Globant SA

NYSE:GLOB

Earnings Call Analysis

Strong Q2 Results with Raised Guidance Amid AI Growth

In Q2 2024, the company reported revenue of $587.5 million, an 18.1% increase year-over-year. Their adjusted gross profit margin rose to 38.1%, while the net profit margin was 11.4%. AI-related projects saw a revenue spike of nearly 130%. The company ended the quarter with $180.4 million in cash. For Q3, they project revenues between $611 million and $617 million, and an adjusted EPS of $1.60 to $1.64. Their full-year revenue is guided at $2.407 billion to $2.421 billion with an EPS outlook of $6.30 to $6.50, underlining strong bookings and a positive AI adoption trajectory.

Strong Performance and Growth

Globant reported an 18.1% year-over-year revenue growth in Q2 2024, reaching $587.5 million. This growth was propelled by solid performance across various industry verticals and geographical regions. Notably, the media, sports, and entertainment verticals saw significant strides, with the top customer, Disney, growing by 11.1% year-over-year. The company's balanced distribution of revenue across North America (56.3%), Latin America (23%), Europe (16.9%), and APAC (3.8%) underscores its diversified growth strategy.

Focus on Profitability

Globant's focus on profitability is evident with an adjusted gross profit margin of 38.1% and an adjusted operating margin of 15.1%, both up 10 basis points quarter-over-quarter. The company successfully maintained high profitability levels despite the challenging economic context and currency fluctuations. This was further supported by a strong balance sheet, ending the quarter with $180.4 million in cash and short-term investments and a net cash position of $54.8 million.

AI Growth and Investment

Generative AI (Gen AI) continues to be a major growth driver for Globant, with AI-related revenues growing nearly 130% in the first half of 2024 compared to 2023. The company is leveraging its investment in AI platforms like Augoor, MagnifAI, Navigate, and GeneXus to enhance the software development lifecycle. This includes the introduction of AI agents designed to accelerate various development stages from product definition to code fixing.

Strategic Initiatives and Outlook

Globant is poised for continued growth, maintaining a strong pipeline and solid bookings up 17% in the first half of 2024 compared to the previous year. For Q3 2024, the company projects revenues between $611 million and $617 million, with adjusted operating margins between 15% and 16%. For the full year, Globant maintains its revenue guidance of $2.407 billion to $2.421 billion, reflecting a 10.1% year-on-year growth in constant currency terms. Adjusted EPS for 2024 is expected to be between $6.30 and $6.50.

Long-term Growth and Market Expansion

Globant is celebrating its 10th anniversary as a public company, having delivered over 1,800% in shareholder returns and 15x revenue growth since its IPO. The company is rapidly expanding into new markets, including the Middle East and Asia, while also increasing its presence in established regions. This strategic expansion is expected to add further momentum to its growth trajectory.

Commitment to Sustainability

Globant's Be Kind initiative continues to make a positive impact, alongside its efforts to integrate sustainability within its business strategies. The company is investing in technologies that balance financial and environmental impacts and has partnered with Udemy to offer sustainability training to a global audience for free. Additionally, Globant Ventures has invested in Asteroid Technologies, a company dedicated to improving the quality of life for people with disabilities.

Future-ready Workforce

Globant emphasizes the importance of a skilled workforce, certifying all its employees in AI by 2023 to prepare for ongoing technological advancements. The company’s hiring efforts are set to increase, with its workforce already up 12.2% year-over-year. This emphasis on talent development ensures that Globant remains competitive and can effectively meet the evolving needs of its clients.

Challenges and Competitive Landscape

While Globant is experiencing strong growth, the competitive environment remains tough. The company achieved low single-digit pricing growth through improved service mix and on-site presence. Despite the challenging market, Globant continues to exhibit revenue per head growth of almost 9% year-over-year, signaling its ability to deliver value to clients and expand its market share.

Earnings Call Transcript 2024-Q2

[Arturo Langa, executive]

Good day, and welcome to Globant's Second Quarter 2024 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. 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, Global 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 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'd now like to turn the call over to Martin Migoya, our CEO.

[Martín Migoya, executive]

Good afternoon, everyone. It's my pleasure to be back with you. Hey, how are you digital Martin? Thank you so much. Enjoy your holidays. I will take it from here.

Good afternoon, everyone. It's my pleasure to be back with you again. I'm giving a well-deserved break to my digital twin. And this quarter, we are changing the format of our earnings call. We will be more concise in our remarks and leave more time for discussion with our analyst community. Globant remains committed to our long-term growth. We continue expanding our market share at this important time for our industry. We aim to be the leading innovation partner for our customers as AI revolution continues to expand.

I will begin with our quarterly results. Q2 revenue totaled $587.5 million, up 18.1% year-over-year and almost 3% quarter-over-quarter. This growth was shared across the geographical regions and industry verticals where we work. It included a significant step forward with our top customer and our media, sports and entertainment vertical.

We continue to deliver in profitability, forecasting EPS growth while maintaining a healthy balance sheet. We're improving our margin outlook for the year, raising both our adjusted operating income and our adjusted EPS. While returns and profitability have eroded across the IT services industry in recent years, Globant sustained them while delivering industry-leading growth.

