Grid Dynamics Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Grid Dynamics provides digital engineering and IT services to enterprise customers. Financial statements are unaudited and prepared under U.S. GAAP.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $71.4 million | $39.1 million |
| Gross profit / margin | $26.8 million / 37.5% | $15.3 million / 39.2% |
| Operating income (loss) | $0.2 million | $(1.8) million |
| Net loss | $(2.7) million | $(2.1) million |
| GAAP diluted loss per share | $(0.04) | $(0.04) |
| Operating cash flow | $9.5 million | $3.0 million |
| Capital expenditures | $1.7 million | $0.9 million |
Revenue grew 82.5% year over year and 7.3% sequentially from Q4 2021. Management attributed growth mainly to higher billable headcount and hours; Q1 marked the fifth consecutive quarter of sequential revenue growth. Tacit, acquired in May 2021, contributed approximately $7.1 million of Q1 revenue.
Gross margin declined 1.7 percentage points year over year. The filing attributes pressure in part to employees becoming non-billable amid the invasion of Ukraine. Operating expenses rose 55.3%, including higher stock-based compensation, wages and bonuses, facilities and Ukraine-related costs. Stock-based compensation was $8.7 million versus $5.7 million.
Non-GAAP EBITDA was $11.4 million (15.9% of revenue), versus $5.3 million (13.4%); non-GAAP net income was $6.9 million and non-GAAP diluted EPS was $0.10. These are non-GAAP measures; the filing provides reconciliations to GAAP results.
Cash and cash equivalents were $153.3 million at March 31, 2022, up from $144.4 million at year-end 2021. Current assets were $206.6 million and current liabilities $32.7 million. The company reported $44.6 million of total liabilities, including $4.8 million of long-term debt, net. It had drawn $5.0 million under its new $30 million revolving facility, with $25.0 million available; the facility matures in March 2025. The company was in covenant compliance. Management said cash was sufficient for expected operating, investing and financing needs for at least 12 months from the filing date.
Material changes and business developments
- Revenue mix shifted toward Retail, which represented 32.6% of revenue, up from 22.6%; TMT represented 30.0%, down from 36.8%.
- Customer concentration improved: the top five customers accounted for 42.8% of revenue versus 50.1%, and the top ten for 58.3% versus 66.7%. Two customers each exceeded 10% of revenue in Q1 2022.
- The company adopted ASC 842 lease accounting on January 1, 2022, recognizing operating lease right-of-use assets and liabilities; prior periods were not restated. Q1 total lease cost was $1.0 million.
- In April 2022, after quarter-end, the company announced it would cease remaining Russian operations and expand or establish locations in Zug, Switzerland; Yerevan, Armenia; and India.
Outlook, commentary and risks
The filing provides no specific revenue, earnings or other numerical forward guidance. Management reported healthy customer demand across verticals, while cautioning that results are subject to seasonal patterns and are not necessarily indicative of full-year performance.
The Ukraine conflict is a significant operational and financial uncertainty. The company had personnel and delivery operations in Ukraine and Russia, relocated employees where possible, and reallocated work across its global footprint. Prolonged conflict, sanctions, banking disruption, relocation costs or delivery interruptions could adversely affect operations. The company also cited COVID-related talent and retention challenges, competition for skilled staff, wage inflation, customer and industry concentration, foreign-exchange exposure, and risks from international expansion.
The company does not currently hedge foreign-currency exposure. Cash held outside the U.S. was $14.5 million, and management said it expected to use those funds for local operating needs. A discrete effective tax rate method was used for Q1 because management could not reliably forecast ordinary income; the $2.2 million tax provision, despite a pretax loss, reflected mainly Section 162(m) compensation limitations and foreign income inclusions. No amounts were accrued for legal contingencies; management said known matters were not expected to materially affect financial condition, liquidity or cash flows.
Disclosure controls and procedures were reported effective, with no material changes in internal control over financial reporting during the quarter.
Investor verification priorities
- Track the effects of the Ukraine conflict, Russian exit and employee relocations on delivery capacity, billable utilization, costs and customer retention.
- Assess whether rapid revenue growth translates into improved GAAP profitability, particularly given lower gross margin and elevated stock-based compensation.
- Review customer concentration and the durability of demand in Retail and TMT, including the short-term nature of many time-and-materials engagements.
- Monitor tax provision volatility, foreign-currency exposure, and the location and accessibility of cash held outside the U.S.
- Confirm revolver usage, covenant compliance and liquidity as operating needs or conditions change; distinguish non-GAAP performance measures from GAAP results.