Globant S.A. (GLOB) Q1 2024 Earnings Report, Transcript and Summary

Good day, and welcome to Globant's First Quarter 2021 Earnings Conference Call. I'm Arturo Langa, Investor Relations Officer at Globant. [Operator Instructions]. 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. Our speakers today are Martin Migoya, Co-Founder and Chief Executive Officer, Juan Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer; and Diego Tartara, Global Chief Technology Officer. Before we begin, I would like to remind you that some of our 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 risks 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 Globant 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'd now like to turn the call over to Martin Migoya, our CEO. Martín Migoya: Good afternoon, everyone. I'm Martin's AI-created digital twin. Let's get started with our first quarter's results. Revenue reached $571.1 million, representing a 20.9% increase year-over-year and above the guidance we provided last February. We are very happy to deliver another quarter of industry-leading growth. As Juan will mention later on, our expectations for the year continue to support a strong 2024 and solid exit rates going into 2025. At Globant, we are confident in our resilience despite macroeconomic uncertainties. With our diverse capabilities and authentic culture, we have become experts in growing our market share. Geopolitically speaking, we benefit from our geographic footprint with a leading presence in Latin America. It's a region free from international security threats as well as being democratically vibrant, culturally open, entrepreneur focused and with no religious conflicts. All of this has put us in a forefront position, outpacing other players in the industry. It's important to consider that when we analyze Globant, we take into account our own performance, partnerships, product quality and team rather than comparing ourselves to average companies industry benchmarks or sector performance. In the current scenario, where most IT services firms are struggling to deliver decent growth, we expect to achieve mid-teen top line growth for 2024 and foresee ample runway beyond. We're going to reinvent this industry that's stuck in the '90s, all while creating memorable and beautiful products that dare to delight. Moving forward, we envision 4 growth drivers for our business: One, our expanding market and the demand for our services; two, the revolutionary impact of AI across every global industry and how we can lead the implementation; three, our specialization with our studio networks and our presence in exciting growth sectors, including media, entertainment, the creative industries, sports and many others; and four, our geographic scale and presence in key regions. Let me double-click on each one. First, our expanding addressable market. The trends in AI adoption and generative AI only continue to accelerate with annual IT spending estimated to reach $1.5 trillion this year and up to $2.3 trillion by 2028 according to Gartner. According to the IDC, spending on generative AI alone is set to double in 2024. Our conviction is that the benefits from generative AI are only beginning to materialize. We've seen major inroads in customer service, at some of the more innovative companies 2/3 of the customer service conversations are already handled by GenAI-powered agents with customer satisfaction on par with live chat, leading to a drop of repeat inquiries by 25%. I believe that digitally mature companies such as ourselves with expertise in AI and software engineering will gain the most from this market expansion. We are primed to deliver groundbreaking experiences, blend physical and digital realms and drive loyalty like never before. With the growth of AI, AR, VR and the Cloud, businesses like ours are building the systems of the future and setting the pace for the digital economy of tomorrow. Far from AI hype we have understood for over a decade that this technology is to be implemented at every stage of the software development cycle. For this reason, we have led the innovation waves by introducing our proprietary AI-powered tools from GeneXus Next for code generation to Augoor to speed up code productivity to navigate to clear up bottlenecks and processes to magnify in product testing. The diversity in our AI offering is matched by the versatility of our studio networks, digital, reinvention, enterprise and create. Together, these studio networks offer long-term value to our clients as we advance on multiyear AI transformations. They blend the technology acumen strategic growth outlook as well as deep industry expertise to make our solutions truly impactful and lasting. This quarter, we were thrilled to announce a global partnership with NVIDIA. We are integrating NVIDIA's AI technology with our own enterprise AI platform. Through collaborating with NVIDIA, we're ensuring seamless integration with existing tech stacks while prioritizing accuracy, security and scalability. Globant's products can now accelerate time to market for AI-driven solutions through the use of low code and no code and provide businesses with a competitive edge in an evolving ecosystem. Our third growth driver, our presence in key growth sectors. Several years ago, we identified the value in blending industry expertise with technology prowess. This led us to establish our AI reinvention studios, which aim to help clients to reinvent not only their own companies but to pave the way for the reinvention of their industries themselves. Globant's work in all sectors of the global economy is expanding. On this call, I would like to zoom in on 2 of them where we are cultivating a particular focus. First, sports. Over the years, we have steadily built our credentials on key projects for FIFA, Major League Rugby, the Los Angeles Clippers and more. This quarter, Formula 1 selected Globant as an official partner to elevate the digital experiences. To begin, we will be redesigning, supporting and upgrading critical information systems for racing teams as while improving the fan experience through technology. As their digital partner and collaborator, we look forward to our growth together as we bring more innovation to what is the world's most technologically advanced sport. We are also rapidly expanding our market share within the travel and hospitality industry. Globant has built its expertise over 2 decades by working with the major players from amusement parks, cruise lines, hotels, airlines and more on the primary projects that incorporated the digital element to their customer experience, from mobile apps to wearables to smart reservation systems. Building this expertise has produced positive results as we have recently signed the largest deal in Globant's history with a major global airline. The Globant difference is that our teams do not work with our clients exclusively on current delivery, but instead build into the future, transferring capabilities and know-how. Pato, our COO, will elaborate on our industry growth across different verticals later. Our fourth growth driver is our opportunities presented by our geographic scale. Now in 33 countries, we have the right presence in both talent and client markets that are resilient and growth oriented in this time of macroeconomic and geopolitical uncertainty. First, Latin America, the region where we were born and currently home to 69% of our workforce. In Latin America, the IT services sector is expected to grow 11% in 2024. By 2027, the region's 5,000 largest companies may spend an estimated 25% of their budget on IT according to Gartner. As the only global tech player from here, we already have a presence in 14 out of the top 15 cities for technology talent, and we are the employer of choice in the region. We also see strong business opportunities in the Middle East with its emerging economies that seek to transform themselves through developing sectors, including tourism, entertainment, real estate and others, all of which Globant has demonstrated its industry expertise. Our connected experience studio enables us with the expertise to focus on figgital customer satisfaction as we compete to participate in many of the region's human-focused mega projects, such as smart cities, amusement parks, aviation, wellness and luxury apparel. With less than 3 years in the region, we are already working with nearly 20 clients. I'm pleased to see that Globant's hard work over this past quarter has been recognized by the industry. Everest Group named Globant as a star performer and leader in the software product engineering PEAK Matrix Assessment for 2024. It showcases the significant growth we've experienced in recent years in knowledge and offerings. Together with Rockwell Automation, our client for 6 years, we were recognized at the digital engineering awards. This was spearheaded by Globant's Sustainable Business Studio, which released a groundbreaking sustainability calculator meticulously back engineered to quantify energy, waste generation and CO2 emissions in repairing industrial automation assets versus buying new ones. We're particularly proud of this award because it's a mark of how we can not only make a difference for the top and bottom lines for our clients, but also have a positive impact on the environment as well. Now to some changes to our Board. After 12 years as a trusted adviser and Board member, I'm sorry to see Phil Odeen go with 7 decades of leadership experience, he was the rock of [ sound and sight ] to Globant. We'll miss you, Phil. I am also excited to welcome new members to our Board, Andrew McLaughlin and Nicolas Aguzin. Andrew brings a wealth of experience in tech startups, venture investing and digital rights advocacy. Co-Founder of Higher Ground Labs and Senior Adviser at Sandbox AQ, Andrew is a multifaceted leader. His career expertise spans from improving urban construction methods to AI and quantum technologies applied to cybersecurity, health care and financial services. His experience has brought him to many leadership roles, including Executive Director of the Tsai Center for Innovative Thinking at Yale University, Deputy Chief Technology Officer of the United States during the Obama administration among many others. He brings invaluable insight to our team. Nicolas Aguzin has a distinguished career spanning 3 continents and various leadership roles in finance and global markets. Formerly the CEO of Hong Kong Exchanges and Clearing, CEO of JPMorgan Asia Pacific, Nicolas has consistently executed on a global growth vision. I'm looking forward to his counsel as we expand in Asia, a key growth market for Globant. I'll close out with a special message to our Globers who are the essence of Globant's authenticity and our different way of doing things. Their perseverance and creativity is the difference that makes us partners for our clients rather than suppliers. Our global presence, smart technologies and deep industry expertise will reinforce our leadership going forward. We have a robust pipeline of prospective clients, and we look forward to sharing their transformation stories with you in the future. With that, I'll hand it over to Diego to expand on our exciting technology offering.

