GRID DYNAMICS HOLDINGS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GRID DYNAMICS HOLDINGS, INC Index to Consolidated Financial Statements Page Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) F- 1 Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 4 Consolidated Statements of Loss and Comprehensive Loss for the Years Ended December 2022, 2021, and 2020 F- 5 Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2022, 2021, and 2020 F- 6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020 F- 8 Notes to Consolidated Financial Statements F- 9 49 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Grid Dynamics Holdings, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Grid Dynamics Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of loss and comprehensive loss, convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2023 expressed an unqualified opinion. Change in accounting principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2022 due to the adoption of Accounting Standards Update 2016-02: Leases (Topic 842). Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2017. San Francisco, California February 28, 2023 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Grid Dynamics Holdings, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Grid Dynamics Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated February 28, 2023 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Mutual Mobile, Inc. (“Mutual Mobile”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 1.3 and 0.1 percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022. As indicated in Management’s Report, Mutual Mobile was acquired during 2022. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Mutual Mobile. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. F-2 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. s/ GRANT THORNTON LLP San Francisco, California February 28, 2023 F-3 GRID DYNAMICS HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) As of December 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 256,729 $ 144,364 Accounts receivable, net of allowance of $ 443 , and $ 315 as of December 31, 2022 and December 31, 2021 48,358 38,838 Unbilled receivables 5,591 4,475 Prepaid income taxes 4,294 584 Prepaid expenses and other current assets 8,154 4,503 Total current assets 323,126 192,764 Property and equipment, net 8,215 6,169 Operating lease right-of-use assets, net 7,694 — Intangible assets, net 20,375 19,097 Goodwill 45,514 35,958 Deferred tax assets 4,998 2,731 Other noncurrent assets 1,224 — Total assets 411,146 256,719 Liabilities and equity Current liabilities Accounts payable $ 3,897 $ 2,053 Accrued compensation and benefits 13,065 10,562 Accrued income taxes 10,718 1,980 Operating lease liabilities, current 2,505 — Accrued expenses and other current liabilities 8,525 10,749 Total current liabilities 38,710 25,344 Deferred tax liabilities 3,756 4,324 Operating lease liabilities, noncurrent 5,636 — Total liabilities 48,102 29,668 Commitments and contingencies (Note 17) Stockholders’ equity (Note 12) Common stock, $ 0.0001 par value; 110,000,000 shares authorized; 74,156,458 and 66,850,941 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively $ 7 $ 7 Additional paid-in capital 378,006 212,077 Retained earnings/(accumulated deficit) ( 14,121 ) 15,093 Accumulated other comprehensive loss ( 848 ) ( 126 ) Total stockholders’ equity 363,044 227,051 Total liabilities and stockholders’ equity $ 411,146 $ 256,719 The accompanying notes are an integral part of these consolidated financial statements. F-4 GRID DYNAMICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (In thousands, except per share data) For the years ended December 31, 2022 2021 2020 Revenue $ 310,482 $ 211,280 $ 111,283 Cost of revenue 189,892 123,552 69,662 Gross profit 120,590 87,728 41,621 Operating expenses Engineering, research, and development 15,772 8,459 9,311 Sales and marketing 19,808 14,457 10,051 General and administrative 106,018 64,762 37,707 Total operating expenses 141,598 87,678 57,069 Income/(loss) from operations ( 21,008 ) 50 ( 15,448 ) Other income/(expenses), net 555 ( 2,502 ) 236 Loss before income taxes ( 20,453 ) ( 2,452 ) ( 15,212 ) Provision/(benefit) for income taxes 8,761 5,248 ( 2,613 ) Net loss $ ( 29,214 ) $ ( 7,700 ) $ ( 12,599 ) Foreign currency translation adjustments, net of tax ( 722 ) ( 122 ) ( 4 ) Comprehensive loss $ ( 29,936 ) $ ( 7,822 ) $ ( 12,603 ) Loss per share Basic $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 ) Diluted $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 ) Weighted average shares outstanding Basic 69,197 58,662 44,737 Diluted 69,197 58,662 44,737 The accompanying notes are an integral part of these consolidated financial statements. F-5 GRID DYNAMICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (In thousands) Convertible Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Shares Amount Balance at January 1, 2020 1,048 $ 9,187 21,644 $ 2 $ 18,650 $ 35,392 $ — $ 54,044 Net loss — — — — — ( 12,599 ) — ( 12,599 ) Stock-based compensation — — — — 20,006 — — 20,006 Conversion of preferred stock ( 1,048 ) ( 9,187 ) 1,048 1 9,187 — — 9,188 Conversion of promissory note to common stock — — 53 — 530 — — 530 Consideration paid to Grid shareholders — — — — ( 123,865 ) — — ( 123,865 ) ChaSerg shares recapitalized, net of transaction costs of $ 4,142 — — 28,088 2 204,323 — — 204,325 Exercise of stock options — — 18 — 99 — — 99 Issuance of shares in connection with vested RSUs — — 28 — — — — — Foreign currency translation adjustment, net of tax — — — — — — ( 4 ) ( 4 ) Balance at December 31, 2020 — $ — 50,879 $ 5 $ 128,930 $ 22,793 $ ( 4 ) $ 151,724 Net loss — — — — — ( 7,700 ) — ( 7,700 ) Stock-based compensation — — — — 33,036 — — 33,036 Exchange of warrants into common stock — — 6,680 1 49,123 — — 49,124 Exercise of stock options — — 1,631 — ( 27,528 ) — — ( 27,528 ) Issuance of common stock in 2021 offering, net of transaction costs of $ 498 — — 5,470 1 77,812 — — 77,813 Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards — — 2,060 — ( 49,296 ) — — ( 49,296 ) Issuance of escrow common stock due to Closing of Business Combination — — 131 — — — — — Foreign currency translation adjustment, net of tax — — — — — — ( 122 ) ( 122 ) Balance at December 31, 2021 — $ — 66,851 $ 7 $ 212,077 $ 15,093 $ ( 126 ) $ 227,051 F-6 Convertible Preferred Stock Common Stock Additional paid-in capital Retained earnings Accumulated Other Comprehensive Loss Total stockholders’ equity Shares Amount Shares Amount Balance at January 1, 2022 — $ — 66,851 $ 7 $ 212,077 $ 15,093 $ (126) $ 227,051 Net loss — — — — — ( 29,214 ) — ( 29,214 ) Stock-based compensation — — — — 60,968 — — 60,968 Exercise of stock options — — 341 — 1,432 — — 1,432 Issuance of common stock in 2022 Offering, net of transaction costs of $ 253 — — 6,571 — 109,284 — — 109,284 Issuance of shares and payments of tax obligations resulted from net share settlement of vested stock awards — — 393 — ( 5,755 ) — — ( 5,755 ) Foreign currency translation adjustment, net of tax — — — — — — ( 722 ) ( 722 ) Balance at December 31, 2022 — $ — 74,156 $ 7 $ 378,006 $ ( 14,121 ) $ ( 848 ) $ 363,044 The accompanying notes are an integral part of these consolidated financial statements. F-7 GRID DYNAMICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the years ended December 31, 2022 2021 2020 Cash flows from operating activities Net loss $ ( 29,214 ) $ ( 7,700 ) $ ( 12,599 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 6,626 5,049 2,672 Operating lease right-of-use assets amortization expense 3,021 — — Bad debt expense 132 45 398 Deferred income taxes ( 3,633 ) 2,611 ( 4,135 ) Debt issuance cost amortization 71 — — Stock-based compensation 60,968 33,036 20,006 Change in fair value of warrants — 979 — Changes in assets and liabilities: Accounts receivable ( 8,738 ) ( 18,676 ) ( 1,418 ) Unbilled receivables ( 1,116 ) ( 849 ) 3,237 Prepaid income taxes ( 3,450 ) 237 ( 410 ) Prepaid expenses and other assets ( 3,371 ) ( 1,176 ) 373 Accounts payable 1,729 957 ( 49 ) Accrued compensation and benefits 1,694 873 ( 255 ) Operating lease liabilities ( 2,574 ) — — Accrued income taxes 8,525 532 ( 166 ) Accrued expenses and other current liabilities 982 2,055 ( 1,722 ) Net cash provided by operating activities 31,652 17,973 5,932 Cash flows from investing activities Purchase of property and equipment ( 6,069 ) ( 4,716 ) ( 2,252 ) Purchase of investments ( 1,000 ) — — Acquisition of business, net of cash acquired ( 9,254 ) ( 30,650 ) ( 16,087 ) Net cash used in investing activities ( 16,323 ) ( 35,366 ) ( 18,339 ) Cash flows from financing activities Proceeds from issuance of Common Stock from 2022 and 2021 Offerings 109,537 78,311 — Proceeds from debt 5,000 — — Proceeds from exercise of warrants — 48,145 — Cash received from ChaSerg — — 208,997 Payments of tax obligations resulted from net share settlement of vested stock awards ( 5,755 ) ( 49,296 ) — Proceeds from exercises of stock options, net of shares withheld for taxes 1,432 ( 27,528 ) 99 Payment of contingent consideration related to previously acquired businesses ( 6,933 ) — — Repayment of debt ( 5,000 ) — — Debt issuance cost ( 270 ) — — Equity issuance costs ( 253 ) ( 498 ) ( 2,264 ) GDI shares redeemed for cash — — ( 123,865 ) Net cash provided by financing activities 97,758 49,134 82,967 Effect of exchange rate changes on cash and cash equivalents ( 722 ) ( 122 ) ( 4 ) Net increase in cash and cash equivalents 112,365 31,619 70,556 Cash and cash equivalents, beginning of period 144,364 112,745 42,189 Cash and cash equivalents, end of period $ 256,729 $ 144,364 $ 112,745 GRID DYNAMICS HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Continued) For the years ended December 31, 2022 2021 2020 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 7,474 $ 2,448 $ 2,128 Supplemental disclosure of non-cash activities Acquisition fair value of contingent consideration issued for acquisition of business $ 3,288 $ 4,986 $ 1,947 Conversion of preferred stock to common stock $ — $ — $ 9,187 The accompanying notes are an integral part of these consolidated financial statements. F-8 GRID DYNAMICS HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 — Background and nature of operations Grid Dynamics Holdings, Inc. (the “Company” or “GDH”) provides enterprise-level digital transformation in the areas of search, analytics, and release automation to Fortune 1000 companies. The Company’s headquarters and principal place of business is in San Ramon, California. The Company was originally incorporated in Delaware on May 21, 2018 as a special purpose acquisition company under the name ChaSerg Technology Acquisition Corp. (“ChaSerg”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving ChaSerg and one or more businesses. On March 5, 2020 (the “Closing”), the Company consummated its business combination with Grid Dynamics International, Inc. (“GDI”) pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated November 13, 2019 (the “Business Combination”). In connection with the Closing, the Company changed its name from ChaSerg Technology Acquisition Corp. to Grid Dynamics Holdings, Inc. The Company’s common stock is now listed on the NASDAQ under the symbol “GDYN”. Unless the context otherwise requires, the “Company” refers to the combined company and its subsidiaries following the Business Combination, “ChaSerg” refers to the Company prior to the Closing, and “GDI” refers to GDI prior to the Closing. Refer to Note 3 for further discussion of the Business Combination. Note 2 — Basis of presentation and summary of significant accounting policies The following is a summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements. Basis of presentation The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Although ChaSerg was the legal acquirer, for accounting purposes, GDI was deemed to be the accounting acquirer. GDI was determined to be the accounting acquirer based on evaluation of the following facts and circumstances: • GDI holds executive management roles for the Company and those individuals are responsible for the day-to-day operations; • GDI’s former owners have the largest minority voting rights in the Company; • From a revenue and business operation standpoint, GDI was the larger entity in terms of relative size; • GDI’s San Ramon, CA headquarters are the headquarters of the Company; and • The intended strategy of the Company will continue GDI’s strategy of driving enterprise-level digital transformation in the Fortune 1000 companies. Refer to Note 3 for further discussion of the Business Combination. Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and all of its subsidiaries that are directly or indirectly owned or controlled. Intercompany transactions and balances have been eliminated upon consolidation. The Company provides services to its customers utilizing its own personnel as well as personnel from subcontractors. The most significant subcontractor as of December 31, 2022 is GD AM, LLC (“Affiliate”), third-party contractor located in Armenia. During the years ended December 31, 2021 and 2020 the Company had a similar subcontractor that ceased its operations in the beginning of 2022. The Affiliates exclusively support and perform services on behalf of the Company and its customers. The Company has no ownership in the Affiliates. The Company is required to apply accounting standards which address how a business enterprise should evaluate whether it has a controlling financial interest in a variable interest entity (“VIE”) through means other than voting rights and accordingly should determine whether or not to consolidate the entity. The Company has determined that it is required to consolidate the Affiliates because the Company has the power to direct the VIEs’ most significant activities and is the primary beneficiary of the Affiliates. The assets and liabilities of the Affiliates primarily consist of inter-company balances and transactions all of which have been eliminated in consolidation. The net income of the Affiliates was $ 0.7 million, $ 0.6 million and $ 0.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. F-9 Use of estimates The preparation of the consolidated financial statements in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates and such differences could be material. Significant estimates include determination of fair value, useful lives and recoverability of intangible assets and goodwill, stock-based compensation, contingent consideration payable, determination of provision for income taxes, deferred tax assets and liabilities and uncertain tax positions. Cash and cash equivalents Cash equivalents are short-term highly liquid investments and deposits with original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value due to their short-term nature. Accounts receivable and allowance for credit losses Accounts receivable, less allowance for credit losses, reflect the net realizable value of receivables and approximate fair value. The Company maintains an allowance against accounts receivable for the estimated probable losses on uncollectible accounts. The allowance is based upon historical loss experience, as adjusted for the current market conditions and forecasts about future economic conditions. Accounts receivable are charged off against the reserve when, in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt. Unbilled receivables Generally, the Company will not bill customers until the services have been completed. From time-to-time, a service period may overlap with a period-end and the unbilled receivables represent amounts for services performed through period-end, but not yet billed. The unbilled receivable represents the amount expected to be billed and collected for services performed through period-end in accordance with contract terms. Contract assets The Company classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset. A trade receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are recorded when services have been provided but the Company does not have an unconditional right to receive consideration. Contract assets primarily relate to fixed-fee contracts. Property and equipment Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, generally two to 12 years. Leasehold improvements and property under capital leases are amortized over the shorter of estimated useful lives of the assets or the lease term. Expenditures for repairs and maintenance are expensed as incurred. Software development costs The Company capitalizes costs incurred during the application development and implementation stages for computer software developed or obtained for internal use that are specifically identifiable, have determinable lives and relate to probable future economic benefits. Capitalized computer software costs are included in Property and equipment, net in the consolidated balance sheets. Average useful life of such costs is two to three years . Amortization of internally developed software is recorded within Engineering, research, and development and Sales and marketing expenses in the consolidated statements of loss and comprehensive loss as the software is developed for purposes of supporting internal R&D, engineering, and marketing activities. Costs associated with minor enhancements and maintenance or costs incurred during the preliminary project stage, and costs for training, data conversion, and maintenance are expensed as incurred. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. Internally developed software did not have any impairment in the years ended December 31, 2022, 2021 and 2020. F-10 Business combinations The Company accounts for business combinations under the acquisition method of accounting, in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, recording any assets acquired and liabilities assumed based on their respective fair values. Any excess of the fair value of purchase consideration over the fair value of the assets acquired less liabilities assumed is recorded as goodwill. The Company uses management estimates and industry data to assist in establishing the acquisition date fair values of assets acquired, liabilities assumed, and contingent consideration granted, if any. These estimates and valuations require the Company to make significant assumptions, including projections of future events and operating performance. Goodwill Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. On an annual basis, the Company makes a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying amount, including goodwill. If the Company determines that the fair value of the reporting unit is less than its carrying amount, it will perform a quantitative analysis; otherwise, no further evaluation is necessary. For the quantitative impairment assessment, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. The Company uses the discounted cash flow method of the income approach and market approach to determine the fair value of the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company will recognize a loss equal to the excess, limited to the total amount of goodwill allocated to that reporting unit. Impairments, if any, are charged directly to earnings. As of December 31, 2022 and 2021, the Company had a single reporting unit and determined there were no indicators of impairment. Intangible assets Finite-lived intangible assets are stated at cost less accumulated amortization. Amortization is computed either on the straight-line basis over the asset’s useful lives or declining balance method ranging between two and 12 years. Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable. If facts and circumstances indicate that the carrying value might not be recoverable, projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives is compared against their respective carrying amounts. If an asset is found to be impaired, the impairment charge will be measured as the amount by which the carrying amount of an entity exceeds its fair value. As of December 31, 2022 and 2021, the Company determined there were no indicators of impairment. Fair value Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value: • Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2 — Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data. • Level 3 – Unobservable inputs that are supported by little or no market activities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings. Leases The Company determines if an arrangement is a lease or contains a lease at lease inception. Assessment and classification of lease as either an operating or a financing is performed at the lease commencement date. Operating lease liabilities and their corresponding right-of-use assets (“RoU Assets”) are initially measured based on the present value of future lease payments over the expected remaining lease term. RoU Asset value is additionally adjusted by initial direct costs and incentives received. Present value is calculated based in either interest rate implicit in lease agreement or, if not available, based on our incremental F-11 borrowing rate. Incremental borrowing rate reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew or terminate a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will exercise the renewal option. RoU Assets are subject to periodic impairment tests. Lease expense for operating leases is recognized on a straight-line basis over the lease term. In accordance with ASC Topic 842, components of a lease should be split into three categories: lease components, non-lease components, and non-components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components. The Company elected a practical expedient to account for lease and non-lease components together as a single lease component. The Company also elected the short-term lease recognition exemption for all classes of lease assets with an original term of twelve months or less. For transition, practical expedients were accepted to carry forward historical accounting for any expired or existing contracts that are or contain lease contracts and not to re-assess initial direct costs for any expired or existing leases. Revenue recognition The Company accounts for a contract with a customer when 1) the parties to the contract have approved the contract and are committed to performing their respective obligations, 2) the contract identifies each party’s rights regarding the goods or services to be transferred, 3) the contract identifies the payment terms for the goods or services to be transferred, 4) the contract has commercial substance, and 5) collection of substantially all consideration pursuant to the contract is probable. The Company derives its revenue from offering a suite of digital engineering and information technology (“IT”) consulting services, including digital transformation strategy, emerging technology, lean labs and legacy system replatforming. For most contracts, the Company uses master agreements to govern the overall relevant terms and conditions of the business arrangement between the Company and its customers. When the Company and a customer enter into a Master Services Agreement (“MSA”), purchases are generally made by the customer via a statement of work (“SOW”) which explicitly references the MSA and specifies the services to be delivered. Fees for these contracts may be in the form of time-and-material or fixed-fee arrangements. The majority of the Company’s revenues are generated under time-and-material contracts which are billed using hourly, daily or monthly rates to determine the amounts to be charged directly to the customer. Fees are billed and collected as stipulated in the contract, and revenue is recognized as services are performed. If there is an uncertainty about the receipt of payment for the services, revenue is recognized to the extent that a significant reversal of revenue would not be probable. Consulting services revenue is a single performance obligation earned through a series of distinct daily services and may include services such as those described above. The Company recognizes revenue for services over time as the customer simultaneously receives and consumes the benefits as the Company performs IT consulting services. For revenue contracts, the customer derives value from the Company providing daily consulting services, and the value derived corresponds to the labor hours expended. Therefore, the Company measures the progress and recognizes revenue using an effort-based input method. For fixed fee contracts, the Company recognizes revenue as the work is performed, the monthly calculation of which is based upon actual labor hours incurred and level of effort expended throughout the duration of the contract. For time-and-material contracts, the Company applies the variable consideration allocation guidance. Therefore, instead of allocating