Globant S.A. (GLOB) Q3 2025 Earnings Call Transcript

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Overview

The earnings call highlights stable financial performance, strategic investments in AI, and a strong pipeline with significant growth potential for 2026. Despite a Q4 revenue drop due to furloughs, the company anticipates better performance in Q1 2026. Management's optimism, stable margins, and successful AI initiatives suggest a positive outlook, warranting a 'Positive' sentiment rating.

Key Financial Performance

Revenue $617.1 million, up 0.4% year-over-year and 0.5% sequentially. Excluding the positive impact of foreign currency, revenue was flat year-over-year. The increase was attributed to strong demand and bookings.

Pipeline $3.7 billion, representing 30% year-over-year growth. This growth reflects solid demand for services and strong bookings.

Adjusted Gross Profit Margin 38.1%, flat relative to the previous quarter despite significant FX headwinds from LatAm currencies.

Adjusted Operating Margin 15.5%, an increase of 50 basis points sequentially. This was achieved by diluting adjusted SG&A by 20 basis points sequentially.

Effective Tax Rate 29.4%, increased significantly due to the acceleration of the Argentine peso depreciation during the quarter, resulting in higher taxes. This impact was partially offset with FX hedges.

Adjusted Net Income $69.7 million with an 11.3% adjusted net profit margin, flat relative to the previous quarter.

Adjusted Diluted EPS $1.53 based on 45.6 million average diluted shares, in line with guidance.

Cash and Short-term Investments $167 million, ending the quarter with $205.3 million in net debt after repaying $56.7 million of debt during the quarter.

Free Cash Flow $67.5 million, achieving a free cash flow to adjusted net income ratio exceeding 96%. This performance aligns with historical patterns of stronger cash flow in the second half of the year.

Share Repurchase Program $125 million authorized, reflecting confidence in long-term strategic position and commitment to enhancing shareholder value.

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Operating Highlights

AI Studios and AI Bots: Introduced AI-based solutions specific for each industry, transforming consumer interactions and business operations. These are orchestrated through Globant Enterprise AI, a central intelligence platform.

AI Pods: Launched a subscription model for tailored AI solutions, doubling its share in the pipeline. Embedded in 17 of the top 20 customers, representing 40% of total revenue.

Globant Enterprise AI: Enhanced to include Agentic Commerce Protocol, enabling safe and intelligent commercial transactions. Acts as a hub for AI adoption, corporate systems, and agentic workflows.

Pipeline Growth: Achieved an all-time high pipeline of $3.7 billion, marking 30% year-over-year growth.

Partnerships: Announced partnerships with Riot Games, La Liga, Natura, and Red Sea Global to expand AI and immersive experiences.

Revenue and Profitability: Generated $617.1 million in revenue, exceeding guidance by $2 million. Adjusted operating margin increased to 15.5%.

Share Buyback Program: Authorized a $125 million share repurchase program, reflecting confidence in long-term prospects.

Subscription Revenue Model: Shifted to a subscription-based model for AI Pods, focusing on outcomes rather than hours. Embedded in major clients like YPF and La Liga.

Marketing Consolidation: Consolidated marketing efforts under the GUT brand to enhance creativity and performance.

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Risk or Challenges

Macroeconomic Environment: The macro environment remains fluid, which could impact demand trends across the client base.

Foreign Exchange (FX) Headwinds: Significant FX headwinds, particularly from LatAm currencies, have impacted profitability and tax rates.

Tax Rate Volatility: The acceleration of the Argentine peso depreciation has led to higher-than-anticipated taxes, partially offset by FX hedges.

Revenue Growth Challenges: Revenue growth was minimal, with only a 0.4% year-over-year increase, and Q4 guidance implies a year-over-year decline of 5.8%.

Economic Uncertainty: Uncertainty in the economic environment could affect client spending and project pipelines.

Subscription Model Transition: The shift to a subscription-based revenue model is underway but may face challenges in adoption and execution.

Competitive Pressures: The competitive landscape in AI and technology services remains intense, requiring constant innovation and differentiation.

