GRID DYNAMICS HOLDINGS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled "Special Note Regarding Forward-Looking Statements" for a discussion of forward-looking statements and in Item 1A, "Risk Factors" for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. 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. 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 inMenlo Park, California , as a grid and cloud consultancy firm,Grid Dynamics has been on the forefront of digital 33
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transformation, working on big ideas like cloud computing, NOSQL, DevOps, microservices, big data and AI, and has quickly established itself as a vendor of choice for technology and digital businesses.
As a leading global digital engineering and IT services provider with its headquarters inSilicon Valley and engineering centers inthe United States ,Mexico and multiple European countries,Grid Dynamics' core business is to deliver focused and complex technical consulting, software design, development, testing and internet service operations.Grid Dynamics also helps organizations become more agile and create innovative digital products and experiences through its deep expertise in emerging technology, such as AI, data science, cloud computing, big data and DevOps, lean software development practices and a high-performance product culture.Grid Dynamics believes that the key to its success is a business culture that puts products over projects, client success over contract terms and real business results over pure technical innovation. By leveragingGrid Dynamics' proprietary processes optimized for innovation, emphasis on talent development and technical expertise,Grid Dynamics has been able to achieve significant growth. We are a former blank check company that completed our initial public offering onOctober 4, 2018 . InMarch 2020 ,Grid Dynamics , formerly known asChaSerg Technology Acquisition Corp ("ChaSerg"), completed its acquisition ofGrid Dynamics International, Inc. ("GDI") pursuant to the business combination agreement datedNovember 13, 2019 (the "Business Combination"). In conjunction with the completion of the Business Combination, ChaSerg was renamed asGrid Dynamics Holdings, Inc. The Business Combination was accounted for as a reverse recapitalization for which GDI was determined to be the accounting acquirer. Outstanding shares of GDI were converted into our common shares, presented as a recapitalization, and the net assets of ChaSerg were acquired at historical cost, with no goodwill or other intangible assets recorded.
Update on activities regarding military action in
OnFebruary 24, 2022 , Russian forces launched significant military action againstUkraine , and sustained conflict and disruption in the region is possible. The impact toUkraine as well as actions taken by other countries, including new and stricter sanctions imposed byCanada , theUnited Kingdom , theEuropean Union , theU.S. and other countries and companies and organizations against officials, individuals, regions, and industries inRussia andUkraine , and each country's potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. For example, in response to increased sanctions,Russia could attempt to take control of assets inRussia orUkraine of companies registered inthe United States , such asGrid Dynamics . Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our delivery of services, impair our ability to complete financial or banking transactions, cause us to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region or involving certain customers in the region. We have a significant number of personnel inUkraine andRussia . We are actively monitoring the security of our personnel and the stability of our infrastructure, including communications and internet availability. We are also executing our business continuity plan and adapting to developments as they occur to protect the safety of our people and handle potential impacts to our delivery infrastructure, including reallocating work to other geographies within our global footprint. We are actively working with our personnel and with our customers to meet their needs and to mitigate delivery challenges. We have no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based sanctions, should they be implemented, could have a material adverse effect on our operations and business outlook. We have accelerated hiring in locations outside of the region as part of our business continuity planning and in order to support client demand. In addition, we have implemented plans to move some of our existing personnel to other countries in order to keep them safe and mitigate impacts on our delivery of services to our customers. 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 more information on the various risks posed by military action in
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Exercise Highlights
The following table presents a summary of the
Year ended December 31,
2021 2020 2019
% of revenue % of revenue % of revenue
(dollars in thousands, except per share data)
Revenues $ 211,280 100.0 % $ 111,283 100.0 % $ 118,326 100.0 %
Gross profit 87,728 41.5 % 41,621 37.4 % 48,236 40.8 %
Income/(loss) from operations 50 - % (15,448) (13.9) % 15,625 13.2 %
Net income/(loss) (7,700) (3.6) % (12,599) (11.3) % 10,807 9.1 %
Diluted EPS $ (0.13) n/a $ (0.28) n/a 0.49 n/a
Non-GAAP Financial Information
Adjusted EBITDA(1) 39,077 18.5 % 12,549 11.3 % 23,661 20.0 %
Non-GAAP Net Income(1) 24,160 11.4 % 7,013 6.3 % 15,487 13.1 %
Non-GAAP Diluted EPS(1) 0.36 n/a 0.14 n/a 0.73 n/a
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(1)Adjusted EBITDA, Non-GAAP Net Income and Non-GAAP Diluted EPS are non-GAAP
financial measures. See "Non-GAAP Measures" below for additional information and
reconciliations to the most directly comparable GAAP financial measures.
In the twelve months ended December 31, 2021 our revenues were $211.3 million ,
which included $44.9 million from our recent acquisitions of Daxx and Tacit.
Organic revenue of $166.4 million for the twelve months ended December 31, 2021
was up from $110.3 million in the same period of 2020. The key reasons for the
organic year-over-year increase of 50.8% were increased demand for our services
by our customers resulting in increased billable hours combined with revenue
contribution from new customers. Our largest vertical, Technology Media &
Telecom, continued to grow; in the twelve months ended December 31, 2021 it
represented 32.0% of our full year of 2021 revenue and grew by 49.2% on a
year-over-year basis. While many customers positively grew on the year-over-year
basis, Grid Dynamics' two largest TMT customers contributed meaningfully.
