Globant S.A.

Good afternoon and welcome to Globant's first quarter 2025 earnings conference call. I'm Arturo Langa, Investor Relations Officer at Globant. All participants on this call will be on listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded and streamed live on YouTube. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com. Also, you will find our shareholder letter, which contains the same content as the prepared remarks you will hear today. In order to craft a more engaging and interactive session, we've shortened our prepared remarks and allocated more time to the Q&A section. We will begin with remarks by our Chief Executive Officer, Martin Migoya, and our Chief Financial Officer, Juan Urteague, followed by a Q&A session where they will be joined by Chief Executive Technology Officer, Diego Tartara, and our Chief Operating Officer, Patricia Pomies. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risk and uncertainties as described in the company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globan to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our investor relations website, announcing this quarter's results. I will now turn the call over to Martin Migoya.

Hello and good day everyone. It's great to be here again. We are pleased to report another solid quarter with revenues reaching $611.1 million, representing a healthy 8.6% year-over-year growth in constant currency, outperforming most of our peers. While our Q1 performance came in below our initial expectations, and our revised annual guidance now aligns more closely with broader industry trends, we remain confident in the strength and resilience of our business. The fundamentals that fuel Globant's long-term growth are strong. The AI opportunity is both profound and transformative. It is a market that could reach 4.3 trillion by 2035. Our 10 years of strategic investment in artificial intelligence uniquely position us to lead this new era. We're not merely adapting, we're helping define the AI-powered future of work and digital transformation. That said, we're currently operating in a challenging macroeconomic environment. The probability of a recession in the US has risen significantly since February. Consumer spending has softened, and uncertainty from trade tariffs has impacted a good portion of our customers. We observe a slower pace of pipeline conversion in the US, and growth in some countries in Latin America has been lower than expected. Although some near-term challenges are present, we see this as transitory. as the pipeline remains robust with a 20% increase over last year. I'm also pleased to see strong growth in markets where Globan has undertaken major investments recently, including our new markets region of the Middle East and APAC, as well as Europe. In this environment, we need to stay focused on long-term value creation and transformative impact. Our way forward is based on three core pillars. First, our 100 square accounts. One of the greatest assets is our 100 square customer base and the distribution network we have built over time. Throughout our history, we have consistently added new studios and practices such as Digital Enterprise and GATT Creative Studios as innovative services to distribute across a set of clients who value us for pushing boundaries and delivering forward-thinking solutions. We continue to deepen these relationships with these strategic clients, aiming to unlock new opportunities and deliver transformative value across their business units. Second, our AI studios. They are purpose-built to lead comprehensive AI transformation programs for each industry we serve. Their mission is to help clients realize the full potential of AI, conducting in-depth assessment across all business areas, identifying use cases, processes inefficiencies, and emerging opportunities for intelligent automation. From this foundation, our AI studios design and implement scalable AI power solutions that target the most impactful workflows and business outcomes. This industry-specific structured approach is supported by our deep technical expertise and our enterprise AI platforms, enabling the orchestration of intelligent agents that deliver measurable innovation and lasting value to our clients. And finally, the global subscription model. This model reimagines how we deliver engineering, creativity, and automation services by introducing a consumption-based subscription framework. Clients subscribe to AI power capacity through AI pods, which are dedicated delivery units that combine the power of autonomous AI agents powered by global enterprise AI. with the orchestration and oversight from our experts. Delivery is limited in tokens, representing the complexity and volume of work performed. Clients can expand their usage through additional pack subscriptions, offering a clear scalable path to increase value over time. This consumption-based model aligns incentives around outcomes, not hours. It offers a flexible and transparent way to collaborate with our clients