Q1 2025 Globant SA Earnings Call
[music].
At Orlando Investor Relations Officer pipelines.
All participants on this call will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions. Please.
Please note. This event is being recorded and streamed live on Youtube.
By now you should have received a copy of the earnings release.
You have not copies are available on our website investors <unk> com.
Also you will final shareholder letter, which contains the same content as it prepared remarks, you will hear today.
In order to craft, a more engaging and interactive session. We've shorten our prepared remarks and I look at it more time to the Q&A section.
Speaker Change: We will begin with remarks by our Chief Executive Officer of multimedia and our Chief Financial Officer Arnold Gary.
Speaker Change: Followed by a Q&A session, where they will be joined by Chief Executive Technology Officer, Diego Tundra, and our Chief operating officer of Reasonableness.
Before we begin I would like to remind you that some of the comments on our call today may be deemed forward looking statements as.
Speaker Change: This includes our business and financial outlook and the answers to some of your questions.
Speaker Change: Such statements are subject to the risks and uncertainties are described in the company's earnings release and other filings with the SEC.
Speaker Change: Please note that we follow <unk> accounting rules in our financial statements. During our call today, We will report non <unk> or adjusted measures, which is how we track performance internally and the easiest way to compare <unk> to our peers in the industry you will find a reconciliation of <unk> and non <unk> measures at end of the press release, we published on our Investor Relations website announcing this quarter's results.
Speaker Change: I will now turn the call over to Martin <unk>.
Martin: Hello, and good day, everyone. It's great to be here again, we're pleased to report another solid quarter with revenues, reaching $611 1 million, representing a healthy eight 6% year over year growth in constant currency.
Martin: Performing most of our peers.
Martin: While our Q1 performance came in below our initial expectations.
Speaker Change: And our revised annual guidance now aligns more closely with broader industry trends, we remain confident in the strength and resilience of our business. The fundamentals that feel below that long term growth are strong the AI opportunity is both profound and transformative.
Speaker Change: It is a market that could reach four three trillion by 2035, our 10 years of strategic investment in artificial intelligence uniquely position us to lead this new era, where not merely adapting we're helping define the AI powered future of work and digital transformation that said.
Speaker Change: We're currently operating in a challenging macroeconomic environment.
Speaker Change: The probability of a recession in the U S has recent significantly since February.
Speaker Change: Consumer spending has softened.
Speaker Change: And uncertainty from trade tariffs has impacted a good portion of our customers. We observed a slower pace of pipeline conversion in the U S and growth in some countries in Latin America has been lower than expected.
Speaker Change: Although some near term challenges are present, we see these as transitory as the pipeline remains robust with a 20% increase over last year. I'm also pleased to see strong growth in markets, where global has undertaken major investments recently, including our new market region of the Middle East.
Speaker Change: East and APAC as well as Europe in this environment, we need to stay focused on long term value creation and transformative impact.
Speaker Change: Our way forward is based on three core pillars first our 100 square accounts.
Speaker Change: One of the greatest asset is our 100 square customer base under distribution network, we have built over time.
Speaker Change: Throughout our history, we have consistently added new studios and practices, such as digital enterprise and got Creative Studios.
Speaker Change: Innovative services to distribute across a set of clients who value us for pushing boundaries and delivering full I think installations. We continue to deepen these relationships with these strategic clients aiming to unlock new opportunities and deliver transformative value across their business units second.
Speaker Change: Second our AI studios.
Speaker Change: They are purpose built to lead comprehensive AI transformation programs for each industry. We serve their mission is to help clients realize the full potential of AI conducting in depth assessment across all business areas identifying use cases processes and efficiencies and emerging.
Speaker Change: Fortunately for intelligent automation from this foundation, our EA studios design and implement scalable AI power solutions that target the most impactful workflows and business outcomes.
Speaker Change: It's intuitive specific structure approach is supported by our deep technical expertise and our enterprise AI platforms, enabling the orchestration of intelligent agent that deliver measurable innovation and lasting value to our clients and finally, the glow on subscription model. This model we might.
Speaker Change: Jeans, how we deliver engineering creativity and automation services by introducing a consumption based subscription framework clients subscribed to AI powered capacity through AI parts, which are dedicated delivery units that combine the power of autonomous AI agent powered by global Enterprise AI with.
Speaker Change: Orchestration and oversight from our experts delivery is limited in tokens, representing the complexity and volume of work performed client can expand their usage traditional bulk subscriptions offering a clear scalable path to increase value overtime. This consumption based model.
Speaker Change: Lines incentives around outcomes not ours.
Speaker Change: It offers a flexible and transparent way to collaborate with our clients, while complementing our traditional delivery models.
Speaker Change: This transformation will integrate directly into our existing client relationship teams.
Speaker Change: Built on the strong relationship we have established with our network of incredible clients and Edward built on trust long term collaboration and share appreciation for innovation, what <unk> has already adopted this model JM family and other enterprise clients are exploring need is well demonstrated.
Speaker Change: Early traction and trust in this new way of engaging with Globus.
Speaker Change: The glow on subscription model was born from our deep understanding that many organizations have struggled to make the savings and efficiencies generated by AI tangible.
Speaker Change: While the potential of AI is clear converting these promise into concrete business outcomes remains elusive for most enterprises.
Speaker Change: Our model addresses this challenge directly delivering measurable results through defined output traceable token usage and integrated performance monitoring, making AIG value be civil actionable and aligned with strategic goals, while we expand our commercial models also want to reaffirm.
Speaker Change: The importance of our traditional delivery methods fixed price on tomo material contracts remain the predominant form of engagement with our clients. Many organizations will continue to prefer these models and we are fully equipped with the right talent proven methodologies and robust value framework to deliver excellence through them as we have been.
Speaker Change: Doing during the last 22 years this quarter within global Enterprise AI Winter These global and called out.
Speaker Change: A powerful agent driven suite.
Speaker Change: It brings together, our most advanced AI agents and platforms into a single cohesive solution that simplifies and accelerates the entire software development lifecycle weeks ago globally called Fixer AI agent achieved the highest score on the S. W. E bench multimodal benchmark a prestige is data set.
Speaker Change: For elevating AI systems on digital software engineering tasks.
Speaker Change: In this context, our ability to evolve becomes our competitive advantage, our new AI powered subscription model is helping us to create more scalable predictable and adaptive partnerships with clients, enabling continues delivering of engineering creativity and business process automation through our AI.
