Globant S.A. (GLOB) Earnings Call Transcript & Summary

Good afternoon, and welcome to Globant's First Quarter 2025 Earnings Conference Call. I'm Arturo Langa, Investor Relations Officer at Globant. [Operator Instructions] 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. Also, you will find our shareholder letter, which contains the same content as the prepared remarks you will hear today. In order to craft a more engaging and interactive session, we've shown in our prepared remarks and allocated more time to the Q&A section. We will begin with remarks by our Chief Executive Officer, Martin Migoya, and our Chief Financial Officer, Juan Urthiague, followed by a Q&A session where they will be joined by Chief Executive Technology Officer, Diego Tartara and our Chief Reading Officer, Patricia Pomies. Before we begin, I would like to remind you some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks 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 will 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. I will now turn the call over to Martin Migoya.

Hello, and good day, everyone. It's great to be here again. We are pleased to report another solid quarter with revenues reaching $611.1 million representing a healthy 8.6% year-over-year growth in constant currency, outperforming most of our peers. While our Q1 performance came in below our initial expectations 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 fuel Globant's long-term growth are strong. The AI opportunity is both profound and transformative. It is a market that could reach $4.3 trillion by 2035. Our 10 years of strategic investment in artificial intelligence uniquely position us to lead this new era. We're not merely adapting. We're helping define the AI-powered future of work and digital transformation. That said, we are currently operating in a challenging macroeconomic environment. The probability of a recession in the U.S. has risen significantly since February. Consumer spending has softened and uncertainty from trade tariffs has impacted a 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. Although some near-term challenges are present, we see this as transitory, as the pipeline remains robust with a 20% increase over the last year. I'm also pleased to see strong growth in markets where Globant has undertaken major investments recently, including our new market region of the Middle East and APAC as well as Europe. In this environment, we need to stay focused on long-term value creation and transformative impact. Our way forward is based on three core pillars. First, 100 square accounts. One of the greatest assets is our 100 square customer base on the distribution network we have built overtime. Throughout our history, we have consistently added new studios and practices such as digital, enterprise and got creative studios as innovative services to distribute across a set of clients allow us for pushing boundaries and delivering forward-thinking solutions. We continue to deepen these relationships with these strategic clients aiming to unlock new opportunities and deliver transformative value across their business units. Second, our AI studios. 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, processing inefficiencies and emerging opportunities for intelligent automation. From this foundation, our AI studios design and implement scalable AI power solutions that target the most impactful workflows and business outcomes. The industry-specific structure approach is supported by our deep technical expertise and our enterprise AI platforms, enabling the orchestration of intelligent agents that deliver measurable innovation and lasting value to our clients. And finally, the Globant subscription model. This model reimagines how we deliver engineering, creativity and automation services by introducing a consumption-based subscription framework. Clients subscribe to AI power capacity through AI pods, which are dedicated delivery units that combine the power of autonomous AI agent powered by Globant Enterprise AI with the orchestration and oversight from our experts. Delivery is limited in tokens, representing the complexity and volume of work performed. Clients can expand their usage through additional path subscriptions, offering a clear scalable path to increase value overtime. This consumption-based model aligns incentives around outcomes, not ours. It offers a flexible, transparent way to collaborate with our clients, while complementing our traditional delivery models. This transformation will integrate directly into our existing client relationship teams and build on the strong relationship we have established with our network of incredible clients, a network built on trust, long-term collaboration and share appreciation for innovation. YPF has already adopted this model. JM Family and other enterprise clients are exploring it as well demonstrated early traction and trust in this new way of engaging with Globant. The Globant subscription model was born from our deep understanding that many organizations struggle to make the savings and efficiencies generated by AI tangible. While the potential of AI is clear, converting this promise into concrete business outcomes remains illusive for most enterprises. Our model addresses this challenge directly, delivering measurable results through defined output, traceable token usage and integrated performance monitoring, making AI's value visible, actionable and aligned with strategic goals. While we expand our commercial models, we also want to reaffirm the importance of our traditional delivery methods. Fixed price and 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 to them as we have been doing during the last 22 years. This quarter, within Globant enterprise AI, we introduced Globant Colab a powerful agent-driven suite. It brings together our most advanced AI agents and platforms into a single cohesive solution that simplifies and accelerates the entire software development life cycle. Weeks ago, Globant's Code Fixer AI agent achieved the highest score on the SWE bench multi-model benchmark, a precious data set for evaluating AI systems on visual software engineering tasks. In this context, our ability to evolve becomes our competitive advantage. Our new AI power subscription model is helping us to create more scalable, predictable and adaptive partnerships with clients, enabling continuous delivery of engineering creativity and business process automation through our AI 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 a Saudi Pro League, implementing our competition management solution with a new platform, future SPL seasons will be managed through a digital ecosystem. This will be powered by AI and data analysis to speed up manual tasks and allow competition staff to focus on innovation. In the United Kingdom, we have reached a major milestone through our partnership with Formula One. We recently launched the new Team content delivery system at the Australian Grand Prix in 2025. This innovative technology solution is designed to enhance the competitive experience for race teams by engineers and team principles with real-time and archived video and data analysis. We're also partnering with AIB on their Teller app. Teller is a specialized transaction processing application in AIB Northern Island branches. integrated with AIB's core systems support efficient transaction management. The bank undertook a significant upgrade on the application to further enhance performance and resilience. We accelerate the development using Globant Enterprise AI to ensure delivery in a record time of 8 months. In Argentina, we recently announced a reinvention partnership with YPF, the continent's third largest oil and gas company. We will improve their supply chain management with Agentic AI, and we will create an integrated operating model that will continuously learn and evolve. It would make complex decisions through expert supervise algorithms and ensure compliance with the company's internal policies and standards across their extensive supply chain network of approximately 5,000 suppliers. Globant's effort connects with YPF vision to enhance operational efficiency across all areas and position the company as a global competitive player, generating $30 billion in exports by 2030. Our creative network continues to produce outstanding work for top brands globally, including Corona for its 100th anniversary in Mexico, Foodpanda with a new affordability campaign across 6 Asian markets and Mercado Libre's ongoing expansion. Our global partnerships also continue to evolve. In remarks, 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 invention vision. We remain focused on delivering high-value solutions that reflect both human ingenuity and technological excellence. We will continue to evolve our core strength and business models, while pursuing long-term value creation. Thank you very much.

