Globant S.A. Q2 FY2024 Earnings Call

Good day and welcome to Globant's Second Quarter 2024 Earnings Conference Call. I am Arturo Langa, Investor Relations Officer at Globant. All participants on this call will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Kindly refrain from raising hands, as we'll aim to address a select number of questions to ensure efficiency. 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 the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the 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.

Good afternoon everyone. It is my pleasure to be back with you. Hey, how are you, Digital Martin? Thank you so much. Enjoy your holidays. I will take it from here. Good afternoon, everyone. It's my pleasure to be back with you again. I'm giving a well-deserved break to my digital twin. This quarter, we are changing the format of our earnings call. We will be more concise in our remarks and leave more time for discussion with our analyst community. Globant remains committed to our long-term growth. We continue expanding our market share at this important time for our industry. We aim to be the leading innovation partner for our customers as the AI revolution continues to expand. I will begin with our quarterly results. Q2 revenue totaled $587.5 million, up 18.1% year-over-year, and almost 3% quarter-over-quarter. This growth was shared across the geographical regions and industry verticals where we work. It included a significant step forward with our top customers and our media, sports, and entertainment vertical. We continue to deliver in profitability, forecasting EPS growth while maintaining a healthy balance sheet. We're improving our margin outlook for the year, raising both our adjusted operating income and our adjusted EPS. While returns and profitability have eroded across the IT services industry in recent years, Globant sustained them while delivering industry-leading growth. This quarter also marks a special milestone for us. We have reached our 10th anniversary as a public company. Since our IPO, we have delivered over 1800% in shareholder returns and 15 times revenue growth at a compound annual growth rate of 29.6%. This was made possible through our always-in-better mindset. Our digitally native and entrepreneurial culture empowers us to build long-lasting relationships with our clients. Over the short and medium term, generative AI presents us with a massive opportunity. We haven't seen this scale since the smartphone revolution in the late 2000s. Back then, users demanded new apps to interact with their preferred brands. Companies everywhere reacted to meet consumer demand and kick off multi-year digital transformation programs, many of which are ongoing today. Currently, we see Gen.AI tools quickly being adopted by users. The barrier to entry for building AI has been lowered, but creating enterprise-class solutions that are effective beyond a demo remains a challenge for the industry. Generative AI has brought significant gains in productivity and efficiency of development. However, history has shown us that after every massive tech breakthrough, users demand more from the brands they love. This pushes companies to go further. The scope of their ambition increases, and they need to create the expected AI-based experiences that users demand. Many of those were impossible before, and they will trigger the next generation of projects and programs. We firmly believe that the net effect between these dynamics fosters a positive future for our industry. At Globant, we acknowledge this, and we are ready to adapt and win. AI-related revenues are growing close to 130% in the first half of 2024 versus the same period last year. During the first half of this year, we have produced over $150 million of revenue that included AI workloads, far above the $100 million in revenues that we reported in November last year. This quarter, Globant also presented its own AI agents to enhance the software development lifecycle. Having invested four years in our range of AI platforms, which include Algar, Magnify, Navigate, and GeneXus, they now form the backbone of our new AI agents. Augmented and supervised by humans, the agents will accelerate each stage of the development process, including product definition, backend prototyping, design, code testing, and code fixing. They will assist from designing individual tasks and interactions to understanding users' goals and crafting experiences that seamlessly guide them towards the desired outcomes. We are also keen to announce our growth in the marketing technology space. At the Cannes Lions International Festival of Creativity this summer, Globant presented our new Globant GUT network. It combines our previously acquired advertising organizations with GUT, the award-winning global creative agency. The new network offers a one-stop shop for marketers, leveraging the best of global creativity, media, and technology. I'm also pleased to announce that IDC recognized Globant as a leader in the latest market landscape for the media industry. I'm excited to invite you to our annual signature event, Globant's CONVERGE. This year, it will take place at the new Intuit Dome of the LA Clippers in Los Angeles. Globant has been behind the technologies that will change how live events are experienced. It is my pleasure to be back with you again and share my passion for innovation. Recently I penned a letter to our community to go over our growth vision in greater detail. You can check it out by accessing the QR code on your screen. And with that, I'll hand it over to our CTO, Diego Tartara. Diego, please, thank you very much.

