Earnings Call Transcript - GLOB Q3 2024

Arturo Langa, Investor Relations Officer

Good day, and welcome to Globant's Third Quarter 2024 Earnings Conference Call. I am Arturo Langa, Investor Relations Officer 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, 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 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.

Martin Migoya, CEO

Good afternoon, everyone. It is great to be back with all of you and I'm really pleased to share that Globant has had another strong quarter. We have seen top line growth, better margins, and increased profitability. I look forward to sharing our results with you. This quarter, we brought in $614.7 million in revenue. That's a 4.6% growth from the last quarter and 12.7% more than the same time last year. We see strong demand in our main sectors with our top clients and across different regions. We're growing our market share everywhere. For 2024, we're expecting the highest growth of any major IT service provider with an estimated 15% increase in revenue. Our bookings are solid with two of the biggest in our company's history secured in the last six months. For 2025, we're confident about double-digit revenue growth, thanks to a strong pipeline and faster organic growth. As I mentioned during our last earnings call, AI is being adopted massively by our customers. They are using AI tools both personally and professionally. It is the biggest breakthrough since smartphones. As AI evolves, customers want more. Companies and governments need to keep up with these enhanced digital products. Last year, companies spent $15 billion on generative AI solutions. McKinsey predicts that spending could reach $175 billion to $250 billion by 2027. At Globant, we're already capturing this opportunity. In the first nine months of 2024, AI-related work generated over $250 million in revenue, up 120% from the same period last year. This growth is partially due to our AI-powered tools like Augoor, MagnifAI, and GeneXus. With Globant Enterprise AI, we can generate agentic workflows to automate processes in every industry. At the same time, it can be a portal to connect to any Large Language Model to both optimize costs or find the best possible answer between those models. These tools speed up software development and improve the quality and security of the final products. Our clients are benefiting from these productivity gains. Recently, we helped a leading bank transform their COBOL-based system into Java microservices. In just 105 hours, we modernized over 11,000 lines of legacy code, reducing it to nearly 5,000 lines of state-of-the-art architecture. We aim to expand our leadership as this business grows. Some analysts predict AI applications could add over $1.5 trillion to global GDP by boosting productivity by up to 30%. Organizations need sophisticated consultancy for AI adoption. Three years ago, we established our AI Reinvention Studios to meet this demand. We now have studios for 15 industries with strong growth in airlines, finance, and connected experiences. For example, digital technologies are enhancing the fan experience at live events. People expect more from their favorite artists or sports teams. This is evident in our partnership with the LA Clippers. Their new stadium, the Intuit Dome, is now open and offers the most advanced fan experience in the world. Fans can enter the arena and buy food and merchandise using facial recognition, which means shorter lines. Our AI technology powers some interactive promotional experiences, allowing fans to participate directly from their seats. It is the first time such technologies are used in a stadium of this size. We are excited to bring this concept to more stadiums globally. The Intuit Dome also houses our newest office, keeping us close to our clients. It is just steps away from the basketball court. We're also working on groundbreaking projects in the Middle East, our newest business region. We have partnered with Qiddiya Investment Company to develop the PLAY LIFE Connected Experience at Qiddiya City. It will be a state-of-the-art digital ecosystem, a global destination for entertainment, sports, and culture focused on the art of play. PLAY LIFE Connected Experiences will offer visitors a seamless personalized interface to book events and manage itineraries with real-time updates and recommendations. We're growing in our established markets too. In Europe, our fastest-growing region in revenue this year, we have opened new offices in Madrid and Milan. These offices will host AI innovation hubs with Milan becoming our headquarters in Italy. Regarding M&A, we want to be a growth vehicle for ambitious entrepreneurs. We offer a unique startup culture valuing transparency and autonomy over corporate bureaucracy. In the U.S., we recently acquired Blankfactor, a specialist in financial services. We're excited to integrate their expertise in payments, banking, and capital markets. They work with six of the top 10 payment processors and major banks. Finally, I invite you to our Annual CONVERGE event. This year's theme is AI Disrupt Delight Connect. It is on November 21, featuring speakers like Gwyneth Paltrow of goop, Marcos Galperin of Mercado Libre, and Chris Young of Microsoft. You can register via the QR code on the screen. Now, I hand it over to Diego for more on our technology focus. Thank you very much. Diego, please.

Diego Tartara, Global Chief Technology Officer

Thank you, Martin. For organizations to fully adopt artificial intelligence, they must integrate it into their products, strategies, and cultures. To explore AI's impact on software development, we collaborated with the Massachusetts Institute of Technology for their publication, MIT Technology Review Insights. Findings reveal that while generative AI is modernizing processes, its most significant impact is still forthcoming. Currently, only 20% of respondents consider it a well-integrated part of their software development life cycle. You can access the full report through the link on the screen. AI agents represent a new frontier transforming software creation. We are utilizing these agents throughout the entire development cycle from product definition to backend prototyping and application design, including Business Analysis agents and code fixer agents. Our studio networks are central to these innovations. We are excited to announce the launch of the Digital Twin Studio within our digital network. This studio aims to enhance design and operations by creating digital twins that simulate and analyze physical processes in real-time, thereby streamlining decision-making. Additionally, we've introduced the legal AI studio focusing on providing tailor-made technology and AI tools for corporate legal teams, law firms, and public administrations. AI enhances efficiency and accuracy across various legal processes from data management to intellectual property protection, facilitating digital transformation in the legal sector. Globant is committed to helping leading brands enhance their customer experiences. Our partnership with Formula One is progressing well, similar to our collaboration with FIFA. In addition to innovating race technology and fan experiences, Formula One offers a significant platform for elevating our brand recognition. Regarding our client work, we are collaborating with Topgolf Callaway to drive strategic transformation for Callaway Golf, utilizing our MagnifAI platform and generative AI accelerators, we are enhancing productivity and efficiency in quality assurance. Our Globant GUT Network is also making waves globally. In the Netherlands, GUT suggested that Kraft Heinz innovate their iconic product by creating Hagelchup, the first sprinklable ketchup inspired by Hagelslag. This agile initiative utilized earned media and organic buzz, generating excitement with a limited supply and a pop-up in Amsterdam. Moreover, we were selected by Stellantis & You to run a digital transformation program across their dealer network in Europe. Our focus is on simplifying processes and automating operations to improve efficiency and reduce costs. Our expertise in the automotive sector and our technology stack, including Globant X tools, were key to our selection. This quarter, within the Enterprise Studio Network, we launched a new product in partnership with Quickplay, enhancing our advanced video search tool developed with Google. This product enriches and tags extensive content, enabling creators and broadcasters to craft dynamic personalized channels. Lastly, I invite you to explore our new website, featuring an interactive AI assistant that guides you through Globant services, showcasing how we can elevate your organization. With that, I will hand it over to Patricia Pomies, our COO. I look forward to seeing you at the Q&A session shortly. Thank you.

