Globant S.A.

Hello and welcome to the Globant Q1 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please see to our conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to your host today, Paula Conde. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today on our call to review our first quarter 2020 financial results. 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 Ortega, chief financial officer, and Patricia Pomis, chief delivery and people officer. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risk and uncertainties as described in the company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Glovan 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 like now to turn the call over to Martin Migoya, our CEO.

Thanks, Paula. Hello and good afternoon, everyone. As we are at the end of this earnings call season, I'm sure that you have heard from many CEOs across many different industries about the difficulties our world is facing. But it is never enough to underscore this unprecedented situation and how this is impacting our daily routines, increasing our concerns about our health and the health of those we love, and how this is impacting the world economy. We stand with all those who are suffering today. Over the next few minutes, I would also like to lay out how Globant is resolved to face this situation as an accelerator for our business in the middle to long term. Over the past few months, I have been amazed by the kindness, creativity, innovation and resilience that I have seen across the world. Today, I would like to share with you some stories from Globant about how we are positioning our transformational skills to help our communities and our clients rise to the occasion. We have had a great first quarter with solid revenue growth and profitability. But before I get into the details, I'd like to introduce you to Patricia Pomies, She will discuss how we are facing COVID-19 in the Globan way. Patricia is our longtime operations leader and our chief delivery and people officer. As the head of Globan's COVID-19 committee, she has been instrumental in steering our company through these vital months. Pato, please.

Thanks, Martin, and hi, everyone. It's an honor to join you this afternoon. To face this new situation, over the past month, we have thoroughly consulted with national governments, independent experts, multilateral organizations, and fellow global companies. We have centralized our COVID-19 decision-making to quickly safeguard the well-being of our glovers and our business. This is why we proactively moved our company to work-from-home mode on March 14, even before some of our host countries declared lockdown. We completed the transition in just 48 hours, all while providing uninterrupted delivery to our clients. We have remained fully operational. Since our top priorities are global safety, we will remain on work from home status for the time being. For when we do indeed return to the office, our COVID-19 committee has prepared a detailed plan to do so safely and gradually. Being a digital native company has enabled us not only to quickly adapt to the global lockdown, but to promote our Glovers' professional development as well, even when working remotely. We have recently launched Global University, our own learning platform that will enable our Glovers to upskill or reskill in the most sought-after competencies in the industry. It offers 40 learning paths, grouping to four skilled families. technology, agility, language, and leadership. Our aim is for our teams to become more creative problem solvers for our clients in this era of uncertainty. We are innovating our way through this storm and come out stronger on the other side. Let me share with you some of the ways Globan is innovating to fight COVID-19. First, the research dashboard. We knew that for public health officials, information is key. Therefore, We team up with Salesforce to develop an interactive dashboard to enable real-time management of key resources. This includes available ICU beds, respirators, and oxygen storage. We are working with different governments to donate the tool so that they can mobilize their public health system more efficiently. With education now being conducted exclusively online, we knew that many schools, particularly those in the developing world, were going to have trouble suddenly going digital. Our Glovers have therefore donated their time and consultation to assist and train educators on how to use online tools for more effective teaching. As a company, we also had All Against COVID campaign, convening our Glovers and our clients in a common effort. With the support from our clients and extra effort by our Glovers and our own corporate donation, we were able to buy medical supplies for hospitals in each country where we work. I invite you all to learn more about our efforts to make a difference at takingcare.globan.com. This is a tough time for all of us, but I cannot express to you how proud I have been to see our Globers helping their communities in the best way they can, through technology, creativity, and commitment.

