
2-5
$11,765 $11,679 
Furniture and fixtures
3-10
1,669 1,614 
Leasehold improvements
2-8
1,190 646 
Software
3-5
1,053 1,053 
Machinery and automobiles
4-6
384 349 
$16,061 $15,341 
Less: Accumulated depreciation and amortization(9,380)(8,614)
$6,681 $6,727 
Capitalized software development costs
2-3
$7,235 $6,210 
Less: Accumulated amortization(5,076)(4,722)
$2,159 $1,488 
Property and equipment, net$8,840 $8,215 

Note 6 — Intangible assets, net
Intangible assets, net consistedof the following:
Estimated
Useful
Life
As of
March 31,
2023
December 31,
2022
(in years)(in thousands)
Customer relationships
8-12
$19,424 $19,424 
Tradenames
4-10
4,828 4,828 
Non-compete agreements2584 584 
$24,836 $24,836 
Less: Accumulated amortization(5,142)(4,461)
Intangible assets, net$19,694 $20,375 


Note 7 — Accrued expenses and other current liabilities
The components of accrued expenses and other current liabilities were as follows:


As of
March 31,
2023
December 31, 2022
(in thousands)
Contingent consideration payable$3,288 $3,288 
Accrued rebates1,860 473 
Accrued expenses1,760 829 
Value added tax payable1,615 1,345 
Customer deposits794 754 
Deferred revenue726 1,124 
Other liabilities788 712 
Total accrued expenses and other current liabilities$10,831 $8,525 
As of March 31, 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 March 31, 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 March 31, 2023 and December 31, 2022, respectively, the Company did not have any outstanding debt under the 2022 Credit Agreement.


Note 9 — Revenue
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, 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
March 31,
20232022
Customer Location(in thousands)
North America$63,949 $57,609 
Europe15,894 13,735 
Other237 66 
Total Revenues$80,080 $71,410 
The following table shows the disaggregation of the Company’s revenues by main vertical markets:
Three Months Ended
March 31,
20232022
Vertical(in thousands)
Technology, Media and Telecom$26,811 $21,444 
Retail25,396 23,307 
CPG/Manufacturing(1)
12,646 14,979 
Finance6,515 4,527 
Other8,712 7,153 
Total Revenues$80,080 $71,410 
__________________________
(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,
20232022
Contract Type(in thousands)
Time-and-material$70,526 $65,206 
Fixed-fee9,554 6,204 
Total Revenues$80,080 $71,410 
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, 2023 and December 31, 2022 the Company did not have material contract assets. Contract liabilities were $0.7 million and $1.1 million as of March 31, 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 March 31, 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 March 31, 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
March 31,
20232022
Customer 113.9 %11.2 %
Customer 2n/a10.3 %
During the three months ended March 31, 2023 and March 31, 2022 the Company recorded revenue from its related parties of $1.8 million and $1.2 million, respectively.
The following table shows number of customers exceeding 10% of the Company’s billed and unbilled receivable balances:
As of
March 31,
2023
December 31,
2022
Accounts receivable22
Unbilled receivable22
As of March 31, 2023 and December 31, 2022 accounts receivable from related parties were $1.1 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 0.7 to 5.1 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, 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 three months ended March 31, 2023 and March 31, 2022 lease costs were as follows:
Three months ended
March 31,
20232022
(in thousands)
Operating lease cost$781 $694 
Variable lease cost194 24 
Short-term lease cost98 239 
Total lease cost$1,073 $957 
Supplemental information related to operating lease transactions is as follows:
Three months ended
March 31,
20232022
(in thousands)
Lease liability payments$727 $866 
Lease assets obtained in exchange for liabilities$1,022 $ 
Non-cash net decrease in lease assets due to lease modifications$ $(28)
Non-cash net decrease in lease liability due to lease modifications$ $28 
Weighted average remaining lease term and discount rate as of March 31, 2023 is as follows:
Three months ended
March 31,
20232022
Weighted average remaining lease term, in years3.53.5
Weighted average discount rate5.5 %3.4 %