the variable consideration to the entire performance obligation, the Company determined the variable consideration should be allocated to each distinct service to which the variable consideration relates, which is providing the customer daily consulting services. The Company also offers volume discounts or early settlement discounts. Volume discounts apply once the customer reaches certain contractual spend thresholds. Early settlement discounts are issued contingent upon the timing of the payment from the customer. If the consideration promised in a contract includes a variable amount, the Company only includes estimated amounts of consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. These estimates may require management to make subjective judgments and to make estimates about the effects of matters inherently uncertain. The determination of whether to constrain consideration in the transaction price are based on information (historical, current and forecasted) that is reasonably available to the Company, taking into consideration the type of customer, the type of transaction and the specific facts and circumstances of each arrangement. Although the Company believes that its approach in developing estimates and its reliance on certain judgments and underlying inputs is reasonable, actual results may differ from management’s estimates, judgments and assumptions. These estimates have historically not been material to the consolidated financial statements. F-12 Cost of revenue Cost of revenue primarily consists of compensation for professional staff generating revenues for the Company. Compensation includes salary, benefits, performance bonuses, retention bonuses, stock compensation expense, technology and travel expenses. The Company allocates a portion of depreciation and amortization to cost of revenue. Engineering, research and development Engineering, research, and development expenses primarily include compensation for professional staff performing research and development related activities that are not directly attributable to generating revenues for the Company. Research and development activities relate to building and scaling the next generation e-commerce platform solutions for customers. Research and development costs are expensed as incurred. Engineering, research, and development expenses also include depreciation and amortization costs, stock-based compensation expenses and performance and retention bonuses. Sales and marketing Sales and marketing expenses are those expenses associated with promoting and selling the Company’s services and include such items as sales and marketing personnel salaries, benefits, stock compensation expenses, travel, advertising, depreciation and amortization, performance and retention bonuses, and other promotional activities. General and administrative General and administrative expenses include other operating items such as officers’ and administrative personnel salaries, benefits, stock compensation expenses, legal, tax and audit expenses, public company related expenses, insurance, technology costs, facility costs, performance and retention bonuses, depreciation and amortization, including amortization of purchased intangibles, and operating lease expenses. Stock-based compensation expense Stock-based compensation expense is measured based on the grant-date fair value of the share-based awards. Forfeitures are recognized as incurred. The Company estimates stock options grant-date fair value using the Black-Scholes-Merton option pricing model. The model requires management to make a number of key assumptions including expected volatility, expected term, risk-free interest rate, and expected dividends. The Company evaluates the assumptions used to value its share-based awards on each grant date. The fair market value of Grid Dynamics stock is determined based on the closing price on NASDAQ on the measurement date. The Company amortizes the grant-date fair value of all share-based compensation awards over the employee’s requisite service period for the entire award on a straight-line basis, which is generally the vesting period. For an award with graded vesting that is subject only to a service condition (e.g., time-based vesting), the Company uses the straight-line attribution method under ASC Topic 718 under which they recognize compensation cost on a straight-line basis over the total requisite service period for the entire award (i.e., over the requisite service period of the last separately-vesting tranche of the award). For awards with performance conditions the compensation cost recognized is based on the actual or expected achievement of the performance condition. Additionally, the Company applies the “floor” concept so that the amount of compensation cost that is recognized as of any date is at least equal to the grant-date fair value of the vested portion of the award on that date. That is, if the straight-line expense recognized to date is less than the grant date fair value of the award that is legally vested at that date, the company will increase its recognized expense to at least equal the fair value of the vested amount. The Company made an accounting policy election to account for accounts for forfeitures when they occur. Refer to Note 15 — Stock-based compensation for additional information. Benefit plans The Company maintains a 401(k) defined contribution savings and retirement plan for substantially all of its U.S. employees. Subject to ERISA regulations, an employee may elect to contribute an amount up to 90 % of compensation during each plan year not to exceed the annual maximum defined by the IRS. The Company is not required to make contributions to the plan but can make discretionary contributions. The Company has not made any contributions to the 401(k) plan for the years ended December 31, 2022, 2021, and 2020. Income taxes The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. The determination of the provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The provision for income taxes reflects a combination of F-13 income earned and taxed in the various U.S. federal and state, international and other jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Management considers all available evidence, both positive and negative, in determining whether a valuation allowance is required. Such evidence includes prior earnings history, the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback and carryforward periods of tax attributes, and tax planning strategies that could potentially enhance the likelihood of realization of a deferred tax asset in making this assessment. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. The Company evaluates for uncertain tax positions at each balance sheet date. When it is more likely than not that a position will be sustained upon examination by a tax authority that has full knowledge of all relevant information, the Company measures the amount of tax benefit from the position and records the largest amount of tax benefit that is greater than 50% likely of being realized after settlement with a tax authority. The Company’s policy for interest and/or penalties related to underpayments of income taxes is to include interest and penalties in income tax expense. Restructuring The Company initiated a restructuring plan focused on optimizing utilization during 2020. For the year ended December 31, 2020, the Company incurred and paid total restructuring expenses of $ 0.9 million, which mostly included employee termination costs. This amount is included as a component of General and administrative expenses in the consolidated financial statements. The Company did not incur any restructuring expenses during the years ended December 31, 2022 and 2021, respectively. Earnings per share The Company accounts for earnings per share in accordance with ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common and potential dilutive common shares outstanding during the period. Under U.S. GAAP, companies are required to include certain option grants granted to employees and convertible preferred stock in the diluted earnings per share calculation, except in cases where the effect of the inclusion of options and convertible preferred stock would be antidilutive. Certain significant risks and uncertainties The Company is subject to risks, including but not limited to customer concentration, concentrations of credit and foreign currency risks. Concentrations of credit risk and significant customers Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and trade receivable. The Company’s cash is held with high-quality financial institutions. Deposits held with banks may, at times, exceed the amount of insurance provided on such deposits. As of December 31, 2022 and 2021 cash balances held in Ukraine and Russia combined equaled $ 0.8 million and $ 1.1 million, respectively. Cash in these countries is used for the operational needs of the local entities and cash balances change with the expected operating needs of these entities. Additionally the Company holds cash deposits in countries where the banking sector remains periodically unstable, banking and other financial systems generally do not meet the banking standards of more developed markets, and bank deposits made by corporate entities are not insured. Such countries apart from Ukraine include Armenia, Moldova, and Mexico. The Company places its cash with financial institutions considered stable in the region and conducts ongoing evaluations of the credit worthiness of the financial institutions with which it operates. However, a banking crisis, bankruptcy or insolvency of banks that process or hold the Company’s funds, may result in the loss of the Company’s deposits or adversely affect the Company’s ability to complete banking transactions, which could adversely affect the Company’s business and financial condition. The Company records its trade receivable including billed and unbilled amounts at their face amounts less allowances. Billed and unbilled receivables are generally dispersed across the Company’s customers in proportion to their revenue. The following table shows number of customers exceeding 10% of the Company’s billed and unbilled receivable balances at December 31, 2022 and 2021: F-14 As of December 31, 2022 2021 Billed receivable 2 1 Unbilled receivable 2 1 The Company has not experienced any losses on its cash and cash equivalents and minimal losses on its trade receivable. The Company performs ongoing evaluations of its customers’ financial condition. The following table shows the amount of revenue derived from each customer exceeding 10% of the Company’s revenue during the years ended December 31, 2022, 2021 and 2020: For the years ended December 31, 2022 2021 2020 Customer 1 12.6 % 11.6 % 21.3 % Customer 2 10.6 % 11.0 % 11.8 % Foreign currency risks Grid Dynamics’ functional currency apart from the U.S. dollar includes EURO, British pounds, Mexican pesos, Moldovan leu and Indian rupees. Grid Dynamics contracts with customers for payment in and generates predominantly all of its revenue in U.S. dollars, except for Daxx and Tacit that generate revenue predominantly in EURO and British pounds. The international subsidiaries convert the U.S. dollars to their respective local currencies to fund operations such as labor and materials required for the entity to operate. The Company’s international subsidiaries’ accounting records are denominated in their respective local currencies. The Company is exposed to foreign currency exchange rate changes that could impact remeasurement of foreign denominated monetary assets and liabilities into U.S. dollars with the remeasurement impact recorded to income. The Company is also exposed to fluctuations in foreign currency exchange rates related to cash outflows for expenditures in foreign currencies. The net income/(loss) on foreign currency transactions was $( 1.5 ) million, $( 0.7 ) million, and $ 0.