Speaker Change: I pod and enterprise AI platforms. During this quarter, we closed several strategic deals that reflect the creative application of our technology solutions in the Middle East, We announced a new invention partnership with the Saudi probably implementing our competition management solution with a new plan.
Speaker Change: Form future SPL seasons will be managed through a digital ecosystem.
Speaker Change: This will be powered by AI and data analysis to speed up manual tasks and a low competition start to focus on innovation in the United Kingdom. We have reached a major milestone for our partnership with Formula One we recently launched the new team content delivery system at the Australian Graham.
Speaker Change: Three in 2025. This innovative technology solution is designed to enhance the competitive experience for race teams by providing engineers and Tim principles with real time and archived video and data analysis. We're also partnered with the AIB on their Taylor up Taylor is especially strong.
Speaker Change: Section processing application in AIB, Northern island branches integrated with Aib's core system to support efficient transaction management. The bank undertook a significant upgrade on the application to further enhance performance and resilience.
Speaker Change: We accelerated the development using global enterprise AI to ensure delivery in a record time of eight months in Argentina, We recently announced a reinvention partnership with White P. F. The continent third largest oil and gas company, we will improve their supply chain management with agenda, AI and we will create an.
Speaker Change: Weighted operating model that will continuously learn and evolve it would make complex decisions to experts supervised algorithms and ensure compliance with the company's internal policies and standards across their extensive supply chain network of approximately 5000 suppliers go into effort.
Speaker Change: Next with Y P S vision to enhance operational efficiency across all areas and position the company as a global competitive play of generating 30 billion in exports.
Speaker Change: By 2030.
Speaker Change: Our creative got network continues to produce outstanding work for top brands globally, including Corona for its 100 anniversary, Mexico food panned out with a new affordability campaign across six Asia market.
Lee: Hello, Lee with ongoing expansion.
Lee: Our global partnerships also continued to evolve in recent months, we received multiple recognitions from Google Amazon Web services, and Adobe, reflecting the strong focus in developing these strategic relationships as a founder and CEO I'm deeply committed to our reinvention vision.
Lee: We remain focused on delivering high value solutions that reflect both human ingenuity and technological excellence, we will continue to evolve our core strengths and business models, while pursuing long term value creation.
Lee: Thank you very much.
Speaker Change: Hello in the first quarter, we continued to navigate a fluid global context revenues reached $611 $1 million.
Speaker Change: This represents a 7% increase year over year and eight 6% in constant currency.
Speaker Change: Figure slightly below our February guidance. This performance was influenced by the challenging macroeconomic and geopolitical context, which has affected spending patterns. Among some of our largest customers, particularly in Latam the market deteriorated towards the end of February as a result.
Speaker Change: Of the tariff discussions still three of our four regional business units.
Speaker Change: Solid growth.
Speaker Change: If America, increasing top line, 6% year over year.
Speaker Change: Europe 13, 4% year over year, a new markets continuing to scale is exponentially.
Speaker Change: Hosting an 84, 4% year over year growth.
Speaker Change: However, we saw a challenging performance in Latam, which was down close to 9% year over year with notable contractions in Mexico, and Brazil, which were partially offset by a strong growth in Argentina from a vertical perspective, we saw year over year growth across most of our verticals.
Speaker Change: However, we experienced some delays in project ramps specifically in some large accounts in tariff impacted industries, such as airlines pharma and high Tech.
Speaker Change: Our revenue per <unk> increased by two 8% year over year, and two 3% quarter over quarter in the first quarter of 2025, reflecting the value and efficiency we deliver.
Speaker Change: There are related to remain disciplined in pricing turning toward margin trends, our adjusted gross margin for the quarter stood at 38% flat on a year over year, very Sis, reflecting our premium positioning geographic diversification and improving service sneaks or adjusted operating margin for the quarter.
Speaker Change: <unk> was 14, 8% while this metric fell short of our expectations. This was mainly driven by our lower than expected revenues. Our adjusted net income for the first quarter of 2025 was $67 $8 million translating into an adjusted diluted EPS of $1 <unk>.
Speaker Change: 50 cents for the quarter almost flat on a year over year basis.
Speaker Change: Turning to our balance sheet as of the first quarter of 2025, our cash and cash equivalents and short term investments stood at $122 million and our net debt was $167 million translating into healthy low net debt ratio, reflecting our prudent.
Speaker Change: Balance sheet management, and providing us with substantial financial flexibility and liquidity.
Speaker Change: Regarding free cash flow, we consumed $5 $7 million in the first quarter in line with prior years looking ahead, considering the impact of our customers of the macroeconomic uncertainty some tariffs and given our exposure to read read to see customers, which affects her where visibility we have in there.
Speaker Change: Taking a thorough review of our forecast with the goal of Derisking, our estimates to the extent possible based on this we're introducing our second quarter of 2025 guidance of at least $612 million in revenues.
Speaker Change: Or four 2% year over year growth. These expected growth includes a neutral FX impact.
Speaker Change: For the full year 2025, we are revising our revenue guidance of at least $2.464 billion, which represents 2% year over year growth, which translates into a similar figure in constant currency terms in terms of profitability, we are targeting in <unk>.
Speaker Change: Adjusted operating margin of at least 15% both for the second quarter of 2025, and the full year 2025.
Speaker Change: The effective income tax rate is expected to be in the 20% to 22% range for both the second quarter and the full year 2025 for adjusted diluted EPS, we forecast at least $1.52 for Q2, assuming an average of $45 7 million.
Speaker Change: These shares.
Speaker Change: Funding during the second quarter and at least $6.10 for the full year 2025, assuming an average of $45 8 million diluted shares outstanding during 2025, we have taken clear and decisive steps to maximize or financial health and navigate the current.
Speaker Change: Environment effectively.
Speaker Change: Short term focus for the remainder of the year will be on driving growth through strategic investments.
Speaker Change: AI industries two years on our hundred square accounts, while focusing at the same time on protecting our margins and cash flow with respect to margins. The main areas of focus are.
Speaker Change: Optimizing utilization, which stood at 78, 2% in Q1 2025 compared to $79 three in both previous quarter in Q1 2024 D.
Speaker Change: Disciplined pricing strategies.
Speaker Change: Strategic geographic mix of our talent and revenues food.