In the twelve months ended December 31, 2021 , our Retail vertical contributed
$61.7 million in revenue, up from $34.0 million in revenue in the twelve months
ended December 31, 2020 . We have been witnessing a steady sequential pick up in
business. Furthermore, within our Retail vertical, since the beginning of the
pandemic, we have witnessed a shift towards retail customers who have embraced
digital and online commerce. This is a contrast to some of our other customers
who have not recovered from the impacts of the pandemic, and going forward, we
expect that some of them will not recover to pre-COVID levels.
We continue to focus on revenue diversification by increasing our customer base
with additions. During the twelve months ended December 31, 2021 , our organic
and acquisitions combined received revenues from a total of 273 customers.
In the twelve months ended December 31, 2021 , our GAAP Net loss was $(7.7)
million , or (3.6)% of revenue and Non-GAAP EBITDA was $39.1 million , or 18.5% of
revenue. This was down from GAAP Net loss of $(12.6) million , or (11.3)% of
revenue and and up from $12.5 million or 11.3% of revenue in Non-GAAP EBITDA in
the twelve months ended December 31, 2020 . The decrease in GAAP Net Loss and
increase in non-GAAP EBITDA on a year-over-year basis was due to a combination
of higher levels of revenue and gross profit.
The acquisition of
OnMay 29, 2021 , we acquiredUK based Tacit in an all-cash transaction. Tacit is a global consultancy focused on digital commerce serving customers in theUK ,North America , Continental Europe, andAsia . The company serves leading global brands across technology, CPG, financial, and retail markets. The company has approximately 180 employees with engineering centers situated inMoldova andMexico . The acquisition is augmenting our service offerings and strengthening our competitive position within the market. Additionally, the acquisition is also enabling us to leverage near-shore capabilities with the company's presence inMexico . 35
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Updates related to COVID-19
InDecember 2019 , a novel coronavirus COVID-19 was reported inChina , and inMarch 2020 , theWorld Health Organization declared it a pandemic. This contagious disease pandemic has continued to spread across the globe, including extensively within theU.S. , and is impacting worldwide economic activity and financial markets, significantly increasing economic volatility and uncertainty. In response to this global pandemic, several local, state, and federal governments have been prompted to take unprecedented steps that include, but are not limited to, travel restrictions, closure of businesses, social distancing, and quarantines. Starting inMarch 2020 , headwinds to our business from the pandemic were largely centered around our retail customers as many of them witnessed a slowdown in their sales. After witnessing a low point in the month ofMay 2020 , our retail business has steadily improved as we have added new customers and have grown existing business across industry verticals. We are now facing challenges from COVID-19 such as employee retention and shortage of talent on the job market. We continue to take precautionary measures intended to minimize the risk of the virus to our employees, our customers, and the communities in which we operate that include suspension of all non-essential travel. Although a significant proportion of our employees continue to work remotely, all our facilities have been opened for employees to work following local government guidelines. We continue to deliver services to our customers in this fashion and this has resulted in minimal disruption in our operational and delivery capabilities.
Comparability of financial information
Grid Dynamics' results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Business Combination onMarch 5, 2020 and the other events and transactions discussed below.
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 ofGrid Dynamics' business and is a key factor inGrid Dynamics' ability to meet customers' needs and grow its revenue base.Grid Dynamics' revenue prospects and long-term success depend significantly on its ability to recruit and retain qualified IT professionals. A substantial majority ofGrid Dynamics' personnel is comprised of such IT professionals.
The following table shows the number of
As of December 31,
2021 2020 2019
United States and Mexico 386 259 265
Central and Eastern Europe (1), U.K. and the
Netherlands 2,888 1,635 1,165
Total 3,274 1,894 1,430
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(1) Includes Ukraine,
Wear
There is competition for IT professionals in the regions in whichGrid Dynamics operates, and any increase in such competition may adversely impactGrid Dynamics' business and gross profit margins. Employee retention is one ofGrid Dynamics' main priorities and is a key driver of operational efficiency.Grid Dynamics seeks to retain top talent by providing the opportunity to work on exciting, cutting-edge projects for high profile clients, a flexible work environment and training and development programs.Grid Dynamics' management targets a voluntary attrition rate no higher than the mid-teen percentages, in line with the industry. 36
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Hours and use
As most ofGrid Dynamics' customer projects are performed and invoiced on a time and materials basis,Grid Dynamics' management tracks and projects billable hours as an indicator of business volume and corresponding resource needs for IT professionals. To maintain its gross profit margins,Grid Dynamics must effectively utilize its IT professionals, which depends on its ability to integrate and train new personnel, to efficiently transition personnel from completed projects to new assignments, to forecast customer demand for services and to deploy personnel with appropriate skills and seniority to projects.Grid Dynamics' management generally tracks utilization with respect to subsets of employees, by location or by project, and calculates the utilization rate for each subset by dividing (x) the aggregate number of billable hours for a period by (y) the aggregate number of total available hours for the same period.Grid Dynamics' management analyzes and projects utilization to measure the efficiency of its workforce and to inform management's budget and personnel recruiting decisions.