Thanks, Martin. It's good to be back. Our studio networks continue to develop as ecosystems that organize, showcase and streamline Globant's capabilities. What most defines Globant at this key time in our evolution is our expanding optionality range of the services we create. Our reinvention studios continue to expand their offerings now with services focused on AI, reflecting how AI is changing the landscape across every single industry. In our health care AI reinvention studio, we are working with a global company that focuses on women's health. We are deploying a specialized team from all studio networks with expertise in pharma, AI development, creativity and sales force, combined with our Globant X platforms to accelerate AI developments. The ongoing service consists in gathering digital insights, crafting the omnichannel strategy, creating the medical content and as a consequence, engaging customers through digital channels. This service kicks off a new go-to-market model, digital and AI first. This new method will enable the company to propel brand awareness and results while scaling to other markets and products in an agile way. This project is iconic for Globant as we are deploying not a technology service but a business partnership to push the envelope of results with our own autonomy and responsibility for brand performance. Within the sports AI reinvention studio, we are proud to be working for the International Olympic Committee. Globant will be providing the technology behind the IOC's new fan engagement platform. This will enable the IOC to launch adaptive content to millions of fans and offers the scalability to provide a consistent user experience during peak times. Our Create Studio network continues on its journey to reinvent the creative services industry through tech. This offering is complementary with the talent from leading agency GUT. Together, Globant provides seamless creativity that leverages technology to reach global audiences. Within this network, we recently won a gold price in the Annual International list Award for supporting Avianca to optimize its ticketing system through machine learning. Also, we are working with an Italian luxury automotive brand to improve its marketing communications, applying CRM and marketing automation techniques to timely reach niche audiences. In the launch of their latest model, specifically, we supported them building a fully digital customer journey and developing a multichannel campaign. GUT keeps expanding its work for some of the most beloved brands globally. They recently launched the joint global advertising campaign between Coca-Cola and Marvel released across cinema, television and streaming, which includes an immersive AR extension on Coca-Cola's website. Starting with our enterprise studio network over this quarter, we've seen a healthy response to the investments we made over the years to partner with the leaders of cloud migration and other transformations. We were awarded 3 of the 2024 Google Cloud Partner of the Year Awards, Industry Solutions Services Partner of the Year for Media and Entertainment for the second year in a row, Partner of the Year for services in Latin America and Partner of the Year for talent development in Latin America. We also achieved Amazon Web Services premier tier partner status, recognized for our technical expertise and success in adding customers with the design, architecture, building, migration and management of their workloads on AWS. We've been collaborating with AWS since 2011 and have seen this partnership grow not only from cloud technologies but also into gaming, metaverse, data, digital products, UX and AI from across the globe. We look forward to continuing these relationships into the future. Lastly, we are launching a new studio to fuse our experience in marketing technology with Adobe Experience Cloud. The new Adobe Studio offers our unique methodology and AI prowess, to ensure swift and effective implementation of Adobe solutions that can bring bottom line results for our clients. With a portfolio of successful implementations for some of the world's most recognizable brands across more than 20 countries. We have consistently demonstrated our ability to deliver value at scale. Within the digital studio network, we are seeing the opportunity to make our mark in the promising robotics sector. Many sectors seek to gain from the increased automation, speed and safety that the sector provides, yet we're already seeing growing pains that Globant can alleviate. That's why we recently launched our new robotic studio. There's a huge challenge that many of our clients will face as they integrate more robotics into their operations related to the orchestration of all of those robots, usually provided by different companies with each other and with their full digital ecosystem. The studio will have 2 key practices, robotics operations or Rob Ops, which is a growing field that ensures maximize performance of fleets of robots, reducing downtimes and optimizing integration of different vendors and robotics prototyping to support the customization and autonomy of robotic systems and autonomous machines. In all cases, our teams co-create complex autonomous robotic systems powered by advanced computer vision and telemetry. Globant will leverage a larger trend where robotics is central in connecting the physical world with the digital realm, incorporating elements of the Internet of Things, artificial intelligence and process optimization. Lastly, let me share another example on how we are leveraging our signature digital products. One of our clients, a major U.S. retailer with annual sales of over $12 billion has implemented MagnifAI, our AI-powered testing platform from Globant X. In retail, where online sales are growing at an unusual rate to the extent that 24% of sales are expected to occur online by 2026. MagnifAI is key in improving their overall quality processes to meet the required space. Testing time of some features across 5 devices previously demanded over 6 hours of work and is now just 30 minutes. By implementing MagnifAI and adding artificial intelligence to their quality assurance processes, the team was able to test more scenarios more frequently. It also provided better accuracy in the testing results. This generated a significant increase in testing coverage while saving time. With that, I'll hand it over to Patricia Pomies, our COO, to expand on our commercial delivery and people updates. Thank you very much.

