Grid Dynamics Holdings, Inc 10-K for FY2020

Grid Dynamics Holdings, Inc. (GDYN)

10-K 2021-03-05 For: 2020-12-31

Added on April 10, 2026

About this 10-K

Grid Dynamics Holdings, Inc filed this 10-K on March 5, 2021, covering the fiscal year ended December 31, 2020 (FY2020).

Headline figures

Fiscal year ended December 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $111.28M; down 6.0% from $118.33M a year earlier
Net loss: $12.6M; compared with net income of $10.81M a year earlier
Diluted EPS: -$0.28; compared with $0.49 a year earlier

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Delaware		83-0632724
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5000 Executive Parkway, Suite 520 San Ramon, CA		94583
(Address of principal executive offices)		(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	GDYN	The NASDAQ Stock Market LLC
Redeemable warrants, exercisable for shares of common stock at an exercise price of $11.50 per share	GDYNW	The NASDAQ Stock Market LLC

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	27
Item 2.	Properties	27
Item 3.	Legal Proceedings	28
Item 4.	Mine Safety Disclosures	28

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	46
Item 9A.	Controls and Procedures	46
Item 9B.	Other Information	46

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	47
Item 11.	Executive Compensation	47
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	47
Item 13.	Certain Relationships and Related Transactions, and Director Independence	47
Item 14.	Principal Accounting Fees and Services	47

PART IV
Item 15.	Exhibit and Financial Statement Schedules	48
Item 16.	Form 10-K Summary	50

	●	our ability to grow and manage growth profitably and retain our key employees;

	●	the expected benefits and effects of strategic acquisitions of business, products or technologies;

	Year ended December 31,
(dollars in thousands, except per share data)	2020					2019					2018
			% of revenue					% of revenue					% of revenue
Tech, Media and Telecom	$	45,362		40.8	%	$	32,337		27.3	%	$	23,485		25.6	%
Retail		33,975		30.5	%		67,367		56.9	%		58,544		63.7	%
Finance		13,589		12.2	%		12,479		10.6	%		8,089		8.8	%
CPG/Manufacturing		14,202		12.8	%		4,850		4.1	%		1,330		1.4	%
Other ⁽¹⁾		4,155		3.7	%		1,293		1.1	%		417		0.5	%
Total	$	111,283		100.0	%	$	118,326		100.0	%	$	91,865		100.0	%

	●	in-house IT departments of Grid Dynamics’ clients and potential clients; and

	●	Daxx primary competitors are Andersen Lab, Ciklum, and SoftServe, Inc., with respect to our Daxx business

	●	less established legal systems and legal ambiguities, inconsistencies and anomalies;

	●	changes in laws and regulations;

	●	competition from companies with more experience in a particular country or with international operations;

	●	civil strife;

	As of December 31,
	2020		2019		2018
United States		259		265		218
Central and Eastern Europe⁽¹⁾		1,143		1,165		926
Total⁽²⁾		1,402		1,430		1,144

(3)	Other (income)/expenses consist primarily of losses and gains on foreign currency transactions, fair value adjustments, and other miscellaneous non-operating expenses and other income consists primarily of interest on cash held at banks.
(4)	Reflects the estimated tax impact of the non-GAAP adjustments presented in the table.
(5)	Non-GAAP Net Income attributable to Earnout Shares is calculated based on the proportion of Earnout Shares outstanding. The number of Earnout Shares outstanding was 0.8 million.

	Year ended December 31,						Change
	2020			2019			Dollars			Percentage
	(in thousands, except percentages)
Revenue	$	111,283		$	118,326		$	(7,043	)		(6.0	)%
Cost of revenue		69,662			70,090			(428	)		(0.6	)%
Gross profit		41,621			48,236			(6,615	)		(13.7	)%
Engineering, research, and development		9,311			4,346			4,965			114.2	%
Sales and marketing		10,051			6,947			3,104			44.7	%
General and administrative		37,707			21,318			16,389			76.9	%
Total operating expense		57,069			32,611			24,458			75.0	%
Income/(loss) from operations		(15,448	)		15,625			(31,073	)		(198.9	)%
Other income/(expenses), net		236			(176	)		412			(234.1	)%
Income/(loss) before income taxes		(15,212	)		15,449			(30,661	)		(198.5	)%
Provision/(benefit) for income taxes		(2,613	)		4,642			(7,255	)		(156.3	)%
Net Income/(Loss)	$	(12,599	)	$	10,807		$	(23,406	)		(216.6	)%

