# GRID DYNAMICS HOLDINGS, INC. (GDYN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GRID DYNAMICS HOLDINGS, INC.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1743725/000162828025008723/gdyn-20241231.htm
Accession: 0001628280-25-008723
Filing date: 2025-02-27
Report date: 2024-12-31
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/fy2023/ (FY 2023)
Next year: /company/GDYN/mda/fy2025/ (FY 2025)

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

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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,” the “Company,” “we,” “us,” or “our”) is a leading provider of technology consulting, platform and product engineering, and advanced analytics services. As a forefront provider of technology consulting, platform and product engineering services, and bespoke software development, we draw from over eight years of leadership in Enterprise artificial intelligence (“AI”), coupled with profound expertise in cloud, data, and advanced analytics. Our commitment to engineering excellence, R&D leadership, a co-innovation ethos, globally efficient “Follow-the-Sun” delivery model, and an unwavering “whatever it takes” dedication to client success empower us to solve even the most complex enterprise challenges, facilitating profitable business outcomes and future growth.

Founded in 2006, Grid Dynamics is headquartered in Silicon Valley and has a global talent pool of intellectually curious problem solvers in offices across the U.S., Mexico, Jamaica, Argentina, the U.K., Europe, and India.

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,"],["","2024","","2023","","2022"],["","","","% of revenue","","","","% of revenue","","","","% of revenue"],["","(in thousands, except percentages and per share data)"],["Revenues","$","350,571","","","100.0","%","","$","312,910","","","100.0","%","","$","310,482","","","100.0","%"],["Gross profit","127,005","","","36.2","%","","113,146","","","36.2","%","","120,590","","","38.8","%"],["Loss from operations","(2,105)","","","(0.6)","%","","(5,580)","","","(1.8)","%","","(21,008)","","","(6.8)","%"],["Net income/(loss)","4,041","","","1.2","%","","(1,765)","","","(0.6)","%","","(29,214)","","","(9.4)","%"],["Diluted income/(loss) per share","$","0.05","","","n/a","","$","(0.02)","","","n/a","","(0.42)","","","n/a"],["Non-GAAP Financial information"],["Non-GAAP EBITDA(1)","52,474","","","15.0","%","","44,246","","","14.1","%","","58,213","","","18.7","%"],["Non-GAAP net income(1)","37,222","","","10.6","%","","31,684","","","10.1","%","","38,150","","","12.3","%"],["Non-GAAP diluted EPS(1)","0.47","","","n/a","","0.41","","","n/a","","0.53","","","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.

Our key metrics for the year ended December 31, 2024 are:

•We reported record revenues of $350.6 million, an increase of 12.0% from the previous year.

•Our gross profit margins remained steady at 36.2% in both 2024 and 2023.

•We reduced our loss from operations to $2.1 million, compared to $5.6 million in the previous fiscal year. This was a result of higher revenues partially offset by increased operating expenses.

•In 2024, we recorded net income of $4.0 million, a significant turnaround after four consecutive years of net losses.

•Our Non-GAAP EBITDA grew 18.6%, reaching $52.5 million during the year ended December 31, 2024.

•Our diluted GAAP EPS was $0.05 per share, compared to $(0.02) per share in the year ended December 31, 2023.

•Our diluted Non-GAAP EPS increased to $0.47 per share from $0.41 per share in the year ended December 31, 2023.

The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

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Recent Acquisitions

On October 4, 2024, we acquired Mobile Computing S.A. (“Mobile Computing”), an Argentina-based company offering a comprehensive suite of solutions spanning industries including manufacturing, CPG, and financial services. The acquisition expanded our client portfolio, adding leading companies from the manufacturing, CPG, and financial services industries, and strengthened our expertise in digital product co-creation and UI/UX services.

On September 26, 2024, we acquired JUXT Ltd. (“JUXT”), a UK-based company specializing in data-intensive information systems for banking and other financial institutions, with a particular focus on risk platforms, structured notes, equity derivatives, and financial reporting. The acquisition strengthens our go-to-market positioning in the Finance vertical and opens new opportunities for us across the European market.

Business Update Regarding Military Action in Ukraine

In February 2022, Russian forces launched a significant military action against Ukraine. The impact on Ukraine, coupled with the actions taken by other countries, including sanctions imposed by the U.S., Canada, the U.K., the European Union, and other countries, companies and organizations against officials, individuals, regions, and industries in Russia and certain regions of Ukraine, and each country’s potential response to such sanctions, tensions, and military actions could have a material adverse effect on our operations. For example, Russia could attempt to take control of assets in Ukraine belonging to companies registered in the U.S., 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 continue to actively monitor 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. We continue to actively work with our personnel and with our customers to meet their needs and to ensure smooth delivery of services.

We have no way to predict the progress or outcome of the military action in Ukraine, as the conflict and government responses 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. In addition, the current geopolitical situations in Armenia and separately in Serbia create additional uncertainty in the region, and could adversely affect our business.

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 in the right regions 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. We seek to employ the appropriate professionals globally to support our “Follow-the-Sun” strategy of client service and in locations to optimize our employee costs and expenses. 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,"],["","2024","","2023","","2022"],["Americas (1)","830","","","567","","","521"],["Europe (2)","3,134","","","2,806","","","3,034"],["Rest of the world (3)","766","","","547","","","243"],["Total","4,730","","","3,920","","","3,798"]]
[[/GREPCENT_TABLE]]

__________________________

(1)Americas includes personnel located in North, Central and South America.

(2)Europe includes personnel located in Western, Central and Eastern Europe.

(3)Rest of the world includes personnel located in India and other countries not included in regions described above.

Attrition

There is competition for IT professionals in the regions in which Grid Dynamics operates, and 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 our 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.

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 attract and deploy personnel in the right regions 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. New customers have a direct impact on the Company’s ability to diversify sources of revenue and replace customers that may no longer require its services. At the same time, the Company continuously works towards rationalization of its portfolio of non-strategic customers. This work resulted in a decrease in the total number of customers from 275 in 2023 to 264 in 2024.

Grid Dynamics has a relatively high level of revenue concentration with certain customers and constantly works toward decreasing those levels. During the years ended December 31, 2024 and 2023, one customer accounted for 10% or more of our revenues in each of the periods indicated, compared to two customers during the year ended December 31, 2022. We expect to continue our focus on maintaining our long-term relationships with customers while diversifying our customer base.

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

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[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["","2024","","2023","","2022"],["","(in thousands, except percentages)"],["Top one customer","$","56,261","16.0","%","","$","44,961","14.4","%","","$","39,084","12.6","%"],["Top five customers","$","133,486","38.1","%","","$","115,862","37.0","%","","$","134,955","43.5","%"],["Top ten customers","$","195,180","55.7","%","","$","175,588","56.1","%","","$","185,253","59.7","%"],["Top twenty customers","$","243,716","69.5","%","","$","213,790","68.3","%","","$","225,303","72.6","%"],["Customers below top twenty","$","106,855","30.5","%","","$","99,120","31.7","%","","$","85,180","27.4","%"]]
[[/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:

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["","2024","","2023","","2022"],["$5.0 million","14","","","10","","","13"],["$2.5 - 5.0 million","14","","","11","","","8"],["$1.0 - 2.5 million","22","","","27","","","27"],["$0.5 - 1 million","31","","","32","","","21"]]
[[/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.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”). Preparation of the financial statements requires us to make judgments, estimates and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We consider an accounting judgment, estimate or assumption to be critical when (1) an estimate or assumption is complex in nature or requires a high degree of judgment, and (2) the use of different judgments, estimates and assumptions could have a material impact on our consolidated financial statements. Our significant accounting policies are described in Note 1 in the notes to our consolidated financial statements in this Annual Report on Form 10-K.

Revenues

Determining the amount of revenue to be recognized requires from us significant estimates and judgments, including whether services specified in the agreements are single or distinct performance obligations, whether obligations are satisfied over time or at a point in time and what is the best method to measure our progress to completion.

