Globant S.A. Q1 FY2023 Earnings Call

Good day, and welcome to Globant's First Quarter 2023 Earnings Conference Call. I'm Arturo Langa, Head of Investor Relations at Globant. 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, Chief Technology Officer. Before we begin, I would like to remind you that some moments 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.

Thank you, Arturo. Good afternoon, everyone. You may have noticed that I'm not the real Martin Migoya; I am his digital twin. My appearance and my voice emulate Martin and are fully developed by AI engines. The real Martin asked me to join to highlight how this technology is changing many of our lives. I will be joined by similar digital twins of Diego Tartara, Patricia Pomies, and Juan Urthiague. For transparency, there will be a notice at the bottom of the screen every time we appear or use any AI engine. The Real Martin, Diego, Patricia and Juan joined you all for the Q&A session after these remarks. We have now completed the first quarter of what is a very special year for us as 2023 marks Globant's 20th anniversary. Since we founded this company, our vision has been simple, but ambitious: to become the leader and help reinvent the IT and digital transformation arena worldwide. In these 20 years, we have come a long way, with a team formed by almost 27,000 people in more than 25 countries all over the globe, working for the world's top brands in nearly every industry. First, let's take a look at this quarter. Total revenue for Q1 reached $472.4 million, representing 17.7% year-over-year growth. Amid high macroeconomic uncertainty, we were able to deliver results above our guidance expectation, showing robust growth while executing on all our strategic pillars, expanding geographically, growing our studio model, accelerating our platforms of Globant X and strategic M&A. We have a healthy pipeline with an encouraging array of bookings and backlog creation from the early months of this year. This fuels our optimism for sequential growth in Q2. Even with the challenges that the global economy faces, we remain optimistic and ambitious about the growth of our total addressable market. According to this quarter's CEO study by IDC, technology will be the most prioritized area of the agenda for global CEOs in 2023 with 87% planning to sustain or increase technology spending this year. IT investments are expected to reach $4.5 trillion this year, 5.4% higher than last year. Globant is delivering growth well above market averages and aims to keep building its leadership in this space. Looking ahead, we will continue to prioritize creating long-term value for all our stakeholders, driven by profitability, organic growth and a positive social impact. The nature of our work is in line with market demand. As I've shared with you in the past, Globant has been able to build an array of services and products to support organizations in every stage, whether they are looking to expand and retransform their product offering and user experience or if they are seeking greater efficiency and productivity. In that sense, our wide array of studios, ranging from digital experience platforms and commerce to our enterprise studio cluster continues to position us as the best partner to help companies gain relevance. Organizations everywhere are increasingly seeing AI's potential to create new user experiences and revenue streams and to make business processes more efficient at scale. Our focus on AI goes back to more than 8 years. When we first launched a specific AI studio and started investing in several strategic initiatives. During this time, we have introduced and evolved 4 key products and platforms deeply rooted in AI, StarmeUp, Magnify, Algar and Genexus NEXT. These products have seen and will continue to see an incredible expansion of their capabilities and are now experiencing exponential growth in their pipeline. This is a testament to the interest that organizations are placing in AI and of how much they are looking to boost their operations with AI. We will continue to scale up our artificial and human intelligence power to influence every area, industry and business for the better. Complementing our product portfolio, we have also consolidated our AI offering and initiatives into an end-to-end program that we call mines so that we could have a solid outlook on best practices across several industries. At the center of the mines concept are our Globers. We are making sure that every 1 of our pods is trained to understand AI opportunities and certified on how to use data and observe privacy safeguards when using generative AI engines. As we mentioned in previous meetings, these and other AI certifications are targeted to all Globers and not only the ones working on client projects. This way, we ensure to leverage the best of these new tools in order to enable us to move faster and more efficiently. Our Chief Technology Officer, Diego Tartara will later go into finer detail on specific services included in the mines program. As Globant always enjoys sparking the conversation and interest on disruptive technologies, we launched a new AI challenge initiative. We invite entrepreneurs to provide proposals on how AI can transform their business, and we will be awarding up to $200,000 to the best ideas in order to fuel them into reality, check it out at globant.com/ai-contest. Also, we just released the first of a series of reports on how AI will impact the finance industry entitled a new banking era. This report provides an analysis of how organizations can harness the power of AI to improve the quality, efficiency and velocity of their operations. You may download the report at reports.globant.com. Now some thoughts on the ongoing execution of our strategic growth pillars. Our M&A strategy continues to complement Globant's expansion plans by seeking to add new capabilities, geographic areas and market specialization to Globant's offering. Early this week, we announced that Globant entered into a definitive agreement to acquire Pentelog, a renowned digital transformation consultancy in Europe. Based in France, Pentelog offers a diverse array of services and a robust portfolio of clients throughout Europe and will support our expansion plans for that region, adding to the family an impressive reach into France, Germany, the Netherlands, Switzerland and