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. The Company has not entered into any foreign exchange forward contracts, derivatives, or similar financial instruments to hedge against the risk of foreign exchange rate fluctuations. Recently adopted accounting pronouncements Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the “FASB”), in the form of Accounting Standards Updates (“ASUs”), to the FASB’s ASC. The Company will adopt according these changes according to the various timetables the FASB specifies. In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842). The standard supersedes previously existing lease guidance (“Topic 840”) and requires entities to recognize all leases, with the exception of leases with a term of twelve months or less, on the balance sheet as right-of-use assets (“RoU Assets”) and lease liabilities. Disclosures should provide the information in the financial statements summarizing the amount, timing and cash flows arising from leasing. The Company adopted Topic 842, effective January 1, 2022 using current period adjustment method. Prior period amounts were not adjusted. The adoption of Topic 842 on January 1, 2022 resulted in the recognition of RoU Assets for operating leases of $ 5.9 million and operating lease liabilities of $ 5.7 million. The adoption of Topic 842 did not have an impact on the consolidated statement of loss and comprehensive loss, consolidated statement of changes in stockholders’ equity or the consolidated statement of cash flows. Recently issued accounting pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments . Topic 326 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief, and clarified the guidance with the release of ASU 2020-02 Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842). These ASUs replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses measured at amortized cost and certain other instruments, including loans, held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. The update is effective for fiscal years beginning after December 15, 2022, and interim periods with fiscal years after December 15, 2022. The Company has determined that the adoption of this guidance will not have a material effect on the on the consolidated financial statements. F-15 In March 2020, FASB issued ASU No. 2020-03, Codification to Financial Instruments. This ASU improves and clarifies various financial instruments topics, including the current expected credit losses standard issued in 2016. The ASU includes seven different issues that describe the areas of improvement and the related amendments to U.S. GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 3, Issue 4, and Issue 5 were effective upon issuance of this update. The new guidance did not have a material impact on the consolidated financial statements. The amendments related to Issue 6 and Issue 7 are effective for the Company the earlier of January 1, 2023 or when the Company adopts ASU 2016-13, if early adopted. The Company has determined that the adoption of this guidance will not have a material effect on the consolidated financial statements. Note 3 – Business combination On March 5, 2020, ChaSerg consummated its business combination with GDI pursuant to the Merger Agreement. Immediately following the Business Combination, there were 50.8 million shares of common stock with a par value of $ 0.0001 , and 11.3 million warrants outstanding. GDI began operations in September 2006 to provide next-generation ecommerce platform solutions in the areas of search, analytics, and release automation to Fortune 1000 companies. Under ASC 805, Business Combinations, GDI was deemed the accounting acquirer, and the Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded in accordance with U.S. GAAP. ChaSerg was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of GDI issuing stock for the net assets of ChaSerg, accompanied by a recapitalization. The net assets of ChaSerg were stated at historical cost, with no goodwill or other intangible assets recorded. Reported shares and earnings per share available to holders of the Company’s common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination (approximately 1.685 GDH shares to 1.0 GDI share). The following represents the aggregate consideration for the Business Combination: (in thousands, except for per share amounts) Shares transferred at Closing 27,006 Less: Post-Closing share adjustment ( 857 ) Total shares transferred at Closing 26,149 Value per share $ 10.19 Total share consideration $ 266,459 Plus: Cash transferred to GDI stockholders 130,000 Closing merger consideration $ 396,459 The shares transferred at Closing included 4.3 million options to purchase the Company’s shares that were vested, outstanding and unexercised, which were determined using 1.7 million vested options at Closing converted at an exchange ratio of approximately 2.48 . Additionally, 0.4 million options to purchase the Company’s common stock that were unvested, outstanding and unexercised were assumed by the Company, which were determined using 0.1 million unvested options at Closing converted at an exchange ratio of approximately 2.48 . In connection with the Closing, 0.1 million shares of common stock were redeemed at a price per share of approximately $ 10.21 . See Note 14 for details of the Company’s common stock prior to and subsequent to the Business Combination. In connection with the Business Combination, the Company incurred direct and incremental costs of approximately $ 4.7 million, consisting of legal and professional fees, of which $ 4.1 million were related to equity issuance costs and recorded to Additional paid-in capital as a reduction of proceeds and $ 0.6 million were recorded to General and administrative expenses. In connection with the Business Combination, all outstanding retention bonus obligations from a 2017 acquisition totaling $ 3.4 million were accelerated and paid in full to Grid Dynamics’ personnel immediately prior to the Closing and were recorded in Cost of revenue and Operating expenses in the consolidated financial statements. Note 4 — Acquisitions Mutual Mobile — On December 23, 2022, the Company acquired 100 % of the equity interest of the software company Mutual Mobile Inc. (“Mutual Mobile”). Founded in 2009, Mutual Mobile is based in the United States and India, offers end-to-end design and development of next-generation applications, combining mobile, augmented/virtual/mixed reality, and cloud edge / IoT practices. The acquisition of Mutual Mobile added approximately 180 employees to the Company’s headcount. The F-16 acquisition will accelerate Company’s strategic expansion into the India engineering market and further solidifies Grid Dynamics’ commitment to global growth. The total purchase consideration is $ 16.1 million and consists of cash consideration of $ 12.8 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $ 3.3 million. The maximum amount of potential contingent cash consideration is $ 5.0 million. The contingent consideration is payable based on revenue and gross profit metrics to be achieved by Mutual Mobile within 12 months. The Company recorded a liability for the contingent consideration amount based on the Company’s best estimate of the fair value of the expected payout. See Note 5 for further details on contingent consideration. Tacit — On May 29, 2021, the Company acquired 100 % of the equity interest of the global consultancy company Tacit Knowledge Inc. (“Tacit”). Founded in 2002, Tacit is a global provider of digital commerce solutions, serving customers across the UK, North America, Continental Europe, and Asia. The acquisition of Tacit added approximately 180 employees to the Company's headcount. The acquisition will augment the Company’s service offerings and will strengthen its competitive position within the market. Additionally, the acquisition will also enable the Company to leverage near-shore capabilities with Tacit’s presence in Mexico. The total purchase consideration is $ 37.6 million and consists of cash consideration of $ 33.6 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $ 4.0 million. The maximum amount of potential contingent cash consideration is $ 5.0 million. See Note 5 for further details on contingent consideration. Daxx — On December 14, 2020, the Company completed its acquisition of Daxx Web Industries B.V. (“Daxx”), a Netherlands-based software development and technology consulting company. In addition to high-end software development, Daxx provides consulting services spanning agile process reengineering, lean development, and DevOps. The Company expects to gain market share and realize synergies through the acquisition of Daxx. The total purchase consideration is up to $ 23.3 million and included cash consideration of approximately $ 18.4 million and contingent consideration payable of up to $ 4.9 million. The contingent consideration is payable based on revenue and EBITDA metrics achieved by Daxx for 270 days following the date of the acquisition. The Company recorded a liability for the contingent consideration amount based the Company’s best estimate of the fair value of the expected payout. See Note 5 for further details on contingent consideration. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as updated for any changes as of December 31, 2022 for Daxx, Tacit and Mutual Mobile: Daxx Tacit Mutual Mobile Current assets $ 4,527 $ 9,145 $ 4,982 Property, plant and equipment 352 466 132 Intangible assets 8,174 12,913 3,749 Goodwill 14,690 21,268 9,556 Other noncurrent assets — — 102 Total assets acquired $ 27,743 $ 43,792 $ 18,521 Accounts payable and accrued expenses ( 4,718 ) ( 3,675 ) ( 1,576 ) Deferred taxes ( 2,639 ) ( 2,500 ) ( 875 ) Total liabilities assumed $ ( 7,357 ) $ ( 6,175 ) $ ( 2,451 ) Purchase price allocation $ 20,386 $ 37,617 $ 16,070 Current assets acquired include cash and cash equivalents in the amount of $ 2.3 million, $ 3.0 million and $ 3.5 million for Daxx, Tacit and Mutual Mobile acquisitions, respectively. The purchase price was assigned to assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition, and any excess was allocated to goodwill, as shown in the table above. Goodwill represents the value the Company F-17 expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach. The goodwill for all acquisitions is not deductible for income tax purposes. During the first quarter of 2021, the Company finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Daxx with no additional adjustments recorded. During the second half of 2021 the Company updated fair value of the contingent consideration for Tacit at acquisition date that resulted in the increase of goodwill for $ 0.7 million. During the fourth quarter of 2021, the Company finalized the fair value of the assets acquired and liabilities assumed in the acquisition of Tacit. For the acquisition of Mutual Mobile, the estimated fair values of the assets acquired and liabilities assumed are provisional and based on the information that was available as of the acquisition date. The Company expects to complete the purchase price allocations as soon as practicable but no later than one year from the acquisition date. The estimated fair value, useful lives and amortization methods of identifiable intangible assets as of the date of acquisition updated for any changes during the year ended December 31, 2022 are as follows: Daxx Tacit Mutual Mobile Fair Value Useful Life Fair Value Useful Life Fair Value Useful Life Customer relationships $ 4,234 8 years $ 11,737 12 years $ 3,453 8 years Trade name 3,500 10 years 1,176 4 years 152 4 years Non-compete agreements 440 2 years — — 144 2 years Total identified intangible assets $ 8,174 $ 12,913 $ 3,749 The Company used acquisition method of accounting for all acquisitions, and consequently, the results of operations for all acquisitions are reported in the consolidated financial statements from the dates of acquisition. Revenues generated by acquired companies during the period of one year starting from acquisition date and included in the Company’s consolidated statement of loss totaled $ 14.6 million, $ 44.9 million and $ 1.0 million during the years ended December 31, 2022, 2021 and 2020. The following unaudited pro forma information presents the combined results of operations as if the acquisitions of Daxx, Tacit and Mutual Mobile had occurred at the beginning of the year preceding acquisition date. Pre-acquisition results of businesses acquired have been added to the Company’s historical results. The pro forma results contained in the table below include adjustments for amortization of acquired intangibles, depreciation expense, related to the financing and related income taxes. Any potential cost savings or other operational efficiencies that could result from the acquisition are not included in these pro forma results. These pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed dates, nor are they necessarily an indication of future operating results. (Unaudited) 2022 2021 2020 Revenue $ 321,969 $ 219,312 $ 149,219 Net loss $ ( 27,811 ) $ ( 5,910 ) $ ( 10,792 ) Diluted loss per share $ ( 0.40 ) $ ( 0.10 ) $ ( 0.24 ) Note 5 — Fair value Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis The Company measures contingent consideration payable at fair value on a recurring basis using significant inputs that are not observable in the market. Fair value of the contingent consideration liability is based on the Monte-Carlo model which is primarily based on forecasts and discounted cash flow analysis. The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved. Changes in the fair value of contingent consideration payable primarily result from changes in the timing and amount of specific milestone estimates and changes in probability assumptions F-18 with respect to the likelihood of achieving the various earnout criteria. These changes could cause a material impact to, and volatility in the Company’s operating results. During the years ended December 31, 2022, 2021 and 2020 the Company completed three acquisitions under which the Company committed to make a cash earnout payment subject to attainment of specific performance targets. The weighted average discount rates used to determine fair values of Daxx, Tacit and Mutual Mobile contingent considerations were 4.8 %, 13.5 % and 10.1 %, respectively. The Company records contingent consideration payable in Other current liabilities in its consolidated balance sheets. A reconciliation of the beginning and ending balances of Level 3 acquisition-related contingent consideration payable using significant unobservable inputs for the years ended December 31, 2022, 2021 and 2020 are as follows: Amount Contingent consideration payable as of January 1, 2020 $ — Acquisition date fair value of contingent consideration payable - Daxx 1,947 Contingent consideration payable as of December 31, 2020 $ 1,947 Acquisition date fair value of contingent consideration payable - Tacit 4,000 Change in fair value of contingent consideration payable included in Other income/(expense) - Daxx ( 14 ) Change in fair value of contingent consideration payable included in Other income/(expense) - Tacit 1,000 Contingent consideration payable as of December 31, 2021 $ 6,933 Acquisition date fair value of contingent consideration payable - Mutual Mobile 3,288 Payment of contingent consideration - Daxx ( 1,933 ) Payment of contingent consideration - Tacit ( 5,000 ) Contingent consideration payable as of December 31, 2022 $ 3,288 Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis Estimates of fair value of financial instruments not carried at fair value on a recurring basis are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The Company’s financial assets and liabilities, are generally short-term in nature; therefore, the carrying value of these items approximates their fair value. The following tables present the estimated fair values of the Company’s financial assets and liabilities not measured at fair value on a nonrecurring basis as of the dates indicated: Fair Value Hierarchy Balance Estimated Fair Value Level 1 Level 2 Level 3 December 31, 2022 Financial Assets: Cash equivalents: Money market funds $ 205,787 $ 205,787 $ 205,787 $ — $ — December 31, 2021 Financial Assets: Cash equivalents: Money market funds $ 13,050 $ 13,050 $ 13,050 $ — $ — Non-Marketable Securities Without Readily Determinable Fair Values The Company holds investment in equity securities of a related party that do not have readily determinable fair values. This investment is recorded at cost and is remeasured to fair value based on certain observable price changes or impairment events as they occur. The carrying amount of the investment was $ 1.0 million as of December 31, 2022 and was classified as Other noncurrent assets in the Company’s consolidated balance sheets. The Company did not hold investments in equity securities recorded at cost as of December 31, 2021. F-19 Note 6 — Prepaid expenses and other current assets The prepaid expenses and other current assets were as follows (in thousands): As of December 31, 2022 2021 Prepaid expenses $ 3,323 $ 2,188 Guarantee deposits placed 2,295 345 Value added tax receivable 1,384 931 Prepaid insurance 925 921 Other assets 227 118 Total prepaid expenses and other current assets $ 8,154 $ 4,503 Note 7 — Property and equipment, net Property and equipment, net consist of the following (in thousands): Estimated Useful Life (In Years) As of December 31, 2022 2021 Computers and equipment 2 - 5 $ 11,679 $ 10,784 Furniture and fixtures 3 - 7 1,614 1,174 Software 3 - 5 1,053 513 Leasehold improvements 7 - 12 646 486 Machinery and automobiles 5 349 246 $ 15,341 $ 13,203 Less: Accumulated depreciation and amortization ( 8,614 ) ( 8,240 ) $ 6,727 $ 4,963 Capitalized software development costs 2 - 3 $ 6,210 $ 4,656 Less: Accumulated amortization ( 4,722 ) ( 3,450 ) $ 1,488 $ 1,206 Property and equipment, net $ 8,215 $ 6,169 During the years ended December 31, 2022 and 2021, the Company capitalized $ 1.6 million and $ 1.1 million of internally developed software costs, respectively. Property and equipment depreciation and amortization expense for the years ended December 31, 2022, 2021, and 2020 was $ 4.2 million, $ 3.1 million, and $ 2.6 million, respectively. F-20 Note 8 — Goodwill and intangible assets, net Goodwill rollforward for the years ended December 31, 2022 and 2021 was as follows (in thousands): Amount Goodwill as of January 1, 2021 $ 14,690 Acquisition of Tacit 21,268 Goodwill as of December 31, 2021 $ 35,958 Acquisition of Mutual Mobile 9,556 Goodwill as of December 31, 2022 $ 45,514 There were no impairment losses of goodwill recognized as of December 31, 2022 and 2021. Intangible assets consist of the following (in thousands): Estimated Useful Life (In Years) As of December 31, 2022 2021 Customer relationships 8 - 12 $ 19,424 $ 15,971 Tradenames 4 - 10 4,828 4,676 Non-compete agreements 2 584 440 $ 24,836 $ 21,087 Less: Accumulated amortization ( 4,461 ) ( 1,990 ) Intangible assets, net $ 20,375 $ 19,097 Intangible assets amortization expense for the years ended December 31, 2022, 2021, and 2020 was $ 2.5 million, $ 2.0 million, $ 0.1 million, respectively. Based on the carrying value of the Company’s existing intangible assets as of December 31, 2022, the estimated amortization expense for the future years is as follows: Years ending December 31, (in thousands) Amount 2023 2,693 2024 2,562 2025 2,379 2026 2,327 2027 2,289 Thereafter 8,125 Total $ 20,375 F-21 Note 9 — Accrued expense and other current liabilities The components of accrued expense and other current liabilities were as follows (in thousands): As of December 31, 2022 2021 Contingent consideration payable $ 3,288 $ 6,933 Value added tax payable 1,345 1,274 Accrued expenses 1,302 741 Deferred revenue 1,124 409 Customer deposits 754 798 Other liabilities 712 594 Total accrued expense and other current liabilities $ 8,525 $ 10,749 As of December 31, 2022 and December 31, 2021 the Company had payable to its related party in the amount of $ 0.6 million in each of the respective years that was classified as Accrued expense and other current liabilities in unaudited condensed consolidated balance sheet. Note 10 — Debt Revolving Credit Facility — On March 15, 2022, the Company entered into a Credit Agreement (the “2022 Credit Agreement”) by and among the Company, as borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders (the “Agent”). The 2022 Credit Agreement provided for a secured multicurrency revolving loan facility with an initial aggregate principal amount of up to $ 30.0 million, with a $ 10.0 million letter of credit sublimit. The Company could increase the size of the revolving loan facility up to $ 50.0 million, subject to certain conditions and additional commitments from existing and/or new lenders. The 2022 Credit Agreement matures March 15, 2025. At the Company’s option, borrowings under the 2022 Credit Agreement accrued interest at a per annum rate based on either (i) the base rate plus a margin ranging from 1.0 % to 1.5 %, (ii) an adjusted term Secured Overnight Financing Rate (“SOFR”) or adjusted the Euro Interbank Offer Rate (“EURIBOR”) (based on one, three or six-month interest periods) plus a margin ranging from 2.0 % to 2.5 %, or (iii) an adjusted daily simple SOFR rate (or SONIA rate in the case of loans denominated in pounds sterling, or SARON rate in the case of loans denominated in Swiss francs), plus a margin ranging from 2.0 % to 2.5 %, in each case, with the applicable margin determined based on the Company’s consolidated total leverage ratio. The Company was also obligated to pay other closing fees, administration fees, commitment fees and letter of credit fees customary for a credit facility of this size and type. The Company’s obligations under the 2022 Credit Agreement were required to be guaranteed by certain of its domestic subsidiaries meeting materiality thresholds set forth in the 2022 Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the personal property of the Company and the Company’s subsidiary guarantors. The 2022 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and its subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments and acquisitions, make certain restricted payments, dispose of assets, enter into certain transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the 2022 Credit Agreement. The Company is also required to maintain compliance with a consolidated total leverage ratio, determined in accordance with the terms of the 2022 Credit Agreement. As of December 31, 2022, the Company was in compliance with all covenants contained in the 2022 Credit Agreement. Line of Credit — In October, 2017, the Company entered into a loan agreement for a revolving line of credit facility (the “Line of Credit”) with a borrowing capacity of $ 0.5 million. The Line of Credit was secured by substantially all of the Company’s assets and was secured in order to provide credit support for a letter of credit facility and balances under the Company’s credit cards. Borrowings under the Line of Credit were subject to a variable interest rate, based on changes in the Prime Rate, as calculated published by the Wall Street Journal. The Company closed the Line of Credit in March of 2022. As of December 31, 2022 and December 31, 2021, respectively, the Company did not have any outstanding debt under the 2022 Credit Agreement and Line of Credit. F-22 Note 11 — Leases A major part of the Company's lease obligations is for office real estate. The Company may also lease corporate apartments, cars and office equipment. Payments on some of our leases may depend on index or rate, including Consumer Price Index. Such payments are included in the calculation of lease liability and assets at the commencement dates, all future changes are accounted as variable payments similar to other variable payments, such as common area maintenance, property and other taxes, utilities and insurance that are based on the lessor’s cost. The Company’s leases have remaining lease terms ranging from 0.9 to 5.3 years . Certain lease agreements may include the option to extend or terminate before the end of the contractual term and are often non-cancelable or cancellable only by the payment of penalties. The Company includes these options in the lease term when it is reasonably certain that they will be exercised. As of December 31, 2022, the Company had no finance leases. Operating lease expense is recorded on a straight-line basis over the lease term and lease costs were as follows (in thousands): For the year ended December 31, 2022 Operating lease cost $ 3,268 Variable lease cost 43 Short-term lease cost 513 Total lease cost $ 3,824 Lease expense under operating lease agreements for the year ended December 31, 2021 and December 31, 2020 was $ 4.2 million in both periods. Supplemental information related to operating lease transactions is as follows (in thousands): For the year ended December 31, 2022 Lease liability payments $ 2,888 Lease right-of-use assets obtained in exchange for liabilities $ 4,468 Non-cash net decrease in lease assets due to lease modifications $ ( 1,015 ) Non-cash net decrease in lease liability due to lease modifications $ 1,015 Weighted average remaining lease term and discount rate as of December 31, 