Globant SA (GLOB) 2025 Q3 法說會逐字稿

Good afternoon, and welcome to Globant's third-quarter 2025 earnings conference call. I am 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. We will begin with remarks by our Chief Executive Officer, Martin Migoya; our Chief Financial Officer, Juan Urthiague; and our Chief Technology Officer, Diego Tartara. This will be followed by a Q&A section.

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 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, everyone, and welcome back as Globant presents its earnings for Q3 2025. We appreciate your continued interest as we navigate the ever-evolving technology landscape. Our commitment to innovation and reinvention remains at the core of who we are. The speed of change is only accelerating. This quarter, we're excited to share how we are not only adapting to market trends but also proactively shaping the future of our industry.

Our focus on sustainable growth and delivering exceptional value continues to drive our efforts as we look ahead. Our business fundamentals remain strong, and we continue to perform by putting innovation first. Our AI studios bring together our talent to provide a new kind of AI-based solutions specific for each industry. They transform how consumers interact with brands and how our clients run their businesses.

Our AI bots are our next-generation offering designed to deliver agentic AI-based services that scale faster, operate more transparently, and focus on measurable outcomes. They combine the speed and autonomy of AI with the creativity and oversight of our experts, enabling customers to access continuous outcome-driven transformation at scale. All our agentic AI-based solutions from our industry-specific AI studios to our AI bots are orchestrated through Globant Enterprise AI. Our central intelligence platform that acts as the golden path for enterprise-wide AI adoption and impact.

Delivered through a transparent consumption-based model, it transformed AI from isolated experiments into predictable, scalable, and measurable source of enterprise value. Together, these elements form the backbone of Globant's growth to provide value for our customers and shareholder returns.

During Q3, we generated $617.1 million in revenue, $2 million above our most recent guidance. We also launched a share buyback program, reflecting how bullish we are on our long-term prospects. The pipeline has set another all-time high currently at $3.7 billion, representing 30% year-over-year growth. It marks the solid demand we see for our services and it grew this quarter despite very strong bookings.

AI continues to emerge as the world's dominant technology. With an expected market of $4.8 trillion by 2023, it will have made a 25x increase in one decade. Over the past few months, we have seen a healthy dose of realism in the AI space. There has been a shift beyond hype towards tangible and effective adoption. We see a tremendous potential in AI transformation today.

While Software as a Service has played a crucial role in corporate technology by providing efficient and scalable solutions, our new AI bot subscription model represents a significant evolution in how organizations can leverage technology. With our AI bots we empower leaders to develop tailored solutions that effectively address their unique and ever-changing needs.

Our AI studios and core studios are having these conversations with our clients to provide clarity in AI transformation, build versus buy, and cost optimizations that are top of mind for corporate leaders today. Since doubling down on our 100 square strategy this year, we have seen the execution being shown in bookings and revenue.

Our top five clients grew sequentially by 2.1% exceeding the company's average growth over this period. The share of clients we have identified as hundred square potential as part of our total bookings is currently 56.7%, up from 50% last year. Today, we have over 1,000 engagements related to Gen AI, core AI or data currently running, representing one-third of our overall projects.

We have over 900 projects related to AI readiness in our pipeline. The new offering of AI bots, a departure from traditional consulting engaging models, has nearly doubled in its share of our pipeline. This growth significantly outpaced the overall pipeline expansion.

Clients access these solutions via the Globant Enterprise AI platform, which serves as a multipurpose hub. First, as an AI Hub connecting seamlessly with more than 140 LLMs. Clients can interact with the LLMs that is best for their needs without being locked into a single provider. Second, it is a corporate hub that connects with all major corporate information systems and data lakes like SAP, Salesforce, Databricks, and many others. And third, an agent hub that allow clients to create agentic workflows to automate corporate processes.

Globant Enterprise AI can be acquired on a subscription basis. This shift to our subscription revenue model is not just a theoretical goal. It is actively underway in our most valuable client base. Within our top 20 customers, a group that collectively represents close to 40% of our total revenue, we're currently embedding our subscription model with 17 of them in meaningful ways.

This is a huge milestone, specifically considering we officially launched this methodology in June of this year. We're encouraged to see how our clients are incorporating this new model. For example, at YPF, the largest shale oil operator in the world outside the United States, we're moving into full execution with 46 agents to optimize sourcing, inventory, contract, and supplier management, bringing clarity and efficiency to how the company interacts with its complex supply chain.