	Year ended December 31,						Change
	2019			2018			Dollars		Percentage
	(dollars in thousands, except percentages)
Revenue	$	118,326		$	91,865		$	26,461		28.8	%
Cost of revenue		70,090			52,559			17,531		33.4	%
Gross profit		48,236			39,306			8,930		22.7	%
Engineering, research, and development		4,346			2,643			1,703		64.4	%
Sales and marketing		6,947			5,200			1,747		33.6	%
General and administrative		21,318			17,634			3,684		20.9	%
Total operating expense		32,611			25,477			7,134		28.0	%
Income from operations		15,625			13,829			1,796		13.0	%
Other income/(expenses), net		(176	)		(746	)		570		(76.4	%
Income before income taxes		15,449			13,083			2,366		18.1	%
Provision/(benefit) for income taxes		4,642			3,855			787		20.4	%
Net Income	$	10,807		$	9,228		$	1,579		17.1	%

	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 Years
	(in thousands)
Operating lease obligations⁽¹⁾	$	3,957	$	2,878	$	1,077	$	2	$
Software service agreement obligation⁽²⁾	$	1,279	$	505	$	693	$	81	$

		Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of December 31, 2020 and 2019		F-2
Consolidated Statements of Income/(Loss) and Comprehensive Income (Loss) for the Years Ended December 2020, 2019, and 2018		F-3
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2020, 2019, and 2018		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019, and 2018		F-5
Notes to Consolidated Financial Statements		F-6

	As of
	December 31, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	112,745		$	42,189
Accounts receivable, net of allowance of $418, and $20 as of December 31, 2020 and December 31, 2019		16,890			13,893
Unbilled receivables		1,799			5,036
Prepaid income taxes		821			308
Deferred transaction costs		—			1,878
Prepaid expenses and other current assets		2,361			2,711
Total current assets		134,616			66,015
Property and equipment, net		4,095			4,024
Intangible assets, net		8,125			18
Deferred income taxes		5,609			1,474
Goodwill		14,690			—
Total assets	$	167,135		$	71,531

Liabilities and equity
Current liabilities
Accounts payable	$	757		$	768
Accrued liabilities		628			1,188
Accrued compensation and benefits		7,479			5,337
Accrued income taxes		1,248			869
Other current liabilities		3,206			138
Total current liabilities		13,318			8,300
Deferred tax liabilities		2,093			—
Total liabilities		15,411			8,300

Commitments and contingencies (Note 15)
Convertible preferred stock, no par value, 0 and 1,047,942 shares authorized and outstanding as of December 31, 2020 and December 31, 2019, respectively		—			9,187

Stockholders’ equity (Note 9)
Common stock, $0.0001 par value; 110,000,000 shares authorized; 50,878,780 and 21,644,392 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively		5			2
Additional paid-in capital		128,930			18,650
Retained earnings		22,793			35,392
Accumulated other comprehensive loss		(4	)		—
Total stockholders’ equity		151,724			54,044
Total liabilities, convertible preferred stock, and stockholders’ equity	$	167,135		$	71,531

	For the years ended December 31,
	2020			2019			2018
Revenue	$	111,283		$	118,326		$	91,865
Cost of revenue		69,662			70,090			52,559
Gross profit		41,621			48,236			39,306

Operating expenses
Engineering, research, and development		9,311			4,346			2,643
Sales and marketing		10,051			6,947			5,200
General and administrative		37,707			21,318			17,634
Total operating expenses		57,069			32,611			25,477

Income/(loss) from operations		(15,448	)		15,625			13,829

Other income/(expenses), net		236			(176	)		(746	)

Income/(loss) before income taxes		(15,212	)		15,449			13,083
Provision/(benefit) for income taxes		(2,613	)		4,642			3,855
Net income/(loss)	$	(12,599	)	$	10,807		$	9,228
Foreign currency translation adjustments, net of tax		(4	)		—			—
Comprehensive income/(loss)	$	(12,603	)	$	10,807		$	9,228

Earnings/(loss) per share
Basic	$	(0.28	)	$	0.49		$	0.46
Diluted	$	(0.28	)	$	0.49		$	0.46

Weighted average shares outstanding
Basic		44,737			21,118			20,217
Diluted		44,737			21,122			20,217

	Convertible Preferred Stock						Common Stock				Additional paid-in			Retained			Accumulated Other Comprehensive			Total stockholders’
	Shares			Amount			Shares		Amount		capital			earnings			Loss			equity
Balance at December 31, 2017		—		$	—			12,000	$	—	$	7,038		$	17,357		$	—		$	24,395
Retroactive application of recapitalization (Note 3)		—			—			8,217		2		(2	)		—			—			—
Adjusted balance beginning of period		—			—			20,217		2		7,036			17,357			—			24,395