Customer focus
Grid Dynamics' ability to retain and expand its relationships with existing customers and add new customers are key indicators of its revenue potential. ExcludingDaxx and Tacit,Grid Dynamics grew its customer base from 52 customers in 2020 to 65 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. OfGrid Dynamics' customers, two customers each accounted for 10% or more ofGrid Dynamics' revenue in the years endedDecember 31, 2021 and 2020, respectively, and three customers each accounted for 10% or more ofGrid Dynamics' revenue in the year endedDecember 31, 2019 . The following table shows the evolution ofGrid Dynamics' customer base and revenue concentration, as of the dates and for the annual periods indicated: Year ended December 31, 2021 2020 2019 (in thousands,
with the exception of a number of customers and
percentages)
Total customers (for the period) (1) 273 182 40 Of which: >$5.0 million 9 7 7 >$2.5 - 5.0 million 5 3 3 >$1.0 - 2.5 million 20 7 5 Top five customers 43.9 % 55.9 % 66.5 % Top ten customers 60.4 % 78.4 % 86.7 % Top five customers$ 92,768 $ 62,152 $ 78,715 Top ten customers$ 127,564
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(1)Number of customers acquired thanks to
Currency exposure
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 theU.S. dollar.Grid Dynamics' functional currency apart from theU.S. dollar includes EURO, British pounds, Mexican pesos and Moldovan leu.Grid Dynamics contracts with customers for payment in and generates predominantly all of its revenue inU.S. dollars, except forDaxx and Tacit that generate revenue predominantly in EURO and British pounds. Its non-U.S. subsidiaries' operations relate substantially to performing services under those contracts. Several ofGrid Dynamics' subsidiaries conduct operations and employ or contract personnel inRussia ,Ukraine ,Poland andSerbia , but keep their books and records inU.S. dollars.Daxx's books are kept in EURO. Tacit's books are kept in local currencies.Grid Dynamics' foreign currency transaction exposure is a result of having to convertU.S. dollars into the local currencies of the countries in which it must pay expenses, typically by transferring funds to its non-U.S. subsidiaries. These expenses are primarily comprised of compensation and benefits and other operating costs, such as rent. Subsidiary transactions executed in local currencies are converted intoU.S. dollars at the exchange rate in effect on the date of the transaction, in the case of asset and liability transactions, or at the average monthly exchange rate, in the case of income and expense transactions. Certain balances in local currencies, particularly cash and financial instruments, are adjusted at each 37
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balance sheet date to reflect the then-current exchange rate, which is the rate at which the related receivable or payable could be settled at that date. As a result,Grid Dynamics' assets, liabilities, profit margins and other measures of profitability may be subject to volatility due to changes in the exchange rate of theU.S. dollar against the currencies in whichGrid Dynamics' subsidiaries incur operating expenses, hold assets, or owe liabilities, and may not be comparable between periods. For the twelve months endedDecember 31, 2021 , approximately 12.5%, 11.9%, and 6.4% ofGrid Dynamics' $211.2 million of combined cost of revenue and total operating expenses were denominated in the Ukrainian hryvnia, Russian rouble, and Polish zloty, respectively. Comparatively, for the year endedDecember 31, 2020 approximately 11.7%, 13.8% and 9.6% of ofGrid Dynamics' $126.7 million of combined cost of revenue and total operating expenses were denominated in the Ukrainian hryvnia, Russian rouble, and Polish zloty, respectively.Grid Dynamics does not currently hedge its foreign currency exposure, although it seeks to minimize such exposure by limiting cash transfers to amounts necessary to fund subsidiary operating expenses for a short period, typically one to two weeks. When and where possible,Grid Dynamics seeks to match expenses to theU.S. dollar. For example, inUkraine ,Grid Dynamics generally pays salaries in the current hryvnia equivalent of an agreedU.S. dollar amount, consistent with local requirements. As a result, a significant portion ofGrid Dynamics' exposure to fluctuations in the value of the Ukrainian hryvnia against theU.S. dollar is naturally hedged. Management carefully evaluates its exposure to foreign currency risk and, thoughGrid Dynamics does not currently hedge this exposure through the use of financial instruments, it may do so in the future. See Item 7A, "Quantitative and Qualitative Disclosures about Market Risk-Foreign Currency Exchange Rate Risk" below for more information aboutGrid Dynamics' exposure to foreign currency exchange rates.
Seasonality
Grid Dynamics' business is subject to seasonal trends that impact its revenues and profitability between quarters. Some of the factors that influence the seasonal trends include the timing of holidays in the countries in whichGrid Dynamics operates and theU.S. retail cycle, which drives the behavior ofGrid Dynamics' retail customers. Excluding the impact of growth in its book of business,Grid Dynamics has historically recorded higher revenue and gross profit in the second and third quarters of each year compared to the first and fourth quarters of each year. The Christmas holiday season inRussia andUkraine , for example, falls in the first quarter of the calendar year, resulting in reduced activity and billable hours. In addition, many ofGrid Dynamics' retail sector customers tend to slow their discretionary spending during the holiday sale season, which typically lasts from late November (beforeThanksgiving ) through late December (after Christmas).