Speaker Change: Footprint optimization and infrastructure streamlining our ongoing particularly through the integration of recently acquired companies.
Speaker Change: SG&A investment will be sharply focused on bolstering our silicon probabilities and go to market initiatives, while concurrently maintaining a lean overall structure as of Q1 2025, adjusted SG&A as a percentage of sales stood at 18, 3% and we target. This.
Speaker Change: Metric to trend downwards by the end of the year as our topline expanse with regards to our cash generation. We are actively working to improve this critical metric through several initiatives. This include <unk>.
Speaker Change: Extending supplier payment terms wherever possible.
Speaker Change: Target is a reduction in our DSO and implementing a significant reduction in our capital expenditures with a clear prioritization towards investments in artificial intelligence.
Speaker Change: Prudent M&A activity to ensure accretive transactions in a fluid market.
Speaker Change: However, as discussed by Martin, who will remain bullish in our technology bits and will continue to execute decisively on our long term strategic goals. This balanced approach is of utmost importance to us.
Speaker Change: You for your continued support so you shortly or the Q&A session.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you Juan and hi, everyone. So as we go through the Q&A section of this call I will first announced her name at this point. Please limit your line and then ask your question then.
Speaker Change: Then please mute your line up for your questions then I would also like to.
Speaker Change: Ask for you to please limit yourself to one question and one follow up.
Speaker Change: So with that in mind, and we will take our first first question from the line of Tianjin Wong from Jpmorgan.
Speaker Change: Please go ahead your line is open.
Tianjin Wong: Okay. Thank you.
Speaker Change: Just want to.
Tianjin Wong: The.
Speaker Change: Environment has been challenging for a lot of the companies here I'm just curious how how quickly do you think you can.
Tianjin Wong: Recover.
Tianjin Wong: Some of the the demand our spend specifically in Latin America, just to start with that because it sounds like that's where a lot of the.
Tianjin Wong: Change.
Tianjin Wong: Emerged.
Tianjin Wong: And doing to Reenergize growth there have you seen some of that work get canceled.
Tianjin Wong: Are these just delays I'm just trying to get a better understanding of how that might shape up here in the short term.
Tianjin Wong: In the midterm, starting with like than in any other areas that were a little troubled. Thank you.
Speaker Change: Hey, Tien Tsin, how are you. Thank you very much for the question.
Tianjin Wong: Hmm.
Tianjin Wong: Listen I believe that I mean.
Tianjin Wong: The piece of information inside what we said.
Tianjin Wong: Oh.
Tianjin Wong: My initial opening.
Tianjin Wong: That was the size of the pipeline.
Tianjin Wong: And surprisingly the type of the pipeline is 20% higher than in the same period last year.
Tianjin Wong: And even higher than that in Q4.
Tianjin Wong: So that that's a pretty good sign off.
Tianjin Wong: Oh, how things are evolving I think that more.
Tianjin Wong: Many of the deals are just being delayed.
Tianjin Wong: Mexico, South Korea, and Brazil is suffering.
Tianjin Wong: And.
Tianjin Wong: There's a lot of uncertainty and decision Seth just being pushed out.
Tianjin Wong: That.
Tianjin Wong: That that started.
Tianjin Wong: A week later.
Tianjin Wong: Then our February earnings call and.
And evolve into this.
Tianjin Wong: This quarter that we're reporting now and we want to be.
Tianjin Wong: Very sensible about that that information a theme that we're seeing.
Tianjin Wong: And adjustment for the full for the full year.
Tianjin Wong: I see.
Tianjin Wong: Our BD.
Tianjin Wong: Good probability for Q2 and not seen major major struggles.
Tianjin Wong: Of course unless something.
Tianjin Wong: New news on the <unk>.
Market, which I don't think is the case.
Tianjin Wong: But.
Tianjin Wong: I see that number quite solid right now.
Tianjin Wong: And the full year two.
Tianjin Wong: So.
Tianjin Wong: Recovery in Latin America, it's already happening.
Tianjin Wong: I mentioned some of the deals.
Tianjin Wong: Pushing us forward.
Tianjin Wong: Some of that recovery is coming from Argentina, some of that recoveries coming from Chile, and some other geographies.
Tianjin Wong: Mexico is also improving slowly is not being seen in the numbers of Q1, but we're seeing it a little bit better.
Tianjin Wong: So with all that I think we're going to have like.
Tianjin Wong: Record quarter like with described in Q2.
Tianjin Wong: But.
Tianjin Wong: Unfortunately, the whole year.
Tianjin Wong: Costs.
Tianjin Wong: Lower than what we expected at the very beginning of the year. There are no quantified wants to add something to that.
Tianjin Wong: So basically you know when you look at the Q2 number.
Tianjin Wong: Just slightly above where we ended Q1.
Tianjin Wong: The idea is that we're trying to put out.
Tianjin Wong: Our guidance for the year.
Tianjin Wong: If you do the math, it's basically.
Tianjin Wong: Very similar second half relating to the first half we're trying to be.
Tianjin Wong: Sensitive enough.
Speaker Change: That the.
Tianjin Wong: The rest of them.
Tianjin Wong: The rest of the way I look at least.
Tianjin Wong: Where we are today.
Tianjin Wong: We don't see further deterioration when you look at the second board member we see.
Tianjin Wong: It's a.
Tianjin Wong: It's quite solid at this point.
Tianjin Wong: So that seems to be kind of a.
Tianjin Wong: Lower.
Tianjin Wong: And basically on a bottom for the year on the pipeline that Martin is describing.
Tianjin Wong: Is would somehow gives us some comfort.
Tianjin Wong: Hopefully.
Tianjin Wong: A better second half, which is not embedded in the numbers that were provided but we're providing because we don't want to go through a through another conclusion, where you know the uncertainty doesn't allow us to.
Tianjin Wong: Without the numbers that we want so that the business is there. The pipeline is there we are trying to put numbers in a place where we feel comfort zone.
Tianjin Wong: And we are confident we're going to be able to meet at least $612 million.
Tianjin Wong: Second quarter, yes.
Tianjin Wong: Like to reiterate it is in the eye.
Tianjin Wong: The amount of opportunities the quality of the opportunities.
Tianjin Wong:
Tianjin Wong: I think it is outstanding and the things that are happening in the market with the technology is outstanding so the.