As you know, Globant has a talent for applying AI to reinvent the human experience in entertainment, which is why we are particularly proud of our new engagement to bring agentic process to La Liga, one of the world's top sports league. Diego will expand on this later.

A great example of our growing partnership is our work with Natura, the Brazilian multinational cosmetics company. This quarter, we announced that Globant will lead their for S/4HANA migration, chosen for our ability to seamlessly integrate innovation and AI into SAP methodology, development and testing while enhancing traditional implementation efficiency.

Together with SAP's show, our AI agents and platforms will accelerate delivery, reduce time to market, and support the clean core strategy by anticipating deviations and suggesting real-time corrections. Governed by our AI agents, this project brings a new vision from how technology can transform SAP implementations and drive business performance.

This month, we also announced an important partnership with Riot Games, the company behind global e-sports phenomena, League of Legends and Valorant. Globant will support its advancement in artificial intelligence, new game development, e-sports experiences, and software engineering capabilities.

Over the next several years, both companies will push the boundaries of technology to deliver richer, more personalized experiences for millions of players and fans globally. This partnership is one of the largest agreement in the history of our games business. We are proud to work with companies that continue to shape global e-sports culture and inspire millions of players.

We are making decisions to unlock the full power in our core studios as well. We recently announced that all of Globant's marketing and advertising efforts were consolidated under the GUT brand umbrella. Today, Globant and GUT bring a uniquely consistent and complete value proposition to the entire C-suite empowering CTOs and CEOs to transform their business through technology while helping CMOs push creativity and marketing performance better than ever.

Just as Amazon transformed the technology landscape by removing friction from how business access and scale computing infrastructure effectively, inventing the modern cloud industry, we aim to do the same for technology and professional services through our AI bots and subscription model. Traditional consulting engagements are filled with friction, lengthy planning cycles, detailed scope definition, change request, and constant budget negotiations that slowed down execution and diluted impact.

Our AI bots eliminate those barriers by combining agentic AI with experts human oversight in a transparent, token-based subscription model that focuses on outcomes rather than ours. We define supervise token capacity and continuous monitoring, execution becomes faster, auditable, and adaptive, allowing our clients to focus on delivering value instead of managing project logistics. We are not just refining consulting, we're leading a revolution in how business access technology and professional services.

Thank you for joining us on this exciting journey.

Hello, all. As we look at the third quarter, one thing has remained constant. The urgency for enterprises to deliver measurable results through AI. We have tirelessly enhanced our portfolio of services and products around that very premise, to enable our clients to apply AI faster and effectively to unlock business value at scale. What we are doing with La Liga is a great example. The world's most successful football league is becoming the first global sports organization to adopt agentic models to reinvent its business end-to-end, from talent development, performance analysis, workflow automation to personalize content creation.

This quarter, we also expanded our footprint in immersive high-impact experiences. Through our strategic collaboration with Adobe and Red Sea Global, Saudi Arabia, vertically integrated real estate developer, together, we're building a connected visitor experience platform. From trip planning to arrival and stay, the platform unites content, data, and aviation to deliver personally contexture journeys at scale.

Globant Enterprise AI is at the core of our AI-centric solutioning and keeps delivering on our commitment to make it the best common gateway for clients to navigate the complex forest of AI. Less than a week after OpenAI launched the Agentic Commerce protocol in late September, we released a new version of Globant Enterprise AI, including ACP and enabling our clients to create Al agents capable of executing commercial transactions safely and intelligently.

Our partner ecosystem remains critical to scaling our AI vision. And as we see that our clients' biggest challenge is not the lack of technology but the complexity of integrating it for real business outcomes or how to make their long-standing core systems agile, intelligent and cloud native without disrupting the business.

With Unity, the world's leading platform to create interactive experiences, we joined a service partner program, combining Globant's global footprint with Unity's real-time 3D capabilities to power new immersive and interactive experiences in industries such as automotive, health care, and manufacturing. With AWS, we achieved the MSP partner program designation, recognizing our ability to deliver end-to-end cloud transformation and manage mission-critical operation at scale, a fundamental layer for AI option.

While other provides basic cloud migration, Globant differentiates by focusing on cloud-native development and optimization. We leverage the full stack of AWS services from serverless computing to their bedrock AI platform, to build resilient, scalable, and cost-efficient solutions.