Austria. Pentelog serves some of the strongest brands in key industries, such as Adidas, Bitpanda, TripAdvisor, Ipsos and G4S, among over 500 other companies in several sectors. Founded in 1993, Pentalog houses 1,300 professionals in France, Romania, Moldova, Mexico, Vietnam and the United States, among other countries. We have also recently completed the acquisition of Experience IT, a United States-based digital transformation consultancy with a diverse array of services and deep expertise in health care. With this acquisition beyond landing in Minneapolis, Globant strengthens its ability to accelerate digital and cognitive transformation to an amazing roster of clients among top United States players in the health care industry and other 40 leading companies in other sectors. As we keep expanding geographically, Globant is now in more than 25 countries on 5 continents. We continue our strategy of opening new offices that go beyond the traditional urban areas, focusing on growing hubs in niche markets to be closer to talent or to particular industries. In March, we celebrated the opening of Globant's iconic building in the city of Tandil, Argentina. Tandil, with now 300 Globers, was the site of Globant's first office outside Buenos Aires 16 years ago. Since then, the city has multiplied local IT talent by 7, and the technology companies in the area have quadrupled. This evolution shows the impact we can generate in talent, cities and countries as we create more local opportunities. In Monterrey, Mexico, we also opened a new center of innovation for AI applied to the manufacturing and consumer technology sectors. One of the main pillars of Industry 4.0 is incorporating AI and other technologies in the decision-making process. This center will focus on making this premise become real. In Europe, we doubled our presence by opening up a new office, which will serve as an innovation hub for fintech, gaming and other areas. Our array of studios of expertise continues to grow with 3 new studios recently launched. We believe that brands and technology are more intertwined than ever before. Consumers are asking for more personalization and better interaction, and it's time for every brand to find the best way to leverage AI, data and other technologies to create amazing experiences. Last week, we launched Globant Create, this new studio will be a creative powerhouse that merges the digital sales and digital marketing studios with our acquired creative agencies in Europe and Latin America to provide full funnel digital marketing solutions leveraging the power of trending technologies. Globant Create has a unique agency approach as it combines creativity and marketing strategy with AI, data and other technologies to offer its clients unique ways of connecting with their customers. This global new team has also become 1 of the most certified and validated creative organizations worldwide with partnerships with Adobe and Salesforce, along with being one of the few Google Partner Premier worldwide. We are also excited to announce the launch of Globant's Commerce studio Wave, a company acquired in last November in Australia. This team aims to help organizations create the best commerce-enabled designs with engineering at the core. These integrated teams have extensive experience in large and complex commerce transformations in both B2B and B2C domains. This new studio will support our clients to respond to changing customer expectations and offer personalized, relevant and engaging omnichannel experiences across all touch points in the consumer journey. The team has crafted a comprehensive value offering composed of an end-to-end digital commerce planning and consultancy service, bespoke custom solutions tailored to individual business needs along with the capability to integrate multiple platforms and services, including hosting, managed, development and more. Finally, expanding a relationship that has now been more than 16 years and taking steps to address the rising demand for Google Cloud products. We announced an expansion of our global collaboration with Google and created a new dedicated Google Cloud Studio. The new business unit will be focused on helping clients across Globant's multiple verticals to adopt and maximize the transformative benefits of Google Cloud platforms and tools, helping them to stay competitive and lead their industries in a rapidly changing business landscape. Our proprietary platforms continue to show greater autonomy, growth and use in helping our clients embrace technology to adapt quickly. Diego will refer to our latest features in most of Globant Nexus products in a few minutes. But now I'd like to share a major update on our AI-powered testing platform, MAGNIFY. By leveraging generative AI technology, MAGNIFY is at the forefront of the AI revolution, positioning itself as an AI-powered companion to streamline the testing journey even further. Moreover, to answer a consistent demand from clients, we decided to include Magnify in all our test automation projects by default. This is how it works. As we know, the testing process involves several tedious and time-consuming tasks. Through the use of generative AI, MAGNIFY 5.0 can now auto-generate automation code, snippets and test cases by simply describing requirements using natural language, unlocking new levels of efficiency and quality. Magnify 5.0 is now available. Discover more about it through the QR on the screen. Lastly, a few weeks ago, we were recognized as a market leader among digital engineering service providers in a new report by HFS Research. The report examines 25 service providers' roles in digital engineering, and Globant achieved the highest possible rank, Horizon Level 3, which indicates industry leadership across a range of dimensions, including value proposition, innovation capabilities, go-to-market strategies and market impact. Now that our global society is undergoing widespread adoption of our key technologies and capabilities, I believe that this is Globant's moment to spur our expansion and growth. We are committed to the compound effect of daily effort and drive. We believe that this effort, combined with constant innovation and reinvention will bring long-term growth for our company and great value for our stakeholders. With that, I will turn it over to the digital twin of Diego Tartara, our CTO.

