Grid Dynamics Holdings, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. Grid Dynamics provides digital engineering and IT consulting services, primarily to Fortune 1000 companies. Results include the acquisitions of Daxx (December 2020) and Tacit (May 2021).
Financial results and liquidity
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $211.3 million | $111.3 million |
| Gross profit / margin | $87.7 million / 41.5% | $41.6 million / 37.4% |
| Operating income (loss) | $0.05 million | $(15.4) million |
| Net income (loss) | $(7.7) million | $(12.6) million |
| Diluted GAAP EPS | $(0.13) | $(0.28) |
| Adjusted EBITDA, non-GAAP | $39.1 million (18.5% of revenue) | $12.5 million (11.3%) |
| Operating cash flow | $18.0 million | $5.9 million |
| Cash and cash equivalents at year-end | $144.4 million | $112.7 million |
Revenue increased 89.9%; management reported organic revenue of $166.4 million, up 50.8% from $110.3 million. Cost of revenue rose 77.4%, slower than revenue growth, and gross margin improved 4.1 percentage points. Operating expenses were $87.7 million, including $33.0 million of stock-based compensation. The GAAP net loss narrowed despite near break-even operating income, in part because of a $5.2 million income tax provision and $2.5 million of net other expenses.
Cash used in investing activities was $35.4 million, primarily reflecting the Tacit acquisition and capital expenditures. Financing provided $49.1 million, including proceeds from the July share offering and warrant exercises, offset by tax payments on net share settlements. The company reported no debt outstanding; a $0.5 million revolving line of credit had no borrowings. Current assets were $192.8 million and current liabilities $25.3 million. Management said available cash was sufficient for expected needs for at least 12 months from the filing date.
Material changes and business developments
- Revenue rose across all reported verticals. Technology, Media and Telecom revenue was $67.7 million; Retail $61.7 million; CPG/Manufacturing $43.5 million; Finance $17.5 million; and Other $20.9 million.
- Retail revenue rebounded 81.7% to $61.7 million after a pandemic-related decline in 2020. Management said some retail customers had embraced digital commerce, while others might not return to pre-COVID levels.
- Customer concentration declined: the top ten customers accounted for 60.4% of revenue, versus 78.4% in 2020. Nevertheless, two customers each represented at least 10% of 2021 revenue; the largest accounted for 11.6% and the second-largest 11.0%.
- Daxx and Tacit expanded the company’s customer base, geography and service offerings. Reported goodwill increased to $36.0 million, with no goodwill impairment recorded.
- Common shares outstanding increased from 50.9 million to 66.9 million during 2021, reflecting, among other things, the offering, warrant exercises and equity awards. The company received $78.3 million net from its July offering.
Outlook, risks and unusual items
The filing provides no formal financial guidance. Management described continued customer demand and growth initiatives, but future results are subject to significant uncertainties. A major subsequent event was Russia’s military action against Ukraine beginning February 24, 2022. The company had a significant number of employees in Russia and Ukraine and warned that conflict, sanctions, banking disruption, or relocation of work could materially affect service delivery and results. It said it was executing continuity plans, reallocating work and accelerating hiring elsewhere.
- Acute operating risks: geopolitical disruption in Russia and Ukraine; dependence on skilled employees amid talent shortages and attrition; and reliance on a limited number of customers and short-term, often terminable engagements.
- Other material risks: competition, economic and customer spending conditions, COVID-19 effects, cybersecurity and data privacy, foreign currency exposure, execution and integration of acquisitions, and the ability to maintain utilization and margins. The company does not currently hedge foreign currency exposure.
- Tax and compensation items: the company reported a $5.2 million tax provision despite a pretax loss; its disclosed effective tax rate was unusually negative 214.0%, affected by stock-based compensation tax effects and other items. Russian IT tax benefits generated stated savings of approximately $4.1 million in 2021. Stock-based compensation expense rose to $33.0 million from $20.0 million.
- Contingent consideration: acquisition earnout liabilities were $6.9 million at year-end, including a $5.0 million Tacit earnout at its maximum amount and $1.9 million related to Daxx.
- Controls and audit: the independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective, but excluded Tacit from its evaluation for its first year after acquisition; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Track the operational and financial effects of the Ukraine conflict, sanctions, staff relocation and business continuity measures.
- Reconcile acquired-revenue disclosures: management reports $44.9 million of 2021 revenue from Daxx and Tacit, while the acquisition note lists $29.2 million and $16.7 million, respectively, which sum to $45.9 million.
- Monitor customer concentration, retention, new-customer contribution and the durability of the 2021 organic growth and margin improvement.
- Assess the cash conversion behind reported earnings, including receivables growth, acquisition spending, equity financing and stock-based compensation dilution.
- Review the sustainability of the unusually large tax-rate effects and the company’s reliance on Russian tax benefits.