Dividends declared		—			—			—		—		—			(2,000	)		—			(2,000	)
Stock-based compensation		—			—			—		—		1,756			—			—			1,756
Net income		—			—			—		—		—			9,228			—			9,228
Balance at December 31, 2018		—			—			20,217		2		8,792			24,585			—			33,379
Net income		—			—			—		—		—			10,807						10,807
Stock-based compensation		—			—			—		—		2,441			—						2,441
Issuance of common and preferred stock, net of $96 issuance costs		1,048			9,187			1,048		—		5,717			—						5,717
Exercise of stock options		—			—			379		—		1,700			—			—			1,700
Balance at December 31, 2019		1,048			9,187			21,644		2		18,650			35,392			—			54,044
Net loss		—			—					—		—			(12,599	)		—			(12,599	)
Stock-based compensation		—			—			—		—		20,006			—			—			20,006
Conversion of preferred stock		(1,048	)		(9,187	)		1,048		1		9,187			—			—			9,188
Consideration paid to Grid shareholders		—			—			—		—		(123,865	)		—			—			(123,865	)
ChaSerg shares recapitalized, net of transaction costs of $4,142		—			—			28,088		2		204,323			—			—			204,325
Conversion of promissory note to common stock		—			—			53		—		530			—			—			530
Exercise of stock options		—			—			18		—		99			—			—			99
Issuance of shares in connection with vested RSUs		—			—			28		—		—			—			—			—
Foreign currency translation adjustment, net of tax		—			—			—		—		—			—			(4	)		(4	)
Balance at December 31, 2020		—			—			50,879	$	5	$	128,930		$	22,793		$	(4	)	$	151,724

	●	GDI holds executive management roles for the Company and those individuals are responsible for the day-to-day operations;

	●	GDI’s former owners have the largest minority voting rights in the Company;

	●	From a revenue and business operation standpoint, GDI was the larger entity in terms of relative size;

	●	GDI’ San Ramon, CA headquarters are the headquarters of the Company; and

	●	Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Contract Type, in thousands
Time-and-material	$	104,583
Fixed-fee		5,705
Other		995
Total Revenues	$	111,283

	1)	contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty,

	2)	contracts for which the Company recognizes revenues based on the right to invoice for services performed,

	3)	variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or

(in thousands, except for share and per share amounts)
Shares transferred at Closing		27,006,251
Less: Post-Closing share adjustment		(857,143	)
Total shares transferred at Closing		26,149,108
Value per share		10.19
Total share consideration	$	266,459
Plus: Cash transferred to GDI stockholders		130,000
Closing merger consideration	$	396,459

(In thousands)
Cash & equivalents	$	2,266
Accounts receivable		1,978
Prepaid expenses and other		283
Fixed assets		352
Goodwill		14,690
Intangible assets		8,174
Accounts payable		(37	)
Accrued expenses		(2,397	)
Tax liabilities		(2,639	)
Other current liability and unearned revenues		(2,284	)
Net assets acquired	$	20,386

(In thousands)	Fair Value		Useful Life	Amortization method
Customer relationships	$	4,234	8 years	Straight-line
Daxx trade name		3,500	10 years	Straight-line
Non-compete agreements		440	2 years	Straight-line
Total identified intangible assets	$	8,174

(In thousands, unaudited)	2020			2019
Revenue	$	133,622		$	138,002
Net income/(loss)	$	(10,925	)	$	12,091
Earnings/(loss) per share	$	(0.24	)	$	0.55

	Estimated	As of December 31,
	Useful Life (In Years)	2020			2019
	(dollars in thousands)
Computers and equipment	3	$	6,447		$	5,470
Machinery and automobiles	5		551			129
Furniture and fixtures	7		643			544
Software	5		554			407
Leasehold improvements	7		236			119
			8,430			6,669
Less: Accumulated depreciation and amortization			(5,622	)		(3,784	)
			2,809			2,885

Capitalized software development costs	2		3,531			2,478
Less: Accumulated amortization			(2,245	)		(1,339	)
			1,287			1,139
Property and equipment, net		$	4,095		$	4,024

	Amount		Expiration years
		(in thousands)
Net operating losses, federal (Post December 31, 2017)	$	8,855	Do not expire
Net operating losses, federal (Pre January 1, 2018)		404	2032 – 2040
Net operating losses, state	$	7,140	2032 – 2040
Tax credits, federal		115	2040

(in thousands)
Balance at January 1, 2020	$	357
Increases related to prior year tax positions		1
Increases related to current year tax positions		296
Balance at December 31, 2020	$	654

	Options Outstanding
Balance at December 31, 2019		2,734,327
Cashed out		(828,590	)
Forfeited		(18,940	)
Balance at March 31, 2020 (prior to exchange ratio conversion)		1,886,797
Converted vested balance		4,313,917
Converted unvested balance		364,094
Balance at March 6, 2020 (post to exchange ratio conversion)		4,678,011
Exercised in 2020		(28,057	)
Forfeited/Cancelled in 2020		(50,164	)
Options Outstanding as of December, 31, 2020		4,599,790