Non-GAAP Measures
To supplementGrid Dynamics' consolidated financial data presented on a basis consistent withU.S. 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.Grid Dynamics has included these non-GAAP financial measures because they are financial measures used byGrid Dynamics' management to evaluateGrid Dynamics' core operating performance and trends, to make strategic decisions regarding the allocation of capital and new investments and are among the factors analyzed in making performance-based compensation decisions for key personnel. These measures exclude certain expenses that are required underU.S. GAAP.Grid Dynamics excludes these items because they are not part of core operations or, in the case of stock-based compensation, non-cash expenses that are determined based in part onGrid Dynamics' underlying performance.Grid Dynamics believes these supplemental performance measurements are useful in evaluating operating performance, as they are similar to measures reported by its public industry peers and those regularly used by security analysts, investors and other interested parties in analyzing operating performance and prospects. These non-GAAP financial measures are not intended to be a substitute for any GAAP financial measures and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare our performance to that of other companies.Grid Dynamics compensates for these limitations by providing investors and other users of its financial information a reconciliation of non-GAAP measures to the related GAAP financial measures.Grid Dynamics encourages investors and others to review its financial information in its entirety, not to rely on any single financial measure and to view its non-GAAP measures in conjunction with GAAP financial measures.
•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
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toGrid 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 ordinary shares outstanding for the period.
The following table presents the reconciliation of
Year ended December 31,
2021 2020 2019
(in thousands)
GAAP net income/(loss) $ (7,700) $ (12,599) $ 10,807
Adjusted for:
Depreciation and amortization 5,049 2,672
2,311
Provision/(benefit) for income taxes 5,248 (2,613) 4,642 Impairment of goodwill - - 139 Stock-based compensation 33,036 20,006 2,441
Transaction costs and costs related to transformation(1) 942 4,407
3,145
Restructuring(2) - 912 - Other (income)/expenses, net(3) 2,502 (236) 176 Non-GAAP EBITDA$ 39,077 $ 12,549 $ 23,661 __________________________ (1)Transaction and transformation-related costs include, when applicable, external deal costs, transaction-related professional fees, transaction-related retention bonuses, which are allocated proportionally across cost of revenue, engineering, research and development, sales and marketing and general and administrative expenses as well as other transaction-related costs including integration expenses consisting of outside professional and consulting services. (2)During the year endedDecember 31, 2020 , we implemented a cost reduction plan and incurred restructuring and severance charges of$0.9 million , primarily resulting from a reduction in workforce and other charges. We did not incur any restructuring expenses during the year endedDecember 31, 2021 . (3)Other (income)/expenses consist primarily of losses and gains on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses and other income consists primarily of interest on cash held at banks. 39
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The following table presents a reconciliation ofGrid Dynamics' Non-GAAP Diluted EPS and its Non-GAAP Net Income to its consolidated net income/(loss) for the annual periods indicated: Year ended December 31, 2021 2020 2019 (in thousands, except per share data) Net income/(loss)$ (7,700) $ (12,599) $ 10,807 Adjusted for: Impairment of goodwill - - 139 Stock-based compensation 33,036 20,006 2,441 Transaction-related costs(1) 942 4,407 3,145 Restructuring(2) - 912 - Other (income)/expenses, net(3) 2,502 (236) 176 Tax impact of non-GAAP adjustments(4) (4,620) (5,477) (1,221) Non-GAAP Net Income$ 24,160 $ 7,013 $ 15,487 Number of shares used in the Non-GAAP Diluted EPS 67,305 48,778 21,122 Non-GAAP Diluted EPS(5)$ 0.36
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(1)Transaction and transformation-related costs include, when applicable, external deal costs, transaction-related professional fees, transaction-related retention bonuses, which are allocated proportionally across cost of revenue, engineering, research and development, sales and marketing and general and administrative expenses as well as other transaction-related costs including integration expenses consisting of outside professional and consulting services. (2)During the year endedDecember 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 year endedDecember 31, 2021 . (3)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. (4)Reflects the estimated tax impact of the non-GAAP adjustments presented in the table. (5)Non-GAAP Diluted EPS is calculated by dividing Non-GAAP Net Income/(Loss) by the diluted weighted-average shares outstanding. From the three months endedDecember 31, 2020 onwards, we have chosen to calculate its Non-GAAP Diluted EPS based on the diluted share count even in Net GAAP Loss situation. This methodology differs from the prior approach when we applied the basic share count in situations of a Net GAAP Loss and a positive Non-GAAP Net Income. Management believes that the new methodology provides better representation of the company's financial results as it takes into account the significance of the dilutive impact from any outstanding equity instruments in a GAAP Net Loss/Non-GAAP Net Income situation.
Key components of income and expenses
Income
Grid Dynamics generates revenue by providing focused and complex services in the area of software engineering, development, integration, testing, and operations of digital services.Grid Dynamics provides services mainly on a time and materials basis and, to a much lesser extent, on a fixed-fee basis. While fixed-fee contracts currently represent an immaterial portion of overall revenue for the periods presented,Grid Dynamics expects proportionate revenue from fixed-fee contracts to increase in future periods. On a time and materials basis,Grid Dynamics earns and recognizes revenue as hours and costs are incurred. 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. For both time and materials contracts and fixed fee contracts, hourly rates are typically determined based on the location and experience ofGrid Dynamics personnel selected to perform the service and are negotiated for each contract or statement of work, as the case may be. For fixed fee contracts, the fixed fee generally remains constant for the contracted project period unless the customer directs a change in scope of project work or requests additionalGrid Dynamics employees in excess of those scheduled for a specific project. In select cases,Grid Dynamics offers volume discounts or early settlement discounts, which are recorded as contra-revenue items. Volume discounts apply once the customer reaches certain contractual spend thresholds. Early settlement discounts are 40
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issued based on the time of payment by the customer. If there is uncertainty about project completion or receipt of payment for services provided, revenue is deferred until the uncertainty is sufficiently resolved.