while complementing our traditional delivery models. This transformation will integrate directly into our existing client relationship teams and build on the strong relationship we have established with our network of incredible clients. A network built on trust, long-term collaboration, and shared appreciation for innovation. YPF has already adopted this model. JM Family and other enterprise clients are exploring it as well, demonstrating early traction and trust in this new way of engaging with Globant. The Globant subscription model was born from our deep understanding that many organizations struggle to make the savings and efficiencies generated by AI tangible. While the potential of AI is clear, converting this promise into concrete business outcomes remains elusive for most enterprises. Our model addresses this challenge directly, delivering measurable results through defined output, traceable token usage and integrated performance monitoring, making AI's value visible, actionable and aligned with strategic goals. While we expand our commercial models, We also want to reaffirm the importance of our traditional delivery methods. Fixed price and time and material contracts remain the predominant form of engagement with our clients. Many organizations will continue to prefer these models, and we are fully equipped with the right talent, proven methodologies, and robust value framework to deliver excellence through them as we have been doing during the last 22 years. This quarter, within Globan Enterprise AI, we introduce Globan Coda. a powerful agent-driven suite. It brings together our most advanced AI agents and platforms into a single cohesive solution that simplifies and accelerates the entire software development lifecycle. Weeks ago, Globe and Scott's Fixer AI agent achieved the highest score on the SWE Bench Multimodal Benchmark, a prestigious dataset for evaluating AI systems on visual software engineering tasks. In this context, our ability to evolve becomes our competitive advantage. Our new AI power subscription model is helping us to create more scalable, predictable, and adaptive partnerships with clients, enabling continuous delivery of engineering, creativity, and business process automation through our AI pod and enterprise AI platforms. During this quarter, we closed several strategic deals that reflect the creative application of our technology solutions. In the Middle East, we announced a new reinvention partnership with the Saudi Pro League, implementing our competition management solution. With the new platform, future SPL seasons will be managed through a digital ecosystem. This will be powered by AI and data analysis to speed up manual tasks and allow competition staff to focus on innovation. In the United Kingdom, we have reached a major milestone through our partnership with Formula One. We recently launched the new team content delivery system at the Australian Grand Prix in 2025. This innovative technology solution is designed to enhance the competitive experience for race teams by providing engineers and team principals with real-time and archived video and data analysis. We're also partnering with AIB on their Teller app. Teler is a specialized transaction processing application in AIB Northern Ireland branches, integrated with AIB's core system to support efficient transaction management. The bank undertook a significant upgrade on the application to further enhance performance and resilience. We accelerated the development using global enterprise AI to ensure delivery in a record time of eight months. In Argentina, we recently announced a reinvention partnership with YPF, the continent's third largest oil and gas company. We will improve their supply chain management with agentic AI and we will create an integrated operating model that will continuously learn and evolve. It will make complex decisions through expert supervised algorithms and ensure compliance with the company's internal policies and standards across their extensive supply chain network of approximately 5,000 suppliers. Globan's effort connects with YPF's vision to enhance operational efficiency across all areas and position the company as a global competitive player, generating $30 billion in exports by 2030. Our creative gut network continues to produce outstanding work for top brands globally, including Corona for its 100th anniversary in Mexico, Foodpanda with a new affordability campaign across six Asian markets, and Mercado Libre's ongoing expansion. Our global partnerships also continue to evolve. In recent months, we received multiple recognitions from Google, Amazon Web Services, and Adobe, reflecting the strong focus in developing these strategic relationships. As a founder and CEO, I'm deeply committed to our invention vision. we remain focused on delivering high-value solutions that reflect both human ingenuity and technological excellence. We will continue to evolve our core strengths and business models while pursuing long-term value creation. Thank you very much.

