Globant - Q1 2023

Transcript

Arturo Langa (Head of Investor Relations)

Good day, welcome to Globant's first quarter 2023 earnings conference call. I am Arturo Langa, Head of Investor Relations at Globant. All participants on this call will be on listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 Martín Migoya, Co-founder and Chief Executive Officer, Juan Urthiague, Chief Financial Officer, Patricia Pomies, Chief Operating Officer, and Diego Tartara, Chief Technology Officer. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answer to some of your questions.

Such statements are subject to the risk 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'll 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.

Martín Migoya (Co-Founder and CEO)

Thank you, Arturo. Good afternoon, everyone. You may have noticed that I'm not the real Martín Migoya. I am his digital twin. My appearance and my voice emulate Martín and are fully developed by AI engines. The real Martín asked me to join to highlight how this technology is changing many aspects of our lives. I will be joined by similar digital twins of Diego Tartara, Patricia Pomies, and Juan Urthiague. For transparency, there will be a notice at the bottom of the screen every time we appear or use any AI engine. The real Martín, Diego, Patricia, and Juan join you all for the Q&A session after these remarks. We have now completed the first quarter of what is a very special year for us, as 2023 marks Globant's 20th anniversary.

Since we founded this company, our vision has been simple but ambitious: become the leader and help reinvent the IT and digital transformation arena worldwide. In these 20 years, we have come a long way, with a team formed by almost 27,000 people in more than 25 countries all over the globe, working for the world's top brands in nearly every industry. Let's take a look at this quarter. Total revenue for Q1 reached $472.4 million, representing 17.7% year-over-year growth. Amid high macroeconomic uncertainty, we were able to deliver results above our guidance expectation, showing robust growth while executing on all of our strategic pillars, expanding geographically, growing our studio model, accelerating our platforms of Globant X, and strategic M&A.

We have a healthy pipeline with an encouraging array of bookings and backlog creation from early months of this year. This fuels our optimism for sequential growth in Q2. Even with the challenges that the global economy faces, we remain optimistic and ambitious about the growth of our total addressable market. According to this quarter's CEO study by IDC, technology will be the most prioritized area of the agenda for global CEOs in 2023, with 87% planning to sustain or increase technology spending this year. IT investments are expected to reach $4.5 trillion this year, 5.4% higher than last year. Globant is delivering growth well above market averages and aims to keep building its leadership in this space. Looking ahead, we will continue to prioritize creating long-term value for all our stakeholders, driven by profitability, organic growth, and a positive social impact.

The nature of our work is in line with market demand. As I've shared with you in the past, Globant has been able to build an array of services and products to support organizations in every stage, whether they are looking to expand and fully transform their product offering and user experience, or if they are seeking greater efficiency and productivity. In that sense, our wide array of studios, ranging from digital experience platforms and commerce to our enterprise studio cluster, continues to position us as the best partner to help companies gain relevance. Organizations everywhere are growingly seeing AI's potential to create new user experiences and revenue streams, and to make business and processes more efficient at scale. Our focus on AI goes back to more than eight years when we first launched a specific AI studio and started investing in several strategic initiatives.

During this time, we have introduced and evolved four key products and platforms deeply rooted in AI: StarMeUp, MagnifAI, Augoor, and GeneXus Next. These products have seen and will continue to see an incredible expansion of their capabilities and are now experiencing exponential growth in their pipeline. This is a testimonial of the interest that organizations are placing into AI and of how much they are looking to boost their operations with AI. We will continue to scale up our artificial and human intelligence power to influence every area, industry, and business for the better. Complementing our product portfolio, we have also consolidated our AI offering and initiatives into an end-to-end program that we call MINDS, so that we could have a solid outlook on best practices across several industries. At the center of the MINDS concept is our Globers.

We are making sure that every one of our pods is trained to understand AI opportunities and certified on how to use data and observe privacy safeguards when using generative AI engines. As we mentioned in previous meetings, these and other AI certifications are targeted to all Globers and not only the ones working on client projects. This way, we ensure to leverage the best of these new tools in order to enable us to move faster and more efficiently. Our chief technology officer, Diego Tartara, will later go into finer detail on specific services included in the MINDS program. As Globant always enjoys sparking the conversation and interest on disruptive technologies, we launched a new AI challenge initiative.

We invite entrepreneurs to provide proposals on how AI can transform their business, and we will be awarding up to $200,000 to the best ideas in order to fuel them into reality. Check it out at globant.com/aicontest. Also, we just released the first of a series of reports on how AI will impact the finance industry entitled A New Banking Era. This report provides an analysis of how organizations can harness the power of AI to improve the quality, efficiency, and velocity of their operations. You may download the report at reports.globant.com. Now, some thoughts on the ongoing execution of our strategic growth pillars. Our M and A strategy continues to complement Globant's expansion plans by seeking to add new capabilities, geographic areas, and market specialization to Globant's offering.

Early this week, we announced that Globant entered into a definitive agreement to acquire Pentalog, a renowned digital transformation consultancy in Europe. Based in France, Pentalog offers a diverse array of services and a robust portfolio of clients throughout Europe and will support our expansion plans for that region, adding to the family an impressive reach into France, Germany, the Netherlands, Switzerland, and Austria. Pentalog serves some of the strongest brands in key industries such as Adidas, Bitpanda, Tripadvisor, Ipsos, and G4S, among over 500 other companies in several sectors. Founded in 1993, Pentalog houses 1,300 professionals in France, Romania, Moldova, Mexico, Vietnam, and the United States, among other countries. We have also recently completed the acquisition of ExperienceIT, a United States-based digital transformation consultancy with a diverse array of services and deep expertise in healthcare.

With this acquisition, beyond landing in Minneapolis, Globant strengthens its ability to accelerate digital and cognitive transformation to an amazing roster of clients among top U.S. players in the healthcare industry and other 40 leading companies in other sectors. We keep expanding geographically, Globant is now in more than 25 countries on five continents. We continue our strategy of opening new offices that go beyond the traditional urban areas, focusing on growing hubs in niche markets to be closer to talent or to particular industries. In March, we celebrated the opening of Globant's iconic building in the city of Tandil, Argentina. Tandil, with now 300 Globers, was the site of Globant's first office outside Buenos Aires 16 years ago. Since then, the city has multiplied the local IT talent by 7, and the technology companies in the area have quadrupled.