Hello. In the first quarter, we continued to navigate a fluid global context. Revenues reached $611.1 million. This represents a 7% increase year-over-year and 8.6% in constant currency, a figure slightly below our February guidance. This performance was influenced in a 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 of the tariff discussions. Still 3 of our 4 regional business units posted solid growth. North America increasing topline 6% year-over-year. Europe, 13.4% year-over-year and new markets continuing to scale exponentially, posting an 84.4% year-over-year growth. 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 via strong growth in Argentina. From a vertical perspective, we saw year-over-year growth across most of our verticals. However, we experienced some delays in project ramps specifically in some large accounts in tariff-impacted industries such as airlines, pharma and high tech. Our revenue had increased by 2.8% year-over-year and 2.3% quarter-over-quarter in the first quarter of 2025, reflecting the value and efficiency we deliver and our ability to remain disciplined in pricing. Turning to our margin trends. Our adjusted gross margin for the quarter stood at 38%, flat on a year-over-year basis reflecting our premium positioning, geographic diversification and improving service mix. Our adjusted operating margin for the quarter 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 $1.50 for the quarter, almost flat on a year-over-year basis. Turning to our balance sheet. As of the first quarter of 2025, our cash and cash equivalents and short-term investments stood at $120.2 million, and our net debt was $167 million, translating into a healthy low net debt ratio, reflecting our prudent balance sheet management and providing us with substantial financial flexibility and liquidity. 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 uncertainties and tariffs and given our exposure to B2B2C customers, which affects our visibility, we have undertaken 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 2025 guidance of at least $612 million in revenues or 4.2% year-over-year growth. This expected growth includes a neutral FX impact. 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 an adjusted operating margin of at least 15%, both for the second quarter of 2025 and the full year 2025. The IFRS 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 diluted shares outstanding 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 are taking clear and decisive steps to maximize our financial health and navigate the current environment effectively. Our short-term focus for the remainder of the year will be on driving growth through strategic investments in our AI industry studios and our 100 square accounts, while focusing at the same time protecting our margins and cash flow. With respect to margins, the main areas of focus are: Optimizing utilization, which stood at 78.2% in Q1 2025 compared to 79.3% in both previous quarter and Q1 2024. Disciplined pricing strategies, strategic geographic mix of our talent and revenues. Footprint optimization and infrastructure streamlining are ongoing, particularly through the integration of recently acquired companies. SG&A investments will be sharply focused on bolstering our sales capabilities 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 metric to trend downwards by the end of the year as our topline expands. With regards to our cash generation, we are actively working to improve this critical metric through several initiatives. These include extending supplier payment terms wherever possible, targeting a reduction in our DSO and implementing a significant reduction in our capital expenditures with a clear prioritization towards investments in artificial intelligence. A prudent M&A activity to ensure accretive transactions in a fluid market. However, as discussed by Martin, we will remain bold in our technology bets, and we'll continue to execute decisively on our long-term strategic goals. This balanced approach is of utmost importance to us. Thank you for your continued support. See you shortly at the Q&A session.

