# GRID DYNAMICS HOLDINGS, INC. (GDYN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GRID DYNAMICS HOLDINGS, INC.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1743725/000162828023005637/gdyn-20221231.htm
Accession: 0001628280-23-005637
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GDYN/
All MD&A years: /company/GDYN/mda/
Previous year: /company/GDYN/mda/fy2021/ (FY 2021)
Next year: /company/GDYN/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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in 2006 in Menlo Park, California, as a grid and cloud consultancy firm, Grid Dynamics has been on the forefront of digital transformation, working on big ideas like cloud computing, NOSQL, DevOps, microservices, big data and AI, and quickly established itself as a provider of choice for technology and digital enterprise companies.

As a leading global digital engineering and IT services provider with its headquarters in Silicon Valley and engineering centers in the United States, Mexico, India, Jamaica and multiple European countries, Grid Dynamics’ core business is to deliver focused and complex technical consulting, software design, development, testing and internet service operations. Grid Dynamics also helps organizations become more agile and create innovative digital products and experiences through its deep expertise in emerging technology, such as AI, data science, cloud computing, big data and DevOps, lean software development practices and a high-performance product culture. Grid Dynamics believes that the key to its success is a business culture that puts products over projects, client success over contract terms and real business results over pure technical innovation. By leveraging Grid Dynamics’ proprietary processes optimized for innovation, emphasis on talent development and technical expertise, Grid Dynamics has been able to achieve significant growth.

Fiscal Year Highlights

The following table sets forth a summary of Grid Dynamics’ financial results for the annual periods indicated:

[[GREPCENT_TABLE]]
[["","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","%","","$","111,283","","","100.0","%"],["Gross profit","120,590","","","38.8","%","","87,728","","","41.5","%","","41,621","","","37.4","%"],["Income/(loss) from operations","(21,008)","","","(6.8)","%","","50","","","\u2014","%","","(15,448)","","","(13.9)","%"],["Net loss","(29,214)","","","(9.4)","%","","(7,700)","","","(3.6)","%","","(12,599)","","","(11.3)","%"],["Diluted EPS","$","(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"]]
[[/GREPCENT_TABLE]]

__________________________

(1)Non-GAAP EBITDA, Non-GAAP Net Income and Non-GAAP Diluted EPS are non-GAAP financial measures. See “Non-GAAP Measures” below for additional information and reconciliations to the most directly comparable GAAP financial measures.

In the twelve months ended December 31, 2022 our revenues were $310.5 million, which included $14.6 million from our recent acquisitions. Organic revenue of $295.9 million for the twelve months ended December 31, 2022 was up from $166.3 million in the same period of 2021. The key reasons for the organic year-over-year increase of 77.9% were increased demand for our services by our customers resulting in increased billable hours combined with revenue contribution from new customers.

In the twelve months ended December 31, 2022, our GAAP Net loss was $(29.2) million, or (9.4)% of revenue and Non-GAAP EBITDA was $58.2 million, or 18.7% of revenue. This was up from GAAP Net loss of $(7.7) million, or (3.6)% of revenue and and up from $39.1 million or 18.5% of revenue in Non-GAAP EBITDA in the twelve months ended December 31, 2021. The increase in GAAP Net Loss was due to a combination of increased operating expenses, stock based compensation, and geographic reorganization costs. The increase in non-GAAP EBITDA on a year-over-year basis was due to a combination of higher levels of revenue and gross profit.

Towards the second half of 2022 our business was impacted by some of our customers being impacted by the macroeconomic weakness. Inflation rates in the US have increased to levels not seen in several years, and this in turn has impacted the spending patterns of some of our customers.

Acquisition of Mutual Mobile Inc.

On December 23, 2022, we acquired Mutual Mobile Inc. ("Mutual Mobile"), company based out of Austin, Texas and with delivery operations in India. Mutual Mobile offers end-to-end design and development of next-generation applications, combining mobile, augmented/virtual/mixed reality, and cloud edge / IoT practices. It has developed wide-ranging, technical

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solutions for prominent global brands across numerous industry verticals, with Technology, Healthcare, Automotive, and Financial Services representing the top verticals by revenue. The acquisition of Mutual Mobile enhances our skills in the area of mobile technologies and UX expertise as well as accelerates our strategic expansion to India and supports our commitment towards offering our customers a global engineering and delivery platform.