Costs and expenses
Cost of Revenue. 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. 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. Sales and Marketing. Sales and marketing expenses consist primarily of expenses associated with promoting and sellingGrid Dynamics' services and consists mainly of salaries and employee benefits, including performance bonuses and stock-based compensation, marketing events, travel, as well as depreciation and amortization expenses related to such activities. General and Administrative. 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 expenses include a substantial majority ofGrid Dynamics' stock-based compensation costs for the financial periods discussed herein. Provision for Income Taxes.Grid Dynamics follows the asset and liability method of accounting for income taxes, whereby deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. The provision for income taxes reflects income earned and taxed in the variousU.S. federal and state and non-U.S. jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.Grid Dynamics' effective tax rate was (214.0)%, 17.2%, and 30.1% in the years endedDecember 31, 2021 , 2020 and 2019, respectively. The differences in effective tax rate between the years endedDecember 31, 2021 and 2020 and 2019 were attributable mainly to stock based compensation excess tax benefit, partially offset by Section162(m) compensation deduction limitations. 41
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Operating results
Year ended
The following table presents a summary of the
Year ended December 31, Change
2021 2020 Dollars Percentage
(in thousands, except percentages)
Revenue $ 211,280 $ 111,283 $ 99,997 89.9 %
Cost of revenue 123,552 69,662 53,890 77.4 %
Gross profit 87,728 41,621 46,107 110.8 %
Engineering, research, and development 8,459 9,311 (852) (9.2) %
Sales and marketing 14,457 10,051 4,406 43.8 %
General and administrative 64,762 37,707 27,055 71.8 %
Total operating expense 87,678 57,069 30,609 53.6 %
Income/(loss) from operations 50 (15,448) 15,498 (100.3) %
Other income/(expenses), net (2,502) 236 (2,738) (1,160.2) %
Loss before income taxes (2,452) (15,212) 12,760 (83.9) %
Provision/(benefit) for income taxes 5,248 (2,613) 7,861 (300.8) %
Net loss $ (7,700) $ (12,599) $ 4,899 (38.9) %
Foreign currency translation adjustments, net of
tax (122) (4) (118) 2,950.0 %
Comprehensive loss $ (7,822) 0 $ (12,603) $ 4,781 (37.9) %
Revenues by Vertical. 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". 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,
2021 2020 2019
% of revenue % of revenue % of revenue
(dollars in thousands)
Tech, Media and Telecom$ 67,689 32.0 %$ 45,362 40.8 %$ 32,337 27.3 % Retail 61,717 29.2 % 33,975 30.5 % 67,367 56.9 % Finance 17,515 8.3 % 13,589 12.2 % 12,479 10.6 % CPG/Manufacturing 43,461 20.6 % 14,202 12.8 % 4,850 4.1 % Other 20,898 9.9 % 4,155 3.7 % 1,293 1.1 % Total$ 211,280 100.0 %$ 111,283 100.0 %$ 118,326 100.0 % Revenue. Revenue increased by$100.0 million , or 89.9%, to$211.3 million in 2021 from$111.3 million in 2020. In 2021, we witnessed growth across all our verticals in comparison to 2020. Additionally, our Retail vertical, which declined in 2020 in comparison to 2019, witnessed increase in 2021. Growth was also driven by contributions from our acquisitions ofDaxx and Tacit which we acquired in December of 2020 and May of 2021, respectively. For the year endedDecember 31, 2021 , retail revenues were$61.7 million , up from$34.0 million in the same period a year ago. The 81.7% year-over-year increase in retail revenues was driven by combination of factors that include adding new customers and increase in revenue from the existing customers. Additionally,Grid Dynamics' top ten customers contributed$127.6 million and$87.2 million to revenue for the years endedDecember 31, 2021 and 2020, respectively, in the aggregate accounting for$40.4 million of the increase. The 42
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remainder of the other industry verticals increase reflected growth in revenue from new customers (i.e., customers for whichGrid Dynamics performed services for the first time during the period) and other existing customers. Cost of Revenue and Gross Profit. Cost of revenue increased by$53.9 million , or 77.4%, to$123.6 million in 2021 from$69.7 million in 2020 largely from increased costs of personnel to support higher revenue offset by lower expenses, such as travel related expenses and retention bonuses. Gross profit increased by$46.1 million , or 110.8%, to$87.7 million in 2021 from$41.6 million in 2020. Gross margin (gross profit as a percentage of revenue) increased to 41.5% in the year endedDecember 31, 2021 from 37.4% in the year endedDecember 31, 2020 . The gross margin increase was attributable to a combination of increased levels of business resulting in higher revenue, favorable mix-shift towards offshore delivery locations, and improving engineering workforce