Thank you, Juan, and hi, everyone. So as we go through the Q&A section of this call, I will first announce your name. [Operator Instructions] So with that in mind, we will take our first question from the line of Tien-Tsin Huang from JPMorgan.

I just want to -- I know that the environment has been challenging for a lot of the companies here. I'm just curious, how quickly do you think you can recover some of the demand or spend specifically in Latin America, just to start with that because it sounds like that's where a lot of the change emerged. What have you been doing to reenergize growth there? Have you seen some of the work to get canceled? Are these just delays? I'm just trying to get a better understanding of how that might shape up here in the short term and the midterm, starting with Latam and any other areas that were a little troubled.

Thank you, Tien. Thank you very much for the question. Listen, I believe that -- I mean, there's piece of information inside what we said on my initial opening that was the size of the pipeline. Surprisingly, the size of the pipeline is 20% higher than in the same period last year and even higher than Q4. So that's a pretty good sign of how things are evolving. I think that many of the deals are just being delayed. Mexico suffering. Brazil is suffering. And there's a lot of uncertainty and decisions are just being pushed out. And that started a week later than our February earnings call. And evolving into this quarter that we are reporting now, and we want to be very sensible about that information and say, listen, we are seeing an adjustment for the full year. I see a pretty good probability for Q2 and not seeing major struggles. Of course, unless something good new news appears in the market, which I don't think is the case. But I see that number quite solid right now and the full year too. So recovery in Latin America, it's already happening. I mentioned some of the deals that are pushing us forward. Some of that is coming from Argentina, some of that recovery is coming from Chile and some other geographics. Mexico is also improving slowly. It's not being seen on the numbers of Q1, but we are seeing it a little bit better. So with all that, I think we're going to have like a quarter like we described in Q2. But unfortunately, the whole year cost lower than what we expected at the very beginning of the year. So I don't know, Juan, if you want to add something to that.

So basically, when you look at the Q2 number, which is just slightly above where we ended in Q1. The idea is that we're trying to put out a guidance for the year, which, if you do the math, it's basically a very similar second half relative to the first half. We are trying to be sensitive enough so that the -- I mean, the rest of the year looks at least where we are today. We don't see further deterioration. When you look at the second quarter number, we feel it's quite solid at this point. So that seems to be kind of a lower -- a lower end basically or a bottom for the year. And the pipeline that Martin is describing, it somehow gives us some comfort of, hopefully, a better second half, which it's not embedded in the numbers that we are providing because we don't want to go through another situation where the uncertainty doesn't allow us to put out the numbers that we want. So that's -- the business is there, the pipeline is there. We are trying to put numbers in a place where we feel comfortable and we are confident we're going to be able to meet at least the $612 million that we guided for the second quarter.