Thank you, and good afternoon, everyone. I'm happy to be here. During this time when AI is revolutionizing industries across the spectrum globally, it's time for Globant to be closer than ever to our clients, educating and helping them accelerate their digital transformation paths. We have a unique opportunity to pair our experience in key industry sectors that are transforming the global economy, including travel, supply chain, financial services, health care, with our decade of expertise in AI. We are confident that we are in a unique position to offer flexibility, deep industry knowledge and AI prowess. First, I'd like to expand on the mines program, which Martin introduced. On a daily basis, more information and more applications are developed in order to support our clients in their own quest for value delivered from AI we condensed a set of knowledge, best practices and services to connect the capabilities of generative AI with their specific business needs. Mines also offers ready-to-play solutions for areas in which there is a shared understanding that AI plays a significant and immediate role. Some of these are customer support, for which we designed a service called Hello navigating complex data tackled by our ConverseAI segment and protecting intellectual property and organizational knowledge addressed by IP protection and augmented knowledge solutions, among others. We understand that AI could bring unintended consequences on various fronts. Therefore, we also require every pod to understand and adhere to our AI manifesto so that any application complies with our ethical approach to business and innovation. Also, we believe that AI is to be developed in a collaborative way. We are set to build great partnerships with other industry leaders such as Microsoft and organizations that are taking a stake in the AI stage such as LaLiga Tech, with whom we have created a joint venture.