With Microsoft, we have been appointed as finalist of the 2025 Microsoft Media and Telco Partner of the Year Award. Globant was honored among more than 4,600 entries from more than 100 countries for demonstrating outstanding Microsoft cloud application services, devices, and AI innovation during the past year. And by joining the IBM Quantum network, we are preparing our clients to embrace quantum computing and unlock the next computing paradigm, ensuring they remain ahead of the curve as the future of intelligent systems unfolds.

GUT, now powered by Globant's global creative and marketing capabilities, keeps accelerating cross-selling and elevating leading brands, including AB InBev, P&G, MercadoLibre, Easting, Kraft Heinz, Verizon, and Havaianas. Also Brazil's team created the first fully AI-generated campaign for MercadoLibre, Latin America's largest e-commerce platform in partnership with Samsung. Additionally, the official Cannes Lions report was published, listing GUT as number 9 Global Agency Network at Cannes Lions 2025. Across sectors and geographies, our team continued to execute with passion and creativity.

Our AI pods are gaining traction. Our AI platform continues to improve and new industries are embracing our approach to reinvention. We believe the winners will be those who act decisively today, and we are positioning Globant to help them accelerate that journey as we continue shaping the future of enterprise transformation. Thank you very much.

Hello, and good afternoon, everyone. I am pleased to discuss our third-quarter results. During this period, we increased our top line, expanded profitability, and generated strong free cash flow, all while maintaining a prudent and healthy balance sheet. Our revenues reached $617.1 million, up 0.4% year over year and 0.5% sequentially, exceeding our previous guidance expectations. Excluding the positive impact of foreign currency, revenue was flat year over year.

Turning to profitability. We closed Q3 with an adjusted gross profit margin of 38.1%, flat relative to our previous quarter despite significant FX headwinds coming from LatAm currencies. Our adjusted operating margin reached 15.5%, an increase of 50 basis points sequentially. In addition, this quarter, we managed to dilute adjusted SG&A by 20 basis points sequentially.

The effective tax rate for the quarter stood at 29.4%, increasing significantly due to the acceleration of the Argentine peso depreciation during the quarter, which resulted in higher taxes than anticipated. We were able to partially offset this impact with FX hedges. Despite the mentioned tax effect, we achieved an adjusted net income of $69.7 million with an 11.3% adjusted net profit margin, flat relative to our previous quarter. Adjusted diluted DPS for the quarter was $1.53, based on 45.6 million average diluted shares, in line with our guidance.

Our balance sheet remains strong, ending this quarter with $167 million in cash and short-term investments or $205.3 million in net debt. We repaid $56.7 million of our debt during the quarter, reducing our total leverage.

During the third quarter, we generated $67.5 million of free cash flow, achieving a free cash flow to adjusted net income ratio exceeding 96%. This strong performance is consistent with our historical pattern where free cash flow generation is much stronger in the second half of the year. Lastly, as mentioned by Martin, we have authorized a $125 million share repurchase program, which reflects our belief in our long-term strategic position and our commitment to enhancing shareholder value.

Now let's turn to our guidance. Demand trends across our client base have started to stabilize, though the macro environment remains fluid. For the fourth quarter of 2025, we expect revenue to be at least $605 million, reaffirming the implied guidance provided in our prior earnings call. This Q4 guidance implies a minus 5.8% year-over-year growth and includes a positive FX impact of 150 basis points. We expect a non-IFRS adjusted operating margin to be at least 15%. And the IFRS effective income tax rate is expected to be in the 22% to 24% range.

Non-IFRS adjusted diluted EPS is expected to be at least $1.53 per share, assuming an average of 45.2 million diluted shares outstanding during the fourth quarter. For the full-year 2025, we now expect revenue to be at less 247.4 million, representing 1.3% year-over-year growth. This expected growth includes a positive FX impact of 30 basis points.

We now expect our non-IFRS adjusted operating margin to be at least 15%. And IFRS effective income tax rate is expected to be in the 23% to 25% range. Our full-year non-IFRS adjusted diluted EPS is expected to be at least $6.12 per share, assuming a full-year average of 45.2 million diluted shares outstanding.

To conclude, while much of the uncertainty persists, we are confident in our market position and ability to adapt. Our DNA is built on constant reinvention and industry-leading growth. Based on our operational discipline, we will continue investing in our AI studios, our subscription model, and top-notch talent to deliver differentiated value to our customers. Thank you for your continued support, and we look forward to sharing more updates on our growth and achievements in the coming months.