utilization. Engineering, Research and Development. Engineering, research and development expenses decreased by$(0.9) million to$8.5 million in the year endedDecember 31, 2021 , a (9.2)% decrease from$9.3 million in the year endedDecember 31, 2020 . The decrease in R&D expenses was largely due to the wind down of R&D programs initiated during the period of the pandemic in 2020 and their replacement with the new R&D initiatives. Sales and Marketing. Sales and marketing expenses increased by$4.4 million , or 43.8%, to$14.5 million in the year endedDecember 31, 2021 from$10.1 million in the year endedDecember 31, 2020 . Sales and marketing expenses accounted for 6.8% ofGrid Dynamics' revenue in the year endedDecember 31, 2021 compared to 9.0% in the year endedDecember 31, 2020 , a decrease of (2.2) percentage points. The increase was due mainly to the increased personnel costs associated with the expansion activities both on the sales and marketing fronts. Additionally, the acquisition of Tacit partially contributed to the increase in the year endedDecember 31, 2021 in comparison to the year endedDecember 31, 2020 . General and Administrative. General and administrative expenses increased by$27.1 million , or 71.8%, to$64.8 million in the year endedDecember 31, 2021 from$37.7 million in the year endedDecember 31, 2020 . Increased stock-based compensation accounted for approximately$12.6 million of the increase. The remaining portion of the increase was due mainly to costs associated with expanding our operations that required increased levels of hiring along with investments in infrastructure and facilities to support our increased headcount. Additionally our acquisitions ofDaxx and Tacit contributed to the increase. As a result, general and administrative expenses accounted for 30.7% ofGrid Dynamics' revenue in the year endedDecember 31, 2021 , a decrease of (3.2) percentage points from 33.9% in the year endedDecember 31, 2020 . Other income/(expenses), net. Other net income/(expenses) decreased to$(2.5) million for the year endedDecember 31, 2021 from$0.2 million for the year endedDecember 31, 2020 , mainly due to changes in the fair value of private warrants of$1.0 million , adjustment to the finalDaxx earnout of$0.4 million in the third quarter of 2021, and fair value adjustment of Tacit earnout of$1.0 million in the fourth quarter of 2021. Provision/(benefit) for Income Tax. Provision/(benefit) for income tax was$5.2 million in the year endedDecember 31, 2021 compared to$(2.6) million in the year endedDecember 31, 2020 . The effective tax rate decreased by 231.21% between periods. See "-Key Components of Revenue and Expenses-Costs and Expenses-Provision for Income Taxes.
Net income/(loss). Net loss decreased to
for the reasons mentioned above.
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Year ended
The following table presents a summary of the
Year ended December 31, Change
2020 2019 Dollars Percentage
(dollars in thousands, except percentages)
Revenue $ 111,283 $ 118,326 $ (7,043) (6.0) %
Cost of revenue 69,662 70,090 (428) (0.6) %
Gross profit 41,621 48,236 (6,615) (13.7) %
Engineering, research, and development 9,311 4,346 4,965 114.2 %
Sales and marketing 10,051 6,947 3,104 44.7 %
General and administrative 37,707 21,318 16,389 76.9 %
Total operating expense 57,069 32,611 24,458 75.0 %
Income from operations (15,448) 15,625 (31,073) (198.9) %
Other income/(expenses), net 236 (176) 412 (234.1) %
Income before income taxes (15,212) 15,449 (30,661) (198.5) %
Provision/(benefit) for income taxes (2,613) 4,642 (7,255) (156.3) %
Net Income $ (12,599) $ 10,807 $ (23,406) (216.6) %
Foreign currency translation adjustments, net of
tax (4) - (4) n.m.
Comprehensive loss $ (12,603) $ 10,807 $ (23,410) (216.6) %
Revenue. Revenue decreased by $(7.0) million , or (6.0)%, to $111.3 million in
2020 from $118.3 million in 2019. The key reason for the year-over-year decline
was the decline in revenues from Retail customers impacted by the COVID-19
pandemic. This decline in Retail business was offset by increase in revenue from
other industry verticals such as TMT, CPG/Manufacturing, and Other. For the year
ended December 31, 2020 , retail revenues were $34.0 million , down from $67.4
million in the same period a year ago. The 50% year-over-year decline in retail
revenues was partially offset by revenues of the other segments that, on a
combined basis, grew from $51.0 million in the year ended December 31, 2019 to
$77.3 million in the year ended December 31, 2020 . Additionally, Grid Dynamics'
top ten customers contributed $87.2 million and $102.6 million to revenue for
the years ended December 31, 2020 and 2019, respectively, in the aggregate
accounting for $15.4 million of the decrease. The remainder of the other
industry verticals increase reflected growth in revenue from new customers
(i.e., customers for which Grid Dynamics performed services for the first time
during the period) and other existing customers.