Thank you, Diego. It's a pleasure to be back. Our 100 square strategy remains our North Star for strengthening the relationships with our clients and offering more services as we grow our collaboration over time. We currently have 17 clients bringing in more than $20 million of annual revenue, and we now have 318 clients that provide more than $1 million of annual revenue, 15.2% more than 1 year ago. Revenue from our largest client, the Walt Disney Company grew 6.7% on a year-over-year basis. and currently represents 8.3% of our total revenue. The rest of our accounts grew 22.4% year-over-year, reflecting the increasing diversity of our revenue sources and reduced risk exposure. In order to provide more granularity into our diversified regional performance, we have reported Europe as a stand-alone market with the Middle East being bucketed into new markets. This reflects how we operate internally, and it will help investors gauge the traction in our more up-and-coming markets. In Q1 this year, 56% of our revenue came from North America, 22.9% from Latin America, 17.2% from Europe and 3.9% from new markets, a region that encompasses our efforts in the Middle East, Asia and Oceania. Europe is the top gainer growing by 56.1% year-over-year and 6.6% quarter-over-quarter. Additionally, the performance across our business verticals reflects our solid execution. We achieved notable year-on-year growth across virtually all of our business segments. Travel and Hospitality emerged as the fastest-growing vertical, experiencing a remarkable 66.5% year-over-year increase and contributing 11% to our total revenue. Also, our consumer, retail and manufacturing sector exhibited strong growth at 49.6% year-over-year. Media and entertainment, banking, financial services and insurance and health care, each showed robust double-digit growth as well. As Globant scales up both in the size of our team as well the array of our offering, we are mindful of the opportunity we have to amplify the impact of our solutions. Embracing our new cultural value of being cross-selling heroes, we started the year launching a novel integration model. This model is designed to provide a seamless and streamlined experience for companies joining our family through M&A. The new transition team operates on a decentralized basis and is focused on each region, accelerating the integration process with new colleagues and ensuring more direct access to complementary business opportunities. As an example, Sportian our joint venture with LaLiga have already booked deals involving own specific offerings along with Globant's pre-existing services. Second, we kicked off an initiative to develop industry-tailored multi-technology experience rooms in some of our flagship offices such as Los Angeles, Madrid, London, Sao Paulo and Mexico City. The AI playgrounds, as we will call them, will serve as immersive spaces highly enriched with AI-driven features where our top prospective and current clients will be able to accelerate their own digital journey by looking into real cases and best practices where Globant applied its capabilities. Now to our headcount. As of March 31, we are 28,991 Globers, of which 92.9% are IT professionals. Total head count figures represent a year-over-year growth of 2,703 Globers. Our utilization rate for Q1 stood at 79.3%, up 10 basis points year-over-year. This quarter, I'm pleased to announce that Globant is now in the Philippines, further strengthening our global footprint. Our attrition rate over the past 12 months is 8.2%, 6.3 percentage points lower year-over-year. As our company grows, we are not only expanding our reach. but also constantly evolving our ways of working to foster autonomy, collaboration and innovation. During the last earnings call, I showcased different AI-powered platforms such as Geno and Sensei, which have revolutionized the way we assemble our teams and bolster global skills. Now through the lens of AI, we have an unprecedented opportunity to reinvent the agile approach that has so strongly shaped software development. A team of our most experienced Agilysts is working to redefine the rules of Agile itself in a concept we call cognitive Agile practices, already piloted in projects along the banking industry, where we are testing a more dynamic delivery system due to the acceleration of growing digital ecosystems we are seeing positive increases in response time and client satisfaction. Cognitive Agile practice is all about working toward customer purpose rather than in structured project goals. I look forward to sharing more with you as this methods application grows. Regarding our community, our role remains strong, launched in 2020, our Code Your Future initiative is aimed at creating a pathway for more people, particularly women and socioeconomic minorities in developing countries to enter the technology talent market. We have already trained 12,000 people through this initiative, and we are now announcing 1,250 new scholarships. Finally, we launched the fifth edition of Women That Build Awards. This initiative spotlights the female role in tech with the objective of inspiring more to take the giant leap in their careers, academics or entrepreneurial projects. To date, we've evaluated over 6,000 candidates from over 50 countries, garnering more than 310,000 votes, the support of more than 150 organizations and the participation of 240 international judges. Now let me introduce Juan, our CFO, see you all in some minutes for the live Q&A. Thank you.

