EX-99.2 21 ea119399ex99-2_grid.htm UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF THE COMPANY AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2019

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

Defined terms included below shall have the same meaning as terms defined and included elsewhere in the Current Report on Form 8-K (the “Form 8-K”). Unless the context otherwise requires, the “Company” refers to Grid Dynamics Holdings, Inc. and its subsidiaries after the Closing, and ChaSerg Technology Acquisition Corp. prior to the Closing.

 

Introduction

 

The following unaudited pro forma condensed combined balance sheet as of December 31, 2019 assumes that the Business Combination occurred on December 31, 2019. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 presents the pro forma effect of the Business Combination as if it had been completed on January 1, 2019.

 

The pro forma combined financial statements do not necessarily reflect what the Company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. The pro forma combined financial information also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

The historical financial information of ChaSerg was derived from the audited financial statements of ChaSerg Technology Acquisition Corp. as of and for the year ended December 31, 2019. The historical financial information of Grid Dynamics was derived from the audited consolidated financial statements of Grid Dynamics as of and for the year ended December 31, 2019, which is included elsewhere in this Form 8-K. This information should be read together with ChaSerg’s and Grid Dynamics’ audited financial statements and related notes. The section titled “Grid Dynamics Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this Form 8-K. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of ChaSerg is incorporated by reference.

 

The Business Combination was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, ChaSerg was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Grid Dynamics 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. Operations prior to the Business Combination are those of Grid Dynamics.

 

Grid Dynamics was determined to be the accounting acquirer based on evaluation of the following facts and circumstances:

 

●Grid Dynamics holds executive management roles for the Company and those individuals are responsible for the day-to-day operations;

 

●Grid Dynamics is currently a subsidiary of ASL, and ASL holds the largest minority voting interest in the combined entity;

 

●From a revenue and business operation standpoint, Grid Dynamics is the larger entity in terms of relative size;

 

●Grid Dynamics’ San Ramon, CA headquarters are the headquarters of the Company;

 

●The Company has assumed Grid Dynamics’ name and is called Grid Dynamics Holdings, Inc.; and

 

●The intended strategy of the Company will continue Grid Dynamics’ current strategy of driving enterprise-level digital transformation in the Fortune 1000 companies.

 

 

 

 

Description of the Business Combination

 

The aggregate consideration for the Business Combination was $400.0 million, payable in the form of cash and shares of the Company’s Common Stock valued at $10.00 per share. The cash portion of the consideration was an aggregate amount equal to $129.9 million. The remainder of $270.1 million was in the form of 27,006,251 shares of the Company’s Common Stock valued at $10.00 per share. The share consideration is subject to a post-Closing adjustment capped at 857,143 shares of the Company’s Common Stock which was placed in escrow at closing. The following represents the aggregate consideration at closing:

 

(in thousands, except for share amounts)    
Shares transferred at Closing   27,006,251 
Value per share (1)   10.00 
Total Share Consideration  $270,063 
Plus: Cash Transferred   129,894 
Total Cash and Share Consideration – at closing  $399,957 

 

 

(1)Value per share was calculated using a $10.00 reference price. The closing share price on the date of the consummation of the transaction was $12.00. As the business combination was accounted for as a reverse recapitalization, the value per share is disclosed for informational purposes only in order to indicate the fair value of shares transferred.

 

The following summarizes the pro forma Common Stock shares outstanding. As the pro forma financial statements are prepared as of and for the year ended December 31, 2019, the pro forma Common Stock shares outstanding are presented as of December 31, 2019. However, the actual Common Stock shares outstanding at closing differed due to changes in facts and circumstances as presented below:

 