Business Update Regarding Military Action in Ukraine

On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region has resulted and is likely to continue. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the U.S., Canada, the United Kingdom, the European Union, and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and certain regions of Ukraine, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. For example, in response to increased sanctions, Russia could attempt to take control of assets in Ukraine of companies registered in the United States, such as Grid Dynamics. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt our delivery of services, impair our ability to complete financial or banking transactions, cause us to continue to shift all or portions of our work occurring in the region to other countries, and may restrict our ability to engage in certain projects in the region or involving certain customers in the region.

We are actively monitoring the security of our personnel and the stability of our infrastructure, including communications and internet availability. We executed our business continuity plan and have adapted to developments as they occur to protect the safety of our people and handle potential impacts to our delivery infrastructure. This includes moving affected employees to safer locations in Western Ukraine and, where permissible, outside Ukraine, and reallocating work to other geographies within our global footprint. We are actively working with our personnel and with our customers to meet their needs and to ensure smooth delivery of services.

In April 2022, Grid Dynamics also announced it would cease remaining operations in the Russian Federation. We have worked towards the safe and expedient relocation of willing employees and ongoing management of projects to eliminate delivery impact to clients. In addition we announced our expansion to a new European hub with an office in Zug, Switzerland, a new engineering office in Yerevan, Armenia and workforce expansion in India. During the three months ended June 30, 2022, we relocated the majority of our Russia based employees outside of Russia. As of 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. Prolonged unrest, military activities, expansion of hostilities, or broad-based sanctions, could have a material adverse effect on our operations and business outlook. For example, if Russia were to invade other countries, such as Moldova, it could adversely affect our business, including preventing the relocation of our employees from Russia. In addition, the current geopolitical situation in Serbia creates additional uncertainty in the region, and could adversely affect our business.

The information contained in this section is accurate as of the date hereof, but may become outdated due to changing circumstances beyond our present awareness or control.

For additional information on the various risks posed by the military action in Ukraine and the impact in the region, as well as other macroeconomic factors affecting our business, please read “Part I. Item 1A. Risk Factors” included in this Annual Report on Form 10-K.

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. 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.

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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:

[[GREPCENT_TABLE]]
[["","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","","","\u2014","","","\u2014"],["Total","3,798","","","3,274","","","1,894"]]
[[/GREPCENT_TABLE]]

Attrition

There is competition for IT professionals in the regions in which Grid Dynamics operates, and any increase in such competition may adversely impact Grid Dynamics’ business and gross profit margins. Employee retention is one of Grid Dynamics’ main priorities and is a key driver of operational efficiency. Grid Dynamics seeks to retain top talent by providing the opportunity to work on exciting, cutting-edge projects for high profile clients, a flexible work environment and training and development programs. Grid Dynamics’ management targets a voluntary attrition rate no higher than the mid-teen percentages, in line with the industry.

Hours and Utilization

As most of Grid Dynamics’ customer projects are performed and invoiced on a time and materials basis, Grid Dynamics’ management tracks and projects billable hours as an indicator of business volume and corresponding resource needs for IT professionals. To maintain its gross profit margins, Grid Dynamics must effectively utilize its IT professionals, which depends on its ability to integrate and train new personnel, to efficiently transition personnel from completed projects to new assignments, to forecast customer demand for services and to deploy personnel with appropriate skills and seniority to projects. Grid Dynamics’ management generally tracks utilization with respect to subsets of employees, by location or by project, and calculates the utilization rate for each subset by dividing (x) the aggregate number of billable hours for a period by (y) the aggregate number of total available hours for the same period. Grid Dynamics’ management analyzes and projects utilization to measure the efficiency of its workforce and to inform management’s budget and personnel recruiting decisions.

Customer Concentration

Grid Dynamics’ ability to retain and expand its relationships with existing customers and add new customers are key indicators of its revenue potential. 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. 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.