Revenue cost and gross profit. Cost of sales decreased by
Gross profit decreased by$(6.6) million , or (13.7)%, to$41.6 million in 2020 from$48.2 million in 2019. Gross margin (gross profit as a percentage of revenue) decreased by 3.4 percentage points to 37.4% in the year endedDecember 31, 2020 from 40.8% in the year endedDecember 31, 2019 . The gross margin decline was attributable to a combination of increased costs associated with stock-based compensation and retention bonuses resulting from the Business Combination and lower levels of revenue in the year endedDecember 31, 2020 due to the impacts of the ongoing COVID-19 pandemic. Engineering, Research and Development. Engineering, research and development expenses increased by$5.0 million to$9.3 million in the year endedDecember 31, 2020 , a 114.2% increase from$4.3 million in the year endedDecember 31, 2019 . The increase was primarily due to a combination of enhanced efforts around engineering and development projects,Grid Dynamics' efforts to develop its solutions and expertise, reallocation of delivery personnel to strategic R&D initiatives, costs associated with stock-based compensation, and retention bonuses resulting from the Business Combination. Sales and Marketing. Sales and marketing expenses increased by$3.1 million , or 44.7%, to$10.1 million in the year endedDecember 31, 2020 from$6.9 million in the year endedDecember 31, 2019 . Sales and marketing expenses accounted for 9.0% ofGrid Dynamics' revenue in the year endedDecember 31, 2020 compared to 5.9% in the year endedDecember 31, 2019 , an increase of 3.1 percentage points. The increase was due mainly to the increased costs associated with stock-based compensation and retention bonuses resulting from the Business Combination and partially offset by decrease in marketing and sales events due to the COVID-19 pandemic. 44
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General and Administrative. General and administrative expenses increased by$16.4 million , or 76.9%, to$37.7 million in the year endedDecember 31, 2020 from$21.3 million in the year endedDecember 31, 2019 . Increased stock-based compensation accounted for approximately$17,565 million of the increase. The remaining portion of the increase was due mainly to the retention bonuses resulting from the Business Combination. As a result, general and administrative expenses accounted for 33.9% ofGrid Dynamics' revenue in the year endedDecember 31, 2020 , an increase of 15.9 percentage points from 18.0% in the year endedDecember 31, 2019 .
Other income/(expense), net. Net other income/(expense) increased to
Provision/(benefit) for income tax. The provision/(benefit) for income tax was
Net Income/(loss). Net income/(loss) decreased to$(12.6) million in the year endedDecember 31, 2020 from$10.8 million in the year endedDecember 31, 2019 for the reasons discussed above.
Cash 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.Grid Dynamics' current liquidity needs relate mainly to compensation and benefits ofGrid 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.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$144.4 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. However, ifGrid 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 ofGrid Dynamics' control and may not be available on terms acceptable toGrid Dynamics' management or at all. As ofDecember 31, 2021 ,Grid Dynamics had cash and cash equivalents amounting to$144.4 million (compared to$112.7 million atDecember 31, 2020 ). Of this amount,$8.5 million was held inRussia ,Ukraine ,Poland ,Serbia ,the Netherlands ,UK ,Mexico ,Moldova , andSingapore (compared to$3.1 million as ofDecember 31, 2020 ). As many ofGrid Dynamics' assets, operations and employees are located in these countries,Grid Dynamics expects that all such cash and cash equivalents will be used to fund future operating needs. In a scenario thatGrid Dynamics decides to remit funds from these countries tothe United States in the future, whether in the form of inter-company dividends or otherwise, the company may be subject to foreign withholding taxes. In addition,Grid Dynamics' cash in banks inRussia ,Ukraine ,Moldova ,Serbia , andMexico may be subject to other risks, as the banking sector in some of these countries are subject to periodic instability, may be subject to sanctions, and may be subject to capital adequacy and other banking standards that are substantially less rigorous than those ofthe United States . This is particularly true given the significant military action againstUkraine launched byRussia and the sanctions on certain Russian banks that have been imposed as a result, although this would not materially disrupt our liquidity as a whole.
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The following table summarizesGrid Dynamics' cash flows for the annual periods indicated: Year ended December 31, 2021 2020 2019 (in thousands) Net cash provided by operating activities$ 17,973 $ 5,932 $ 12,534 Net cash used in investing activities (35,366) (18,339) (2,811) Net cash provided by financing activities 49,134 82,967 14,604 Effect of exchange rate changes on cash and cash equivalents (122) (4) - Net increase in cash and cash equivalents 31,619 70,556 24,327 Cash, cash equivalents (beginning) 112,745 42,189 17,862 Cash, cash equivalents (end)$ 144,364 $ 112,745 $ 42,189 Operating Activities. Net cash provided by operating activities during the year endedDecember 31, 2021 increased by$12.0 million , or 203.0%, to$18.0 million from$5.9 in the same period in 2020, driven by higher cash operating profit (before non-cash depreciation and amortization and stock-based compensation charges). The key reasons for the increase in cash operating profit in year endedDecember 31, 2021 in comparison to the year endedDecember 31, 2020 , were higher levels of revenue and greater billable utilization resulting in higher profitability. Net cash provided by operating activities during the year endedDecember 31, 2020 decreased by$6.6 million , or 52.7%, to$5.9 million from$12.5 million in the same period in 2019, driven by lower cash operating profit (before non-cash depreciation and amortization and stock-based compensation charges). The key reasons for the decline in net cash provided by operating activities were retention bonuses paid out to employees due to the successful Business Combination onMarch 5, 2020 , lower level of revenues due to the impact of the COVID-19 pandemic in the period of March throughSeptember 30, 2020 , and higher costs associated with our delivery centers. Investing Activities. Net cash used in investing activities during the year endedDecember 31, 2021 was$(35.4) million compared to$(18.3) million in cash used in the same period in 2020, due primarily to cash paid for the Tacit acquisition in the year endedDecember 31, 2021 as well as capital expenditures for computer hardware and related equipment in both periods. Net cash used in investing activities during the year endedDecember 31, 2020 was$18.3 million compared to$2.8 million in cash used in the same period in 2019, due primarily to cash paid for theDaxx acquisition in the year endedDecember 31, 2020 as well as capital expenditures for computer hardware and related equipment in both periods.