Hello! In the first quarter, we continued to navigate a fluid global context. Revenues reached $611.1 million. This represents a 7% increase year-over-year and 8.6% in constant currency. a figure slightly below our February guidance. This performance was influenced by the challenging macroeconomic and geopolitical context, which has affected spending patterns among some of our largest customers, particularly in LATAM. The market deteriorated towards the end of February as a result of the tariff discussions. Still, three of our four regional business units posted solid growth. North America increasing top-line 6% year-over-year, Europe 13.4% year-over-year, and new markets continuing to scale exponentially, posting an 84.4% year-over-year growth. However, we saw a challenging performance in Latam, which was down close to 9% year-over-year, with notable contractions in Mexico and Brazil, which were partially offset by a strong growth in Argentina. From a vertical perspective, we saw year-over-year growth across most of our verticals. However, we experienced some delays in project ramps, specifically in some large accounts in tariff-impacted industries such as airlines, pharma and high-tech. our revenue priority head increased by 2.8% year-over-year and 2.3% quarter-over-quarter in the first quarter of 2025, reflecting the value and efficiency we delivered and our ability to remain disciplined in pricing. Turning to our margin trends, our adjusted gross margin for the quarter stood at 38%, flat on a year-over-year basis, reflecting our premium positioning, geographic diversification, and improving service mix. Our adjusted operating margin for the quarter was 14.8%. While this metric fell short of our expectations, this was mainly driven by our lower than expected revenues. Our adjusted net income for the first quarter of 2025 was $67.8 million, translating into an adjusted delivery DPS of $1.50 for the quarter, almost flat on a year-over-year basis. Turning to our balance sheet, as of the first quarter of 2025, our cash and cash equivalents and short-term investments stood at $120.2 million, and our net debt was $167 million, translating into a healthy low net debt ratio, reflecting our prudent balance sheet management and providing us with substantial financial flexibility and liquidity. Regarding free cash flow, we consumed $5.7 million in the first quarter, in line with prior years. Looking ahead, considering the impact on our customers of the macroeconomic uncertainties and tariffs, and given our exposure to B2B2C customers, which affects our visibility, we have undertaken a thorough review of our forecast with the goal of de-risking our estimates to the extent possible. Based on this, we are introducing our second quarter 2025 guidance of at least $612 million in revenues, or 4.2% year-over-year growth. This expected growth includes a neutral FX impact. For the full year 2025, we are revising our revenue guidance of at least $2,464,000,000, which represents 2% year-over-year growth, which translates into a similar figure in constant currency terms. In terms of profitability, we are targeting an adjusted operating margin of at least 15%, both for the second quarter of 2025 and the full year 2025. The IFRS effective income tax rate is expected to be in the 20-22% range for both the second quarter and the full year 2025. For adjusted diluted EPS, we forecast at least $1.52 for Q2, assuming an average of 45.7 million diluted shares outstanding during the second quarter, and at least $6.10 for the full year 2025, assuming an average of 45.8 million diluted shares outstanding during 2025. We are taking clear and decisive steps to maximize our financial health and navigate the current environment effectively. Our short-term focus for the remainder of the year will be on driving growth through strategic investments in our AI industry studios and our 100 Square accounts, while focusing at the same time on protecting our margins and cash flow. With respect to margins, the main areas of focus are Optimizing utilization, which stood at 78.2% in Q1 2025 compared to 79.3% in both previous quarter and Q1 2024. Discipline pricing strategies. Strategic geographic mix of our talent and revenues. Footprint optimization and infrastructure streamlining are ongoing, particularly through the integration of recently acquired companies. SC&A investments will be sharply focused on bolstering our sales capabilities and go-to-market initiatives, while concurrently maintaining a lean overall structure. As of Q1 2025, adjusted SC&A as a percentage of sales stood at 18.3%, and we target this metric to trend downwards by the end of the year, as our top line expands. With regards to our cash generation, we are actively working to improve this critical metric through several initiatives. These include extending supplier payment terms wherever possible, targeting a reduction in our DSO, and implementing a significant reduction in our capital expenditures, with a clear prioritization towards investments in artificial intelligence. a prudent M&A activity to ensure accretive transactions in a fluid market. However, as discussed by Martin, we will remain bold in our technology bets and will continue to execute decisively on our long-term strategic goals. This balanced approach is of utmost importance to us. Thank you for your continued support. See you shortly at the Q&A session.