The following table presents revenues concentration by amount and as a percentage of our revenues for the periods indicated:

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

The following table shows the evolution of Grid Dynamics’ customer base where customers are grouped by revenues recognized for each annual period presented:

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[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

Seasonality

Grid Dynamics’ business is subject to seasonal trends that impact its revenues and profitability between quarters. Some of the factors that influence the seasonal trends include the timing of holidays in the countries in which Grid Dynamics operates and the U.S. retail cycle, which drives the behavior of Grid Dynamics’ retail customers. Excluding the impact of growth in its book of business, Grid Dynamics has historically recorded higher revenue and gross profit in the second and third quarters of each year compared to the first and fourth quarters of each year. In addition, many of Grid Dynamics’ retail sector customers tend to slow their discretionary spending during the holiday sale season, which typically lasts from late November (before Thanksgiving) through late December (after Christmas).

Non-GAAP Measures

To supplement Grid Dynamics’ consolidated financial data presented on a basis consistent with U.S. GAAP, this 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 by Grid Dynamics’ management to evaluate Grid Dynamics’ core operating performance and trends, to make strategic decisions regarding the allocation of capital and new investments and are among the factors analyzed in making performance-based compensation decisions for key personnel. These measures exclude certain expenses that are required under U.S. GAAP. Grid Dynamics excludes these items because they are not part of core operations or, in the case of stock-based compensation, non-cash expenses that are determined based in part on Grid Dynamics’ underlying performance.

Grid Dynamics believes these supplemental performance measurements are useful in evaluating operating performance, as they are similar to measures reported by its public industry peers and those regularly used by security analysts, investors and other interested parties in analyzing operating performance and prospects. These non-GAAP financial measures are not intended to be a substitute for any GAAP financial measures and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare our performance to that of other companies. Grid Dynamics compensates for these limitations by providing investors and other users of its financial information a reconciliation of non-GAAP measures to the related GAAP financial measures. Grid Dynamics encourages investors and others to review its financial information in its entirety, not to rely on any single financial measure and to view its non-GAAP measures in conjunction with GAAP financial measures.

Grid Dynamics defines and calculates its non-GAAP financial measures as follows:

•Non-GAAP EBITDA: Net income/(loss) before interest income/expense, provision for income taxes and depreciation and amortization, and further adjusted for the impact of stock-based compensation expense, transaction-related costs (which include, when applicable, professional fees, retention bonuses, and consulting, legal and advisory costs related to Grid Dynamics’ merger and acquisition and capital-raising activities), impairment of goodwill and other income/expenses, net (which includes mainly interest income and expense, foreign currency transaction losses and gains, fair value adjustments and other miscellaneous expenses), and restructuring costs.

•Non-GAAP Net Income: Net income/(loss) adjusted for the impact of stock-based compensation, impairment of goodwill, transaction-related costs, restructuring costs, other income/expenses, net, and the tax impacts of these adjustments.

•Non-GAAP Diluted EPS: Non-GAAP Net Income, divided by the diluted weighted-average number of common shares outstanding for the period.

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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:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021","","2020"],["","(in thousands)"],["GAAP net loss","$","(29,214)","","","$","(7,700)","","","$","(12,599)"],["Adjusted for:"],["Depreciation and amortization","6,626","","","5,049","","","2,672"],["Provision/(benefit) for income taxes","8,761","","","5,248","","","(2,613)"],["Stock-based compensation","60,968","","","33,036","","","20,006"],["Geographic reorganization(1)","11,023","","","\u2014","","","\u2014"],["Transaction and transformation-related costs(2)","604","","","942","","","4,407"],["Restructuring(3)","\u2014","","","\u2014","","","912"],["Other (income)/expenses, net(4)","(555)","","","2,502","","","(236)"],["Non-GAAP EBITDA","$","58,213","","","$","39,077","","","$","12,549"]]
[[/GREPCENT_TABLE]]

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(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.

(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.

(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.

(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.

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:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021","","2020"],["","(in thousands, except per share data)"],["GAAP net loss","$","(29,214)","","","$","(7,700)","","","$","(12,599)"],["Adjusted for:"],["Stock-based compensation","60,968","","","33,036","","","20,006"],["Geographic reorganization(1)","11,023","","","\u2014","","","\u2014"],["Transaction and transformation-related costs(2)","604","","","942","","","4,407"],["Restructuring(3)","\u2014","","","\u2014","","","912"],["Other (income)/expenses, net(4)","(555)","","","2,502","","","(236)"],["Tax impact of non-GAAP adjustments(5)","(6,199)","","","(4,620)","","","(5,477)"],["Non-GAAP Net Income","$","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"]]
[[/GREPCENT_TABLE]]

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__________________________

(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.