Thank you, and good afternoon, everyone. I am glad to be back here with you to discuss this quarter's results. In a complex macro and industry environment, we are confident Globant is on track to deliver another year of industry-leading results. Our first quarter revenues reached a milestone of $571.1 million, a remarkable 20.9% year-over-year growth and above the guidance provided to the market. More importantly, this growth continues to place us in a solid position to deliver upon our high-growth expectations for the year. This quarter, we saw growth in all of our geographic segments on annual terms and in 6 out of our 8 industry verticals pointing to a broad-based performance. On organic constant currency terms, Q1 revenues grew 12.7% year-on-year, above our guidance. We remain optimistic about the year. Secular technology trends are encouraging, driven mainly by AI. And as seen in the broader technology sector, it is already being reflected in tangible financial metrics. While macro-related concerns and soft IT spending will continue into the short term, we are encouraged by our short-term business indicators, which continue to support our quarterly growth outlook for the rest of 2024. Our pipeline is strong and at record levels, and recent booking trends in the past months support our outlook. Moreover, we see our growth driven by a robust set of initiatives across our geographic and industry segments. The performance across our regions reflects our solid execution. We saw year-on-year growth across all of our geographic segments. North America, which represents close to 56% of our top line expanded at a 10.3% year-on-year rate. LATAM, 22.9% of revenue grew 27.2% year-on-year despite some of the exchange rate volatility seen in the region recently. Europe expanded at a 56.1% year-on-year rate and at a 6.6% quarter-on-quarter clip. The robust performance in Europe is a reflection of the recent investments made by the company in the region, a very strong performance in the sports industry, our ability to capture synergies from recently acquired assets and our differentiated value proposition in the region. Excluding inorganic contributions, Europe is still tracking markedly above the company average. Lastly, in new markets, we posted a 33.7% annual growth, all in organic terms. This is reflective of our advances, both in APAC and the Middle East, which are all tractioning strongly. We closed the first quarter with an adjusted gross profit margin of 38%, flat on a quarter-over-quarter basis. We've managed to offset a tough pricing environment, currency fluctuations and macroeconomic pressures through improvements in our geographic mix and through our premium offering. Also, we've managed to maintain an adjusted operating margin of 15%, virtually flat on year-on-year terms. We remain committed to the long-term profitability of the company. And while we recognize there are some short-term headwinds around margins, we will continue to strive to maximize revenue and margins and walk away from a growth at all cost approach. Our adjusted net income in Q1 reached $67.5 million with a 11.8% adjusted net income margin, up 10 basis points year-over-year. Adjusted diluted EPS for the quarter was $1.53, in line with our guidance, representing a 19.5% year-over-year increase based on 44.1 million average diluted shares. Our balance sheet remains strong. We've strategically managed our net cash position, ending the quarter with $237.5 million in cash and short-term investments. As of March 31, 2024, we continue to have ample funding stemming from our revolving credit facility, which has approximately drawn down $105 million out of the $725 million available. This should provide ample funding options for our organic and inorganic plans in the short term. The strong cash generation provides the company with solid funding to focus on growth, reinforce our strategic investments and finance our future growth initiatives. Turning to the future outlook. We remain optimistic for 2024. We are on track to deliver on our mid-teen growth guidance and the short-term visibility supports that. We have continued to experience a positive momentum in bookings and large deals, which keeps us optimistic about our outlook for 2024. Moving forward, we'll be providing ranges rather than at least thresholds. This approach offers a more accurate reflection of our current industry dynamics and offers a view of where management's outlook lies within a range of scenarios. For Q2 2024, we project $585 million to $589 million in revenue, implying an 18% year-over-year increase at the midpoint of the range, with adjusted operating income margins between 14.5% and 15.5%. IFRS effective income tax rate is expected to be in the 22% to 24% range. and our adjusted EPS for Q2 is expected to be in the range of $1.47 to $1.52, assuming 44.2 million average diluted shares outstanding for the quarter. Now let's move toward the full year guidance. We continue to be very confident about delivering another year of industry-leading growth based on current visibility we now estimate our 2024 revenues to be between $2.405 billion and $2.440 billion, implying a 15.6% year-over-year increase at the midpoint of the range. This range is very much in line with our previous growth guidance provided 3 months ago. For the full year, we expect our adjusted operating margin in the 14.5% to 15.5% range. 2024 IFRS effective income tax rate is expected to be in the 22% to 24% range. Finally, our adjusted diluted EPS for 2024 is expected to be in the range of $6.20 to $6.50, assuming 44.3 million average diluted shares for the year. As we conclude, I want to express my gratitude to all of our shareholders and investors. As a management team, we remain committed to creating value for our shareholders. Thank you, everyone, for joining the call today and for your continued support and belief in our vision and strategy. We look forward to updating you on our progress throughout the coming year.

