Grid Dynamics Holdings, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are to Q1 2023 unless otherwise noted. Grid Dynamics provides technology consulting, engineering, and advanced analytics services. The company reports one operating and reportable segment.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $79.8 million | $80.1 million |
| Gross profit / margin | $27.7 million / 34.7% | $28.6 million / 35.7% |
| Operating loss | $5.5 million | $6.0 million |
| Net loss / diluted loss per share | $3.9 million / $0.05 | $8.0 million / $0.11 |
| Operating cash flow | $3.2 million | $11.7 million |
| Cash capital expenditures | $3.2 million | $1.6 million |
| Non-GAAP EBITDA | $10.3 million / 12.9% of revenue | $10.8 million / 13.5% of revenue |
Non-GAAP EBITDA, non-GAAP net income, and non-GAAP diluted EPS are company-defined measures and are not substitutes for GAAP results. Q1 non-GAAP net income was $5.2 million and non-GAAP diluted EPS was $0.07, compared with $6.5 million and $0.08, respectively, a year earlier.
At March 31, 2024, cash and cash equivalents were $249.4 million, down from $257.2 million at year-end 2023. Current assets were $322.5 million and current liabilities were $43.1 million. The company had no borrowings under its $30 million revolving credit facility, which matures March 15, 2025, and reported compliance with its covenants. Management believes cash and operating cash generation will fund expected needs for at least 12 months from the filing date.
Material changes and operating trends
- Revenue was essentially flat year over year. Finance and Other revenue each grew more than 50%, while TMT fell 10.4% and CPG/Manufacturing fell 24.4%; Retail declined 3.0%.
- North America revenue rose to $63.7 million from $60.1 million; Europe declined to $13.4 million from $15.9 million. Geographic comparisons reflect a revised customer-location attribution method applied retrospectively.
- Gross margin fell one percentage point, which management attributed mainly to higher delivery employee costs and foreign-currency headwinds. Non-GAAP EBITDA declined as lower gross profit and higher operating expenses excluding stock compensation more than offset other changes.
- General and administrative expense decreased 12.9% to $21.5 million, largely due to lower stock-based compensation. Sales and marketing expense increased 29.4% to $7.3 million, reflecting additional sales personnel and initiatives.
- Operating cash flow fell by $8.4 million, with management citing timing of offshore employee compensation and customer payments. Investing outflow increased mainly because capital expenditures doubled, for equipment and facilities supporting geographic expansion. Financing outflow of $7.0 million primarily reflected tax withholding on vested equity awards.
Outlook, risks, and other notable items
- The filing provides no specific revenue or earnings guidance. Remaining performance obligations were $4.7 million at quarter-end; the company expects to recognize about 50.3% during the remainder of 2024 and 49.7% in 2025. Many contracts are excluded from this measure under the applicable accounting rules.
- Management cites macroeconomic uncertainty and cautious customer spending, particularly in CPG/Manufacturing, as well as labor costs, utilization, and foreign exchange as factors affecting results. The company does not currently hedge foreign-currency exposure; approximately 39.1% of Q1 cost of revenue and operating expenses was denominated in currencies other than the U.S. dollar.
- Ukraine-related conflict, sanctions, and geopolitical uncertainty in the region remain material operational risks. The company says it ceased Russian operations and liquidated its former Russian subsidiary in 2023; Ukraine remains among its locations for long-lived assets.
- Customer concentration remains significant: the largest customer generated 16.7% of Q1 revenue, and the top ten generated 55.3%. Total customers declined to 210 from 220 in Q1 2023.
- The company recorded a $0.9 million income-tax provision despite a pretax loss. It used a discrete effective-tax-rate method because it could not reliably forecast 2024 ordinary income and operating expenses.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material legal proceedings or material contingency accruals were reported.
Key facts for investors to verify
- Whether revenue stabilizes or grows, and whether declines in TMT and CPG/Manufacturing are offset by Finance, Other, and customer diversification.
- Whether gross margin and cash conversion recover as delivery costs, utilization, foreign exchange, and customer payment timing evolve.
- How customer concentration and the largest customer’s 16.7% revenue share change in subsequent periods.
- Whether cash remains sufficient to fund operations and expansion, and whether the revolving facility is renewed or otherwise addressed before its March 2025 maturity.
- How Ukraine-related and broader geopolitical risks, unhedged currency exposure, and the uncertain tax forecast affect operating results.