Yes. I would like to reiterate, Tien-Tsin, I mean the amount of opportunities, the quality of the opportunities I think it's outstanding and the things that are happening in the market with the technologies outstanding. Just the people are saying, okay, let's put this on holders that don't hold in many different industries, I would say that Financial services was the least affected, but then all the rest of the lines were kind of in tough environments, right? But the long term -- again, the long term for the business, I think, is outstanding. The amount of opportunities are raising. Quality of opportunities are raising too. So I'm very positive about the future as always.

[indiscernible I'm just curious that if things could deteriorate and ability continue for whatever reason, do you have levers to pull to protect the margin and the profits, given what we've learned so far since late February to date, do you have levers to pull.

Yes. I guess -- the line is a little bit -- But I think you asked about protecting margins and profitability if the business deteriorates, as I discussed in my remarks, we have already taken a number of measures to protect those margins to protect operating margin as well and to meet the EPS guidance. We feel that those measures that are in place to be at least for where we see the business today, there enough. But definitely, if we see another change in the market, we will be able -- we will have to take further additional measures to protect profitability. I mean we definitely believe that growth is okay, but it's also important profitability and protecting margins. That's why we mentioned specifically a number of things that we are doing and also on the cash flow front, right? We are trying to take measures in every front until we see an acceleration on the top line.

Yes, high priority initiatives, all of them.

And the next question comes from the line of Jim Schneider from Goldman Sachs.

First of all, I was wondering if you could maybe frame for us 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 this point in time, maybe comparing that versus what you were seeing in Q1 of last year, maybe just as a first start.

Yes. So Jim, thank you for the question. For the second quarter, I think that the level of comfort visibility is high enough. We try to make sure that the number that was provided is at least the number that we are targeting and we're trying to meet. 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 with the current numbers with just a small improvement in Q3. So I think that the way we built the current forecast includes our half 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.

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 being impacted by tariffs. What parts of the business there slowed? Was it confined to one or two geographies, whether it be airlines or something else? Maybe just talk about the profile of the U.S. business, please?

Yes. Look, it was pretty much all over the place. Entertainment was performing a little bit lower, high tech. It was like the lowest health care also take and took some deep, although we're seeing it recovering much better now. Travel and hospitality has gone down. It's interesting because between professional services and financial services were kind of the most even performances. But then all the rest that is related to consumer got and took a big hit. So it's pretty obvious to us that it's something much larger than just one specific sector hitting the thing.

Jim, the fact that we are a company that, of course, we have a wide array of services, but a big part of what we do is still on the growth side, right, on the -- we have a lot of B2B2C customers with consumers that somehow have been impacted by tariffs by the uncertainty of what's going to be like in the U.S. going forward. And those are the industries that initially, at least on many of our customers put some kind of a break on certain projects. That happens in as Martin was saying, you tread the automotive some of the technology customers that we have, some of the retailers. So mostly, you see that concentrated on consumer-facing customers.

Our next question comes from the line of Bryan Bergin from TD Cowen.

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 in 2Q in the second half? So obviously, Disney and then potentially seeing Middle Eastern clients and any other ones you think are important to call out?

Yes. Yes. In general, I mean, if you look at the performance on a sequential basis, pretty much most groups performed in a similar fashion. However, already into getting into Q2, we see stabilization. That's why the expected number is slightly ahead of the Q1 number. We are not seeing -- I mean, probably the ones that have more consumer focusing exposure suffered a little bit more. But in general, already into Q2, we see more stabilization. Clearly, new markets will continue to outperform with very high year-over-year growth, and we are going to see sequential growth there as well. At this point, we're also seeing positive numbers in Europe, positive numbers in the U.S. Maybe the 1 reason that will stay behind will continue to be Latin America, at least during the second quarter.

Okay. Okay. And how are you managing kind of the employee base here and the resourcing plans as you go forward? Can you talk about your intentions here as you move through the balance of the year?

