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What changed in GRID DYNAMICS HOLDINGS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of GRID DYNAMICS HOLDINGS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+317 added−323 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in GRID DYNAMICS HOLDINGS, INC.'s 2023 10-K

317 paragraphs added · 323 removed · 227 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeGrid 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.
Biggest changeEstablished in 2006 and headquartered in Silicon Valley, Grid Dynamics partners with clients ranging from innovative start-ups to the largest companies in the world. Grid Dynamics believes the key to its success is a culture encouraging an unwavering “whatever it takes” dedication that puts client success over contract terms, products over projects, and real business results over pure technical innovation.
Various courses in project management and leadership skills help managers build strong teams through positive work environment, group inspiration and individual motivation. Internships Grid Dynamics has a long-standing tradition of running internship programs for students and junior engineers.
Various courses in project management and leadership skills help managers build strong teams through a positive work environment, group inspiration, and individual motivation. Internships Grid Dynamics has a long-standing tradition of running internship programs for students and junior engineers.
Grid Dynamics faces competition primarily from: • emerging small to mid-cap digital services companies, such as Globant S.A., Endava plc, EPAM Systems, Inc., Slalom Consulting Inc., and Thoughtworks Holding Inc.; • large global consulting and outsourcing firms, such as Accenture plc and Capgemini SE;. • India-based technology outsourcing IT services providers, such as Cognizant Technology Solutions Corporation, Infosys Technologies, and Wipro; • in-house IT departments of Grid Dynamics’ clients and potential clients.
Grid Dynamics faces competition primarily from: • emerging small to mid-cap digital services companies, such as Globant S.A., Endava plc, EPAM Systems, Inc., and Thoughtworks Holding Inc.; • large global consulting and outsourcing firms, such as Accenture plc and Capgemini SE;. • India-based technology outsourcing IT services providers, such as Cognizant Technology Solutions Corporation, Infosys Technologies, and Wipro; • in-house IT departments of Grid Dynamics’ clients and potential clients.
Grid Dynamics works with the compliance departments of its clients to comply with the client’s open-source licensing policies. Regulations Due to the industry and geographic diversity of Grid Dynamics’ operations and services, Grid Dynamics’ operations are subject to a variety of laws and regulations in the United States and the foreign jurisdictions in which we operate.
Grid Dynamics works with the compliance departments of its clients to comply with the client’s open-source licensing policies. 6 Regulations Due to the industry and geographic diversity of Grid Dynamics’ operations and services, Grid Dynamics’ operations are subject to a variety of laws and regulations in the United States and the foreign jurisdictions in which we operate.
Grid Dynamics customarily enters into non-disclosure agreements with its clients with respect to the use of their software systems and platforms. Grid Dynamics’ clients usually own the intellectual property in the software or systems Grid Dynamics develops for them. Grid Dynamics and its clients often use open-source software to improve quality and reduce time-to-market.
Grid Dynamics customarily enters into non-disclosure agreements with its clients concerning the use of their software systems and platforms. Grid Dynamics’ clients usually own the intellectual property in the software or systems Grid Dynamics develops for them. Grid Dynamics and its clients often use open-source software to improve quality and reduce time-to-market.
Grid Dynamics has successfully passed seven ISO 27001:2013 audits, as well as over a dozen exhaustive audits from top financial services customers. 4 Sales and Marketing Grid Dynamics’ sales and marketing strategy focuses on increasing revenues from new and existing clients through a “land and expand” strategy.
Grid Dynamics has successfully passed nine ISO 27001:2013 audits, as well as over a dozen exhaustive audits from top financial services customers. 4 Sales and Marketing Grid Dynamics’ sales and marketing strategy focuses on increasing revenues from new and existing clients through a “land and expand” strategy.
Tech, Media and Telecom Grid Dynamics has a strong presence in the digital technology sector, particularly among analytics, SaaS and platform vendors which are driven by a constant need for innovation.
Tech, Media and Telecom Grid Dynamics has a strong presence in the digital technology sector, particularly among analytics, SaaS, and platform vendors that are driven by a constant need for innovation.
Verticals Grid Dynamics has strong vertical-specific domain knowledge backed by extensive experience. By merging technology with business processes, Grid Dynamics delivers tailored solutions in several key industry verticals: Tech, Media and Telecom, Retail, Finance and Consumer Packaged goods (CPG)/manufacturing.
Verticals Grid Dynamics has strong vertical-specific domain knowledge backed by extensive experience. By merging technology with business processes, Grid Dynamics delivers tailored solutions in several key industry verticals: Tech, Media, and Telecom (“TMT”); Retail; Consumer Packaged Goods (“CPG”)/Manufacturing; Finance.
Accordingly, attracting and retaining personnel is a key factor in Grid Dynamics’ ability to grow revenues and meet its clients’ needs. As of December 31, 2022, Grid Dynamics had 3,798 personnel across 13 countries (the U.S., Mexico, Jamaica, Armenia, India, the Netherlands, U.K., Poland, Romania, Serbia, Switzerland, Moldova, and Ukraine).
Accordingly, attracting and retaining personnel is a key factor in Grid Dynamics’ ability to grow revenues and meet its clients’ needs. As of December 31, 2023, Grid Dynamics had 3,920 personnel across 13 countries (the U.S., Mexico, Jamaica, Armenia, India, the Netherlands, the U.K., Poland, Romania, Serbia, Switzerland, Moldova, and Ukraine).
Majority of Grid Dynamics’ engineering personnel have bachelor or advanced degrees in computer science. 5 To attract, retain and motivate IT professionals, Grid Dynamics seeks to provide an environment and culture that rewards entrepreneurial initiative and performance. In addition, Grid Dynamics offers a challenging work environment, ongoing skills development initiatives and attractive career advancement and promotion opportunities.
The majority of Grid Dynamics’ engineering personnel have bachelor’s or advanced degrees in computer science. To attract, retain, and motivate IT professionals, Grid Dynamics seeks to provide an environment and culture that rewards entrepreneurial initiative and performance. In addition, Grid Dynamics offers a challenging work environment, ongoing skills development initiatives, and attractive career advancement and promotion opportunities.
Grid Dynamics also provides ongoing English language training at all of its delivery centers to maintain and enhance the English language skills of its IT professionals. Management Training Programs Grid Dynamics offers support, training and mentoring programs to managers through the Grid Dynamics Manager Training School.
Grid Dynamics also provides ongoing English language training at all of its delivery centers to maintain and enhance the English language skills of its IT professionals. Management Training Programs Grid Dynamics offers support, training, and mentoring programs to managers through the Grid Dynamics Management Training Program.
Recruitment and Retention Grid Dynamics hires both for technical skills and cultural fit. The reality of the changing technological landscape demands that our engineering personnel are able to continuously acquire new proficiencies and skills. Grid Dynamics’ hiring program is driven by demand within current and projected clients.
Recruitment and Retention Grid Dynamics hires both for technical skills and cultural fit. The reality of the changing technological landscape demands that our engineering personnel can continuously acquire new proficiencies and skills. 5 Grid Dynamics’ hiring program is driven by demand within current and projected clients.
Finance In the early days of Grid Dynamics, the financial sector recognized it for the ability to tackle high-end technology programs, such as moving from the batch to real-time fraud detection. Today, Grid Dynamics has evolved from a niche provider to a proven partner able to enable agility and time to market in the most challenging regulatory environments.
Finance In the early days of Grid Dynamics, the financial sector recognized our ability to tackle high-end technology programs, such as moving from batch to real-time fraud detection. Today, Grid Dynamics has evolved from a niche provider to a proven partner, enabling agility and time to market in the most challenging regulatory environments.
Culture-First Approach to Talent Development The ever-increasing role of digital transformation leads to the emergence of a new kind of business leader that combines a vision of business transformation with deep understanding of information technology. Earning the trust of these leaders is one of the pillars of Grid Dynamics’ success.
Culture-First Approach to Talent Development The ever-increasing role of digital transformation leads to the emergence of a new kind of business leader that combines a vision of business transformation with a deep understanding of possibilities brought together by modern digital technology. Earning the trust of these leaders is one of the pillars of Grid Dynamics’ success.
With the acquisition of Daxx in December 2020, Tacit in May 2021 and Mutual Mobile in December 2022, we have gained customers in U.K., North America, as well as Continental Europe and Asia. Grid Dynamics has a high level of revenue concentration with certain clients.
With the acquisitions of Tacit in May 2021, Mutual Mobile in December 2022, and NextSphere in April 2023, we have gained customers in the U.K., North America, as well as Continental Europe and Asia. Grid Dynamics has a high level of revenue concentration with certain clients.
Grid Dynamics selects, trains and promotes its technical leadership based on the following cultural principles. • Global integration . Demands of modern businesses transcend cultural, political and language boundaries. Grid Dynamics builds teams which are transparently distributed across countries, time zones and reporting lines.
Grid Dynamics selects, trains, and promotes its leadership based on the following cultural principles. • Global integration . Demands of modern businesses transcend cultural and language boundaries. Grid Dynamics builds teams that are transparently distributed across countries, time zones, and reporting lines. • Partnership with client .
Projections of client demand are constantly reviewed to ensure that we maintain a proper recruiting and training pipeline. The geographical spread helps Grid Dynamics to shorten the time to identify and recruit top technical talent. Grid Dynamics targets the top of technical talent from top technical universities.
Projections of client demand are constantly reviewed to ensure that we maintain a proper recruiting and training pipeline. The geographical spread helps Grid Dynamics avoid location constraints and shorten the time to identify and recruit top technical talent. Grid Dynamics targets the top technical talent from top technical universities in all its locations.
See Item 1A, “ Risk Factors—Risks Related to Government Regulations ”. 6 Available Information We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, accordingly, file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, with the Securities and Exchange Commission (the “SEC”).
Available Information We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, accordingly, file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, with the Securities and Exchange Commission (the “SEC”).
We believe that the combination of our delivery model optimized for co-innovation and the placement of our technology leaders at clients’ premises creates a key competitive advantage that enables us to better understand and meet a client’s diverse needs. The majority of Grid Dynamics’ engineering personnel is located within Grid Dynamics’ engineering centers in the United States and CEE.
We believe that the combination of our delivery model optimized for co-innovation and the placement of our technology leaders at clients’ premises creates a key competitive advantage that enables us to better understand and meet a client’s diverse needs. Grid Dynamics has engineering personnel located within Grid Dynamics’ engineering centers across Europe, India, and the Americas.
The following table presents our revenues by vertical and revenues as a percentage of total revenues by vertical for the periods indicated: For the year ended December 31, 2022 2021 2020 (in thousands, except % of revenue) Retail $ 99,681 32.1 % $ 61,717 29.2 % $ 33,975 30.5 % Tech, Media and Telecom 98,334 31.7 % 67,689 32.0 % 45,362 40.8 % CPG/Manufacturing 61,216 19.7 % 43,461 20.6 % 14,202 12.8 % Finance 21,893 7.1 % 17,515 8.3 % 13,589 12.2 % Other 29,358 9.4 % 20,898 9.9 % 4,155 3.7 % Total $ 310,482 100.0 % $ 211,280 100.0 % $ 111,283 100.0 % Delivery Model and Operating Structure Our service delivery model involves using an efficient mix of on-site, off-site and offshore staffing.
The following table presents our revenues by vertical and revenues as a percentage of total revenues by vertical for the periods indicated: For the year ended December 31, 2023 2022 2021 (in thousands, except % of revenue) Retail $ 102,551 32.8 % $ 99,681 32.1 % $ 61,717 29.2 % Tech, Media and Telecom 98,830 31.6 % 98,334 31.7 % 67,689 32.0 % CPG/Manufacturing 42,861 13.7 % 61,216 19.7 % 43,461 20.6 % Finance 28,842 9.2 % 21,893 7.1 % 17,515 8.3 % Other 39,826 12.7 % 29,358 9.4 % 20,898 9.9 % Total $ 312,910 100.0 % $ 310,482 100.0 % $ 211,280 100.0 % Delivery Model and Operating Structure Our service delivery model involves using an efficient mix of on-site, off-site and offshore staffing.
Grid Dynamics also maintains a dedicated sales force as well as a marketing team, which coordinates corporate-level branding efforts that range from sponsorship of programming competitions to participation in and hosting of industry conferences and events. Customers Grid Dynamics’ client base primarily consists of Fortune 1000 corporations based in North America.
Grid Dynamics also maintains a dedicated sales force as well as a marketing team, which coordinates corporate-level branding efforts that range from sponsorship of programming competitions to participation in and hosting of industry conferences and events.
Services and Solutions In the rapidly evolving market of engineering and IT services, customers are increasingly looking for service providers that can be a co-innovation partner rather than a cost saving measure. Grid Dynamics addresses this need by focusing on high value, high impact services.
Services In today’s engineering and IT services market, customers are increasingly looking for service providers that can be co-innovation partners rather than an implementation agency or a cost-saving measure. Grid Dynamics addresses this need by focusing on four high-value, high-impact service areas.
As of December 31, 2022, Grid Dynamics had 3,798 full-time and part-time personnel and delivered services from engineering centers located in the following countries: United States, Mexico, Ukraine, Poland, Armenia, Serbia, United Kingdom, Netherlands, Moldova, India, Jamaica and Romania. Grid Dynamics also places its IT professionals at client premises and promotes temporary assignments at client locations.
As of December 31, 2023, Grid Dynamics had 3,920 full-time and part-time personnel and delivered services from engineering centers located in the following countries: the United States, Mexico, Jamaica, United Kingdom, Netherlands, Poland, Serbia, Romania, Ukraine, Moldova, Armenia, and India.
Quality and Process Management Grid Dynamics enforces stringent security standards and has maintained a continuous ISO 27001:2013 certification since August 2014. All key company locations, departments and teams are within the scope of the deployed information security management system. Grid Dynamics policies, standards and procedures are reviewed annually during both internal and external certification audits.
All key company locations, departments and teams are within the scope of the deployed information security management system. Grid Dynamics policies, standards and procedures are reviewed annually during both internal and external certification audits.
For example, a major commercial bank chose Grid Dynamics to solve the challenge of evolving its security frameworks to realize benefits from cloud and DevOps.
For example, a major commercial bank chose Grid Dynamics to solve the challenge of evolving its security frameworks to realize benefits from cloud and DevOps. In addition, Grid Dynamics enables clients operating in the Finance vertical to maximize the value of every customer interaction.
For example, Grid Dynamics has worked closely with a large U.S. retail company over a span of many years to develop a strategic omnichannel transformation program and became a key contributor to the development of a new omnichannel platform including consumer experience, product discovery, analytics and inventory optimization.
For example, Grid Dynamics has worked closely with a large U.S. retail company over many years to develop a strategic omnichannel transformation program and became a key contributor to the development of a new omnichannel platform including consumer experience, product discovery, analytics, and inventory optimization. 3 Consumer Packaged Goods and Manufacturing Grid Dynamics helps its manufacturing customers harness digital transformation by applying novel approaches to engage consumers directly and optimize back-end supply chains.
Grid Dynamics offers many formal and informal training programs, such as Grid University, an online education platform with thousands of hours of training videos, to ensure that professionals can expand and enhance their capabilities. Technical Expertise and Scalable Engineering Grid Dynamics believes in strong infrastructure underpinning mission-critical services.