Puneet, JPMorgan.

So I wanted to ask about AI use cases. Like are you seeing clients looking for AI use cases in Globant/GUT area, like AI-powered form factors for customers to do retailing or banking through new form factors?

Thank you, Puneet, for the question. You said new what?

So the new platforms like the new way, like in which consumers can buy stuff or do banking, like the -- which is powered by AI?

Yeah. I think the whole the whole consumer experience is being transformed, and there's a lot of active projects that are going into the direction of changing that interface from a navigational interface towards a transactional or I would say, a conversational interface. And in that direction, we have been doing several projects on those areas, in many different customers.

But it's not just connected to financial services. I would say that this kind of conversational interface is being seen in many different areas and in many different type of industries.

So I would love Diego to take it over.

Sure. So Puneet, here is a an overview of how -- what we are seeing and how it's working. Many large companies, especially the ones that are heavily regulated, what they're doing is they're building their platform for AI transformation and development. But while doing that, they are already doing AI projects.

You mentioned, as an example, financial services, fraud detection is one of the examples. Hyper customization for client management is another one. With regards to operation -- internal operation, portfolio management is being also handled by agentic systems these days.

So that is how it looks now, even the most regulated sectors are jumping into AI, doing AI project. There's -- I have to say that more than half of our projects are heavily related to EI these days -- AI, sorry.

No, that make sense. The reason I asked like it seems like is like there is like lot of demand -- like the underlying demand for AI, but like that's not reflecting in overall results. So do you think like the clients are at a point that like all those AI use cases and AI projects that they are ready to move them into mainstream or into production so that can overcome like the weak macro or other headwinds that you've faced?

Basically, can -- like should we expect like much better growth rates next year based on the pipeline, based on what your clients are saying compared to current trends?

Yeah. I mentioned in my part of the speech, I was saying Puneet, the pipeline grew to something that was 30% higher than the same period last year. And about 900 projects are currently being inside a pipeline that are based on this kind of AI transformation projects. So I see a clear evolution from the beginning of the year in which projects were more exploratory, and now there are more kind of transformational efforts going across the different parts of the company.

And this is not just on what we were talking before, which is consumer interaction, but also on how to run processes. And specifically on that case, we announced the case with YPF, but also the one with Riot Games, with the one with Natura, which AI kind of takes a central role. And I think that this is something that will keep on evolving as we move forward.

Also, our AI bot offering is also gaining a lot of momentum. It's kind of -- the pipeline more than doubled from what we had on the last quarter, just in 2.5 months, then we launched the initiative. Bookings are also high. The number of customers got increased substantially, too. So we are seeing that AI is taking like a central role. But it's very clear that digital technology is making an impact.

And again, it's not that it's easy to implement one of these things and make it productive and make it into production for large corporations. We're talking about probabilistic systems that needs to be managed in a slightly different way from the traditional systems. And that will require a lot of our help to our customers moving forward.

And I see pretty much all the industries now growing as opposed to the last few quarters. All of the industries are moving forward. And I see pretty much all the industries now growing as opposed to the last few quarters, all of the industries are moving forward in terms of revenue. So that is helping. And as you have seen on the news, we have announced many deals with many different big companies and large deals in many different sectors. So I hope that will propel the revenue for 2026, and we will see good growth next year.

Bryan, TD Cowen.

I was hoping if you could just help us connect the strong pipeline commentary with the operational headcount dynamics just sequentially understanding we're going through a transition here. But can you give us a sense of just early 2026 client budgeting conversations, We're just trying to determine when a growth trough may form for you.

And just any early commentary you're willing to share here on next year's top-line potential?

Yeah, I would take the pipeline, the pipeline thing. The pipeline, as I said, is much higher. The conversion speed as opposed to what we see in the first half of the year has also increased in the last few months, so that makes us happy.

And I would say that we see a clear evolution towards the end of the year with all the deals we have. In terms of the headcount, I would like to take it to Juan to answer it.

Look, in terms of head count, as you know, last quarter, we announced a business optimization plan to align our company, our headcount, to the needs of the business, given the changes that we put in place in terms of industry studios, in terms of subscription model and also looking at the level of growth. You have to keep in mind that we started the year with expectations of much higher growth.