This quarter also marked a special milestone for us. We have reached our 10th anniversary as a public company. Since our IPO, we have delivered over 1,800% in shareholder returns and 15x revenue growth at a compound annual growth rate of 29.6%. This was made possible through our always in beta mindset. Our digitally native and entrepreneurial culture empower us to build long-lasting relationships with our clients.

Over the short and medium term, generative AI presents us with a massive opportunity. We haven't seen this scale since that smartphone revolution in the late 2000s. Back then, users demanded new apps to interact with their preferred brands. Companies everywhere reacted to meet consumer demand and kicked off multiyear digital transformation programs, many of which are ongoing today.

Currently, we see gen AI tools quickly being adopted by users. The barrier to entry for building AI has been lowered, but creating enterprise-class solutions that are effective beyond a demo remains a challenge for the industry. Generative AI has brought significant gains in productivity and efficiency of development.

However, history has shown us that after every massive tech breakthrough, user demands more from the brands they love. This pushes companies to go further. The scope of their ambition increases, and they need to create the expected AI-based experiences that the users demand. Many of those were impossible before and they will trigger the next generation of projects and programs. We firmly believe that the net effect between these dynamics foster a positive future for our industry. At Globant, we acknowledge this, and we are ready to adapt and win.

AI-related revenues are growing close to 130% in the first half of 2024 versus the same period last year. During the first half of this year, we have produced over $150 million of revenue that included AI workloads, far above the $100 million in revenues that we reported in November last year.

This quarter, Globant also presented its own AI agents to enhance the software development life cycle. Having invested for years in our range of AI platforms, which include Augoor, MagnifAI, Navigate, GeneXus, they now form the backbone of our new AI agents. Augmented and supervised by humans, the agents will accelerate each stage of the development process, including product definition, back-end prototyping, design, code testing and code fixing. They will assist from designing individual tasks and interactions to understanding users' goals and impacting experiences that seamlessly guide them towards desired outcomes.

We're also keen to announce our growth in the marketing technology space. At the Cannes Lions International Festival of Creativity this summer, Globant presented our new Globant GUT Network. It combines our previously acquired advertising organizations with GUT, the award-winning global creative agency. The new network offers a one-stop shop for marketers, leveraging the best of global creativity, media and technology.

I'm also pleased to announce that IDC recognized Globant as a leader in the latest MarketScape for the media industry. I'm excited to invite you to our annual signature event, Globant CONVERGE. This year, it will take place at the new Intuit Dome of the LA Clippers in Los Angeles. Globant has been behind the technologies that will change how live events are experienced.

It is my pleasure to be back with you again and share my passion for innovation. Recently, I penned a letter to our community to go over our growth vision in greater detail. You can check it out by accessing the QR code on your screen.

And with that, I'll hand it over to our CTO, Diego Tartara. Diego, please. Thank you very much.

[Diego Tartara, executive]

Thanks, Martin, and hello, everyone. We are focusing our AI expertise on clear and effective use cases to positively impact our clients' businesses. This quarter, the AI reinvention studio network has recently closed large deals in Europe and Middle East, connecting directly with CEOs and the broader nontech C-suite executives. Globant has become a transformation partner not only from a technology perspective but from an expanding business one.

We continue to lead in our AI offering. Over the past year, we increased the number of data science and AI engineering specialists at Globant by 70% so that we can take advantage of the increasing AI demand. We see an excellent example of these focused capabilities with a leading U.S.-based health research institute. Globant is applying AI and machine learning to improve data quality and make health care data research ready. The upcoming phase of the work will be to apply AI predictive models to understand various aspects of patient health journeys.

Among our new AI-powered innovations is advanced video search, a solution we developed with Google leveraging the Google Cloud Platform technology stack. Advanced video search detects what is actually being shown in any video on a frame-by-frame basis and provide semantic search capabilities. This opens opportunities for industry verticals where Globant is strong, such as media, gaming, sports and entertainment. It's particularly promising for our Sportian division, enabling contextually smart advertising, improving the efficiency and monetization levels for ad companies. Initial projects with clients are already underway.

In our Globant Enterprise Studio Network, we have recently advanced opportunities in the evolution towards SAP S/4HANA that major organizations using SAP are embarking on. Recently at Sapphire, SAP's signature event, we announced a partnership with AWS to accelerate businesses' migrations to SAP's RISE S/4HANA, their flagship ERP cloud offering. They also recently chose Globant to co-create an AppHaus, one of their few partner-led additions in the world.

Our relationship with Salesforce also continues to grow as we were recently certified as one of its few expert-level partners for health care and life sciences globally, the first and only expert level partner for its data cloud offering in Latin America as well as invited to join their global Partner Advisory Board for data and AI.

In health care, Globant is working with a global pharmaceutical company. They came to us because they were looking to establish a unified approach to accelerate AI deployment across all of their business units and regions. We are developing an adoption strategy and an operating model for an AI center of excellence, a place where they can experiment and test different AI initiatives across the organization.

In the United States, Globant has been named as a digital transformation partner for one of the country's largest privately held companies. We have blended the expertise of 21 different studios into a complex yet cohesive solution that will execute a multiyear transformation program. The program will focus on legacy technology and application modernization, cloud infrastructure support and developing new capabilities to future-proof their business.