Grid Dynamics believes that technology changes rapidly, and Grid Dynamics' employees must adapt even more rapidly. Grid Dynamics offers many formal and informal training programs, such as Grid University, an online education platform with thousands of hours of training videos, to ensure that professionals can expand and enhance their capabilities.
For example, Grid Dynamics has been providing software engineering, continuous delivery and deployment automation, machine learning, internal tool development and quality engineering services to one of the largest cloud services providers, becoming one of their key technological services partners. 3 Retail By utilizing Grid Dynamics’ deep expertise in the digital retail space and providing a mix of consulting and engineering services, Grid Dynamics enables its clients to win market share, shorten time to market and reduce costs of digital operations.
For example, Grid Dynamics has been providing software engineering, continuous delivery and deployment automation, machine learning, internal tool development, and quality engineering services to one of the largest cloud services providers, becoming one of their key technological services partners.
Increasingly, business executives are looking at use of technology as a competitive advantage rather than a way to cut costs. The rise of AI signifies a shift from automation of business process to automation of decision making itself. In an effort to differentiate, corporations are directing investments towards building digital new products and experiences, instead of buying off-the-shelf software products.
The rise of AI signifies a shift from the automation of business processes to the automation of decision-making itself. To differentiate, corporations are directing investments toward building new digital products and experiences, instead of buying off-the-shelf software products and entire business underpinning platforms.
Grid Dynamics melds technical consulting, engineering and analytics competencies into unified, cross-functional digital teams which are designed to respond and adapt to the change in the client’s business. The effectiveness of such teams is further increased by a close collaboration with the client’s technology leadership teams and active inquiry into client’s business priorities on all levels.
The effectiveness of such teams is further increased by close collaboration with a client’s technology and business leadership teams and active inquiry into a client’s business priorities on all levels.
Deep knowledge of how new technology, such as cloud, big data and AI, transforms the way corporations develop their businesses is a pre-requisite for leadership roles in Grid Dynamics. • Education . Grid Dynamics believes that technology changes rapidly, and it is critical for Grid Dynamics' employees to adapt even more rapidly.
Understanding digital transformation and successfully delivering strategic programs is impossible without a strong understanding of emerging technology. Deep knowledge of how new technology, such as cloud, big data, and AI, transforms the way corporations develop their businesses is a prerequisite for leadership roles in Grid Dynamics. • Education .
In the years ended December 31, 2022, 2021 and 2020 Grid Dynamics top two customers each accounted for 10% or more of Grid Dynamics revenue. Grid Dynamics typically enters into a master services agreement with its clients, which provides a framework for services that is then supplemented by statements of work, which specify the particulars of each individual engagement.
Grid Dynamics typically enters into a master services agreement with its clients, which provides a framework for services that is then supplemented by statements of work, which specify the particulars of each individual engagement. Competition Grid Dynamics faces competition from both global IT services providers as well as those based in CEE.
This drives demand for highly technical software development, creating an opportunity for pure-play software development service providers such as Grid Dynamics.
This drives demand for highly technical software development, creating an opportunity for pure-play platform engineering and software development service providers such as Grid Dynamics. Sophisticated and scalable software platforms developed and continuously adapted to enterprise needs propelled many of today's most successful companies.
Proprietary Processes Optimized for Innovation Grid Dynamics recognizes the changing dynamics of IT outsourcing. Increasingly, corporations expect their service providers to participate and help shape innovation programs, which are not addressed well by the traditional service models used by outsourcing providers.
Grid Dynamics’ strategy to achieve such an objective is based on leveraging the following core strengths. Proprietary Processes Optimized for Innovation Grid Dynamics recognizes the changing dynamics of the IT services space. Increasingly, corporations expect their service providers to participate and help shape innovation programs.
Understanding Grid Dynamics clients’ goals and ability to manage such goals across reporting lines is a must for any leadership role within Grid Dynamics. • Technological innovation . Understanding digital transformation and successfully delivering IT programs is impossible without a strong understanding of emerging technology.
Grid Dynamics demands accountability and ownership of a client’s success, whether or not such success is a contractual matter. Understanding the goals of Grid Dynamics’ clients and the ability to manage such goals across reporting lines is a must for any leadership role within Grid Dynamics. • Technological innovation .
Enterprises strive to compete in the digital world, facing the need to transform to survive attacks from the nimbler and more technologically advanced newcomers. Traditional approaches to managing information technology as a mix of vendor solutions and outsourced services often break down in the face of the imperative to innovate through technology.
Traditional approaches to managing information technology as a mix of vendor solutions and outsourced services often break down in the face of the imperative to innovate through technology. Increasingly, business executives are looking at the use of technology as a competitive advantage rather than a way to cut costs with software-defined capabilities becoming the essence of the business capabilities.
By making such emerging technologies accessible to clients through the use of proprietary skill development programs, industry experience and solution accelerators, Grid Dynamics seeks to strengthen its position as a technical leader with its established clients and attract new clients.
By making advanced technology accessible to clients through experience and know-how, industry solutions, and accelerators, Grid Dynamics strengthens its position as a strategic technology partner with existing clients and attracts new clients.
During the last three years Grid Dynamics acquired Daxx Web Industries B.V. (“Daxx”), Tacit Knowledge Inc. (“Tacit”) and Mutual Mobile Inc. (“Mutual Mobile”), respectively. These acquisitions diversified our geographical presence, client base, and industry vertical presence. Industry Background and Market Opportunity Digital transformation is a rapidly expanding market which is still in its early stages.
These acquisitions diversified our geographical presence, client base, and industry vertical presence. Industry Background and Market Opportunity Digital transformation is a rapidly expanding market that is still in its early stages. Enterprises strive to compete in the digital world, facing the need to transform to survive attacks from the nimbler and more technologically advanced newcomers.
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ITEM 1. BUSINESS Business Combination On March 5, 2020, a wholly-owned subsidiary (“Merger Sub 1”) of ChaSerg Technology Acquisition Corp., a Delaware corporation (“ChaSerg”), merged with and into Grid Dynamics International, Inc., a California corporation (“GDI”), with GDI surviving the merger (the “Initial Merger”).
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ITEM 1. BUSINESS Business Overview Grid Dynamics Holdings, Inc. (“Grid Dynamics,” “GDH,” the “Company,” “we,” “us,” or “our”) is a leading provider of technology consulting, platform and product engineering, and advanced analytics services. Fusing technical vision with business acumen, we enable positive business outcomes for enterprise companies undergoing business transformation by solving their most pressing technical challenges.
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Immediately following the Initial Merger, GDI merged with and into another wholly-owned subsidiary of ChaSerg (“Merger Sub 2”) with Merger Sub 2 surviving; Merger Sub 2 was then renamed “Grid Dynamics International, LLC,” and ChaSerg was then renamed “Grid Dynamics Holdings, Inc.” (the “Business Combination”).
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A key differentiator for Grid Dynamics is our 7+ years of experience and leadership in Enterprise artificial intelligence (“AI”), supported by profound expertise and ongoing investment in cloud, data, advanced analytics, and customer experience.
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As of the open of trading on March 6, 2020, the common stock and warrants of Grid Dynamics Holdings, Inc. (“Grid Dynamics,” “GDH,” the “Company,” “we,” “us,” or “our”), formerly those of ChaSerg, began trading on the NASDAQ as “GDYN” and “GDYNW,” respectively. Business Overview Grid Dynamics is an emerging leader in enterprise-level digital transformations in Fortune 1000 companies.
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Additional market differentiators include: • a culture of engineering excellence, R&D investment, and innovation in groundbreaking technologies before they become ubiquitous; • a co-innovation model with continuous knowledge-sharing throughout delivery that reduces implementation risk and time-to-value, enables enterprises to build in-house capabilities, retain control of proprietary technology and data, and benefit from the adoption of new technologies; and • a global footprint, and a “Follow-the-Sun” delivery model bolstered by engineering talent driven by innovation, and technical mastery, resulting in transformational business outcomes.
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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.
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With our proprietary processes optimized for innovation, emphasis on talent development, and technical expertise, Grid Dynamics is well-positioned for continued success. Grid Dynamics has offices across the U.S., Mexico, Jamaica, the U.K., Europe, and India. During the last three years, Grid Dynamics acquired NextSphere Technologies Inc. (“NextSphere”), Mutual Mobile Inc. (“Mutual Mobile”), and Tacit Knowledge Inc. (“Tacit”).
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Our specialty is working on big ideas like cloud migrations, DevOps, microservices, big data and artificial intelligence (“AI”). Grid Dynamics quickly established itself as a provider of choice for technology and digital enterprise companies.
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Their unique business approaches and ability to move fast in adapting to changing market conditions allowed them to develop strong market positions and maintain defense against competitiors. Grid Dynamics is well-placed as a strategic partner of choice for these opportunities.
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As a leading global digital engineering and information technology (“IT”) services provider with its headquarters in Silicon Valley and engineering centers in the United States, Mexico, India and multiple European countries, Grid Dynamics’ core business is to deliver focused and complex technical consulting, software design, development, testing and internet service operations.
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Our focus on the foundation of excellence in platform and software engineering enables the level of collaboration that only a few can offer. Grid Dynamics has offices across Europe, India, and the Americas. As the key drivers of our “Follow-the-Sun” model of engineering excellence, these geographies enable the acceleration of valuable business outcomes for our clients.
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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.
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Our teams and programs are organized and orchestrated for continuous integration, self-sufficiency, and maximum business impact across regions.
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As the demand for technical software development talent continues to grow, the shortage of this talent in the United States and Europe, as well as the inability of non-technology-based companies to attract and retain such talent, encourages organizations to look to third parties, such as Grid Dynamics, to satisfy the demand.
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Another strategic advantage of our “Follow-the-Sun” approach is that these geographies grow technology markets with large talent pools of highly skilled technical talent and cost-efficient scalability due to their large and well-recognized university infrastructures — a valuable asset for fueling our internship programs and attracting top talent.
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Further, the growing acceptance of the offshore delivery model, has created significant opportunities for software development service providers delivering from Central and Eastern Europe (“CEE”) as well as Mexico. CEE-based service providers now compete against the largest global IT service providers and are capable of providing complex technology services.
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As we expand our geographical 1 reach, we are also investing in developing a multi-discipline approach to address the challenges facing our clients. This involves developing hybrid team capabilities focused on end-to-end problem-solving. Strategies and Strengths Grid Dynamics’ objective is to become a global leader in enabling digital transformation at Fortune 1000 companies.
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Grid Dynamics believes that CEE is increasingly known for the quality of its software development talent, enabled in part by 1 decades of focus on fundamental STEM disciplines in higher education. CEE-based teams and individuals are frequent winners of programming contests such as the ones held by the Association for Computing Machinery, or ACM, TopCoder and Kaggle.
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This leads to the development of next-level capabilities that traditional service models, used by the traditional outsourcing providers, fail to address effectively. Grid Dynamics melds technical consulting, platform and product engineering, and analytics competencies into unified, cross-functional digital teams that are designed to respond and adapt to changes in a client’s business.
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Grid Dynamics believes that this disparity between the supply and demand for technical talent can be a significant opportunity for Grid Dynamics. Strategies and Strengths Grid Dynamics’ objective is to become a global leader in enabling digital transformation at Fortune 1000 companies. Grid Dynamics’ strategy to achieve such objective is based on leveraging the following core strengths.
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Technical Expertise and Scalable Engineering Grid Dynamics believes in great engineering underpinning mission-critical services. From its inception, Grid Dynamics has built its engineering DNA with a focus on emerging technologies, leading with AI and generative AI, data engineering, cloud and microservices, DevOps and AIOps, modern frontend technologies, and QA automation.
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Decisions on hiring, staffing and promotion are all managed centrally from Grid Dynamics’ U.S. offices, allowing Grid Dynamics to optimize for quality rather than convenience. • Partnership with client . Grid Dynamics demands accountability and ownership of the client’s success, whether or not such success is a contractual matter.
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Cloud Platform and Product Engineering Our Cloud Platform and Product Engineering practice provides innovative services that enable businesses to harness the power of cloud computing and modern application development methodologies. We specialize in architecting, designing, and building scalable, secure, and resilient cloud-based platforms and business applications that power digital transformation and business 2 agility.
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From its inception, Grid Dynamics has been focusing on developing and using its expertise in the latest technologies, such as AI and conversational systems, cloud engineering solutions, data platform, data science and analytical data platforms, DevOps, MLOps, microservices, mobile, QA automation, search and user interfaces.
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Our expertise in platform engineering, cloud migration and modernization, DevTestSecOps, microservices, and serverless architecture helps organizations generate more revenue, reduce costs, improve time to value, and enhance performance. By leveraging our services, customers can partner with Grid Dynamics to drive focus on innovation and growth using the latest advancements in platform engineering and product development.
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The key service and solutions offerings are the following: 2 Technical Consulting Grid Dynamics provides technical consulting services to help executives in charge of digital transformation define an ambitious, yet achievable roadmap, quantify business value attained through new technology, select the right technology stack, develop reference architecture and guide the transformational journey every step of the way.
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AI/ Machine Learning and Data Platform Engineering In the domain of Data and Machine Learning Platform Engineering, we offer specialized services that empower businesses to unlock the full potential of their structured and unstructured data. Our team of experts builds robust, scalable platforms that facilitate batch and streaming data ingestion, quality, governance, orchestration, semantic modeling, observability, and analysis at scale.
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Lean Prototypes Grid Dynamics helps enterprises prototype and test new ideas. This includes both proof-of-concept implementations, which can be rapidly put in front of the end users to verify business assumptions, as well as sophisticated, long-running labs that cross organizational walls to establish feasibility and de-risk large transformational programs.
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By applying advanced artificial intelligence, machine learning algorithms, and analytics, we help companies derive actionable insights, predict trends, accelerate operations, and make data-driven decisions in the areas of pricing, promotions, customer experience, risk management, and supply chain that drive competitive advantage.
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Self-sufficient teams move quickly, use the latest technologies and aim to solve the business use case to demonstrate measurable value to the business stakeholders. Digital Intelligence Grid Dynamics helps corporations transform from automation of business processes to automation of decision making.
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Our approach to data engineering and advanced analytics ensures that our customers have a solid technology foundation to support their evolving data needs and democratize it across the enterprise — enabling them to leverage their data assets for maximum impact. Digital Engagement Our Digital Engagement practice focuses on creating meaningful interactions between businesses and their customers through all digital channels.
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To this end, Grid Dynamics deploys data science approaches to analyze client challenges and arrive at a strategy which produces measurable outcomes. This continuous “analyze-assess-decide-measure” cycle becomes the foundation of AI programs, leveraging the latest technologies to constantly react to real-time changes in consumer behavior. Scalable Engineering Grid Dynamics believes in strong infrastructure underpinning mission-critical services.
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We design and implement digital ecosystems that enhance customer experiences, foster brand loyalty, and drive business growth. Our expertise in digital commerce, user experience design and mobile application engineering, computer vision, deep learning, neural search, generative AI, and large language models, enables organizations to engage with their audience more effectively across multiple touchpoints.