Tianjin Wong: Two people are saying, okay, let's put this on hold it so that our whole in many different industries I would say that.
Tianjin Wong: Financial services.
Tianjin Wong: Was the least affected.
Tianjin Wong: But then all the rest of it.
Tianjin Wong: Of the of the lines.
Tianjin Wong: We're kind of.
Tianjin Wong: Okay.
Tianjin Wong: In tough environments right, but the long term the long term again, the long term for the business I think is outstanding the amount of opportunities are racing.
Tianjin Wong: While in the opportunities are racing to so so I'm very positive about the future.
Tianjin Wong: Okay.
Tianjin Wong: Okay.
Tianjin Wong: No.
Tianjin Wong: Unusual for Bob.
Tianjin Wong: <unk>.
Tianjin Wong: Okay.
Tianjin Wong: Yes.
Tianjin Wong: But I'm just curious.
Tianjin Wong: You bet.
Sure.
Tianjin Wong: And then bill a few.
Tianjin Wong: Continued for whatever reason do you have levers to pull to protect them.
Tianjin Wong: Martin.
Martin: The profit.
Tianjin Wong: Burden so far.
Tianjin Wong: February.
Tianjin Wong: We brits before.
Tianjin Wong: Yes, I guess the language deliberate.
Tianjin Wong: Tobey, but I think you asked about protecting margins and profitability is divisions and theories.
Tianjin Wong: As we discussed in my in my remarks, we have already taken a number of measures to protect those margins to protect operating margin as well.
Tianjin Wong: To meet the EPS guidance.
Tianjin Wong: We feel that those measures are in place to be at least four or what do we see the business today they are enough, but definitely if we see.
Tianjin Wong: Another change in the market.
Tianjin Wong: We have to take further.
Tianjin Wong: External measures to protect profitability I mean, we.
Tianjin Wong: Definitely believe that.
Tianjin Wong: The growth is okay, but it's also important and profitability and predict margins. That's why we mentioned specifically a number of things that we're doing.
Tianjin Wong: Also on the cash flow front right. We are trying to take measures in every front.
Tianjin Wong: Until we see an.
Tianjin Wong: Our next generation litho play.
Tianjin Wong: Yes high priority initiatives all of them.
Tianjin Wong: Thank you.
Tianjin Wong: Thank you <unk>.
Tianjin Wong: Yeah.
Tianjin Wong: I think extension.
Speaker Change: The next question comes from the line of Jim Schneider from Goldman Sachs. Jim. Please go ahead. Your line is open.
Jim Schneider: Good afternoon, and thanks for taking my question.
Jim Schneider: First of all I was wondering if you could maybe frame for us.
Jim Schneider: Sort of the backlog that you see not the pipeline, but the backlog of signed contracts and maybe your coverage level of backlog relative to the revenue guidance at.
Jim Schneider: At this point in time, maybe comparing that versus what you would've seen in Q1 of last year.
Jim Schneider: Maybe just first start.
Jim Schneider: It also.
Thank you for the question for the second quarter, I think that the level of comfort and flexibility.
Jim Schneider: Fair enough.
Jim Schneider: We will be trying to to make sure that the number that was provided is at least the number that we're targeting we're trying to meet.
Jim Schneider: For sure there is more uncertainty for the second half of the year. That's why when you look at our second half implied guidance. It's basically somehow following the kind of numbers with just a small improvement in Q3, So I think that the way we build the current forecast.
Jim Schneider: It includes the or have embedded the current visibility which of course is a little bit lower than prior years. That's why we did have to adjust our full year guidance.
Speaker Change: Thank you and then maybe as a follow up could you talk about maybe parts of the U S business outside of the Latam, which is clearly.
Speaker Change: By tariffs what parts of the business there slowed was it confined to one or two.
Speaker Change: Geographies, whether it would be.
Speaker Change: Airlines or something else, maybe just talk about the profile of the U S business. Please.
Speaker Change: Yeah.
Speaker Change: It was pretty much all over the place.
Speaker Change: <unk>.
Speaker Change: Entertainment.
Speaker Change: Well, it's performing.
Speaker Change: A little bit lower.
Speaker Change: Hi Tech it was like lowest.
Speaker Change: Health care also take and took some deep although we're seeing it recovering much better now.
Speaker Change: Travel and hospitality has gone down.
Speaker Change: It's interesting because.
Speaker Change: In professional services.
Speaker Change: And in financial services, where kind of the most even performances, but then all the rest.
Speaker Change: That is related to consumer.
Speaker Change: God and took and took a big hit.
Speaker Change: So it's a pretty obvious it's pretty obvious to us that that is something something much larger than <unk>.
Speaker Change: One one specific sector heating the thing I think the fact that the fact that we are a company that.
Speaker Change: Of course, we have a wide array of services, but a big part of what we do is still.
Speaker Change: On the on the growth.
Speaker Change: Size right.
Speaker Change: We have a lot of it we do see customers with consumers that somehow are being impacted.
Speaker Change: Despite the uncertainty of what's going to be like in the U S going forward.
Speaker Change: And those are the industries that initially at least many of our customers.
Speaker Change: Put some kind of a break on certain projects that happens and as Martin was saying is that is the automotive.
Speaker Change: No.
Speaker Change: Some of the technology customers and we have some of the retailers so mostly you'll see that concentrated.
Speaker Change: Consumer facing customers.
Speaker Change: Thank you.
Speaker Change: Thank you Tim Thank you Jean.
Speaker Change: Thank you Jim Our next question comes from the line of Ryan Bergan from TD Cohen, Brian Your line is open.
Speaker Change: Hey, guys. Thanks for taking the questions.
Speaker Change: I wanted to ask about your top 10 clients can you dig in a little bit further on what you saw specifically in some of those accounts and how you are thinking about those accounts now and <unk> in the second half. So obviously Disney and then potentially middle eastern clients than any other ones. You think are important to call out.
Speaker Change: In general I mean.
Speaker Change: If you look at the performance on a sequential basis.
Speaker Change: Pretty much.
Speaker Change: Most groups performed in a similar fashion.
Speaker Change: However.
Speaker Change: Already into getting into Q2, we see.
Speaker Change: Realization.
Speaker Change: That's why the expected number is slightly up.
Speaker Change: The Q1 number.
Speaker Change: We have not seen.
Speaker Change: I mean, probably the ones that have more consumer.
Speaker Change: Exposure.