Globant is also advancing our capabilities in providing solutions that bring both business growth and sustainability for our clients. Our offering includes technologies that analyze the potential environmental impact of carbon, water and waste in corporate decisions. They can, therefore, balance the financial budget and carbon budget of choosing one energy system from another. This has already been implemented successfully with Rockwell Automation. The result is an ESG focus that is quantifiable and impactful and can be melded into the corporate decision-making process.

Our Globant GUT network continues to expand. GUT keeps working for some of the most beloved brands and getting rewarded. Their campaign Handshake hunt for Mercado Libre in Brazil received a Grand Prix at Cannes in June. This campaign where contextual Black Friday discounts popped up on TV screens every time a Handshake, which also happens to be Mercado Libre's logo, was shown is another great example of how technology and creativity are revolutionizing advertising and creating new effective revenue-driving opportunities.

GUT won a total of 21 Cannes Lions, confirming another great year for the agency. We are excited to augment the work for Globant GUT's array of clients, which include Coca-Cola, Google, Stella Artois, Michaelob ULTRA, Tim Hortons, FIFA, LaLiga and Mattel, among many others. From 2 decades in investing at the forefront of technology trends, we are determined to make our mark now that our investments in areas from enterprise to sustainability and AI are coming to fruition.

I leave you all with Patricia Pomies, our COO. Thank you.

[Patricia Pomies, executive]

Hello, everyone. Happy to be back. Let's start with our clients. We currently have 19 clients bringing in more than $20 million of annual revenue and $329 million that provide more than $1 million of annual revenue, 16.3% more than one year ago. Our largest client, The Walt Disney Company, grew 11.1% year-over-year and 3% quarter-over-quarter. Among our 20 biggest accounts, the average duration of our client relationships is over 10 years. This is a testament to Globant's focus on developing true thought partnership with our clients executed through the quality of our delivery.

As of Q2 2024, we see better traction and growth in every region compared to the same quarter in 2023. Our best-performing region this quarter was Europe, growing 44.7% year-over-year. As we announced in our last earnings call in May, here we were able to land the largest deal in our company's history, made possible by our scale and growth of our delivery network in the region. Our New Markets region grew by 25.1% year-over-year; Latin America, 23.2% year-over-year; and North America grew by 9.7% year-over-year. In addition, Globant's global revenue stream is the most diverse it has ever been. North America now makes up 56.3% of our revenue; followed by Latin America at 23%; Europe at 16.9%; and the Middle East and APAC at 3.8%.

Of the 8 industry verticals we provide services for, 7 are up on a year-over-year basis and 4 experiencing double-digit growth. Year-to-date, all verticals have shown positive growth. This quarter, our fastest-growing vertical was travel and hospitality, up 58.9% year-over-year. Consumer, retail and manufacturing grew 38.7% year-over-year. Media and entertainment is up 20% year-over-year. This is on the back of a very strong performance with our top client, Disney, along with our expansion and momentum in sports with work we're delivering in the Middle East. The bank's financial services and insurance verticals showed a 11.6% increase in revenues compared to the same period last year.

As of Q2, our total head count is 29,112 Globers, up 12.2% year-over-year. Of this figure, 27,133 are IT professionals. Our utilization rate is currently 79.5%, 20 basis points up quarter-over-quarter. As we look forward, our hiring is set to increase to meet our expanding demand. Our attrition level over the last 12 months is currently at 8.6%, this is down from 11.6% in Q2 2023.

Finally, our Be Kind initiative continues to develop and impact our communities. As Globant has learned from our work fusing sustainability with our business, we developed Green IT to guide sustainable software development. We crafted a training for sustainable design essentials, which aims to equip our stakeholder ecosystem with the knowledge and skills necessary to create sustainable designs that minimize environmental impact and optimize energy efficiency. We have partnered with Udemy, one of the world's largest online learning platforms, to also offer this training to a global audience for free.

In July, our corporate investment fund, Globant Ventures, invested seed capital in Asteroid Technologies, a company dedicated to improving the quality of life for people with various disabilities. Through Hablalo, their inclusive technological platform, Asteroid Technologies facilitates communication for over 400,000 people with speech disabilities worldwide. With this investment, we aim to bring these accessibility solutions closer to our clients so that they can provide a more inclusive service to their consumers.

Thank you for being with us again. With that, I will hand it over to Juan to share our financials.

[Juan Urthiague, executive]

Thank you, Pato. We are very proud of our results today. First, our second quarter results are aligned with the guidance, showing strong growth and profitability. Second, we see positive trends in the business. Pipeline and bookings have been solid in the first half, while gen AI-related projects are tractioning strongly, providing optimism about future demand opportunities. Third, we are maintaining a strong outlook for the year, and we are raising our adjusted margin and EPS guide.

Let me provide more color. Second quarter results were strong across the board. Our Q2 revenues reached $587.5 million, up 18.1% year-over-year, in line with our guidance. Excluding the negative impact of foreign exchange, growth stood at 18.8% year-over-year. We saw a 10% year-on-year revenue growth in organic constant currency terms in Q2. Also, from a quarter-on-quarter growth perspective, the company posted accelerating trends from both a geographic and vertical split.

Our pipeline remains at record highs, and booking trends reinforce our outlook for the year. Bookings in the first half are up 17% compared to the second half of 2023. We closed Q2 with an adjusted gross profit margin of 38.1% and an adjusted operating margin of 15.1%, both of them up 10 basis points quarter-over-quarter. This reflects our ability to maintain high profitability levels despite the current context and currency fluctuations.