   December 31, 2019   At Closing 
   Shares   %   Shares   % 
ASL   19,340,049         19,490,295      
BGV   2,078,701         2,094,850      
Grid Dynamics Management Shares   5,409,707         5,421,106      
Total Grid Dynamics shares (1), (2)   26,828,457    49.9%   27,006,251    50.1%
Common shares held by current ChaSerg shareholders   21,948,285         21,948,285      
Founder Shares (3), (4)   4,970,000         4,993,000      
Total ChaSerg Shares   26,918,285    50.1%   26,941,285    49.9%
Pro Forma Common Stock - at Closing   53,746,742    100.0%   53,947,536    100%

 

 

(1)Includes an Estimated Closing Adjustment of 1,294,261 shares calculated based on a signing price of $10.19 and cash as of the balance sheet date. The Estimated Closing Adjustment calculated at closing was 1,472,031. These shares were allocated proportionately between ASL, BGV, and Grid Dynamics’ management.
(2)Includes a redemption share adjustment of 10,386 shares calculated based on the cash in the Trust Account as of the balance sheet date. The redemption share adjustment calculated at closing was 10,410. These shares were allocated proportionately.
(3)Excludes 1,090,000 Earnout Shares that are owned by the Sponsor and 110,000 Earnout Shares that are owned by Cantor and held in escrow as specified in the Side Letter. The Earnout Shares converted to the Company’s Common Stock upon the closing of the Business Combination. The release of the Earnout Shares is subject to achieving the price thresholds as set per the terms of the Side Letter. The Earnout Shares are not included as part of the capitalization table as the Sponsor and Cantor did not have possession of their Earnout Shares at closing. However, while the Earnout Shares are held in escrow, the Sponsor and Cantor shall have full ownership rights to their Earnout Shares, including the right to vote such shares and to receive dividends and distributions thereon.
(4)Includes the conversion of the unsecured convertible promissory note with the Sponsor into 30,000 additional shares. The balance of the promissory note increased to $0.5 million subsequent to the balance sheet date resulting in 23,000 additional shares being issued at closing.

 

The following unaudited pro forma condensed combined balance sheet as of December 31, 2019 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 are based on the historical financial statements of ChaSerg and Grid Dynamics. The unaudited pro forma adjustments are based on information currently available, and assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.

 

F-2

 

  

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

 

AS OF DECEMBER 31, 2019

 

(in thousands)

 

   As of
December 31, 2019		         

As of December 31, 2019

 
   Grid Dynamics (Historical)   ChaSerg (Historical)   Pro Forma Adjustments      Pro Forma Combined 
ASSETS                   
Current assets:                       
Cash and cash equivalents  $42,189    142    (129,894)  (A)   112,723 
              224,016   (B)     
              (19,185)  (D)     
              (268)  (H)     
              (3,750)  (I)     
              (527)  (L)     
Accounts receivable, net   13,893    -            13,893 
Unbilled receivables   5,036    -            5,036 
Prepaid income taxes   308    -            308 
Deferred transaction costs   1,878    -    (1,878)  (D)   - 
Prepaid expenses and other current assets   2,711    137            2,848 
Total current assets  $66,015    279    68,514       134,808 
                        
Cash and marketable securities held in Trust Account   -    224,016    (224,016)  (B)   - 
Property and equipment, net   4,024    -            4,024 
Intangible assets, net   18    -            18 
Deferred income taxes   1,474    -            1,474 
Total assets  $71,531    224,295    (155,502)      140,324 
                        
LIABILITIES AND STOCKHOLDERS’ EQUITY                       
Current Liabilities                       
Accounts payable  $768    5,359    (5,130)  (D)   768 
              (229)  (H)     
Accrued liabilities   1,188    -    (648)  (I)   540 
Accrued compensation and benefits   5,337    -            5,337 
Accrued income taxes   869    19    (19)  (H)   869 
Convertible promissory note – related party   -    300    (300)  (K)   - 
Other current liabilities   138    20    (20)  (H)   138 
Total current liabilities  $8,300    5,698    (6,346)      7,652 
                        
Long-term liabilities                       
Deferred underwriting fees   -    7,700    (7,700)  (D)   - 
Total liabilities  $8,300    13,398    (14,046)      7,652 
                        