Yes. I think the strategy is the same. I mean we have been globalizing our delivery footprint in the last 10 years. When we did the IPO, Argentina was 70% of our employees. Today, we have a very balanced portfolio of countries from where we serve, be in Argentina, Colombia and Argentina, the three main locations. That will continue to be the case. We are not -- I mean, we will continue to be a diversified delivery footprint as well today. That's going to continue. Of course, we will prioritize where demand is growing as we have always done. But in general, the world strategy doesn't change, having a global delivery footprint to serve more Globant customers. As you can see today, U.S. is about 55% of revenues. Europe is getting very close to becoming the second largest revenue generation area. And we have seen a very nice uptick in the share of new markets. So we are building a global delivery footprint for a global revenue company.

The next question comes from the line of Jamie Friedman from Susquehanna.

I was wondering if you could comment on the competitive position of the company apropo of application development versus infrastructure. Is it difficult to compete purely as a great application development provider yet having less mind share in infrastructure in this environment?

So it's interesting to -- I mean, first, I think it's interesting to go through our revenue per head, right? When you see the revenue per head is still growing. It's a measure of that we are adding more value to our customers and seeking deals that are a lot of value added for our customers. On the enterprise side and the cloud migration studio -- sorry, the cloud ops Studio that we have is performing very well. And we have very deep expertise there as pretty much everything we do is into cloud, into infrastructure side. I think that with all the AI projects that are happening, that area, that specific area is gaining a lot of momentum. And I believe that, in essence, every day becomes more and more -- the AI landscape becomes more and more complex. Every day, it's more and more difficult to create something only thinking on cloud or only thinking on AI, you need everything together. And this is where we're going. I mean Globant became, with time, a much more balanced company in terms of our studios. We are playing on the digital side. We're also playing on the enterprise side with a good portion of our business, and we're also playing on now on the creative side. So the three components are very important components of pretty much any solution that you build today. So I think that if you only focus on one of them, it will be difficult. But as we are very balanced between the three of them, I think that we are in a pretty good position to create much better solutions for our customers through our AI studios, through our -- now our subscription model, the way to change how companies come by these kind of services in some way, we're simplifying the access to technology to companies. And this is extremely important option that we are providing now to our customers that is being very well accepted and very good -- an important conversation starter for many of our customers. And again, 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 of how we have been doing things, it's about having a balanced approach to technology because it's not just about having wonderful things.

That's -- 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 automation or there's a reduced linearity. Any context you could give us about the revenue per head would be helpful.

Yes. Jamie, there is a little bit of everything, a little bit of higher value-added services, a little bit of an improvement in how we deliver some of our services. There is also a higher share of Europe and new markets would come at a higher revenue per head than Latin America. So you have factors. And also, there is a lot of careful in terms of managing our pricing. I mean there is today a lot of deals that are not good enough in our view. And we also try to protect our margins through having a good grip on pricing. I mean there is a lot of this or there that we could get at very low pricing, low margins or even negative margins. We are trying to put everything in balance. And that's why you are seeing our revenue per head going sequentially and year-over-year.

Yes. And some of our competitors are like easing those deals in which you need to pay to get them and then get some kind of deal in exchange of that, but we are totally aware of that saying, listen, we don't want to enter into a deal in which we need to offer any kind of advantage or maybe, I would say, in those things in which we don't like the profit that we are making. I mean if we're not making a good profit, we'll walk away. And we have been extremely selective on those deals. And buying revenue today is like a pretty common standard in many occasions, and we don't like those deals.

Our next question comes from line of Maggie Nolan from William Blair.

I'm curious if your margins are different on the Latin American revenue compared to the rest of the business. And how maybe softness in Latin America is flowing through the margins and impacting the financials right now.