We derive our revenues through time and materials and fixed fee contracts. Grid Dynamics recognizes revenues 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.

Revenues related to fixed fee contracts are recorded as work is performed based upon actual labor hours incurred and level of effort expended throughout the duration of the contract. The accuracy of revenues recognized for these contracts during the reporting period largely depends on our ability to correctly estimate the total expected efforts required to fulfill the performance obligation. We constantly evaluate our estimates of total efforts required based on available information and experience.

Some of our contracts give rise to variable considerations, including volume discounts. Volume discounts apply once the customer reaches certain contractual spend thresholds. If the consideration promised in a contract includes a variable amount,

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we include estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

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, we consider 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.

We are subject to tax payments and filling of tax returns in various tax jurisdictions. Our tax returns are routinely examined by tax authorities in various countries. Such inspections may result in future tax expenses, interest and penalties. We evaluate for such 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, we measure the amount of tax benefit from the position and record the largest amount of tax benefit that is greater than 50% likely to be realized after settlement with a tax authority. We believe our estimates for uncertain tax positions are appropriate and sufficient. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense.

Business Combinations

We account for business combinations under the acquisition method of accounting, which requires recognition of any assets acquired and liabilities assumed based on their respective fair values. Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill. We use significant management estimates and assumptions as well as available industry data to arrive at the acquisition date fair values of assets acquired and liabilities assumed, especially with respect to intangible assets and contingent consideration granted, if any.

Significant estimates used in the valuation of intangible assets may include, but are not limited to, revenue projections, expected economic life of customer relations and trade names, royalty rates, useful lives and discount rates. The fair value of any contingent consideration is determined using the Monte Carlo model which involves a simulation of future revenues and earnings during the earn-out period using projected financial results adjusted to market risk assumptions, discount rates and probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

We consider our assumptions and estimates used to determine fair values to be reasonable, but any changes due to inherent uncertainty and unpredictability may result in significant differences between actual and estimated results.

Recently Adopted and Issued Accounting Pronouncements

Recently issued and adopted accounting pronouncements are described in Note 1 in the notes to our consolidated financial statements in this Annual Report on Form 10-K.

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Results of Operations

Year Ended December 31, 2024 compared to Year Ended December 31, 2023

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"],["","2024","","2023","","Dollars","","Percentage"],["","(in thousands, except percentages)"],["Revenues","$","350,571","","","$","312,910","","","$","37,661","","","12.0","%"],["Cost of revenue","223,566","","","199,764","","","23,802","","","11.9","%"],["Gross profit","127,005","","","113,146","","","13,859","","","12.2","%"],["Engineering, research, and development","18,347","","","14,741","","","3,606","","","24.5","%"],["Sales and marketing","28,622","","","24,151","","","4,471","","","18.5","%"],["General and administrative","82,141","","","79,834","","","2,307","","","2.9","%"],["Total operating expense","129,110","","","118,726","","","10,384","","","8.7","%"],["Loss from operations","(2,105)","","","(5,580)","","","3,475","","","(62.3)","%"],["Interest and other income, net","13,160","","","10,418","","","2,742","","","26.3","%"],["Income before income taxes","11,055","","","4,838","","","6,217","","","128.5","%"],["Provision for income taxes","7,014","","","6,603","","","411","","","6.2","%"],["Net income/(loss)","$","4,041","","","$","(1,765)","","","$","5,806","","","n.m."]]
[[/GREPCENT_TABLE]]

Revenues

During the year ended December 31, 2024, we generated record revenues of $350.6 million, an increase of 12.0% from the previous year. The growth was driven by a combination of customer expansion across industry verticals and revenues from new acquisitions.