Patricia Pomies, COO

Thank you, Diego. Globant's growth continues to thrive, thanks to our commitment to quality and the strong relationships we've built with clients over the years. Currently, we have 21 clients generating over $20 million in annual revenue and 331 clients contributing more than $1 million annually. Notably, revenue from our largest client, The Walt Disney Company, increased by 17.5% year-over-year and 14% quarter-over-quarter. Our strongest growth this quarter came from new markets in the Middle East and APAC with a remarkable 35.3% sequential growth and 53.1% year-over-year. We are optimistic about the prospects in this region. Year-over-year, our revenue growth was 24.8% in Europe, 13.9% in Latin America, and 6.6% in North America. As our revenue diversifies, North America accounts for 55.7% of our top line, followed by Latin America at 21.8%, Europe at 17.6%, and the Middle East and APAC at 4.9%. This quarter, seven out of eight industry verticals experienced sequential growth, reflecting a broadening of our business. Key growth areas included travel and hospitality, 11.1%; media and entertainment, 6.3%; BFSI, 3.7%; and consumer, retail, and manufacturing, 2.7%. We're also pleased to report growth in the technology and telecommunications and professional services verticals, which posted sequential growth of 5.2% and 1.6%, respectively. As of Q3, our total headcount stands at 29,998 Globers, a 9.1% increase year-over-year with 27,927 being IT professionals. Our utilization rate is currently at 79.8%, showing a slight increase, and our attrition rate has decreased to 9%, down from 9.5% in Q3 2023. To sustain Globant's growth trajectory, we are continually assessing how to better support our teams, enhancing their effectiveness and creativity for clients. As Martin mentioned, our clients' need for industry-specific consultancy has provided an opportunity to empower our studios. We aim to blend creativity with industry-specific knowledge, ensuring our teams can deliver applicable expertise. Consequently, our local portfolios will now feature more industry experts, irrespective of geography. Our AI Reinvention Studios are now crucial, contributing over 20% of the company's revenue and marking one of the fastest growth areas for us. The combination of industry specialization with relevant AI technology has enabled our success in consultancy during challenging times for major players. Applying AI in a smart way, focusing on critical processes, is key both for us and our clients. With that in mind, we are incorporating AI agents into our delivery process to optimize quality and speed. They take on different tasks alongside our delivery managers as they define and onboard the team, execute the delivery, and monitor the overall project status. We are adapting our structure to facilitate quicker local decision-making. Latin America has been subdivided into two regions to strengthen our focus in Mexico and Brazil. Additionally, to support our growing business in the Middle East, we will open a new office in Riyadh for transformational projects like Qiddiya. Globant's commitment to community work is gaining recognition. We ranked sixth on Fortune's 2024 Change the World list, noted for our sustainability initiatives. Projects like Qori Q'oncha in Peru helped prevent the release of 12,000 tonnes of CO2 equivalents, and our green energy farming project in India improved the quality of life for over 6,500 beneficiaries while preventing 10 tonnes of wood from deforestation. In October, we were honored as the Company of the Decade by the Council of the Americas for our global growth and commitment to developing local communities, particularly in emerging markets. We hope this recognition inspires more companies in Latin America to dream big and expand globally. Our Women that Build initiative has successfully completed its fifth edition. Since 2020, we've evaluated over 6,500 candidates, partnered with 270 judges globally, and collaborated with organizations like Aon, AWS, and KPMG. We proudly recognize trailblazing women from 12 regions with three global winners, reinforcing our commitment to narrowing the gender gap in the industry and fostering inclusive growth. Thank you all for your time. I will now hand it over to Juan to discuss our financials.

Juan Urthiague, CFO

Thank you, Pato, and good afternoon, everyone. I am pleased to be here with you today to discuss our third quarter results. During this period, we achieved strong sequential revenue growth driven by robust performance from our top client and several key accounts, along with recent new wins across different geographies and verticals. We managed to grow our business while enhancing profitability and generating free cash flow, all while maintaining a prudent and healthy balance sheet. Our revenues reached a record level of $614.7 million, up 12.7% year-over-year and 4.6% sequentially, in line with our guidance. Excluding the negative impact of foreign exchange, revenue growth stood at 13.7% year-over-year. We estimate a 9% year-on-year revenue growth in organic constant currency terms for Q3. Additionally, from a quarter-on-quarter growth perspective, we are experiencing initial signs of recovery in specific verticals that faced headwinds in the first half of the year. Q3 also experienced robust growth in our top account. We had a strong quarter from the profitability perspective. We closed Q3 with an adjusted gross profit margin of 38.5%, up 40 basis points sequentially and 30 basis points year-over-year. Our adjusted operating margin reached 15.6%, reflecting an increase of 50 basis points sequentially and 30 basis points year-over-year. These margins are the highest recorded over the past two years. In addition, this quarter we managed to dilute SG&A by 20 basis points sequentially. Our effective tax rate stood at 20% for the quarter, resulting in an adjusted net income of $72.4 million with an 11.8% adjusted net profit margin, up 40 basis points sequentially. Adjusted diluted EPS was $1.63, up 10.1% year-over-year. Our balance sheet remains strong, ending the quarter with $213.5 million in cash and short-term investments or $27.2 million in net cash. With $165 million drawn from our $725 million revolving credit facility, we have ample liquidity to support our growth initiatives. During the third quarter, we generated $69.7 million of free cash flow versus $60.6 million in the same period last year, achieving a free cash flow to adjusted net income ratio exceeding 96%. As always, our free cash flow generation is much stronger in the second half of the year. Now let's discuss guidance. In organic constant currency terms, we continue to expect growth of close to 10% for the full year 2024. We project Q4 2024 revenues in the range of $642 million to $648 million, representing an 11.1% year-over-year increase at the midpoint of the range with adjusted operating margins between 15% and 16%. The IFRS effective income tax rate is expected to be in the 20% to 22% range. Adjusted EPS for the fourth quarter is now expected to be between $1.71 to $1.75, assuming an average of 44.7 million diluted shares. For the full year, we are raising the lower end of our prior guidance, which is now estimated to range from $2,415 million to $2,421 million. We now forecast 80 basis points of FX headwind in our full-year guidance as currencies in Latin America continue to depreciate against the dollar. We anticipate adjusted operating margins in the range of 15% to 15.5%. The 2024 IFRS effective income tax rate is expected to be in the 20% to 22% range. Finally, our adjusted EPS is expected to be between $6.37 to $6.43, assuming an average of 44.5 million diluted shares outstanding for the year. To conclude, we are very pleased with our year-to-date financial performance, which reflects our unique position in the industry. Our leading indicators remain positive, reinforcing a strong end to the year and setting a solid start to 2025 with organic growth showing signs of improving relative to 2024.