Speaker Change: Suffered a little bit more but.
Speaker Change: In general already into Q2, we see more sterilization clear.
Speaker Change: Clearly new markets.
Speaker Change: We'll continue to perform with very high year over year growth and we're going to see sequential growth there as well.
Speaker Change: At this point, we're also seeing.
Speaker Change: Positive numbers in Europe positive numbers in the U S. Maybe the one region that will stay behind will continue to be Latin America.
Speaker Change: During the second quarter.
Speaker Change: Okay. Okay.
Speaker Change: Are you managing kind of the employee base here in the Resourcing plans as you go forward can you talk about your intentions here as you move through the balance of there.
Speaker Change: Yeah, I think that this is the same I mean, we have been globalizing our delivery footprint in the last 10 years.
Speaker Change: When we did the IPO, Argentina was 70% of our employees today, we have a very balanced.
Speaker Change: Our portfolio of countries from where we serve.
Speaker Change: In Argentina, Colombia, Colombia, Argentina, the three main locations.
Speaker Change: That will continue to be the case.
Speaker Change: We are not I mean, we will continue to be a diversified.
And even our footprint as we're today that's going to continue of course, we will prioritize you know what.
Speaker Change: Demand is growing.
Speaker Change: We have always done but in general overall strategy doesn't change, having a global delivery footprint to serve more of the low end customers as you can see today.
Speaker Change: You will see something around 55% of revenues Europe is getting very close to becoming the circuit the second largest.
Speaker Change: Revenue.
Speaker Change: Generation area, and we have seen a very nice uptick in the share of new markets. So we are building a global footprint for a global.
Speaker Change: Revenue company.
Speaker Change: Perfect.
Speaker Change: Right right. Okay. Thank you. Thank you Brian Thank you Brian.
Speaker Change: The next question comes from the lines of Jamie Friedman from Susquehanna Jamie. Please go ahead.
Jamie Friedman: Hi, Thanks for taking my question.
Speaker Change: You know I was.
Speaker Change: Wondering if you could comment on the competitive position of the company.
Speaker Change: Apropos of application development.
Speaker Change: Versus.
Speaker Change: Infrastructure.
Speaker Change: Is it.
Speaker Change: Is it difficult to compete.
Speaker Change: Purely as a great application development provider, yet, having less mind share in infrastructure in this environment.
Speaker Change: So it's interesting I mean first I think it's interesting to go through our revenue per head right. When you see.
Speaker Change: The revenue per head still growing it's a measure of that we are.
Speaker Change: Adding more value to our customer customers in seeking deals that are you know.
Speaker Change: A lot of value added for our customers.
Speaker Change: On the enterprise side and the cloud migration studios, sorry, the cloud cloud ops studio that we have is performing very well and we have very deep expertise there at pretty much everything we do is going into into.
Speaker Change: Into cloud into into infrastructure side.
Speaker Change: I think that bleed all the AI projects that are happening that that area that specific area is gaining a lot of momentum.
And I believe that.
Speaker Change: In essence.
Speaker Change: Every day becomes more and more.
Speaker Change: The AI landscape becomes more and more complex every day as more and more difficult to create something only thinking on cloud are only thing.
Speaker Change: You need everything together and.
Speaker Change: And this is where we're going I mean global became with time and much more balanced company in terms of our studios.
Speaker Change: We're playing on the on the digital side. We're also playing on the enterprise side with a good portion of our business and we're also playing in there now on the creative side. So the three components are very important components of pretty much any solution that you build today.
Speaker Change: So.
Speaker Change: I think that if you.
Speaker Change: Only focus on one of them.
Speaker Change: It will be difficult, but as we are very balanced between the three of them.
Speaker Change: I think that we're in a pretty good position to to create much better solutions for our customers through our AI Studios.
Speaker Change: Our now our subscription model.
Speaker Change: The way to change how companies.
Speaker Change: Combined these kind of services in some way, we're simplifying the access to technology to companies and this is extremely important.
Speaker Change: At option that we're providing now to our customers that is being very well accepted and it's very good.
Speaker Change: <unk>.
Speaker Change: And important conversations tariff for many of our customers and.
Speaker Change: And again.
Speaker Change: The most important asset we have built are all those customers with whom we have a very good relationship that they value us for how we can innovate for how we can implement many of the latest technologies to them. So I believe that every day more and that's a testament.
Speaker Change: How we have been doing things is about having a balanced approach to technology, because it's not just about having one of those things.
Speaker Change: That's a great those are great points in terms of the increase in the revenue per head. That's very interesting do you see that more as the revenue realization related to.
Speaker Change: Automation or theres, a reduced linearity.
Speaker Change: What any context, you could give us about the revenue per head would be helpful.
Jimmy: Jimmy there is a little bit.
Speaker Change: Everything a little bit of higher value added services.
Speaker Change: We drove an improvement in how we deliver some of our services.
Speaker Change: There is also.
Speaker Change: A higher share.
Europe, and new markets would come at a higher.
Speaker Change: Revenue per shares in Latin America. So you have different factors and also there is a lot of.
Speaker Change: Careful in terms of managing our pricing I mean, there is today a lot of deals.
Speaker Change: No we're not.
Speaker Change: Good enough in our view.
Speaker Change: We are also trying to protect.
Speaker Change: Our marching through probably in <unk>.
Speaker Change: No.
Speaker Change: I would agree on pricing.
Speaker Change: So a lot of deals out there.
Speaker Change: We could get a very low pricing low margins or negative margins.
Speaker Change: To put everything in balance.
Speaker Change: And that's why you are seeing.
Speaker Change: Our revenue per head going up sequentially and year over year, yes.
Speaker Change: And some of our competitors are chasing those deals in which.
Speaker Change: You need to pay to get them and then.
Speaker Change: Get some kind of deal in exchange of that but we are totally aware of that say listen we don't want to enter into into a deal in which we need to.
Speaker Change: Offer any kind of advantage.
Speaker Change: Or maybe I would say in those easing.
Speaker Change: We don't like.
Speaker Change: The profit that we're making.
Speaker Change: I'm, making a profit we will walk away and we have been extremely selective on those deals and.
Speaker Change: Yeah.
Speaker Change: By revenue today is like a pretty pretty common standard in many locations and we don't legacies.
Speaker Change: Perfect. Thank you so much.
Speaker Change: You very much thank you.
