Globant S.A. Q1 FY2026 earnings call

Strategic Positioning in AI Native Technology Services

• The $2 trillion global technology services industry is undergoing a major transition to agentic AI, with large AI model providers investing in delivery capabilities, which validates Globant's existing AI native service model.
• Globant is an official OpenAI partner, and has expanded strategic partnerships with major hyperscalers (AWS, Google Cloud, Microsoft, Oracle Cloud Infrastructure) and NVIDIA; it was named Google Cloud Country Partner of the Year in Argentina for the fourth time, achieved AWS Gen AI competency and SAP Business Data Cloud expert status, and expanded partnerships with Adobe and Autodesk.
• Key differentiators for Globant's enterprise AI solutions are model independence (supports 140+ models, no client lock-in to a single provider) and token sovereignty (client data stays within the client's governance, and does not train third-party models, protecting intellectual property).

AI Pods and Delivery Model Evolution

• AI pods are AI-native specialized service units that deliver business outcomes rather than billing for effort, paired with forward deploy engineers that embed the offering within client organizations to drive end-to-end agentic transformation.
• As of Q1 2026, 40% of Globant's top 20 revenue-generating clients use AI pods, up from 30% in Q4 2025; the AI pods pipeline has a clear path to reach 70% coverage of the top 20 clients.
• Globant has overhauled its internal delivery framework to embed AI across all operations: it has upskilled employees to become multidisciplinary AI orchestrators, implemented AI-powered project management, and built an internal ecosystem of 20+ validated cross-industry deployable agentic solutions that can be replicated across clients in weeks rather than months.

Capital Allocation

• The original $125 million share repurchase program announced in September 2025 was completed in Q2 2026. The board authorized a new share repurchase program of up to $125 million over the next six quarters, representing ~7.5% of current market capitalization.
• Management prioritizes capital allocation between returning capital to shareholders (as management believes Globant is undervalued) and investing in high-return growth initiatives, primarily the continued expansion of the AI pods business.

Operational Metrics and Client Traction

• Revenue per Glober (employee) is running at over $90,000 as of Q1 2026, an 8% year-over-year increase, driven by the expansion of AI pods and embedded AI delivery tooling, reflecting a structural move up the value chain.
• AI is included in 100% of Globant's sales pipeline: 26% of all opportunities are AI core, rising to 32% for deals originated in 2026, reflecting accelerating client demand. AI pods have been adopted across multiple sectors including financial services, healthcare, media/sports, retail, energy, and aviation, with marquee clients including Banco Galicia, Johnson & Johnson, The Walt Disney Company, LA Clippers, FIFA, Riot Games, and Google.

Total Q1 2026 revenue was $607.1 million, a 0.7% year-over-year decrease on a reported basis. The engineering studio is the largest by revenue, growing mid-single digits year over year. Data and AI (which includes core AI deployments and the AI pods business) is the second largest studio by revenue, growing over 25% year over year. AI pods annual recurring revenue reached $32.8 million as of Q1 2026, with a pipeline of $352 million; AI pods gross margins are materially above the company's blended gross margin, and make up a small but fast-growing share of total revenue. Top 50 clients grew 5.2% year over year, top 10 clients grew 4% year over year, and the 2-5 cohort of top clients grew 8.2% year over year, all above the company average. New Markets region (which includes the Middle East) accounts for 6% of total company revenue, with the Middle East making up two-thirds of that segment. Adjusted gross profit margin for the total company was 37%, adjusted operating margin was 14.1%, and adjusted net income margin was 10.7%. Free cash flow was $36.1 million in Q1 2026, compared to negative $5.7 million in Q1 2025.

• For Q2 2026, management expects revenue in the range of $610 million to $616 million, with sequential revenue growth returning and potential positive year-over-year growth at the upper end of the range. Adjusted operating margin is expected to be between 14% and 15%, and adjusted diluted EPS is expected to be between $1.45 and $1.55 per share.
• For full year 2026, management reaffirms the midpoint of prior revenue guidance, and raises the lower bound of the range to narrow the guidance: full year revenue is expected to be between $2.462 billion and $2.508 billion, implying 0.3% to 2.2% year-over-year growth, with approximately 100 basis points of expected FX tailwind.
• Full year 2026 adjusted operating margin is maintained at a range of 14% to 15%, and adjusted diluted EPS guidance is reaffirmed at a range of $6.10 to $6.50 per share.
• Management expects sequential quarter-over-quarter revenue growth through the remainder of 2026, with accelerating year-over-year growth in the second half of the year driven by already signed large client contracts that are now scaling and a higher number of working days in the second half. Q1 2026 is viewed as the trough of the current growth cycle.

• Ongoing volatility in the Middle East creates uncertainty for the New Markets region, which contributes ~4% of total company revenue; the lower end of the full year guidance assumes a meaningful deterioration of business conditions in the region that management has not observed to date.
• Strength of Latin American currencies (Mexican peso, Colombian peso, Brazilian real) relative to the U.S. dollar creates ongoing margin pressure, contributing approximately 100 basis points of FX headwind to gross margin in Q1 2026 that is expected to persist through the full year.
• Aviation clients face ongoing pressure from elevated fuel prices, which has created some near-term demand uncertainty for the segment, though many aviation clients are shifting to AI pods to gain efficiency and offset this pressure.
• While competitive pricing pressure exists for AI pods, management expects ongoing efficiency gains from the model to offset pressure and maintain higher margins relative to traditional services.
• Management maintained guidance rather than raising it despite a Q1 revenue beat to account for ongoing uncertainty around the Middle East situation, prioritizing conservative guidance amid unpredictable macro conditions.

Q: How is recent pipeline conversion trending, and what is the magnitude of FX margin pressure and AI pods margin impact for 2026? / A: Pipeline remains healthy and conversion is strong, with large signed contracts from 2025 and Q1 2026 starting to generate revenue. There is roughly 1 percentage point of FX gross margin headwind in 2026 from strong LATAM currencies, which management will offset through internal efficiency improvements. AI pods are still a small portion of total revenue this year, with a projected $60-100 million annual run rate by the end of 2026, but the structurally higher margins of the model will benefit blended margins as it scales.

Q: How is the competitive landscape evolving with large AI model providers (OpenAI, Anthropic) entering the AI delivery space? / A: The total technology services market is ~$2 trillion, so there is enough room for multiple players, and the entry of large model providers into delivery validates the overall market opportunity for Globant. Model providers cannot offer model independence or unbiased, vendor-agnostic process advice that enterprise clients need, which is a core competitive advantage for Globant. Most of the work large cloud and model providers capture is routed to partner networks like Globant, so the expansion of their service capabilities actually creates incremental business for the firm.

Q: What customer benefits do AI pods deliver, and are there any structural frictions slowing adoption? / A: Key benefits include faster delivery, higher quality outcomes, baked-in enterprise-ready security and scalability, and 75% or more reduction in token consumption compared to unoptimized client self-implementation, which lowers client AI costs. There are no major structural frictions to adoption: nearly all top clients are either piloting or scaling AI pods, and adoption is progressing as clients learn the model and adjust their internal processes. Management sees AI pods as a long-term transformation of Globant's entire delivery model, with large long-term ambitions for revenue share.

Q: Why did you maintain full year guidance instead of raising it after the Q1 beat and strong current momentum? / A: Management chose to maintain guidance to account for uncertainty around the volatile security situation in the Middle East, which contributes ~4% of total revenue. Management prefers to be conservative and avoid unnecessary guidance risk, rather than overextrapolating current momentum into the full year outlook.