2022 is as follows: As of December 31, 2022 Weighted average remaining lease term, in years 3.77 Weighted average discount rate 5.0 % As of December 31, 2022, operating lease liabilities will mature as follows (in thousands): F-23 Years ending (in thousands) Lease Payments 2023 2,506 2024 2,606 2025 1,700 2026 1,180 2027 977 Thereafter 86 Total lease payments 9,055 Less: imputed interest ( 915 ) Total $ 8,140 There were no material lease agreements signed with related parties as of December 31, 2022. As of December 31, 2022, the Company had committed to payments of $ 0.3 million related to operating lease agreement that had not yet commenced as of December 31, 2022. These operating lease will commence in 2023 with lease term of two years . The Company does not have any material finance lease agreements that had not yet commenced. Note 12 — Revenue Disaggregation of revenues The tables below present disaggregated revenues from contracts with customers by customer location, industries and contract-types. The Company believes this disaggregation best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market and other economic factors. The Company has a single reportable segment for the years ended December 31, 2022, 2021 and 2020. The following table shows the disaggregation of the Company’s revenues by major customer location. Revenues are attributed to geographic regions based upon billed client location. Substantially all of the revenue in our North America region relates to operations in the United States. For the years ended December 31, 2022 2021 2020 Customer Location (in thousands) North America $ 255,480 $ 168,524 $ 110,288 Europe 54,708 42,479 995 Other 294 277 — Total Revenues $ 310,482 $ 211,280 $ 111,283 The following table shows the disaggregation of the Company’s revenues by main vertical markets for the years ended December 31, 2022, 2021 and 2020: For the years ended December 31, 2022 2021 2020 Vertical (in thousands) Retail $ 99,681 $ 61,717 $ 33,975 Tech, Media and Telecom 98,334 67,689 45,362 CPG/Manufacturing 61,216 43,461 14,202 Finance 21,893 17,515 13,589 Other 29,358 20,898 4,155 Total Revenues $ 310,482 $ 211,280 $ 111,283 The following table shows the disaggregation of the Company’s revenues by contract types for the years ended December 31, 2022, 2021 and 2020: F-24 For the years ended December 31, 2022 2021 2020 Contract Type (in thousands) Time-and-material $ 285,916 $ 194,926 $ 105,578 Fixed-fee 24,566 16,354 5,705 Total Revenues $ 310,482 $ 211,280 $ 111,283 Contract balances A contract asset is a right to consideration that is conditional upon factors other than the passage of time. A contract liability, or deferred revenue, consist of advance payments and billings in excess of revenues recognized. As of December 31, 2022 and 2021 the Company did not have material contract assets. Contract liabilities were $ 1.1 million and $ 0.4 million as of December 31, 2022 and 2021, respectively. Remaining performance obligation ASC Topic 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 31, 2022. This disclosure is not required for: 1) contracts with an original duration of one year or less, including contracts that can be terminated for convenience without a substantive penalty, 2) contracts for which the Company recognizes revenues based on the right to invoice for services performed, 3) variable consideration allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation in accordance with ASC 606-10-25-14(b), for which the criteria in ASC 606-10-32-40 have been met, or 4) variable consideration in the form of a sales-based or usage-based royalty promised in exchange for a license of intellectual property. All of the Company’s contracts met one or more of these exemptions as of December 31, 2022. For the years ended December 31, 2022, 2021, and 2020 the Company recorded revenue from its related parties of $ 6.8 million, $ 4.3 million and $ 0.1 million respectfully. As of December 31, 2022 and 2021 accounts receivable from related parties were $ 0.9 million and $ 0.6 million, respectively. Note 13 — Income taxes Income before provision for income taxes consisted of the following: For the years ended December 31, 2022 2021 2020 (in thousands) United States $ ( 23,490 ) $ ( 11,530 ) $ ( 18,084 ) International 3,037 9,078 2,872 Total income/(loss) before provision for income taxes $ ( 20,453 ) $ ( 2,452 ) $ ( 15,212 ) F-25 The federal and state income tax provision/(benefit) is summarized as follows: For the years ended December 31, 2022 2021 2020 (in thousands) Current Federal $ 6,951 $ 71 $ 167 State 1,774 80 97 International 3,681 2,164 1,199 Total current tax expense $ 12,406 $ 2,315 $ 1,463 Deferred Federal $ ( 2,740 ) $ 2,752 $ ( 3,042 ) State ( 315 ) ( 59 ) ( 811 ) International ( 590 ) 240 ( 222 ) Total deferred tax expense/(benefit) $ ( 3,645 ) $ 2,933 $ ( 4,075 ) Total tax expense/(benefit) $ 8,761 $ 5,248 $ ( 2,613 ) Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards. The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2022 and 2021 are as follows: As of December 31, 2022 2021 (in thousands) Deferred tax assets Stock-based compensation $ 4,004 $ 1,328 Capitalized R&D 1,056 — Accrued compensation 931 818 Lease liability 465 — Net operating loss 401 755 State tax accrual 243 13 Allowance for bad debt 105 74 Credits — 195 Total deferred tax assets $ 7,205 $ 3,183 Deferred tax liabilities Intangible assets $ ( 5,207 ) $ ( 4,599 ) Lease right-of-use assets ( 465 ) — Fixed asset basis ( 291 ) ( 153 ) Other foreign DTLs — ( 24 ) Total deferred tax liabilities ( 5,963 ) ( 4,776 ) Net deferred taxes $ 1,242 $ ( 1,593 ) The Company assessed its ability to realize the benefits of its domestic deferred tax assets (“DTA”) by evaluating all available positive and negative evidence, objective and subjective in nature, including (1) cumulative results of operations in recent years, (2) sources of recent pre-tax income, (3) estimates of future taxable income, and (4) the length of net operating loss (“NOL”) carryforward periods. The Company determined it is in a three-year cumulative taxable income position as of December 31, 2022 and expects to continue to be in a taxable income position in the long-term foreseeable future. F-26 After an evaluation of all available qualitative and quantitative evidence, both positive and negative in nature, the Company concluded it is more likely than not that sufficient future taxable income will be generated to realize the benefits of its DTAs prior to expiration. As a result, the Company determined that no valuation allowance was needed as of December 31, 2022. Net operating losses and tax credit carryforwards as of December 31, 2022 are as follows: Amount Expiration years (in thousands) Net operating losses, federal $ 1,466 N/A Net operating losses, state $ 1,487 2034 The effective tax rate of the Company differs from the federal statutory rate as follows: For the years ended December 31, 2022 2021 2020 Statutory rate 21.0 % 21.0 % 21.0 % State tax ( 7.5 ) ( 0.4 ) 3.8 Permanent and other items ( 1.0 ) ( 10.8 ) ( 2.8 ) Stock-based compensation 4.4 114.4 16.8 Tax credits 13.9 3.8 0.1 Foreign rate differential ( 11.9 ) ( 4.9 ) ( 2.6 ) Foreign inclusion adjustments ( 10.8 ) ( 75.7 ) ( 4.8 ) Foreign intangible amortization ( 2.3 ) ( 15.7 ) — 162M limitation ( 48.6 ) ( 245.8 ) ( 14.3 ) Total ( 42.8 ) % ( 214.1 ) % 17.2 % As of December 31, 2022, the Company has approximately $ 1.2 million of unrecognized tax benefits. Approximately all of the unrecognized tax benefits, if recognized, would affect the effective tax rate. A reconciliation of beginning to ending amounts of unrecognized tax benefits is as follows: For the years ended December 31, 2022 2021 2020 (in thousands) Unrecognized tax benefit as of January 1 $ 780 $ 654 $ 357 Changes related to prior year tax positions 168 ( 50 ) 1 Changes related to current year tax positions 203 176 296 Unrecognized tax benefit as of December 31 $ 1,151 $ 780 $ 654 Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company does not anticipate a material change to its unrecognized tax benefits over the next twelve months. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. There was no interest or penalties accrued as of December 31, 2022 and 2021. The Company is subject to income taxes in U.S. federal and various state, local and foreign jurisdictions. For federal and states, tax years subsequent to 2018 remain open to examination due to the carryover of unused net operating losses or tax credits. With respect to foreign jurisdictions, tax years 2015 and after remain open. The Company's provision for income taxes does not include provisions for foreign withholding taxes associated with the repatriation of undistributed earnings of certain foreign subsidiaries that we intend to reinvest indefinitely in our foreign subsidiaries. As part of the 2017 Tax Cuts and Jobs Act, Section 174 was amended to require that specified research and experimental (SR&E) expenditures be capitalized and amortized but delayed the effective date of this amendment to tax years beginning F-27 January 1st, 2022 or later. The amortization period is 5 years for domestic research expenditures and 15 years for foreign research expenditures using a mid-year convention. The Company evaluated its R&D expenses both in the US and foreign jurisdictions and determined there were approximately $ 4.4 million of expenses worldwide subject to capitalization and treated as a temporary adjustment. The President signed the CHIPS and Science Act and Inflation Reduction Act (“IRA”) into law on August 9 and 16, 2022, respectively. The IRA provides funding for climate and energy provisions. The new law includes a corporate alternative minimum tax, a stock buyback tax, and increased IRS enforcement funding. The CHIPS Act includes funding for the semiconductor industry in the US. Both the Inflation Reduction Act and the CHIPS and Science Act were enacted in 2022. Both CHIPS Act and IRA were not materially impactful on the Company’s tax positions. California Assembly Bill 85 (AB 85) was signed into law by Governor Gavin Newsom on June 29, 2020. The legislation suspended the California Net Operating Loss deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation of California Tax Credits utilization for 2020, 2021, and 2022. The legislation disallowed the use of California Net Operating Loss deductions if the taxpayer recognizes business income and its income subject to tax is greater than $1.0 million. Additionally, business credits will only offset a maximum of $5.0 million of California tax liability. On February 9, 2022, Governor Gavin Newsom signed Senate Bill 113 (SB 113) into law, bringing an early end to California’s 2020-2022 NOLs deduction suspension, thus, allowing taxpayers to deduct NOLs on 2022 tax return. SB 113 also removed the $5.0 million business tax credit cap and updated the elective pass-through entity tax credit. As such, the Company utilized the California net operating loss generated in prior periods to offset California taxable income in 2022. Note 14 — Stockholders’ equity The following description summarizes the material terms and provisions of the securities that the Company has authorized. Common stock The Company is authorized to issue 110.0 million shares of common stock. At Closing, March 5, 2020, the Company had issued 50.8 million shares of common stock. On September 12, 2022, the Company concluded a follow-on public offering of 6.6 million shares of its common stock. These amounts included shares sold upon exercise in full of the underwriters' option to purchase additional shares at a price of $ 17.5 per share. J.P. Morgan Securities, LLC and William Blair & Company, LLC acted as joint book-running managers for the offering. Needham & Company, LLC and Cantor Fitzgerald & Co. acted as co-managers for the offering. The net proceeds from this offering for the company, after deducting underwriting discounts and commissions were $ 109.5 million. On July 6, 2021, the Company concluded a follow-on public offering of 11.6 million shares of its common stock, which included 5.5 million shares offered by Grid Dynamics and 6.1 million shares offered by certain selling stockholders, at a price to the public of $ 15.03 per share. These amounts included shares sold upon exercise in full of the underwriters' option to purchase additional shares. J.P. Morgan Securities, LLC, William Blair & Company, L.L.C. and