Revenues by Vertical. We assign our customers into one of the main vertical markets or a group of various industries where we have or are increasing our presence, labeled as “verticals.” In the first quarter of 2024, we disaggregated Healthcare and Pharma as a separate vertical due to their growing importance to the Company. 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,"],["","2024","","2023","","2022"],["","","","% of revenue","","","","% of revenue","","","","% of revenue"],["","(in thousands, except percentages)"],["Retail","$","113,957","","","32.5","%","","$","102,551","","","32.8","%","","$","99,681","","","32.1","%"],["Technology, Media and Telecom","95,048","","","27.1","%","","98,830","","","31.6","%","","98,334","","","31.7","%"],["Finance","60,157","","","17.2","%","","28,842","","","9.2","%","","21,893","","","7.1","%"],["CPG/Manufacturing","40,468","","","11.5","%","","42,861","","","13.7","%","","61,216","","","19.7","%"],["Healthcare and Pharma","11,109","","","3.2","%","","13,653","","","4.4","%","","7,711","","","2.5","%"],["Other","29,832","","","8.5","%","","26,173","","","8.3","%","","21,647","","","6.9","%"],["Total","$","350,571","","","100.0","%","","$","312,910","","","100.0","%","","$","310,482","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Retail remained our largest vertical, contributing 32.5% of total revenues during the year ended December 31, 2024. Revenues in this vertical grew by 11.1% over 2023. Growth in the year came from a range of customers operating in the home improvement space, specialty retail, and department stores.

Technology, Media and Telecom (“TMT”), our second largest vertical, experienced a decline of 3.8% over 2023. The year-over-year decline was caused by a more cautious approach to spending and customer-specific factors affecting some of our

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smaller clients largely offset by growth at some of our largest technology customers, resulting in the TMT vertical accounting for 27.1% of total revenues during the year.

During the year ended December 31, 2024, revenues in the Finance vertical doubled, reaching $60.2 million, compared to $28.8 million in the prior year, making it the largest contributor to the overall revenue growth for the period. The strong performance of our Finance vertical was driven by a combination of increased demand from fintech and insurance customers, as well as our recent acquisitions.

Revenues in the CPG and Manufacturing vertical declined by $2.4 million from $42.9 million during the year ended December 31, 2023 to $40.5 million in 2024. These results were largely affected by a more cautionary outlook towards spending and customer-specific factors at some of our customers throughout the first half of the year. At the same time, during the fourth quarter of 2024, we managed to expand the vertical through both increased volume of services provided to existing customers, and new customers added organically and through acquisitions. As a result, the CPG and Manufacturing vertical represented 11.5% of total revenues during 2024, compared to 13.7% in 2023.

Revenues in the Healthcare and Pharma vertical were $11.1 million, or 3.2% of total revenues, during the year ended December 31, 2024, down compared to $13.7 million, or 4.4%, in the prior year.

Lastly, our Other vertical continued to grow with revenues up 14.0% year-over-year. This growth was driven by increased demand from both existing and new customers. The Other vertical contributed approximately 8.0% of total revenues for each of the years ended December 31, 2024 and 2023.

Cost of Revenues and Gross Margin

Our cost of revenues consists primarily of salaries and employee benefits, including performance bonuses and stock-based compensation, and project-related travel expenses of client-serving professionals. Cost of revenues also includes depreciation and amortization expense related to client-serving activities.

During the year ended December 31, 2024, our cost of revenues were $223.6 million, an increase of $23.8 million, or 11.9%, from $199.8 million in 2023. The main driver of this increase was higher headcount to support our revenue growth.

Our gross profit increased $13.9 million to $127.0 million in the year ended December 31, 2024 from $113.1 million during the year ended December 31, 2023. Expressed as a percentage of revenues, our gross margin remained flat during the years ended December 31, 2024 and 2023, reaching 36.2% in both periods.

Engineering, Research and Development

The principal components of engineering, research and development expenses are salaries and employee benefits including performance bonuses and stock-based compensation for personnel engaged in the design and development of solutions, as well as depreciation and amortization expenses related to engineering, research and development activities.

Our engineering, research, and development expenses increased significantly by 24.5% during the year ended December 31, 2024 and reached $18.3 million, compared to $14.7 million last year. Growth of our engineering, research, and development expenses primarily reflects our continued investments in customer delivery operations and internally developed software to support our growth.

Sales and Marketing

Sales and marketing expenses represent spending associated with promoting and selling of our services. These expenses comprise of personnel costs, including performance bonuses and stock-based compensation, marketing events, travel expenses, as well as depreciation and amortization related to such activities.

Our sales and marketing expenses were $28.6 million in the year ended December 31, 2024, an increase of $4.5 million, or 18.5%, from $24.2 million in 2023. Expressed as a percentage of revenues, our sales and marketing expenses were 8.2% and 7.7% during 2024 and 2023, respectively. The increases in our sales and marketing expenses were largely driven by investments in our sales organization including investments in sales personnel and new sales initiatives.

General and Administrative

General and administrative expenses include costs to support the business and consist primarily of administrative personnel and officers’ salaries, employee benefits including performance bonuses, stock-based compensation, legal and audit expenses, insurance, operating lease expenses of office premises and other facility costs, workforce global mobility initiatives,

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restructuring and employee relocations cost not directly related to 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.

General and administrative expenses were $82.1 million in the year ended December 31, 2024, an increase of $2.3 million, or 2.9%, from $79.8 million in the previous year. Growth in general and administrative expenses was mainly caused by increased levels of investments in physical assets and facilities and related depreciation expenses, as well as increased acquisition-related costs and provisions for bad debts, partially offset by lower stock-based compensation costs. Expressed as a percentage of revenues, our general and administrative expenses decreased 2.1 percentage points to 23.4% during 2024, compared to 25.5% in 2023.

Interest and Other Income, Net

Interest and other income, net represents interest earned on our cash and cash equivalents, including money market funds, interest expense related to our borrowings, foreign exchange gains and losses as well as changes in the fair value of contingent considerations and marketable equity securities.

During the year ended December 31, 2024, interest and other income, net increased to $13.2 million from $10.4 million in the prior year. The increase was primarily driven by income generated by our money market funds and an increase in the fair value of our investment in marketable equity securities. Interest and other income, net in 2023 benefited mainly due to the write-off of our contingent consideration liability related to Mutual Mobile and NextSphere acquisitions in the amount of $4.2 million.

Provision for Income Taxes

Grid Dynamics follows the asset and liability method of accounting for income taxes. The provision for income taxes reflects income earned and taxed in the various U.S. federal and state and non-U.S. jurisdictions. 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.

Provision for income taxes was $7.0 million in the year ended December 31, 2024 compared to $6.6 million in the year ended December 31, 2023. The effective tax rate decreased between periods from 136.5% in 2023 to 63.4% in 2024. The difference in the tax provision was mainly attributable to an increase in pre-tax book income.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 includes a discussion and analysis of our financial condition and results of operations between the years ended December 31, 2023 and 2022 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is hereby incorporated herein by reference.

Non-GAAP Measures

To supplement our consolidated financial data presented on a basis consistent with U.S. GAAP, this Annual Report contains certain non-GAAP financial measures, including Non-GAAP EBITDA, Non-GAAP net income and Non-GAAP diluted earnings per share, or Non-GAAP diluted EPS. We have included these non-GAAP financial measures because they are financial measures used by our management to evaluate the Company’s 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. We exclude 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 our underlying performance.

We believe these supplemental performance measurements are useful in evaluating operating performance, as they are similar to measures reported by our 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. We compensate for these limitations by providing investors and other

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users of our financial information a reconciliation of non-GAAP measures to the related GAAP financial measures. We encourage investors and others to review the financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP measures in conjunction with GAAP financial measures.

We define and calculate 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 long-lived assets, restructuring costs, one-time charges, and non-operating income/(expenses), net (which includes mainly foreign currency transaction gains and losses, fair value adjustments and other miscellaneous expenses).

•Non-GAAP net income: Net income/(loss) 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 long-lived assets, restructuring costs, one-time charges, and non-operating income/(expenses), net (which includes mainly foreign currency transaction gains and losses, fair value adjustments and other miscellaneous expenses), and the tax impacts of these adjustments.

•Non-GAAP diluted EPS: Non-GAAP net income, divided by the diluted weighted-average number of diluted shares outstanding for the period.