Thanks, Martin, and hello everyone. We are focusing our AI expertise on clear and effective use cases to positively impact our clients' businesses. This quarter, the AI reinvention studio network has recently closed large deals in Europe and the Middle East, connecting directly with CEOs and the broader non-tech C-suite executives. Globant has become a transformation partner, not only from a technology perspective, but from an expanding business one. We continue to lead in our AI offering. Over the past year, we increased the number of data science and AI engineering specialists at Globant by 70%, so that we can take advantage of the increasing AI demand. We see an excellent example of these focused capabilities with a leading US-based health research institute. Globant is applying AI and machine learning to improve data quality and make healthcare data research ready. The upcoming phase of the work will be to apply AI predictive models to understand various aspects of patient health journeys. Among our new AI-powered innovations is advanced video search, a solution we developed with Google leveraging the Google Cloud platform technology stack. Advanced video search detects what is actually being shown in any video on a frame-by-frame basis and provides semantic search capabilities. This opens opportunities for industry verticals where Globant is strong, such as media, gaming, sports, and entertainment. It's particularly promising for our Sportian division, enabling contextually smart advertising, improving the efficiency and monetization levels for ad companies. Initial projects with clients are already underway. In our Globant enterprise studio network, we have recently advanced opportunities in the evolution towards SAP S/4HANA that major organizations using SAP are embarking on. Recently at Sapphire, SAP's signature event, we announced a partnership with AWS to accelerate businesses' migrations to SAP's RISE S/4HANA, their flagship ERP cloud offering. They also recently chose Globant to co-create an AppHaus, one of their few partner-led additions in the world. Our relationship with Salesforce also continues to grow as we were recently certified as one of its few expert-level partners for healthcare and life sciences globally, the first and only expert-level partner for its data cloud offering in Latin America, as well as invited to join their global partner advisory board for data and AI. In healthcare, Globant is working with a global pharmaceutical company. They came to us because they were looking to establish a unified approach to accelerate AI deployment across all of their business units and regions. We are developing an adoption strategy and an operating model for an AI center of excellence, a place where they can experiment and test different AI initiatives across the organization. In the United States, Globant has been named as a digital transformation partner for one of the country's largest privately held companies. We have blended the expertise of 21 different studios into a complex yet cohesive solution that will execute a multi-year transformation program. The program will focus on legacy technology and application modernization, cloud infrastructure support, and developing new capabilities to future-proof their business. Globant is also advancing our capabilities in providing solutions that bring both business growth and sustainability for our clients. Our offering includes technologies that analyze the potential environmental impact of carbon, water, and waste in corporate decisions. They can, therefore, balance the financial budget and carbon budget of choosing one energy system from another. This has already been implemented successfully with Rockwell Automation, the result being an ESG focus that is quantifiable and impactful and can be melded into the corporate decision-making process. Our Globant GUT network continues to expand. GUT keeps working for some of the most beloved brands and getting rewarded. Their campaign Handshake Hunt for Mercado Libre in Brazil received a Grand Prix at Cannes in June. This campaign where contextual Black Friday discounts popped up on TV screens every time a handshake, which also happens to be Mercado Libre's logo was shown, is another great example of how technology and creativity are revolutionizing advertising and creating new effective revenue-driving opportunities. GUT won a total of 21 Cannes Lions, confirming another great year for the agency. We are excited to augment the work for Globant GUT's array of clients, which include Coca-Cola, Google, Stella Artois, Michelob ULTRA, Tim Hortons, FIFA, LaLiga, and Mattel, among many others. From two decades in investing at the forefront of technology trends, we are determined to make our mark now that our investments in areas from enterprise to sustainability and AI are coming to fruition. I leave you all with Patricia Pomies, our COO. Thank you.