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From inception, Grid Dynamics' engineers pushed the boundaries of IT performance, developing a strong expertise in distributed systems. Grid Dynamics’ experience in cloud, NoSQL, big data, grid computing and performance engineering helps its clients go beyond the capabilities provided by off-the-shelf products.
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We co-innovate with clients and prioritize customer-centric approaches to design, build, and deploy engaging digital presences that resonate with their target audiences — increasing satisfaction and revenue. We partner with leading vendors in MACH and Composable Commerce to drive the highest return on investment for our clients.
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Development Culture Grid Dynamics helps clients to contain and rearchitect legacy platforms as a part of the digital transformation journey. A significant factor in the success of legacy transformation is the robustness of the process of breaking down and reassembling monolithic systems into smaller, more manageable pieces.
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Supply Chain, IoT, and Advanced Manufacturing Our Supply Chain, Internet of Things (“IoT”), and Advanced Manufacturing practice focuses on transforming traditional operations into smart, connected ecosystems.
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Grid Dynamics has a deep expertise in building agile teams, which are adept at realizing incremental value through a cycle of continuous delivery enabled by automated quality and security assurance. Grid Dynamics offers its clients services that help enable continuous integration, continuous delivery and DevOps at enterprise scale.
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We leverage the IoT, edge computing, advanced analytics, modern artificial intelligence, and machine learning technologies to optimize supply chain demand forecasting, inventory allocation, order management, logistics, and supplier management, improve manufacturing operational efficiency, and introduce innovation in product development and production processes.
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Experience Design Grid Dynamics helps clients achieve higher rates of conversion and end user satisfaction by improving the service experience across engagement channels. This includes transformation of the web user interfaces to a responsive/adaptive model, design and development of next-gen mobile applications as well as leveraging new channels of engagement such as conversational interfaces.
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Our expertise in building fit-for-purpose platforms and adopting the latest innovations in this space enable real-time monitoring, predictive maintenance, and autonomous operations, reducing costs and enhancing productivity across the enterprise. Our customers benefit from our ability to integrate innovative technologies into their operations, making their supply chains more resilient, agile, and aligned with the digital economy’s demands.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRecently, inflation rates in the US have increased to levels not seen in several years, and there are concerns of a recession. Such economic volatility could adversely affect our clients' business, as well as our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us.
Biggest changeSuch economic volatility could adversely affect our clients’ business, as well as our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us. Because of our concentration on our clients’ capital-intensive digital transformation programs, our clients, and therefore our business, may be particularly sensitive to rising interest rates.
Our contractors and service providers face similar risks with respect to their facilities and networks used by us, and they also may suffer outages, disruptions, and security incidents and breaches.
Our contractors and service providers face similar risks with respect to their facilities and networks used by us, and they also may suffer outages, disruptions, security incidents and breaches.
If the anticipated value of these equity awards does not materialize because of volatility or lack of positive performance in our stock price, we may be unable to retain our key personnel or attract and retain new key employees in the future, in which case our business may be severely disrupted our ability to attract and retain personnel could be adversely affected.
If the anticipated value of these equity awards does not materialize because of volatility or lack of positive performance in our stock price, we may be unable to retain our key personnel or attract and retain new key employees in the future, in which case our business may be severely disrupted and our ability to attract and retain personnel could be adversely affected.
The price of our common stock may fluctuate due to a variety of factors, including: • our ability to effectively service any current and future outstanding debt obligations; • the announcement the introduction of new products or services, or enhancements thereto, by us or our competitors; • developments concerning intellectual property rights; • changes in legal, regulatory and enforcement frameworks impacting our products; • variations in our and our competitors’ results of operations; • the addition or departure of key personnel; • announcements by us or our competitors of acquisitions, investments or strategic alliances; • actual or perceived cybersecurity incidents or breaches; • actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry; • the failure of securities analysts to publish research about us, or shortfalls in our results of operations compared to levels forecast by securities analysts; • any delisting of our common stock from NASDAQ due to any failure to meet listing requirements; • 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; • adverse developments from litigation; and • the general state of the securities market, including valuation adjustments and lowering multiples.
The price of our common stock may fluctuate due to a variety of factors, including: • our ability to effectively service any current and future outstanding debt obligations; • the announcement the introduction of new products or services, or enhancements thereto, by us or our competitors; • developments concerning intellectual property rights; • changes in legal, regulatory and enforcement frameworks impacting our products; • variations in our and our competitors’ results of operations; • the addition or departure of key personnel; • announcements by us or our competitors of acquisitions, investments or strategic alliances; • actual or perceived cybersecurity incidents or breaches; • actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry; • the failure of securities analysts to publish research about us, or shortfalls in our results of operations compared to levels forecast by securities analysts; • any delisting of our common stock from NASDAQ due to any failure to meet listing requirements; • 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; • adverse developments from litigation; and 30 • the general state of the securities market, including valuation adjustments and lowering multiples.
Our bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for the following (except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal 28 jurisdiction of such court within 10 days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction): • any derivative action or proceeding brought on our behalf; • any action asserting a claim of breach of a fiduciary duty owed by, or otherwise wrongdoing by, any of our directors, officers or other employees to us or our stockholders; • any action arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our certificate of incorporation or bylaws; • any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; and • any other action asserting a claim that is governed by the internal affairs doctrine.
Our bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for the following (except for any claim as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than such court or for which such court does not have subject matter jurisdiction): • any derivative action or proceeding brought on our behalf; • any action asserting a claim of breach of a fiduciary duty owed by, or otherwise wrongdoing by, any of our directors, officers or other employees to us or our stockholders; • any action arising pursuant to any provision of the Delaware General Corporation Law (the “DGCL”), our certificate of incorporation or bylaws; • any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; and • any other action asserting a claim that is governed by the internal affairs doctrine.
Among other things, our certificate of incorporation and bylaws include provisions regarding: • a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • the ability of our board of directors to issue shares of preferred stock, including “blank check” preferred stock, and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of our directors and officers; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the requirement that directors may only be removed from our board of directors for cause; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; 30 • the requirement that a special meeting of stockholders may be called only by our board of directors, the chairman of our board of directors, or our chief executive officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; • the requirement for the affirmative vote of holders of at least a majority of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of our certificate of incorporation or our bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; • the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
Among other things, our certificate of incorporation and bylaws include provisions regarding: • a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors; • the ability of our board of directors to issue shares of preferred stock, including “blank check” preferred stock, and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the limitation of the liability of, and the indemnification of our directors and officers; 31 • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the requirement that directors may only be removed from our board of directors for cause; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of stockholders and could delay the ability of stockholders to force consideration of a stockholder proposal or to take action, including the removal of directors; • the requirement that a special meeting of stockholders may be called only by our board of directors, the chairman of our board of directors, or our chief executive officer, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; • the requirement for the affirmative vote of holders of at least a majority of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal any provision of our certificate of incorporation or our bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; • the ability of our board of directors to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt; and • advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our board of directors and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
Any such breach, disruption or other circumstance leading to loss, alteration, misappropriation, or unauthorized use, access, acquisition, disclosure, or other 12 processing of sensitive or confidential client or customer data suffered by us or our contractors or service providers, or the perception that any may have occurred, could expose us to claims, litigation, and liability, regulatory investigations and proceedings, cause us to lose clients and revenue, disrupt our operations and the services provided to clients, damage our reputation, cause a loss of confidence in our products and services, require us to expend significant resources designed to protect against further breaches and incidents and to rectify problems caused by these events, and result in significant financial and other potential losses.
Any such breach, disruption or other circumstance leading to loss, alteration, misappropriation, or unauthorized use, access, acquisition, disclosure, or other processing of sensitive or confidential client or customer data suffered by us or our contractors or service providers, or the perception that any may have occurred, could expose us to claims, litigation, and liability, regulatory investigations and proceedings, cause us to lose clients and revenue, disrupt our operations and the services provided to clients, damage our reputation, cause a loss of confidence in our products and services, require us to expend significant resources designed to protect against further breaches and incidents and to rectify problems caused by these events, and result in significant financial and other potential losses.
Risks Related to Our Common Stock Our bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for substantially all disputes between us and our stockholders (other than claims arising under federal securities laws, including the Securities Act or the Exchange Act and any successors thereto), which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Risks Related to Our Common Stock Our bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the federal district court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for substantially all disputes between us and our stockholders (other than claims arising under federal securities laws, including the Securities Act or the Exchange Act and any successors 29 thereto), which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Some of the additional risks associated with acquiring a business include, but not limited to the following: • inability to integrate or benefit from acquired technologies or services; • product synergies, cost reductions, increases in revenue and economies of scale may not materialize as expected; • the business culture of the acquired entity may not match well with our culture; • unforeseen delays, unanticipated costs and liabilities may arise when integrating operations, processes and systems in geographies where we have not conducted business; • unanticipated costs or liabilities associated with the strategic transactions; 21 • incurrence of transaction-related costs; • assumption of the existing obligations or unforeseen liabilities of the acquired business; • difficulty integrating the accounting systems, security infrastructure, operations, and personnel of the acquired business; • difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; • difficulty converting the current and prospective customers of the acquired business onto our platform and contract terms, including disparities in the revenue, licensing, support, or professional services model of the acquired company; • diversion of management’s attention from other business concerns; • adverse effects to our existing business relationships with business partners and customers as a result of the strategic transactions; • unexpected costs may arise due to unforeseen changes in tax, payroll, pension, labor, trade, environmental and safety policies in new jurisdictions where the acquired entity operates; • difficulty in retaining, motivating and integrating key management and other employees of the acquired business; • use of resources that are needed in other parts of our business; • dispute over contingent payments; and • use of substantial portions of our available cash to consummate the strategic transaction.
Some of the additional risks associated with acquiring a business include, but not limited to the following: • inability to integrate or benefit from acquired technologies or services; • product synergies, cost reductions, increases in revenue and economies of scale may not materialize as expected; • the business culture of the acquired entity may not match well with our culture; • unforeseen delays, unanticipated costs and liabilities may arise when integrating operations, processes and systems in geographies where we have not conducted business; • unanticipated costs or liabilities associated with the strategic transactions; 22 • incurrence of transaction-related costs; • assumption of the existing obligations or unforeseen liabilities of the acquired business; • difficulty integrating the accounting systems, security infrastructure, operations and personnel of the acquired business; • difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; • difficulty converting the current and prospective customers of the acquired business onto our platform and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company; • diversion of management’s attention from other business concerns; • adverse effects to our existing business relationships with business partners and customers as a result of the strategic transactions; • unexpected costs may arise due to unforeseen changes in tax, payroll, pension, labor, trade, environmental and safety policies in new jurisdictions where the acquired entity operates; • difficulty in retaining, motivating and integrating key management and other employees of the acquired business; • use of resources that are needed in other parts of our business; • dispute over contingent payments; and • use of substantial portions of our available cash to consummate the strategic transaction.
If a government authority or court makes any adverse determination with respect to some or all of our independent contractors, we could incur significant costs, including for prior periods, in respect of tax withholding, social security taxes or payments, workers’ compensation and unemployment contributions, and recordkeeping, or we may be 16 required to modify our business model, any of which could materially adversely affect our business, financial condition and results of operations.
If a government authority or court makes any adverse determination with respect to some or all of our independent contractors, we could incur significant costs, including for prior periods, in respect of tax withholding, social security taxes or payments, workers’ compensation and unemployment contributions, and recordkeeping, or we may be required to modify our business model, any of which could materially adversely affect our business, financial condition and results of operations.
We may also face a number of challenges managing larger and more complex projects, including: • maintaining high quality control and process execution standards; • maintaining planned resource utilization rates on a consistent basis; • using an efficient mix of on-site, off-site and offshore staffing; • maintaining productivity levels; • implementing necessary process improvements; • recruiting and retaining sufficient numbers of highly skilled IT personnel; and • controlling costs.
We may also face a number of challenges managing larger and more complex projects, including: • maintaining high quality control and process execution standards; • maintaining planned resource utilization rates on a consistent basis; • using an efficient mix of on-site, off-site and offshore staffing; • maintaining productivity levels; • implementing necessary process improvements; • recruiting and retaining sufficient numbers of highly skilled IT personnel; and 19 • controlling costs.
Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving and maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, results of operations and financial condition would be adversely affected.
Any failure to increase 9 our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving and maintaining profitability or positive cash flow on a consistent basis. If we are unable to successfully address these risks and challenges as we encounter them, our business, results of operations and financial condition would be adversely affected.
The costs of litigation are considerable, and such litigation may divert management and key personnel’s attention and resources, which might seriously harm our business, financial condition and results of operations. Third parties making infringement claims may make it difficult for us to enter into royalty or license agreements which may not be available on commercially acceptable terms.
The costs of litigation are 28 considerable, and such litigation may divert management and key personnel’s attention and resources, which might seriously harm our business, financial condition and results of operations. Third parties making infringement claims may make it difficult for us to enter into royalty or license agreements which may not be available on commercially acceptable terms.
The legal systems of Ukraine, Poland, Serbia, India, Mexico, Moldova and other countries are often beset by legal ambiguities as well as inconsistencies and anomalies due to the relatively recent enactment of many laws that may not always coincide with market developments. Furthermore, legal and bureaucratic obstacles and corruption exist to varying degrees in each of these countries.
The legal systems of Ukraine, Poland, Serbia, India, Mexico, Moldova, Romania and other countries are often beset by legal ambiguities as well as inconsistencies and anomalies due to the relatively recent enactment of many laws that may not always coincide with market developments. Furthermore, legal and bureaucratic obstacles and corruption exist to varying degrees in each of these countries.
We cannot yet fully predict the impact of these laws on our business or operations, but developments regarding these and other privacy and data protection laws and regulations around the world may require us to modify our data processing practices and policies and to incur substantial additional costs and expenses in an effort to maintain compliance on an ongoing basis.
We cannot yet fully predict the impact of these laws on our business or operations, but developments regarding these and other privacy and data protection laws and regulations around the world may require us to modify our data processing practices and policies and to incur substantial additional costs 24 and expenses in an effort to maintain compliance on an ongoing basis.
Implementation of intellectual property-related laws in CIS and CEE countries in which we operate has historically been lacking and there is no assurance that we will be able to enforce or defend our rights under our non-disclosure, confidentiality or assignment of invention agreements or that protection of intellectual property rights in such countries will be as effective as 26 that in the U.S.
Implementation of intellectual property-related laws in CIS and CEE countries in which we operate has historically been lacking and there is no assurance that we will be able to enforce or defend our rights under our non-disclosure, confidentiality or assignment of invention agreements or that protection of intellectual property rights in such countries will be as effective as that in the U.S.
We could be found to be the effective parent of the subsidiaries, in which case we could become liable for their debts, which could have a material adverse effect on our business, financial condition and results of operations or prospects. Our profitability may suffer if we are unable to maintain our resource utilization and productivity levels.
We could be found to be the effective parent of the subsidiaries, in which case we could become liable for their debts, which could have a material adverse effect on our business, financial condition and results of operations or prospects. 18 Our profitability may suffer if we are unable to maintain our resource utilization and productivity levels.