Thank you, Juan, and hello, everyone. It's good to see you again. [Operator Instructions]. So the first question comes from the line of Tien-Tsin Huang from JPMorgan.

I'll ask on the positive momentum in the bookings that you referred to -- all of you referred to. I think I heard you had a large airline win, of course, F1, IOC, some good larger wins, it sounds like. So do these wins inform your outlook in any way? Do you expect some of these bookings to convert in the second half? I'm just trying to gauge your confidence into the sequential growth that's implied in the second half of the guidance. Martín Migoya: Tien-Tsin, thank you so much for the question. Yes, those large bookings are quite interesting, and it will have an impact on our revenue, of course, moving forward. On the guidance that we provided, we tried to bake in all those things. So we are trying to be in line with the idea of what's going on in the market and what we already guided in the past. So that's the short answer to your question.

Also Tien-Tsin, just to add on Martin's answer, when you look at the sequential growth for the second half of the year, you have -- like these bookings that are coming. And then there is some incremental number of days, especially in Q3, which is typically our strongest quarter. Martín Migoya: Yes. And the momentum on bookings that you -- that we referred is real. I mean we are seeing some recovery, and quite interesting to see what didn't happen in the past, right?

Right. Yes. So large deal wins, which are great plus some of the billing differences... Martín Migoya: But it's no [ chance ] of large deals. I mean, it's the large deals plus the whole thing moving forward, right?

Our next question comes from the line of Moshe Katri from Wedbush.

And again, congrats on very strong results again. So some folks are kind of concerned that AI is actually -- decisions related to AI or AI deployment is actually impacting overall spending or maybe pausing spending in general. Are you seeing that in your business? I mean, from our perspective, it seems that it's going to be more of an accelerator than anything else, but maybe some color there could help. Martín Migoya: Sure, Moshe. I will answer the first portion and then I will let Diego to answer the second one. I see that there's -- in the same way as -- happen when the mobiles appear and the digital transformation got triggered, First, people adopted mobiles and then digital transformation was the answer of enterprises adopting that technology to be closer to their customers and connect in a more emotional way. And that was the whole thing that happened during the digital transformation. In the same way, what's happening today is that people already adopted AI. And you see on the latest release of ChatGPT for -- above 100 million users are using every day that technology. And that will trigger and that know-how that collective know-how will trigger like massive transformations on the companies too. I mean every single sector in the company will need to adopt that new technology that will yield to multiyear transformation programs for pretty much every single company. Now at which speed that happens, and we have been repeating that -- this from -- since many quarters ago, the speed may differ. We are seeing some projects that are becoming reality and they are going into production, going into scale in some of our customers. In the quarters before, we saw like more exploratory projects. We still see those exploratory projects, but now a little bit more of those projects enter into production. But the important thing here is that AI will be pretty much everywhere. I mean, it's embedded in the way we're thinking the future of Globant. It's embedded in the way we are offering our solutions to our customers, still the movements around transforming the enterprise and the enterprise solutions is still there. Still the digital movement is there. Still, there's a lot to do on the digital space. Still there's a lot to do on the digital marketing space. And still, there's a lot to do on reinventing their -- those businesses to go to the next level using AI. So we are being very careful to position Globant on that. We're investing heavily into having tools that accelerate the way software is being created and software will be created at much faster speed than before. That's a reality that didn't exist before that exists today, and together with that acceleration of software ambitions [ will ] also create. So there's a brand-new set of opportunities that will be open as we move forward. So I'm not concerned about those decisions being delayed. I think people have more uncertainty on the macroeconomic side. I think it was very good news to have the interest -- sorry, the inflation on the good side, let's call it, on the good side in the U.S. So I think that those things slowly, little by little will start to recover the investment on the IT space, on the technology space, as I think it's desperately needed by every single corporation. So but -- I would like Diego to go more into that, how deep AI is penetrating everywhere.