Hello, everyone. Happy to be back. Let's start with our clients. We currently have 19 clients bringing in more than $20 million of annual revenue and $329 million that provide more than $1 million of annual revenue, 16.3% more than one year ago. Our largest client, The Walt Disney Company, grew 11.1% year-over-year and 3% quarter-over-quarter. Among our 20 biggest accounts, the average duration of our client relationships is over 10 years. This is a testament to Globant's focus on developing true thought partnerships with our clients executed through the quality of our delivery. As of Q2 2024, we see better traction and growth in every region compared to the same quarter in 2023. Our best-performing region this quarter was Europe, growing 44.7% year-over-year. As we announced in our last earnings call in May, here we were able to land the largest deal in our company's history, made possible by our scale and growth of our delivery network in the region. Our new markets region grew by 25.1% year-over-year. Latin America grew by 23.2% year-over-year, and North America grew by 9.7% year-over-year. In addition, Globant's global revenue stream is the most diverse it has ever been. North America now makes up 56.3% of our revenue, followed by Latin America at 23%; Europe at 16.9%, and the Middle East and APAC at 3.8%. Of the eight industry verticals we provide services for, seven are up on a year-over-year basis and four experiencing double-digit growth. Year-to-date, all verticals have shown positive growth. This quarter, our fastest-growing vertical was travel and hospitality, up 58.9% year-over-year. Consumer, retail, and manufacturing grew 38.7% year-over-year. Media and entertainment is up 20% year-over-year. This is on the back of a very strong performance with our top client, Disney, along with our expansion and momentum in sports with work we're delivering in the Middle East. The banking, financial services, and insurance verticals showed an 11.6% increase in revenues compared to the same period last year. As of Q2, our total headcount is 29,112 Globers, up 12.2% year-over-year. Of this figure, 27,133 are IT professionals. Our utilization rate is currently 79.5%, 20 basis points up quarter-over-quarter. As we look forward, our hiring is set to increase to meet our expanding demand. Our attrition level over the last 12 months is currently at 8.6%, down from 11.6% in Q2 2023. Finally, our Be Kind initiative continues to develop and impact our communities. As Globant has learned from our work using sustainability with our business, we developed Green IT to guide sustainable software development. We crafted training for sustainable design essentials, which aims to equip our stakeholder ecosystem with the knowledge and skills necessary to create sustainable designs that minimize environmental impact and optimize energy efficiency. We have partnered with Udemy, one of the world's largest online learning platforms, to also offer this training to a global audience for free. In July, our corporate investment fund, Globant Ventures, invested seed capital in Asteroid Technologies, a company dedicated to improving the quality of life for people with various disabilities. Through Hablalo!, their inclusive technological platform, Asteroid Technologies facilitates communication for over 400,000 people with speech disabilities worldwide. With this investment, we aim to bring these accessibility solutions closer to our clients, so that they can provide a more inclusive service to their consumers. Thank you for being with us again. With that, I will hand it over to Juan to share our financials.

Thank you, Pato. We are very proud of our results today. First, our second quarter results are aligned with the guidance, showing strong growth and profitability. Second, we see positive trends in the business. Pipeline and bookings have been solid in the first half, while Gen AI-related projects are gaining traction strongly, providing optimism about future demand opportunities. Third, we are maintaining a strong outlook for the year, and we are raising our adjusted margin and EPS guide. Let me provide more color. Second quarter results were strong across the board. Our Q2 revenues reached $587.5 million, up 18.1% year-over-year, in line with our guidance. Excluding the negative impact of foreign exchange, growth stood at 18.8% year-over-year. We saw a 10% year-on-year revenue growth in organic constant currency terms in Q2. Also, from a quarter-on-quarter growth perspective, the company posted accelerating trends from both a geographic and vertical split. Our pipeline remains at record highs, and booking trends reinforce our outlook for the year. Bookings in the first half are up 17% compared to the second half of 2023. We closed Q2 with an adjusted gross profit margin of 38.1% and an adjusted operating margin of 15.1%, both of them up 10 basis points quarter-over-quarter. This reflects our ability to maintain high profitability levels, despite the current context and currency fluctuations. Our effective tax rate stood at 20.2% for the quarter, resulting in an adjusted net income of $66.9 million with an 11.4% adjusted net profit margin. Adjusted diluted EPS was $1.51, up 11% year-over-year. Our balance sheet remains strong, ending the quarter with $180.4 million in cash and short-term investments or $54.8 million in net cash. With $125 million drawn from our $725 million revolving credit facility, we have ample funding for our growth initiatives. Also, as usual, given the seasonality of our business, we expect to generate a substantial amount of free cash flow in the second half of 2024. Looking ahead, for the remainder of 2024, we are reiterating our guide on a constant currency basis and raising our margin and EPS outlook. In organic constant currency terms, we continue to expect approximately 10.1% year-on-year growth for 2024. Recent FX trends, especially in LatAm, imply a slight incremental FX headwind on our top line. However, we will be able to capture some of this cost benefit over the following quarters. We project Q3 2024 revenues of $611 million to $617 million, with adjusted operating margins between 15% and 16%. The IFRS effective income rate is expected to be in the 22% to 24% range. Adjusted EPS for the third quarter is now expected to be in the range of $1.60 to $1.64, assuming 44.4 million average diluted shares. For the full year, our revenue guidance is $2.407 billion to $2.421 billion, unchanged at the midpoint when adjusting for foreign exchange fluctuations. We are forecasting 70 basis points of FX headwind in our full year guidance. We anticipate adjusted operating margins in the range of 15% to 15.5%. 2024 IFRS effective income tax rate is expected to be in the 22% to 24% range. Finally, our adjusted EPS is expected to be between $6.30 to $6.50, assuming 44.3 million average diluted shares outstanding for the year, improving relative to our previous guide. In summary, we remain encouraged for the business with solid bookings, a strong pipeline, progress in AI adoption and an improving margin outlook while reiterating resilient top-line growth. Thank you for your continued support. We look forward to updating you on our progress throughout the year.

Thank you, Juan, and hello everyone. We will now take the first question from Tien-Tsin Huang at JPMorgan. Tien-Tsin, please proceed.

Hi, thanks gentlemen. Thank you so much. Just maybe on the outlook just with the reiteration of the constant currency guide but the raise in the margin. Just wanted to check the confidence level now that we're through the first half. I know the bookings have are explaining or informing some of the revenue outlook. But how has that changed versus 90 days ago? Can you just also rehash what's driving up the margins as well? Thank you.

Thank you, Tien-Tsin, for the question. We are maintaining our constant currency growth for the year at 15.9%, which translates to 15.2% in dollar terms. This difference is due to the depreciation in Colombia and Mexico, with a slight impact from Brazil as well. While this has affected our revenue guidance compared to last quarter, it has also positively influenced our costs, contributing to our margins. A portion of the increase in our operating margin and gross margin for the second half of the year is attributed to foreign exchange effects. Additionally, we have experienced a better-than-expected revenue per head, which has shown significant growth this quarter. However, from a revenue standpoint, we have had to increase the foreign exchange impact for the year by 40 basis points.

Yes. And regarding the pipeline, it remains quite strong, and bookings too. So we are confident in the guidance that we provided, Tien-Tsin.

Thank you, Tien-Tsin. The next question comes from the line of Jim Schneider from Goldman Sachs. Jim, please go ahead. Your line is open.

Good evening. Thank you for taking my question. Martin, could you elaborate on your comments regarding how Generative AI projects in corporations are taking longer to scale beyond proof-of-concept? Is this primarily due to uncertainty about scaling, issues with data stack comparability, or other backend challenges that must be addressed before larger transformations can occur? Additionally, could you discuss any significant projects you've encountered in Generative AI? How many of these projects exist, and what is their revenue scale? Thank you.

Jim, thank you so much for the question. I will answer the first part, and then I will let it to Diego to answer. We have seen pretty good growth in terms of our AI-related projects. As I mentioned, approximately 130% growth year-over-year. And the thing about the projects, and many of them are still analyzing them, are still trying to generate a lab around AI to understand use cases. Many of our customers are still in that stage. The thing is when you are implementing an AI project for a demo, it really looks great. I mean, for a demo on social media, it really looks great and it is very easy. Now when you want to take it to enterprise class, as I mentioned, it is disappointingly much more complex. That requires, as you mentioned, data projects on the backend. It requires a lot of supervision and after training because the model tends to be hackable. It tends to be a lot of the answers that the models give can be misleading if they are not well-curated. So those processes are long by definition. So we need to remember when the first app store from Apple was born in 2005. And then only in 2009 or 2010 did the big digital transformation projects start to happen. That was very long compared to what I think is going to be this time. But remember, this new technology has only been in a state of 1.5 years. So I believe there is still time for corporations to understand the use cases. Of course, we’re helping them in many of the situations. And of course, we are starting to see some of them starting to ramp up plans for doing much longer-term investments on that. But I don't think it will be an easy process. I think it will take a lot of time and understanding on where to apply it before they go fully into the investment. But Diego, do you want to complement that?