Our operating results are dependent on the scale of our projects and the prices we are able to charge for our services. In order to successfully perform larger and more complex projects, we need to establish and maintain effective, close relationships with our 18 clients, continue high levels of client satisfaction and develop a thorough understanding of our clients’ needs.
Our operating results are dependent on the scale of our projects and the prices we are able to charge for our services. In order to successfully perform larger and more complex projects, we need to establish and maintain effective, close relationships with our clients, continue high levels of client satisfaction and develop a thorough understanding of our clients’ needs.
Any investigation of any potential violations of such laws by the U.S. or other jurisdictions could also have an adverse impact on our reputation, business, financial condition and results of operations. Failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.
Any investigation of any potential violations of such laws by the U.S. or other jurisdictions could also have an adverse impact on our reputation, business, financial condition and results of operations. 25 Failure to comply with anti-bribery and anti-corruption laws and anti-money laundering laws, and similar laws, could subject us to penalties and other adverse consequences.
Anti-corruption and anti- 24 bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, business partners, and third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
The principal factors and uncertainties that make investing in our company risky include, among others: • We have a relatively short operating history and operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to be successful and may adversely impact our stock price. • We may be unable to effectively manage our growth or achieve anticipated growth, particularly as we expand into new geographies, which could place significant strain on our management personnel, systems and resources. • Our revenues have historically been highly dependent on a limited number of clients and industries that are affected by seasonal trends, and any decrease in demand for outsourced services in these industries may reduce our revenues and adversely affect our business, financial condition and results of operations. • We have incurred significant net losses in recent years, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability. • The impact of the military action in Ukraine has affected and may continue to affect our business. • Macroeconomic conditions, inflationary pressures, and the geopolitical climate could adversely affect our operating results and growth prospects. • Our revenues are highly dependent on clients primarily located in the U.S.
The principal factors and uncertainties that make investing in our company risky include, among others: • We have a relatively short operating history and operate in a rapidly evolving industry, which makes it difficult to evaluate future prospects and may increase the risk that we will not continue to be successful and may adversely impact our stock price. • We may be unable to effectively manage our growth or achieve anticipated growth, particularly as we expand into new geographies, which could place significant strain on our management personnel, systems and resources. • Our revenues have historically been highly dependent on a limited number of clients and industries and any decrease in demand for outsourced services in these industries may reduce our revenues and adversely affect our business, financial condition and results of operations. • We have incurred significant net losses in recent years, we expect to incur losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability. • The impact of the military action in Ukraine has affected and may continue to affect our business. • Macroeconomic conditions, inflationary pressures and the geopolitical climate could adversely affect our operating results and growth prospects. • Our revenues are highly dependent on clients primarily located in the U.S.
In the event that we fail to achieve or maintain profitability, this could negatively impact the value of our common stock. The impact of the military action in Ukraine has affected and may continue to affect our business. 9 On February 24, 2022, Russian forces launched significant military action against Ukraine.
In the event that we fail to achieve or maintain profitability, this could negatively impact the value of our common stock. The impact of the military action in Ukraine has affected and may continue to affect our business. On February 24, 2022, Russian forces launched significant military action against Ukraine.
The concentration of ownership provides such persons with substantial control over us, which could limit your ability to influence the outcome 29 of key transactions, including a change of control, and future resales of our common stock held by such persons may cause the market price of our common stock to drop significantly.
The concentration of ownership provides such persons with substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control, and future resales of our common stock held by such persons may cause the market price of our common stock to drop significantly.
Our ability to acquire new clients and retain existing clients may be adversely affected and our reputation could be harmed if we receive a qualified opinion, or if we cannot obtain an unqualified opinion in a timely manner, with respect to our controls and procedures in connection with any such audit.
Our ability to acquire new clients 14 and retain existing clients may be adversely affected and our reputation could be harmed if we receive a qualified opinion, or if we cannot obtain an unqualified opinion in a timely manner, with respect to our controls and procedures in connection with any such audit.
Such events, or a financial crisis or the bankruptcy or insolvency of banks through which we 15 receive, or with which we hold, funds may result in the loss of our deposits or adversely affect our ability to complete banking transactions in that region, which could materially adversely affect our business and financial condition.
Such events, or a financial crisis or the bankruptcy or insolvency of banks through which we receive, or with which we hold, funds may result in the loss of our deposits or adversely affect our ability to complete banking transactions in that region, which could materially adversely affect our business and financial condition.
Development and introduction of new services and products is expected to become increasingly complex and expensive, involve a significant commitment of time and resources, and subject to a number of risks and challenges, including: • difficulty or cost in updating services, applications, tools and software and in developing new services quickly enough to meet clients’ needs; • difficulty or cost in making some features of software work effectively and securely over the internet or with new or changed operating systems; • difficulty or cost in updating software and services to keep pace with evolving industry standards, methodologies, regulatory and other developments in the industries where our clients operate; and • difficulty or cost in maintaining a high level of quality and reliability as we implement new technologies and methodologies.
Development and introduction of new services and products, including generative AI, is expected to become increasingly complex and expensive, involve a significant commitment of time and resources, and subject to a number of risks and challenges, including: • difficulty or cost in updating services, applications, tools and software and in developing new services quickly enough to meet clients’ needs; • difficulty or cost in making some features of software work effectively and securely over the internet or with new or changed operating systems; • difficulty or cost in updating software and services to keep pace with evolving industry standards, methodologies, regulatory and other developments in the industries where our clients operate; and • difficulty or cost in maintaining a high level of quality and reliability as we implement new technologies and methodologies.
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. Our obligations under the 2022 Credit Agreement are required to be guaranteed by certain of our domestic subsidiaries meeting materiality thresholds 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. Our obligations under 20 the 2022 Credit Agreement are required to be guaranteed by certain of our domestic subsidiaries meeting materiality thresholds set forth in the 2022 Credit Agreement.
A number of U.S. states have passed legislation that restricts state government entities from outsourcing certain work to offshore IT services providers. Given the ongoing debate over this issue, the introduction and consideration of other restrictive legislation is possible.
A number of U.S. states have passed legislation that restricts state government entities from outsourcing certain work to offshore IT services providers. Given the ongoing debate 26 over this issue, the introduction and consideration of other restrictive legislation is possible.
Our primary competitors include global consulting and traditional IT service providers such as Accenture plc, Capgemini SE, Cognizant Technology Solutions Corporation, Infosys Technologies, Wipro, and digital transformation providers such as EPAM Systems, Inc., Globant S.A., Endava plc, Thoughtworks Holding, Inc., and Slalom Consulting Inc.
Our primary competitors include global consulting and traditional IT service providers such as Accenture plc, Capgemini SE, Cognizant Technology Solutions Corporation, Infosys Technologies, Wipro, and digital transformation providers such as EPAM Systems, Inc., Globant S.A., Endava plc, and Thoughtworks Holding, Inc.
High attrition rates of IT personnel would increase our operating costs, including hiring and training costs, and could have an adverse effect on our ability to complete existing contracts in a timely manner, meet client objectives and expand our business.
High attrition rates of IT personnel would increase our operating costs, including hiring and training costs, and could have an 11 adverse effect on our ability to complete existing contracts in a timely manner, meet client objectives and expand our business.
In addition, if a disruption in the credit markets were to occur, it could pose a risk to our business if clients or vendors are unable to obtain financing to meet payment or delivery obligations to us or if we are unable to obtain necessary financing. 10 We face intense competition.
In addition, if a disruption in the credit markets were to occur, it could pose a risk to our business if clients or vendors are unable to obtain financing to meet payment or delivery obligations to us or if we are unable to obtain necessary financing. We face intense competition.
We face competition from offshore IT services providers in other outsourcing destinations with low wage costs such as India, China, CEE countries and Latin America, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations.
We face competition from offshore IT services providers in outsourcing destinations with low wage costs such as India, China, CEE countries and Latin America, as well as competition from large, global consulting and outsourcing firms and in-house IT departments of large corporations.
We cannot guarantee that regulators, judicial authorities or third parties in Ukraine, Poland, Serbia, India, Mexico, Moldova or other countries will not challenge our (including our subsidiaries’) compliance with applicable laws, decrees and regulations.
We cannot guarantee that regulators, judicial authorities or third parties in Ukraine, Poland, Serbia, India, Mexico, Moldova, Romania or other countries will not challenge our (including our subsidiaries’) compliance with applicable laws, decrees and regulations.
Grid Dynamics is exposed to foreign currency exchange rate risk and its profit margins are subject to volatility between periods due to changes in foreign currency exchange rates relative to the U.S. dollar. Grid Dynamics’ functional currency is the US Dollar.
Grid Dynamics is exposed to foreign currency exchange rate risk and its profit margins are subject to volatility between periods due to changes in foreign currency exchange rates relative to the U.S. dollar. Grid Dynamics’ functional currency is the U.S. Dollar.
Section 404 of the Sarbanes-Oxley Act requires us to include in our annual reports on Form 10-K an assessment by management of the 14 effectiveness of our internal controls over financial reporting.
Section 404 of the Sarbanes-Oxley Act requires us to include in our annual reports on Form 10-K an assessment by management of the effectiveness of our internal controls over financial reporting.
As a result, our 25 ability to service our clients could be impaired and we may not be able to compete effectively with competitors that operate primarily from within the countries in which our clients operate.
As a result, our ability to service our clients could be impaired and we may not be able to compete effectively with competitors that operate primarily from within the countries in which our clients operate.
These events also pose significant risks to our personnel and to physical facilities and operations, which could materially adversely affect our financial results. 20 Acquisitions could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our financial condition and results of operations, we may not achieve the financial and strategic goals that were contemplated at the time of a transaction, and we may be exposed to claims, liabilities and disputes as a result of the transaction that may adversely impact our business, operating results and financial condition.
These events also pose significant risks to our personnel and to physical facilities and operations, which could materially adversely affect our financial results. 21 Acquisitions could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our financial condition and results of operations, we may not achieve the financial and strategic goals that were contemplated at the time of a transaction, and we may be exposed to claims, liabilities and disputes as a result of the transaction that may adversely impact our business, operating results and financial condition.
The California state legislature passed the California Consumer Privacy Act (“CCPA”) in 2018 and California voters approved a ballot measure subsequently establishing the California Privacy Rights Act (“CPRA”) in 2020, which modifies the CCPA and increase the privacy and security obligations of entities handling certain personal information of California residents, including requiring covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information.
The California state legislature passed the California Consumer Privacy Act (“CCPA”) in 2018 and California voters approved a ballot measure subsequently establishing the California Privacy Rights Act (“CPRA”) in 2020, which modifies the CCPA and increases the privacy and security obligations of entities handling certain personal information of California residents, including requiring covered companies to provide new disclosures to California consumers, and afford such consumers new abilities to opt-out of certain sales of personal information.
The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by US, European Union, United Kingdom, Canada. and other countries against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations.
The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the United States, European Union, the United Kingdom, Canada and other countries against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations.
Risks inherent in conducting international operations include: • less established legal systems and legal ambiguities, inconsistencies and anomalies; • changes in laws and regulations; • application and imposition of protective legislation and regulations relating to import or export, including tariffs, quotas and other trade protection measures; • difficulties in enforcing intellectual property and/or contractual rights; • bureaucratic obstacles and corruption; • compliance with a wide variety of foreign laws, including those relating to privacy, data protection and cybersecurity; • restrictions on the repatriation of dividends or profits; • expropriation or nationalization of property; • restrictions on currency convertibility and exchange controls; • fluctuations in currency exchange rates; • potentially adverse tax consequences; • competition from companies with more experience in a particular country or with international operations; • civil strife; • unstable political and military situations; and • overall foreign policy and variability of foreign economic conditions, including the effects of the COVID-19 pandemic.
Risks inherent in conducting international operations include: • less established legal systems and legal ambiguities, inconsistencies and anomalies; • changes in laws and regulations; • application and imposition of protective legislation and regulations relating to import or export, including tariffs, quotas and other trade protection measures; • difficulties in enforcing intellectual property and/or contractual rights; • bureaucratic obstacles and corruption; • compliance with a wide variety of foreign laws, including those relating to privacy, data protection and cybersecurity; • restrictions on the repatriation of dividends or profits; • expropriation or nationalization of property; • restrictions on currency convertibility and exchange controls; • fluctuations in currency exchange rates; • potentially adverse tax consequences; • competition from companies with more experience in a particular country or with international operations; • civil strife; • unstable political and military situations; and • overall foreign policy and variability of foreign economic conditions.
Such tax consequences mainly include payroll tax liabilities related to employee compensation and, in cases envisaged by international tax legislation, taxation of profits generated by employees during their time of travel. We have internal procedures, policies and systems, including an internal mobility program, for monitoring our tax liabilities arising in connection with the business travel.
Such tax consequences mainly include payroll tax liabilities related to employee compensation and, in cases envisaged by international tax legislation, taxation of profits generated by employees during their time of travel. 17 We have internal procedures, policies and systems, including an internal mobility program, for monitoring our tax liabilities arising in connection with business travel.
However, considering that the tax authorities worldwide are paying closer attention to global mobility issues, our operations may be adversely affected by additional tax charges related to the activity of our mobile employees. These risks may also affect us as we are relocating employees from Ukraine and Russia to other locations.
However, considering that the tax authorities worldwide are paying closer attention to global mobility issues, our operations may be adversely affected by additional tax charges related to the activity of our mobile employees. These risks may also affect us as we are relocating employees from Ukraine to other locations.
During 2022, we announced our expansion to a new European hub with an office in Zug, Switzerland, a new engineering office in Yerevan, Armenia, and expansion in India. As we grow, we continue to explore other geographies for expansion. This may result in higher costs affecting our profitability 8 levels.
During 2022, we announced our expansion to a new European hub with an office in Zug, Switzerland, a new engineering office in Yerevan, Armenia, and expansion in India and Jamaica. As we grow, we continue to explore other geographies for expansion. This may result in higher costs affecting our profitability levels.
High-profile companies can be particularly vulnerable to aggressive application of unclear requirements. Many companies must negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide.
High-profile companies can be particularly vulnerable to aggressive application of unclear requirements. Many companies must negotiate their tax bills with tax inspectors who may demand higher taxes than what the applicable law appears to provide.
Furthermore, as we expand to new geographies, we may not be able to sustain the level of competitiveness, including high quality and low cost, of our workforce that has enabled us to succeed at our customers.
Furthermore, as we expand to new geographies, we may not be able to sustain the level of competitiveness, including high quality and low cost, of our workforce that has enabled us to succeed with our customers.
We usually bill and collect such amounts on relatively short cycles and maintain allowances for doubtful accounts. However, actual losses on client balances could differ from those that we anticipate and, as a result, we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients.
We usually bill and collect such amounts on relatively short cycles and maintain allowances for credit losses. However, actual losses on client balances could differ from those that we anticipate and, as a result, we might need to adjust our allowances. There is no guarantee that we will accurately assess the creditworthiness of our clients.
We may not be successful in anticipating or responding to these developments in a timely manner, and even if we do so, the services, technologies or methodologies we develop or implement may not be successful in the marketplace. Furthermore, services, technologies or methodologies that are developed by competitors may render our services non-competitive or obsolete.