This evolution shows the impact we can generate in talent, cities, and countries as we create more local opportunities. In Monterrey, Mexico, we also opened a new center of innovation of AI applied to the manufacturing and consumer technology sectors. One of the main pillars of Industry 4.0 is incorporating AI and other technologies in the decision-making process. This center will focus on making this premise become real. In Europe, we doubled our presence in Málaga, Spain, by opening up a new office which will serve as an innovation hub for fintech, gaming, and other areas. Our array of studios of expertise continues to grow with three new studios recently launched. We believe that brands and technology are more intertwined than ever before.

Consumers are asking for more personalization and better interaction, and it's time for every brand to find the best way to leverage AI, data, and other technologies to create amazing experiences. Last week, we launched Globant Create. This new studio will be a creative powerhouse that merges the digital sales and digital marketing studios with our acquired creative agencies in Europe and Latin America to provide full-funnel digital marketing solutions leveraging the power of trending technologies. Globant Create has a unique agency approach as it combines creativity and marketing strategy with AI, data, and other technologies to offer its clients unique ways of connecting with their customers. This global new team has also become one of the most certified and validated creative organizations worldwide, with partnerships with Adobe and Salesforce, along with being one of the few Google Partner Premier worldwide.

We are also excited to announce the launch of Globant's Commerce Studio. Fueled by eWave, a company acquired in last November in Australia, this team aims to help organizations create the best commerce-enabled experiences with design and engineering at the core. These integrated teams have extensive experience in large and complex commerce transformations in both B2B and B2C domains. This new studio will support our clients to respond to changing customer expectations and offer personalized, relevant, and engaging omni-channel experiences across all touchpoints in the consumer journey.

The team has crafted a comprehensive value offering composed of an end-to-end digital commerce planning and consultancy service, bespoke custom solutions tailored to individual business needs, along with the capability to integrate multiple platforms and services, including hosting, managed development, and more. Finally, expanding a relationship that has now been more than 16 years and taking steps to address the rising demand for Google Cloud products, we announced an expansion of our global collaboration with Google and created a new dedicated Google Cloud Studio. The new business unit will be focused on helping clients across Globant's multiple verticals to adopt and maximize the transformative benefits of Google Cloud platforms and tools, helping them to stay competitive and lead their industries in a rapidly changing business landscape. Our proprietary platforms continue to show greater autonomy, growth, and use in helping our clients embrace technology to adapt quickly.

Diego will refer to our latest features in most of Globant X's products in a few minutes. Now I'd like to share a major update on our AI-powered testing platform, MagnifAI. By leveraging generative AI technology, MagnifAI is at the forefront of the AI revolution, positioning itself as an AI-powered companion to streamline the testing journey even further. Moreover, to answer a consistent demand from clients, we decided to include MagnifAI in all our test automation projects by default. This is how it works. As we know, the testing process involves several tedious and time-consuming tasks. Through the use of generative AI, MagnifAI 5.0 can now auto-generate automation code snippets and test cases by simply describing requirements using natural language, unlocking new levels of efficiency and quality. MagnifAI 5.0 is now available. Discover more about it through the QR on the screen.

Lastly, a few weeks ago, we were recognized as a market leader among digital engineering service providers in a new report by HFS Research. The report examines 25 service providers' role in digital engineering, and Globant achieved the highest possible rank, Horizon level three, which indicates industry leadership across a range of dimensions, including value proposition, innovation capabilities, go-to-market strategies, and market impact. Now that our global society is undergoing widespread adoption of our key technologies and capabilities, I believe that this is Globant's moment to spur our expansion and growth. We are committed to the compound effect of daily effort and drive. We believe that this effort, combined with constant innovation and reinvention, will bring long-term growth for our company and great value for our stakeholders. With that, I will turn it over to the digital twin of Diego Tartara, our CTO.

Diego Tartara (CTO)

Thank you and good afternoon, everyone. I'm happy to be here. During this time when AI is revolutionizing industries across the spectrum globally, it's time for Globant to be closer than ever to our clients, educating and helping them accelerate their digital transformation paths. We have a unique opportunity to pair our experience in key industry sectors that are transforming the global economy, including travel, supply chain, financial services, healthcare with our decade of expertise in AI. We are confident that we are in a unique position to offer flexibility, deep industry knowledge, and AI prowess. First, I'd like to expand on the MINDS program, which Martín introduced. On a daily basis, more information on AI is released and more applications are developed.

In order to support our clients in their own quests for value delivered from AI, we condensed a set of knowledge, best practices, and services to connect the capabilities of generative AI with their specific business needs. MINDS also offers ready-to-play solutions for areas in which there is a shared understanding that AI plays a significant and immediate role. Some of these are customer support, for which we designed a service called Hello AI, navigating complex data tackled by our Converse AI segment, and protecting intellectual property and organization knowledge addressed by IP protection and augmented knowledge Globant solutions, among others. We understand AI could bring unintended consequences on various fronts. We also require every pod to understand and adhere to our AI manifesto so that any application complies with our ethical approach to business and innovation.

We believe that AI is to be developed in a collaborative way. We are set to build great partnerships with other industry leaders such as Microsoft, GitHub, and organizations that are taking a stake in the AI stage, such as LaLiga Tech, with whom we have created a joint venture with LaLiga. Some updates from our innovation hub of Globant X. Our proprietary platforms that make up this offering act as accelerators of our offering. Let me share some of the latest new features in some of them. MagnifAI. Adding to the demo Martín just shared, our signature visual testing platform is now available on the Microsoft Azure marketplace. This opens up a new sales and marketing channel, allowing us to tap into a vast pool of potential customers using Azure. To further our growth strategy, MagnifAI will also be listed on the AWS marketplace soon.

GeneXus has fully launched its star product, GeneXus Next, that develops digital products from written notes. We have added new features to StarMeUp, powered by generative AI, that will now help write clear, constructive feedback that will make all the difference to colleagues. Augoor has introduced Codemap, a feature that enables faster and better code exploration by creating easy-to-understand graphs to code bases. This improves readability, simplifies the navigation of large and complex code bases, and in the end, makes developers more productive. This functionality is a perfect complement to Augoor's goal of making large, complex, and undocumented code bases more accessible and maintainable. Globant X world-class product portfolio also incorporates Walmeric, Fluent Lab, and Navigate. I'd like to talk about what we're doing through our work with our clients.

We are living in a time where consumer dynamics and buying behaviors are rapidly evolving as consumers seek more personalized and impactful experiences. Globant's Retail Reinvention Studio is helping retail and consumer goods companies reimagine the engaging experiences that create meaningful impact and drive consumer stickiness. They are working with global brands such as Gap, Levi Strauss & Co., REI, among others. In North America, for example, Globant is engaged at Ross Stores to help redesign their entire user experience for their new merchandising application. Globant's expertise in designing and implementing unique experiences that matter to consumers and users complements Ross's promise to deliver organized, fun-filled, and treasure-hunting shopping experiences at the best bargains. In Europe, we are working with Allianz Bank Financial Advisors, the banking arm of Allianz Italy.