Now all that is aligned. We are seeing flattish type of numbers for fourth quarter. And when we look into 2026, when we look at how the new AI studios, the new AI industry studios are tractioning combined with the traction on the pipeline. And also, on our top customers related to the subscription model, I think that, that puts us in a much better place to start thinking about 2026.

The conversations with customers are ongoing. Everybody is finalizing budgets. When we look at all our internal numbers -- initial numbers, we are seeing more growth in '26 than what we have now for the rest of the year in '25. So we are optimistic.

I think that the situation is improving. You start to close deals like the one we recently announced with Riot Games or the one -- or some other things that are being worked right now where they are growth oriented. And for us, that's always great news, right? When we start to see or the deals we are doing with YPF or with MercadoLibre, a lot of those deals are growth-orienting.

And when that happens, we tend to do better. We're going to gain market share. And that puts us in a much more optimistic position relative to '26 than what we were before. And as you can see, we -- I mean, after a difficult year in terms of guidance and everything, this quarter, we were able to maintain the implied fourth quarter. We were able to raise a little bit the full-year number based on the $2 million that we exceeded the number in Q3. So in general, we think it's a much better quarter, and we are optimistic about '26.

Okay. That's helpful. And maybe just one on the margin front. So obviously, that's a bigger focus for you going forward. Talk about the early efforts around efficiencies, and how you're feeling about those efforts?

Yeah. So this quarter, we had a good quarter in terms of operating income. It increased about 50 basis points sequentially during Q3. Together with accelerating growth we have mentioned over the last two or three calls, and we continue to mention that there is a much bigger focus also on maintaining or improving margins. Also on our free cash generation, it's a moment that, until the level of growth becomes much higher, we need to pay attention at the same time to all those variables together, right? And that's what we are doing. We will be executing on that.

When you look at, for example, the CapEx levels going forward, they are going to be a little bit more aligned to the current levels of growth. So we are paying attention not just to the revenue to the top line, but also to the gross margin, and you can look at the numbers.

There has been a lot of peers taking margins significantly down. We have been very cautious on not doing that. If you look at our margin, gross margin stable, operating margin improved. And when you look at the fourth-quarter operating margin is again above 15%. So we are trying to balance all the different things that are happening at the same time.

Bryan, Citi.

I just want to ask about the pricing environment in general. There's some concern just with Gen AI that there's pricing pressure through contracts and contract pricing as cost saves get passed on to clients.

How do you guys think about the whole pricing environment through -- as Gen AI gets put into all these contracts? And what do you think of pricing as you head into next year?

Thank you, Bryan, for the question. (technical difficulty) a lot of value added, and that helped us to position the pricing in the place we want. Indeed, the revenue per head is doing okay. So it's not changing or going down. So that's a good sign of us being able to maintain that pricing efficiently.

But the most important comment, I would say, is there's a very strong connection between what you offer and how much you can charge for that, and which is the value that you're creating for your customer to that value creation and to that specialization. And now with our AI Studios are capable of delivering like a very substantial know-how for each of the industries in which we specialize.

Plus our core studios are bringing solutions that can go across pretty much all the industries and I think that value proposition is resonating quite well. And if we add on top of that, we are accelerating the offering. And now we are discussing with 17 out of the 20 top customers the next-generation model on how to engage with us, with our AI bots and with the subscription model.

And Enterprise AI, which is our platform also is gaining a lot of traction. Each time we sell an AI pod, it has to do with our Enterprise AI platform. So I believe that this is being accepted and this has been like -- we are able to reflect that on the price that we put on proposals, hence, maintaining our margin and maintaining our revenue per head.

I don't know, Juan or Diego, if you want to comment?

I think I pretty much summarized it. If you think about the individuals like on a profile basis, and you tell me how does probably that price compared to what it used to be four years back, yes, there is pressure there. But the mindset today is about efficiency. The mindset is about business impact.

And when you talk about that, and that's one of our main strategies with the AI Studios, when you talk about that, conversation changed completely. So -- and that's why we've been able to maintain our revenue per head.

Got it. And then -- that's helpful. And then just, Juan, just thinking about the third quarter being roughly flat in revenue growth and then it drops to about 7% organic ex-currency. Can you just help us to step down in revenue growth? What's causing that?

And then I'm guessing this might be the trough in revenue growth in the fourth quarter? And then what does the first quarter look like sequentially?