Not necessarily. I mean, margins are, I would say, they're not very different in the different regions. You don't see a lot of dispersal there. I think what is relevant is that we need to remain sensitive in terms of how we price it is in terms of looking the right margins for the deals. Protecting -- I think at the end of the day, it's very easy sometimes to get deals at lower prices. With this many times. Taking prices down is very easy. Taking them up again, is very hard. So it's always a balance. Of course, we don't like to lose these and we try to win as many deals as we can. But that has to have a limit at some point. I don't know, Martin...

Also, I think Maggie, I think that a good -- a customer with good margin is also a signal of the health of that relationship, right? And we always prefer to pursue healthy relationships and to put that in front of everything. And -- so for us, a deal in Latin America or a deal in the U.S., it should be healthy anyway. So we have a pretty centralized way of understanding margins and understanding how we want to close the deals. And that's something that we try to across -- to spread across all the places. So I don't know if that answered your question.

Yes, that's helpful. 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 part of your AI revenue? And then is your goal to have this bacterial percentage of revenue overtime?

So AI revenue is growing a lot. I mean it's something that is surprising us the way and the amount of deals. And it's interesting to see that, that growth is connected to the complexity of the market. So as it becomes more and more complex and companies want to implement that. And again, I said this many times, AI projects are very good for media -- for social media and are very easy if you want to do a demo or do it in social media. But then when you want to take it to enterprise levels, it's a totally different game. So there's a lot of activity around that. Pretty much AI is involved in every single project. I mean, it's not a single project that we are pitching today that has -- that doesn't have a component, even in those 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 customers with a way of changing that engagement that we have had for the last 22 years into evolved new model. And I will let Diego to explain a little bit more about that. But I think that having this new conversation is triggering a lot of interest, a lot of early interest from our customers. We already closed many deals around that. We are not disclosing any numbers. It's not substantial yet. But my plan moving forward is that at some point, we'll start discussing it as it gains momentum. And I hope that this is something that we will be leading again, right? It's like when -- like you subscribe to any subscription that you may imagine now you can subscribe to Globant and get engineering that you need, the creativity that you need, the process automation that you need and pay for consumption instead of just paying per the hour paying with a monthly fee. So this is a pretty revolutionary approach. We haven't seen any of our competitors doing it. And we're extremely proud that we crack that nut, as I said in my remarks, when you -- AI efficiencies has been a little bit elusive to become tangible. And with this model what we are doing is we're providing our customers an effective way to make those savings real. So whenever you had a team of 5 engineers, they call it that way, now you may have a subscription that is much cheaper than those 5 engineers, but on the back, there's a set of the set of agents producing the software supervised by human that allow that the quality and the output doesn't have a hallucination and it's the same global quality as always. So that produces a much better alignment of interest between our customers and us. And that produce something that we are looking for, which is more and more conversations around that new model and that new way of doing things. I don't know, Diego, if you want to add.

No, I think, Maggie, to put it super simple, this is has been a discussion. We've been about the future of the company and how we provide value for a long, long time. I think time and people have been a good proxy of the value being delivered to our client, and that is not only the case. So our immediate approach was, let's engage in a different way. One would think like immediately that, that maybe the best way and approach has to do with turnkey solution, a fixed price. And truth to be told is that we don't like those type of contracts. But let me tell you why. Those have an end, don't speak about a relationship. Those have a set mandate. And the relationship you have with your client makes change, which is evolving product discovery, et cetera, case you don't want. And that's not the type of relationship with it. So we started exploring a new way of doing things. And I think on a subscription model pretty much represent that. Let's represent the value we are delivering in a different way. Let's make sure that, let's make sure we continue to provide value and efficiencies and quality, the way Globant 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 what we have put together.

The next question comes from the line of Jonathan Lee from Guggenheim.

How should we be thinking about the revised outlook as it relates to composition between ongoing ramps versus hunting versus farming? And how does that compare to composition from prior years?