Jamie Friedman: Thank you Jamie our next question comes from the line of Maggie Nolan from William Blair.
Speaker Change: Please go ahead.
Maggie Nolan: Hi, Thank you.
Speaker Change: And I'm curious if your margins are different on the Latin American revenue compared to the rest of the business.
Maggie Nolan: And how may be softness in Latin America.
Maggie Nolan: It's flowing through the margins and impacting the financials right now.
Maggie Nolan: Okay.
Maggie Nolan: Not necessarily I mean margins are.
Maggie Nolan: I would say they look very different in the different regions.
Maggie Nolan: You can see a lot of this person there.
Maggie Nolan:
Maggie Nolan: I think what is relevant is that we need to remain sensitive.
Maggie Nolan: In terms of how we price it is in terms of looking at the right margin for the deals.
Maggie Nolan: Hum.
Maggie Nolan: <unk> I think at the end of it.
Maggie Nolan: It's very easy sometimes to forget deal for lower prices will discuss these many times you know taking present zone is very easy picking them up again is very hard. So it's always a balance of course, we don't like to lose deals and we're trying to win as many deals as we can.
Maggie Nolan: But that has to kind of leave it at some point.
Maggie Nolan:
Maggie Nolan: I don't know.
Maggie Nolan: So I think Maggie.
Maggie Nolan: Are you.
Maggie Nolan: I think that.
Maggie Nolan: A good customer with good margin. It's also a signal of the health of that relationship right.
Maggie Nolan: <unk>.
Maggie Nolan: We always preferred to pursue.
Maggie Nolan: LC relationships and to and to put that in front of everything and.
Maggie Nolan: So so for us.
Maggie Nolan: Latin America already in the U S should be healthy anyway. So they have a pretty centralized way of understanding margins in understanding how we want to close the deals and thats something that we tried to across to spread across all the places.
Maggie Nolan: So I don't know if that answer your question.
Speaker Change: Yes. That's helpful. Thank you and then on the new commercial models, how much traction are you getting there is there anything that you can quantify maybe as a percentage or a part of your AI revenue and then as your goal to have this become a material percentage of revenue over time.
Maggie Nolan: So so.
Maggie Nolan: Revenue is growing a lot I mean, it's something that that is sort of pricing of the way and the amount of deals.
Maggie Nolan: Interesting to see that that growth is connected to the complexity of the market. So as it becomes more and more complex and companies wants to implement that and again.
Maggie Nolan: I said this many times.
Maggie Nolan: AI projects are very good for for media for social media and.
Maggie Nolan: Our AC if you want to do a demo or do it in social media, but then when you want to take it to enterprise levels is a totally different is a totally different game. So that's a lot of you know.
Maggie Nolan: Activity around that pretty much is involved in every single project I mean thats not a single project that we are pitching today that has definitely had a component even even in those <unk>.
Maggie Nolan: Very old customers all of them are getting some kind of flavor and components around that now our latest model our latest subscription model. What it does is provides our customers with a way of changing that engagement that we have had for the last 22 years into evolved new mode.
Maggie Nolan: No.
Speaker Change: I will let Dr <unk>.
Maggie Nolan: And with more about that but I think that.
Maggie Nolan: Having this new conversation is triggering a lot of interest a lot of early interest for our customers, we're really close.
Maggie Nolan: Many deals around that we are not disclosing any any numbers is not substantial yet my plan moving forward is that at some point and we will start this dosing it as it gains momentum and.
Maggie Nolan: And I would call that this is something that will.
Maggie Nolan: We'll be leaving again right is like when you subscribe to any subscription that you may imagine now you can subscribe to go in and get the engineering that you need the creativity that you need the personnel donation that you need and pay for consumption instead of just paying for the hour only paying with a monthly with a monthly fee. So.
Maggie Nolan: This is a pretty good evolutionary approach.
Speaker Change: Haven't seen any of our competitors doing it.
Speaker Change: We're extremely proud that we crack that nut and as I said in my remarks.
Speaker Change: When you.
Speaker Change: Yeah.
Speaker Change: AI efficiencies has been a little bit elusive.
Speaker Change: To become tangible.
Speaker Change: With this model we are doing is we're providing our customers an effective way to make those savings real.
Speaker Change: So whenever you have a team of five engineer.
Speaker Change: Engineers, the carnage that way now you may have a subscription.
Speaker Change: That is much cheaper than those five engineers, but on the back there's a set of.
Speaker Change: The set of agents.
Speaker Change: Using the software supervised.
Speaker Change: By a human data allow that the quality and the output doesn't have a destination or is the same global quality as always so that produce a much better alignment of interest between our customers and us and therefore this is something that we're looking for which is more and more conversations around that new model in that.
Speaker Change: <unk> new way of doing things.
Speaker Change: If you want to add no I think I think by.
Speaker Change: To put it.
Speaker Change: Super simple leases he has been a discussion we've been having.
Speaker Change: About the future of the company and how we provide value for a long long time I think.
Speaker Change: Time and people have been a good proxy of the value we deliver.
Speaker Change: To our clients and that is no longer the case.
Speaker Change: So our immediate therefore approach was.
Speaker Change: Let's engage in a different way one would think like immediately.
Speaker Change: The best way and approach has to do with the.
Speaker Change: Turkey solution are fixed price and truth be told is that we do like those type of contracts, but let me tell you why.
Speaker Change: Those havent and don't speak about our relationship those have offset mandate and the relationship you have with your client mix change which is evolving.
Speaker Change: Evolving product discovery et cetera.
Speaker Change: Case, you don't want and that's not the type of relationship with them. So we.
Speaker Change: We study exploring a new way of doing things.
Speaker Change: And I think move on a subscription model pretty much represent that lets a.
Speaker Change: The value we are delivering in a different way that's measure that let's make sure. We continue to provide a value and efficiencies and quality. The way globally has been doing but taking advantage of the latest technology and all they can do let's take that to the limit and that's why we have put together.
Speaker Change: Very interesting thank you all.
Speaker Change: Thank you Mike.
Speaker Change: Okay.
Speaker Change: The next question comes from the line of Jonathan <unk> from Guggenheim Jonathan. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Great. Thanks for taking my question, how should we be thinking about the revised growth outlook as it relates to composition between ongoing ramps versus hunting versus farming and how does that compare to competition from prior years.