Yes, sure. One of the things we've been observing is the distinction between Generative AI, which is the latest innovation, and traditional AI or machine learning. We've noticed an increase in projects on both fronts, with a positive trend in how clients are engaging with us. We are currently implementing live and productive projects on both sides, moving beyond mere experimentation. For example, we have worked with pharmaceutical companies to manage and label data using AI, particularly Generative AI, which has proven to be effective. We're also conducting numerous studies to optimize operations for copper and gold mining companies, and we're developing a comprehensive sustainability calculator and optimizer utilizing AI models. We are engaged in various productive initiatives. Additionally, we've partnered with agents for software development and have implemented solutions for two major real estate companies to enhance their operations. These are not just proofs of concept; they are functioning projects. While I would like to see a greater volume of this work, the overall trend regarding our client engagements looks very promising.

I think you brought up a challenge, and I want to remind you that in the last earnings call, we mentioned that we have been upskilling and reskilling most of our employees. In 2023, we certified all our staff in AI, which I believe is significant. We are well-prepared for the future concerning talent acquisition and recruitment. It's crucial for us that all companies adopt an AI mindset, and we are aligning our efforts with our clients' needs.

Thank you, Jim. The next question comes from the line of Maggie Nolan from William Blair. Maggie, please go ahead.

Hi, how are you? Thank you for taking my question. So you mentioned that revenue per head is improving or had grown maybe year-over-year. Is pricing power strong right now? Or are you experiencing any competitive dynamics in the pricing environment, maybe just overall, how would you characterize the environment compared to historical?

It's tough these days, but we were able to achieve some low single-digit pricing growth. We combine that with a different mix. In terms of services, we have been growing nicely our GUT creative network, which has a higher revenue per head as well. And also with some of the deals that we are delivering in Europe, we were able to also increase our on-site presence. So the combination of those factors is giving you almost 9% year-over-year revenue per head growth. It is a tough market, but we are still able to get some positive pricing in some of our customer and relationships.

Thank you, Maggie. The next question comes from the line of Bryan Bergin from TD Cowen. Bryan, please go ahead.

Hi, guys. Thanks. Hopefully you can hear me. I wanted to ask about Gen AI and delivery. Can you comment on the latest impacts you're seeing on engineering productivity, and really how client discussions are evolving and the appetite around that, particularly if you could include how AI agents and the contracting dynamics around those work.

Sure. Hi Bryan, I want to clarify a few things. Regarding the copilot, there's a lot of public information available. The actual impact observed in productive teams with large code bases is significantly less than the initial claims of AI generating 50% of the code. However, the impact is present. As for the agents, this is a new area with varying impacts based on the tasks being automated. Agents fully automate processes, so they enhance overall efficiency rather than just individual performance. Early tests are showing impressive results that exceed our market benchmarks. We're highly optimistic that this will yield excellent outcomes for teams, particularly in tasks like bug fixing. It’s still too soon to provide specific figures, but the early indications are very encouraging.

Thank you, Bryan, for the question. The next question comes from the line of Jason Kupferberg from Bank of America.

Thanks guys. I just had a two part question on headcount. The first part is, do you expect positive growth in billable heads in the second half of the year? I think first half was kind of flattish. And then the second part is just on the second quarter headcount numbers, just looking quarter-over-quarter, I think India was up quite a bit, high-single digits. The US was actually down about 10%. So I was just curious if there were any call outs for those regions?

We anticipate ongoing sequential growth in headcount. In the second quarter, we added approximately 200 IT professionals, and we expect to see positive net additions for the remainder of the year. Regionally, Argentina, Colombia, and India are demonstrating strong growth, reflecting our significant presence in those markets. Despite global geopolitical issues, Latin America remains a favorable region, and we are a leading company there. In the United States, growth is limited due to a small base and can fluctuate from quarter to quarter, but there are no significant concerns to highlight.

Thank you, Jason. The next question comes from the line of Jonathan Lee from Guggenheim. Jonathan, please go ahead. Your line is open.

Great. Thanks for taking my question. Can you help unpack what you're seeing in the top five customer cohort given some of the sequential softness in the quarter? And how are you thinking about the trajectory of that customer base for the remainder of the year and perhaps into 2025?

Which was the cohort, Jonathan, that you were talking about?

Top 5. The top 5.