We may not be successful in anticipating or responding to these developments, including generative AI, in a timely manner, and even if we do so, the services, technologies or methodologies we develop or implement may not be successful in the marketplace. Furthermore, services, technologies or methodologies that are developed by competitors may render our services non-competitive or obsolete.
The CCPA came into effect on January 1, 2020, and the California Attorney General may bring enforcement actions, with penalties for violations of the CCPA. The CPRA is effective as of January 1, 2023, instilling enforcement authority in a new dedicated regulatory body, the California Privacy Protection Agency.
The CCPA came into effect on January 1, 2020, and the California Attorney General may bring enforcement actions, with penalties for violations of the CCPA. The CPRA became effective January 1, 2023, instilling enforcement authority in a new dedicated regulatory body, the California Privacy Protection Agency.
These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. As of December 31, 2022, approximately 25% percent of our outstanding common stock was held or beneficially owned by our executive officers and directors, or by stockholders controlled by our executive officers or directors.
These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. As of December 31, 2023, approximately 25.8% percent of our outstanding common stock was held or beneficially owned by our executive officers and directors, or by stockholders controlled by our executive officers or directors.
Violations or alleged violations of law, rules and regulations, including, among others, those described above, could result in fines, criminal penalties, restrictions on our business, and damage to our reputation, and could have an adverse impact on our business operations, financial condition and results of operations. 22 From time to time we may be involved in legal proceedings or claims regarding a variety of legal or regulatory matters or receive governmental or third-party requests for information regarding compliance or regulatory matters.
Violations or alleged violations of law, rules and regulations, including, among others, those described above, could result in fines, criminal penalties, restrictions on our business, and damage to our reputation, and could have an adverse impact on our business operations, financial condition and results of operations. 23 From time to time we are involved in legal proceedings or claims regarding a variety of legal or regulatory matters or receive governmental or third-party requests for information regarding compliance or regulatory matters.
Increased risks of such attacks and disruptions, including a heightened risk of potential cyberattacks by state actors also exist because of Russia's significant military action against Ukraine. Such risks could increase as we expand geographically.
Increased risks of such attacks and disruptions, including a heightened risk of potential cyberattacks by state actors and state affiliated actors, also exist because of geopolitical events such as Russia’s significant military action against Ukraine. Such risks could increase as we expand geographically.
Any economic downturn in the U.S. or in other parts of the world, including Europe, or disruptions in the credit markets may have a material adverse effect on our business, financial condition and results of operations. • We face intense competition. • Damage to our reputation may adversely impact our ability to generate and retain business. • Our failure to successfully attract, hire, develop, motivate and retain highly skilled personnel could have a significant adverse effect on our business, financial condition, and results of operations. • Our business operations may be severely disrupted if we lose the services of our senior executives and key employees. • Failure to adapt to changing technologies, methodologies, and evolving industry standards may have a material adverse effect on our business, financial condition, and results of operations. 7 • Security breaches and incidents, system failures or errors, and other disruptions to our networks and systems, could result in unauthorized access to, or disclosure or other processing of, confidential information and expose us to liability, which would cause our business and reputation to suffer. • Undetected software design defects, errors or failures may result in loss of business or in liabilities that could have a material adverse effect on our reputation, business and results of operations. • War, terrorism, other acts of violence, or natural or manmade disasters may affect the markets in which we operate, our clients and our service delivery. • Our global business, especially in CIS and CEE countries, exposes us to significant legal, economic, tax and political risks. • Acquisitions, strategic investments, partnerships or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our financial condition and results of operations, we may not achieve the financial and strategic goals that were contemplated at the time of a transaction, and we may be exposed to claims, liabilities and disputes as a result of the transaction that may adversely impact our business, operating results and financial condition.
Any economic downturn in the U.S. or in other parts of the world, including Europe, or disruptions in the credit markets may have a material adverse effect on our business, financial condition and results of operations. • We face intense competition. • Damage to our reputation may adversely impact our ability to generate and retain business. • Our failure to successfully attract, hire, develop, motivate and retain highly skilled personnel could have a significant adverse effect on our business, financial condition, and results of operations. 7 • Our business operations may be severely disrupted if we lose the services of our senior executives and key employees. • Failure to adapt to changing technologies, methodologies, and evolving industry standards may have a material adverse effect on our business, financial condition and results of operations. • Social and ethical issues relating to the use of AI in our offerings may result in reputational harm or liability. • Security breaches and incidents, system failures or errors, and other disruptions to our networks and systems, could result in unauthorized access to, or disclosure or other processing of, confidential information and expose us to liability, which would cause our business and reputation to suffer. • Undetected software design defects, errors or failures may result in loss of business or in liabilities that could have a material adverse effect on our reputation, business and results of operations. • War, terrorism, other acts of violence, or natural or man-made disasters may affect the markets in which we operate, our clients and our service delivery. • Our global business, especially in CIS and CEE countries, exposes us to significant legal, economic, tax and political risks. • Acquisitions could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value and adversely affect our financial condition and results of operations, we may not achieve the financial and strategic goals that were contemplated at the time of a transaction, and we may be exposed to claims, liabilities and disputes as a result of the transaction that may adversely impact our business, operating results and financial condition.
In addition, our profit margins are subject to volatility as a result of changes in foreign exchange rates. In the years ended December 31, 2022 2021 and 2020, approximately 33.4%, 37.8% and 27.2% of our combined cost of revenue and total operating expenses were denominated in currencies other than the U.S. dollar, respectively.
In addition, our profit margins are subject to volatility as a result of changes in foreign exchange rates. In the years ended December 31, 2023 2022 and 2021, approximately 37.9%, 33.4% and 37.8% of our combined cost of revenue and total operating expenses were denominated in currencies other than the U.S. dollar, respectively.
S. tax law could materially adversely affect our effective tax rate. The recently enacted Inflation Reduction Act includes, among other changes, a 1% excise tax on certain stock repurchases. The determination of our provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain.
Furthermore, any significant changes to U.S. tax law could materially adversely affect our effective tax rate. The recently enacted Inflation Reduction Act includes, among other changes, a 1% excise tax on certain stock repurchases. The determination of our provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain.
The Organization for Economic Cooperation and Development has made a number of proposals, including implementing a new global minimum effective corporate tax rate of 15% for large multinational companies and rules that would result in the reallocation of certain profits to market jurisdictions where customers and users are located. Furthermore, any significant changes to U.
The Organization for Economic Cooperation and Development has made a number of proposals, including implementing a new global minimum effective corporate tax rate of 15% for large multinational companies and rules that would result in the reallocation of certain profits to market jurisdictions where customers and users are located.
In addition, we have granted certain equity-based awards under our equity incentive plans and expect to continue doing so. For the years ended December 31, 2022, 2021, and 2020 we recorded $61.0 million, $33.0 million, and $20.0 million respectively, of stock-based compensation expense related to the grant of equity based awards.
In addition, we have granted certain equity-based awards under our equity incentive plans and expect to continue doing so. For the years ended December 31, 2023, 2022, and 2021 we recorded $35.5 million, $61.0 million, and $33.0 million respectively, of stock-based compensation expense related to the grant of equity-based awards.
Risks Related to Our Business, Operations and Industry We have a relatively short operating history and operate in a rapidly evolving industry, which makes it difficult to evaluate future prospects and may increase the risk that we will not continue to be successful and may adversely impact our stock price.
Risks Related to Our Business, Operations and Industry We operate in a rapidly evolving industry, which makes it difficult to evaluate future prospects and may increase the risk that we will not continue to be successful and may adversely impact our stock price.
We may, in addition to other impacts of the Schrems II decision and other developments relating to cross-border transfer, experience additional costs associated with increased compliance burdens, and we and our customers face the potential for regulators in the EEA, Switzerland, or the United Kingdom to apply different standards to the transfer of personal data from those regions to the U.S., and to block, or require ad hoc verification of measures taken with respect to, certain data flows from those regions to the U.S.
We may, experience additional costs associated with increased compliance burdens in connection with developments relating to cross-border data transfers, and we and our customers face the potential for regulators in the EEA, Switzerland, or the United Kingdom to apply different standards to the transfer of personal data from those regions to the U.S., and to block, or require ad hoc verification of measures taken with respect to, certain data flows from those regions to the U.S.
In 2022, we generated a significant portion of our revenues from our largest clients. For example, we generated approximately 59.7%, 60.4% and 78.4% of our revenue from our 10 largest clients during the years ended December 31, 2022, 2021 and 2020, respectively.
In 2023, we generated a significant portion of our revenues from our largest clients. For example, we generated approximately 56.1%, 59.7% and 60.4% of our revenue from our 10 largest clients during the years ended December 31, 2023, 2022 and 2021, respectively.
The banking and other financial systems in certain Commonwealth of Independent States (“CIS”) and CEE countries where we operate remain subject to periodic instability and generally do not meet the banking standards of more developed markets.
The banking and other financial systems in certain Commonwealth of Independent States (“CIS”) and Central and Eastern European (“CEE”) countries where we operate remain subject to periodic instability and generally do not meet the banking standards of more developed markets.
If we are unable to accurately estimate the cost of service or fail to maintain favorable pricing for our services, our contracts may be unprofitable. Grid Dynamics expects proportionate revenue from fixed-fee contracts to increase in future periods.
If we are unable to maintain appropriate resource utilization levels, our profitability may suffer. If we are unable to accurately estimate the cost of service or fail to maintain favorable pricing for our services, our contracts may be unprofitable. Grid Dynamics expects proportionate revenue from fixed-fee contracts to increase in future periods.
In addition, a significant portion of our revenues is concentrated in our top three industry verticals: technology, retail and manufacturing.
In addition, a significant portion of our revenue is concentrated in our top three industry verticals: retail, technology, and CPG/manufacturing.
That said, the company's revenues and costs are exposed to a number of currencies that include EURO, British pounds, Mexican pesos, Moldovan leu and Indian rupees.
That said, the company’s revenues and costs are exposed to a number of currencies that include EURO, British pounds, Mexican pesos, Polish zloty, and Indian rupees.
If we experience a slowdown or stoppage of work for any client, or on any project for which we have dedicated personnel or facilities, we may be unable to reallocate these personnel or assets to other clients and projects to keep their utilization and productivity levels high. If we are unable to maintain appropriate resource utilization levels,our profitability may suffer.
If we experience a slowdown or stoppage of work for any client, or on any project for which we have dedicated personnel or facilities, we may be unable to reallocate these personnel or assets to other clients and projects to keep their utilization and productivity levels high.
The occurrence of any such event may have a material adverse effect on our business, financial condition and results of operations. As a result of our acquisitions of Tacit in May 2021 and Mutual Mobile in December 2022, we have acquired operations in Guadalajara, Mexico and Hyderabad, India respectively.
The occurrence of any such event may have a material adverse effect on our business, financial condition and results of operations. 16 As a result of our acquisitions of Tacit in May 2021, Mutual Mobile in December 2022 and NextSphere in April 2023, we have acquired operations in Moldova, Mexico and India respectively.
We continuously review and consider strategic acquisitions of businesses, products or technologies. For example, in December 2020 we acquired Daxx, in May 2021 we acquired Tacit, and in December 2022 we acquired Mutual Mobile.
We continuously review and consider strategic acquisitions of businesses, products or technologies. For example, in May 2021 we acquired Tacit, in December 2022 we acquired Mutual Mobile, and in April 2023 we acquired NextSphere.
We may not be able to mitigate these risks and challenges to achieve our anticipated growth or successfully execute large and complex projects, which could materially adversely affect our business, prospects, financial condition and results of operations. All of these risks are heightened as we expand into new geographies.
We may not be able to mitigate these risks and challenges 8 to achieve our anticipated growth or successfully execute large and complex projects, which could materially adversely affect our business, prospects, financial condition and results of operations. All of these risks are heightened as we continue to expand geographically, including through acquisitions.
We have incurred significant net losses in recent periods, including net losses of $29.2 million, $7.7 million and $12.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.
We have incurred significant net losses in recent periods, including net losses of $1.8 million, $29.2 million and $7.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Our failure to adapt and enhance our existing services and to develop and introduce new services to promptly address the needs of our clients may have a material adverse effect on our business, financial condition and results of operations.
Our failure to adapt and enhance our existing services and to develop and introduce new services to promptly address the needs of our clients may have a material adverse effect on our business, financial condition and results of operations. Regulatory issues relating to the use of AI may adversely affect our business, financial condition, and results of operations.
These increased expenditures may make it more difficult to achieve and maintain profitability. In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient revenue to offset increased operating expenses. If we are required to reduce our expenses, our growth strategy could be materially affected.
In addition, our efforts to grow our business may be more expensive than we expect, and we may not be able to generate sufficient revenue to offset increased operating expenses. If we are required to reduce our expenses, our growth strategy could be materially affected.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operations, and reputation.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, results of operations, and reputation. 13 Undetected software design defects, errors or failures may result in loss of business or in liabilities that could have a material adverse effect on our reputation, business and results of operations.
Our business is dependent on our ability to successfully deliver contracted services in a timely manner. Any partial or complete failure of our equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide contracted services to our clients.
Any partial or complete failure of our equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide contracted services to our clients.
The market for technology and IT services is highly competitive and subject to rapid change and evolving industry standards and we expect competition to persist and intensify.
The market for technology and IT services is highly competitive and subject to rapid change and evolving industry standards, particularly around the use and development of AI solutions, and we expect competition to persist and intensify.
We operate in an industry characterized by rapidly changing technologies, methodologies and evolving industry standards. Our future success depends in part upon our ability to anticipate developments in our industry, enhance our existing services and to develop and introduce new services to keep pace with such changes and developments and to meet changing client needs.
Our future success depends in part upon our ability to anticipate developments in our industry, enhance our existing services and to develop and introduce new services to keep pace with such changes and developments and to meet changing client needs.
If material weaknesses or significant deficiencies in internal controls are discovered in the future, they may adversely affect our ability to record, process, summarize and report financial information in a timely and accurate manner and, as a result, our financial statements may contain material misstatements or omissions.
If material weaknesses or significant deficiencies in internal controls are discovered in the future, they may adversely affect our ability to record, process, summarize and report financial information in a timely and accurate manner and, as a result, our financial statements may contain material misstatements or omissions. 15 Our global business, especially in CIS and CEE countries, exposes us to significant legal, economic, tax and political risks.
We operate globally and as a result our business, revenues and profitability are impacted by global macroeconomic conditions. The success of our activities is affected by general economic and market conditions, including, among others, inflation rate fluctuations, interest rates, tax rates, economic uncertainty, fluctuations in consumer spending, political instability, changes in laws, and trade barriers and sanctions.
The success of our activities is affected by general economic and market conditions, including, among others, inflation rate fluctuations, interest rates, tax rates, economic uncertainty, fluctuations in consumer spending, political instability, changes in laws, and trade barriers and sanctions.
Timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect contracted revenues. If we are unable to meet our contractual requirements, we may experience delays in collection of or inability to collect accounts receivable.