Arturo Langa, Investor Relations Officer

Thank you, Juan. Hi, everyone. It's good to see you again. Unfortunately, Martin will not be able to join us today. He was stuck in a flight delay. With that in mind, the first question comes from the line of Tien-Tsin Huang from JPMorgan. Tien-Tsin, please go ahead.

Tien-Tsin Huang, Analyst

Hi, Arturo. Thank you. So yes, I'll ask on the visibility on the faster organic growth for next year. I think both Martin and then Juan, you just mentioned there is some signs of that. How much of that is driven by the large backlog that you have versus maybe what the macro is telling you or even what the larger clients are perhaps telling you just a little bit more insight on that statement of faster organic growth.

Juan Urthiague, CFO

Okay. Thank you, Tien-Tsin. Good morning, good afternoon, everyone, depending on where you are. Look, what we're seeing about 2025, I think it's a reflection of the performance of some of the large deals that we are ramping up. Some of the deals that we are closing in the Middle East, there is also a component of a strong performance in our top account and in media and entertainment in general, including sports as well. And finally, I would also add that there is some kind of an acceleration in the number of deals that are AI-related or with AI components. That's the majority of the improvement that we are seeing that we've been seeing over the last few months. There are some, of course, also some macro things that are getting clearer now. We now have the elections behind us, interest rates coming down and inflation is under control. So I think that on the macro front, some of the variables that we're making some noise are starting to clear, but I would mainly assign the visibility to the first few points that I mentioned before. Thank you, Tien-Tsin. The next question comes from the line of Jim Schneider from Goldman Sachs. Jim, please go ahead.

James Schneider, Analyst

Good afternoon. Thanks for taking my question. Relative to the work you talked about in AI and the acceleration you're expecting for next year, how do you see your workforce clients changing into 2025? Is there a greater emphasis on certain practice areas like data? And are you seeing the AI projects getting larger in size or scope or not? Thank you.

Juan Urthiague, CFO

I will take that one. Thank you for your question. What we've seen compared to last year is there's definitely a different approach to incorporating AI within companies. Last year, there was a lot of exploratory work, analyzing the technology, getting a deep dive into it, assessing impact in many different places. So typical bookings were very small. The pipeline compared to the work we were executing was actually very small because it started as POCs and then extended. What we've seen this year in comparison is that the work is much more intentional. So there is an end goal we need to reach, and that's why we see a bigger pipeline. There is a mission that has to provide an enterprise and business result. And as a result, the type of work and mandates we have are at a different level of maturity. There is a good balance. Last year, there was an imbalance between generative AI and traditional models, and this year is about producing impact. Generative AI makes sense, traditional other models, and some optimizations, etc. What I foresee for 2025 is a continuity of this line. I think investments are now much more directed with clear objectives. AI is definitely a factor in forecasting for every company. As a result, it needs to bring visibility on what's coming, larger projects, etc. Overall, that's the visibility we have.

Arturo Langa, Investor Relations Officer

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

Bryan Bergin, Analyst

Hi, guys. Thank you. Good afternoon. So I wanted to actually ask about the Middle East. Can you just talk about the potential of this region for you? We saw the deal announcement a week ago, making it official there on that project. Just in the context of the historically larger deals that you have had, how can these potentially compare?