(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.

(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.

(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.

(6)Non-GAAP Diluted EPS is calculated by dividing Non-GAAP Net Income/(Loss) by the diluted weighted-average shares outstanding. From the three months ended December 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 Revenue and Expenses

Revenue

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 not significant portion of overall revenue for the periods presented compared to time and material engagements, 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 of Grid 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 additional Grid 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 issued contingent upon the timing of the payment from 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.

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Sales and Marketing. Sales and marketing expenses consist primarily of expenses associated with promoting and selling Grid 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 of Grid 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 various U.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 (42.8)%, (214.1)%, and 17.2% in the years ended December 31, 2022, 2021 and 2020, respectively. The increase in effective tax rate for the twelve months ended December 31, 2022, as compared to the same periods in 2021 was attributable mainly to Section162 (m) compensation deduction limitations.

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:

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

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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:

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

Revenue. Revenue increased by $99.2 million, or 47.0%, to $310.5 million in 2022 from $211.3 million in 2021. In 2022, we continued to witness growth across all our verticals with four out of five growing over 40.0% during the year. Our Retail vertical, which declined in 2020 due to COVID-19 continues to be our largest contributor to the overall revenue growth adding 38.3% to the annual increase in revenue in 2022. Our revenue during the year ended December 31, 2022 also continued to benefit from the acquisition of Tacit, which was acquired in the first half of 2021.

Cost of Revenue and Gross Profit. Cost of revenue increased by $66.3 million, or 53.7%, to $189.9 million in 2022 from $123.6 million in 2021 largely from increased costs of personnel to support higher revenue.

Gross Profit. Gross profit increased by $32.9 million, or 37.5%, to $120.6 million in 2022 from $87.7 million in 2021. Gross margin (gross profit as a percentage of revenue) increased to 38.8% in the year ended December 31, 2022 from 41.5% in the year ended December 31, 2021. Our gross margins for 2022 were impacted by higher costs associated with the relocation of employees due to the Russian invasion of Ukraine.

Engineering, Research and Development. 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. Sales and marketing expenses increased by $5.4 million, or 37.0%, to $19.8 million in the year ended December 31, 2022 from $14.5 million in the year ended December 31, 2021. 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. 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. 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. The remaining portion of the increase was mainly due to geographic reorganization expenses triggered by the Russian invasion of Ukraine as well as costs associated with expansion of our operations that triggered increased levels of investments in infrastructure and facilities. As a result, general and administrative expenses accounted for 34.1% of Grid Dynamics’ revenue in the year ended December 31, 2022, an increase of 3.4 percentage points from 30.7% in the year ended December 31, 2021.

Other Income/(Expenses), Net. 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. 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. Net loss decreased to $(29.2) million in the year ended December 31, 2022 from $(7.7) million in the year ended December 31, 2021 for the reasons discussed above.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table sets forth a summary of Grid Dynamics’ consolidated results of operations for the years indicated, and the changes between periods:

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Change"],["","2021","","2020","","Dollars","","Percentage"],["","(dollars in thousands, except percentages)"],["Revenue","$","211,280","","","$","111,283","","","$","99,997","","","89.9","%"],["Cost of revenue","123,552","","","69,662","","","53,890","","","77.4","%"],["Gross profit","87,728","","","41,621","","","46,107","","","110.8","%"],["Engineering, research, and development","8,459","","","9,311","","","(852)","","","(9.2)","%"],["Sales and marketing","14,457","","","10,051","","","4,406","","","43.8","%"],["General and administrative","64,762","","","37,707","","","27,055","","","71.8","%"],["Total operating expense","87,678","","","57,069","","","30,609","","","53.6","%"],["Income from operations","50","","","(15,448)","","","15,498","","","(100.3)","%"],["Other income/(expenses), net","(2,502)","","","236","","","(2,738)","","","(1,160.2)","%"],["Income before income taxes","(2,452)","","","(15,212)","","","12,760","","","(83.9)","%"],["Provision/(benefit) for income taxes","5,248","","","(2,613)","","","7,861","","","(300.8)","%"],["Net loss","$","(7,700)","","","$","(12,599)","","","$","4,899","","","(38.9)","%"]]
[[/GREPCENT_TABLE]]

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 of Daxx and Tacit which we acquired in December of 2020 and May of 2021, respectively. For the year ended December 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 ended December 31, 2021 and 2020, respectively, in the aggregate accounting for $40.4 million of the increase. 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.