When looking at Disney, it reported very favorable results, showing sequential growth and an 11% increase year-over-year. We expect a strong second half of the year, so this is definitely positive news. For customers ranked 2 to 5, one in the professional services sector, which we have discussed multiple times in recent quarters, has been lagging compared to other industries. This explains the performance seen in that group. For customers ranked 6 to 10, there will also be improved results moving forward. Overall, there's no major cause for concern; it's simply one customer in an industry that has been slower to recover than we would prefer.

Thank you, Jonathan. The next question comes from the line of Divya Goyal from Scotiabank. Divya, please go ahead. Your line is open.

Good evening everyone. Patricia, you provided some color on different verticals and the growth across different regions. Could you provide a little bit more color as to how do you see the travel and hospitality segment broadly transitioning and which are some of the verticals where you anticipate growth in a go-forward basis? Thank you.

Thank you for your question. Yes, we are observing rapid growth in many of the verticals within Globant, with hospitality and travel being among the most significant. We are also experiencing growth in media and entertainment and several other areas. The interesting aspect is that in many industries, our clients have maintained relationships with us for over a decade. We are collaborating closely with them to enhance their customer interactions and experiences. Our expertise is deepening in this area. Additionally, through our AI and reinvention studios, we've been working hand-in-hand with clients to identify their needs and how we can support them. As mentioned earlier, we are witnessing numerous changes across the seven industries we operate in, and we continue to grow in most of these sectors.

If I may add a couple of comments. We are growing strongly specifically on the travel and hospitality vertical that you mentioned, because of mainly two things. One is we closed, and we've been mentioning this, a big transformational deal for a large airline in Europe. That's one of the key drivers. Our airline studio is actually super, super solid in the segment. And the second one has to do with connected experiences; that's the latest AI reinvention studio that we launched. And a lot of the business we have in MENA is actually from the hospitality vertical. So that explains the growth, but it is super tied to how solid Globant is in those specific verticals.

To complement the media and entertainment sector, we expect to see further growth as Disney continues to perform well, along with our business in sports. We're also experiencing strong momentum in consumer and retail, which has been delivering good growth. In the BFSI sector, we anticipate some growth as well. The only two industries that are not showing growth are professional services, as previously mentioned, and while technology and telecommunications have stabilized, we did observe some growth in Q2. This is the second consecutive quarter where we see positive developments in this area, indicating stabilization in technology and telecommunications.

Thank you, Divya. The next question comes from the line of Arvind Ramnani from Piper Sandler. Arvind, please go ahead.

Hi, thanks for taking my question. Just one quick discrete question I wanted to ask was organic constant currency target for the year that you have now versus organic constant currency you had three months back, but just a discrete question. But the bigger question I have is also on the overall market, right? I mean, now it's been two or three years now where Globant's been able to grow in an idiosyncratic way, right, like in the rest of the industry is kind of languished, vibrating at like plus 3%, 4%, minus 3%, 4%, but Globant's been like three years now where you've been able to really outpace that growth. And while I'm not looking for any guidance in 2025, what is your view of the industry growth rates starting to improve, right? Or are we going to be in this permanent sort of 0 to 5 for the broader industry?

I will take the first part and then ask Martin to provide additional input. Essentially, the growth in terms of organic constant currency growth is being addressed. We're back. So basically, we are discussing this aspect.

Juan, could you please start over? I didn't catch any of what you said.

Yes, I will start again. For our constant currency growth for the year, we are at 10.1% organic growth, the same figure we had in May. For the total growth number this year, we are guiding 15.2%, with 70 basis points of impact, leading to 15.9% constant currency growth. Previously, we guided 15.6% with 30 basis points of impact. Essentially, the change reflects 40 basis points of additional foreign exchange impact related to Mexico, Colombia, and a bit in Brazil. The positive aspect of this impact is that we increased our operating income guidance for the year from 14.5% to 15.5%. Currently, we are guiding between 15% and 15.5% for the year, and our guidance for the third quarter remains essentially the same for the fourth quarter. The implied guidance is between 15% and 16%. This outlines the overall situation concerning foreign exchange impacts this quarter. I'm not sure, Martin, if you want to add anything.