Juan Urthiague, CFO

Yes. So I'll take that one. So, Bryan, you know, we are starting from a very small base. So it's easy to see growth over the coming quarters. Typically, the size of the deals is large. They begin small, but they become large very quickly. As you know, in that region, every project tends to be magnificent, with very large investments in real estate and technology. They are trying to create new experiences and attract people from Asia and other regions to visit those new locations. And as they are starting from ground zero in many cases, there is a lot to be built. That's going to take time; it's going to be an evolution. They will start with certain assets and then keep on expanding. But it's one of these regions that is moving with a different economy or macro situation. There is a lot of money that they want to invest. They are trying to diversify their economies, and a lot of it is related to creating experiences. Globant is extremely well-positioned to build software in that area, and we are seeing very good traction in many of the deals, including, of course, the one that was announced a couple of weeks ago.

Patricia Pomies, COO

And adding to that, I think that it's interesting to say that we just opened an office there. So we are still putting people there, training people, helping in order to achieve those goals and grow in the new market. I think it's very interesting for us. It's a new market, as Juan was mentioning. We are still designing the strategy there, and opening an office was part of that strategy. I think that it is going to continue growing as we plan, and of course, as with many other markets in Globant, we have many other markets we are taking care of, and we're putting in a specific team there with specialists and trying to be very close to our clients.

Arturo Langa, Investor Relations Officer

Thank you, Bryan. The next question comes from the line of Maggie Nolan from William Blair. Maggie, your line is open.

Maggie Nolan, Analyst

Thank you. I was interested in the commentary about incorporating AI agents into the delivery process. Is this IP that you have? Is it unique in the services industry and then to what degree, if any, is this replacing human labor, and how do you factor that into the economics of the engagement?

Patricia Pomies, COO

I'll take that one. Thank you, Maggie, for your question. It's not that we are replacing people; it's more that as we have been mentioning in the last quarter, we have been using AI for the last 10 years in different kinds of processes internally in Globant, in the way we are recruiting people and in the way we are training people. Now in the delivery framework, it involves using agents to work with our delivery teams and engagement partners to help define scopes or check the health of the projects. We are using AI across all projects; this means that the kinds of agents we are using for many of our clients are also used internally for our teams. The results have been amazing. We are working together with the clients to show what we are doing. This is the kind of way that Globant is doing business; we are also talking about AI projects, but internally as a company, we have been utilizing this for many years, and this is another example.

Arturo Langa, Investor Relations Officer

Thank you, Maggie. The next question comes from the line of Leonardo Olmos from UBS. Leon, your line is open.

Leonardo Olmos, Analyst

Hi, everyone. Thank you for taking my question. So you mentioned previously that the local portfolio will feature more industry experts. You also mentioned maybe shifting some people to the Middle East and of course, you're growing a lot sequentially. So how should we think about employee growth going forward and the utilization rate?

Juan Urthiague, CFO

Okay. So in terms of employee growth, you're going to see another quarter of net additions in Q4. We are hiring probably mostly in Latin America, in India, and a little bit less in Eastern Europe. But overall, we are hiring in all three regions. Again, you should keep expecting positive net additions in terms of and probably even at a slightly faster rate than Q3. In terms of utilization, this quarter we ended at 79.8% compared to 79.5% in Q3. I think that's still below our targets. We typically target 81% to 82%. We have done even more than that in the past. We've had quarters of 83% or 84%, but I think 81% to 82% is a good target and we will continue to look for that target. I think as the industry accelerates over time, we will be able to take utilization a little bit higher. I don't expect big changes in the very near future, but we continue to target a higher number.

Patricia Pomies, COO

And I think that you also mentioned about the industry experts in the portfolio. This is one of the things that we have been doing also with Diego, who has been leading all the studios. What we are doing currently is organizing our team to leverage this well. We are putting more expertise next to our clients in the geographic centricity of their portfolios. This is very important for us as our ambition is to be next to our clients and have the expertise. We are training our people internally. Next week, we are launching our first hub for AI, which means that we are creating a digital hub where we'll train people in AI and industry expertise. These kinds of movements are part of what Globant is always doing.

Leonardo Olmos, Analyst

So... Thank you very much.

Arturo Langa, Investor Relations Officer

Thank you, Leonardo. The next question comes from the line of Jonathan Lee from Guggenheim. Jonathan, please go ahead.

Jonathan Lee, Analyst

Hi guys, great. Thanks for taking our question and tremendous to hear about your commitment to double-digit revenue growth next year. As we think about the remainder of the year into 2025, are you seeing any sales cycle elongation or perhaps deal delays? And if so, how much of that contracted backlog is being pushed into next year?