Timely collection of client balances also depends on our ability to complete our contractual commitments and bill and collect contracted revenues. If we are unable to meet our contractual requirements, we may experience delays in collection of or inability to collect accounts receivable. If this occurs, our financial condition, results of operations and cash flows could be materially adversely affected.
We may continue to incur significant losses in the future for a number of reasons, including, but not limited to, unforeseen and high-levels of operating expenses, expansion into higher-cost geographies, increased costs due to wage inflation, and costs related to the Russian invasion of Ukraine.
We may continue to incur significant losses in the future for a number of reasons, including, but not limited to, unforeseen and high-levels of operating expenses, expansion into higher-cost geographies and increased costs due to wage inflation. We anticipate that our operating expenses will increase in the foreseeable future as we invest in our business for growth.
We were founded in 2006 and have a relatively short operating history in the technology services industry, which is competitive and continuously evolving, subject to rapidly changing demands and constant technological developments. As a result, success and performance metrics are difficult to predict and measure.
The technology services industry is competitive and continuously evolving, subject to rapidly changing demands and constant technological developments. As a result, success and performance metrics are difficult to predict and measure.
Our global business, especially in CIS and CEE countries, exposes us to significant legal, economic, tax and political risks. We have significant operations in certain emerging market economies, and are expanding into other countries, which creates legal, economic, tax and political risks.
We have significant operations in certain emerging market economies, and are expanding into other countries, which creates legal, economic, tax and political risks.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeGrid Dynamics’ offices are located in Plano, Texas, the U.S., as well as Guadalajara, Mexico; Yerevan in Armenia; Hyderabad in India; Krakow, Gdansk, Warsaw and Wroclaw in Poland; Belgrade in Serbia; Zug in Switzerland; various cities across Ukraine; Chisinau, Moldova; Amsterdam, the Netherlands; Kingston, Jamaica; and London, the United Kingdom. Grid Dynamics leases all of its facilities.
Biggest changeGrid Dynamics’ offices are located in Plano, Texas and Tampa, Florida, the U.S., as well as Guadalajara, Mexico; Yerevan in Armenia; Hyderabad and Chennai in India; Krakow, Gdansk, Warsaw and Wroclaw in Poland; Belgrade in Serbia; Zug in Switzerland; various cities across Ukraine; Chisinau, Moldova; Amsterdam, the Netherlands; Kingston, Jamaica; and London, the United Kingdom.
Grid Dynamics believes that its existing facilities are adequate to support its existing operations and that it has ample opportunities to expand office space in all current locations to sustain expected growth.
Grid Dynamics leases all of its facilities. Grid Dynamics believes that its existing facilities are adequate to support its existing operations and that it has ample opportunities to expand office space in all current locations to sustain expected growth.
ITEM 2. PROPERTIES Facilities Grid Dynamics currently provides its services through a network of 21 facilities in 12 countries. Grid Dynamics’ principal executive offices are located at 5000 Executive Pkwy Suite 520, San Ramon, CA 94583.
ITEM 2. PROPERTIES Facilities Grid Dynamics currently provides its services through a network of 23 facilities in 12 countries. Grid Dynamics’ principal executive office is located at 5000 Executive Pkwy Suite 520, San Ramon, CA 94583.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Although Grid Dynamics may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, Grid Dynamics is not currently a party to any material legal proceeding.
Biggest changeITEM 3. LEGAL PROCEEDINGS Although Grid Dynamics is, from time to time, involved in litigation and claims arising out of its operations in the normal course of business, Grid Dynamics is not currently a party to any material legal proceeding.
The results of any litigation cannot be predicted with certainty and, regardless of the outcome, litigation can have an adverse impact on Grid Dynamics because of defense and settlement costs, diversion of management resources and other factors. 31 ITEM 4. MINE SAFETY DISCLOSURE Not applicable. 32 PART II
The results of any litigation cannot be predicted with certainty and, regardless of the outcome, litigation can have an adverse impact on Grid Dynamics because of defense and settlement costs, diversion of management resources and other factors. ITEM 4. MINE SAFETY DISCLOSURE Not applicable. 34 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing. 33 ITEM 6. [RESERVED] Not applicable.
Biggest changeThe performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing. 35 Company/Index Base Period 03/06/2020 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Grid Dynamics Holdings, Inc. $ 100.00 $ 107.60 $ 324.25 $ 95.82 $ 113.83 S&P 500 $ 100.00 $ 129.07 $ 166.12 $ 136.04 $ 171.80 Peer Group $ 100.00 $ 154.70 $ 237.79 $ 154.37 $ 190.69 ITEM 6. [RESERVED] Not applicable.
Performance Graph The following chart compares the changes in cumulative total return on our common stock with the changes in cumulative total returns of the S&P 500 and a Peer Group for the period from March 6, 2020 (the date our common stock began trading on the Nasdaq after the ChaSerg Business Combination) through December 31, 2022.
Performance Graph The following chart compares the changes in cumulative total return on our common stock with the changes in cumulative total returns of the S&P 500 and a Peer Group for the period from March 6, 2020 (the date our common stock began trading on the Nasdaq after the ChaSerg Business Combination) through December 31, 2023.
Holders of Record As of February 15, 2023, there were approximately thirteen holders of record of our common stock. Because many of our shares of common stock are held by brokers or other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by the record holders.
Holders of Record As of February 15, 2024, there were approximately 13 holders of record of our common stock. Because many of our shares of common stock are held by brokers or other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by the record holders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeGrid 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. 38 The following table presents the reconciliation of Grid Dynamics’ Non-GAAP EBITDA to its consolidated net income/(loss), the most directly comparable GAAP measure, for the annual periods indicated: Year ended December 31, 2022 2021 2020 (in thousands) GAAP net loss $ (29,214) $ (7,700) $ (12,599) Adjusted for: Depreciation and amortization 6,626 5,049 2,672 Provision/(benefit) for income taxes 8,761 5,248 (2,613) Stock-based compensation 60,968 33,036 20,006 Geographic reorganization (1) 11,023 — — Transaction and transformation-related costs (2) 604 942 4,407 Restructuring (3) — — 912 Other (income)/expenses, net (4) (555) 2,502 (236) Non-GAAP EBITDA $ 58,213 $ 39,077 $ 12,549 __________________________ (1) 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.
Biggest changeThe following table presents the reconciliation of Grid Dynamics’ Non-GAAP EBITDA to its consolidated net loss, the most directly comparable GAAP measure, for the annual periods indicated: Year ended December 31, 2023 2022 2021 (in thousands) GAAP net loss $ (1,765) $ (29,214) $ (7,700) Adjusted for: Depreciation and amortization 8,926 6,626 5,049 Provision for income taxes 6,603 8,761 5,248 Stock-based compensation 35,516 60,968 33,036 Geographic reorganization (1) 1,858 11,023 — Transaction and transformation-related costs (2) 2,038 604 942 Restructuring (3) 1,488 — — Other (income)/expense, net (4) (10,418) (555) 2,502 Non-GAAP EBITDA $ 44,246 $ 58,213 $ 39,077 __________________________ (1) 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.
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.
(2) 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) 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.
Key Performance Indicators and Other Factors Affecting Performance Grid Dynamics uses the following key performance indicators and assesses the following other factors to analyze its business performance, to make budgets and financial forecasts and to develop strategic plans: Employees by Region Attracting and retaining the right employees is critical to the success of Grid Dynamics’ business and is a key factor in Grid Dynamics’ ability to meet customers’ needs and grow its revenue base.
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: 38 Employees by Region Attracting and retaining the right employees is critical to the success of Grid Dynamics’ business and is a key factor in Grid Dynamics’ ability to meet customers’ needs and grow its revenue base.
(4) Other (income)/expenses consist primarily of losses and gains on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses and other income consists primarily of interest on cash held at banks and returns on investments in money-market funds. (5) Reflects the estimated tax impact of the non-GAAP adjustments presented in the table.
(4) Other (income)/expense, net consist primarily of losses and gains on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses and other income consists primarily of interest on cash held at banks and returns on investments in money-market funds. (5) Reflects the estimated tax impact of the non-GAAP adjustments presented in the table.
The model requires management to make a number of key assumptions, including expected volatility, expected term, risk free interest rate and expected dividends. As Grid Dynamics’ shares do not have sufficient trading history, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares.
The model requires management to make a number of key assumptions, including expected volatility, expected term, risk free interest rate and expected dividends. As our shares do not have sufficient trading history, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares.
Preparation of the financial statements requires Grid Dynamics to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities.
Preparation of the financial statements requires us to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities.
If the consideration promised in a contract includes a variable amount, Grid Dynamics only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
If the consideration promised in a contract includes a variable amount, we include estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.
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.
The impact on Ukraine, coupled with the actions taken by other countries, including new and stricter sanctions imposed by the U.S., Canada, the U.K., the European Union, and other countries, 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.
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.
Business Update Regarding Military Action in Ukraine On February 24, 2022, Russian forces launched significant military action against Ukraine, resulting in sustained conflict and disruption in the region that is likely to continue.
However, if Grid Dynamics’ resources are insufficient to satisfy its cash requirements, it may need to seek additional equity or debt financing, which may be subject to conditions outside of Grid Dynamics’ control and may not be available on terms acceptable to Grid Dynamics’ management or at all.
However, if our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing, which may be subject to conditions outside of our control and may not be available on terms acceptable to our management or at all.
Management elected to use the simplified method instead of historical experience due to a lack of relevant historical data resulting from changes in option vesting schedules and changes in the pool of employees receiving option grants. Grid Dynamics evaluates the assumptions used to value its stock-based awards on each grant date. Grants are approved by Grid Dynamics’ Board of Directors.
Management elected to use the simplified method instead of historical experience due to a lack of relevant historical data 41 resulting from changes in option vesting schedules and changes in the pool of employees receiving option grants. We evaluate the assumptions used to value stock-based awards on each grant date. Grants are approved by our Board of Directors.
Grid Dynamics estimates grant date fair value of its stock using a number of objective and subjective factors, as described in more detail below, and the Black-Scholes option pricing model to estimate the grant date fair value of option grants.
We estimate grant date fair value of stock using a number of objective and subjective factors, as described in more detail below, and the Black-Scholes-Merton option pricing model to estimate the grant date fair value of option grants.
In assessing the realizability of deferred tax assets, Grid Dynamics considers whether it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.
In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.
Grid Dynamics considers an accounting judgment, estimate or assumption to be critical when (1) an estimate or assumption is complex in nature or requires a high degree of judgment, and (2) the use of different judgments, estimates and assumptions could have a material impact on 45 Grid Dynamics’ consolidated financial statements.
We consider an accounting judgment, estimate or assumption to be critical when (1) an estimate or assumption is complex in nature or requires a high degree of judgment, and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements.
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.
For example, in response to increased sanctions, Russia could attempt to take control of assets in Ukraine belonging to companies registered in the U.S., such as Grid Dynamics.
We assign our customers into one of our four main vertical markets or a group of various industries where we are increasing our presence, which we label as “Verticals”.
Revenues by Vertical. We assign our customers into one of four main vertical markets or a group of various industries where we are increasing our presence, labeled as “Verticals”.
When it is more likely than not that a position will be sustained upon examination by a tax authority that has full knowledge of all relevant information, Grid Dynamics measures the amount of tax benefit from the position and records the largest amount of tax benefit that is greater than 50% likely of being realized after settlement with a tax authority.
When it is more likely than not that a position will be sustained upon examination by a tax authority that has full knowledge of all relevant information, we measure the amount of tax benefit from the position and record the largest amount of tax benefit that is greater than 50% likely to be realized after settlement with a tax authority.
The following table presents revenues concentration by amount and as a percentage of our revenues for the periods indicated: Year ended December 31, 2022 2021 2020 (in thousands, except percentages) Top one customer $ 39,084 12.6 % $ 24,603 11.6 % $ 23,653 21.3 % Top five customers $ 134,955 43.5 % $ 92,768 43.9 % $ 62,152 55.9 % Top ten customers $ 185,253 59.7 % $ 127,564 60.4 % $ 87,203 78.4 % Top twenty customers $ 225,303 72.6 % $ 153,229 72.5 % $ 103,154 92.7 % Customers below top twenty $ 85,180 27.4 % $ 58,051 27.5 % $ 8,129 7.3 % The following table shows the evolution of Grid Dynamics’ customer base where customers are grouped by revenues recognized for each annual period presented: 37 Year ended December 31, 2022 2021 2020 >$5.0 million 13 9 7 >$2.5 - 5.0 million 8 5 3 >$1.0 - 2.5 million 27 20 7 >$0.5 - 1 million 21 19 6 Seasonality Grid Dynamics’ business is subject to seasonal trends that impact its revenues and profitability between quarters.
The following table presents revenues concentration by amount and as a percentage of our revenues for the periods indicated: 39 Year ended December 31, 2023 2022 2021 (in thousands, except percentages) Top one customer $ 44,961 14.4 % $ 39,084 12.6 % $ 24,603 11.6 % Top five customers $ 115,862 37.0 % $ 134,955 43.5 % $ 92,768 43.9 % Top ten customers $ 175,588 56.1 % $ 185,253 59.7 % $ 127,564 60.4 % Top twenty customers $ 213,790 68.3 % $ 225,303 72.6 % $ 153,229 72.5 % Customers below top twenty $ 99,120 31.7 % $ 85,180 27.4 % $ 58,051 27.5 % The following table shows the evolution of Grid Dynamics’ customer base where customers are grouped by revenues recognized for each annual period presented: Year ended December 31, 2023 2022 2021 >$5.0 million 10 13 9 >$2.5 - 5.0 million 11 8 5 >$1.0 - 2.5 million 27 27 20 >$0.5 - 1 million 32 21 19 Seasonality Grid Dynamics’ business is subject to seasonal trends that impact its revenues and profitability between quarters.
Fiscal Year Highlights The following table sets forth a summary of Grid Dynamics’ financial results for the annual periods indicated: Year ended December 31, 2022 2021 2020 % of revenue % of revenue % of revenue (in thousands, except percentages and per share data) Revenues $ 310,482 100.0 % $ 211,280 100.0 % $ 111,283 100.0 % Gross profit 120,590 38.8 % 87,728 41.5 % 41,621 37.4 % Income/(loss) from operations (21,008) (6.8) % 50 — % (15,448) (13.9) % Net loss (29,214) (9.4) % (7,700) (3.6) % (12,599) (11.3) % Diluted EPS $ (0.42) n/a $ (0.13) n/a (0.28) n/a Non-GAAP Financial Information Non-GAAP EBITDA (1) 58,213 18.7 % 39,077 18.5 % 12,549 11.3 % Non-GAAP Net Income (1) 36,627 11.8 % 24,160 11.4 % 7,013 6.3 % Non-GAAP Diluted EPS (1) 0.51 n/a 0.36 n/a 0.14 n/a __________________________ (1) Non-GAAP EBITDA, Non-GAAP Net Income and Non-GAAP Diluted EPS are non-GAAP financial measures.