So Moshe, like Martin said, we haven't seen AI as a decelerator for big programs. With the specific tracks for AI, companies continue to be pretty much exploratory. There are some concerns out there, and that's public with regards of putting this and connecting this to the clients directly. And that's why most of the projects have to do with internal tooling, processes, et cetera. We will get there, no worries. And there is also a factor that has to do with how big and how fast this is moving. So whenever you need to make a decision, technology is changing so fast that many companies are sort of reluctant of engaging into a lengthy project and see how the technology they have chosen matures and change in time. And that is why GeneXus Enterprise AI plays a huge role as a middleware to the actual implementations, providing you with control to what model you use, higher degrees of security, control on the outputs, et cetera.

Our next question comes from the line of Maggie Nolan from William Blair.

Now that you have a guidance range in place for revenue, can you elaborate on the expectations for the economic backdrop and the demand environment at both the low end and the high end of the guidance range?

So the new guidance basically has a more conservative number. The number that we feel is more realistic at the middle of the range, and I'm more optimistic number. The main difference is between those is basically whether the macroeconomic conditions deteriorate or improve. If things stay more or less the same, with the industry is performing in line with what we are showing in our Q1 numbers, then we would probably land around the midpoint. If for some reason, things start to deteriorate further, there is a deterioration in some of the sectors and things like that, we're going to go to the lower end. If things start to recover a little bit faster, we see some recovery in tech. We see some more recovery in professional services then we can end up towards the upper end of the range.

Our next question comes from the line of Bryan Bergin from TD Cowen.

Maybe I'll try margin. So maybe can you talk about what the incremental pressure points have been here since last quarter. How much of this has purely been FX versus the competitive markets? And the levers you may have to help offset it as you go through the year, understanding you revised the outlook. But what are you leveraging to help offset some of the pressures. And also, Juan, just anything as you think about beyond this year, any change in the overall profitability, anything to be aware of?

Yes, sure. Thank you, Bryan, for the question. So in terms of operating margins, we moved the guidance from 15% to -- 16% to 14.5% to 15.5%. Basically, what we are seeing there are 2 things. We are not seeing any improvement on the FX side, Colombian peso, Mexican peso and some other currencies continue to be very, very strong against the dollar. And the utilization number for Q1 was slightly below where we expected, and we plan to maintain that number. Hopefully, we would like to improve it, but we are planning to maintain -- our Globers thinking on the recovery that we are starting to see in some of the industries. The recovery that we are already seeing here into Q2 where the sequential growth is back and at 2.8%. And also the recovery in the second -- in the third quarter and fourth quarter on a sequential basis that we are estimating based on the bookings that we have just announced recently. So that might result in margins being more towards the 15% number, and that's why we decided to move a little bit the range. Again, we are not assuming any improvement on the FX side. And I think that it's important for us to continue working in the way we're working where we want to grow, but not at any cost, right? We need to protect our margins. This is a long-term game and we need to protect margins as much as we can.

Now our next question comes from the line of Jonathan Lee from Guggenheim.

How should we think about the visibility you have in the project ramps for the remainder of the year? And what your customer conversations gives you confidence around bookings conversion and realization through the remainder of the year given some of the project delays we've been seeing across the industry?

Yes. When you look at our numbers, I mean, if you look at the guidance from last quarter back in February, 16.2%, look at the midpoint of the range, which is where we feel we should end up at this point, 15.6%. It's an extremely minor adjustment and a big part of that is actually coming from the euro and the GBP, which are playing against us. And at the same time that our European business is growing. So there's really almost no difference in the guidance from February and the guidance today. So visibility stays more or less the same. I mean, we still rely on new bookings. We are not living on the backlog. So it's a combination of backlog plus new bookings. It's good news that we are seeing some big deals closing, and that helps to improve visibility. But at the end of the day, it's a very similar number if we adjust for FX and hence, the visibility stays more or less the same. Probably the most positive news as Martin was describing, are these large deals that we just closed, one of which was announced here in the first part of the call. So visibility stays the same.

The next question comes from the line of Ryan Potter from Citi.