Allianz Bank has a widespread presence throughout the national territory with a network of 26 branches, over 235 financial advisory centers, and over 2,000 financial advisors, qualified professionals at the service of clients, and over EUR 60 billion in assets under management. Globant is currently designing advanced AI-based applications using GPT models for Allianz Bank to enhance the operational efficiency of their advisors, operation unit, and marketing unit. In Italy, we are working with Hype, a leading fintech player with more than 1.7 million customers. Launched in 2015, Hype is driving daily banking to the ultimate level in simplicity and customer experience, offering a simplified digital bank model, which is constantly expanding the offer thanks to third-party products such as mortgages with Banca Sella, deposit with illimity, crypto trading with Bitpanda.

Hype's plan also aims to guarantee the best customer experience standards through a digital community and lifestyle against traditional bank realities limited to financial services. Globant Italy has been partnering with Hype since 2022 concerning the market launch of the new Hype digital platform and supporting the integration with Bitpanda for trading operations. We continue to invest in new endeavors through our corporate venture capital fund, Globant Ventures. Last month, a $4 million investment was granted to Fivvy, a leading SaaS financial industry platform. Fivvy's innovative solutions unlock immense value hidden within financial data, empowering banks to offer a more customer-centric experience to increase revenues. With a streamlined implementation process, banks can become data-driven and customer-centric organizations in as little as three months. We are excited to support Fivvy's vision of revolutionizing the financial services industry and positioning the company as a top SaaS platform in the Americas.

The Be Kind Tech Fund, the investment vehicle operated by Globant Ventures that looks to support projects that mitigate the misuse of tech, completed five investment committees in its first full year. As always, we look forward to enhancing our relationships with our clients by bringing the latest technologies into their businesses. With that, I'll turn it over to the digital twin of Patricia Pomies, our COO.

Patricia Pomies (COO)

Thank you, Diego. Hello, everyone. I am happy to be with you today to discuss how Globant is demonstrating its power of resilience and ability to innovate in the face of challenges and setting the stage for a stronger future. In parallel with the work we deliver to our clients, Globant itself is embracing change and shaping the future of work. We are constantly improving our efficiency and empowering our teams through the latest advancements in AI, transforming the way we hire, manage, train, and focus our talent. Let's kick off with our clients. Our largest account, The Walt Disney Company, grew by 0.9% year-over-year and declined by 16.2% quarter-over-quarter. We are seeing signs of sequential growth in the remaining quarters of 2023.

Our relationship with Disney remains strong. We are present across many of their business units, ranging from theme parks to Disney Media to cruises and resorts. We remain optimistic about our long-term relationship and the growth opportunities. The rest of our accounts collectively grew by 19.8% year-over-year and declined by 2.3% quarter-over-quarter. As we commented in last quarter's earnings call, high-end digital transformation was impacted at a time of high macroeconomic and geopolitical uncertainty. We are now seeing positive sequential growth in many of our key accounts, particularly reflected by the growth in our 2-20 client spend category, which was up quarter-on-quarter already in Q1. Our 100 Squared strategy continues to show results.

We now have 14 accounts bringing in more than $20 million in annual revenue. We have 276 clients that provide more than $1 million of annual revenue, showing a 34% increase from 1 year ago. Regarding geographical distribution of our revenue, in Q1, 61.4% of our revenue came from North America, 21.8% from Latin America, 13.4% from EMEA, and 3.4% from Asia and Oceania. We reached historic high revenues in EMEA, reflecting our global expansion strategy. Q1 2023 came with a string of large bookings with global firms. In late January and early February, we closed new projects with EY, LaLiga, Santander, Google, and Disney Media. This all led to a record pipeline at Globant and a similar level of monthly bookings compared to early 2022.

This has been accompanied by other leading indicators internally pointing to an initial but encouraging improvement in spending patterns. During the first quarter of 2023, the efforts dedicated to improving the quality of the delivery of our services and products to clients paid off yet again. We have achieved a Net Promoter Score of 83, the highest in Globant's history and well above the industry benchmark range of 40-61. When I first discussed our focus on NPS on this earnings call in 2022, our score was 68 and has steadily grown quarter after quarter. Our average annual value of the score has also increased from 76 to 79. Building client loyalty is a way we aim to maintain our leadership as the business climate improves. Our current headcount is 26,288. We remain eager to grow our global family of Globers.

We will continue to do so at the pace of our business growth. Our teams are prepared to support short-term business in our pipeline, and we have the engine to accelerate recruiting quickly as needed. Our annual attrition is currently at 14.5%, the lowest in 2 years, and 220 basis points below last quarter. We aim to drive efficient utilization to manage proper headcount, hirings, and attrition effectively. As of 1Q23, our utilization rate stood near 79%, down from the 82% we reported last quarter. We aim to rebuild this level back up to the low 80s level throughout the year, driving both revenue growth and gross margins. We are a skill-centric organization, and we are continuously upskilling and reskilling our teams to prepare them for future business demands.

We have a clear mission to be a hub of diverse skill sets where Globers can develop their careers to the fullest. In the last quarter, we have made significant strides in getting our Globers exposed to the latest trends in AI to quickly apply it throughout their work. More than 11,000 Globers have already completed the AI learning experience in our Globant University e-Campus, and we are in the process of certifying all of our pods on AI, as Diego explained. We're also thrilled to see the growth of our Globant University platform, which now offers more than 4,500 different learning experiences and is used by more than 15,000 Globers monthly. Our recent launch of Learning Match, a feature that connects experts with Globers seeking their expertise, has been a great success.

In the last month, more than 800 Globers have used the tool. Globant's proprietary platforms are also being adopted by our Globers. More than 9,000 Globers have completed their initial training on our new GeneXus platform. Thanks to these improvements, we've seen a significant increase in the average learning hours per employee, which has risen by 60% since last quarter. We've also seen a notable improvement in the level of skill applicability, with employees reporting an all-time high score of 90%. This means that the skills they've learned are more relevant and useful in their day-to-day work than ever before. Finally, some important updates on Globant's Be Kind initiative. In March, we announced the global winners of the third edition of Women that Build Awards, our ongoing initiative that recognizes, supports, and promotes the development and visibility of talented women leaders in the STEM fields.