Our effective tax rate stood at 20.2% for the quarter, resulting in an adjusted net income of $66.9 million with an 11.4% adjusted net profit margin. Adjusted diluted EPS was $1.51, up 11% year-over-year.

Our balance sheet remains strong, ending the quarter with $180.4 million in cash and short-term investments or $54.8 million in net cash. With $125 million drawn from our $725 million revolving credit facility, we have ample funding for our growth initiatives. Also, as usual, given the seasonality of our business, we expect to generate a substantial amount of free cash flow in the second half of 2024.

Looking ahead, for the remainder of 2024, we are reiterating our guide on a constant currency basis and raising our margin and EPS outlook. In organic constant currency terms, we continue to expect approximately 10.1% year-on-year growth for 2024. Recent FX trends, especially in LatAm, imply a slight incremental FX headwind on our top line. However, we will be able to capture some of this cost benefit over the following quarters.

We project Q3 2024 revenues of $611 million to $617 million with adjusted operating margins between 15% and 16%. The IFRS effective income rate is expected to be in the 22% to 24% range. Adjusted EPS for the third quarter is now expected to be in the range of $1.60 to $1.64, assuming 44.4 million average diluted shares.

For the full year, our revenue guidance is $2.407 billion to $2.421 billion, unchanged at the midpoint when adjusting for foreign exchange fluctuations. We are forecasting 70 basis points of FX headwind in our full year guidance. We anticipate adjusted operating margins in the range of 15% to 15.5%. 2024 IFRS effective income tax rate is expected to be in the 22% to 24% range. Finally, our adjusted EPS is expected to be between $6.30 to $6.50, assuming 44.3 million average diluted shares outstanding for the year, improving relative to our previous guide.

In summary, we remain encouraged for the business with solid bookings, a strong pipeline, progress in AI adoption and an improving margin outlook while reiterating resilient top line growth. Thank you for your continued support. We look forward to updating you on our progress throughout the year.

[Arturo Langa, executive]

Thank you, Juan, and hi, everyone. [Operator Instructions] With that in mind, we'll take the first question from today from the line of Tien-Tsin Huang from JPMorgan.

[Tien-Tsin Huang, analyst]

Just maybe on the -- I'll start on the outlook just with the reiteration of the constant currency guide but the raise in the margin. Just wanted to check the confidence level now that we're through the first half. I know the bookings have -- are explaining or informing some of the revenue outlook. But how has that changed versus 90 days ago? Can you just also rehash what's driving up the margins as well?

[Juan Urthiague, executive]

Sure. Thank you, Tien-Tsin, for the question. So as you said, we are reiterating our constant currency growth for the year at 15.9%. In dollar terms, it's going to be 15.2%. The reason for that was the depreciation in Colombia and Mexico primarily and a little bit in Brazil as well. In terms of -- I mean at the same time that this has impacted our revenue guidance from last quarter, it has also benefited us from the cost side, so on the margins.

So basically, part of the increase that we are seeing in our operating margin and our gross margin as well for the second half of the year comes from FX. It also comes from a slightly better-than-expected revenue per head, which has grown quite nicely this quarter. But the back side of this is on the revenue front, as we said, we are -- we have to increase 40 bps the impact of FX for the year.

[Martín Migoya, executive]

Yes. And regarding pipeline, it remains quite strong and bookings, too. So we are in good confidence of the guidance that we provided, Tien-Tsin.

[Arturo Langa, executive]

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

[James Edward Schneider, analyst]

I was wondering if you can maybe expand, Martin, on your comments about gen AI projects about -- among corporates are taking longer to scale into large scale beyond proof of concept. Is that more a function of the lack of clarity about how to scale or maybe the lack of data stack comparability or other issues in terms of things that need to be resolved on the back end before bigger transformations can be undertaken? And can you maybe talk about any of the larger projects you've seen in generative AI? And to what extent -- how many of those are there? And what is the magnitude in terms of scale revenue?

[Martín Migoya, executive]

Jim, thank you so much for the question. I will answer the first part, and then I will let it to Diego to answer. We have seen a pretty good growth in terms of our AI-related projects, as I mentioned, like 130% growth approximately year-over-year. And the thing about the projects, many of them are still on -- they're still analyzing them, are still trying to kind of generate a lab around AI to understand use cases. And many of the companies and many of our customers are still in that stage.

The thing is when you are implementing an AI project for a demo, it really looks great. I mean for demo on social media, it really looks great and it's very easy. Now when you want to take it to enterprise class, as I mentioned, it's disappointingly much more complex. And that requires, as you mentioned, data projects on the back. It requires a lot of supervision and after-training because the model tends to be hackable. It tends to be a lot of the answers that the models give can be very misleading if they are not well curated. So those processes are long by definition.

So we need to remember when the first App Store from Apple born in 2005. And then only in 2009 or '10, the big digital transformation projects started to happen. That was very long compared to what I think it's going to be this time. But remember, this new technology has only 1.5 years in the state that you are seeing it right now. So I believe there's still time for corporations to understand the use cases. Of course, we are helping them in many of the situations. And of course, we are starting to see some of them starting to ramp up plans for doing much longer-term investments on that. But I don't think it will be an easy process. And I think it will take a lot of time and understanding on where to apply it before they go full into the investment.