Thank you, Diego, and hello, everyone. I am happy to be with you today to discuss how Globant is demonstrating its power of resilience and ability to innovate in the face of challenges and setting the stage for a stronger future. In parallel with the work we deliver to our clients, Globant itself is embracing change and shaping the future of work. We are constantly improving our efficiency and empowering our teams through the latest advancements in AI, transforming the way we hire, manage, train and focus our talent. Let's kick off with our clients. Our largest account, the Walt Disney Company, grew by 0.9% year-over-year and declined by 16.2% quarter-over-quarter. We are seeing signs of sequential growth in the remaining quarters of 2023. Our relationship with Disney remains strong, and we are present across many of their business units, ranging from theme parks to Disney media to cruises and resorts. We remain optimistic about our long-term relationship and the growth opportunities. The rest of our accounts collectively grew by 19.8% year-over-year and declined by 2.3% quarter-over-quarter. As we commented in last quarter's earnings call, high-end digital transformation was impacted at a time of high macroeconomic and geopolitical uncertainty. However, we are now seeing positive sequential growth in many of our key accounts, particularly reflected by the growth in our 2 to 20 client spend category, which was up quarter-on-quarter already in Q1. Our 100-Squared strategy continues to show results. We now have 14 accounts bringing in more than $20 million in annual revenue. In addition, we have 276 clients that provide more than $1 million of annual revenue, showing a 34% increase from 1 year ago. Regarding the geographical distribution of our revenue, in Q1, 61.4% in North America, 21.8% from Latin America, 13.4% from EMEA and 3.4% from Asia and Oceania. We reached historic high revenues in EMEA, reflecting our global expansion strategy. Also, Q1 2023 came with a string of large bookings with global firms. In late January and early February, we closed new projects with EY, LaLiga, Santander, Google and Disney Media. This all led to a record pipeline at Globant and a similar level of monthly bookings compared to early 2022, accompanied by other leading indicators internally pointing to an initial but encouraging improvement in spending patterns. During the first quarter of 2023, the efforts dedicated to improving the quality of the delivery of our services and products to clients paid off yet again. We have achieved a Net Promoter Score of 83, the highest in history and well above the industry benchmark range of 40 to 61. When I first discussed our focus on NPS on this earnings call in 2022, our score was 68 and has steadily grown quarter after quarter.

Thank you, and good afternoon, everyone. It's great to be here again. In Q1 2023, we achieved industry-leading growth with a solid 17.7% year-over-year revenue increase with revenues totaling $472.4 million, showcasing a strong performance in the current environment. Our adjusted operating profit margin met guidance expectations and we skillfully executed M&A initiatives to broaden our presence in the United States and Europe. As previously indicated in our last earnings call, we continue to expect sequential revenue growth in the second quarter of 2023, and as such, we are updating our full-year outlook to incorporate the most recent trends in the business. As a digital transformation service provider, we acknowledge that the current macroeconomic climate may influence client spending, potentially causing reduced visibility compared to past cycles. Nonetheless, we remain steadfast in our belief in the lasting demand for transformation. Our pipeline keeps expanding and client discussions around long-term strategy remain consistent. Amid ongoing talent scarcity and technology as a core focus, 2023 continues to witness digital transformation investments as a top priority. Cutting-edge AI advancements further solidify our dedication to revolutionizing business practices and guiding clients in embracing these innovations. Our focus continues to be on our platform, harnessing AI to distinguish our offerings, optimizing talent and cost structures, and tailoring services to meet the ever-changing demands. Upon reviewing our Q1 results, we are pleased to report another quarter of strong growth and healthy profitability. Despite the 3.7% sequential decrease in our top line, we experienced sequential growth in our 2 to 5, 6 to 10, and 11 to 20 client buckets, which reaffirms our belief that spending activity remains strong among our most important customers.

Hi. Good afternoon, and thank you, everyone. So with that in mind, we will take our first question from the line of Tien-Tsin Huang from JPMorgan.

Thanks for the detailed information. Could you elaborate a bit more on the sequential growth you expect in the second quarter? It seems that the bookings backlog, particularly with Disney media, is quite strong. Can you provide additional insights on the month-to-month trends you are observing? Also, many investors are curious why your outlook appears more optimistic compared to some of your digital counterparts.

Thank you, Tien-Tsin, for the question. So our outlook for the second quarter is $496 million. If you remember back in February when we guided for the first time for the year, we already mentioned at that point that we were expecting a sequential increase going into Q2. And actually, that materialized during the first quarter in terms of bookings. Now we have seen a recovery compared to the second half of last year. That recovery, we continue to see that happening during Q2. And that's why we are able to guide a sequential increase of about 5 percentage points from Q1 to Q2. Overall, I think that the level of bookings that we have seen in the first 5 months of the year has improved pretty much in every industry, maybe with the exception of technology; technology companies are a little bit behind the rest of the industries. But overall, we have seen a clear recovery compared to the second half of last year when most of the growth was actually coming from the backlog. The first part of the year not only closed new deals but also started to build some backlog again. That's why we're able to guide a sequential growth into Q2. And also, we continue to see a similar traction that takes us to believe that the second half of the year will also have sequential growth going forward.