Cowen and Company, LLC acted as joint book-running managers for the offering. Needham & Company, LLC and Cantor Fitzgerald & Co. acted as co-managers for the offering. The net proceeds from this offering for the company, after deducting underwriting discounts and commissions and estimated offering expenses, were $ 78.3 million. The Company did not receive any proceeds from the sale of the shares by the selling stockholders. As of December 31, 2022 the Company had 74.2 million shares of common stock that were outstanding. Additionally, there were 2.6 million outstanding vested options to purchase the Company’s common stock. Preferred Stock As of December 31, 2019 GDI had 1.0 million shares of no par value shares of preferred stock outstanding convertible on a 1:1 basis with GDI’s common stock. At the Closing, the preferred stock outstanding was converted into common stock of the Company, par value $ 0.0001 per share. Therefore, as of December 31, 2020, 2021 and 2022 there was no preferred stock outstanding, respectively. Founders and underwriter shares subject to earnout provisions At the Closing, the Company had 1.2 million shares of common stock issued and outstanding subject to earnout provisions (the “Earnout Shares”). The Earnout Shares are subject to transfer restrictions and the owners of the Earnout Shares cannot sell, transfer or otherwise dispose of their respective shares until the respective earnout provisions have been achieved as described further below. The Earnout Shares have full ownership rights including the right to vote and receive dividends and other F-28 distributions thereon. Dividends and other distributions are not subject to forfeiture in accordance with the Amended and Restated Sponsor Share Letter filed with the SEC on January 26, 2020. The Earnout Shares vesting conditions are as follows: 399,999 ; 400,000 ; and 400,001 Earnout Shares vest if the closing price of the Company’s common stock on the principal exchange on which the securities are listed or quoted have been at or about $ 12.00 ; $ 13.50 ; and $ 15.00 per share, respectively, for 20 trading days (which need not be consecutive) over a thirty trading day period at any time. The Earnout Shares automatically vest upon and immediately prior to any of the following events: 1) The Company engages in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act; 2) The Company’s common stock ceases to be listed on a national securities exchange; 3) The Company is amalgamated, merged, consolidated or reorganized with or into another company or person (an “Acquiror”) and as a result of such amalgamation, merger, consolidation or reorganization, fewer than 50.1% (whether by voting or economic rights) of the outstanding equity securities or other capital interests of the Acquiror or surviving or resulting entity is owned in the aggregate by the shareholders of the Company, directly or indirectly, immediately prior to such amalgamation, merger, consolidation or reorganization, excluding from such computation the interests of the Acquiror or any affiliate of the Acquiror; 4) The Company and/or its subsidiaries sell, assign, transfer or otherwise dispose of (including by bulk reinsurance outside of the ordinary course of business consistent with past practice), in one or a series of related transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to an Acquiror, fewer than 50.1% (whether by voting or economic rights) of the outstanding equity securities or other capital interests of which, immediately following such sale, assignment or transfer, are owned in the aggregate by the pre-transaction Company stockholders; or 5) If a Schedule 13D or Schedule 13G report (or any successor schedules, form or report), each as promulgated pursuant to the Exchange Act, is filed with the SEC disclosing that any person or group (as the terms “person” and “group” are used in Section 13(d) or Section 14(d) of the Exchange Act and the rules and regulations promulgated thereunder) has become the beneficial owner (as the term “beneficial owner” is defined in Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of a percentage of shares of the outstanding Company common shares as shall be greater than the percentage of such shares that, at the date of such filing, is held by any other person or group that held more than 50% of the voting or economic power of Company immediately after the Closing. The Earnout Shares released for any event as noted above shall be subject to an equitable adjustment for share splits, share dividends, reorganizations, combinations, recapitalizations and similar transactions affecting the common stock after the Closing. Additionally, each such price threshold shall be reduced by the amount of the aggregate cash or the fair market value of any securities or other assets paid or payable by the Company to the holders of common stock, on a per share basis, as an extraordinary dividend or distribution following the Closing; provided that the declaration and payment of any such extraordinary dividend or distribution shall be subject to all applicable Laws. An “extraordinary dividend or distribution” means any dividend or distribution other than a regularly-scheduled dividend or distribution. All of the Earnout Shares vested and are no longer subject to transfer restrictions during the years ended December 31, 2022 and 2021. Warrants On April 12, 2021, the Staff of the SEC issued the “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Staff Statement”). The Staff Statement provided new guidance for all SPAC-related companies regarding the accounting and reporting for their warrants that could result in the warrants issued by SPACs being classified as a liability measured at fair value, with non-cash fair value adjustments reported in earnings at each reporting period. The Company reviewed the accounting for both its public warrants and private warrants following the Staff Statement. The Company determined that the accounting for its public warrants as equity was consistent with the Staff Statement. The Company determined that its private warrants should be accounted for as liabilities but that the related accounting errors during the year ended December 31, 2020 were not material to the required financial statements and disclosures included in its annual report on Form 10-K filed on March 5, 2021. The Company began accounting for the private warrants correctly in the beginning of 2021, as disclosed in its quarterly report on Form 10-Q filed on May 6, 2021. F-29 As part of its initial public offering (“IPO”), ChaSerg issued 22.0 million units including one share of common stock and one-half of one redeemable warrant. Simultaneously with its IPO, ChaSerg issued 0.6 million private placement units to its sponsor underwriter, each consisting of one common share and one-half of one redeemable warrant. ChaSerg issued 0.1 million units as a result of the conversion of a working capital sponsor loan consisting of one common share and one-half of one redeemable warrant. Each whole warrant entitled the holder to purchase one share of common stock at a price of $ 11.50 . Each warrant was currently exercisable and was set to expire on March 5, 2025 (five years after the completion of the Business Combination), or earlier upon redemption or liquidation. The Company was set to call the warrants for redemption at a price of $ 0.01 per warrant upon a minimum 30 days’ prior written notice of redemption, if and only if, the reported last sale price of the Company’s common stock had equaled or exceeded $ 18.00 per share for any 20 trading days within a 30 -trading day period ending three business days before the Company sends the notice of redemption to the warrant holders; and if and only if, there was a current registration statement in effect with respect to the shares of common stock underlying such warrants. From July 23, 2021 to July 26, 2021, 1.4 million public warrants were exercised with cash proceeds of $ 16.4 million. On July 28, 2021, the Company announced the redemption of its 2.8 million then outstanding public warrants. Any public warrants not exercised prior to 5:00 p.m., New York City time, on August 30, 2021 were redeemed at that time for $ 0.01 per warrant. The public warrants were exercisable at a price of $ 11.50 per share. Of the total of 2.8 million warrants outstanding on July 28, 2021, 2.8 million were exercised and cash proceeds generated from these exercised warrants were approximately $ 31.7 million. Pursuant to the terms of the agreements governing the rights of the holders of the public warrants, the Company redeemed the remaining unexercised and outstanding 0.02 million public warrants on August 30, 2021 for a redemption price of $ 0.01 per public warrant. As of December 31, 2022 and 2021, there were no outstanding private or public warrants. Note 15 — Stock-based compensation Stock-Based Compensation Expense Employee stock-based compensation cost recognized in the consolidated statements of loss and comprehensive loss was as follows: Twelve months ended December 31, 2022 2021 2020 (in thousands) Cost of revenue $ 1,334 $ 664 $ 840 Engineering, research, and development 6,530 2,980 2,419 Sales and marketing 4,463 3,606 3,532 General and administrative 48,641 25,786 13,215 Total stock-based compensation $ 60,968 $ 33,036 $ 20,006 Stock-based compensation costs recognized for the year ended December 31, 2020 included $ 2.5 million of compensation expense related to the acceleration of vesting of awards under the 2018 Stock Plan. Additional $ 3.4 million of stock-based compensation cost was recognized for the year ended December 31, 2021, in connection to partial vesting and early release of 2021 PSU that would otherwise have been recognized in the first quarter of 2022. Equity Plans 2018 Stock Plan - Effective November 12, 2018, GDI adopted 2018 Stock Option Plan. Under the terms of the 2018 Stock Plan, certain options are subject to accelerated vesting in full or by an additional 12 months as a result of business combinations. The Company is no longer issuing any awards under the 2018 Plan. All of the awards issued pursuant to the 2018 Plan expire 10 years from the date of grant. 2020 Equity Incentive Plan - Effective March 5, 2020, our Board of Directors approved an equity incentive plan (the “2020 Plan”). The 2020 Plan permits the Company to grant a maximum aggregate amount of 16.3 million Incentive Stock Options, Non-Statutory Stock Options (“NSOs”), Restricted Stock, Restricted Stock Units (“RSUs”), Stock Appreciation Rights, F-30 Performance Units (“PSUs”), and Performance Shares (“PSAs”) (collectively, the “Awards”) to employees, directors, and consultants of the Company. Our Board of Directors or any committee appointed by The Board has the authority to grant Awards. NSOs and RSUs issued under the 2020 Plan have the following vesting conditions: one-fourth of the NSOs will vest on one year after the grant date; and thereafter one-sixteenth of the NSOs will vest each subsequent three-month anniversary. The Company made an accounting policy election to account for accounts for forfeitures when they occur. RSUs granted to the Board in lieu of the quarterly payments vest immediately. PSUs are normally capped at 300 % maximum payout and have the following performance goals: 1) Year-over-year growth in specified revenue for the Performance Period, expressed as a percentage increase over the previous fiscal year revenue (“Revenue Growth”), and 2) Contribution Margin for the Performance Period as a percentage of specified revenue for the Performance Period. Fifty percent ( 50 %) of the target number of performance shares granted will vest (if at all) based on the extent of achievement of Revenue Growth for the Performance Period and the remaining fifty percent ( 50 %) of the target number of performance shares granted will vest (if at all) based on the extent of achievement of the Contribution Margin. As of December 31, 2022, 7.1 million shares of stock remained available for grant under 2020 Plan. All of the awards issued pursuant to the 2020 Plan expire 10 years from the date of grant. Stock Options The grant date fair value of each NSO issued under both plans was estimated on the date of grant using the Black-Scholes-Merton option pricing model. The key assumptions for the years ended December 31, 2022 and 2021 are provided in the following table. For the years ended December 31, 2022 