Fiscal Year Highlights The following table sets forth a summary of Grid Dynamics’ financial results for the annual periods indicated: Year ended December 31, 2023 2022 2021 % of revenue % of revenue % of revenue (in thousands, except percentages and per share data) Revenues $ 312,910 100.0 % $ 310,482 100.0 % $ 211,280 100.0 % Gross profit 113,146 36.2 % 120,590 38.8 % 87,728 41.5 % Income/(loss) from operations (5,580) (1.8) % (21,008) (6.8) % 50 — % Net loss (1,765) (0.6) % (29,214) (9.4) % (7,700) (3.6) % Diluted loss per share $ (0.02) n/a $ (0.42) n/a (0.13) n/a Non-GAAP Financial information Non-GAAP EBITDA (1) 44,246 14.1 % 58,213 18.7 % 39,077 18.5 % Non-GAAP net income (1) 25,077 8.0 % 36,627 11.8 % 24,160 11.4 % Non-GAAP diluted EPS (1) 0.32 n/a 0.51 n/a 0.36 n/a __________________________ (1) Non-GAAP EBITDA, Non-GAAP net income and Non-GAAP diluted EPS are non-GAAP financial measures.
Liquidity and Capital Resources Grid Dynamics measures liquidity in terms of its ability to fund the cash requirements of its business operations, including working capital needs, capital expenditures, contractual obligations and other commitments with cash flows from operations and other sources of funding.
Liquidity and Capital Resources We measure liquidity in terms of our ability to fund the cash requirements for business operations, including working capital needs, capital expenditures, contractual obligations and other commitments with cash flows from operations and other sources of funding.
Critical Accounting Policies and Estimates Grid Dynamics management’s discussion and analysis of our financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
Critical Accounting Estimates Management’s discussion and analysis of our financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”).
General and administrative expenses consist primarily of administrative personnel and officers’ salaries and employee benefits including performance bonuses and stock-based compensation, legal and audit expenses, insurance, operating lease expenses (mainly facilities and vehicles) and other facility costs, workforce global mobility initiatives, restructuring and employee relocations cost (not in connection with customer projects), and depreciation and amortization expenses related to such activities.
General and Administrative General and administrative expenses include costs to support the business and consist primarily of administrative personnel and officers’ salaries, employee benefits including performance bonuses, stock-based compensation, legal and audit expenses, insurance, operating lease expenses of office premises and other facility costs, workforce global mobility initiatives, restructuring and employee relocations cost not directly related to customer projects, and depreciation and amortization expenses related to such activities.
In 2022 the total number of customers was 272 comparable to 273 customers in 2021. 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.
In 2023, the total number of customers was 275, comparable to 272 customers in 2022. 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’ revenue prospects and long-term success depend significantly on its ability to recruit and retain qualified IT professionals.
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.
As a result of analysis related to Grid Dynamics’ functional control of subcontractor GD AM, LLC (in Armenia) the subcontractors were determined to be a variable interest entity (“VIE”) and are therefore consolidated in Grid Dynamics’ financial statements. The assets and liabilities of these VIEs consist primarily of intercompany balances and transactions, all of which have been eliminated in consolidation.
As a result of analysis related to Grid Dynamics’ functional control of its subcontractors one was determined to be a variable interest entity (“VIE”) and is therefore consolidated in Grid Dynamics’ financial statements. The assets and liabilities of this VIE consist primarily of intercompany balances and transactions, all of which have been eliminated in consolidation. 47
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.
The acquisition of Mutual Mobile enhances our skills in the area of mobile technologies and user experience (“UX”) expertise, and accelerates our strategic expansion to India while supporting our commitment toward offering our customers a global engineering and delivery platform.
Financing Activities . Net cash provided by financing activities was $97.8 million in the year ended December 31, 2022, reflecting the equity offering during the third quarter of 2022 that was slightly offset by the payment of contingent consideration related to acquisitions and the tax withholding obligations due to issuance of shares in connection with vested stock awards.
Cash provided by financing activities during the year ended December 31, 2022 of $97.8 million was generated by the equity offering during the third quarter of 2022 that was slightly offset by the payment of contingent consideration related to acquisitions and the tax withholding noted above.
Cost of revenue consists primarily of salaries and employee benefits, including performance bonuses and stock-based compensation, and travel expenses for client-serving personnel. Cost of revenue also includes depreciation and amortization expense related to client-serving activities. Engineering, Research and Development.
Cost of Revenues and Gross Margin Our cost of revenues consists primarily of salaries and employee benefits, including performance bonuses and stock-based compensation, and project-related travel expenses of client-serving professionals. Cost of revenues also includes depreciation and amortization expense related to client-serving activities.
The following table presents our revenues by vertical and revenues as a percentage of total revenues by vertical for the periods indicated: Year ended December 31, 2022 2021 2020 % of revenue % of revenue % of revenue (in thousands, except percentages) Tech, Media and Telecom $ 98,334 31.7 % $ 67,689 32.0 % $ 45,362 40.8 % Retail 99,681 32.1 % 61,717 29.2 % 33,975 30.5 % Finance 21,893 7.1 % 17,515 8.3 % 13,589 12.2 % CPG/Manufacturing 61,216 19.7 % 43,461 20.6 % 14,202 12.8 % Other 29,358 9.4 % 20,898 9.9 % 4,155 3.7 % Total $ 310,482 100.0 % $ 211,280 100.0 % $ 111,283 100.0 % Revenue.
The following table presents our revenues by vertical and revenues as a percentage of total revenues by vertical for the periods indicated: Year ended December 31, 2023 2022 2021 % of revenue % of revenue % of revenue (in thousands, except percentages) Retail $ 102,551 32.8 % $ 99,681 32.1 % $ 61,717 29.2 % Tech, Media and Telecom 98,830 31.6 % 98,334 31.7 % 67,689 32.0 % CPG/Manufacturing 42,861 13.7 % 61,216 19.7 % 43,461 20.6 % Finance 28,842 9.2 % 21,893 7.1 % 17,515 8.3 % Other 39,826 12.7 % 29,358 9.4 % 20,898 9.9 % Total $ 312,910 100.0 % $ 310,482 100.0 % $ 211,280 100.0 % During the year ended December 31, 2023, our Retail vertical remained the largest comprising 32.8% of total revenues and grew 2.9% compared to the prior 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.
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).
Engineering, research and development expenses consist mainly of salaries and employee benefits including performance bonuses and stock-based compensation for personnel engaged in the design and development of solutions. Engineering, research and development expenses also include depreciation and amortization expenses related to such activities. Engineering, research and development costs are expensed as incurred. 40 Sales and Marketing.
Engineering, Research and Development The principal components of engineering, research and development expenses are salaries and employee benefits including performance bonuses and stock-based compensation for personnel engaged in the design and development of solutions, as well as depreciation and amortization expenses related to engineering, research and development activities.
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.
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.
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 annual periods indicated: Year ended December 31, 2022 2021 2020 (in thousands, except per share data) GAAP net loss $ (29,214) $ (7,700) $ (12,599) Adjusted for: Stock-based compensation 60,968 33,036 20,006 Geographic reorganization (1) 11,023 — — Transaction and transformation-related costs (2) 604 942 4,407 Restructuring (3) — — 912 Other (income)/expenses, net (4) (555) 2,502 (236) Tax impact of non-GAAP adjustments (5) (6,199) (4,620) (5,477) Non-GAAP Net Income $ 36,627 $ 24,160 $ 7,013 Number of shares used in the GAAP Diluted EPS 69,197 58,662 44,737 GAAP Diluted EPS $ (0.42) $ (0.13) $ (0.28) Number of shares used in the Non-GAAP Diluted EPS (6) 72,223 67,305 48,778 Non-GAAP Diluted EPS (6) $ 0.51 $ 0.36 $ 0.14 39 __________________________ (1) 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.
(4) Other (income)/expense, net consist primarily of gains and losses on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses and other income consists primarily of interest on cash held at banks and returns on investments in money-market funds. 45 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 annual periods indicated: Year ended December 31, 2023 2022 2021 (in thousands, except per share data) GAAP net loss $ (1,765) $ (29,214) $ (7,700) Adjusted for: Stock-based compensation 35,516 60,968 33,036 Geographic reorganization (1) 1,858 11,023 — Transaction and transformation-related costs (2) 2,038 604 942 Restructuring (3) 1,488 — — Other (income)/expense, net (4) (10,418) (555) 2,502 Tax impact of non-GAAP adjustments (5) (3,640) (6,199) (4,620) Non-GAAP net income $ 25,077 $ 36,627 $ 24,160 Number of shares used in the GAAP diluted EPS 75,193 69,197 58,662 GAAP diluted EPS $ (0.02) $ (0.42) $ (0.13) Number of shares used in the Non-GAAP diluted EPS 77,651 72,223 67,305 Non-GAAP diluted EPS $ 0.32 $ 0.51 $ 0.36 __________________________ (1) 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.
For all contracts, the customer derives value from the Company providing daily consulting services, and the value derived corresponds to the labor hours expended. Therefore, the Company measures the progress and recognizes revenue using an effort-based input method. Grid Dynamics also offers volume discounts or early settlement discounts. Volume discounts apply once the customer reaches certain contractual spend thresholds.
For all contracts, the customer derives value from the Company providing daily consulting services, and the value derived corresponds to the labor hours expended. Therefore, the Company measures the progress and recognizes revenue using an effort-based input method.
Grid Dynamics’ current liquidity needs relate mainly to compensation and benefits of Grid Dynamics’ employees and contractors and capital expenditures for computer hardware and office furniture. Grid Dynamics’ ability to expand and grow its business will depend on many factors including its capital expenditure needs and the evolution of its operating cash flows.
Our current liquidity needs relate mainly to compensation and benefits of our employees and contractors and capital investments to support our growth and geographical expansion. Our ability to expand and grow our business will depend on many factors including capital expenditure needs and the evolution of our operating cash flows.
See Note 14 to the consolidated financial statements for further details. 44 Cash Flows The following table summarizes Grid Dynamics’ cash flows for the annual periods indicated: Year ended December 31, 2022 2021 2020 (in thousands) Net cash provided by operating activities $ 31,652 $ 17,973 $ 5,932 Net cash used in investing activities (16,323) (35,366) (18,339) Net cash provided by financing activities 97,758 49,134 82,967 Effect of exchange rate changes on cash and cash equivalents (722) (122) (4) Net increase in cash and cash equivalents 112,365 31,619 70,556 Cash, cash equivalents (beginning) 144,364 112,745 42,189 Cash, cash equivalents (end) $ 256,729 $ 144,364 $ 112,745 Operating Activities.
Cash Flows The following table summarizes Grid Dynamics’ cash flows for the annual periods indicated: Year ended December 31, 2023 2022 2021 (in thousands) Net cash provided by operating activities $ 41,093 $ 31,652 $ 17,973 Net cash used in investing activities (25,950) (16,323) (35,366) Net cash (used in)/provided by financing activities (16,321) 97,758 49,134 Effect of exchange rate changes on cash and cash equivalents 1,676 (722) (122) Net increase in cash and cash equivalents 498 112,365 31,619 Cash and cash equivalents (beginning) 256,729 144,364 112,745 Cash and cash equivalents (ending) $ 257,227 $ 256,729 $ 144,364 Operating Activities.
Net cash used in investing activities during the year ended December 31, 2022 was $(16.3) million compared to $(35.4) million in cash used in the same period in 2021, due primarily to the difference of $21.4 million in cash paid for acquisition of Mutual Mobile in the year ended December 31, 2022 and Tacit in the year ended December, 31 2021.
Net cash used in investing activities during the year ended December 31, 2023 was $26.0 million compared to $16.3 million used in the same period in 2022, primarily due to larger closing payment for the 2023 acquisition compared to the 2022 acquisition. Financing Activities .
Our historical results are not necessarily indicative of the results that may be expected for any period in the future. 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.
Our historical results are not necessarily indicative of the results that may be expected for any period in the future. 36 Overview Grid Dynamics Holdings, Inc. (“Grid Dynamics,” “GDH,” the “Company,” “we,” “us,” or “our”) is a leading provider of technology consulting, platform and product engineering, and advanced analytics services.
GAAP, this Annual Report contains certain non-GAAP financial measures, including Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP Diluted Earnings Per Share, or EPS.
Non-GAAP Measures To supplement Grid Dynamics’ consolidated financial data presented on a basis consistent with U.S. GAAP, this Annual Report contains certain non-GAAP financial measures, including Non-GAAP EBITDA, Non-GAAP net income and Non-GAAP diluted earnings per share, or Non-GAAP diluted EPS.
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 35 solutions for prominent global brands across numerous industry verticals, with Technology, Healthcare, Automotive, and Financial Services representing the top verticals by revenue.
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.
Of Grid Dynamics' customers, two customers each accounted for 10% or more of our revenue in the years ended December 31, 2022, 2021 and 2020, respectively.
During the year ended December 31, 2023, one customer accounted for 10% or more of our revenues for the period, compared to two customers each accounting for 10% or more of our revenues during the years ended December 31, 2022 and 2021, respectively.
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 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.
Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill. The Company uses management estimates and industry data to assist in establishing the acquisition date fair values of assets acquired, liabilities assumed, and contingent consideration granted, if any.
Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill.
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.
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 I.
As of February 2023, we have minimal office 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.
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.
Provision/(benefit) for income tax was $8.8 million in the year ended December 31, 2022 compared to $5.2 million in the year ended December 31, 2021. The effective tax rate increased by 171.3% between periods. See “— Key Components of Revenue and Expenses—Costs and Expenses—Provision for Income Taxes . Net loss .
Provision for income tax was $6.6 million in the year ended December 31, 2023 compared to $8.8 million in the year ended December 31, 2022. The effective tax rate increased between periods from (42.8)% in 2022 to 136.5% in 2023.
Results of Operations Year Ended December 31, 2022 compared to Year Ended December 31, 2021 The following table sets forth a summary of Grid Dynamics’ consolidated results of operations for the periods indicated, and the changes between periods: Year ended December 31, Change 2022 2021 Dollars Percentage (in thousands, except percentages) Revenue $ 310,482 $ 211,280 $ 99,202 47.0 % Cost of revenue 189,892 123,552 66,340 53.7 % Gross profit 120,590 87,728 32,862 37.5 % Engineering, research, and development 15,772 8,459 7,313 86.5 % Sales and marketing 19,808 14,457 5,351 37.0 % General and administrative 106,018 64,762 41,256 63.7 % Total operating expense 141,598 87,678 53,920 61.5 % Income/(loss) from operations (21,008) 50 (21,058) (42,116.0) % Other income/(expenses), net 555 (2,502) 3,057 (122.2) % Loss before income taxes (20,453) (2,452) (18,001) 734.1 % Provision for income taxes 8,761 5,248 3,513 66.9 % Net loss $ (29,214) $ (7,700) $ (21,514) 279.4 % 41 Revenues by Vertical.
Results of Operations Year Ended December 31, 2023 compared to Year Ended December 31, 2022 The following table sets forth a summary of Grid Dynamics’ consolidated results of operations for the periods indicated, and the changes between periods: Year ended December 31, Change 2023 2022 Dollars Percentage (in thousands, except percentages) Revenues $ 312,910 $ 310,482 $ 2,428 0.8 % Cost of revenue 199,764 189,892 9,872 5.2 % Gross profit 113,146 120,590 (7,444) (6.2) % Engineering, research, and development 14,741 15,772 (1,031) (6.5) % Sales and marketing 24,151 19,808 4,343 21.9 % General and administrative 79,834 106,018 (26,184) (24.7) % Total operating expense 118,726 141,598 (22,872) (16.2) % Loss from operations (5,580) (21,008) 15,428 (73.4) % Other income/(expenses), net 10,418 555 9,863 1,777.1 % Income/(loss) before income taxes 4,838 (20,453) 25,291 (123.7) % Provision for income taxes 6,603 8,761 (2,158) (24.6) % Net loss $ (1,765) $ (29,214) $ 27,449 (94.0) % Revenues We recorded revenues of $312.9 million, which was a slight increase of $2.4 million, or 0.8% from the previous year.
A substantial majority of Grid Dynamics’ personnel is comprised of such IT professionals. 36 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 December 31, 2022 2021 2020 Americas 521 386 259 CEE, U.K., and the Netherlands 3,034 2,888 1,635 Rest of the world 243 — — Total 3,798 3,274 1,894 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.
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 December 31, 2023 2022 2021 Americas (1) 567 521 386 Europe (2) 2,806 3,034 2,888 Rest of the world (3) 547 243 — Total 3,920 3,798 3,274 __________________________ (1) Americas includes personnel located in North, Central and South America.
Recently Adopted and Issued Accounting Pronouncements Recently issued and adopted accounting pronouncements are described in Note 2 to Grid Dynamics’ consolidated financial statements. 47
Recently Adopted and Issued Accounting Pronouncements Recently issued and adopted accounting pronouncements are described in Note 1 in the notes to our consolidated financial statements in this Annual Report on Form 10-K.
Engineering, research and development expenses increased by $7.3 million to $15.8 million in the year ended December 31, 2022, a 86.5% increase from $8.5 million in the year ended December 31, 2021. The increase was largely attributed to staffing and greater investments in customer delivery operations. Sales and Marketing.
Engineering, research and development expenses decreased by $1.0 million or 6.5%, to $14.7 million in the year ended December 31, 2023 from $15.8 million recorded last year. The decrease was primarily due to decline in stock-based compensation expenses, that was partially offset by increase in staffing and greater investments in customer delivery operations.
General and administrative expenses increased by $41.3 million, or 63.7%, to $106.0 million in the year ended December 31, 2022 from $64.8 million in the year ended December 31, 2021. Increased stock-based compensation accounted for approximately $22.9 million of the increase.
General and administrative expenses include a substantial majority of Grid Dynamics’ stock-based compensation costs for the financial periods discussed herein. General and administrative expenses decreased by $26.2 million, or 24.7%, to $79.8 million in the year ended December 31, 2023 from $106.0 million in the year ended December 31, 2022.
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.
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 May 2023, our former subsidiary in Russia is liquidated and we are not performing any client services from Russia.
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.
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.
Net cash provided by operating activities during the year ended December 31, 2022 increased by $13.7 million, or 76.1%, to $31.7 million from $18.0 million in the same period in 2021, driven by higher levels of revenue growth of 47.0%.
Net cash provided by operating activities during the year ended December 31, 2023 increased by $9.4 million, or 29.8%, to $41.1 million from $31.7 million in the same period in 2022. The increase in operating cash flow was largely due to a decrease in geographical reorganization costs. Investing Activities.
Other net income/(expenses), net increased to $0.6 million for the year ended December 31, 2022 from $(2.5) million for the year ended December 31, 2021, The increase was primarily due to interest income from our money market investment. Provision/(benefit) for Income Tax .
During the year ended December 31, 2023, other income/(expenses), net increased to $10.4 million from $0.6 million reported in the prior year. The increase was primarily driven by income generated by our money market funds which we started to receive during the third quarter of 2022.
(3) During the year ended December 31, 2020, we implemented a cost reduction plan and incurred restructuring and severance charges of $0.9 million, primarily resulting from a reduction in workforce and other charges. We did not incur any restructuring expenses during the years ended December 31, 2022 and 2021.
(3) We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprised of severance charges and respective taxes and are included in General and administrative expenses in the Company’s consolidated statement of loss and comprehensive income/(loss). We did not incur any restructuring expenses during the years ended December 31, 2022 and 2021.
(3) During the year ended December 31, 2020, we implemented a cost reduction plan and incurred restructuring and severance charges of $0.9 million, primarily resulting from a reduction in workforce and other charges. We did not incur any restructuring expenses during the years ended December 31, 2022 and 2021.
(3) We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprised of severance charges and respective taxes and are included in general and administrative expenses in the Company’s consolidated statement of loss and comprehensive income/(loss). We did not incur any restructuring expenses during the years ended December 31, 2022 and 2021.
While Grid Dynamics does not currently have any other form of stock-based awards outstanding, it may also issue stock appreciation rights. Stock-based compensation expense is measured based on the grant-date fair value of the share-based awards. Forfeitures are recognized as incurred.
Stock-based Compensation We have in the past issued, currently issue and intend to continue issuing incentive stock options and non-qualifying stock options, performance stock units and restricted stock units. Stock-based compensation expense is measured based on the grant-date fair value of the share-based awards. Forfeitures are recognized as incurred.
See “Non-GAAP Measures” below for additional information and reconciliations to the most directly comparable GAAP financial measures. In the twelve months ended December 31, 2022 our revenues were $310.5 million, which included $14.6 million from our recent acquisitions.
See “Non-GAAP Measures” below for additional information and reconciliations to the most directly comparable GAAP financial measures. Our key metrics for the year ended December 31, 2023 are presented below: We recorded revenues of $312.9 million, an increase of $2.4 million, or 0.8% from the previous year.
The increase of $5.4 million was due mainly to the increase in sales initiatives, sales personnel and related costs associated with the expansion activities both on the sales and marketing fronts. General and Administrative.
The increase in sales and marketing expenses was mainly due to a $4.5 million increase of employee-related costs driven by growth in sales personnel, that was partially offset by decrease in stock-based compensation expenses.
Grid Dynamics may need more cash resources due to changing business conditions or other developments, including investments or acquisitions. Grid Dynamics believes that its current cash position on its balance sheet of $256.7 million is sufficient to fund its currently expected levels of operating, investing and financing expenditures for a period of twelve months from the date of this filing.
We believe that our cash and cash equivalents balance and cash generated from operating activities will be sufficient to fund currently expected levels of operating, investing and financing expenditures for a period of twelve months from the date of this filing.
Although the majority of revenues have been derived through time and material contracts, our fixed-fee customer contracts business is increasing, although not significant historically, will comprise a more significant portion of revenue in future periods.
We derive our revenues through time and materials and fixed fee contracts. Although the majority of revenues have been derived through time and material contracts, our fixed-fee customer contracts business is constantly increasing. Grid Dynamics recognizes revenue for services over time as hours are incurred by Grid Dynamics’ engineering personnel.
These estimates and valuations require the Company to make significant assumptions, including projections of future events and operating performance. The Company determines the fair value of the contingent consideration liabilities using Monte Carlo model which involves a simulation of future revenues and earnings during the earn-out period using management's best estimates and assumptions.
The fair value of any contingent consideration is determined using the Monte Carlo model which involves a simulation of future revenues and earnings during the earn-out period using projected financial results adjusted to market risk assumptions, discount rates and probability assumptions with respect to the likelihood of achieving the various earn-out criteria.
On March 15, 2022, we entered into a new agreement establishing a revolving credit facility with JPMorgan Chase Bank, N.A., as administrative agent for the lenders. See Note 10 "Debt" to the consolidated financial statements for further details.
We may need more cash resources due to changing business conditions or other developments, including investments or acquisitions. Our principal source of liquidity continues to be cash generated from our operations. Additionally, on March 15, 2022, we entered into an agreement establishing a revolving credit facility with JPMorgan Chase Bank, N.A., as an administrative agent for the lenders.
On its current and future fixed fee contracts, Grid Dynamics earns and recognizes revenue as the work is performed, the monthly calculation of which is based upon actual labor hours incurred and level of effort expended throughout the duration of the contract.
Revenues related to fixed fee contracts are recorded as work is performed based upon actual labor hours incurred and level of effort expended throughout the duration of the contract. The accuracy of revenue recognized for these contracts during the 40 reporting period largely depends on our ability to correctly estimate the total expected efforts required to fulfill the performance obligation.
As of December 31, 2022, Grid Dynamics had cash and cash equivalents amounting to $256.7 million (compared to $144.4 million at December 31, 2021). Of this amount, $16.8 million was held in countries outside US and included among others UK, India, Switzerland, Poland, Serbia, Ukraine and other countries (compared to $8.5 million as of December 31, 2021).
Of this amount, $21.2 million was held in countries outside the U.S, and included among others 46 the U,K., Netherlands, India, Poland, Ukraine and other countries (compared to $16.8 million as of December 31, 2022). We did not have any debt outstanding under the revolving credit facility at any balance sheet date presented.
The provision for income taxes reflects income earned and taxed in the various U.S. federal and state and non-U.S. jurisdictions.
Additionally we have written-off our contingent consideration liability related to Mutual Mobile and NextSphere acquisitions in the amount of $4.2 million. Provision for Income Tax Grid Dynamics follows the asset and liability method of accounting for income taxes. The provision for income taxes reflects income earned and taxed in the various U.S. federal and state and non-U.S. jurisdictions.
Business Combinations The Company accounts for business combinations under the acquisition method of accounting, in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, recording any assets acquired and liabilities assumed based on their respective fair values.
We believe our estimates for uncertain tax positions are appropriate and sufficient. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. Business Combinations We account for business combinations under the acquisition method of accounting, which requires recognition of any assets acquired and liabilities assumed based on their respective fair values.
Net cash provided by financing activities was $49.1 million in the year ended December 31, 2021, reflecting the equity offering and warrant exercise proceeds offset by tax obligations resulted from net share settlement of vested stock awards.
Net cash used for financing activities was $16.3 million in the year ended December 31, 2023, reflected primarily the tax withholding obligations due to issuance of shares in connection with vested stock awards and was $11.1 million higher compared to 2022.
Sales and marketing expenses accounted for 6.4% of Grid Dynamics’ revenue in the year ended December 31, 2022 compared to 6.8% in the year ended December 31, 2021, a decrease of (0.4) percentage points.
Expressed as a percentage of revenues, engineering research and development expenses decreased to 4.7% during the year ended December 31, 2023 compared to 5.1% in 2022. Sales and Marketing Sales and marketing expenses represent spending associated with promoting and selling of our services.
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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.
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As a forefront provider of technology consulting, platform and product engineering services, and bespoke software development, we draw from over 7 years of leadership in Enterprise artificial intelligence (“AI”), coupled with profound expertise in cloud, data, and advanced analytics.
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Since its inception 34 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.
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Our commitment to engineering excellence, R&D leadership, a co-innovation ethos, globally efficient “Follow-the-Sun” delivery model, and an unwavering “whatever it takes” dedication to client success empower us to solve even the most complex enterprise challenges, ensuring profitable business outcomes and future-proof growth.
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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.
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Founded in 2006, Grid Dynamics is headquartered in Silicon Valley and has a global talent pool of intellectually curious problem solvers in offices across the U.S., Mexico, Jamaica, the U.K., Europe, and India.
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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.
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Our GAAP and Non-GAAP gross profit margins were 36.2% and 36.8% respectively, and were down from 38.8% and 39.3% respectively in 2022. The decline in gross profit margin, both on a GAAP and Non-GAAP basis was driven by a combination of increased personnel costs and foreign exchange effect.
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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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeComparatively, approximately 37.8% of Grid Dynamics’ $211.2 million of combined cost of revenue and total operating expenses were denominated in currencies other than the U.S. dollar in the year ended December 31, 2021.
Biggest changeFor the year ended December 31, 2023, approximately 37.9% of Grid Dynamics’ $318.5 million of combined cost of revenue and total operating expenses were denominated in currencies other than the U.S. dollar.
For the year ended December 31, 2022, approximately 33.4% of Grid Dynamics’ $331.5 million of combined cost of revenue and total operating expenses were denominated in currencies other than the U.S. dollar.
Comparatively, approximately 33.4% of Grid Dynamics’ $331.5 million of combined cost of revenue and total operating expenses were denominated in currencies other than the U.S. dollar in the year ended December 31, 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Grid Dynamics has in the past and may in the future be exposed to certain market and credit risks in the ordinary course of business, including exposure related to fluctuations in foreign currency rates, and on occasion and to a lesser extent, changes in interest rates and concentration of credit risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have in the past and may in the future be exposed to certain market and credit risks in the ordinary course of business, including exposure related to fluctuations in foreign currency rates, and on occasion and to a lesser extent, changes in interest rates and concentration of credit risk.
Grid Dynamics analyzes sensitivity to the zloty and pesos separately because, in management’s experience, fluctuations in the value of these currencies against the U.S. dollar are frequently driven by distinct macroeconomic and geopolitical factors and have the largest effect on our results during the year ended December 31, 2022.
We analyze sensitivity to the zloty and pesos separately because, in management’s experience, fluctuations in the value of these currencies against the U.S. dollar are frequently driven by distinct macroeconomic and geopolitical factors and have the largest effect on our results during the year ended December 31, 2023.
In the year ended December 31, 2021: • a 10% decrease in the value of the Polish zloty against the U.S. dollar would have resulted in a $1.2 million increase in Grid Dynamics’ income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.5 million decrease in income from operations. • a 10% decrease in the value of the Mexican pesos against the U.S. dollar would have resulted in a $0.2 million increase in Grid Dynamics’ income from operations, while a 10% increase in the pesos’ value would have resulted in a $0.3 million decrease in income from operations.
In the year ended December 31, 2023: • a 10% decrease in the value of the Polish zloty against the U.S. dollar would have resulted in a $3.7 million increase in Grid Dynamics’ income from operations, while a 10% increase in the zloty’s value would have resulted in a $4.5 million decrease in income from operations. • a 10% decrease in the value of the Mexican pesos against the U.S. dollar would have resulted in a $1.3 million increase in Grid Dynamics’ income from operations, while a 10% increase in the pesos’ value would have resulted in a $1.6 million decrease in income from operations.
Grid Dynamics does not currently hedge its foreign currency exposure, although it seeks minimize it by limiting cash transfers to amounts necessary to fund subsidiary operating expenses for a short period, typically one week. Grid Dynamics’ management may evaluate new hedging strategies in future periods. 48
We do not currently hedge our foreign currency exposure, although we seek to minimize it by limiting cash transfers to amounts necessary to fund subsidiary operating expenses for a short period, typically one week. Our management may evaluate new hedging strategies in future periods. 48
In addition, Grid Dynamics’ international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions. See Item 1A, “ Risk Factors ” for additional information.
In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions. See Item 1A, “ Risk Factors ” in this Annual Report on Form 10-K for additional information.
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We use sensitivity analysis to determine the effects that foreign currency exchange rate fluctuations may have on our income from operations of our foreign subsidiaries where functional currency is different from the U.S. dollar. This sensitivity analysis represents the hypothetical changes in our consolidated income from operations and does not reflect our actual or expected results of operations.

Other GDYN 10-K year-over-year comparisons