As of March 31, 2023, operating lease liabilities will mature as follows:
Years ending December 31, (in thousands)Lease Payments
2023 (excluding three months ended March 31, 2023)
$2,380 
20243,062 
20252,109 
20261,198 
2027993 
202889 
Total lease payments9,831 
Less: imputed interest(962)
Total$8,869 
There were no material lease agreements signed with related parties as of March 31, 2023 and December 31, 2022.
Note 11 — Income taxes
The Company recorded income tax expense of $3.7 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively. The Company’s effective tax rate was (84.9)% and (436.6)% for the first quarter of 2023 and 2022, respectively. The change in the effective tax rate for the three months ended March 31, 2023, as compared to the same period in 2022 was attributable mainly to Section 162(m) compensation deduction limitations and foreign inclusion adjustment.


For the three months ended March 31, 2023, the Company used a discrete effective tax rate method to calculate income taxes due to sensitivity of the forecast. Through March 31, 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 March 31, 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 months ended March 31, 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 loss and comprehensive loss was as follows:
Three Months Ended
March 31,
20232022
(in thousands)
Cost of revenue$460 $249 
Engineering, research, and development1,653 864 
Sales and marketing1,055 671 
General and administrative10,089 6,877 
Total stock-based compensation$13,257 $8,661 
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 $ 
Options forfeited $ 
Options outstanding as of March 31, 2023
1,598,811 $3.54 $12,663 5.8
Options vested and exercisable as of March 31, 2023
1,551,925 $3.54 $12,291 5.8
The total unrecognized compensation expenses related to 2018 Plan options as of March 31, 2023 was $0.03 million to be expensed on a straight-line basis over 0.4 years.
2020 Plan
As of March 31, 2023, 7.0 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 granted289,200 $11.97 
Options exercised(1,187)$8.43 
Options forfeited(69,542)$16.96 
Options expired(7,087)$20.51 
Options outstanding as of March 31, 2023
3,214,995 $13.02 $4,180 8.2
Options vested and exercisable as of March 31, 2023
1,245,166 $10.67 $3,042 7.3

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 March 31, 2023 was $11.5 million to be expensed on a straight-line basis over the remaining 2.8 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, 2023:
Number of SharesWeighted Average Grant Date Fair Value
Unvested awards as of December 31, 2022
2,245,968 $11.99 
Awards granted59,000 $11.97 
Awards vested and released(167,439)$8.60 
Unvested awards as of March 31, 2023
2,137,529 $12.23 
During the three months ended March 31, 2023 the Company net withheld and returned to the 2020 Plan pool 0.1 million shares to cover $0.9 million tax obligations for RSU releases. The total unrecognized compensation expenses related to 2020 Stock Plan RSUs as of March 31, 2023 was $16.9 million to be expensed on a straight-line basis over 1.1 years.
Performance Stock Units
The following table summarizes activity of the Company's PSUs for the three months ended March 31, 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 
Unvested awards as of March 31, 2023
523,938 $11.97 
During the three months ended March 31, 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 March 31, 2023 was $8.7 million to be expensed over 0.9 years based on projected 154% performance goal achievement.


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
March 31,
20232022
(in thousands, except per share data)
Numerator for basic and diluted loss per share
Net loss(7,970)(2,667)
Denominator for basic and diluted loss per share
Weighted-average shares outstanding – basic and diluted74,45966,919
Net loss per share
Basic$(0.11)$(0.04)
Diluted$(0.11)$(0.04)
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,
20232022
(in thousands)
Stock options to purchase common stock4,697 4,178 
Restricted stock units2,221 1,453 
Performance stock units1,102 576 
Total8,020 6,207 

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 amounts required to be reflected in these consolidated financial statements related to contingencies.