Yes. And also to complete, if we see the bookings coming in pretty much three quarters going down sequentially in the last year, we're seeing that recovery happening in this first quarter and good outlook for the second quarter. So I believe that what Juan was saying has basic support on that recovery in the bookings.

Also good to see your digital twins again.

Thank you for referring to that because it was much cheaper than doing it the other way around.

That's how stock-based compensation does the digital twin get, I don't know. But more seriously, last time I had asked about GeneXus and AI and of course got attempts to see the demo. And AI is a big part of all investor conversations now; the general view that most investors have is a cautious 1 that you have a material model if people get replaced by software, it affects the time and material model. What you're talking about is incremental opportunity. So if you can kind of talk about how you are thinking of the benefits that you have to pass on to your clients in terms of productivity versus the incremental opportunity and what you see sort of to balance those products?

Thank you for the question. I will address the first part, and then I will let Diego take over. Let's focus on the basics of our daily operations. Roughly 40% of our time is spent generating code, while the remaining 60% to 70% involves understanding what needs to be done and navigating negotiations related to our objectives. It's important to recognize that efficiency can only be achieved in a part of our work. This is crucial to understand, especially considering the hype surrounding this topic. We still need human interaction for many tasks. Additionally, I believe that as we gain efficiency, our ambitions also grow. This is where we see the incremental opportunities presented by AI. For instance, we used to rely on apps to process transactions; now, we will use conversations for the same purpose. However, connecting these conversations to our back-end systems is a complex task. While it's easy to arrive at a broad conclusion, I think that's misleading. Efficiency applies only to a portion of our work, which is inherently sophisticated, and our ambitions are evolving more rapidly. Diego, please share your thoughts on this.

I think what Martin mentioned with regards to how we approach this and how we view the product is spot on. How we implement this is, if you recall, last year, we launched the Fasco studio, which was exactly about that, how can we bring efficiencies into our own work. And we've been even creating products for doing that. So we've been very active in the space. Now the thing is, as when this has been happening since I don't know the start of our business, there's new frameworks. There's new technologies. There's new development languages we aim to bring in those efficiencies. So lots of things that used to take x amount of work 10 years ago by leveraging those technologies, and they're not necessarily AI-related can be done as of today in half of the time, 30% of the time or even less. And that didn't mean that our work was reduced because, as Martin said, there's another expectation increase in terms of consumer expectations in terms of the functionality that our clients expect to bring to the consumer to be on the forefront of their businesses. So I think that these efficiencies that we are actually implementing, every studio is working on that. We have the training, like Patricia said, we've been very active in those spaces and it will be translated to our clients definitely as fast as we can. We are already doing that. But again, I think that will be translated into more work.

Got it. Got it. No, absolutely. I mean that's our view as well, digital, we get digital. The second question is really more near term as we sort of think of the cadence for the rest of the year. Obviously, your outlook still implies, I would say, less than historical sequential growth in the out quarters, but still pretty good sequential growth. And the issue and question has not been so much about getting bookings; it has been about revenue conversion. So any commentary with regard to revenue conversion? And is there just to be clear, Pentalog, is there a part of the year, maybe 4Q revs that you included in here, anything to be said on that?

So the cadence, the guidance for Q2 is out there, $496 million. And then if you do some reverse math, you're going to get to around 7% sequential growth in Q3 and Q4. Basically, that is coming from whatever has already been booked, and is going to book-by-book, we mean that we have the contracts already signed. Hence, we're going to be delivering those contracts and generating the revenue. On top of that, what we have is, as we mentioned at the beginning of the call, a much stronger pipeline, and we have seen an improvement in the conversion cycle when compared to last year. So basically, that guidance that we are providing is somehow embedding the deals that we have closed, the bookings that we already did, basically, plus the conversion level that we are seeing now at the level of pipeline that is aligned to that. In our guidance, we are not including Pentalog as of now, because we don't really know at this point if it's going to get approved in 1 month to month or 3 months. It's going to happen very likely within that time frame. But because we were not sure, we are not including that deal into the guidance that we provided as of now.