Convertible preferred stock, no par value, 622,027 shares authorized and outstanding as of December 31, 2019  $9,187    -    (9,187)  (G)   - 
Common stock subject to possible redemption, 20,589,710 shares at approximately $10.00 per share as of December 31, 2019   -    205,897    (205,897)  (C)   - 
Equity                       
Common stock, no par value, 18,244,054 shares authorized and 12,847,462 outstanding as of December 31, 2019  $8,117    -    (8,117)  (G)   - 
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 2,050,290 issued and outstanding (excluding 20,589,710 shares subject to possible redemption) as of December 31, 2019   -    -    3   (A)   8 
              2   (C)     
              1   (E)     
              2   (G)     
              -   (K)     
              -   (L)     
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 5,500,000 shares issued and outstanding   -    1    (1)  (E)   - 
Additional paid in capital   10,535    7,706    (129,894)  (A)   106,380 
              (3)  (A)     
              205,895   (C)     
              (6,192)  (D)     
              (2,707)  (F)     
              17,302   (G)     
              3,965   (J)     
              300   (K)     
              (527)  (L)     
Retained earnings / (Accumulated deficit)   35,392    (2,707)   (2,041)  (D)   26,284 
              2,707   (F)     
              (3,102)  (I)     
              (3,965)  (J)     
Total stockholders’ equity   54,044    5,000    73,628       132,672 
Total liabilities and stockholders’ equity  $71,531    224,295    (155,502)      140,324 

 

F-3

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 

FOR THE YEAR ENDED DECEMBER 31, 2019

 

(in thousands, except share and per share data)

 

   For the Year Ended
December 31, 2019		          For the Year
Ended
December 31,
2019		 
   Grid Dynamics
(Historical)		   ChaSerg
(Historical)		   Pro Forma
Adjustment		      Pro Forma
Combined		 
Revenue  $118,326    -    -       118,326 
Cost of revenue   70,090    -            70,090 
Gross profit   48,236    -    -       48,236 
                        
Operating expenses:                       
Engineering, research, and development   4,346    -            4,346 
Sales and marketing   6,947    -            6,947 
General and administrative   21,318    7,144    (5,584)  (AA)   23,215 
              337   (BB)     
                        
Total operating expenses   32,611    7,144    (5,247)      34,508 
Income (loss) from operations   15,625    (7,144)   5,247       13,728 
                        
Interest (expense)/income, net   -    4,665    (4,665)  (CC)   - 
Other (expense)/income, net   (176)   -            (176)
Income before income taxes   15,449    (2,479)   582       13,552 
                        
Provision for income taxes   4,642    843    163   (DD)   5,648 
Net (loss) income  $10,807    (3,322)   419       7,904 
                        
Earnings per Share                       
Weighted average number of shares outstanding, basic   12,535,000    -              
Net income per share, basic  $0.83    -              
                        
Weighted average number of shares outstanding, diluted   12,946,000    -              
Net income per share, diluted  $0.83    -              
Net income attributable to Class A shareholders, basic                     7,731 
Weighted average number of Class A shares outstanding, basic   -    22,000,000            53,746,742 
Net income per share, Class A – basic  $-    0.14            0.14 
Net income attributable to Class A shareholders, diluted                     7,788 
Weighted average number of Class A shares outstanding, diluted   -    22,000,000            54,619,033 
Net income per share, Class A – diluted  $-    0.14            0.14 
Weighted average number of Class A and Class B shares outstanding, basic and diluted   -    6,140,000              
Net income per share, Class A and Class B – basic and diluted  $-    (1.06)             

 

F-4

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Basis of Presentation

 

The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, ChaSerg was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Grid Dynamics 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. Operations prior to the Business Combination are those of Grid Dynamics.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2019 assumes that the Business Combination occurred on December 31, 2019. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 presents the pro forma effect to the Business Combination as if it had been completed on January 1, 2019. These periods are presented on the basis of Grid Dynamics as the accounting acquirer.