We want to encourage innovation and collaboration in the technology industry while promoting plurality and connecting women from different parts of the world. The third edition of Women that Build Awards encompassed more than 1,800 nominations, 1,100 candidates, 110,000 votes, and 70 international judges. We have already begun the fourth edition, and we are now accepting nominations. If you know a woman who is shaking up the game in technology, we encourage you to nominate at womenawards.globant.com. As part of our Be Kind to the Planet commitment, in March, we celebrated the opening of Globant's iconic building in the city of Tandil, Argentina. The building has a sustainable design that is certified as LEED Platinum, the highest range possible for buildings that are healthy, efficient, and carbon and cost-saving.

This investment is part of our green building strategy, where we invest in more sustainable real estate, such as our facilities in Bogota, Medellín, and Seattle, all certified as LEED Gold. In San Francisco, our offices received an ENERGY STAR score of 92, indicating they are more energy efficient than 92% of similar buildings nationwide. Globant remains close to its clients and Globers, embracing new technologies, seizing business opportunities, and conscious of its role as a positive social agent of change. With that, I'll hand it over to Juan to discuss the financials.

Juan Urthiague (CFO)

Thank you. Good afternoon, everyone. It's great to be here again. In Q1 2023, we achieved industry-leading growth with a solid 17.7% year-over-year revenue increase, with revenues totaling $472.4 million, showcasing a strong performance in the current environment. Our adjusted operating profit margin met guidance expectations. We skillfully executed M&A initiatives to broaden our presence in the U.S. and Europe. As previously indicated in our last earnings call, we continue to expect sequential revenue growth in 2Q 2023. As such, we are updating our full year outlook to incorporate the most recent trends in the business. As a digital transformation service provider, we acknowledge that the current macroeconomic climate may influence client spending, potentially causing reduced visibility compared to past cycles. Nonetheless, we remain steadfast in our belief in the lasting demand for digital transformation.

Our pipeline keeps expanding and client discussions around long-term strategy remain consistent. Amid ongoing talent scarcity and technology as a core focus, 2023 continues to witness digital transformation investments as a top priority. Cutting-edge AI advancements further solidify our dedication to revolutionizing business practices and guiding clients in embracing these innovations. Our focus continues to be on enhancing our platform, harnessing AI to distinguish our offerings, optimizing talent and cost structures, and tailoring services to meet the ever-changing client demands. Upon reviewing our Q1 results, we are pleased to report another quarter of strong growth and healthy profitability. Despite the 3.7% sequential decrease in our top line, we experienced sequential growth in our 2-5, 6-10, and 11-20 client buckets, which reaffirms our belief that spending activity remains strong among our most important customers.

In terms of constant currency, Q1 revenue growth stood at an impressive 18% year-over-year, closely mirroring our headline figure. Additionally, inorganic contributions accounted for approximately 6 percentage points of year-over-year growth in Q1, further strengthening our overall performance. Analyzing our revenue breakdown, several factors emerge. Geographically, all business units displayed positive year-over-year growth. United States operations at 12.7%, EMEA at 55.5%, LATAM at 9.2%, and Asia and Oceania at 76.9%. From an industry vertical standpoint, our media sector exhibited strong year-over-year growth due to significant deals closed in second half 2022. We also observed a recovery in professional services, hospitality, consumer retail, manufacturing, and healthcare divisions, offset partially by travel, high-tech, and BFSI verticals. We anticipate positive sequential growth in Q2, primarily in media, BFSI, and healthcare verticals.

We, however, continue to see more limited spending in our high-tech going into the next quarter. We consistently delivered on profitability. In Q1 2023, our adjusted gross profit margin reached 38.2%, with adjusted gross profit increasing to $180.3 million, a 13.8% annual growth. Adjusted gross profit margin stood within the historical range of 38%-40% that we have previously provided to investors. Our adjusted operating margin for the quarter was 15.1%, aligning with the guidance provided. We are diligently addressing our adjusted SG&A to achieve our EBIT targets with Q1 2023 SG&A over sales at 17.8% compared to 18.6% last year, and also 20 basis points lower than that of fourth quarter 2022.

Adjusted operating income for the quarter totaled $71.4 million, reflecting a 15.1% margin. As for below-the-line items, our IFRS effective tax rate for the quarter was 21.9%, closely adhering to our guidance. Adjusted net income in Q1 reached $55.4 million with an 11.7% adjusted net income margin. Adjusted diluted EPS for the quarter was $1.28, $0.01 above our guidance, and representing a 7.6% year-over-year increase based on 43.2 million average diluted shares for the period. In terms of balance sheet management as of Q1 2023, our cash and cash equivalents, along with short-term investments, amounted to $284.8 million. Our credit facility remains undrawn, and we maintain a net cash position.

Combined with our organic cash flow generation, this ensures sufficient funding for our short-term growth plans. In Q1 2023, we utilized approximately $1.8 million of free cash flow, a significant improvement from the $45.3 million used in the same period last year, owing to enhanced working capital and tax management. Moving forward, let's discuss our outlook for Q2 and the full year 2023. This guidance takes into account contributions from ExperienceIT closed during Q2 2023. It does not include any contribution from Pentalog as the deal is pending approval, and that date cannot be anticipated with certainty. Our focus remains on achieving robust revenue growth and strong profitability. Throughout 2023, we will concentrate on expanding our business while maintaining stable margins. We will also closely manage our cost structure to ensure it scales with our business performance.

We currently anticipate Q2 revenues of at least $496 million, reflecting 15.5% year-over-year growth. Since the beginning of the year, we have observed a slight improvement in underlying revenue indicators, with better booking and backlog creation trends in Q1 2023 compared to the final months of 2022. Although the level of business closed is still below our full potential, our growing pipeline and client opportunities encourage us. Overall, we have not witnessed significant project roadmap cancellations or shifts in clients' long-term digital adoption strategies. Our full year 2023 guidance, which I will address in a minute, implies neither a marked improvement nor a downturn from the current business climate.

We continue to believe that companies will pursue top-line growth via digital channels as direct to consumer, pivoting from brick-and-mortar to efficient delivery channels, and leveraging technology for enhanced efficiency remains central to our clients' strategies. While we are optimistic about sequential growth from now to year-end, given some cost restructuring digestion by our customers, we remain cautious. Macro risks and crosscurrents persist, the potential start of another wave of DX investments related to generative AI and AI efficiency could provide an upside to our outlook. From a profitability perspective, we expect our adjusted operating income margin in the 15%-16% range for the second quarter of 2023. IFRS effective income tax rate is expected to be in the 21.5%-23.5% range.

Our adjusted EPS for Q2 is expected to be at least $1.33, assuming 43.4 million average diluted shares outstanding for the quarter. As we progress towards the full year guidance, we maintain a cautiously optimistic growth outlook for 2023. With current visibility, we are pleased to increase our full year 2023 guidance to at least $2.074 billion, a solid 16.5% year-over-year growth. Our guidance assumes a neutral FX outlook for the year. For the full year, we continue to expect our adjusted operating margin in the 15%-17% range. 2023 IFRS effective income tax rate is expected to be in the 22%-24% range.

Finally, our adjusted diluted EPS for 2023 is expected to be $5.71, assuming 43.4 million average diluted shares for the year. Thanks everyone for participating in the call, for your coverage and support.

Arturo Langa (Head of Investor Relations)

Hi, good afternoon, and thank you everyone. As we go through the questions and answer section of this call, I will first announce your name. At this point, please unmute your line and ask your questions. Please mute your line after the question is done, and we would also ask you to kindly limit your questions to one. One question and one follow-up. With that in mind, we'll take our first question from the line of Tien-Tsin Huang from JP Morgan. Tsin Sin, please go ahead. Your line is open.

Tien-Tsin Huang (Senior Coverage Analyst and Managing Director of U.S. Payments, Processing & IT Services)

Great. Thank you, Arturo. Yeah, thanks for all the detail. Ask you to elaborate a little bit more on the sequential growth that you're expecting in the 2nd quarter. Sounds like from Patricia, there's pretty strong bookings, backlog, including with Disney Media. So maybe just give a little bit more on the visibility, the month-to-month trending that you're seeing. Of course, a lot of investors are asking us, you know, the outlook seems more upbeat than some of your digital peers. Why might that be the case? Thanks.

Arturo Langa (Head of Investor Relations)

Sure. Juan.

Juan Urthiague (CFO)

Sure. Thank you, Tsin Sin, for the question. You know, our outlook for Q2 is for $196 million. If you remember back in February when we guided for the first time for the year, we already mentioned that on that point, that we were expecting a sequential increase in, you know, going into Q2. Actually, that materialized during the Q1 in terms of bookings. Now we have seen a recovery compared to the second half of last year. That recovery, we continue to see that happening during Q2, and that's why, you know, we are able to guide a sequential increase of about 5 percentage points from Q1 to Q2.

you know, overall I think that the level of bookings that we have seen in the first five months of the year, has improved pretty much in every industry, maybe with the exception of technology. You know, technology companies are a little bit behind the rest of the industries. Overall, we have seen a clear recovery compared to the second half of last year when most of the growth was actually coming from the backlog. The first part of the year, we not only closed new deals, but also started to build some backlog again. That's why we're able to guide a sequential growth into Q2. Also, you know, we continue to see a similar traction that takes us to believe that the second half of the year will also have pretty sequential growth going forward.

Martín Migoya (Co-Founder and CEO)

Yeah. also, to complete, if we see the bookings coming, you know, on pretty much 3 quarters going down sequentially, you know, in the last year. We're seeing that recovery happening in this, you know, first quarter and good outlook for the second quarter. I believe that what Juan was saying has basic, you know, support on that recovery on the bookings.

Tien-Tsin Huang (Senior Coverage Analyst and Managing Director of U.S. Payments, Processing & IT Services)

Great. That's good to hear. Maybe just my follow-up just to ask again on the, you know, difference in your outlook versus some of the peers. I know it's not fair because all the companies are different, clients are different, but maybe it's a chance to maybe talk about how Globant is different from digital peers and maybe why your outlook is a little different.

Martín Migoya (Co-Founder and CEO)

Yeah. Thank you. Thank you for the question. I believe that, well, competition is very strong. It has always been very strong, and we really admire many of our competitors. Now, I think we're doing many things different, and I believe that whenever you get into how we do things, you will find, like, we're approaching our customers in a different way. We're organizing our company in a different way too. I mean, the top with our bots and a lot of degrees of autonomy on what they do, how to take thousands of decisions every day. That yields to be closer to our customer, that yields to be, in a way, much more aware of what they need. That yields too to connect to the launch of new studios and new offering, and every day trying to get wider in that offering.

Not just, you know, in the digital offering that is our strongest part, but also on the back, going into our enterprise studios that now is growing very, very fast. Also in the front now with our Globant Create studios. On top of course that we have our industry reinvention studios. Those, you know, four things create like a value proposition, which is every day aimed to leverage the relationships we have with our customers in a much more efficient way. What I believe we are seeing is that passion that we have to expand and to understand the needs of our customers getting crystallized into performance and to gain market share in that same game.

Tien-Tsin Huang (Senior Coverage Analyst and Managing Director of U.S. Payments, Processing & IT Services)

Got it. That's well done. Thank you, guys.

Martín Migoya (Co-Founder and CEO)

Thank you very much.

Patricia Pomies (COO)

Thank you.

Arturo Langa (Head of Investor Relations)

Thank you, Tsin Sin. The next question is coming from the line of Ashwin Shirvaikar from Citi. Ashwin, please go ahead. Your line is open.

Ashwin Shirvaikar (Managing Director)

Hey. Thank you for this and good to see you guys again. Also good to see your digital twins again.

Martín Migoya (Co-Founder and CEO)

Thank you for referring to that because, you know...

Ashwin Shirvaikar (Managing Director)

Yeah.

Martín Migoya (Co-Founder and CEO)

It was much cheaper than doing it the other way around.

Ashwin Shirvaikar (Managing Director)

That's true. How much stock-based compensation does your digital twin get? I don't know. You know, more seriously, you know, last time I'd asked about GeneXus and AI, of course, got a chance to see the demo. AI is a big part of all investor conversations now. The general view that most investors have is a cautious one that, you know, you have a time and material model. If people get replaced by software, it affects the time and material model. What you're talking about though is incremental opportunity.

If you can kind of talk about how you are thinking of the benefits that you have to pass on to your clients in terms of productivity versus the incremental opportunity and what you see, sort of try to balance those for us.

Martín Migoya (Co-Founder and CEO)

Okay. Thank you for the question. I will answer the first part, and then I will let Diego to go ahead. Let's go to the fundamental of what we do every day. Out of 100% of the time that we spend, about, let's say 40% is being used generating code, let's say. Right? The other 60% or 70% or maybe 45% is about understanding what you need to do, about understanding and dealing, about negotiating which are the reach of what you want to do. The first part that we need to understand is efficiency can be made in only a portion of what we do, right?

That's a fundamental thing that must be understood because there's a lot of hype, and there's a lot of things being said around this. I want to be clear where we see the efficiency, where we see things that as human exists, we will need to keep on doing human to human, right? That's one thing. The second thing is that I believe that together with this gain in efficiency, ambitions grow. That's what we refer to incremental opportunities based on AI. Now, let me give you an example. For example, if before we were using apps to create transactions, now we will be using conversations to create transactions. Those conversations will need to be connected with all the backend systems, and it's not a trivial job to be done.

Ashwin Shirvaikar (Managing Director)

I understand that the overview analysis can yield to that conclusion, but I think it's absolutely wrong. I see efficiencies going in a portion of what we do, and what we do in general is very sophisticated stuff, and that connects to only gaining efficiencies on a portion and then ambitions increasing and growing much faster. Diego, I would like you to take, you know-

Diego Tartara (CTO)

I think-

Ashwin Shirvaikar (Managing Director)

Your perspective on this.

Diego Tartara (CTO)

Thank you very much. Hi, Ashwin. I think what Martín mentioned with regards to how we approach this and how we build a product is spot on. How we implement this is, if you recall, last year we launched the Fast Code Studio, which was exactly about that. How can we bring efficiencies into our own work? We've been even creating products for doing that. We've been very active in the space. The thing is, Ashwin, this has been happening since, I don't know, the start of our business. There's new frameworks, there's new technologies, there's new development languages which aim to bring in those efficiencies.

Lots of things that used to take X amount of work 10 years ago, by leveraging those technologies, and they're not necessarily AI related, can be done as of today in half of the time, 30% of the time, or even less. That didn't mean that our work was reduced because, as Martín said, there's another expectations increase in terms of consumer expectations, in terms of the functionality that our clients expect to bring to the consumer to be on the forefront of their businesses. I think that these efficiencies that we are actually implementing, every studio is working on that. We have the trainings, like Patricia said. We've been very active on those space. Will be translated to our clients definitely as fast as we can. We are already doing that.again, I think that will be translated into more work.

Ashwin Shirvaikar (Managing Director)

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

Juan Urthiague (CFO)

On the cadence, you know, the guidance for Q2 is out there for $196 billion. If you do some reverse math, you know, you're gonna get to around 7% sequential growth in Q3 and Q4. Basically, that is coming from, you know, whatever has already been booked. You know, booked, by booked, we mean that we have the contracts already signed, hence we're gonna be delivering those contracts and generating the revenue. On top of that, what we have is, as we mentioned at the beginning of the call, a much stronger pipeline, and we have seen an improvement in the conversion cycle when compared to last year.

Basically, that guidance that we are providing somehow is embedding the, you know, the deals that we have closed, the bookings that we already did basically, plus the conversion level that we are seeing now at the level of pipeline that, you know, is aligned to that. You know, in our guidance, we are not including Pentalog as of now because we don't really know at this point if it's gonna get approved in one month, two month, or three months. You know, it's gonna happen very likely within that timeframe. Because we were not sure, we are not including that, deal into the guidance that we provided as of now.

Ashwin Shirvaikar (Managing Director)

Got it. Thank you.

Juan Urthiague (CFO)

You're welcome.

Diego Tartara (CTO)

Thank you very much, Ashwin.

Arturo Langa (Head of Investor Relations)

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

Maggie Nolan (Research Analyst of Technology, Media, and Communications)

Hi, how are you

Diego Tartara (CTO)

How are you, Maggie?

Maggie Nolan (Research Analyst of Technology, Media, and Communications)

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

Juan Urthiague (CFO)

Yeah. What I wanna tell you, Maggie, is that the first quarter, which at the end of the day is gonna, what is gonna be driving the second quarter and, you know, the near term, has twice the number of new logos than we had in the fourth quarter of last year. Basically, the beginning of this year is showing an increase in the number of new logos, but also farming activities are, you know, doing much better. By farming, I mean existing clients signing or closing those deals that we have been working for a few months already. That is what is implied in the numbers. It doesn't depend really on new logos, you know.

If you look at how the first quarter and you know, performed, you have Disney, which as we mentioned, was going to be slightly below the fourth quarter, but then customers from 2 to 20 perform actually quite well. That eventually, you know, those are our key accounts, and that's where we're seeing the, a lot of growth getting into the next part of the year.

Patricia Pomies (COO)

Also adding to that, I think that is important that we announce also that in EMEA we have a record of revenue in this Q1. I think that was an important thing that we have been talking a lot in the last couple of earnings call about expanding in EMEA and in Europe. Now we are seeing very good result there in accounts like, well, you know, Santander or LALIGA, the joint venture that we made. I mean, it's bringing a lot of fruit there. I think that's another point.

Maggie Nolan (Research Analyst of Technology, Media, and Communications)

Got it. Thank you, and more to come with the addition of the acquisition there as well too. One other question from me on your operating margin. Are you on track to meet the midpoint of the range that you guided to for the full year? What investment or spend considerations are factored into that guidance?

Juan Urthiague (CFO)

Yeah. Yeah. As of now, you know, we expect. I mean, you already have the Q1 number, 15.1. Second quarter is gonna be 15%-16%. We still think that we're gonna see a recovery in the second part of the year, second half, which hopefully is gonna take us somewhere around the midpoint of the guidance. That is gonna be driven by improved, you know, productivity, improved utilization. We have been working on reducing the, you know, talent pool of the company to protect that, those margins. Also, you know, we have been very careful in where we invest.

We keep on investing in sales coverage as always, but we have taken a more conservative approach in the rest of the G&A areas 'cause we need to protect margins while we continue to grow in this current environment.

Maggie Nolan (Research Analyst of Technology, Media, and Communications)

Helpful. Thanks for the update.

Juan Urthiague (CFO)

Thank you, Maggie.

Arturo Langa (Head of Investor Relations)

Thank you, Maggie. The next question comes from the line of Bryan Bergin from TD Cowen. Brian, your line is open. Please go ahead.

Bryan Bergin (Managing Director of Technology, Media, and Telecommunications)

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

Martín Migoya (Co-Founder and CEO)

It has been pretty consistent across the different lines in which we're working. Yes, we expected what is going on right now. It was not that clear when we talk in the last earning call, unfold in the way we suspected. We see first a very strong relationship that we have in Disney. The second thing is, we see that their scope is not going away. We see some, you know, recovery on the second half of the year, which could be pretty strong. This is what we are seeing now. Let's see how this unfold.

We don't have the crystal ball here and, but, we understand that we are very well positioned, working with them and we will be profiting that good relationship that we have.

Bryan Bergin (Managing Director of Technology, Media, and Telecommunications)

Okay. Then just a broader question on the operating model as you continue to layer on new acquisitions and become more distributed geographically, can we think about the margin implications of that? Aside from pricing and some of the G&A discipline that you mentioned here, what else may be pulling on as levers to support the margin as you grow in new regions?