On the -- talking about the fourth quarter, the main impact that we have over there are the full logs in -- mostly in professional services, that's impacting pretty much -- that's explaining pretty much the decrease on a sequential basis. When we look at -- and I'll just give you some color on Q1. But when we look at the Q1 right now in all the initial numbers that we are seeing, we don't see any scenario similar to what we had in the last few years.

For example, 2025, Q1 was sequentially down 4.7%. And we don't see anything similar to that at this point, anything at all. And that puts us in a much better place to get the year -- that gives us also some -- when we look at, okay, how the year is building up toward the conversation with the customers, watch each AI studio is bringing to the table, which are -- we have to just sign a very large deal with a gaming company as we discussed.

When we accumulate all that the Q1 number is definitely a lot better than what we have seen in prior years, right? And I think that puts us in a much better place getting into 2026.

Maggie, William Blair.

I wanted to put a finer point on the margin question, particularly as it relates to SG&A. Can you drive more SG&A dilution from here? And are you planning to? Or is this a reasonable level for SG&A to settle as a percentage of revenue?

Yeah. We closed the quarter at 17.7%, almost 1 point below Q4 last year, for example. There is -- of course, there's always room to keep on diluting over time. But we also need to balance the growth that we expect to recover. We need to balance all the changes that we are making in terms of our offering, all the changes we are making about our business units with all the industry studios. So there is more room. But I mean, as always, you need to keep looking at 10 to 20, even 30 basis points of dilution every year, not more than that.

But definitely, as a business, this is a business that has the potential to run about 15% SG&A over time. But it's something that you have to achieve as you scale, right? When you look at which are the companies that are running at those levels, those are the ones that are already at a very large scale. I think that 17.9%, 17.8%, 17.7%, it's a good number for the size that we have right now, given all the different things that we are doing these days, right? So I think that's how we see SG&A.

That's helpful. And then it does sound like there's some momentum building across the business. I was wondering if you could comment on professional services, in particular, maybe if you back out the impact of the furloughs that you already commented on. Do you feel like that vertical is showing signs of stabilizing?

Yeah, definitely. I mean when you look at -- and I think when we are looking into Q1, for example, it's one area of recovery, right? I mean after the full logs in Q4, we have started to see stabilization in one large customer that was impacting that group. Plus we are seeing growth in two or three others that will help us to offset what is -- what has happened to that customer that I mentioned before.

But even in that large customer, now it has stabilized in a new level, but we see opportunities to recover from this new level upwards. So we are -- I think on professional services, once we go through the full looks that's the bottom of that sector for us, and we should start to see better numbers going forward, starting in Q1.

Jim, Goldman Sachs.

We cannot hear you, Jim.

As Jim tries to get his line back, we will go on to the next participant.

Jonathan, Guggenheim.

Can you help unpack some of the vertical and geographic assumptions around that 4Q outlook and maybe the level of conservatism that you're receiving?

Yeah. As mentioned, the one sector that will come down further down is professional services because of the full logs that is going to impact in that sector. And pretty much for almost all other sectors are going to see stable numbers. So I think that's something that -- I think that after a few quarters of moving pieces, we are definitely seeing stabilization in the business with some green shoots that are putting us in a more positive way looking into '26.

This like some of the ones that we announced today have been on the cook for several months. And you start to see them closing, some of them and companies are again becoming more aggressive in terms of growth, and I think this is always a positive sign for Globant. Conversations are in a much better place than where they were six months ago. So we are more confident about '26. And we think that that's something that will be very positive for the business.

And also I think it's quite clear how -- the difference in terms of conversion that we have seen in the -- at the very beginning of the year. I mean at the very beginning of the year, everything kind of gets frozen, right? And now the things start to move, not at the speed we saw in 2021, but much faster than before. And that is quite remarkable because -- and also the pipeline generation has been quite strong because we closed like large deals.

And even closing those large, the pipeline grew a lot. So I think that dynamic is very different from what we have seen in the first half of the year. And that's the most remarkable part. That conversion coming back, our AI studios being able to articulate that value proposition much better. I think that evolution of Globant and that evolution of the market are two positive things to consider moving forward into 2026.

Appreciate that color guys. As you think about your confidence around 2026, what gives you incremental confidence that these client conversions or this pipeline conversion should continue into the middle of next year?

Well, we saw in the last few months, a lot of activity in the space. I would say abnormal supposed to one year ago or something like that. So I believe that this momentum will continue moving into Q4 and Q1 next year. That would generate increasing opportunities and incremental opportunities.