 

The unaudited pro forma condensed combined balance sheet as of December 31, 2019 has been prepared using, and should be read in conjunction with, the following:

 

●ChaSerg’s audited balance sheet as of December 31, 2019 and the related notes, which is incorporated by reference; and

 

●Grid Dynamics’ audited consolidated balance sheet as of December 31, 2019 and the related notes, included elsewhere in the Form 8-K.

 

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 has been prepared using, and should be read in conjunction with, the following:

 

●ChaSerg’s audited statement of operations for the year ended December 31, 2019 and the related notes, which is incorporated by reference; and

 

●Grid Dynamics’ audited statement of operations for the year ended December 31, 2019 and the related notes, included elsewhere in the Form 8-K.

 

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.

 

The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings or cost savings that may be associated with the Business Combination.

 

The pro forma adjustments reflecting the consummation of the Business Combination are based on certain currently available information and certain assumptions and methodologies that the Company believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. The Company believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the date indicated, nor are they indicative of the future consolidated results of operations or financial position of the Company. They should be read in conjunction with the historical financial statements and notes thereto of ChaSerg and Grid Dynamics.

 

F-5

 

 

2. Accounting Policies

 

Management will perform a comprehensive review of the two entities’ accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of the Company. Based on its initial analysis, management did not identify any differences that would have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.

 

3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

 

The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Business Combination and has been prepared for informational purposes only.

 

The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to events that are (1) directly attributable to the Business Combination, (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the results of the Company. Grid Dynamics and ChaSerg have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

 

The pro forma combined provision for income taxes does not necessarily reflect the amounts that would have resulted had the Company filed consolidated income tax returns during the periods presented.

 

The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statement of operations are based upon the number of Grid Dynamics Holdings Inc.’s shares outstanding, assuming the Business Combination occurred on January 1, 2019.

 

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

 

The adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2019 are as follows:

 

(A)Reflects consideration of $129.9 million of cash and 26,828,457 shares of the Company’s Common Stock valued at $10.00 per share, par value $0.0001 per share. The actual shares transferred at closing were 27,006,251 and the closing share price on the date of the consummation of the transaction was $12.00.

 

(B)Reflects the reclassification of $224.0 million of cash and cash equivalents held in the Trust Account that became available to fund the Business Combination.

 

(C)Reflects the reclassification of approximately $205.9 million of common stock subject to possible redemption to permanent equity.

 

F-6

 

 

(D)Reflects transaction costs related to the Business Combination. Classification of transaction costs is as follows:

 

(in thousands)  Amount 
Deferred underwriting fees  $7,700*
Costs related to issuance of equity     
Amounts previously capitalized and paid   1,878 
Amounts expected to be incurred   4,314 
Subtotal   6,192 
Transaction expenses     
Amounts incurred but not paid   5,130 
Amounts incurred and paid   454 
Amounts expected to be incurred   2,041 
Total  $21,517 

 

 

*Subsequent to the balance sheet date, the deferred underwriting fees were negotiated and adjusted down to $6.3 million. The full amount of the liability was settled upon consummation of the transaction.

 

(E)Reflects the conversion of ChaSerg Class B Common Stock to the Company’s Common Stock. In connection with the closing, all shares of ChaSerg Class B Common Stock were converted into shares of the Company’s Common Stock.

 

(F)Reflects the reclassification of ChaSerg’s historical accumulated deficit.

 

(G)Reflects the conversion of Grid Dynamics common stock and convertible preferred shares to the Company’s Common Stock.

 

(H)Reflects the settlement of ChaSerg’s historical liabilities that were settled prior to the consummation of the transaction.

