Acquisitions

3 Months Ended

Mar. 31, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

NextSphere — On April 18, 2023, the Company completed the acquisition of 100% of NextSphere Technologies, Inc. (“NextSphere”). Founded in 2006, NextSphere is headquartered in Tampa, FL, has an engineering presence in Phoenix, AZ, and operates two large engineering centers in India’s tech hubs of Hyderabad and Chennai. NextSphere specializes in modern application development, systems monetization, product development, cloud and infrastructure services, and quality assurance. Over the years, NextSphere has worked with several brands across numerous industry verticals with expertise in Healthcare, Fintech, and CPG/Manufacturing industries. The Company believes this acquisition will support the Company’s objectives of enhancing its technical capabilities, expanding its global footprint, and increasing its client base. The total purchase consideration is $25.2 million and consists of cash consideration of $24.3 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $0.9 million. The maximum amount of potential contingent cash consideration is $2.0 million. The contingent consideration is payable based on revenue and gross profit metrics to be achieved by NextSphere within 12 months. The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout. During the third quarter of 2023 the Company concluded that NextSphere was not going to achieve required performance metrics and has written-off all related contingent consideration liability.

Mutual Mobile — On December 23, 2022, the Company acquired 100% of the equity interest of the software company Mutual Mobile Inc. (“Mutual Mobile”). Founded in 2009, Mutual Mobile is based in the United States and India, offers end-to-end design and development of next-generation applications, combining mobile, augmented/virtual/mixed reality, and cloud edge/IoT practices. The acquisition of Mutual Mobile added approximately 180 employees to the Company’s headcount. The acquisition will accelerate Company’s strategic expansion into the India engineering market and further solidifies Grid Dynamics’ commitment to global growth. The total purchase consideration is $16.1 million and consists of cash consideration of $12.8 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $3.3 million. The maximum amount of potential contingent cash consideration is $5.0 million. The contingent consideration is payable based on revenue and gross profit metrics to be achieved by Mutual Mobile within 12 months. The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout. During the third quarter of 2023 the Company concluded that Mutual Mobile was not going to achieve required performance metrics and has written-off all related contingent consideration liability.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:


	NextSphere		Mutual Mobile
	(in thousands)
Current assets	$	9,708	$	4,982
Property, plant and equipment	192		132
Intangible assets	9,906		3,749
Goodwill	9,031		8,879
Other noncurrent assets	511		102
Total assets acquired	$	29,348	$	17,844

Accounts payable, accrued expenses and other liabilities	(1,990)		(1,576)
Deferred taxes	(2,427)		(686)
Total liabilities assumed	$	(4,417)	$	(2,262)
Purchase price allocation	$	24,931	$	15,582

Current assets acquired include cash and cash equivalents in the amount of $6.4 million for NextSphere and $3.5 million for Mutual Mobile. The purchase price for all acquisitions was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above.

The goodwill recognized as a result of the NextSphere acquisition represents the value the Company expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach as well as the assembled workforce acquired. The goodwill is not deductible for income tax purposes. The goodwill recognized as a result of the Mutual Mobile acquisition is attributable to synergies expected to be achieved by combining the businesses of the Company and Mutual Mobile, expected future contracts, the assembled workforce acquired and other factors. The goodwill is not deductible for income tax purposes.

During the fourth quarter of 2023, the Company finalized working capital adjustment for NextSphere that resulted in a decrease of original purchase price in the amount of $0.3 million and updated fair value of deferred taxes by $0.2 million. These adjustments resulted in a corresponding net change in goodwill by $0.1 million. The Company then finalized the fair value of the assets acquired and liabilities assumed in the acquisition of NextSphere.

During the fourth quarter of 2023, the Company finalized working capital adjustment for Mutual Mobile which reduced the original purchase price by $0.5 million and decreased fair value of deferred taxes by $0.2 million. These adjustments resulted in a corresponding net change in goodwill by $0.7 million. The Company then finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Mutual Mobile.

The estimated fair value, useful lives and amortization methods of identifiable intangible assets as of the date of acquisition updated for any changes as of March 31, 2024 are as follows:


	NextSphere			Mutual Mobile
	Fair Value		Useful Life	Fair Value		Useful Life
	(in thousands, except years)
Customer relationships	$	8,415	10 years	$	3,453	8 years
Acquired software	995		2.5 years	—		—
Trade name	496		2 years	152		4 years
Non-compete agreements	—		—	144		2 years
Total identified intangible assets	$	9,906		$	3,749

The Company used the acquisition method of accounting for all acquisitions, and consequently, the results of operations for all acquisitions are reported in the consolidated financial statements from the dates of acquisition. Pro forma results of operations have not been presented because the effect of the acquisitions on the Company’s condensed consolidated financial statements was not material individually or in the aggregate.