No. The main reason, I think, why the industry is, let's say, plus 2%, minus 2% or minus 5%, and we're still growing at very healthy rates, is because of the decisions that we made in the past. I mean, when we say that the vision we have is to try to leverage our relationships and being able to sell more things to our beloved customers every day. This is extremely powerful when taken in the long run, and we have been executing that in a pretty consistent manner. The second reason is that we have been expanding into markets in which we were not present before. So now we are entering a big tie into the Middle East, into some other countries in Oceania, in Asia. That is providing us like an additional fuel for growth that we didn't have before. So when you add up those two things, plus the organic growth of our largest customers, which is still healthy, then you have a performance which is pretty different from the rest. Another way to understand that could be to say that Globant is gaining market share. While the market is not growing, and you are still growing, then you're winning market share. This is extremely important for us. And also the revenue per head. When you see the revenue per head that Juan explained before, you see it increasing to very good and healthy levels that is a testimony of the value that we are delivering to our customers. On top of all that, a very strong growth in the AI space that we have been preparing for the last 10 years. I think that is a good summary of the reasons why Globant is growing, fueled by a very powerful culture and a very high ambition of reinventing the way that technology is being created, reinventing the way that we connect with our Globers, with our customers, with all our stakeholders. We are extremely happy with the performance, and we will keep on hopefully, driving that kind of performance for next year or two.

Okay, perfect. Thank you. And just one quick one, if I can, is also you had bookings growth of 17%, which is faster than organic constant currency revenue growth. And I know bookings come with various duration. But the fastest sort of bookings growth, does this suggest that kind of next year, you should be seeing acceleration in the business on the revenue side?

It's still too early to discuss 2025 in detail. There are many factors happening globally, such as elections and interest rates, that will have an impact. It's good to see sequential growth in Q3, Q4, and also Q2. We should focus on that while we strengthen our service offerings and expand globally to enter new markets. This approach will help us continue delivering industry-leading growth, but I'll hold off on providing specific numbers for next year.

Thank you, Arvind. The next question comes from Sean Kennedy from Mizuho. Sean, please go ahead.

Hi, everyone. Thanks for taking my question. So there were reports that a large sports organization was looking to raise a significant amount of money to enhance and expand its direct-to-consumer streaming service. So my question is, broadly speaking, is that a theme that you're seeing in digital experiences across your customers, a second investment wave in DTC streaming?

We are seeing like a lot of things happening in the entertainment space. There are many companies trying to reinvent the way they connect with their consumers. And we are seeing that specifically on the subject that you mentioned, I have no specific answer to give you. But yes, in general, on the media and entertainment space, a lot of things are happening. I don't know, Diego, if you want to add up on that?

Sure. Direct-to-consumer within the media and entertainment, it is a trend. Disney is doing exactly that, even though they are also consolidating different channels. Within the sports, yes, direct-to-consumer, it is a trend. This is actually public. Many different sports organizations are exploring that. FIFA, of course, being one of them and is one of our clients. Formula 1.

Thank you. Nice job on the quarter.

Sure.

Thank you.

Thank you.

Thank you.

The next question comes from the line of Surinder Thind from Jefferies. Surinder, please go ahead. Your line is open.

Thank you. Diego, just questions for you actually. Just following up on earlier commentary about just kind of the productivity improvements in some of your internal AI initiatives. You mentioned the disconnect between what's kind of in the public space between what you're seeing. Can you provide any incremental color there in terms of what exchange marks or measurements that you've done? I mean, I remember when we talked about it last year, you talked about potentially getting to about a 15% productivity improvement. So just any color would be helpful.

Yes, that is accurate. When I mention those figures, I mean that many people are discussing a 50% improvement in productivity in a similar context. I don't want to get too technical and lose anyone, but it's not just about individual performance; it's also about the collective performance of teams. We've observed significant enhancements among both junior and senior developers, although junior developers still tend to rely less on these tools. While junior developers produce higher quality code with these tools compared to without, there’s a metaphorical mismatch, like a car part that looks great but doesn’t fit. Our focus is on overall team performance rather than individual metrics, and when we compile everything, the numbers may not add up neatly. I believe that agents perform better when they optimize complete workflows, which is what we’re aiming for. Regarding the numbers, as I previously mentioned, tools like copilots offer an improvement for developers, though typically below 15%. For specific tasks, such as unit testing, the improvement can be as high as 40%. I can reiterate the points we discussed a few quarters ago, and I still believe there's considerable potential for further improvements in the future. We'll monitor how things evolve, and we're confident we're moving in the right direction.