Supply Chain Complexity: Projects like YPF's supply chain optimization highlight the complexity and potential risks in managing large-scale supply chains.

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Guidance & Outlook

Revenue Expectations: For Q4 2025, revenue is expected to be at least $605 million, implying a year-over-year decline of 5.8%, including a positive FX impact of 150 basis points. For the full year 2025, revenue is projected to be at least $2.04474 billion, representing 1.3% year-over-year growth, including a positive FX impact of 30 basis points.

Operating Margin: Non-IFRS adjusted operating margin is expected to be at least 15% for both Q4 2025 and the full year 2025.

Earnings Per Share (EPS): Non-IFRS adjusted diluted EPS is expected to be at least $1.53 per share for Q4 2025 and $6.12 per share for the full year 2025, assuming an average of 45.2 million diluted shares outstanding.

Tax Rate: The IFRS effective income tax rate is expected to be in the range of 22% to 24% for Q4 2025 and 23% to 25% for the full year 2025.

AI and Subscription Model: The company is actively embedding its subscription model within its top 20 customers, representing close to 40% of total revenue. This model is expected to drive future growth and transformation in client engagements.

Market Trends and AI Adoption: AI is projected to grow into a $4.8 trillion market by 2033, with a 25x increase over a decade. The company sees significant potential in AI transformation and is focusing on expanding its AI Pods and Enterprise AI platform to meet growing demand.

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Shareholder Return Plan

Share Buyback Program: Globant launched a $125 million share repurchase program during the third quarter of 2025. This reflects the company's confidence in its long-term strategic position and commitment to enhancing shareholder value.

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Key Q&A

Q:Are clients looking for AI use cases in Globant GUT area, such as AI-powered form factors for retailing or banking?

A:Yes, the consumer experience is being transformed with projects focusing on conversational interfaces across various industries, not just financial services. Many large companies, including regulated ones, are building platforms for AI transformation and development, with projects like fraud detection, hyper-customization, and portfolio management. Over half of Globant's projects are AI-related.

Q:Why is the demand for AI not reflecting in overall results, and can we expect better growth rates next year?

A:The pipeline grew 30% compared to last year, with 900 AI transformation projects. Projects are evolving from exploratory to transformational efforts. AI initiatives are gaining momentum, with the pipeline doubling in 2.5 months. However, implementing AI systems is complex, requiring significant support. All industries are showing revenue growth, and large deals have been announced, indicating potential for better growth in 2026.

Q:Can you connect the strong pipeline commentary with operational headcount dynamics and provide insights into 2026 client budgeting?

A:The pipeline is much higher, and conversion speed has increased. Headcount was aligned with business needs through a business optimization plan. Conversations with customers indicate more growth in 2026 compared to 2025. Deals with companies like Riot Games and Mercado Libre are growth-oriented, and the company is optimistic about 2026.

Q:What are the early efforts around efficiencies and margin improvements?

A:Operating income increased by 50 basis points sequentially in Q3. The company is focusing on maintaining or improving margins and free cash generation. CapEx levels are aligned with current growth levels. Gross margin was stable, and operating margin improved, with Q4 operating margin expected to be above 15%.

Q:What is the pricing environment like with Gen AI, and is there pricing pressure?

A:There is no major pricing pressure. Deals are value-added, allowing Globant to maintain pricing and revenue per head. The company focuses on value creation and specialization, with AI studios delivering substantial know-how. The subscription model and Enterprise AI platform are gaining traction, helping maintain margins and revenue per head.

Q:Why is revenue growth expected to drop in Q4, and what does Q1 2026 look like?

A:The Q4 revenue drop is mainly due to furloughs in professional services. Q1 2026 is expected to be better than prior years, with no significant sequential decline like in Q1 2025. Conversations with customers and new deals indicate a better position for 2026.

Q:Can SG&A be further diluted, and is the current level reasonable?

A:SG&A closed at 17.7%, almost 1 point below Q4 last year. There is room for further dilution over time, but it will be gradual (10-30 basis points annually). The business has the potential to run at 15% SG&A over time as it scales. The current level is reasonable given the company's size and ongoing changes.

Q:Is professional services showing signs of stabilizing?