But Diego, do you want to complement on that?

[Diego Tartara, executive]

Yes, sure. So one of the things we've been seeing is I want to separate things between gen AI, which is the new [indiscernible] and traditional AI or machine learning. We've seen an increase on the projects, of course, on both sides. There's a positive trend in terms of how we are being approached from our clients. We are now implementing on both sides, of course, projects that are meant to be live and productive. This is not an approach. I want to experiment with this.

And we've done a ton of things from dealing with data, for example, pharmaceutical companies to curate and label that data with AI and especially with gen AI. This is actually productive. A lot of studies are being conducted on top of that to streamline operations on copper and gold mining company, and now we are doing a 360 sustainability calculator and optimizer with AI models for it.

So we're doing a ton of things that are actually productive. I would like to see a lot more -- in fact, I didn't mention this, which I think is great. We mentioned that we are working with agents for software development. We have also implemented agents for 2 major real estate companies to streamline all their operations. So this is not POC. This is actually live. So again, maybe in terms of the sheer volume of this, I would like to see much more, but the trend in terms of what we are doing and how we are approaching for our clients, I see a super positive scenario.

[Patricia Pomies, executive]

Also I think that you mentioned something about the challenge. And I want to -- do you remember that in the last earnings call, we also explained that we have been upskilling and reskilling most of the Globers? And in 2023, we certified all the Globers in the AI. So I think that is really important. We are more than prepared for what is coming in terms of the talent and in terms of the recruiting and then where we're looking at that talent. So I think this is really important for us, that all the companies having this AI mindset, and we are following what the clients are needing.

[Arturo Langa, executive]

The next question comes from the line of Maggie Nolan from William Blair.

[Margaret Nolan, analyst]

So you mentioned that revenue per head is improving or had grown maybe year-over-year. Is pricing power strong right now? Or are you experiencing any competitive dynamics in the pricing environment, maybe just overall, how would you characterize the environment compared to historical?

[Juan Urthiague, executive]

It's tough these days, but we were able to achieve some low single-digit pricing growth. And we combine that with a different mix. In terms of services, we've been growing nicely our GUT creative network, which has a higher revenue per head as well. And also with some of the deals that we are delivering in Europe, we were able to also increase our on-site presence. So the combination of those factors is giving you almost 9% year-over-year revenue per head growth. It's a tough market, but we are still being able to get some positive pricing in some of our customers and relationships.

[Arturo Langa, executive]

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

[Bryan Bergin, analyst]

Hope you can hear me. I wanted to ask about gen AI and delivery. Can you comment on the latest impacts you're seeing on engineering productivity, and really how client discussions are evolving and the appetite around that, particularly if you could include how AI agents and the contracting dynamics around those work?

[Diego Tartara, executive]

Sure. Bryan, so separate -- again, I want to separate things. On the Copilot side of things, I think there's a ton of public information about that. The actual result, what you see on the field in productive teams, large teams with large code base, is actually the impact is a lot less than what it's been communicated at the very beginning. Like 50% of the code is being generated by AI. But the impact definitely is there.

The second aspect, which is agent, this is actually super new. And it has a different type of impacts depending on the task you're wanting to automate. Remember that agents fully automate flows. So it's not about helping one individual and making that individual more efficient. On the agent side of things, we're seeing with super early test that we've been conducting pretty amazing results. Like what we've been developing, we're seeing results that are above the benchmarks we are seeing in the market. So we are super, super confident that this will bring very, very nice results for teams, especially for some type of tasks like bug fixing as an example. Too early to commit to a number. But so far, it looks very promising.

[Arturo Langa, executive]

The next question comes from the line of Jason Kupferberg from Bank of America.

[Jason Kupferberg, analyst]

I just had a 2-part question on head count. The first part is, do you expect positive growth in billable heads in the second half of the year? I think first half was kind of flattish. And then the second part is just on the second quarter head count numbers. Just looking quarter-over-quarter, I think India was up quite a bit, high single digits. U.S. was actually down about 10%. So I was just curious if there were any call-outs for those regions.

[Juan Urthiague, executive]

So yes, we are expecting to continue with sequential growth in terms of head count. In second quarter, IT professionals grew by about 200 net additions, and we expect to continue having positive net additions for the rest of the year. In terms of regions, we have seen -- we are seeing Argentina, Colombia and India as well showing good growth. And it's a reflection of our position in those markets and us being the most relevant player in Latin America. And with all the geopolitical noise that is happening around the world, Latin America continues to be a great place to be, and we are the company that somehow leads in that market. In the case of the U.S., it's out of a small base, and it varies by quarter, but there's nothing really to call out.

[Arturo Langa, executive]

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

[Yu Lee, analyst]

Can you help unpack what you're seeing in the top 5 customer cohort given some of the sequential softness in the quarter? And how are you thinking about the trajectory of that customer base for the remainder of the year and perhaps into '25?

[Juan Urthiague, executive]

Which was the cohort, Jonathan, that you were talking about?

[Arturo Langa, executive]

Top 5.