Speaker Change: So when you look at the full year number to vary Jonathan when you look at Q1 and you look at the Q2 guidance.
Speaker Change: It's basically pretty much maintaining the same level of revenues for this for the rest of the year. So.
Speaker Change: The way we are building up.
Speaker Change: With a majority of that already contracted.
Speaker Change: And we tried to on purpose to reduce.
Speaker Change: As much as possible.
Speaker Change: Any potential upside coming from coming or even from taking more risk on the funding side. So.
Speaker Change: We tried to put out a number that we feel.
Speaker Change: It is the risk to the extent possible.
Speaker Change: Of course are following.
Speaker Change: Things can change, but we've put a lot of effort into trying to put a number.
It has a higher degree of certainty.
Speaker Change: Once.
Speaker Change: Or maybe a lower risk than the one we would have taken at the moment given the uncertainty that we're seeing given that we weren't expecting a better Q1.
Speaker Change: It ended up being weren't expecting a recovery already into Q2 that is not.
Speaker Change: <unk>.
Speaker Change: It's pretty much stable.
Speaker Change: And we've tried to say okay. This is not something else.
Speaker Change: Stepping back in February.
Speaker Change: Somehow I assume that this uncertainty that we're seeing continues throughout the rest of the year and let's try to put a number.
Speaker Change: That removes most of that uncertainty.
Speaker Change: To the extent possible.
Thanks for that color, one and just as a follow up can you update us on what you're seeing at your top customer understand there was some pull forward late last year, but is there still an expectation for that account to be up call. It mid to high single digits. This year.
Speaker Change: At this point, we're seeing that.
Speaker Change: That account.
Speaker Change: In.
Speaker Change: Finishing around.
Speaker Change: The mid single digit number given that.
Speaker Change: They started a little bit below where.
Speaker Change: We were planning before I'm looking already into the second quarter. So we feel that it will be more in line with our mid single digit type of.
Speaker Change: Year over year growth at this point, we're ready to go when the process of having some conversations.
Speaker Change: While some new things that I think have recently mentioned on the press or that is something thats going to take some more time to materialize.
Speaker Change: Understood. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you Joanna.
Speaker Change: We cannot hear you.
Speaker Change: Sorry, excuse me. The next question comes from the line of Sean Kennedy from Mizuho Shawn. Please go ahead.
Sean Kennedy: Hi, Thanks for taking my question. So I was wondering about the demand environment for professional services. It seems like it recovered.
Sean Kennedy: But this quarter sequentially and has your outlook changed significantly over the last few months with those pressure pressuring the sector broadly.
Sean Kennedy: So.
Sean Kennedy: Part of the recovery comes from.
Sean Kennedy: During Q4, typically fall off in that sector.
Sean Kennedy: Those are not in.
Sean Kennedy: In Q1, they basically barely company December harpoon recoveries, there and we see a stable.
Sean Kennedy: In a stable number for that is we were not seen.
Sean Kennedy: Big changes, neither positive nor negative so which one of these things we're going to see better numbers in other industries like life via facade, we are going to see better numbers.
Sean Kennedy: Travel and hospitality, where I want us even some numbers in terms of care for example.
Sean Kennedy: Great. Thanks, and then for Latin America, Latin America, specifically.
Sean Kennedy: Are there I thought you I thought robot was overweight financial services are there is.
Sean Kennedy: Is it kind of just a broad pullback in in demand environment or is it really focused on a few key sectors down there.
Sean Kennedy: It's mostly focus on countries done among sectors.
Sean Kennedy: Argentina is doing extremely well.
Sean Kennedy: Showing very very solid growth, but those gains offset by some of our customers in Brazil and Mexico.
Sean Kennedy: In Mexico, that's mainly deemphasize, but when you look at VF inside as a whole we are having good traction with the unions and we're having good traction in Europe. So it's not it's not a sector as a whole will look bad internationally.
Sean Kennedy: Even with the issues in some of our customers in Latin America.
Speaker Change: Great. Thank you I appreciate the color. Thank you. Thank you.
Speaker Change: Thank you Sean and the next question comes from the line of DVA go Young from Scotiabank. Please go ahead.
Speaker Change: Good afternoon, everyone I just wanted to get some color on the capital positioning of the company with.
Speaker Change: Current macro dynamics, if you could provide how have some of the capital priorities change and what are some of the imminent measures you are taking or have taken in order to ensure you meet the profitability guidelines that you've put forth.
Speaker Change: Thank you for the question I think first of all to sort of cut.
Speaker Change: Capital right protection.
Speaker Change: Our cash flow generation I'm, alright, the second quarter with solid margins, but yeah. Okay. So.
Speaker Change: When does that capital positioning of the company sorry, yeah. The capital position. Okay. So we closed the quarter with about $155 million in net debt and we shall about oh from a facility, which is up to $725 million.
Speaker Change: You have to give you mine that blow unusually.
Speaker Change: Consume cash in the first half of the year and generates a lot of cash in the second half of the year.
Speaker Change: Having said that.
Speaker Change: The plan as I mentioned in my initial remarks is to protect and actually generate more cash we have taken measures to make our capex investments lower for the year and prioritize those areas.
Speaker Change: Related to our <unk> investments are.
Speaker Change: At the expense of some of maybe.
Speaker Change: Certainly if we see some things that we weren't able to to postpone for the future. So we will be protecting cash flow generation as I mentioned cutting or reducing our need to make our.
Speaker Change: The timing of our Capex investments extending DSO payment payment terms whenever possible.
Speaker Change: Some of our vendors and at the same time, we're working very hard to reuse the DSO.
Speaker Change: Also and also on the M&A side on.
Speaker Change: On the M&A side, where we are.
Speaker Change: <unk> will be much more.
Speaker Change: Focus on really adding value.
Speaker Change: And in generating deals that are accretive for the company.
Speaker Change: Everything changed when the multiple changes so we need to we have a new reality, there and we'll be much more cautious on that on that specific.
Speaker Change: But much more limited we have always been cautious.
Speaker Change: So much more limited in terms of how we do M&A right and then on the margins in the second part of your question. You also mentioned some some actions that we're taking.
Speaker Change: Two you know.
Speaker Change: Work on utilization levels, which are below our target we are working on.
Speaker Change: Efficiencies in terms of infrastructure offices, we are working on.
Speaker Change: Thank you and our marching through being cautious in terms of pricing and so on so forth.