The following table presents the reconciliation of Non-GAAP EBITDA to consolidated net income/(loss), the most directly comparable GAAP measure, for the annual periods indicated:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2024","","2023","","2022"],["","(in thousands)"],["GAAP net income/(loss)","$","4,041","","","$","(1,765)","","","$","(29,214)"],["Adjusted for:"],["Depreciation and amortization","14,228","","","8,926","","","6,626"],["Provision for income taxes","7,014","","","6,603","","","8,761"],["Stock-based compensation","34,167","","","35,516","","","60,968"],["Geographic reorganization(1)","1,627","","","1,858","","","11,023"],["Transaction and transformation-related costs(2)","3,144","","","2,038","","","604"],["Restructuring(3)","1,413","","","1,488","","","\u2014"],["Interest and other income, net(4)","(13,160)","","","(10,418)","","","(555)"],["Non-GAAP EBITDA","$","52,474","","","$","44,246","","","$","58,213"]]
[[/GREPCENT_TABLE]]

__________________________

(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 revenues, 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)We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprised of severance charges and respective taxes and are included in General and administrative expenses in the Company’s consolidated statement of net income/(loss) and comprehensive income/(loss). We did not incur any restructuring expenses during the year ended December 31, 2022.

(4)Interest and other income, net consist primarily of gains and losses on foreign currency transactions, fair value adjustments, interest on cash held at banks and returns on investments in money-market funds, and other miscellaneous non-operating expenses.

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The following table presents a reconciliation of Non-GAAP diluted EPS and Non-GAAP net income to consolidated net income/(loss) for the annual periods indicated:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2024","","2023","","2022"],["","(in thousands, except per share data)"],["GAAP net income/(loss)","$","4,041","","","$","(1,765)","","","$","(29,214)"],["Adjusted for:"],["Stock-based compensation","34,167","","","35,516","","","60,968"],["Geographic reorganization(1)","1,627","","","1,858","","","11,023"],["Transaction and transformation-related costs(2)","3,144","","","2,038","","","604"],["Restructuring(3)","1,413","","","1,488","","","\u2014"],["Other (income)/expense, net(4)","(2,597)","","","(1,113)","","","1,591"],["Tax impact of non-GAAP adjustments(5)","(4,573)","","","(6,338)","","","(6,822)"],["Non-GAAP net income","$","37,222","","","$","31,684","","","$","38,150"],["Number of shares used in GAAP diluted EPS","79,974","","","75,193","","","69,197"],["GAAP diluted EPS","$","0.05","","","$","(0.02)","","","$","(0.42)"],["Number of shares used in non-GAAP diluted EPS","79,974","","","77,651","","","72,223"],["Non-GAAP diluted EPS","$","0.47","","","$","0.41","","","$","0.53"]]
[[/GREPCENT_TABLE]]

__________________________

(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 revenues, 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)We implemented a restructuring plan during the first quarter of 2023. Our restructuring costs comprised of severance charges and respective taxes and are included in general and administrative expenses in the Company’s consolidated statement of loss and comprehensive income/(loss). We did not incur any restructuring expenses during the year ended December 31, 2022.

(4)Other (income)/expense, net consist primarily of gains and losses on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating income and expense. During the year ended December 31, 2024, the Company started to include interest (income)/expense, net in its calculation of non-GAAP net income. As a result, the Company has adjusted previously reported Other (income)/expense, net adjustment to include interest income, net of $9.3 million and $2.1 million for the years ended December 31, 2023 and 2022, respectively.

(5)Reflects the estimated tax impact of the non-GAAP adjustments presented in the table.

Liquidity and Capital Resources

We measure liquidity in terms of our ability to fund the cash requirements for business operations, including working capital needs, capital expenditures, contractual obligations and other commitments with cash flows from operations and other sources of funding. Our current liquidity needs relate mainly to compensation and benefits of our employees and contractors and capital investments to support our growth and geographical expansion. Our ability to expand and grow our business will depend on many factors including capital expenditure needs and financing sources and our operating cash flows. We may need more cash resources due to changing business conditions or other developments, including investments or acquisitions.