Thank you very much Surinder. The next question comes from the line of Leonardo Olmos from UBS. Leonardo, please go ahead.

Hi, everyone. Congratulations on the great results. My question is about the utilization rate, which has shown another improvement from quarter to quarter. We have also noticed a significant drop in the attrition rate. Considering the overall enhancements in IT services at several companies we cover, like Accenture, do you think there might be a future increase in the attrition rate or the demand for developers? How is your idle capacity looking in that regard? What are your expectations for the second half of '25? Thank you.

Pato?

Yes. The attrition rate we are experiencing is currently quite low. While it has increased slightly compared to the last quarter, it remains at very low levels. The demand for our services continues to be extremely high, prompting us to hire in several countries, as Juan mentioned earlier. We remain robust in Latin America, as we have been in recent years, and India is another area of significant growth for us. Looking ahead for the rest of the year, we anticipate stable numbers. The market for our services continues to expand, and we have cultivated a strong culture that keeps our employees engaged and satisfied, as reflected in our polls and interviews with our team members. Our workplace culture appeals to new generations, including engineers, talent, and designers. Therefore, from Globant's perspective, we believe our numbers will remain stable, and we are actively implementing various strategies to maintain the performance you see now.

Thank you Leonardo. The next question comes from the line of Thiago Kapulskis from Itau. Thiago please go ahead.

Hi, guys. Thanks a lot for the question. I have a follow-up on the AI part. Just to get it clear. My guess from what you guys said is that it's a long cycle, right? So you have data migration, you have testing, approving, etc. Just want to understand a little bit better how you envision the cycle? Is it like three years, it's a five-year cycle? What needs to happen for the budgets to ramp up? Is it just about testing and getting a concept of hypothesis proven, and then there is a ramp-up? Is it a data bottleneck? Like, is the data bottleneck as bad as it was in the previous cycle? I don't know if you could provide us some details there. Just to get a little bit better framework of the cycle there, it would be great.

I will take the first part and then let Diego respond. Currently, a lot of time is being dedicated to identifying and validating use cases. Once we validate these use cases, developing an enterprise-grade application from that information takes longer than most people anticipate when using ChatGPT. Data projects have been delayed for years, with discussions around AI not leading to tangible results. However, I believe data projects are now gaining momentum. They are not bottlenecks; rather, they go through a maturity process where a use case is identified, proven, and then scaled. This could take one to two years, but based on previous cycles, it has often taken much longer. I believe this cycle will be shorter, though the exact timing for large-scale implementation remains uncertain. We now utilize AI in nearly everything we do, more so than in the past, incorporating agents and automation across various staffing processes at Globant to enhance project connections. In line with these efforts, we have launched AI reinvention studios for several industries we serve. The goal of these studios is straightforward: to proactively provide our customers with recommendations on how to leverage AI across all aspects of their specific industry. This is a key directive for our company and for Diego as the CTO, to continuously create use cases and enhance our customers' productivity as quickly as possible. Diego, would you like to elaborate on this?

Yes, definitely. Returning to the original question, the response is positive regarding data; it's seen not as an obstacle but as a crucial first step toward adopting more AI-related initiatives. Many of our clients are actively addressing this, leading to an increase in demand for data architecture to support their comprehensive data strategies. Previously, many companies overlooked this component, and now they are recognizing its importance. Additionally, numerous customers are engaging with us, and we have been discussing this. In the past, our focus on proof of concepts and exploratory work was primarily related to newer technologies like Generative AI: understanding its application and how to make it an effective enterprise-level tool. We have developed a solution and a structured go-to-market strategy for this. However, the most compelling aspect is what Martin mentioned—identifying solutions specific to industries. Considering the capabilities of this technology within particular sectors, we are exploring opportunities for optimization, client acquisition, loyalty program enhancements, and marketing campaign improvements. Every industry faces numerous challenges; for instance, pharmaceutical companies invest significantly in research and attrition during experimentation. We can now leverage AI solutions to address these industry-specific issues. This tool is immensely valuable, and that’s what we are focused on.

Excellent. Thank you so much.

Thank you very much, Thiago. So that will be all for the Q&A session today. Thank you all for joining. And now I'll hand it over to Martin for some closing remarks.

So thank you very much, everyone. Thank you for your support and coverage. Looking forward to see you next quarter. Cheers. Bye, bye. Thank you.

Bye.

Bye.