Juan Urthiague, CFO

Hi, Jonathan. No, we are seeing a similar scenario to what we've seen over the last few quarters. That's why the numbers are pretty much not changing. The level and type of conversation remain improving in terms of revenue-oriented projects relative to productivity or efficiency-type projects. We continue to see a more balanced approach. We are also not seeing a deterioration in budgets for 2025 at our customers. It doesn't mean that they are growing a lot, but it's unlikely; we see pretty much no customers targeting a lower number for next year in their investment in technology. Overall, I would say that we are not seeing elongated closing cycles or any further deterioration. On the macro front, we are actually seeing more stabilization. As I was saying at the beginning, variables are getting clearer. We are optimistic for next year, and I think that's what we are looking for after two or three years in an industry where growth was scarce. We did quite well, but it was a tough industry, and it looks like things are stabilizing or getting a little bit better.

Arturo Langa, Investor Relations Officer

Thank you, Jonathan. The next question comes from the line of Jason Kupferberg from Bank of America. Jason, please go ahead.

Jason Kupferberg, Analyst

Hi, thank you. So I just had a two-part question about 2025. You talked about the organic growth rate accelerating off the 10% number. You've got M&A, looks like maybe a 2% to 3% contributor next year based on the deals you've announced already. So I just wanted to confirm that. And just on the adjusted operating margins, if we look at 2023 and 2024, I think we've been closer to the lower part of your typical 15% to 17% annual target range. So what are the puts and takes we should be considering on that line for 2025?

Juan Urthiague, CFO

Yes. I'll take the two questions, Jason. So in terms of 2025, as we mentioned during the call, we are looking at some small acceleration in terms of organic growth. This year, we're closing at about 10% almost 10% constant currency growth. We're seeing a little bit of a small acceleration there, plus at this point, we can say two to three points of the impact of the M&As. So I would say that for next year, we are looking at something in low double-digit to mid-double-digit. As of today, of course, we will provide an update in February, but those are our numbers as of now for 2025. In terms of operating income, as you remember, during the second part of '22, a little bit in '23, and the beginning of '24, pretty much all Latin American currencies appreciated significantly relative to the dollar. That put some pressure on the margin level. We have been able to make a number of actions, a number of efficiencies. In the second half of the year, we started to see some depreciation of currencies in Latin America. When you look at the Mexican peso, Colombian peso, Chilean peso, Brazilian real, all around July started to depreciate. That had an impact on the revenue front, of course, as we have some revenues in those currencies, but the impact at the cost level is more relevant, and we are starting to see some tailwinds from FX. Again, the actions we took to be more efficient while improving utilization, and continuing to work on revenue per head that has been going up, plus some tailwinds have led us to an improved Q3. We closed at 15.6% operating income. We are expecting a similar number for Q4, and I think that's a base number for now. Again, as we get closer to February when we report or guide officially, we'll provide a more accurate number, but that's the situation as of today.

Arturo Langa, Investor Relations Officer

Thank you, Jason. The next question comes from the line of Surinder Thind from Jefferies. Surinder, please go ahead.

Surinder Thind, Analyst

Thank you. Diego, I think this question is for you. Can you talk a little bit about more about the MIT review article and the under-penetration in some of the newer technologies? And then maybe put that into perspective of where you guys are on that journey in terms of how aggressive have you been in deploying AI and those kinds of things? Internally, what you've seen from that deployment and how much more you can do at this point.

Diego Tartara, Global Chief Technology Officer

Good. This is actually a long question. I'll try to make it short. The work we've done and conducted had actually two aspects to it. One was positioning, but one was that was super important is to be able to compare with the industry and get an industry baseline. What we have done internally is in line with what's best in the industry. We've developed our own tools for doing code fixing, business analysis, estimations and we've done all of them in an augmented way, meaning we're not augmenting person capacity to the job; we're actually taking care of full workflows. Results so far are promising in some of the areas. I think there is still a lot to be done in other areas. Let me give you an example: LLMs are super good for translating and writing code. While you might maintain your job within a specific domain, when you have to do architecture at scale, things become more complicated. It's super difficult to factor in reuse, make the code coherent, etc. That's our typical job, and that's where things get more complicated. We have been super aggressive with regards to adopting every single tool, whatever makes sense to bring efficiencies to our clients. We’ve been very effective. Some of those tools we charge for, some others are being adopted, either our own or third-party tools to make the processes more efficient. One of the things that happens in AI nowadays is that models are coming to a plateau. There's an agreement on this. You're seeing incremental benefits from increasing the number of parameters, but that doesn't bring reasonable results. It's time to work with models, agents, mixtures of experts to get the most out of it. That's what we are doing. The typical question is whether we are replacing people with this technology. We’re making our systems more efficient, which has been happening forever. Integrated development environments are all about that. A developer today codes two times as fast as someone did 15 or 10 years ago. We need to understand this, and we as a company need to embrace it, bringing both efficiencies and the best of it to our clients.

