Globant's Q3 2025 Earnings Call: Contradictions Emerge Across AI Projects, Pricing, and Latin America Demand Recovery

Date of Call: None provided

Financials Results

• Revenue: $617.1M, up 0.4% YOY and 0.5% sequentially; $2.0M above most recent guidance
• EPS: $1.53 adjusted diluted EPS, in line with guidance (based on 45.6M average diluted shares)
• Gross Margin: 38.1% adjusted gross profit margin, flat sequentially despite FX headwinds
• Operating Margin: 15.5% adjusted operating margin, up 50 basis points sequentially (full-year guidance ≥15%)

Guidance:

• Q4 2025 revenue at least $605M (implies -5.8% YOY; includes +150 bps FX benefit)
• Q4 non‑IFRS adjusted operating margin at least 15%
• Q4 IFRS effective tax rate 22%–24%; Q4 non‑IFRS adjusted diluted EPS at least $1.53 (assumes 45.2M diluted shares)
• FY2025 revenue at least $2.04474B (1.3% YOY; includes +30 bps FX benefit)
• FY2025 non‑IFRS adjusted operating margin at least 15%; IFRS tax rate 23%–25%; FY non‑IFRS adjusted EPS at least $6.12 (45.2M shares)

Business Commentary:

* Revenue and Pipeline Growth: - Globant reported $617.1 million in revenue for Q3 2025, $2 million above their most recent guidance. -

- The pipeline grew to $3.7 billion, representing 30% year-over-year growth. - This growth was driven by increasing demand for AI transformation, with over 1,000 engagements related to Gen AI underway, representing 1/3 of their overall projects.

• AI Transformation and Offering Expansion:
• The company's focus on AI Studios and AI Pods has led to a significant increase in AI-related projects, with over 900 projects related to AI readiness in the pipeline.
• AI Pods have nearly doubled their share in the pipeline, outpacing overall pipeline expansion.

• This expansion is attributed to the adoption of AI as a transformational tool in various industries, with AI now driving 30% of project bookings.

• Operational Efficiency and Margin Improvement:

• Globant achieved an adjusted gross profit margin of 38.1% for Q3 2025, maintaining stability despite foreign exchange headwinds.
• The adjusted operating margin improved by 50 basis points sequentially, reaching 15.5%.

• The improvement is due to efforts to optimize operations and balance costs as the company transitions to a subscription-based revenue model.

• Client Engagement and Strategic Partnerships:

• Globant has successfully embedded its subscription model with 17 out of the top 20 clients, representing close to 40% of their revenue.
• The company has also secured notable partnerships, such as with Riot Games and SAP, enhancing AI integration capabilities.
• These strategic partnerships are key to unlocking growth opportunities while ensuring operational excellence in AI-driven solutions.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted a $3.7B pipeline (30% YoY growth), revenue of $617.1M (+$2M vs guidance), launched a $125M buyback, operating margin improved to 15.5% (+50bps), and emphasized accelerating AI adoption and doubled pipeline conversion for AI Pods—all cited as drivers of confidence into 2026.

Q&A:

• Question from Puneet Jain (JPMorgan): Are you seeing clients adopt AI-powered new consumer form factors (e.g., conversational transactional interfaces) and will that translate into stronger growth?
  Response: Demand is broad and maturing: consumer interfaces are shifting to conversational/transactional models; many regulated and non‑regulated clients are moving AI projects from exploratory to transformational—>900 AI projects in the pipeline—supporting expectations for better growth in 2026.

• Question from Bryan Bergin (TD Cowen): How does the strong pipeline connect with headcount dynamics and early 2026 budgeting; when might growth troughs form and what's next year's top‑line potential?
  Response: After a business optimization, headcount is aligned to demand; management expects modest hiring plus higher utilization as AI studios and pipeline convert, putting the company in a better position for stronger growth in 2026 versus 2025.

• Question from Bryan Bergin (TD Cowen): On margins—what early efficiency efforts are underway and how do you feel about them?
  Response: Operating margin improved ~50bps in Q3; the company is balancing growth, margin and free cash flow, aligning CapEx to current growth and pursuing efficiency to maintain/improve margins until growth accelerates.

• Question from Bryan Keane (Citi): Is Gen AI putting downward pressure on pricing as cost savings are passed to clients; how do you view pricing into next year?
  Response: No meaningful pricing pressure observed—revenue per head is stable; value‑based, industry‑specialized AI offerings (AI studios/Pods + Enterprise AI) allow Globant to maintain pricing and margins.

• Question from Bryan Keane (Citi): Q3 was roughly flat and Q4 guidance shows a step‑down; what's causing the sequential decline and is Q1 likely better?
  Response: The sequential decrease is mainly due to furloughs in professional services; management does not expect a repeat of the severe Q1 2025 decline and anticipates Q1 2026 to look closer to Q4, i.e., materially better than prior years.

• Question from Margaret Nolan (William Blair): Can you drive more SG&A dilution from here and is professional services stabilizing after recent impacts?
  Response: SG&A is ~17.7% (almost 1pt below prior-year Q4); modest further dilution (10–30bps/year) is possible with scale and a long‑run target around ~15%; professional services appears to have bottomed post‑furloughs and should start recovering in Q1.