Juan Urthiague (CFO)

Yeah. We continue to see gross margin in the 38%-40% range. You know, both acquisitions that we are doing, some of them are above that level, some of them have been slightly below that level. You know, on average, I would say that we keep saying we continue to target 38%-40% at the gross margin level. Of course, as we grow, I mean, and again, we want to grow and maintain healthy margins, but the focus is on both, right? It's not on expanding significantly margins in the short term. It's more about, you know, maintaining the level of margin, of healthy margins that we have while expanding the business, you know, going more global, you know, having business in new locations, in new regions.

Acquisitions, you know, have been helping us not only to expand geographically from a revenue point of view, from a delivery point of view, but also, you know, to add and complement our service offering, being, you know, getting a more, deep knowledge into certain technologies. That's gonna continue to be the case, you know. Organic growth complemented by selective acquisitions that give us certain skill sets for new geos as we go.

Martín Migoya (Co-Founder and CEO)

Yeah. In the case of Pentalog, for example, I mean, the acquisition has not finished yet, although we announced it, and we need to do the closing. It's adding locations, as I mentioned before. Well, my digital twin did. They're adding locations, around, for example, Morocco. They're adding, Moldova. Vietnam. Very strong in Romania, where we had operations, and now we have a much stronger operation. Those are also levers, to still, you know, keep on managing margins and to keep on, you know, diversifying risk.

Bryan Bergin (Managing Director of Technology, Media, and Telecommunications)

Okay. Okay, thank you.

Martín Migoya (Co-Founder and CEO)

Very welcome.

Maggie Nolan (Research Analyst of Technology, Media, and Communications)

Thank you.

Arturo Langa (Head of Investor Relations)

Thank you, Brian. Our next question comes from Surinder Thind from Jefferies. Surinder, please go ahead.

Surinder Thind (Equity Research Analyst)

I'd like to start with a question just about the comments around... I apologize, I'm having some video issues here. With the productivity gains and with all of the tools that you're unleashing at this point, can you provide some additional color in terms of as you think about all the technology usage? If we're having this conversation a year from now, what kind of level of productivity improvement should you expect from your software developers or your delivery teams?

Diego Tartara (CTO)

That's actually something that we're doing as we speak. We're running benchmarks that are real case scenarios. There has been a lot of information out there that is greatly based on synthetic type of data, not actual projects with the size of the projects that we work with. One of the initial results for this is that you can get efficiencies of up to 15% within the development team. On certain tasks, that is much higher. On the core of the development is a little bit lower than that, but blended around that number. I'm talking about big projects, typical development testing, design. That's around the expectation, initial expectations, we can see.

Of course, I see much more and better tooling appearing, even our own tools evolving, and that could be even bigger. The thing is that in many occasions, there's a constant fight in the development teams between capability, I mean, your what's called capacity, and the product owner, which wants more functionality, right? There's a tension, constant tension. What I would expect is that 15% to be immediately taken over by adding new features, et cetera. That win on every project that we've been working with will be immediately pooled by the product owners.

Martín Migoya (Co-Founder and CEO)

Yeah. I don't know if you have been using these tools, but you know, one of the things that these tools has is that you need to be prompting these tools in a very, very precise manner. Otherwise, the results that you get are not the results that you want. The fact of prompting these tools, the fact of understanding exactly, as I said before, when I was explaining to Ding Xin, the prompting the understanding what it needs to be done, that didn't change, right? We need to factor that 15% factor seen a much higher productivity on the code by itself.

It's, it is factored in a much bigger frame, which is the total work that we do with our people and with the projects and interacting with our customers. I hope that helped to answer your question.

Surinder Thind (Equity Research Analyst)

Yes. That's actually very helpful. The next question is just related to the sequential growth. In the prepared commentary, you talked about banking and financial services as one of the verticals that you expect to see quarter-over-quarter growth. Can you provide additional color here in terms of the dynamics, especially in light of obviously your exposure is to large global banks, money centers, but just the conversations you're having there and what kinds of projects are you working for them at this point? Has there been a change in the conversations? How should we think about that? Because it seems like there's different narratives about what the demand environment within financial services looks like at this point.

Juan Urthiague (CFO)

Yeah. I'll get started with which are the industries where we're gonna see some growth over the next few quarters, and then I will let Diego or Martín or Pato to discuss a little bit about the projects. You know, when we're looking at which are the sectors that are gonna get back to positive growth, you know, over the next quarter or so, you're gonna see media and entertainment, consumer retail, banks, financial services, healthcare, all those I think are gonna be recovering and, you know, getting better into the second quarter and going forward. You will see a more stable or slightly negative evolution in technology. That's in terms of industries, what we are seeing for the set of customers that we have in those industries.

I will let Martín, Pato, and the team talk about what projects we are doing for those industries.

Martín Migoya (Co-Founder and CEO)

I will let Diego.

Diego Tartara (CTO)

Okay. I think the conversation have been shifting in terms of relevance between the cost saving and the revenue generating type of projects, whether in the past this was 60% revenue generating type of projects against 40% cost saving efficiencies into business processes, et cetera. I think nowadays it's the other way around. There's a lot of discussions about streamlining business processes, making better use of cloud services, et cetera, et cetera. That aspect is very active. Our enterprise studio and the services related to that are very active and getting a lot of work within the industries that Juan mentioned on the other side in the revenue generating side of things. There's a lot of exploratory work on AI as an example.

just, we just launched and closed a deal to do a CAR-T-.

development by leveraging AI models. These are just examples, in the revenue generating line, we are starting to see a lot more activity on certain industries. What I think, at the end of the day, what I think it's happening is companies are very active towards making the savings they need to do because there has been definitely a reduction in the investment, and they're much more budget conscious. The thing is they want to use that for developing their revenue generating line. That's why we always said the conversations on the revenue generating side of things and expanding the business and exploring new channels have been always there, but the decision have been taking longer. I think they've been building space for doing that, and this is what it's happening now.

Patricia Pomies (COO)

Adding to that, I think that related to our operational model, when we launched the program, the 100 Squared program, that means that we want to be really close to the clients, and that is now showing the fruits in terms of that is when they have to decide whether if they're going to any other place or with Globant. I think that is really strong relationship and partnership that we have been building for years with them. That is where we see a very strong pipeline. That is where we see a very strong farming activities in all those clients.