Arturo Langa, Investor Relations Officer

Thank you, Surinder, for your question. The next question comes from the line of Bryan Keane from Deutsche Bank. Bryan, please go ahead.

Bryan Keane, Analyst

Hi, guys. Thanks for taking my questions. Just on the two acquisitions, Blankfactor and Exusia, the recent two acquisitions. I think they closed recently here. So do they add, and how much do they add to the fourth quarter revenues for this year? And then just a follow-up question. Those specific verticals that you talked about with the headwinds, which are showing a recovery, what sign are you seeing in those verticals that are showing that recovery? Thanks.

Juan Urthiague, CFO

Sure. I'll start with the second part of the question and then continue with the first part. In terms of verticals, clearly, we had a very good quarter in travel and hospitality, which has been doing really well throughout the year. Consumer retail manufacturing has also been doing well. We are seeing some improvements in BFSI. Some of the financial institutions, especially in Europe, are growing with us. We are expanding our business, for example, in Ireland, we mentioned a customer over there, and we're expanding the business in Spain as well. We've also seen if you look at professional services and technology, this quarter was decent. Those are two sectors that have been struggling for a while. So in general, it's been a good quarter overall across the board in terms of industries. You mentioned the acquisitions: Exusia closed at the very end of Q3; Blankfactor closed a couple of weeks ago. So there is going to be some impact in Q4. The number that we guided for Q4 is 11.1% total growth at the midpoint. That has a 150 basis points FX impact year-over-year. If we were to take a full-year, sorry, year-over-year Q4 growth, that would be 12.6% in constant currency and about 8.5% of constant currency growth for Q4. The inorganic impact is about 4 points for growth in Q4.

Arturo Langa, Investor Relations Officer

Thank you, Bryan. The next question comes from the line of Divya Goyal from Scotia. Divya, please go ahead.

Divya Goyal, Analyst

Good afternoon, everyone. I wanted to get a little bit more color on the growth in Latin America and Europe specifically. So if you could potentially help us understand how are these two geographies doing? And do you have any potential M&A in the pipeline? What are some of the gaps you are looking to fill across these regions in order to maintain the growth momentum there? Thank you so much.

Patricia Pomies, COO

Sure. In terms of Latin America, as we have been explaining before, we split the region into two right now; we put two heads there, one in Brazil and another one in Mexico. What we are seeing is that we are slightly growing year-over-year. We started growing faster in terms of the financial vertical, which is getting better, and some other consumer and retail sectors are growing fast. In Europe, we have been expanding. We just opened a new office in Spain and in Milan. We have markets in France and in Germany as well as the U.K. and there we have different kinds of industries that are launching and growing fast. Regarding the M&A strategy, as you know, we are always looking for the best-selling opportunities. What we are seeing in the pipeline is pretty good; we are in a great scenario. We're looking for some new spaces across many regions, including Latin America and Europe. Our focus these days is primarily organic growth. The teams are more than ready to grow. Europe is our fastest-growing region, and we have been doing well in the last couple of quarters. I think that it will continue that way. We have a great team there and we still are designing and empowering people. So these regions are starting to show excellent growth.

Juan Urthiague, CFO

I can add a little bit there. Divya, the pipeline of M&A usually has different regions, different technologies, and different industries. There is a combination of factors that we take into consideration. We follow companies; sometimes when we can close those deals, we get them done. You should expect more growth coming from Europe, more growth coming from the Middle East, and new markets. Those will be the fastest-growing regions. We are also seeing recovery in the U.S. and Latin America, but with less acceleration. If you look at Latin America, currencies have been impacting the growth a little. There are some FX impacts there. Some countries went through elections that are still figuring out their economic future. Again, Europe and new markets will lead growth.

