Leonard Livschitz: Well, that’s one of the area which you again noticed from our conversations was the point of investment in 2023. It’s a bit – I would say sometimes maybe ambiguous when the company invests into R&D and sales during the year of being flat, right? But at one point of time, it’s beneficial to reach for the resources when they’re available in the market, right? So when the market is a bit stagnant, you have a broader selection of the talent. On the R&D side, it takes more time for people to come to speed both on an architecture side, SME side, grade the materials, industry specific, artifacts, accelerators. So when we talk about sales, it’s a combination of sales and technical presales and first level engagement.
When it comes to the hunting per se, we actually added hunting capability for the first time. Typically as a company we’re still relatively small to bear with many others, so we focused on a diversity of the responsibilities for the same individuals. Right now we have dedicated sales force people in the United States with hunting accounts, but we also double down on farming of the new business lines with an existing large account, so that’s pretty much this. Now the proof is in the pudding, but I think even though we live it sweated the margins last year, I think that gives us a bit more runway, not just kicking the can to the second half of the year, talk about 2025, but more immediate targets as early as now.
Ryan Potter: Great. Thanks again.
Leonard Livschitz: Thank you.
Operator: Thank you, Ryan. Next question comes from the line of Zachary Ajzenman from TD Cowen. Zach, please go ahead.
Zachary Ajzenman: Hey, thanks. It’s Zach Ajzenman on for Bryan Bergin. First question we had was just on the overall demand backdrop, so good to hear more of the stabilization commentary. It’s evident in the Q1 guide. I was hoping to further dig into the dynamics that have actually changed from three months ago. Is it just a higher prevalence of more optimistic client conversations, or have you seen a change in actual signings or willingness to go ahead with new programs? Just trying to get a better sense of recent client behavior and how that’s informing your view into 2Q, which sounds like it’s going to be even better than what we’re seeing into 1Q.
Leonard Livschitz: Very good, Zach. Well, you have to fill big shoes because Bryan, one of the most talented analyst, so welcome. The question is about what is really happening in the forefront of our business. And as you know, traditionally, at least from Grid Dynamics perspective, from our client perspective, there is always what I call the bit of a turnover from the projects and business directions between the late Q4 and early Q1. That’s kind of – I wouldn’t call it a pit stop, but it’s released more than just budgets, reassessment of their own performance, tuning the business. A lot of disruption happened with AI tools. So we had to go last year and start making a lot of proposals how to get viable conversion of their top line with more economic budget leveraging various AI technologies.
And again, it’s not just you plug in [indiscernible] it gets you more money, right? So it’s a very complex process of using private data and public access tools, various clouds, our Grid Dynamics know how and understanding of their business based on a previous expertise, even in machine learning – transition from machine learning to AI. So we see the conversion on a contractual basis. I think that’s very important. So not just the words, again, we’re still in February and we are not completely out of the spirit of retooling of our clients. But the new logos and existing logos on a demand side are contractually driven. So we’re not talking just about the proof of concept. Let’s run another one, two, three months of the test. What are the initiatives to trend out?
On a – this is on a B2C business. On a B2B business, it’s a bit different, right? Because there is no more like people understand that new technology first and foremost need to bring the better results and their models is not as trivial because it’s a complex of supply chain logistics, the demand on the various products. So that business probably going to kick in a little bit more on a later part of this year because they’re still more in a steady state learning and adoption. But because we have both markets, we see an immediate remuneration as well as potential upside with existing plans.
Zachary Ajzenman: That’s helpful. Maybe we move to margins, we were hoping to dig into the factors that have been weighing more recently. How long are these items expected to be headwinds and what are the controllable levers that Grid can pull to partly insulate, including maybe any color around pricing or utilization?
Anil Doradla: Sure. So, Zach, again that’s a loaded question. There are many moving parts of it, right, from a COGS point of view and OpEx point of view. I’ll let Leonard talk about the pricing, but let me talk about a couple of moving parts as we move in the course of the year. Now, year-over-year, you’ve seen the difference right on our gross margins. Half of it came from FX, the other half of it came from the fact that we’ve expanded into some of these new geographies. And there’s a certain cost structure there. If you look at our OpEx, 2023, as Leonard pointed out, was a year of investment, because we are investing into our future. As we move in 2024 and beyond, let me talk about OpEx and we’ll talk about COGS.