 

(I)Reflects the settlement of retention bonuses related to the retention bonus plan established as part of the ASL Merger. Pursuant to the Merger Agreement, such retention bonuses were paid by Grid Dynamics to eligible participants in the amount of $3.8 million. Of the $3.8 million payment due upon consummation of the transaction, $0.6 million was accrued as of December 31, 2019.

 

(J)Reflects the compensation cost related to the acceleration of the vesting for certain existing stock options granted to Grid Dynamics’ management and employees under Grid Dynamics’ existing equity compensation plan. Due to a change in control provision within the existing equity compensation plan, the board of directors of Grid Dynamics utilized its discretion to accelerate the vesting of unvested shares of certain employees. As a result, the unrecognized grant date fair value of the awards is recorded as compensation expense.

 

(K)Reflects the conversion of the unsecured convertible promissory note into additional shares of the Company’s Common Stock at a price of $10.00 per share upon consummation of the Business Combination. The convertible promissory note balance increased to $0.5 million subsequent to the balance sheet date resulting in 23,000 additional shares being issued at closing.

 

(L)Reflects redemptions of 51,715 ChaSerg public shares for $0.5 million at a redemption price of $10.18 per share based on a pro forma redemption date of December 31, 2019. As of the actual redemption date, the redemption price was $10.21 per share resulting in a total redemption amount of $0.5 million.

 

Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations

 

The pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 are as follows:

 

(AA)Reflects the elimination of nonrecurring transaction costs incurred and recorded by ChaSerg and Grid Dynamics that are directly attributable to the Business Combination.

 

F-7

 

 

(BB)Reflects additional compensation expenses recorded as a result of execution of employment agreements with the management team of the Company.

 

(CC)Elimination of interest income on the Trust Account.

 

(DD)Reflects adjustments to income tax expense as a result of the pro forma adjustments to income at the estimated statutory tax rate of 28%.

 

4. Earnings per Share

 

Represents the net earnings per share calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination, assuming the shares were outstanding since January 1, 2019. As the Business Combination and related proposed equity transactions are being reflected as if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entire period presented.

 

   Year Ended
December 31,
2019		 
Pro Forma Basic & Diluted Earnings Per Share    
Pro Forma Net Income Attributable to Common Shareholders, basic (in 000s)  $7,731 
Basic Shares Outstanding   53,746,742 
Pro Forma Basic Earnings Per Share  $0.14 
Pro Forma Net Income Attributable to Common Shareholders, diluted (in 000s)   7,788 
Diluted Shares Outstanding   54,619,033 
Pro Forma Diluted Earnings Per Share  $0.14 
      
Pro Forma Shares Outstanding – Basic     
ASL   19,340,049 
BGV   2,078,701 
Grid Dynamics Management Shares   5,409,707 
Common shares held by current ChaSerg stockholders   21,948,285 
Founder Shares   4,970,000 
Pro Forma Shares Outstanding – Basic   53,746,742 
      
Pro Forma Shares Outstanding – Diluted (1)     
ASL   19,340,049 
BGV   2,078,701 
Grid Dynamics Management Shares   5,409,707 
Common shares held by current ChaSerg stockholders   21,948,285 
Founder Shares (2)   5,370,000 
Warrants (3)   472,291 
Pro Forma Shares Outstanding – Diluted   54,619,033 

 

 

(1)For the purposes of applying the treasury stock method for calculating diluted earnings per share, the average market price of the Company’s Common Stock was assumed to be equal to the market price upon the close of the transaction.
(2)Per the terms of the Side Letter, each of the Sponsor and Cantor are able to sell or transfer one-third of its respective Earnout Shares upon the Company’s Common Stock reaching a price of $12.00 per share. As the Company’s share price at Closing was at the $12.00 price threshold, one-third of the Earnout Shares are included in the calculation of diluted EPS.
(3)The exercise price for the Company’s warrants is $11.50 per share of the Company’s Common Stock. As the Company’s share price at Closing exceeded the exercise price, the warrants are included in the calculation of diluted EPS.

 

 

F-8