And as Juan said, we don't see something happening in the first quarter like happened in the first quarter of 2025. I mean first quarter of 2026 will be much more close to Q4 than it was before. So I think that, that's a positive sign of what we are seeing and how the momentum is coming.

Jonathan, I think that what we are seeing is mostly shared by the industry today. So I think that everybody has been more positive about the market, the overall market condition about 2026. So I think that we are -- after a few quarters of -- or a few quarters or even a few years, if you look at some of our peers of a very negative sentiment in terms of the market, in terms of the opportunities, I think that everybody is becoming a little bit more constructive, and we are on that same boat.

Yeah. And everybody is realizing that creating these projects takes a lot of energy and takes a lot of knowledge. And takes really deep knowledge of how to navigate the AI landscape that is exponentially growing and exponentially becoming more complex. So I think that discussion is coming to an end, and people are starting to realize that, yeah, they want to adopt AI. They need someone to help them adopt AI.

Hundreds of new projects that didn't exist before now are happening and are possible to happen. And then the traditional projects will need to keep on going now accelerated with the new AI technology. So the opportunity keeps on building, keeps on being very large for the whole industry. And I'm more convinced than ever that once we pass this kind of difficult situation during the first half of the year, the opportunities, moving forward, will multiply and expand our opportunities for 2026.

Maria Clara, Itaú.

I just wanted to explore more about how you can balance employees and growth ahead. So even the current headcount and utilization levels, do we believe that you need to hire new people through potential acceleration of growth in 2026? Or maybe your employees are becoming more productive with AI, so you are fine with your current headcount?

Thank you, Maria. So there's going to be a combination of slightly higher utilization and hires. We're going to be able to get back to higher levels of growth without incrementing a little bit our headcount going forward. We have made all the equalization or the balancing of the level that we need right now. But as we get into next year and as we start to see those deals materializing utilization, there is still room to go up because even though we increased 50 basis points, we're still below our target of 80%. So there is some room there.

But also we see that headcount is still part of the equation. Of course, AI increases productivity for our developers, but you also will see headcount growing as we get higher levels of growth going forward.

Leonardo, UBS.

First of all, congrats on the huge leverage reduction, 20% quarter on quarter. I've been particularly about cash generation. Now if you prove wrong, so congrats on the figure.

My question is about AI. I think you mentioned something about the embedded solution in 17 -- embedded AI bots in 17 out of the top 20 clients, right? You said they are embedded in a meaningful way. I would like you to discuss that a little bit so we can try to access how could that eventually become ready.

Leandro, let me first clarify what I said. I said inside 17 of the top 20 accounts, we are discussing about that. Not in all of them, we included already the AI bot, but in some of them, yes. But the important thing is that those discussions are progressing quite healthy. And I think the acceptation in general of the model around a consumption model instead of different kind of metrics, while you have like variable scope and you need to have a methodology that don't punish you and is more transparent than other methodologies that you have in the past, is the concept that has been extremely well accepted by our customers.

So what we foresee is that many new deals will come and are coming with that offering inside the proposal by default. So what we are seeing is a natural growth of the pipeline of this. The conversion of that is quite healthy. It's almost doubling the pipeline, doubling the conversion and the amount of customers is almost doubled from the 18 that we announced last quarter into what we have now.

So I believe that those are the variables to have in mind. I don't know if you want any specific explanation on how we are implementing those things, but please expand your question, if you want. You're muted.

Guess, I didn't learn since 2020. No, it's quite clear on that. I think just if you could talk a little bit, maybe this is difficult to predict, but maybe a little bit ahead three, five years, how much of revenue could come from subscription model? And if AI bots will be the single driver of outcome-based, out of time and materials? Or are you thinking on something else?

No. Look, I mean, I don't have like a prediction to share with you about how much of the revenue that will be. Yes, what I can tell you is that the model is progressing much faster than any other thing that we have proposed to our customers in the past in terms of next-generation proposals. So that's a clear sign that it will take over, I think, by storm next year.

But I cannot predict a specific number. I know you want to include it in the model, but the thing is I don't have a number to provide to you at this moment. It's just 2.5 months, but the things are the signals that we're receiving from the customers are very, I would say, positive.

Sean Kennedy, Mizuho.

