Acquisitions

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

NextSphere — On April 18, 2023, the Company completed the acquisition of 100% of NextSphere Technologies, Inc. (“NextSphere”). Founded in 2006, NextSphere is headquartered in Tampa, FL, has an engineering presence in Phoenix, AZ, and operates two large engineering centers in India's tech hubs of Hyderabad and Chennai. NextSphere specializes in modern application development, systems monetization, product development, cloud and infrastructure services, and quality assurance. Over the years, NextSphere has worked with several brands across numerous industry verticals with expertise in Healthcare, Fintech and CPG/Manufacturing industries. The Company believes this acquisition will support the Company’s objectives of enhancing its technical capabilities, expanding its global footprint, and increasing its client base. The total purchase consideration is $25.2 million and consists of cash consideration of $24.3 million paid at closing, and fair value of the contingent consideration at the date of the acquisition of $0.9 million. The maximum amount of potential contingent cash consideration is $2.0 million. The contingent consideration is payable based on revenue and gross profit metrics to be achieved by NextSphere 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 3 for further details on contingent consideration.

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 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 3 for further details on contingent consideration.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:


	NextSphere		Mutual Mobile
	(in thousands)
Current assets	$	9,708	$	4,982
Property, plant and equipment	192		132
Intangible assets	9,906		3,749
Goodwill	9,119		9,556
Other noncurrent assets	511		102
Total assets acquired	$	29,436	$	18,521

Accounts payable, accrued expenses and other liabilities	(1,990)		(1,576)
Deferred taxes	(2,235)		(875)
Total liabilities assumed	$	(4,225)	$	(2,451)
Purchase price allocation	$	25,211	$	16,070

Current assets acquired include cash and cash equivalents in the amount of $6.4 million for NextSphere and $3.5 million for Mutual Mobile, respectively. The purchase price for all acquisitions 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 expects to achieve through the implementation of operational synergies and growth opportunities as the Company expands its global reach. Goodwill for NextSphere and Mutual Mobile is not deductible for income tax purposes.

For the acquisition of NextSphere and 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 finalize 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 as of June 30, 2023 are as follows:


	NextSphere			Mutual Mobile
	Fair Value		Useful Life	Fair Value		Useful Life
	(in thousands, except in years)
Customer relationships	$	8,415	10 years	$	3,453	8 years
Acquired software	995		2.5 years	—		—
Trade name	496		2 years	152		4 years
Non-compete agreements	—		—	144		2 years
Total identified intangible assets	$	9,906		$	3,749

The Company used the 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.

The following unaudited pro forma information presents the combined results of operations as if the acquisitions of Mutual Mobile and NextSphere had occurred at the beginning of the year preceding the acquisition date. Pre-acquisition results of business 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 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 unaudited 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.


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
	(in thousands)
Revenue	$	82,515	$	157,555
Net loss	$	(12,559)	$	(13,904)
Diluted loss per share	$	(0.19)	$	(0.21)