Business Context and Reporting Period
Grid Dynamics Holdings, Inc. filed this Form 8-K on March 9, 2020, reporting the closing of its business combination with ChaSerg Technology Acquisition Corp. on March 5, 2020. Grid Dynamics became a wholly owned subsidiary, ChaSerg changed its name to Grid Dynamics Holdings, Inc., and the common stock and warrants began trading on Nasdaq on March 6, 2020 under GDYN and GDYNW.
The filing includes Grid Dynamics’ audited historical financial information for the years ended December 31, 2019, 2018, and 2017, together with unaudited pro forma combined information for the year ended December 31, 2019.
Key Financial Metrics
| ($ in thousands, except per-share data) | 2019 | 2018 | 2017 |
|---|---|---|---|
| Revenue | $118,326 | $91,865 | $70,684 |
| Income from operations | $15,625 | $13,829 | $13,107 |
| Net income | $10,807 | $9,228 | $13,184 |
| Basic EPS | $0.83 | $0.77 | $0.82 |
| Diluted EPS | $0.83 | $0.77 | $0.78 |
| Total assets | $71,531 | $41,726 | Not provided |
| Total liabilities | $8,300 | $8,347 | Not provided |
| Convertible preferred stock | $9,187 | — | Not provided |
| Total shareholders’ equity | $54,044 | $33,379 | Not provided |
| Net cash from operating activities | $12,534 | $10,584 | $5,540 |
| Net cash used in investing activities | $(2,811) | $(3,079) | $(1,058) |
| Net cash from financing activities | $14,604 | — | $(4,715) |
Calculated 2019 operating margin was approximately 13.2% and net margin approximately 9.1%. The filing does not provide a clear cash balance, detailed debt balance, or liquidity ratio.
Material Changes Versus Prior Comparable Period
- Revenue increased approximately 28.8% in 2019 from 2018.
- Operating income increased approximately 13.0%, while operating margin declined from approximately 15.1% to 13.2%.
- Net income increased approximately 17.1% from 2018, but remained below 2017 net income of $13.2 million.
- Operating cash flow increased approximately 18.4% from 2018.
- Total assets increased approximately $29.8 million from 2018, while total liabilities were broadly unchanged.
- The company paid approximately $0.5 million to redeem 51,715 ChaSerg Class A shares at $10.21 per share.
- Merger consideration to Grid Dynamics equity holders consisted of approximately $130 million in cash, subject to adjustment, and 27,006,251 shares of common stock.
Transaction, Capitalization, and Outlook
- Immediately after closing, the company had 50,833,619 common shares outstanding, warrants to purchase 11,346,500 shares, and options to purchase 4,313,917 shares.
- The company reserved 16.3 million shares for its 2020 Equity Incentive Plan.
- There were 55,147,536 common shares issued and outstanding for the ownership disclosure as of closing. Beijing Teamsun Technology Co. Ltd. beneficially owned approximately 35.3%, and the ChaSerg sponsor approximately 10.0%.
- The filing provides no specific revenue, earnings, margin, cash flow, or other quantitative guidance.
- Management warns that growth may be difficult to manage profitably, key employees may be difficult to retain, and public-company costs may be significant.
- COVID-19, geopolitical events, travel restrictions, client spending delays, labor availability, infrastructure disruptions, cybersecurity incidents, and economic or competitive conditions could adversely affect service delivery and financial results.
- The company has not historically paid cash dividends; future dividends remain at the board’s discretion.
- Executive employment agreements include severance and change-in-control provisions. Potential tax gross-up obligations for parachute payments are capped at $14 million across all officers under the disclosed tax indemnification arrangement.
Important Facts for Investors to Verify
- Review Exhibit 99.1 audited financial statements and Exhibit 99.3 MD&A for revenue concentration, customer trends, expenses, and detailed liquidity information.
- Reconcile the approximately $130 million cash merger consideration and post-closing share counts to the pro forma balance sheet and available cash.
- Assess dilution from 11.35 million warrants, 4.31 million options, and the 16.3 million-share equity plan.
- Review the terms and potential impact of executive severance, change-in-control benefits, and the possible $14 million aggregate tax gross-up.
- Evaluate the COVID-19 and other operational risks in light of the company’s international delivery model and dependence on skilled personnel and client spending.
- Confirm continued Nasdaq listing compliance and the company’s post-combination capital and liquidity position, which are not fully quantified in the filing text.