Our principal source of liquidity continues to be cash generated from our operations. From time to time, we seek additional financing by means of follow-on public offerings of our common stock. The latest offering closed on November 14, 2024 and resulted in $107.6 million of net proceeds, after deducting underwriting discounts and commissions. Additionally, on March 15, 2022, we entered into an agreement establishing a revolving credit facility with JPMorgan Chase Bank, N.A., as an administrative agent for the lenders. The revolving credit facility provides us with $30.0 million of available borrowing

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capacity, of which zero was outstanding as of December 31, 2024. We are seeking to extend the term of this facility, which currently expires on March 15, 2025.

See consolidated statement of changes in stockholders’ equity and Note 7 “Debt” in the notes to our consolidated financial statements in this Annual Report on Form 10-K regarding our follow-on offering and debt details.

As of December 31, 2024, Grid Dynamics had cash and cash equivalents amounting to $334.7 million compared to $257.2 million at December 31, 2023. Of these amounts, $38.6 million and $21.2 million, respectively, were held in countries outside the U.S, and included among others the U.K., Switzerland, the Netherlands, India, Poland, Argentina, Mexico, Armenia, Moldova, Serbia and other countries. We did not have any debt outstanding under the revolving credit facility at any balance sheet date presented. We believe that our cash and cash equivalents balance, cash generated from operating activities and proceeds from our recent public offering will be sufficient to fund currently expected levels of operating, investing and financing expenditures for a period of twelve months from the date of this filing. However, if our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing, which may be subject to conditions outside of our control and may not be available on terms acceptable to our management or at all.

See Note 7 “Debt”, Note 8 “Leases” and Note 14 “Commitments and contingencies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K for detailed information on our contractual obligations and commitments.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2024","","2023","","2022"],["","(in thousands)"],["Net cash provided by operating activities","$","30,198","","","$","41,093","","","$","31,652"],["Net cash used in investing activities","(51,301)","","","(25,950)","","","(16,323)"],["Net cash provided by/(used in) financing activities","101,162","","","(16,321)","","","97,758"],["Effect of exchange rate changes on cash and cash equivalents","(2,131)","","","1,676","","","(722)"],["Net increase in cash, cash equivalents and restricted cash","77,928","","","498","","","112,365"],["Cash, cash equivalents and restricted cash (beginning)","257,227","","","256,729","","","144,364"],["Cash, cash equivalents and restricted cash (ending)","$","335,155","","","$","257,227","","","$","256,729"]]
[[/GREPCENT_TABLE]]

Operating Activities. Net cash provided by operating activities during the year ended December 31, 2024 decreased by $10.9 million to $30.2 million from $41.1 million in the prior year, driven by changes in working capital, including the timing of compensation payments to our employees and collections from customers.

Investing Activities. Net cash used in investing activities during the year ended December 31, 2024 almost doubled compared to 2023 and reached $51.3 million. The main driver for the increase in cash spending were closing payments, net of cash acquired, for the JUXT and Mobile Computing acquisitions.

Financing Activities. Net cash provided by financing activities of $101.2 million in the year ended December 31, 2024 was generated by the equity offering in the fourth quarter of 2024, slightly offset by tax withholding obligations due to the issuance of shares in connection with vested stock awards. Cash used in financing activities during the year ended December 31, 2023 was $16.3 million and reflected the tax withholding obligations due to the issuance of shares in connection with vested awards.

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 includes a discussion and analysis of our cash flows between the years ended December 31, 2023 and 2022 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Off-Balance Sheet Arrangements and Commitments

We do not have any material off-balance sheet commitments or contractual arrangements other than those disclosed in Note 8 “Leases” and Note 14 “Commitments and contingencies” in the notes to our consolidated financial statements in this Annual Report on Form 10-K.

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As a result of analysis related to Grid Dynamics’ functional control of its subcontractors one was determined to be a variable interest entity (“VIE”) and is therefore consolidated in Grid Dynamics’ financial statements. The assets and liabilities of this VIE consist primarily of intercompany balances and transactions, all of which have been eliminated in consolidation.

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