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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-03-03 compared with 2021-03-05 · 24 added, 48 removed, 4 unchanged (95% of the section changed)

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Dynamics has in the past and may in the future be exposed to certain market and credit risks in the ordinary course of business,

including exposure related to fluctuations in foreign currency rates, and on occasion and to a lesser extent, changes in interest

rates and concentration of credit risk.

In addition, Grid Dynamics’ international operations are subject to risks related

to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

Grid Dynamics has in the past and may in the future be exposed to certain market and credit risks in the ordinary course of business, including exposure related to fluctuations in foreign currency rates, and on occasion and to a lesser extent, changes in interest rates and concentration of credit risk.

In addition, Grid Dynamics’ international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

See Item 1A, “ Risk Factors ” for additional information.

Currency Exchange Rate Risk

Dynamics is exposed to foreign currency exchange transaction risk related to funding its non-US operations and to foreign currency

translation risk related to certain of its subsidiaries’ cash balances that are denominated in currencies other than the

dollar, which is Grid Dynamics’ functional currency.

In addition, Grid Dynamics’ profit margins are subject to

volatility as a result of changes in foreign exchange rates.

When and where possible, Grid Dynamics seeks to match expenses to

Foreign Currency Exchange Rate Risk

Grid Dynamics is exposed to foreign currency exchange transaction risk related to funding its non-US operations and to foreign currency translation risk related to certain of its subsidiaries’ cash balances that are denominated in currencies other than the U.S.

In addition, Grid Dynamics’ profit margins are subject to volatility as a result of changes in foreign exchange rates.

When and where possible, Grid Dynamics seeks to match expenses to the U.S.

dollar, and believes, due to Ukrainian payroll being pegged to the U.S.

dollar, that a significant portion of its foreign

currency exchange rate exposure to the Ukrainian hryvnia is naturally hedged.

In future periods, Grid Dynamics may also become

materially exposed to changes in the value of the Serbian dinar against the U.S.

dollar, as it continues to expand its operations

For the year ended December 31, 2020, approximately

14%, 12%, and 10% of Grid Dynamics’ $126.7 million of combined cost of revenue and total operating expenses were denominated

in the Russian rouble, Ukrainian hryvnia and Polish zloty, respectively.

Comparatively, for the year ended December 31, 2019, approximately

22%, 13%, and 12% of Grid Dynamics’ $102.7 million of combined cost of revenue and total operating expenses were denominated

in the Russian rouble, Ukrainian hryvnia and Polish zloty, respectively.

the year ended December 31, 2020:

10% decrease in the value of the Russian rouble against the U.S.

dollar would have resulted in a $1.6 million increase in Grid

Dynamics’ income from operations, while a 10% increase in the rouble’s value would have resulted in a $0.7 million

decrease in income from operations.

10% decrease in the value of the Polish zloty against the U.S.

dollar would have resulted in a $1.1 million increase in Grid Dynamics’

income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.4 million decrease in income

from operations.

the year ended December 31, 2019:

10% decrease in the value of the Russian rouble against the U.S.

dollar would have resulted in a $2.1million increase in Grid

Dynamics’ income from operations, while a 10% increase in the rouble’s value would have resulted in a $2.5million

decrease in income from operations.

10% decrease in the value of the Polish zloty against the U.S.

dollar would have resulted in a $1.1 million increase in Grid Dynamics’

income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.3 million decrease in income

from operations.

Dynamics analyzes sensitivity to the rouble and zloty separately because, in management’s experience, fluctuations in the

value of these currencies against the U.S.

dollar, that a significant portion of its foreign currency exchange rate exposure to the Ukrainian hryvnia is naturally hedged.

In future periods, Grid Dynamics may also become materially exposed to changes in the value of the Serbian dinar against the U.S.

dollar, as it continues to expand its operations in Serbia.

For the year ended December 31, 2021, approximately 12.5%, 11.9%, and 6.4% of our $211.2 million of Grid Dynamics’ combined cost of revenue and total operating expenses were denominated in the Ukrainian hryvnia, Russian rouble, and Polish zloty, respectively.

Comparatively, for the year ended December 31, 2020, approximately 11.7%, 13.8% and 9.6% of our $126.7 million of combined cost of revenue and total operating expenses were denominated in the Ukrainian hryvnia, Russian rouble, and Polish zloty, respectively.

In the year ended December 31, 2021:

• a 10% decrease in the value of the Russian rouble against the U.S.

dollar would have resulted in a $2.3 million increase in Grid Dynamics’ income from operations, while a 10% increase in the rouble’s value would have resulted in a $2.8 million decrease in income from operations.

• a 10% decrease in the value of the Polish zloty against the U.S.

dollar would have resulted in a $1.2 million increase in Grid Dynamics’ income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.5 million decrease in income from operations.

In the year ended December 31, 2020:

• a 10% decrease in the value of the Russian rouble against the U.S.

dollar would have resulted in a $1.6 million increase in Grid Dynamics’ income from operations, while a 10% increase in the rouble’s value would have resulted in a $0.7 million decrease in income from operations.

• a 10% decrease in the value of the Polish zloty against the U.S.

dollar would have resulted in a $1.1 million increase in Grid Dynamics’ income from operations, while a 10% increase in the zloty’s value would have resulted in a $1.4 million decrease in income from operations.

Grid Dynamics analyzes sensitivity to the rouble and zloty separately because, in management’s experience, fluctuations in the value of these currencies against the U.S.

dollar are frequently driven by distinct macroeconomic and geopolitical factors.

Grid Dynamics does not currently hedge

its foreign currency exposure, although it seeks minimize it by limiting cash transfers to amounts necessary to fund subsidiary

operating expenses for a short period, typically one week.

Grid Dynamics’ management may evaluate new hedging strategies

in future periods.

Grid Dynamics does not currently hedge its foreign currency exposure, although it seeks minimize it by limiting cash transfers to amounts necessary to fund subsidiary operating expenses for a short period, typically one week.

Grid Dynamics’ management may evaluate new hedging strategies in future periods.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk