Q1 2024 Earnings Summary
- Globant is well-positioned to benefit from the accelerating adoption of AI, as they are investing heavily in AI tools that enhance software creation and implementation. They view AI as an accelerator, leading to multiyear transformation programs for clients.
- Globant is consistently gaining market share, outperforming competitors who are experiencing slower growth or declines. Their ability to attract market share is driven by investments in AI, sports, and innovative platforms offered to customers.
- Strong growth in key verticals such as travel and hospitality, which is growing north of 50%, consumer and retail at a similar pace, and positive momentum in media, entertainment, and banking. This diversification supports industry-leading growth and provides solid visibility for future performance.
- The company lowered its full-year adjusted operating margin guidance from 15%-16% to 14.5%-15.5%, citing foreign exchange pressures and lower utilization rates, which may indicate potential profitability challenges ahead.
- Macroeconomic uncertainties are leading to a cautious outlook, with the company acknowledging that deteriorating conditions could result in performance at the lower end of its guidance range.
- Strong local currencies against the U.S. dollar, such as the Mexican peso and Colombian peso, are causing foreign exchange headwinds and impacting margins, with no expected improvement in the near term.
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Margin Outlook Q: What are the incremental margin pressures and offsets? A: Management lowered operating margin guidance from 15%-16% to 14.5%-15.5%, citing lack of improvement on the FX side (Colombian peso, Mexican peso) and slightly lower utilization in Q1, which they plan to maintain. They are not assuming any improvement in FX and aim to protect margins, emphasizing this is a long-term game.
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Revenue Guidance and Macro Expectations Q: Explain the revenue guidance range and macro assumptions? A: The new guidance includes a more conservative, realistic, and optimistic number based on macroeconomic conditions. If conditions deteriorate, they'll hit the lower end; if they improve, the upper end. If things stay the same, they'll land around the midpoint.
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Demand Trends in Tech and Professional Services Q: Are you seeing softness in tech and professional services? A: Yes, professional services have been stable, not growing or decreasing significantly. Technology's decrease has stabilized. Other industries like Travel and Hospitality are growing over 50%, and Consumer and Retail at a similar pace. Recovery in technology and telecommunications is still needed.
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Demand Trends and Guidance Tweak Drivers Q: What are the drivers of the slight guidance tweak? A: Demand has improved in recent months, but macro uncertainties remain. Bookings are improving, but management is cautious in guidance. At the midpoint, they project 15.6% growth, with a little over 10% organic growth. They focus on whether growth will be faster or slower than anticipated.
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Sequential Growth Expectations Q: Do you expect Q3 or Q4 to be stronger? A: For Q2, sequential growth is 2.8% at the midpoint. Q3 has almost 2 more days, estimating slightly above 5% sequential growth. For Q4, projected sequential growth is around 4.5%. They don't need to reach 6% sequential growth as previously calculated.
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Positive Momentum in Bookings Q: Do large bookings impact your outlook? A: Large bookings are real and will impact revenue moving forward. They've incorporated these into guidance, aligning with market conditions. There's momentum in bookings, indicating some recovery not seen before.
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Impact of AI on Spending Q: Is AI causing spending delays? A: Management is not concerned about AI causing delays. They see AI triggering multi-year transformation programs across companies. Some projects are moving into production. AI is embedded in their offerings, and they don't see decisions being delayed due to AI.
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Project Visibility and Bookings Conversion Q: How is your visibility into project ramps? A: Visibility remains consistent with prior guidance, with little difference in numbers. They rely on new bookings, not just backlog. Closing big deals improves visibility, and overall visibility stays the same.
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Geographic Growth and US Trends Q: Comment on geographic growth and US sequential decline. A: The Philippines office is a delivery center, not targeting that market. Small sequential decline in the US is due to a one-off $5-$6 million in licenses in Q4 and stable professional services and technology business. They expect growth in Q2 and rest of the year.
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Argentina Macro Conditions Q: How will Argentina's macro conditions impact costs? A: Conditions in Argentina are improving and becoming more stable. A depreciation in December impacted Q1 revenues by $15 million, with $5 million remaining in Q2. Salaries are dollarized, so cost impact is minimal. Inflation is offsetting some benefits from December, but no big changes expected.