Globant S.A. (NYSE:GLOB) Q4 2023 Earnings Call Transcript

Globant S.A. (NYSE:GLOB) Q4 2023 Earnings Call Transcript February 16, 2024

Globant S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Arturo Langa: Good day, and welcome to Globant’s Four Quarter 2023 Earnings Conference Call. I am Arturo Langa, Head of Investor Relations at Globant. [Operator Instructions] Please note this event is being recorded and stream live on YouTube. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com. Our speakers today are Martin Migoya, Co-Founder and Chief Executive Officer; Juan Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer; and Diego Tartara, Chief Technology Officer. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions.

Such statements are subject to the risk and uncertainties as described in the company’s earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globant to our peers in the industry. You 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 now like to turn the call over to Martin Migoya, our CEO.

Martin Migoya: Good afternoon, everyone. I’m happy to be here to report our earnings results from Q4 and the full year of 2023. As we mark our first 20 years, we are very proud of what we have accomplished as a company. First, our quarter’s results. In Q4 2023, Globant made $580.7 million in revenue, representing an 18.3% increase year-over-year and 6.5% quarter-over-quarter. We continue to demonstrate our ability to grow profitability, to generate cash, and to manage our robust balance sheet. Total revenue for 2023 was a record $2.1 billion. This was above our guidance and represents 17.7% year-over-year growth. Last year, we entered over 10 new markets, each with exciting growth opportunities for both our clients and delivery networks.

We also began exciting relationships with more than 250 new clients. We keep expanding and diversifying our service offering. The Globant concept means the simplicity of having a trusted end-to-end partner, one that can craft multiple solutions with a larger breadth of services, platforms, and capabilities. Over the past year, we have launched seven new studios in line with the expanding needs of the market. I am encouraged to see that Globant’s global recognition continues to spread. Brand Finance has recently named Globant as the world’s fastest growing IT brand and the fifth strongest IT brand globally. The future growth of our total addressable market remains promising. After an uncertain 2023 for IT spending, Gartner estimates momentum to return in 2024 with 6.8% expected growth globally.

From cloud migration to data management strategy, digital branding projects to AI initiatives, companies are resuming investments to stay ahead of the innovation curve. We see this change reflected in our pipeline. Clients are requesting a wider scope of transformation projects that require more sophisticated and dynamic solutions. As we close 2023, we saw a higher demand for projects with AI components. The AI-related business is outpacing the total growth of our service offering. According to Forrester, generative AI will have a 36% CAGR through 2030 to finally capture 55% of the AI software market. Gartner estimates that by 2027, 90% of service providers will use generative AI for software development services, including code compiling and optimization, automated debugging, and automated quality assurance testing.

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Q&A Session

Globant has been significantly investing to take advantage of the estimated $450 billion opportunity we see in AI services. Since the consolidation of our AI studio, we have built up capabilities in the space that are ready to apply now that AI is going truly mainstream and with IT service companies as the proxies for adoption. Globant has completed over 500 AI-centric projects in nearly every field of AI, including predictive analytics, natural language programming, computer vision, and custom-made neural networks, among others. In generative AI, we have been leveraging many of the large language models since 2017 in internal applications, powering efforts behind code enhancement, feedback, and testing tools. This has given us a lot of support a head start in developing and deploying GenAI.

One example is our work with the Latin American e-commerce powerhouse of Mercado Libre. We are leveraging generative AI and machine learning for provider assistance, fraud and anomaly detection and generation of financial reports. We are particularly excited about this project due to the impact it can have on the Mercado Libre ecosystem, which includes fintech, logistics, digital marketing and more. We also see a great opportunity to take advantage of the heightened appeal we see in spatial computing. This technology is blurring the line between the physical and digital experience. Similar to the iPhone moment that GenAI had last year, spatial computing is gaining traction as new and exciting products, such as the Apple Vision Pro, are becoming widely available.

This presents a timely opportunity for us because we have been working in the space since 2022, when we began our work with Magic Leap. We drew on the expertise from several of our studios to partner with them to develop their Magic Leap 2 headset. Currently, GeneXus teams are developing an accelerator specifically designed for visionOS, the operating system of the Vision Pro. The accelerator will help create applications that inherently understand and adhere to the design and experience paradigms of visionOS. We will be offering a beta version to clients next month. As Globant has been able to deliver early on in the generative AI space, we are confident in our ability for a similar execution as the spatial computing sector grows. I am confident that Globant boasts one of the more sophisticated and proficient teams in the world to make this adoption happen.

As a company, there are several growth drivers that will move us forward. First, our global footprint. Every year, Globant is more diverse. We are now present in a total of 33 countries. No one country contains more than 20% of our workforce. This enables us with the adaptability to scale our projects as quickly as is required, regardless of time zone, culture or logistics among our global delivery network. Our prominence in Latin America, our home region, is particularly beneficial right now, as more of the biggest companies choose this region due to its proximity, multilingualism and adaptability. In the past months, we have made significant investments in Mexico and Brazil, the two largest economies and responsible for 38% of Globant’s revenue in the region, because we are eager to take up this demand.