So when you look at the full year number today, Jonathan, if you look at Q1, you look at the Q2 guidance, you're going to see that it's basically pretty much maintaining the same level of revenues for the rest of the year. So -- and the way we are building that is with the majority of that already contracted and we try to imports to reduce as much as possible any potential upside coming from coming or even from taking more risk on the farming side. So if we try to put out a number that we feel it is derisked to the extent possible. Of course, always, things can change, but we put a lot of effort into trying to put a number that has a higher degree of certainly than the ones or maybe a lower risk than the one we would have taken in another moment. Given the uncertainty that we are seeing given that we were expecting a better Q1 than we ended up being. We're expecting a recovery already into Q2 that is not showing, it's pretty much stable. And we try to say, okay, if this is not happening as we expected back in February. Let's assume that this uncertainty that we're seeing continues throughout the rest of the year, and let's try to put a number that removes most of that uncertainty, as I said, to the extent possible.

And just as a follow-up, can you update us on what you're seeing at your top me understand there was a 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?

At this point, we are seeing that account finishing around the mid-single-digit number, given that it started a little bit below where we were planning before, and looking already into the second quarter. So we feel that it should be more in line with a mid-single-digit type of year-over-year growth at this point. We are already in the process of having some conversations about some new things that they have recently mentioned on the press, but that is something that's going to take some more time to materialize.

The next question comes from the line of Sean Kennedy from Mizuho.

So I was wondering about the demand environment for professional services. It seems like it recovered a bit this quarter sequentially. And has your outlook changed significantly over the last few months with those pressuring the sector broadly?

Yes. So part of the recovery comes from -- during Q4, typically, there are full loss in that sector. Those are not in Q1. They typically happen in December. Part of the recovery is there, and we see a stable number for that industry. We're not seeing big changes neither positive nor negative. So it's going to be stable. We're going to see better numbers in other industries like BFSI, we are going to see better numbers in travel and hospitality. We're going to see better numbers in health care, for example.

Great. And then for Latin America specifically, are there -- I thought Globant was overweight financial services. Are there -- is it kind of just a broad pullback in the demand environment? Or is it really focused on a few key kind of sectors down there?

It's mostly focused on countries and sectors. Argentina is doing extremely well, showing very, very solid growth, but that is being offset by some of our customers in Brazil and Mexico. In Mexico, that's mainly BFSI. But when you look at BFSI, we are having good traction in the U.S. We're having good traction in Europe. So it's not a sector that as a whole will look bad, it can actually look good even with the issues in some of our customers in Latin America.

The next question comes from the line of Divya Goyal from Scotiabank.

I just wanted to get some color. On the capital positioning of the company with the current macro dynamics. So if you could provide how have some of the capital priorities changed? 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?

Thank you, Divya, for the question. I think the first question was about capital, right, and protection of -- cash flow generation, am I right? The second part was all margin, but just want to make sure.

Yes. So I wanted to understand the capital positioning of the company, sorry.

Yes, the capital position, okay? So we closed the quarter with about $155 million in net debt. We have about -- we have a facility which is up to $725 million. You have to keep in mind that low unusually consumed cash in the first half of the year and generates a lot of cost in the second half of the year. Having said that, 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 that are related to AI investments at the expense of some of maybe certain offices and certain things that we were able to postpone for the future. So we will be protecting cash flow generation. As I mentioned, cutting or reducing a little bit our -- prioritizing our CapEx investments, extending the payment terms whenever possible to some of our vendors. At the same time, we are working very hard to reduce the DSO.

And also on the M&A side, right? On the M&A side, we're -- will be much more focused on really value and generating deals that are accretive for the company. 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 specific -- much more limited. We have always been cautious so much more limited in terms of how we do M&A.

And then on the margins, the second part of your question, I also mentioned some actions that we're taking to work on utilization levels, which are below our target. We are working on efficiencies in terms of infrastructure offices. We are working on protecting our margin through being cautious in terms of pricing and so on and so forth.

That's helpful. Just to complete the discussion here, are you undertaking or anticipate undertaking any specific restructuring efforts in any of the global geographies you operate?

No.

No, Divya, not in the plan. We see a lot of, as Martin described, the pipeline is there, the need for technology is there, I think, uncertainty we have to at some point and companies will continue investing growth as they have been doing in the last 20 years.