Fundraising activities. Net cash provided by financing activities was
Net cash provided by financing activities was
Off-balance sheet arrangements and commitments
Except for its credit support for the letter of credit and balances on corporate credit cards,Grid Dynamics does not have any off-balance sheet arrangements of the kind required to be disclosed underSEC rules and does not have any off-balance sheet or contingent commitments, except as described elsewhere with respect to operating leases. As a result of analysis related toGrid Dynamics' functional control of subcontractorGD Ukraine, LLC , the subcontractor was determined to be a variable interest entity ("VIE") and is therefore consolidated inGrid 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.
Significant 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 withU.S. GAAP. Preparation of the financial statements requiresGrid Dynamics to make judgments, estimates and assumptions that impact the reported amount of revenue 46
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and expenses, assets and liabilities and the disclosure of contingent assets and liabilities.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 onGrid Dynamics' consolidated financial statements.Grid Dynamics' critical accounting policies are described in Note 2 to its consolidated financial statements.
Income
Grid Dynamics derives its revenue 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 increasing, although not significant historically, will comprise a more significant portion of revenue in future periods. For all contracts,Grid Dynamics uses master agreements that govern the overall relevant terms and conditions of the business arrangement and executes statements of work pursuant to such agreements to execute specific projects.Grid Dynamics recognizes revenue for services over time as hours are incurred byGrid Dynamics' engineering personnel. 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. Early settlement discounts are issued contingent upon the timing of the payment from the customer. 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.
Income taxes
The determination of the provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The provision for income taxes reflects a combination of income earned and taxed in the variousU.S. federal and state and non-U.S. jurisdictions. Changes in tax law, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings across taxing jurisdictions all affect the overall effective tax rate. 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. Management considers all available evidence, both positive and negative, in determining whether a valuation allowance is required, including prior earnings history, the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback and carryforward periods of tax attributes and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset in making this assessment. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified.Grid Dynamics evaluates for uncertain tax positions at each balance sheet date. 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.Grid Dynamics' policy for interest and/or penalties related to underpayments of income taxes is to include interest and penalties in provision for income tax.
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. 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. 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 contingent consideration liabilities using
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consideration. These changes, if any, are recorded in Other income/(expense), net, in the Company’s consolidated statements of earnings.
Stock-based compensation
Grid Dynamics has in the past issued, currently issues and intends to continue issuing incentive stock options and non-qualifying stock options, performance stock units and restricted stock units. WhileGrid 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.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. The model requires management to make a number of key assumptions, including expected volatility, expected term, risk free interest rate and expected dividends. AsGrid 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 risk free rate for the expected term of the option is based on theU.S. Treasury yield curve at the date of grant. The expected term is estimated using the simplified method, which takes into account vesting and contractual term.Grid Dynamics' options grants generally vest over a 4-year period and from time to timeGrid Dynamics makes grants with a portion vesting at the time of grant. 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 byGrid Dynamics' Board of Directors.Grid Dynamics amortizes the grant date fair value of all stock-based compensation awards over the employee's requisite service period for the entire award on a straight-line basis, which is generally the vesting period. For an award with graded vesting that is subject only to a service condition (e.g., time-based vesting),Grid Dynamics uses the straight-line attribution method under ASC 718, under which it recognizes compensation cost on a straight-line basis over the total requisite service period for the entire award. Additionally,Grid Dynamics applies the "floor" concept, so that the amount of compensation cost that is recognized as of any date is at least equal to the grant-date fair value of the vested portion of the award on that date. In other words, if the straight-line expense recognized to date is less than the grant date fair value of the award that is legally vested at that date (for example, as a result of a portion of a grant vesting at the grant date),Grid Dynamics will increase its recognized expense to at least equal the fair value of the vested amount. The fair market value ofGrid Dynamics stock is determined based on the closing price on NASDAQ on the measurement date. For more detailed information aboutGrid Dynamics' historical and outstanding grants and its valuation of its stock-based compensation and awards, see Note 13 to the audited consolidated financial statements included elsewhere in this Annual Report.
Accounting Election for Emerging Growth Companies
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 ("JOBS
Act") exempts emerging growth companies from being required to comply with new
or revised financial accounting standards until private companies are required
to comply with the new or revised financial accounting standards. The JOBS Act
provides that a company can choose not to take advantage of the extended
transition period and comply with the requirements that apply to non-emerging
growth companies and any such election to not to take advantage of the extended
transition period is irrevocable. Prior to the Business Combination, ChaSerg was
an "emerging growth company" as defined in Section 2(a) of the Securities Act
and has elected to take advantage of the benefits of this extended transition
period. Following the consummation of the Business Combination, Grid Dynamics
remains an emerging growth company and continues to take advantage of the
benefits of the extended transition period.
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted accounting pronouncements are described in Note 2 to
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