[Juan Urthiague, executive]

Okay. So when you look at the Top 1, which is Disney, it showed really good numbers. I mean sequential growth, also like 11% year-over-year growth. And actually, we are expecting a strong second half of the year. So on the top 1, definitely good news. When you look at 2 to 5, there is actually one customer in the professional services sector that -- as we spoke several times over the last few quarters, professional services sector was one of the laggards among the different industries that we have, and what you see in that cohort of 2 to 5 is actually explained by that. And then if you look at 6 to 10, if you look at the 11 until the end, you are also going to see better numbers over there. So nothing in particular to be really concerned. It's just one customer within one industry that we have been saying for quite a while that is still not recovering as we would like.

[Arturo Langa, executive]

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

[Divya Goyal, analyst]

Patricia, you provided some color on different verticals and the growth across different regions. Could you provide a little bit more color as to how do you see the travel and hospitality segment broadly transitioning? And which are some of the verticals where you anticipate growth in a go-forward basis?

[Patricia Pomies, executive]

Thank you for your question. Yes, we are seeing many of the verticals that we have in Globant are growing really fast. And of course, hospitality and travel has been one of the biggest one that is growing. Also, we are seeing in media and entertainment growth there also and many others. But the most interesting thing is that we are having -- it's cutting -- you hear me, okay? Yes, okay, sorry.

What we are seeing probably is that in many of the industry, the clients that we have there, we have been a relationship with them with the main top customers for more than 10 years in many of the industries. So what we are building with them is a travel and -- is an experience together on how they want to change the contact with their customers and experience. So we are getting very deep in that expertise. And with the studios that we have, the Reinvention and AI studios, we have been working very closely with the clients in terms of identifying what are their needs and what -- how we can help them. So as we were mentioning before, I mean, the 7 industries where we are, we are seeing many changes going on and growing, and we continue to grow in most of the industries that where we are.

[Diego Tartara, executive]

If I may add a couple of comments. We are growing strongly specifically on the travel and hospitality vertical that you mentioned because of mainly 2 things. One is we closed, and we've been mentioning this, a big transformational deal for a large airline in Europe. That's one of the key drivers. Our airline studio is actually super, super solid in the segment. And the second one has to do with connected experiences. That's the latest AI Reinvention Studio that we launched. And a lot of the business we have in MENA is actually from the hospitality vertical. So that explains the growth, but it's super tied to how solid Globant is in those specific verticals.

[Juan Urthiague, executive]

Maybe to complement on media and entertainment, you are also going to see further growth as Disney continues to perform as well as our business within sports. We are also seeing good momentum in consumer and retail. That has been also delivering good growth. And on the BFSI, you're also going to see some growth. The 2 only industries that -- I mean, professional services, as we said before, that's not showing growth. And technology and telecommunications has actually stabilized. I mean we did show some growth in Q2, but basically coming out of several quarters of underperformance, we can say this is the second quarter that we see some positive news there. So technology and telecommunications have stabilized, Divya.

[Arturo Langa, executive]

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

[Arvind Ramnani, analyst]

Just one quick discrete question I wanted to ask was organic constant currency target for the year that you have now versus organic constant currency you had 3 months back, but just a discrete question. But the bigger question I have is also on the overall market, right? I mean now it's been 2 or 3 years now where Globant's been able to grow in an idiosyncratic way, right? Like in the rest of the industry is kind of languished, vibrating at like plus 3%, 4%, minus 3%, 4%. But Globant's been like 3 years now where you've been able to really outpace that growth. And while I'm not looking for any kind of guidance in 2025, what is your view of the industry growth rates starting to improve, right? Or are we going to be in this permanent sort of 0 to 5 for the broader industry?

[Juan Urthiague, executive]

So I'll take the first part, and then I'll ask Martin to complement. Basically, the number organic constant -- the growth in terms of organic constant currency growth for -- that we

[Technical Difficulty]

We're back. So basically...

[Arvind Ramnani, analyst]

Juan, if you don't mind starting from -- I wasn't able to hear any of it.

[Juan Urthiague, executive]

Yes, I will start again. So when you look at our constant currency growth for the quarter -- sorry, for the year, we are at 10.1% constant currency growth, organic growth, which is the same number that we provided back in May. When you look at the total growth number this quarter for the year, we are guiding 15.2% with 70 basis points of impact back -- so 15.9% constant currency growth. Back in May, we guided 15.6% with 30 basis points of impact.

So basically, the change is 40 basis points of additional FX impact, which is aligned with what is happening in Mexico, Colombia and a little bit in Brazil. The good part of that impact is that we were able to increase our operating income guidance for the year. We moved out of 14.5% to 15.5%. We are now at 15% to 15.5% for the year. And also the guidance for the third quarter and basically the same one for the fourth quarter, the implied guidance there is 15% to 16%. So that's the overall picture in terms of FX impacts in this quarter.

And I don't know, Martin, if you want to talk a little bit...

[Martín Migoya, executive]

No. The main reason, I think, why the industry is, let's say, plus 2%, minus 2% or minus 5% and we're still growing at very healthy rates is that the decisions that we took in the past. I mean when we say that the vision we have is to try to leverage our relationships and being able to sell every day more things to our beloved customers, this is extremely powerful when you take it in the long run, and we have been executing that in a pretty consistent manner.