Looking at your verticals, it looks like professional services and technology communications maybe are seeing those softness, can you discuss some of the demand trends you're seeing in those verticals? And we've seen some of your peers kind of call it, softness within professional services and seeing some client restructurings lines in that area. So can you also comment on being impacted by any client restructurings in that area?

So in terms of professional services, basically, what we have been seeing throughout the last few quarters is a stable business. It's not growing. It's not decreasing significantly, just a few points here and there, but it's a reason that it has been stable over the last few quarters. The same thing with technology. Last quarter, we mentioned that the decrease has stabilized, and it continues to be in that same behavior, let's say, it continued to be the case. On the other side, you are seeing some other industries performing extremely well, right? Travel and hospitality growing north of 50%. Our consumer business -- Consumer and Retail business growing also at a similar pace. So we still -- I mean it will be ideal to see a recovery in tech and telecommunications that has been down for the last 2 years or flat to down over the last 2 years and professional services, what we are seeing is a very stable business, which is not significantly moving either up or down. That's the situation we are seeing. We continue to expect more growth on Media and Entertainment. Our sport business is expanding a lot. Disney is showing an improvement. If you look at the numbers for first quarter, it grew almost 7% year-over-year. Keep in mind that in 2023, the account was slightly down year-over-year. So that's good news, Media and Entertainment, good news. Retail manufacturing, very good news, travel very good news. BFSI, we are starting to see good momentum, some large deals also coming on that front. So the only -- I would say the only industry where we still need to see some recovery and we know at some point, it's going to come is technology and telecommunications and then, of course, professional services. Martín Migoya: Yes. And one thing I would like to emphasize over there is that if you see Globant and if you see some of our competitors, you will see that Globant is consistently still in market share, right? And that's a very important ability to put on the table and to act on to it. When most of them are decreasing or growing at small numbers, we're still maintaining our ability intact to get that market share. So we're very proud of that. And I think that's a result of everything we are doing and investments we have been doing on the AI space, on the sports space, on every single platform that we are fostering and pushing to our customers, so that's beyond any sector. I would like to say that our growth remains pretty solid across the sectors because of that common factor of that ability of getting market share.

Yes, and of course, diversification space, right, because having exposure to all those sectors, diversification in terms of geographies going heavily into Europe, flowing heavily into MENA that also pays off and helps to maintain an industry-leading growth this quarter and, of course, for the 2024 guidance.

Sorry, adding to that, I think we have been, for the last 15 years or 20 years, we have been very specific in the way we are doing product and software. That has to do with delighting our customers and the experience that the brand has with their customers and their users. And that is not changing right now. In fact, it's getting more and more deeper. So that special place where Globant is right now is what is giving us the way to grow in different kind of strategies on verticals. For example, as Juan was mentioning, in new markets, we have the same objectives of trying to build a new way of connecting with consumers, a new way of connecting with citizens. So there, the expertise of Globant is going beyond what we can do. So I think that Globant has been building across the last couple of years, different kind of offering and values and technologies and products that are giving results right now. And in different industries, also the partnership that we announced in this earnings call and the last one, has to do with that, right, with how we engage with the customers, how we're going to make different experiences and better experiences in the way we are using and transforming the way.

So that's being reflected in impressive growth rates here.

Our next question comes from the line of Divya Goyal from Scotia.

So I just wanted to get some color on the geographic growth. You did mention that you set up an office in Philippines. I noticed there has been some sequential decline in U.S., it's sort of like stayed at the 10% mark over the past few quarters. I'm just trying to understand, are you seeing the same trend for outsourcing? And do you anticipate automation to drive -- automation and outsourcing to actually drive an upside to this margin impact that you're seeing in your margins in the shorter term?

Let me take the first part of the question. So when -- the Philippines new office is a delivery center, so it's not a market that we are going after, but it's a place from where we will source talent to deliver to our customers around the world, including, of course, MENA because of time zone. About the question regarding the U.S. a small sequential decline that we have there is explained by 2 things. One, if you remember, back in February, we mentioned that in Q4, we had sold around $5 million to $6 million in licenses. That was a one-off, that was not going to happen. If we exclude that effect, the other effect that we are seeing is our professional services business, our technology business, which is primarily in the U.S. So it's very, very kind of consolidated in that -- in those areas. Other than that, we are seeing good momentum. And actually, we are expecting growth for the second quarter and for the rest of the year. There was a second part of the question.

It has to do with automation and outsourcing. Our strategy, as you probably know, our delivery model is global, meaning we provide the right services with Globant's quality from the places where there's the right talent. And it hasn't been -- it hasn't changed. So it's exactly that our expansion and open offices where the right talent is, where there's potentially commercial engagements, et cetera, has been always the case. With regards to where the talent is being sourced and how the market behaves with that? We have seen -- we see an improvement in the flexibility with regards to where the services are being provided. That has been happening for a few years now. But I don't think that it has broadly affected how we are distributed in our global presence.

Our next question comes from the line of Arvind Ramnani from Piper Sandler.