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 ended December 31, 2021 from 37.4% in the year ended December 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 ended December 31, 2021, a (9.2)% decrease from $9.3 million in the year ended December 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 ended December 31, 2021 from $10.1 million in the year ended December 31, 2020. Sales and marketing expenses accounted for 6.8% of Grid Dynamics’ revenue in the year ended December 31, 2021 compared to 9.0% in the year ended December 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 ended December 31, 2021 in comparison to the year ended December 31, 2020.

General and Administrative. General and administrative expenses increased by $27.1 million, or 71.8%, to $64.8 million in the year ended December 31, 2021 from $37.7 million in the year ended December 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

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facilities to support our increased headcount. Additionally our acquisitions of Daxx and Tacit contributed to the increase. As a result, general and administrative expenses accounted for 30.7% of Grid Dynamics’ revenue in the year ended December 31, 2021, a decrease of (3.2) percentage points from 33.9% in the year ended December 31, 2020.

Other income/(expenses), net. Other net income/(expenses) decreased to $(2.5) million for the year ended December 31, 2021 from $0.2 million for the year ended December 31, 2020, mainly due to changes in the fair value of private warrants of $1.0 million, adjustment to the final Daxx 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 ended December 31, 2021 compared to $(2.6) million in the year ended December 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 loss. Net loss decreased to $(7.7) million in the year ended December 31, 2021 from $(12.6) million in the year ended December 31, 2020 for the reasons discussed above.

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. 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. 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. 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.

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). As many of Grid 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 that Grid Dynamics decides to remit funds from these countries to the 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 in Armenia, Ukraine, Moldova, and Mexico 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 of the United States. This is particularly true given the significant military action against Ukraine launched by Russia 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.

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.

Grid Dynamics does not have any debt outstanding as of December 31, 2022 and did not have any debt outstanding at any balance sheet date presented.

On September 12, 2022 and July 6, 2021, Grid Dynamics closed follow-on public offerings of common stock that resulted in $109.5 million and $78.3 million net proceeds, respectively, after deducting underwriting discounts and commissions. See Note 14 to the consolidated financial statements for further details.

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Cash Flows

The following table summarizes Grid Dynamics’ cash flows for the annual periods indicated:  

[[GREPCENT_TABLE]]
[["","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"]]
[[/GREPCENT_TABLE]]

Operating Activities. 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, 2021 increased by $12.0 million, or 203.0%, to $18.0 million from $5.9 million in the same period in 2020, driven by higher cash operating profit (before non-cash depreciation and amortization and stock-based compensation charges).

Investing 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, 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 ended December 31, 2021 as well as capital expenditures for computer hardware and related equipment in both periods.

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.

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.

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 under SEC 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 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.

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. 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. 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

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Grid Dynamics’ consolidated financial statements. Grid Dynamics’ critical accounting policies are described in Note 2 to its consolidated financial statements.

Revenue

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 by Grid 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 various U.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 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. Changes in financial projections, market risk assumptions, discount rates or probability assumptions with respect to the likelihood of achieving the various earnout criteria may result in a significant change in the fair value of contingent consideration. Such changes, if any, are recorded within Other income/(expense), net in the Company’s consolidated statements of income.

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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. 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. 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. 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 risk free rate for the expected term of the option is based on the U.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 time Grid 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 by Grid 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 of Grid Dynamics stock is determined based on the closing price on NASDAQ on the measurement date. For more detailed information about Grid 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.

Recently Adopted and Issued Accounting Pronouncements

Recently issued and adopted accounting pronouncements are described in Note 2 to Grid Dynamics’ consolidated financial statements.

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