So I was wondering if you could discuss what factors could raise conversion rates for the pipeline because as you noted, the growth there is robust. Is it just as simple as a better global economy? Or are there other factors like AI as in your customers are taking more time to think through their AI strategies before investing?

Yeah. I think there are several factors that may help. Of course, as the global economy improves, it makes more sense for people to make more transformational projects. I know companies are -- I think that by the nature of understanding and going deeper into the benefits that any company can get from this new technology, I think companies are starting to understand that they need to move out from, I would say, trials into full programs. And this always takes time.

And in other massive technology shifts we have seen in the past, this took time. So we expect now to -- there will be needed some more time for the companies to agree that they need to go in the full transformation -- multiyear, full transformation AI program for every single area. But the good news is that we are seeing that happening already, maybe not at 100% of the cases, but in many more cases than six months ago.

So that's a clear maturity of understanding how these projects must be developed that will help in the transform -- sorry, that would help on the conversion of these deals. And then if interest rates goes down, if the economy in the US, which is one of our main markets, it has been quite stable. If you take out the investments in AI, so I believe that this will come back to growth in some way as the whole economy improves. And that would help a lot, right?

But then on the internal side, on the Globant side, as we progress with our AI Studios and as we progress with our offering and as we progress with our value proposition of new ideas like the AI bots and the enterprise AI and the subscription model, all those things will help customers say, okay, yes, let's do it.

Enterprise AI is a perfect path for adoption of AI. It will isolate you from any vendor dependence. You can connect with the 140 LLMs on the one side on the other side with all the corporate information systems then you can use those two things to create agents and to get workflow that automate processes, but also to transform how consumers interact with your brand.

So as that value proposition gets stronger and deeper and goes deeper into our customers, I think conversion will accelerate, too. So there are multiple factors that are affecting in my perspective in the future.

But I don't know, Juan or Diego?

No. I think just to add a little bit on top of what Martin said, I think there is something related to what you mentioned, Sean, that the market continues to be in a mode that is about efficiency and impact, right? And this is very important because what we see is, first of all, all the proposals that we send, they are being evaluated. And of course, they need to understand the impact that will have in the business. And they're either a go or no.

But I think with regards to the time it takes to evaluate proposals, close them up, which has certainly, there are large period of times -- lead times until closure I think that it has a lot to do with the maturity, both of the market and the technology as well, evaluating a proposal, how to properly use, new platforms, the proper models, the implementation, which is super complicated. And you have three different offers that might be totally different. And you're not even super mature with regards to that tends to take a lot more time.

I think that will only improve in time. And hopefully, we will get back to the usual times of the industry.

Great. Good to hear. And then as a quick follow-up, I was wondering if you were seeing demand from helping companies -- your companies prepare for AI in terms of data and cloud like before the AI bots implementation?

Yeah. I think there was an interesting data point mentioned in the script. There is 900 projects -- or potential projects in the pipeline that are what we would call data readiness projects, which is either data, either genetic AI, either AI bots or a mix of the above. So there is plenty of projects that are happening and plenty of projects that are in the pipeline that are AI-related. We still see many companies that need to get prepared for making a better use of AI, right? And that's going to continue for a while. You have some comments that are there others are getting there.

Sorry, and not all the projects are generative AI. I mean there's a lot of projects that is traditional AI, machine learning projects in which a massive amount of information is being involved and models are being trained or tuned or --. I mean, not all the projects are about conversational projects or interfaces. There's a lot of AI projects that is the traditional AI projects, and of course, get enhanced by the use of generative AI.

But it's much more the traditional data gathering and then trying to train malls based on that information to predict certain factors or certain things. And you cannot do only by using a generic LLM, right? So it gets accelerated by using LLMs. But it's traditionally or fine-tuning or doing machine learning on specific industries or specific sectors or in specific areas of the company that are also fueling that pipeline and that amount of projects that Juan was mentioning.

Unfortunately, that's all the time we have for the Q&A session today.

Arturo, hold on a second. There was one that got missed on the line. I don't know if he's ready for the question, Jim?

Jim, are you there on the line? If not, we can move to one more question then. I'm sorry. Unfortunately, that's all the time that we have today. I don't see Jim there.

But with that, we will conclude the call today. And I would like to turn over the line to Martin. Martin, please go ahead for some closing remarks.

Thank you very much, guys, for supporting us for being here with us for another quarter of Globant, and looking forward to see you on the next one.