I just had a couple of questions on just overall shape of the rest of the year, I mean, kind of -- just kind of doing some simple math here. You get to like about 6% sequential growth for the 3Q and 4Q and that should get you to a good kind of full year number. But obviously, it's not going to be exactly the same, but if you can give us some color, do you expect 3Q to be stronger or 4Q to be stronger? And then the second thing is like, depending on some of these new ramps, is there potentially upside or are they just fully embedded in existing guidance?

So the current guidance at the midpoint is basically what we are expecting and includes the current bookings that we announced and that we closed earlier in the year. When you look at the cadence in terms of growth, for the second quarter at the midpoint of the range, the sequential growth is 2.8%. Q3 has almost 2 more days and the implied or the number that we are estimating for Q3 is around slightly above 5% sequential growth. And then the number that gets implied in terms of sequential growth for Q4 is around 4.5%. That's how the year is built. We don't need to go to -- I mean, at the midpoint of the range. We don't need to go to the 6% that you were calculating. So it's a little bit lower than that. And those are the numbers Arvind.

Our next question comes from the line of Tyler DuPont from Bank of America.

I wanted to just ask about demand trends since the last call. Given the, call it, 6-ish basis points tweak in top line guidance at the midpoint, just sort of curious if you can discuss sort of what the main drivers are there. Would you say it's more driven by a slowdown in clients just releasing budget dollars to actual spend? Or are their clients actually changing sort of the scope of certain projects. Any other dynamics that we're considering. And just given where we are right now, what do you need to see from sort of a macro standpoint to gain confidence with sort of bottoming out and sort of entering this upward inflection in demand? Martín Migoya: Thank you so much Tyler. So I believe that demand has improved in the last few -- in the last few months. The only question mark that remains there is that all this like bad situation that was created while the inflation last month was going up or not going down as fast as expected, so on and so forth. So I tend to -- what we are seeing at Globant is that bookings are improving as opposed to what was happening before. But at the same time, the question mark relies on how this will move forward. I think that if things keeps on going like what happened yesterday with inflation, it will be fine. But as we said before, the macroeconomic environment is still uncertain. And we -- and we're very responsible in the way we guide the market. So that's why we want to enter with this new range. I don't know, Juan, if you want to add something to that?

No, no. What I'd add there is that in any case, we are at the midpoint of the range, we are talking about 15.6% growth, of which a little bit over 10% is organic growth. So we are discussing the level of growth here. We are not discussing whether the business is going to go down, minus 10%, minus 2% or plus 1%, right? We are talking whether it's 15%, 15.5%, 16.2% around those levels, but we are growing as a company on a year-over-year basis and a sequential quarter starting into Q2. So more like what Martin was saying whether it's going to be a little bit more, a little bit less, there is, of course, some impact of the volatility in the macro that is impacting our customers in terms of their decisions. But in any case, again, we are talking about whether we're going to grow faster or a little bit slower than we were anticipating.

Our last question comes from the line of Leonardo Olmos from UBS.

So my question is basically centered on Argentina. If you could discuss a little bit the macro conditions of the country. How do you expect the developers' cost to be impacted? And what are your view for the remaining 2024?

Yes. So things are improving in Argentina. They are getting more stable. Of course, back in December, there was a depreciation that, as we discussed in the last quarter had an impact on our Q1 revenues. The impact was around $15 million in that quarter. We already closed around $10 million of those $15 million. So we still have about $5 million in our Q2 numbers that depending on each negotiation with our customers will get fully sold or partially sold, but we are -- we made very, very good progress compared to where we were back in towards the end of December. Customers understood the situation. In terms of the impact on costs, in our industry in Argentina, salaries tend to be dollarized so they tend to follow the U.S. dollar. So it doesn't really change much the situation because salary has got a very good impact back in December. Now inflation is going a little bit faster than currency devaluation. So it's offsetting part of that benefit back in December. But all in all, we are not expecting big changes on that front in Argentina. Martín Migoya: Yes. But just complementing a little bit more color on what's going on there. I mean, for the first time, we are seeing a government that is being very responsible on spending and that is creating like a pretty healthy macroeconomic environment, although still inflation is high, but it's coming down very, very fast. So we have bigger expectations of the Argentinian economy to start to recover again and recover very fast. So let's see. I hope this time we are lucky.

So that will be it for the Q&A session of today. Thank you all for participating. And now I will ask Martin to offer some closing comments. Martin? Martín Migoya: Thank you. Thank you very much for everyone for participating today. Thanks to everyone that is following us on the streaming. And I want to highlight the support that we received from the -- from all the shareholders. So on our last shareholders' meeting that happened last Friday, where we had a record amount of people participating and a record positive votes for all our ideas and how we're managing the company. So we're extremely happy with that. I want to say a big thanks to that. We will keep on challenging every single thing we see in front of us. We will keep on being extremely [ normative ] with our offering and the way we get to our customers. So we are extremely positive about the future of the company and how Globant will reinvent this industry. So thank you to all the analyst community for covering us, for supporting us, for being here today and really looking forward to keep on interacting in the future. Thank you very much.

Bye. See you. Martín Migoya: Bye.

Bye-bye.