The second reason is that we have been expanding into markets in which we were not present before. So now we are entering a big time into the Middle East, into some other countries in Oceania, in Asia. And that is providing us like an additional fuel for growth that we didn't have before. So when you add up those 2 things, plus the organic growth of our largest customers, which is still very healthy, then you have a performance which is pretty different from the rest.

Another way to understand that could be to say that Globant is gaining market share. While the market is not growing and you're still growing, then you're winning market share. And this is extremely important for us. And also the revenue per head. When you see the revenue per head that Juan explained before, you see it increasing to very good and very healthy levels. That is a testimony of the value that we are delivering to our customers.

On top of all that, a very strong growth on the AI space that we have been preparing for the last 10 years. So I think that's a good summary of the reasons why Globant is growing, fueled by a very powerful culture by -- and a very high ambition of reinvent the way that technology is being created, reinvent the way that we connect with our Globers, with our customers, with all our stakeholders. So we are extremely happy with the performance, and we will keep on hopefully driving that kind of performance for next year, too.

[Arvind Ramnani, analyst]

Perfect. And just one quick one, if I can, is also you had bookings growth of 17%, which is faster than organic constant currency revenue growth. And I know bookings comes with various duration. But the fastest sort of bookings growth, does this suggest that kind of next year, you should be seeing acceleration in the business on the revenue side?

[Juan Urthiague, executive]

I think it's still early to talk about 2025 in detail. I mean there's a lot of things going on around the world, elections, rates and a lot of things that will have somehow an impact. I think that it's good to see sequential growth into Q3, into Q4 and also, of course, during Q2 as well. So I think it's a -- we need to focus on that, while we continue to increase, to strengthen our service offering, to keep on expanding globally to be able to tap into new markets. And I think that will help us to continue delivering industry-leading growth. But that's why I leave it to put numbers for next year.

[Arturo Langa, executive]

[Operator Instructions] The next question comes from the line of Sean Kennedy from Mizuho.

[Sean Kennedy, analyst]

So there were reports that a large sports organization was looking to raise a significant amount of money to enhance and expand its direct-to-consumer streaming service. So my question is, broadly speaking, is that a theme that you're seeing in digital experiences across your customers, a second investment wave in DTC streaming?

[Martín Migoya, executive]

I -- we are seeing like a lot of things happening on entertainment space. There's a lot of companies trying to reinvent the way they connect with their consumers. And we are seeing that. Specifically on the subject that you mentioned, I have no specific answer to give you. But yes, in general, on the media and entertainment space, a lot of things are happening.

I don't know, Diego, if you want to add up on that?

[Diego Tartara, executive]

Sure. Direct-to-consumer within the media and entertainment, it's a trend. Disney is doing exactly that even though they are also consolidating different channels. Within the sports, yes, direct-to-consumer, it is a trend. This is actually public. Many different sports organizations are exploring that. FIFA, of course, being one of them and is one of our clients.

[Juan Urthiague, executive]

Formula 1.

[Diego Tartara, executive]

So Formula 1, too. So yes, direct-to-consumer is that -- my only question mark on that, and this is actually, it's -- we still have to see, is that demand looks for consolidation. And so we'll see how those things play together.

[Sean Kennedy, analyst]

Great. Nice job on the quarter.

[Diego Tartara, executive]

Sure.

[Martín Migoya, executive]

Thank you.

[Juan Urthiague, executive]

Thank you.

[Patricia Pomies, executive]

Thank you.

[Arturo Langa, executive]

The next question comes from the line of Surinder Thind from Jefferies.

[Surinder Thind, analyst]

Diego, this question is for you actually. Just following up on earlier commentary about just kind of the productivity improvements in some of your internal AI initiatives. You mentioned the disconnect between what's kind of in the public space between what you're seeing. Can you provide any incremental color there in terms of what [ marks ] or measurements that you've done? I mean I remember when we talked about it last year, you talked about potentially getting to about a 15% productivity improvement. So just any color would be helpful.

[Diego Tartara, executive]

Yes, that is correct. So -- but actually, when I say those numbers, I was like -- everyone was looking for -- like everyone else is saying 50% now. Everyone is talking about around those numbers for a productive environment. So I don't want to be super technical and bore everyone, but there's not only -- it's not only a measurement of performance of the individual, increased performance of the individual, it's like collective performance and what it means for the teams.

We've seen major improvement in more junior type of developers and more senior type of developers not quite relying on those tools so heavily. But the problem with junior developers is that it brings very good quality code compared to what they would have done without those tools. But if you say as a unit, it's like a car spare part. It looks super good, but it doesn't fit the car. So it's kind of tricky. What's important to us, it's overall team performance. It's not individual. And we're measuring like things that when you put out all of that together, they don't necessarily add up. I think with regards to that, agents play better as they fully optimize complete flows and which is what we are actually trying to do and what's interesting.

Numbers, like I said, I can confirm that it's for developers, which is typically what you're trying to explore for code generation. The tooling will give you an improvement around -- it's actually even lower than 15%, tools such as Copilot. But for some individual tasks such as unit testing, it's super high, like 40% improvement for that specific type of task. So yes, I can confirm what we started talking a few quarters back. And still, I think there's a lot of room for improvement towards the future. We'll see how it develops. We're pretty confident that we are headed in the right way -- in the right direction, sorry.

[Arturo Langa, executive]

The next question comes from the line of Leonardo Olmos from UBS.