And companies cannot avoid to go through this transformation processes. I mean, pretty much -- nobody can look away from the efficiencies that can be made using AI in every single sector of the company, the efficiency that can be done on how we interact with consumers, customers, how emotional value will 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 materializing into pipeline growth. And of course, I think decisions will be a little bit more fluid moving forward. But we hope that that's the new reality. But at the very beginning of the year, were a little bit tough, even more after we reported earnings with all the tariff things and things that happened that was absolutely unexpected by any case.

Our next question comes from the line of Arvind Ramnani from Piper Sandler.

Just a couple of questions. When you think about kind of the updated guidance, I'm really trying to understand kind of what's going to drive some upside or downside, so in a sense like you have then. If you're looking at this like 8 months from now and you come in sort of below sort of your updated guidance, what would have need to happen? And if you were to come back kind of closer to kind of the prior guidance, you basically kind of gave 3 months ago, what will drive that? And what I'm really trying to figure out is that things are moving fairly quickly, both on the tariff side and the macro side. So I don't necessarily want to be overly optimistic or pessimistic, but I'm just trying to figure out the factor that can get us to a different range than what you've guided to.

The way the numbers are built. If you think about our prior guidance, it was -- we were expecting to lose $623 million at the midpoint. And then Q2, Q3 and Q4 had embedded sequential growth is there, right? What ended up happening was that right after we recorded, we saw a deteriorate -- it's frozen. I don't know -- Are you hearing okay?

Yes, I can hear you perfectly. Video is frozen. I can hear very perfectly.

Okay. So what happened when we reported was that things got a lot worse, and we were not able to offset those challenges already in Q1. So we ended up a notch below what we expected. And looking into Q2, we are seeing that we're going to be just a little bit up relative to Q1, right, sequentially. And we are seeing stabilization in other regions. So somehow, we said, okay, let's assume that this uncertainty will continue. We cannot assume a meaningful recovery in the second half of the year because or at least we 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 that 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 a lot very, very quick. And what we believe is that the vast majority of what we are seeing was due to other changes and uncertainty that is happening and impacting our customers. Hence, if those things go away, the pipeline is there, the opportunities are there. The guys in the field are bringing the opportunities. We need to close more and we need to close faster. In terms because things get better, there might be some ups on the opposite, as you said, if things go the other way, at least what we try to do with this guidance is put a number that we feel is as safe as possible with the current scenario.

Perfect. That's certainly helpful. And I guess there's obviously some level of number of working days and everything seasonality that naturally impacts sequential growth, I understand that. With that said that when I look at your Q1, right, it was negative 5%, and then Q2 is like flat, which just mathematically implies like a 500 bps turnaround in terms of like sequential growth, right? Like I mean basically, between Q4 and -- Q4 of last in Q1, your revenue declined. But obviously, it's going to be flat Q2 also is about like flattish about 1% in order to -- is there optimism and that's getting you from like your decline in Q1, in Q2, you're going to start seeing back to flat.

Yes. But again, we tried to put out a guidance that contemplates the uncertainty that will come in front of us. We see the second quarter as stabilizing very clearly related to Q1 as of now. So the numbers that we are putting to the extent possible include all that uncertainty and hopefully allow us to at least meet those targets.

Great. And just one last follow-up is, I mean, one could argue that you had a good macro in January and February and March when things started to shake, April was kind of the worst month, and April sits more than Q2. So given that the last 6 weeks are probably the most volatile. How the last 6 days gone for you guys?

I think going -- the second quarter numbers showing some stabilization in a way are part of that. We are not seeing deterioration. That's what I can tell you the number shows a stable number throughout the year. We're not assuming any major or any significant improvement in the numbers that we put out. And we did take some -- I mean we tried to put a number again that at least we can meet.

Unfortunately, that's all the time that we have for the Q&A session today. With that, I would like to turn the call over to Martin for some closing remarks. Martin, please go ahead.

Thank you very much, everyone, for participating today. Really looking forward to see you on our next quarter's earnings. Thank you so much. Bye-bye.

Bye-bye.