Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 revenue totaled $587.5 million, up 18.1% year-over-year and almost 3% quarter-over-quarter.
- AI-related revenues grew close to 130% in the first half of 2024 compared to the same period last year.
- Globant presented its own AI agents to enhance the software development lifecycle, leveraging years of investment in AI platforms.
- The company has reached its 10th anniversary as a public company, delivering over 1,800% in shareholder returns and 15x revenue growth since its IPO.
- Globant's global revenue stream is the most diverse it has ever been, with significant growth in Europe (44.7% year-over-year) and other regions.
Negative Points
- The professional services sector remains a laggard, impacting the performance of some top customers.
- Despite strong growth, the company faces FX headwinds, particularly from currency depreciation in Colombia, Mexico, and Brazil.
- Scaling generative AI projects beyond proof of concept remains a challenge due to complexities in data stack compatibility and enterprise-grade implementation.
- The technology and telecommunications sector has only recently stabilized after several quarters of underperformance.
- Attrition rates, while improved, still pose a potential risk as the demand for developers remains high.
Q & A Highlights
Q: Just with the reiteration of the constant currency guide, but the raise in the margin. How has that changed versus 90 days ago? Can you also rehash what's driving up the margins?
A: We are reiterating our constant currency growth for the year at 15.9%, in dollar terms it's going to be 15.2%. The depreciation in Colombia and Mexico primarily and a little bit in Brazil has impacted our revenue guidance. However, it has also benefited us from the cost side, contributing to the increase in our operating and gross margins. Additionally, our pipeline remains strong, and bookings are solid, providing confidence in our guidance.
Q: Can you expand on your comments about GenAI projects taking longer to scale beyond proof of concept? What are the challenges?
A: We have seen significant growth in AI-related projects, approximately 130% year-over-year. Many companies are still in the stage of analyzing and understanding use cases. Implementing AI for enterprise-class solutions is complex and requires extensive data projects and supervision. This process is inherently long, but we are helping clients ramp up plans for longer-term investments. (Martin Migoya, CEO; Diego Tartara, CTO)
Q: Is pricing power strong right now? Are you experiencing any competitive dynamics in the pricing environment?
A: We achieved low single-digit pricing growth, combined with a different mix in terms of services. Our GUT creative network and increased onsite presence in Europe have contributed to almost 9% year-over-year revenue per head growth. Despite a tough market, we are still able to get positive pricing in some customer relationships. (Juan Urthiague, CFO)
Q: Can you comment on the latest impacts of GenAI on engineering productivity and client discussions?
A: On the copilot side, the actual impact on productive teams is less than initially communicated, but it is still significant. For AI agents, we are seeing promising results in early tests, particularly for tasks like bug fixing. Overall, the trend is positive, and we are confident in the results for teams. (Diego Tartara, CTO)
Q: Do you expect positive growth in billable heads in the second half of the year? Any specific regional trends?
A: Yes, we expect sequential growth in headcount. IT professionals grew by about 200 net additions in Q2, and we anticipate continued positive net additions. Argentina, Colombia, and India are showing good growth, reflecting our strong position in those markets. The US numbers vary by quarter but remain stable. (Juan Urthiague, CFO)
Q: Can you help unpack what you're seeing in the top five customer cohort given some sequential softness?
A: Our top customer, Disney, showed strong sequential and year-over-year growth. The softness in the top five is primarily due to one customer in the professional services sector, which has been lagging. Other cohorts, such as 6 to 10 and beyond, are showing better numbers. (Juan Urthiague, CFO)
Q: Could you provide more color on the travel and hospitality segment and other verticals where you anticipate growth?
A: Travel and hospitality is growing rapidly, driven by large transformation deals and our strong airline studio. Media and entertainment, consumer and retail, and BFSI are also showing positive growth. Professional services and technology and telecommunications have stabilized. (Patricia Pomies, COO; Diego Tartara, CTO; Juan Urthiague, CFO)
Q: What is your view on the overall market growth rates and Globant's ability to outpace the industry?
A: Our growth is driven by leveraging relationships, expanding into new markets, and organic growth from large customers. We are gaining market share while the market is not growing, supported by strong AI growth and a powerful culture. We remain focused on delivering industry-leading growth. (Martin Migoya, CEO)
Q: Can you provide more details on the AI cycle and what needs to happen for budgets to ramp up?
A: The most time is spent on finding and validating use cases. Once validated, scaling to enterprise-grade applications takes longer. Data projects are being accelerated, and we are proactively providing AI use cases to clients. The cycle may take one to two years, but we are prepared to help clients become more productive. (Martin Migoya, CEO; Diego Tartara, CTO)
Q: What are your expectations for attrition rates and demand for developers in the second half of the year?
A: Attrition rates are currently low and stable. We continue to hire in key regions like Latin America and India. Our strong culture and appealing work environment help retain talent. We expect stable attrition rates and continued demand for developers. (Patricia Pomies, COO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