[Leonardo Olmos, analyst]

Congrats on the great results. So my question is regarding the utilization rate. We saw another improvement quarter-on-quarter and also an impressive reduction on the attrition rate, right? What we've been seeing with several of our -- the companies we cover here such as Accenture is an improvement overall in IT services. Do you think there could be -- at some point, could be an increase back again on the attrition rate or the demand for developers? How is your idle capacity regarding that? What do you expect for the second half in '25, in that sense?

[Martín Migoya, executive]

Pato?

[Patricia Pomies, executive]

Yes. Well, what we are seeing right now in terms of the attrition, as you mentioned, is pretty low right now. Of course, it has been raising a little from the last quarter, but we're still in very low rates. What we are seeing is that the demand is still very, very high for us. So we continue hiring in many of the countries that Juan explained before. We are very strong in LatAm as we have been in the last couple of years. And of course, India is another of the places that where we're growing.

In terms of the people, even what we are seeing for the rest of the year is much pretty stable numbers and probably -- I mean we -- of course, the market is still growing, as you mentioned. But we have a great culture that people are staying with -- they're very happy in all the polls and the interviews that we are making with our Globers, and the culture that we have is really appealing for the new generations and the engineers and talents and designers. So I think that from Globant's perspective, I mean, these numbers are pretty stable, and we continue doing different kind of things in order to have the same kind of numbers that you are seeing now.

[Arturo Langa, executive]

The next question comes from the line of Thiago Kapulskis from Itau.

[Thiago Kapulskis, analyst]

I have a follow-up on the AI part just to get it clear. My guess from what you guys said is that it's a long cycle, right? So you have data migration. You have test, approving, et cetera. Just want to understand a little bit better how you envision the cycle. Is it like a 3-year? It's a 5-year cycle? How -- what needs to happen for the budgets to ramp up? Is it just about testing and getting a concept or hypothesis proven, and then there's a ramp-up? Is it a data like kind of bottleneck? Like the data bottleneck is as bad as it was in the previous cycle? I don't know. If you could provide us some details there just to get a little bit better framework of the cycle there, it would be great.

[Martín Migoya, executive]

Yes, I would take the first part, and then I will let Diego. Look, these projects, I think the most time now is being spent on finding the use cases and finding and validating the use cases. Once the use cases are validated, then it takes a little bit longer than what everybody expects using -- regularly using ChatGPT, right? I mean -- but it takes much longer to have an enterprise-grade application based on that information.

Also, data projects are projects that for many years has been delayed, and everybody was talking about AI but really not getting real effects on that. So I think data projects are being accelerated these days. I don't think they're a bottleneck. I think it's more like a maturity process that needs to go through the corporation until the use case is detected, the use case is proven and then the use case is scaled. And that may take maybe 1 year or 2 years. We don't know exactly.

Following other cycles, it has taken much longer. But I think this cycle will be much shorter than that. But still it's unclear when those things are going to start to happen at a larger scale. Now we are -- ended up using AI in pretty much everything we do. And it's -- we have been using that in the past, and now even more with the agents, with the acceleration platforms that we have, with the automation of many of the staffing processes that we have at Globant where -- how to connect people with projects.

So I think in the same way we are doing at Globant, there must be -- and by the way, we launched AI Reinvention Studios for many of the industries in which we operate. And the aim of these AI reinvention studios is very simple and clear, which is we need to provide to our customers proactively at least of how to use AI in every single area of that specific industry. And that's a mandate we have in our company. That's a mandate that Diego has as the CTO of the company, to keep on creating those use cases and to accelerate our customers to be more productive, the sooner, the better.

But Diego, do you want to expand on that?

[Diego Tartara, executive]

Yes, sure. So going back to the original question, there is a yes when it comes to data, not as a blocker but as a first step towards actually embracing more AI-related projects. Lots of our clients are actually taking care of that. So we've been seeing an increase on the data architecture demand, and this is for covering their whole data strategy. I think it was -- lots of companies did not take care of that aspect, and they are now identifying the need. So that's the first thing.

Then also lots of customer engaged, and we've been talking about that. And when we used to say the POCs, exploratory work, et cetera, et cetera, it had to do a lot with a newer technologies like gen AI. How do I use this? I see that is super powerful. How do I make it a productive tool, an enterprise-grade tool? And for that, we have a solution and an approach and a go-to-market approach.

But the most interesting thing is actually what Martin said, which is identifying industry solutions. What are the things? I mean given this technology, if I think on a certain vertical landscape, what are the opportunities there? What can I optimize? How can I capture more clients? How can I change my loyalty program? How can I optimize my marketing campaigns? How can it change my acquisition funnel? So there's a lot of things, and every single industry has a ton of problems, right? They spend a lot of money. I don't know. Pharmaceutical companies spend a lot of money in research and attrition for experimentation. And we can now address those industry pains with AI solutions. This is a very powerful tool. So that's what we're doing.

[Arturo Langa, executive]

So that will be all for the Q&A session today. Thank you all for joining. And now I'll hand it over to Martin for some closing remarks.

[Martín Migoya, executive]

So thank you very much, everyone. Thank you for your support and coverage and looking forward to see you next quarter. Cheers. Bye-bye. Thank you.

[Patricia Pomies, executive]

Bye.

[Diego Tartara, executive]

Bye.