In Mexico over the past year, we have established a new team specifically dedicated to life sciences to address the fundamental changes and growth of the sector in the region. In Brazil, we have almost doubled our team over the past year, betting high on keeping our leadership in enterprise applications, especially salesforce, and reinforcing the economy digital transformation projects with the acquisition of Iteris. We are optimistic about our future expansion this year as we see a robust business pipeline and organizations IT expenditures recovering compared to last year. Regarding our studios, the consolidation into our four studio networks is fostering ecosystems of ideas and expertise among our specialized business units. Cross-pollination between studios is strengthening the 360 natures of our solutions as well as creating a pathway to cross-selling.

Beyond showcasing the amazing portfolio of services Globant offers, it mirrors our vision for the industry moving forward. For example, the most recent acquisition of GUT that Diego and myself will expand on later is a step of our drive to reinvent the creative marketing industry through technology. Through areas such as our enterprise studio network, which has experienced a 4x increase in the past four years, we can serve clients regardless of their enterprise software of choice. Being cloud agnostic and vendor agnostic enables us to scale our adaptable solutions to each client. We see increasing growth interest in the sports and entertainment industry as the sector reinvents itself. Streaming is quickly becoming the number one way to view live and sports.

Additionally, companies will need to rely on zero and first party data to maintain loyalty as fan engagement this year will likely become cookie less. Globant has proven expertise in both areas as well as in creating comprehensive fan experiences from working with FIFA on their FIFA Plus platform to helping top sports teams understand their fan behavior. We focused our expertise and growth in this space through our joint venture with LaLiga last year known as Sportian. By leveraging technology, data, experience design and business strategy, we are able to create new experiences emotionally connect with fans around the world and create tangible value for fans, players, sponsors and sports organizations in a sustainable way. We have recently established the Sportian Advisory Board.

The first members include Manu Ginobili, NBA All Star and George Gregan, Australian rugby captain and World Cup winner. We look forward to working with them to make our mark together on this fascinating and rapidly growing industry. In addition to our organic growth, Q4 saw the incorporation of exciting new members to the Globant family, including Gut in the United States and Iteris in Brazil. Announced in late November, Gut brings a fire of creativity to Globant. They were recognized as the 2023 Cannes LIONS Independent Network of the Year and Adweek’s Breakthrough Agency of the Year. They work with over 60 clients globally, including AB InBev, Kraft Heinz, Coca-Cola and Mercado Libre. Technology and creativity have never been more closely linked than they are today.

We always say that Globant is where innovation, design and engineering meet scale. And we couldn’t be more excited to bring the world’s most creative global network into the mix. We are also thrilled to support Gut’s global expansion and to keep Gut’s leadership team in place with a continued focus on building culture and driving growth. Both companies will now work together to identify valuable cross -selling opportunities. The acquisition of Iteris, a Brazilian business and technology consultancy specializing in digital transformation, is a doubling down on our commitment to Latin America’s largest economy. They have over 600 experts in industries, including payments and banking, manufacturing, communications, education, retail and healthcare.

We keep expanding our connections with our community as well. With record attendance, we had our annual Converge event bringing together fascinating and influential thinkers who are on the cutting edge of technology. I enjoyed my own conversations with Marc Benioff from Salesforce and [inaudible] from New Bank on the future of technology and what it means to transform industries. You can check them out as well as the multitude of content at converge.globant.com. On a personal note as I close out, it was an emotional moment for us to commemorate our 20th anniversary at the New York Stock Exchange on December 4. Seeing this company grow from my three co-founders and I in a bar to a global team of more than 29, 000 creative minds has been fantastic.

However, I genuinely believe that we are just scratching the surface of what we can do. Company-wide entrepreneurship, creativity and resilience will push us forward over the next 20 years. With that, I will hand it over to Diego Tartara, our CTO. Thank you very much.

Diego Tartara: Thanks Martin and hello everyone. I’d like to begin with two major technology trends that present interesting growth opportunities for Globant. First, there’s a growing synergy between the digital and physical worlds through AI-powered wearables. Products from companies like Rabbit, Humane, Ray-Ban, Meta and Apple enhance decision making for users and foster a more human-centric experience. Many of these products, such as the ML2, R1 or the Vision Pro, may revolutionize how we interact with technology in an intuitive way. Second, the integration of virtual and augmented reality into the digital experience. We see this trend gaining momentum through innovations like Disney’s Holo Tile Floor. This technology enhances collective digital interaction for a more immersive experience, applicable to the metaverse, live-action shows and many other instances.

Organizations that want to leverage the best of both trends will rely heavily on AI and machine learning. This is where Globant’s expertise comes into play to actively collaborate. We see a shift from isolated proofs-of-concept to full integration with experiences and processes. We have shared our vision of the AI market in our recently published Tech Trends report, which also expands on our perspectives on other disruptive trends, including quantum computing, robotics, blockchain and immersive experiences. I encourage you to check it out at reports.globant.com. We continue to position our studio networks to expand and diversify our value offering. The incorporation of Gut into the Globant family means a major growth step in our Create Studio network.

As Martin mentioned, our ability to offer current and future clients new ways of engaging and surprising users will be impacted big time. Also within this network, we have created a new studio to focus on customer loyalty. According to Forrester, over 50% of leading companies plan to increase their current investments in customer loyalty programs in the next two years. Globant’s new loyalty studio brings together our related experience in aviation, retail, and sports, among other sectors, as well as strong expertise across payment systems, digital wallets, digital currencies, blockchain, AI, and more. A recent prime example of our expertise has been our work with the LA Clippers. This program represents a non-traditional initiative designed to incentivize specific fan behaviors both at home and in the venue.