As Diego was mentioning, and Juan, I think that, having that kind of relation and, while the quality of the delivery that Globant has been doing in the last couple of years, I mean, it's showing a very good result these days. In fact, when they need to decide if they need to do this cost saving or revenue sharing, I mean, talking honest conversation with us and being in the table with them as partners, I mean, is helping a lot in building this strong pipeline.

Surinder Thind (Equity Research Analyst)

Thank you. That's very helpful.

Patricia Pomies (COO)

Thank you.

Surinder Thind (Equity Research Analyst)

Thank you so much.

Juan Urthiague (CFO)

Thank you.

Arturo Langa (Head of Investor Relations)

Thank you, Surinder. Our next question comes from the line of Thomas Blakey from KeyBanc. Thomas, your line is open. Please go ahead.

Thomas Blakey (Senior Research Analyst)

Can you hear me, Arturo and gentlemen? Ladies and gentlemen, can you hear me?

Patricia Pomies (COO)

Yes.

Thomas Blakey (Senior Research Analyst)

Excellent. Thanks for taking the question. I think you made a comment about generative AI and overall AI providing upside to your outlook. Are these deals already in the pipeline today, or is that just kind of a higher level, you know, a comment about the TAM and your related outlook there? That's my, you know, first-

Juan Urthiague (CFO)

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

Martín Migoya (Co-Founder and CEO)

Yeah. Also, connected to that, I believe that the whole hype that is happening right now, is you know starting conversations with the customers. The full pipeline, we're not seeing it right now. We're seeing, as Diego mentioned, some exploratory, you know, pre-interactions, and we are seeing the pipeline moving forward and the things happening in the next quarters, we believe. It's difficult to forecast, but all these discussions might trigger some future pipeline that we are not seeing today, right? I don't think it's fully unleashed yet.

Thomas Blakey (Senior Research Analyst)

Okay. Thank you. Just a follow-up question on organic growth. I think you mentioned before it's 4%, Juan. Is that maintained or is that maybe slightly upticked with the recent M&A you've done?

Juan Urthiague (CFO)

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

Thomas Blakey (Senior Research Analyst)

Excellent.

Juan Urthiague (CFO)

12 plus four and a half is the guidance for the year.

Thomas Blakey (Senior Research Analyst)

Thank you, everyone. Congratulations on your results.

Juan Urthiague (CFO)

Thank you.

Thomas Blakey (Senior Research Analyst)

Thank you so much.

Arturo Langa (Head of Investor Relations)

Thank you, Tom. The next question comes from the line of Phani Kanumuri from HSBC. Phani, your line is open. Please go ahead.

Phani Kanumuri (Financial Analyst)

Thanks everyone, for taking my question. My first question is regarding Pentalog. Seems like a fairly big acquisition for Globant, compared to recent acquisitions. How do you see this Pentalog integrating with Globant, and how would that change your perspective in terms of geographical shift or revenues? The second question is primarily related to your AI tools. We have seen certain AI tools that you have demonstrated. How are you seeing the demand for the tools from your clients currently? Is it still in a more exploratory stage, or is there some solid demand coming for these AI tools like GeneXus Next? Thank you.

Martín Migoya (Co-Founder and CEO)

Well, I will take the first part of the question, and I'll let Pato to complement. I see Pentalog helping a lot.

On certain geographies. It's a pretty straightforward integration as we are very complementary companies in terms of geographies. They are in places in which we are not or we were not big enough. That's that one part of the question that you make. In terms of size, I tend not to agree with you, which is I believe is not big. I mean, it's a company that it is within the size of the companies that we have been acquiring before. The problem is that Globant became bigger. Now of course, it is a bigger acquisition than what we did 3, 4 years ago. Speaking in terms of percentage or relatively speaking, it's in the same size.

I will let, you know, Pato to comment... on Pentalog and then Diego to talk about the platform.

Patricia Pomies (COO)

I think that one of the great things that we have been seeing with Pentalog and the conversations we have with the team is that they have a very similar culture that we have. They are on this entrepreneurial mindset. Of course, I mean, most of the leadership that we have been talking with them, and help us great achieve this goal together, I mean, are eager to be part of something bigger. There is a lot of connection between what they want to achieve and what we want to achieve also in Europe specific. For us, I mean, means that we want to expand. I mean, we have been looking for a partner here in Europe also that help us, growth our operation here. We find in Pentalog those kind of things.

I think this integration is going to be very smooth and very easy. We still we need to wait for the authorization to happen. I think that what we have been seeing and working together is a lot of a similar culture, the same way they are organized. I mean, the go-to-market strategy are very similar in terms of technologies, in terms of the quality of the talent and of course the leadership that we find in the company. I think it's going to be very smooth and we. Well, we've had been with them on Monday with Martín and part of the team there, and it's an amazing leadership team there. They're very kind, so the.

We have very similarities in terms of what we want to achieve together. On the AI, you want to comment, Diego?

Diego Tartara (CTO)

Yeah, definitely.

Patricia Pomies (COO)

Okay.

Diego Tartara (CTO)

With regards to our tooling, toolings are in different state of maturity and play different type of roles within the development pipeline. As examples of this, pipeline is very strong with MagnifAI. It's very easy to integrate. Value proposition is very straightforward, and it has a great ROI. Results there in our pipeline is very strong. Augoor goes in the exactly the same line, but was released a little later. We have an amazing pipeline, and we just closed our first deal. It, it's playing exactly in the same in the same space. GeneXus on the other side is actually a shift in paradigm in the development process. It's not... It cannot tag along a traditional project.

It's just starting from scratch in a different way. Remember GeneXus started as a low-code tool, and now by the incorporation of generative AI, it allows you to create software just by using regular language, natural language. GeneXus has a very good pipeline, and it had an amazing reception. I sincerely hope that pipeline will materialize into actual business. Again, like I said, different type of scenarios. In the three cases, we're seeing very positive signs from the market.

Martín Migoya (Co-Founder and CEO)

Wow. Thanks everyone. Very clear.

Patricia Pomies (COO)

Thank you.

Martín Migoya (Co-Founder and CEO)

Very much.

Arturo Langa (Head of Investor Relations)

Thank you. Thank you everyone. That will be the Q&A section for today. I will now ask Martín to provide some closing comments. Martín, please go ahead.

Martín Migoya (Co-Founder and CEO)

Thank you. Thank you, Arturo. This is the real Martín finally. The real Pato.

Patricia Pomies (COO)

Hi

Martín Migoya (Co-Founder and CEO)

... the real Juan, and the real Diego. Thank you very much for helping us and for covering us. Looking forward to see you in the next quarter. Thank you so much.

Patricia Pomies (COO)

Bye-bye.