Note 15 — Subsequent events
The Company performed its subsequent event procedures through May 4, 2023, the date these condensed consolidated financial statements were issued.
On April 18, 2023, the Company acquired NextSphere Technologies, Inc. (“NextSphere”). Founded in 2006, NextSphere Technologies is headquartered in Tampa, FL, and its clients are US-based. They also have an engineering presence in Phoenix, AZ, and operate two large engineering centers in the India tech hubs of Hyderabad and Chennai. The company specializes in modern application development, systems monetization, product development, cloud & infrastructure services, and quality assurance. Over the years, the company 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 global footprint, and increasing its client base. The Company paid approximately $16.7 million (net of cash acquired) at closing and could pay up to $2.0 million in earn-out consideration based on achievement of certain revenue and gross profit targets. The Company is currently in the process of finalizing the accounting for this transaction and expect to complete its preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed by the end of the second quarter of 2023.


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 fast-growing company focused on enterprise-level digital transformations in Fortune 1000 companies. For enterprises that create innovative digital products and experiences, Grid Dynamics offers close collaboration to provide digital transformation initiatives that span strategy consulting, development of early prototypes and enterprise-scale delivery of new digital platforms. Since its inception in 2006 in Menlo Park, California, as a grid and cloud consultancy firm, Grid Dynamics has been on the forefront of digital transformation, working on big ideas like cloud computing, NOSQL, DevOps, microservices, big data and AI, and quickly established itself as a provider of choice for technology and digital enterprise companies.
As a leading global digital engineering and IT services provider with its headquarters in Silicon Valley and 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 pure 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 table sets forth a summary of Grid Dynamics’ financial results for the periods indicated:
Three months ended
March 31,
20232022
(in thousands, except per share data and percentages)
Revenues$80,080 100.0 %$71,410 100.0 %
Gross profit28,575 35.7 %26,779 37.5 %
Income/(loss) from operations(5,992)(7.5)%203 0.3 %
Net loss(7,970)(10.0)%(2,667)(3.7)%
Diluted loss per share$(0.11)n/a$(0.04)n/a
Non-GAAP Financial Information(1)
Non-GAAP EBITDA(1)
10,832 13.5 %11,375 15.9 %
Non-GAAP Net Income(1)
6,523 8.1 %6,948 9.7 %
Non-GAAP Diluted EPS(1)
$0.08 n/a$0.10 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 first quarter of 2023 our revenues of $80.1 million remained flat compared to the three months ended December 31, 2022, and were up by $8.7 million from the three months ended March 31, 2022. The year-over-year increase in revenues was due to a combination of increased business volumes from existing and new customers and the acquisition of Mutual Mobile.
During the three months ended March 31, 2023, our Technology Media, and Telecom (“TMT”) vertical remained our largest industry comprising 33.5% of our quarterly revenues. On a year-over-year basis, the growth of the vertical was driven by increase in business from our large technology customers. Retail ended up with 31.7% of revenue and remained relatively on the same level in comparison to the three months ended December 31, 2022, and a growth of 9.0% on a year-over-year basis. The year-over-year growth was driven by a combination of factors that included ramp up at existing customers, revenue contribution from new customers, and revenue from the acquisition of Mutual Mobile. During the three months ended March 31, 2023, our Consumer Packaged Goods (“CPG”)/Manufacturing vertical declined by (15.6)% and (10.2)% 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. During the first quarter of 2023, Finance, and Other verticals contributed to 8.1%, and 10.9%, respectively. Revenues from our Top 5 customers during the quarter decreased by (2.0)% to 40.8% compared to the same period a year ago mainly due to a decrease in revenues generated from our largest CPG/Manufacturing customer.
We ended the first quarter of 2023 with $(8.0) million, or (10.0)% in GAAP Net Loss, a change from a GAAP Net Loss of $(6.7) million, or (8.3)% in the three months ended December 31, 2022 and a GAAP Net Loss of $(2.7) million, or (3.7)% in the first quarter of 2022. The year-over-year increase in GAAP Net Loss was largely driven by a combination of higher stock-based compensation expenses and labor costs as well as additional transaction and transformation related costs slightly offset by higher revenues. We ended the first quarter of 2023 with $10.8 million, or 13.5% in Non-GAAP EBITDA, down from $16.5 million, or 20.4% in the fourth quarter of 2022 and from $11.4 million, or 15.9% in the three months ended March 31, 2022. The sequential decrease in Non-GAAP EBITDA was largely driven by decline in gross profit and higher 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. During the three months ended June 30, 2022, we relocated the majority of our Russia based employees outside of Russia. As of May 2023, we have no personnel in Russia and are performing no 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 situation in Serbia creates 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 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 acquisition of Mutual Mobile enhances our skills in the area of mobile technologies and UX expertise as well as accelerates our strategic expansion to India and supports our commitment towards offering our customers a global engineering and delivery platform.
On April 18, 2023, we acquired NextSphere Technologies Inc. (“NextSphere”), a full-service custom application development firm. NextSphere is headquartered in Tampa, FL, and its clients are US-based. 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.
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 client 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,
20232022
CEE, U.K., and the Netherlands2,9523,248
Americas515406
Rest of the world27717
Total3,7443,671
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 first quarter of 2023, the total number of customers was 220, up from 213 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. During the first quarter of 2023 one customer accounted for 10% or more of Grid Dynamics’ revenue for the period compared to two customers during the first quarter of 2022.
The following table presents revenues concentration by amount and as a percentage of our revenues for the periods indicated:

Three Months Ended
March 31,
20232022
(in thousands, except percentages)
Top one customer$11,157 13.9 %$8,006 11.2 %
Top five customers$32,667 40.8 %$30,543 42.8 %
Top ten customers$48,391 60.4 %$41,653 58.3 %
Top twenty customers$57,981 72.4 %$51,518 72.1 %
Customers below top twenty$22,099 27.6 %$19,892 27.9 %


Seasonality
Grid Dynamics’ business is subject to seasonal trends that impact its revenues and profitability between quarters. Some of the factors that influence the seasonal trends include the timing of holidays in the countries in which Grid Dynamics operates and the U.S. retail cycle, which drives the behavior of Grid Dynamics’ retail customers. Excluding the impact of growth in its book of business, Grid Dynamics has 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 Grid Dynamics’ retail sector customers tend to slow their discretionary spending during the holiday sale season, which typically lasts from late November (before Thanksgiving) through late December (after Christmas).
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/expenses, net (which includes mainly interest income and expense, foreign currency transaction losses and gains, fair value adjustments 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,
20232022
(in thousands)
GAAP net loss$(7,970)$(2,667)
Adjusted for:
Depreciation and amortization1,645 1,589 
Provision for income taxes3,660 2,170 
Stock-based compensation13,257 8,661 
Transaction and transformation-related costs (1)
788 — 
Geographic reorganization (2)
691 922 
Restructuring costs (3)
443 — 
Other (income)/expense, net (4)
(1,682)700 
Non-GAAP EBITDA$10,832 $11,375 
__________________________
(1)Transaction and transformation-related costs include, when applicable, external deal costs, transaction-related professional fees, transaction-related retention bonuses, which are allocated proportionally across cost of revenue, engineering, research and development, sales and marketing and general and administrative expenses as well as other transaction-related costs including integration expenses consisting of outside professional and consulting services.
(2)Geographic reorganization includes expenses connected with military actions of Russia against Ukraine and the exit plan announced by the Company and includes travel and relocation-related expenses of employees from the aforementioned countries, severance payments, allowances as well as legal and professional fees related to geographic repositioning in various locations. These expenses are incremental to those expenses incurred prior to the crisis, clearly separable from normal operations, and not expected to recur once the crisis has subsided and operations return to normal.
(3)We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprised of severance charges and respective taxes.
(4)Other (income)/expense, net consist primarily of gains and losses on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses as well as other income consists primarily of interest on cash held at banks and returns on investments in money-market funds.
The following table presents a reconciliation of Grid Dynamics’ Non-GAAP Diluted EPS and its Non-GAAP Net Income to its consolidated net loss for the periods indicated:
Three Months Ended
March 31,
20232022
(in thousands, except per share data)
GAAP net loss$(7,970)$(2,667)
Adjusted for:
Stock-based compensation13,257 8,661 
Transaction and transformation-related costs (1)
788 — 
Geographic reorganization (2)
691