2021 2020 Dividend yield — % — % — % Expected volatility 45 % 40 % 40 % Risk-free interest rate 1.76 %- 4.25 % 0.81 %- 1.33 % 0.31 %- 0.80 % Expected term in years 6.11 6.11 6.11 Grant date fair value of common stock. $ 12.15 -$ 18.88 $ 14.40 -$ 29.07 $ 6.86 -$ 11.89 The Company used a zero percent dividend yield assumption for all Black-Scholes-Merton stock option-pricing calculations. Since the Company’s shares were not publicly traded prior to the Closing and its shares were rarely traded privately, expected volatility is estimated based on the average historical volatility of peer group entities with publicly traded shares. The risk-free rate for the expected term of the options is based on the U.S. Treasury yield at the date of grant. Expected term is estimated using the simplified method, which takes into account vesting and contractual term. The simplified method is being used to calculate expected term instead of actual data due to a lack of relevant historical data. 2018 Plan On March 5, 2020 the Company accelerated vesting of certain options due to completion of the Business Combination. It resulted in recognition of additional expenses of $ 2.5 million. Additionally part of options was modified and settled in cash pursuant to the terms of the Merger Agreement. The remaining portion of outstanding vested and unvested options were automatically assumed and converted into options to purchase the Company’s common stock as of the Closing. Refer to Note 3 for details. The following table presents details on conversion of the vested and unvested options: F-31 Number of Options Options outstanding as of December 31, 2019 2,734,327 Options converted to cash at Closing ( 828,590 ) Options forfeited ( 18,940 ) Options outstanding as of March 5, 2020 1,886,797 Options outstanding converted as of March 5, 2020 4,678,011 The following table sets forth the activity for the 2018 Stock Plan for the years ended December 31, 2022 and 2021 after conversion: Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value, thousands Weighted Average Contractual Term (in years) Options outstanding converted as of March 5, 2020 4,678,011 $ 3.54 Options exercised ( 28,057 ) $ 3.54 Options forfeited ( 50,164 ) $ 3.54 Options outstanding as of December 31, 2020 4,599,790 $ 3.54 $ 41,674 Options exercised ( 2,668,191 ) $ 3.54 Options forfeited ( 15,498 ) $ 3.54 Options outstanding as of December 31, 2021 1,916,101 $ 3.54 $ 65,971 Options exercised ( 286,842 ) $ 3.54 Options forfeited ( 30,448 ) $ 3.54 Options outstanding as of December 31, 2022 1,598,811 $ 3.54 $ 12,279 6.04 Options vested and exercisable as of December 31, 2022 1,551,925 $ 3.54 $ 11,919 6.02 The total unrecognized compensation expenses related to 2018 Plan options as of December 31, 2022 was $ 0.04 million, net of forfeitures, to be expensed on a straight-line basis over 0.69 years. 2020 Plan The following table summarizes option activity for for the years ended December 31, 2022, 2021 and 2020 under the 2020 Plan: F-32 Number of Options Weighted Average Exercise Price Aggregate Intrinsic Value, thousands Weighted Average Contractual Term (in years) Options outstanding as of January 1, 2020 — $ — — Options granted 2,087,000 $ 8.37 Options forfeited ( 144,600 ) $ 8.13 Options outstanding as of December 31, 2020 1,942,400 $ 8.38 $ 8,200 Options granted 766,250 $ 21.61 Options exercised ( 112,087 ) $ 8.20 Options forfeited ( 371,876 ) $ 8.88 Options outstanding as of December 31, 2021 2,224,687 $ 12.86 $ 55,856 Options granted 1,228,700 $ 14.67 Options exercised ( 67,593 ) $ 9.69 Options forfeited ( 382,183 ) $ 16.40 Options outstanding as of December 31, 2022 3,003,611 $ 13.22 $ 3,883 8.26 Options vested and exercisable as of December 31, 2022 1,067,029 $ 10.47 $ 2,579 7.39 The total unrecognized compensation expenses related to 2020 Stock Plan options as of December 31, 2022 was $ 11.4 million, net of forfeitures, to be expensed on a straight-line basis over the remaining 2.8 years. Restricted Stock Units RSUs granted do not participate in earnings, dividends, and do not have voting rights until vested. The following table summarizes activity of the Company's RSUs for the years ended December 31, 2022, 2021 and 2020: Number of Shares Weighted Average Grant Date Fair Value Unvested awards as of January 1, 2020 — $ — Awards granted 3,053,969 $ 8.22 Awards vested and released ( 28,300 ) $ 7.07 Awards forfeited ( 30,000 ) $ 8.26 Unvested awards as of December 31, 2020 2,995,669 $ 8.38 Awards granted 61,539 $ 24.35 Awards vested and released ( 1,272,136 ) $ 8.32 Awards forfeited ( 291,157 ) $ 8.14 Unvested awards as of December 31, 2021 1,493,915 $ 8.82 Awards granted 1,414,925 $ 14.05 Awards vested and released ( 662,872 ) $ 9.26 Unvested awards as of December 31, 2022 2,245,968 $ 11.99 The total unrecognized compensation expenses related to 2020 Stock Plan RSUs as of December 31, 2022 was $ 20.1 million to be expensed on a straight-line basis over 1.31 years. F-33 Performance Stock Units The following table summarizes activity of the Company's PSUs for the years ended December 31, 2022, 2021 and 2020: Number of Shares Weighted Average Grant Date Fair Value Unvested awards as of January 1, 2020 — $ — Awards granted 1,452,696 $ 7.92 Unvested awards as of December 31, 2020 1,452,696 $ 7.92 Awards granted 1,478,765 $ 15.68 Awards vested ( 2,787,001 ) $ 11.64 Awards forfeited ( 32,375 ) $ 15.61 Unvested awards as of December 31, 2021 112,085 $ 15.69 Awards granted 518,938 $ 39.41 Awards vested ( 112,085 ) $ 15.69 Unvested awards as of December 31, 2022 518,938 $ 39.41 The vesting of the PSUs with the performance factors based on 2020 results was certified by the Board of Directors for release on February 12, 2021. Approximately 0.7 million shares were issued upon vesting of the PSUs and 0.8 million shares were withheld to cover $ 10.8 million in tax obligations. The vesting of the PSUs granted for 2021 performance was partially certified by the Board of Directors with 250 % performance factor for release on December 10, 2021. Approximately 0.7 million shares were issued upon vesting of the PSUs and 0.7 million shares were withheld to cover $ 25.4 million in tax obligations. The Board certified the achievement of 2021 PSUs with 271 % performance factor and the remaining shares were released on February 25, 2022. Approximately 0.06 million shares were issued and 0.05 million shares were withheld to cover $ 0.8 million in tax obligations. As of December 31, 2022 achievement of 2022 PSUs goals was estimated probable with 256 % performance factor. Refer to Note 19 for details. The Company recognized $ 45.0 million compensation expense related to 2022 PSUs was recognized during the year ended December 31, 2022. The total unrecognized compensation expenses related to 2022 PSUs as of December 31, 2022 was $ 7.4 million to be expensed on over 0.16 years. The fair value of vested RSUs and PSUs issued under the 2020 Plan (measured at the vesting date) for the years ended December 31, 2022, 2021 and 2020 was as follows: For the years ended December 31, 2022 2021 2020 (in thousands) RSUs $ 9,982 $ 25,702 $ 207 PSUs $ 1,650 $ 72,615 $ — Note 16 — Earnings per share The Company computed earnings per share (“EPS”) in conformity with the two-class method required for participating securities. Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. The Company allocated income between its common and preferred shareholders only for the periods the preferred stock was outstanding, which was January 1, 2020 to March 4, 2020 and May 6, 2019 to December 31, 2019. There was no preferred stock outstanding March 5, 2020 to December 31, 2020 and January 1, 2019 to May 6, 2019. As the Company was in a net loss position for the year ended December 31, 2020, the net loss was allocated entirely to common shareholders. All participating securities are excluded from basic weighted-average number of common shares outstanding. Diluted EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock F-34 options, restricted stock units, performance stock units, and convertible preferred securities. The dilutive effect of potentially dilutive securities is reflected in diluted EPS in order of dilution and by application of the treasury stock method and the if-converted method for stock-based compensation and convertible preferred securities, respectively. The following table sets forth the computation of basic and diluted EPS of common stock as follows: For the years ended December 31, 2022 2021 2020 (in thousands, except per share data) Numerator for basic and diluted loss per share Net loss $ ( 29,214 ) $ ( 7,700 ) $ ( 12,599 ) Denominator for basic and diluted loss per share Weighted-average shares outstanding – basic and diluted 69,197 58,662 44,737 Net loss per share Basic $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 ) Diluted $ ( 0.42 ) $ ( 0.13 ) $ ( 0.28 ) The denominator used in the calculation of basic and diluted EPS has been retrospectively adjusted for the recapitalization of the Company’s shares as a result of the Business Combination as further described in Note 3. The following potential dilutive common shares, presented based on weighted average potential shares outstanding during each period and adjusted for the stock split as a result of the transaction, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect: For the years ended December 31, 2022 2021 2020 (in thousands) Convertible preferred stock — — 184 Stock options to purchase common stock 4,396 5,826 4,649 Restricted stock units 2,112 2,110 2,261 Performance stock units 1,338 1,301 961 Warrants to purchase common stock — 3,657 9,326 Total 7,846 12,894 17,381 Note 17 — Segment and geographic information In accordance with ASC Topic 280, Segment Reporting , the Company has determined it has one operating segment and one reportable segment. The chief operating decision maker assesses the Company’s performance and allocates resources based on the Company’s consolidated financial information. The Company’s business activities have similar economic characteristics and are similar in all of the following areas: the nature of services, the type or class of customer for which they provide their services, and the methods used to provide their services. Geographic Information F-35 Significant portion of the Company’s revenues is generated within North America. Refer to Note 12 (“Revenue”) for details. Long-lived assets include property and equipment, net of accumulated depreciation and amortization. Physical locations and values of the Company’s long-lived assets are summarized below: As of December 31, 2022 2021 ( in thousands) Ukraine $ 2,468 $ 2,267 United States 1,317 715 Serbia 1,235 433 Poland 989 313 Moldova 605 305 Armenia 445 — India 423 — Other 733 2,136 Total $ 8,215 $ 6,169 Note 18 — Commitments and contingencies Software subscription services agreement The Company entered into a software subscription services agreement (the “SSA”) effective as of June 1, 2019. The SSA is non-cancelable for a term of 5 years from the effective date and renewable at the election of the Company. Payments under the terms of the SSA are due quarterly in advance. Total future minimum payments under the non-cancelable SSA are as follows: Years ending December 31, (in thousands) Subscription Payments 2023 $ 324 2024 81 Total $ 405 Litigation The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. Management evaluates each claim and provides for potential loss when the claim is probable to be paid and reasonably estimable. While adverse decisions in certain of these litigation matters, claims and administrative proceedings could have a material effect on a particular period’s results of operations, subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that any future accruals with respect to these currently known contingencies would not have a material effect on the financial condition, liquidity or cash flows of the Company. There are no amounts required to be reflected in these consolidated financial statements related to contingencies. Note 19 — Subsequent events The vesting of PSUs with the performance factors based on 2022 results was certified by the Board of Directors for release on February 21, 2023. Approximately 0.7 million shares were issued upon vesting of 2022 PSUs and 0.7 million shares were withheld to cover $ 8.0 million in tax obligations. F-36 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.