Grid Dynamics(GDYN) - 2022 Q4 - Annual Report

Special Note Regarding Forward-Looking Statements Forward-Looking Statements Disclaimer This section outlines forward-looking statements in the 10-K, emphasizing substantial risks and uncertainties, not guarantees of future events - Forward-looking statements relate to future events or financial/operating performance, identified by terms like "anticipates," "expects," "plans," or "will"[14] - Key areas include revenue growth, financial results, market expansion, competitive advantages, innovation, strategic partnerships, and geopolitical events[15] - Investors should not rely on forward-looking statements as actual results may differ materially due to risks, with no obligation to update except as required by law[17][18] Part I Business Overview Grid Dynamics is a global digital engineering and IT services provider for enterprise digital transformations, leveraging AI, cloud, and big data expertise - Grid Dynamics is a leading global digital engineering and IT services provider with engineering centers across the US, Mexico, India, and Europe[24] - Core business includes technical consulting, software design, development, and internet service operations, with expertise in AI, data science, cloud computing, big data, and DevOps[24] - Recent acquisitions of Daxx, Tacit, and Mutual Mobile diversified geographical presence, client base, and industry verticals[25] Business Combination ChaSerg Technology Acquisition Corp. merged with Grid Dynamics International, Inc. on March 5, 2020, becoming Grid Dynamics Holdings, Inc. and trading as GDYN - On March 5, 2020, ChaSerg Technology Acquisition Corp. merged with Grid Dynamics International, Inc. (GDI)[22] - Following the merger, ChaSerg was renamed "Grid Dynamics Holdings, Inc." and its common stock began trading on NASDAQ as "GDYN"[22] Industry Background and Market Opportunity The digital transformation market is expanding rapidly, driven by enterprises seeking competitive advantages through technology and innovation, with AI shifting focus to automated decision-making - Digital transformation is a rapidly expanding market, with enterprises seeking technological innovation for competitive advantage[26][27] - The rise of AI is shifting demand from business process automation to decision-making automation, driving investment in new digital products[27] - A shortage of technical software development talent in the US and Europe, coupled with growing acceptance of offshore delivery models, creates significant opportunities[28][29][30] Strategies and Strengths Grid Dynamics aims to be a global leader in digital transformation for Fortune 1000 companies by leveraging proprietary innovation-optimized processes, a culture-first approach to talent, and deep technical expertise - Grid Dynamics' strategy focuses on proprietary processes that meld technical consulting, engineering, and analytics into unified, cross-functional digital teams for innovation[32] - The company prioritizes a "culture-first" approach to talent development, selecting technical leadership based on cultural principles and offering extensive training programs like Grid University[33][35] - Core strengths include deep technical expertise in emerging technologies such as AI, cloud engineering, data science, DevOps, and microservices[34] Services and Solutions Grid Dynamics offers high-value, high-impact services as a co-innovation partner, including technical consulting, lean prototypes, digital intelligence, scalable engineering, development culture, and experience design - Services include Technical Consulting (roadmap, value quantification, technology stack selection), Lean Prototypes (proof-of-concept, de-risking large programs), and Digital Intelligence (data science, AI for decision automation)[36][37][38] - The company also provides Scalable Engineering (distributed systems, cloud, big data expertise), Development Culture (agile teams, CI/CD, DevOps), and Experience Design (responsive web, mobile apps, conversational interfaces)[39][40][41] Verticals Grid Dynamics serves key industry verticals including Tech, Media and Telecom, Retail, CPG/Manufacturing, and Finance, with Retail and Tech, Media and Telecom being the largest revenue contributors in 2022 - Grid Dynamics has strong domain knowledge and delivers tailored solutions in Tech, Media and Telecom, Retail, CPG/Manufacturing, and Finance[42] Revenue by Vertical (2020-2022) | Vertical | 2022 Revenue ($ thousands) | 2022 % of Total | 2021 Revenue ($ thousands) | 2021 % of Total | 2020 Revenue ($ thousands) | 2020 % of Total | | :---------------------- | :------------------------- | :-------------- | :------------------------- | :-------------- | :------------------------- | :-------------- | | Retail | 99,681 | 32.1 % | 61,717 | 29.2 % | 33,975 | 30.5 % | | Tech, Media and Telecom | 98,334 | 31.7 % | 67,689 | 32.0 % | 45,362 | 40.8 % | | CPG/Manufacturing | 61,216 | 19.7 % | 43,461 | 20.6 % | 14,202 | 12.8 % | | Finance | 21,893 | 7.1 % | 17,515 | 8.3 % | 13,589 | 12.2 % | | Other | 29,358 | 9.4 % | 20,898 | 9.9 % | 4,155 | 3.7 % | | Total | 310,482 | 100.0 % | 211,280 | 100.0 % | 111,283 | 100.0 % | Delivery Model and Operating Structure Grid Dynamics employs a hybrid service delivery model with a majority of engineering personnel in the US and CEE, operating 3,798 personnel across 13 countries as of December 31, 2022, and maintaining ISO 27001:2013 certification - The service delivery model uses an efficient mix of on-site, off-site, and offshore staffing, with technology leaders at client premises for competitive advantage[48] - As of December 31, 2022, Grid Dynamics had 3,798 full-time and part-time personnel, delivering services from engineering centers in 13 countries[49][59] - The company maintains continuous ISO 27001:2013 certification since August 2014, ensuring stringent security standards across its operations[51][52] Sales and Marketing Grid Dynamics' sales and marketing strategy focuses on a "land and expand" approach, leveraging technology leaders at client premises, complemented by a dedicated sales force and marketing team - The sales and marketing strategy employs a "land and expand" model, with technology leaders at client sites driving business development[53] - A dedicated sales force and marketing team coordinate corporate branding, including sponsoring programming competitions and participating in industry conferences[54] Customers Grid Dynamics primarily serves Fortune 1000 corporations in North America, with high revenue concentration from its top two customers, and engagements typically governed by short-term, cancellable master services agreements - The client base primarily consists of Fortune 1000 corporations in North America, expanded to the UK, Continental Europe, and Asia through acquisitions[55] - Revenue concentration is high, with the top two customers each accounting for 10% or more of total revenue in 2020, 2021, and 2022[56] - Engagements are typically governed by master services agreements supplemented by statements of work, which are often short-term and cancellable[56] Competition Grid Dynamics operates in a highly competitive market for technology and IT services, facing diverse competitors and relying on technical expertise, industry knowledge, and client responsiveness as key competitive factors - The market for technology and IT services is highly competitive, with rapid change and evolving industry standards[57] - Competitors include Globant, Endava, EPAM Systems, Accenture, Capgemini, Cognizant, Infosys, Wipro, and in-house IT departments[61] - Principal competitive factors are technical expertise, industry knowledge, reputation, employee recruiting/retention, client responsiveness, and financial stability[57] Human Capital and Employees Grid Dynamics' success depends on attracting and retaining highly skilled IT professionals, with 3,798 personnel across 13 countries as of December 31, 2022, achieved through continuous skill development and an entrepreneurial culture - As of December 31, 2022, Grid Dynamics had