• Question from Yu Lee (Guggenheim): What vertical/geographic assumptions underlie the Q4 outlook and how conservative are you; what gives confidence conversions continue into mid‑2026?
  Response: Q4 conservatism chiefly reflects professional services furloughs; most other sectors are stable; deal momentum and faster pipeline conversion versus early 2025, plus improving industry sentiment, underpin confidence that momentum will continue into 2026.

• Question from Maria Infantozzi (Itaú): Given current headcount and utilization, will you need to hire to support potential 2026 acceleration or will AI drive productivity enough to avoid hires?
  Response: Growth will require both slightly higher utilization and some hiring—utilization has room to improve (below 80% target) but headcount will still increase as growth materializes.

• Question from Leonardo Olmos (UBS): You said AI Pods are embedded in discussions with 17 of the top 20 clients—how will that convert into revenue and how material could subscription be in 3–5 years?
  Response: AI Pods discussions are progressing (some clients already embedding); pipeline and conversions for Pods have roughly doubled since launch, but it's too early to quantify multi‑year revenue share—signals are very positive, not yet a numeric forecast.

• Question from Sean Kennedy (Mizuho): What factors could raise pipeline conversion rates (macro vs. customer AI deliberation) and are clients preparing data/cloud ahead of AI Pods?
  Response: Conversion should improve with macro recovery, greater client maturity shifting trials into multi‑year programs, and stronger value propositions from AI studios/Pods; there are ~900 data/data‑readiness projects in the pipeline and many projects are traditional ML as well as generative AI.

Contradiction Point 1

AI Projects and Pipeline Growth

It involves differing statements about the growth and maturity of AI projects and pipeline, which could impact investor expectations and strategic decision-making.

Are clients seeking AI use cases in Globant's GUT area, such as AI-powered form factors for retailing or banking? - Puneet Jain (JPMorgan Chase & Co, Research Division)

20251114-2025 Q3: The whole consumer experience is being transformed, with a shift from navigational interfaces to transactional or conversational interfaces. These projects are ongoing across various industries. Diego Tartara added that large companies are involved in AI projects, with about half of projects being AI-related. - Martín Migoya(CEO), Diego Tartara(CTO)

Will AI projects reach mainstream production and see growth rate improvements next year? - Puneet Jain (JPMorgan Chase & Co, Research Division)

2025Q3: There's a shift from exploratory projects to transformational ones. Most of the large companies in the world are involved in AI transformation and AI projects. Today we have about 900 projects related to AI transformation and our pipeline, as I mentioned, is growing, doubled since it was last year. - Martín Migoya(CEO)

Contradiction Point 2

Pricing Environment and Value Creation

It involves differing statements about the pricing environment and value creation through AI offerings, which could impact revenue and profitability projections.

Can you discuss the pricing environment with the adoption of Gen AI? - Bryan Keane (Citigroup Inc., Research Division)

20251114-2025 Q3: There's no major pressure on pricing, with revenue per head remaining stable. The value creation for clients through AI studios and Core studios supports pricing strategies. AI Pods and Enterprise AI platforms are gaining traction with clients, enhancing the pricing proposition. - Martín Migoya(CEO)

How are you approaching efficiency and margin improvements to drive future growth? - Bryan Bergin (TD Cowen, Research Division)

2025Q3: There's no major pressure on pricing. In fact, we are having pricing power in this regard, and pricing, I would say, is very much aligned with revenue per head as well. And we continue to have that advantage. - Martín Migoya(CEO)

Contradiction Point 3

Pipeline Conversion and Macroeconomic Uncertainty

It involves the conversion of the pipeline into actual revenue, which is crucial for revenue growth and financial projections.

How does the strong sales pipeline relate to headcount trends and 2026 client budgeting? - Bryan Bergin (TD Cowen)

20251114-2025 Q3: Pipeline is 30% higher, and conversion speed has increased. Top clients are showing growth, stabilizing professional services, and expecting better numbers in Q1 2026. - Martín Migoya(CEO)

Are you expecting significant pipeline conversion in the second half of the year? - Tien-Tsin Huang (JPMorgan)

2025Q2: Conversion is better than expected, though we remain cautious. Macroeconomic uncertainty persists, but signs of improvement are visible in conversion rates. - Martín Migoya(CEO)

Contradiction Point 4

Latin America Demand Recovery

It involves differing perspectives on the recovery of demand in Latin America, which is essential for understanding regional growth dynamics.

Are clients seeking AI use cases in Globant’s GUT area, such as new form factors for retailing or banking? - Puneet Jain (JPMorgan)

20251114-2025 Q3: Argentina, Chile, and some other geographies, already started to recover. - Martín Migoya(CEO)

How quickly can you recover Latin American demand/spending? What steps are you taking to reenergize growth there? Are there cancellations or delays? - Tien-tsin Huang (JPMorgan)

2025Q1: Mexico is improving slowly. - Martín Migoya(CEO)

Contradiction Point 5

AI Pods Subscription Model Adoption and Client Interest

It involves the adoption and interest of clients in the AI Pods subscription model, which is a strategic shift in Globant's service offering and a potential driver of future growth.

Can you discuss the embedded AI Pods in your top 20 clients and their potential revenue impact? - Leonardo Olmos (UBS)

20251114-2025 Q3: The new model is well-accepted, and pipeline growth is strong, with substantial client interest. - Martín Migoya(CEO)

Can you explain the AI-based delivery model and how it differs from traditional models? - Tien-Tsin Huang (JPMorgan)

2025Q2: We have 18 customers that are paying. And that's across the board. - Martín Migoya(CEO)