Arturo Langa, Investor Relations Officer

Thank you very much, Divya. The next question comes from Sean Kennedy from Mitsuko. Sean, please go ahead.

Sean Kennedy, Analyst

Hi, everyone. Thank you for taking my question. Congratulations on the impressive Disney growth this quarter. I was wondering what sort of projects are driving this growth and how sustainable are those trends as we head into 2025.

Diego Tartara, Global Chief Technology Officer

Yes, as you probably know, Disney is well-differentiated between experiences and media. On the media side, we're generating traction across both. The plan has been to shift to a single platform, which is what we're working on. It involves a combination of merging Disney+ with Hulu and working on ESPN as well. On top of that, their strategy is to maximize revenue and drive more engagement, bringing new revenue sources. We have a strong pipeline there. On the park side, we have a clear strategy on operational efficiency while improving the experience. We are in a good position based on these guiding principles.

Sean Kennedy, Analyst

Great. Thank you.

Arturo Langa, Investor Relations Officer

Thank you, Sean. The next question comes from the lines of John Nutt from Piper Sandler. John, please go ahead. I believe John might be having technical problems. We'll move on to the next question. The next question comes from the lines of Thiago Kapulskis from Itau. Thiago, please go ahead.

Thiago Kapulskis, Analyst

Yes. Hi, everyone. Thanks for squeezing me in. So just one question on your headcount. We've been seeing you gaining or getting more and more share in India this quarter. Another two points, and it's almost the size of your headcount in Argentina, right? So just wondering how you're thinking about your headcount geographical mix and if India should continue to gain share and potentially become larger than your historical hubs, which are Colombia and Argentina going forward.

Martin Migoya, CEO

This quarter, part of the growth that you see in India came from the acquisition of Exusia. It's also correct that India has been growing throughout the year, and we continue to grow. We started in India back in 2014, so it's been more than 10 years operating there and expanding our business. Every studio we have in the company has a meaningful presence in India. At the same time, we have expanded our revenues from being mostly in the U.S. to being more global, with more business in Europe and the Middle East and APAC. This creates more opportunities to expand our operation in India and not just in India but also in the Philippines and Vietnam. Asia is a priority for us as our business becomes more global. Europe is taking a larger share as well as the new markets. Again, Latin America is our home market, and it will continue to be our main region. However, we will be more balanced going into the future with larger Asia and potentially larger Eastern Europe, which is currently a very small part of our business.

Patricia Pomies, COO

Well, adding to that, I just want to congratulate our team from Colombia; we just hit 6,000 people there, and I think it's an amazing milestone. This shows the commitment we have to continue growing around the world. As Juan was mentioning, India is growing because all our markets are growing, and India is serving globally as a hub. It is not just serving the U.S. or Latin American markets; it is also serving more new markets, including Europe. This is an amazing aspect of our growth strategy: Globant everywhere. This is where we are trying to expand, going where the talent is. We are still looking for the talent we need. Currently, more than 20,000 Globers are receiving different kinds of training, specializing in AI tools, as I mentioned before. Our headcount structure is so mixed that we can put together teams from people in different countries. This is important for our delivery framework.

Arturo Langa, Investor Relations Officer

Thank you very much. I believe Martin was able to join us for a closing remark. He is here on the line. We're going to try to pass the line to him and see if he's available. And if not, I'll pass the line over to Juan. Martin, are you there?

Martín Migoya, CEO

Hello, can you hear me?

Patricia Pomies, COO

Yes.

Arturo Langa, Investor Relations Officer

Hi, Martin, we can hear you.

Martín Migoya, CEO

Hello, can you hear me?

Arturo Langa, Investor Relations Officer

Yes.

Martín Migoya, CEO

Yeah, great. So, I'm doing great. She's still on a plane, so I will try to connect from here.

Arturo Langa, Investor Relations Officer

Great. Well, Martin, we are closing remarks for the call, but thank you so much for joining. I'm going to pass the line over to Juan to conclude the call. But thank you everybody for joining. Juan, please go ahead.

Juan Urthiague, CFO

Okay. Well, thank you all for joining us today. Thank you always for your continued support, and we'll see you soon. Thank you very much. Have a nice evening.

Patricia Pomies, COO

Bye, thank you.