| Basis of presentation and summary of significant accounting policies | 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. Unaudited Interim Financial Statements The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United
States (“U.S. GAAP”) for interim financial information and in accordance with the rules and regulations of the
Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of the Company’s management, necessary for the fair presentation of
the results of operations for the interim periods. Operating results for the three months ended March 31, 2021 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2021. These interim financial statements should be
read in conjunction with GDH’s audited financial statements for the year ended December 31, 2020 included in the
Company’s annual report on Form 10-K that the Company filed with the SEC on March 5, 2021. 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. In conjunction with the Business Combination,
outstanding shares of GDI were converted into common stock of the Company, par value $0.0001 per share, shown as a recapitalization, and
the net assets of ChaSerg were acquired at historical cost, with no goodwill or other intangible assets recorded. GDI was deemed to be
the predecessor of the Company, and the consolidated assets and liabilities and results of operations prior to the Closing (for the years
ended December 31, 2019 and 2018 and the period from January 1, 2020 to March 5, 2020) are those of GDI. ChaSerg’s assets and liabilities,
which include net cash from the trust of $85.1 million, and results of operations were consolidated with GDI beginning on the Closing. In accordance with guidance applicable to these
circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares
of the Company’s common stock, $0.0001 par value per share, issued to GDI shareholders in connection with the recapitalization transaction.
As such, the shares and corresponding capital amounts and earnings per share related to GDI preferred and common stock prior to the Business
Combination have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination. Principles of consolidation The accompanying condensed 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. Use of estimates The preparation of the consolidated condensed financial statements
in accordance with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed
consolidated financial statements and accompanying notes. Actual results could differ from these estimates and such differences could
be material. Significant estimates include allowances for receivables, calculation of accrued liabilities, capitalization of internally
developed software, stock-based compensation, contingent consideration payable, determination of fair value, useful lives and recoverability
of intangible assets and goodwill, determination of provision for income taxes and uncertain tax positions. 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. Refer to the section below for additional
information. Additionally, the Company has been impacted by the recent coronavirus (“COVID-19”) pandemic. The global pandemic
of COVID-19 has negatively affected the U.S. and global economy, disrupted global supply chains, resulted in significant travel and transport
restrictions, including mandated closures and orders to “shelter-in-place,” and created significant disruption of the financial
market. The COVID-19 pandemic has impacted the Company’s revenues and the Company’s business continues to be exposed to risks
and uncertainties related to the pandemic. The impact of the COVID-19 pandemic has been more pronounced with the Company’s retail
customers, which depend on keeping their stores open. Additionally, in situations where the Company’s customers encounter financial
difficulties, there is a risk associated with the Company’s inability to collect money from customers. The Company has taken several
actions to deal with the COVID-19 pandemic. These include enabling its employees to work from home, company-wide salary and compensation
cuts, hiring freezes, and suspending all non-essential travel. The ultimate impact and the extent to which the COVID-19 pandemic will
continue to affect the business, results of operation and financial condition is difficult to predict and depends on numerous evolving
factors outside of the Company’s control including: the duration and scope of the pandemic; government, social, business and other
actions that have been and will be taken in response to the pandemic; and the effect of the pandemic on short and long-term general economic
conditions. Concentrations of credit risk and significant
customers The Company records its accounts receivable
and unbilled receivables at their face amounts less allowances. Accounts receivable and unbilled receivables are generally dispersed
across the Company’s customers in proportion to their revenue. Three customers individually exceeded 10% of the
Company’s accounts receivable balance as of March 31, 2021 and December 31, 2020. Three customers individually exceeded 10% of
the unbilled receivables as of March 31, 2021 and December 31, 2020. Two and three customers individually accounted for greater than
10% of the sales for the three months ended March 31, 2021 and 2020, respectively. Cash and cash equivalents The Company considers cash equivalents to be highly
liquid investments with original maturities of three months or less from the date of purchase. Cash equivalents are stated at cost, which
approximates fair value. At times, cash deposits with banks may exceed federally insured limits. Accounts receivable and allowance for doubtful
accounts Accounts receivable, less allowance for doubtful accounts, 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, current economic conditions
within the industries the Company serves as well as determination of the specific risk related to certain customers. 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. The allowance for doubtful accounts balance decreased to $0.2 million as of March 31, 2021 compared to $0.4 million
as of December 31, 2020.
As of
March 31, December 31,
(in thousands)
Trade accounts receivable $ 20,111 $ 17,308
Allowance for doubtful accounts (163 ) (418 )
Total trade accounts receivable, net $ 19,948 $ 16,890 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. The unbilled receivables balances
were $2.2 million and $1.8 million as of March 31, 2021 and December 31, 2020, respectively. 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. 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. Intangible assets Finite-lived intangible assets are stated at cost less accumulated amortization. Amortization is computed on the straight-line basis over
the asset’s useful lives ranging between 2 and 10 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 March 31,
2021, the Company determined there were no indicators of impairment. 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-materials
or fixed-fee arrangements. The majority of the Company’s revenues are generated under time-and-material contracts which are billed
using hourly 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 exception. 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. Remaining performance obligation ASC 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 March 31, 2021.
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 March 31, 2021. 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 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). 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. Refer to Note 9 — Stock-based compensation for additional information. 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 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. 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 has elected not to opt out of the extended transition period and thus when a standard is issued or revised and it has
different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised
standard at the time private companies adopt the new or revised standard. In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes Recently issued accounting pronouncements The Company considered the applicability and impact
of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on
the consolidated financial statements. In February 2016, the FASB issued ASU No.
2016-02, Leases In June 2016, the FASB issued ASU 2016-13, Financial
Instruments-Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Financial
Instruments — Credit Losses (Topic 326): Targeted Transition Relief, Financial Instruments—Credit Losses (Topic 326) Leases (Topic 842). In March 2020, FASB issued ASU No. 2020-03, Codification
to Financial Instruments. |