Speaker Change: That's helpful. Just do just to complete the discussion here are you undertaking or anticipate undertaking any specific restructuring effort in any of the global geographies you operate in.
Speaker Change: So.
Speaker Change: No.
Speaker Change: In the plan.
Speaker Change: We see a lot of strength and describe the pipeline is there.
Speaker Change: Need for technology is there I think uncertainty we have doing away at some point in and companies will continue to invest in growth.
Speaker Change: They have been doing in the last 20 years and companies cannot avoid to go through the transformation processes.
Speaker Change: Pretty much nobody can can lugovoy from the efficiencies that can be made using AI in every single sector of the company.
Speaker Change: The efficiencies that can be done.
Speaker Change: On how we interact with consumers customers, how emotional arguably come when you connect with them and all things AI helps a lot so pretty much no customer on any sector can look away from that so that is.
Speaker Change: Is materializing into a pipeline growth.
Speaker Change: And of course, I think decisions will be little bit more fluid moving forward, but we.
Speaker Change: We hope that that's the the new reality, but.
Speaker Change: There will be tough.
Speaker Change: Even more after we reported earnings.
Speaker Change: With all the tariff things and things that happened that was absolutely unexpected.
Speaker Change: Any case.
Speaker Change: Okay.
Speaker Change: That is very helpful. Thank you and good evening. Thank you Julia.
Speaker Change: Thank you very much. Our next question comes from the line of Arvind Romani from Piper Sandler. Please go ahead.
Speaker Change: Hi.
Speaker Change: Thanks.
Speaker Change: For taking my question.
Speaker Change: Appreciate it appreciate it.
Speaker Change: Couple of questions.
Speaker Change: Do you think about kind of the updated guidance and really think I understand.
Speaker Change: Kind of what's going to drive some upside or downside so in a sense like the fee.
Speaker Change: If we look canvas like.
Speaker Change: Eight months from now and you come in somewhat below below sort of your updated guidance.
Speaker Change: What would have need to happen and if you were to come back kind of closer to <unk>.
Speaker Change: The prior guidance at you you basically kind of gave three months ago.
Speaker Change: What will drive that and what I'm really trying to figure out is like things are moving fairly quickly both both on the direct side of the macro site.
Speaker Change: So.
Speaker Change: And I don't say I want to be overly optimistic or pessimistic, but I'm just trying to figure out the factors that could get us to a different range than what you've guided to.
Speaker Change: The numbers are built.
Speaker Change: Think about our prior guidance. It was we were expecting to move she's comment on is $3 million at the midpoint.
Speaker Change: In Q2, Q3 and Q4.
Speaker Change: Embedded sequential growth rates there right.
Speaker Change: Ended up happening was up right after we reported.
Julian: So our deteriorate it's frozen I don't know people are you are you hearing okay, yes, Julian perfectly of videos frozen and ready to go perfectly okay. So what happened.
Julian: We reported was that things got a lot worse and you know we were not able to to offset those challenges.
Julian: In Q1 for wind it up a notch below what we expected and looking into Q2, we are seeing that we're gonna be just a little bit up relative to Q1 sequentially and we're seeing a stabilization in other regions. So somehow we said, okay, let's assume that this uncertainty.
Julian: We'll continue we cannot assume a meaningful recovery in the second half of the year because.
Julian: This will want to be able to see if things get better we want to see we want to be able to achieve that but we cannot put data into the guidance for the year as we did last time. So that's how we built the guidance. So I think that as you said things are moving along very very quick.
Julian: And what we believe is that the vast majority of what we're seeing.
Julian: Due to all the changes on the uncertainty that is happening and impacting our customers.
Julian: Yes.
Julian: Those things go away.
Julian: <unk> opportunities or they are the guys on the field are bringing the opportunities we need to close more than willing to close faster is that happens because things get better there might be some upside and then on the opposite as you said.
Julian: If things go the other way.
Julian: At least what we try to do with these guidance is put out a number that we've seen.
Julian: <unk>.
Julian: As possible.
Julian: The current scenario.
Julian: Perfect.
Julian: That's certainly helpful and I guess you know, there's obviously some level of a number of working days and everything seasonality that naturally impact sequential growth.
Julian: Yes, I understand that.
Julian: With that said that you know when I look at your Q1 right. It was negative 5% and then Q2 is like flat, which you know.
Julian: Just mathematically implies like a 500 bps turnaround in in terms of like sequentially the growth rate like I mean basically between between Q.
Julian: So far in Q4 of last in Q1, you your revenue decline.
Julian: It's going to be flat Q over Q.
Julian: Sales of our tank flattish about 1% in Ottawa.
Julian: So there is optimism in that.
Speaker Change: <unk> from Nikkei you declined in Q1, but now in Q2, you're going to start seeing like a flat yes.
Speaker Change: We tried to put out a guidance does that contemplate the uncertainty that we're having in front of us we see the second quarter, our stabilized stabilizing very clearly related to Q1 as of now so the numbers that we're putting to the extent possible include all love uncertainty hopefully.
Speaker Change: Allow us to at least meet those targets.
Speaker Change: And just one last follow up.
Speaker Change: And then one could argue that you know you had a good macro in January and February and March when things started to shape in front of us kind of the worst month in April.
Speaker Change: It's more in Q2.
Speaker Change: So given that last six weeks or probably the micra, whether that how the last six weeks gone for you guys.
Speaker Change: I think the second quarter numbers.
Speaker Change: So in some stabilization.
Speaker Change: We are part of that and we're not seeing deterioration and that's what I can tell you first of all the numbers shows.
Speaker Change: That number throughout the year.
Speaker Change: We are not assuming any major or any significant improvement in the numbers that we put out.
Speaker Change: We did take some.
Speaker Change: I mean, we try to put a number again that at least we can meet.
Speaker Change: That's a powerful thank you so much. Thank you Robyn Thank you Larry.
Speaker Change: Thank you very much Herman Unfortunately, that's all the time that we have for the Q&A session today.
Martin: With that I would like to turn the call over to Martin for some closing remarks Martin. Please go ahead.
Speaker Change: Thank you very much everyone for participating today.
Martin: Looking forward to see you on.
On our next quarter's earnings. Thank you so much bye bye bye bye bye.
Martin: Yeah.
Martin: [music].
Martin: Yes.
Martin: [music].
Martin: Yes.