I was curious if you could share with us the mix of new versus existing clients and the bookings that you did see this quarter? And then any areas in particular where you saw traction in terms of your service offerings?

Yes. I want to tell Maggie is that the first quarter, which at the end of the day is what is going to be driving the second quarter and the near term, has twice the number of new logos that we had in the fourth quarter of last year. So basically, the beginning of this year is showing an increase in the number of new logos, but also farming activities are doing much better by farming. I mean existing clients signing or closing those deals, but we have been working for a few months already. What is implied in the numbers? It doesn't depend really on new logos. If you look at how the first quarter performed, you have which, as we mentioned, was going to be slightly below the fourth quarter, but then customers from 220 performed actually quite well. And that eventually, those are our key accounts, and that's where we are seeing a lot of growth getting into the next part of the year.

Also adding to that, I think that is important that we announced also that in EMEA, we have a record of revenue in this Q1. So I think that was an important thing that we have been talking a lot in the last couple of earnings calls about expanding in EMEA and in Europe, and now we are seeing very good results there in accounts like Santandar or La Liga, the joint venture that we made. I mean, it's bringing a lot of fruit there. So I think that's another point.

Yes. As of now, we expect, I mean, you already have the Q1 number, 15.1%. Second quarter is going to be 15% to 16%, but we still think that we're going to see a recovery in the second part of the year, second half, which hopefully is going to take us somewhere around the midpoint of the guidance. That is going to be driven by improved productivity, improved utilization; we have been working on reducing the talent pool of the company to protect those margins. And also, we have been very careful in where we invest. We keep investing in sales coverage as always, but we have taken a more conservative approach in the rest of the gene areas because we need to protect margins while we continue to grow in this current environment.

First one, I'll ask on just top line here. So as Disney goes, it sounds like it went to plan in the first quarter. Is it progressing through the rest of the year as you anticipated relative to what you communicated 3 months ago? And can you just talk to us about areas within that account? Are there certain areas that are seeing more pressure or certain areas that are seeing more growth? Or is it kind of similar across the various businesses you're working on there?

It has been pretty consistent across the different lines in which we are working. And yes, we expected what is going on right now. It was not that clear when we talked in the last earnings call, but then unfolded in the way we suspected. And we see, first, a very strong relationship that we have in Disney. And the second thing is we see that their scope is not going away, and we see some recovery in the second half of the year, which could be pretty strong. So this is what we are seeing now. Now let's see how this unfolds. We don't have the crystal ball here. But we understand that we are very well positioned working with them, and we will be profiting from that good relationship that we have.

We will continue to maintain a gross margin in the range of 38% to 40%. The acquisitions we are pursuing reflect this, with some exceeding that range and others falling slightly short. On average, we are still targeting a gross margin of 38% to 40%. As we grow, we aim to maintain healthy margins, but our emphasis is on both growth and maintaining those margins, rather than significantly expanding margins in the short term. Our focus is on sustaining our healthy margin levels while expanding our business globally and entering new regions. Our acquisitions have been instrumental in this expansion, enhancing our geographic reach and service offerings, as well as deepening our expertise in certain technologies. This strategy of organic growth, supported by selective acquisitions that provide us with needed skills and new opportunities, will continue moving forward.

And in the case of Pentalog, for example, I mean, the acquisition has not finished yet, although we announced it and we need to do the closing. But it's starting locations, as I mentioned before, well, my digital twin. There are adding locations around, for example, Morocco. They're adding Moldova, adding Vietnam, very strong in Romania, where we had operations and now we have a much stronger operation. So those are also levers to still keep on managing margins and to keep on diversifying risk.