A:Yes, professional services are stabilizing. After Q4 furloughs, the sector is expected to recover in Q1 2026. Growth in other customers will offset declines in one large customer, which has now stabilized at a new level.

Q:What are the vertical and geographic assumptions for Q4, and how conservative are they?

A:Professional services will decline due to furloughs, while other sectors are expected to remain stable. The business is stabilizing, with positive signs for 2026. Pipeline generation and deal closures are improving, and the market is moving faster than earlier in the year.

Q:What gives confidence in 2026 client conversions and pipeline growth?

A:Momentum in the last few months, with increased activity and pipeline growth, provides confidence. Companies are moving from trials to full AI transformation programs. Globant's AI studios and offerings like AI Pods and Enterprise AI are resonating well, accelerating pipeline conversion.

Q:How is Globant balancing employees and growth for 2026?

A:Growth in 2026 will require a combination of higher utilization and new hires. Utilization is below the 80% target, leaving room for improvement. AI increases productivity, but headcount will still grow as higher growth levels are achieved.

Q:What is the potential revenue impact of AI Pods and the subscription model?

A:Discussions about AI Pods and the subscription model are progressing well, with significant customer acceptance. The pipeline and customer base for these offerings have nearly doubled in 2.5 months. While the exact revenue impact is unclear, the model is expected to grow rapidly in 2026.

Q:What factors could raise pipeline conversion rates?

A:Improved global economy, better understanding of AI benefits, and Globant's enhanced AI offerings (e.g., AI Pods, Enterprise AI) could raise conversion rates. Companies are moving from trials to full programs, and Globant's value proposition is resonating well.

Q:Is there demand for data and cloud preparation before AI implementation?

A:Yes, there is demand for data readiness projects, with 900 such projects in the pipeline. Many companies are preparing to make better use of AI, including traditional AI and machine learning projects, which are enhanced by generative AI.

Q:Review of Unclear Management Responses

A:Management avoided providing specific revenue predictions for the subscription model and AI Pods, citing the early stage of adoption (2.5 months). They also did not provide detailed vertical or geographic breakdowns for Q4 or specific growth rates for 2026.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

GLOB Transcript

Globant S.A. (GLOB) Q3 2025 Earnings Call Transcript

Positive11-13

Globant S.A. (GLOB) Q2 2025 Earnings Call Transcript

Positive8-14

The earnings call summary shows strong financial performance with revenue growth and strategic AI investments. Product updates, like AI studios and subscription models, are positive. However, guidance is cautious due to macroeconomic uncertainties. The Q&A reveals optimism in AI adoption and client stickiness, though management avoided specifics on financial impacts. Overall, the strategic partnerships and AI focus are positive catalysts, leading to a 'Positive' sentiment rating.

Globant S.A. (NYSE:GLOB) Q1 2025 Earnings Call Transcript

Unknown5-17

The earnings call indicates challenges with macroeconomic and geopolitical factors affecting revenue growth, especially in Latin America. The revenue guidance revision to a modest 2% growth and consumption of free cash flow signal financial strain. The Q&A reveals uncertainty in demand recovery and unclear management responses, particularly regarding backlog and margin impacts. Despite a 7% revenue increase, the lack of a share repurchase program and declining utilization rate further contribute to a negative sentiment. The overall outlook is cautious, with potential downside risks outweighing positive factors, leading to a negative stock price prediction.

Globant S.A. (GLOB) Q1 2025 Earnings Call Transcript

Unknown5-15

The earnings call presents mixed signals: a 7% revenue increase is positive, but cash flow challenges and a decrease in utilization rate indicate operational concerns. The revised revenue guidance due to macroeconomic uncertainties and tariffs further dampens sentiment. In the Q&A, management highlights a strong pipeline and recovery in Latin America, but uncertainties remain, especially in the US market. The lack of a share repurchase program and flat gross margin suggest limited shareholder returns. Overall, the balanced positives and negatives suggest a neutral stock price movement in the short term.

GLOB Slides

Globant Q1 2025 slides: AI focus drives continued revenue growth

2025-05-15

GLOB Report

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