I'd like to start with a question about the comments regarding the productivity gains and the tools you are currently implementing. Can you provide more insight on the expected level of productivity improvement for your software developers and delivery teams a year from now, considering all the technology usage?

We are currently running benchmarks based on real-world scenarios. Much of the existing information relies on synthetic data rather than actual projects we've worked on. One of the initial findings is that efficiencies can reach up to 15% within the development team. For specific tasks, that figure can be significantly higher, although it tends to be a bit lower for core development activities, averaging around that 15% mark. This pertains to substantial projects involving typical development, testing, and design. While this aligns with our initial expectations, I anticipate that improved tools, including our own, could lead to even greater efficiencies. It's important to note that there is often a constant struggle within development teams between the available capacity and the product owner's desire for more functionality, creating ongoing tension. I expect that any gains in efficiency will likely be offset by the addition of new features and demands. I believe the efficiencies we are implementing are being worked on by every studio. We have active training programs, as Patricia mentioned, which will definitely benefit our clients as quickly as possible. We are already making progress in this area, and I think it will lead to more work. Okay. So I think the conversations have been shifting in terms of relevance between the cost savings and the revenue-generating type of projects, whether in the past, this was 60% revenue-generating type of projects against 40% cost saving efficiencies into business processes, etc. I think nowadays, it's the other way around. So there's a lot of discussions about streamlining business processes, making better use of cloud services, etc. So that aspect is very. Our enterprise studio and services related to that are very active and getting a lot of work within the industries that 1 mentioned on the other side, in the revenue-sharing side of things, there's a lot of exploratory work on AI, as an example. We just launched and closed a deal to do CART development by leveraging AI models. These are just examples. But in the revenue-generating line, we are starting to see a lot more activity on certain industries. What I think at the end of the day is companies are very active towards making the savings they need to do because there has been definitely a reduction in the investment, and they're much more budget-conscious. But the thing is they want to use that for developing their revenue-generating lines. So that's why we always said the conversations on the revenue-generating side of things and expanding the business and exploring new channels have been there, but the decisions have been taken longer. I think they've been building space for doing that, and this is what is happening now.

Additionally, regarding our operational model, when we launched the proband and the 100-Square program, our aim was to maintain close relationships with our clients. This approach is now yielding positive results, especially when they have to choose between us and other options. We have been developing a strong partnership with them over the years, which is reflected in a robust pipeline and active farming efforts with these clients. As mentioned by Diego and Juan, the quality of delivery that Globant has achieved recently is yielding excellent outcomes. When clients face decisions about cost-saving or revenue sharing, our partnership and the discussions we have been having are significantly contributing to the development of this strong pipeline. Thank you.

Excellent. I think you made a comment about generative AI and overall AI providing upside to your outlook? Are these deals already in the pipeline today? Or is that just kind of a higher level comment about the TAM and your related outlook there that's why?

It's the second part. We definitely believe that all these conversations around AI and what we can do and what customers want to do will, at some point, unleash a large number of opportunities or we will be able to help our customers to take advantage of these new tools.

Yes. And also connected to that, I believe that the whole hype that is happening right now is starting conversations with the customers. But then the full pipeline, we're not seeing it right now. We're seeing, as Diego mentioned, some explorative interactions. And we are seeing the pipeline moving forward and the things happening in the next quarters, we believe. So it's difficult to forecast, but all these discussions might trigger some future pipeline that we are not seeing today, right? So I don't think it's fully unleashed yet.

Yes. So the guidance for the year, which is 16.5%, is now composed of about 12% organic and about 4.5% coming from those acquisitions that we did in the past, including Experience IT, but excluding Pentalog, which is a deal that we need to see when it's going to close once we get the approval from the French authorities, so 12% plus 4.5% is the guidance for the year.

Thank you, everyone. So that will be the Q&A session for today. I will now ask Martin to provide some closing comments. So Martin, please go ahead.

Thank you, Arturo. This is the real Martin, finally, real Pat, real Juan and real Diego. So thank you very much for helping us and for covering us. Looking forward to see you in the next quarter. Thank you so much.

Bye-bye.