Thank you, Patricia. I also have never been more proud of this team. Indeed, I have been sharing this sentiment with glovers across the world in virtual town halls over the past month. Now, let's look at the numbers. I'm pleased to say that we have a very strong growth in quarter one, with $191.6 million in revenue. This represents an outstanding 31% year-over-year growth. We also had a very healthy profitability this quarter, with an adjusted net income margin of 12.7%. As Pato mentioned, in mid-March, we have decided to move almost 100% of our Glovers to work from home, even before the global lockdown. We did that with the understanding that as a company, we were ready for that move. We mastered the technology and the methodologies for being able to work in a geographically distributed manner. However, I miss being at the office with my team, and I'm sure many of you do as well. We usually come up with new ideas when we are chatting over coffee or before meetings. At the office, these casual dynamics fuel innovation and productivity while fostering and enabling the company's culture. For most corporations, working remotely means losing these casual moments, creating a sense of decreasing in productivity and innovative thinking. Without these interactions, how can organizations replicate group synergies and collaboration through distance working? How can we endure that employees feel motivated? We know that traditional collaboration tools like video conferences or document sharing cannot replace these interactions. The idea is to achieve not just successful communication, but real collaboration. We need to apply technology to bring remote work to the next level. Globan has always had teams working remotely throughout the world, and we have devised ways to use artificial intelligence to empower our teams working remotely. We're focusing our talents in our new proposal to the business world in a concept we call augmented collaboration. This will help organizations replicate these informal interactions to scale up culture, promote innovation, and increase productivity. These are three steps to remove the friction that distance creates. The first is to become an enabler instead of a controller. We tend to feel that people are less productive when they are not physically in an environment that we can control. But this fear is unfounded. The traditional command and control structure does not increase productivity. Globant's solution is to turn things upside down. trust the teams and empower them to self-regulate and own their results. Our AgilePod framework allows teams to learn continuously, think systematically and adapt quickly to change. They align closely with the clients while delivering value-added services. The second step is to apply artificial intelligence to foster culture and personal connections and ensure that they are not lost when working from home. We know that culture can make or break a company, and social connections promotes employees' engagement. At Globan, we use AI through our Start Me Up OS platform to help us understand the human fiber within an organization, and also to provide a platform that will proactively promote and propose those spontaneous interactions between employees. These benefits go beyond the current situation and can effectively enhance the workplace dynamic even when back at the office. Employees feel connected, supported, and empowered by one another, rather than from the top down. The third step is to use AI to augment team capabilities. When you no longer have a colleague sitting next to you to ask for suggestions, AI can be the solution to augment your team's skills and collaboration. We have used AI to create a system that enhances the developer's coding experience and capacities. Augmented code ensures the learning curve when learning new coding languages or improving their skills. They receive suggestions to improve their work and examples of different solutions. It's like having a personal expert to help you understand how every single line of code works. I invite you to discover more about this by visiting augmented.com. COVID-19 has hit many companies hard It has exposed the overdue changes that many of them need to make in how they work Companies must adapt immediately to ensure business continuity However, they must also be prepared for what's beyond the crisis so they can grow The digital world is no longer an option, but the required transformation is not just digital. It is one that affects everything from business models, operations, infrastructure, to even the core of customer relationships. As I mentioned before, as a pure play in digital and cognitive transformations, we have a unique opportunity to help these organizations with this new reality. LATAM Airlines is a great example. Although they had to cancel most of their flights, they have decided to continue the deep digital transformation we have been working together, building a revamped consumer experience that's digital at its core. We are compiling our expertise in the content we produce. In our Sentinel report, we share four strategies that can help create new customer value, strengthen organizational agility, and reinvent industries for the future. These are the ideas. Number one, imagine exponential business. Today, more than ever, companies need to challenge their core business to seek opportunities that weren't previously available. Hack the company. To reinvent any industry, leaders will need to look at the inside to challenge current state and reshape organizations for a new reality. They need to ask themselves, are you looking at the past instead of designing for the future? Augmented collaboration. As I mentioned earlier, we are offering this concept as an answer to the new normal for our global economy. We need to operate the way we collaborate through technology. And four, create a mutant culture. The DNA of a corporation is a culture. It must be ready to adapt to survive in a changing environment. To read more about these strategies, please visit sentinel.globan.com. Over these difficult moments, we have stayed strong as a company because we are working side by side with our clients, helping them through these challenging times. Our top client, Disney, has their parks closed and is adapting to face this crisis. At the same time, however, their DTCI division is experiencing huge growth as Disney Plus reached the mark of 54 million subscribers. Since the beginning, we have offered our support and have been in constant sync to adapt to their needs. Despite the fact we expect some impact in the very short term, coming mainly from the parks division, this current challenge will not affect our long-term partnership that is stronger than ever. While there has been volatility in the global economy, we continue to have a strong pipeline and we continue closing deals with current and new clients. Let me give you a few examples. We were already working on a profound digital transformation for Prisma, a digital payment company. Since the COVID-19 crisis broke out, Prisma needed to respond to the sudden increase in demand for digital payment methods, particularly in developing countries. We created a payment button product to simplify transactions. They simply push the payment button, follow the prompt, and provide basic information. That's it. We went from design to development to deployment in just two weeks. Also, the healthcare provider, Keralty, called for help in managing their patient information and allocating resources. We were already building a Salesforce-based solution. This will allow Keralty to to centralize the patient information and allow tracing. As a result, suspicious cases of COVID-19 are identified and managed more efficiently. This speeds up response time and decision-making process. Last quarter, I shared with you the great news of Smile Direct Club, a digital dentistry company with more than 5,000 employees and operations in seven countries. We have begun developing their solutions to improve their systems as they scale up. We have taken this opportunity to boost our gaming studio, as we have seen increased demand in time of global quarantine. Globan is developing AAA games for Sony and Microsoft Next Generation consoles. We are also expanding our relationship with EA Games. We began working for their North America subsidiaries, and now we support Electronic Arts in Europe and India. In banking, we are partnering with Texas Capital Bank. They are merging with Independent Bank Group to become one of the largest banks in Texas. Globan will help drive the cloud migration and common data stores for the entire bank. Also this quarter, I'm pleased to announce the brand new Life Science Studio. Globan already has deep expertise in both healthcare and bioinformatics. This new studio brings these areas together to form a new agile team. They have the know-how to assist the healthcare, agricultural, and pharmaceutical sectors to become fully digitally enabled. The studio will focus on smart farming, image diagnosis, healthcare ecosystems, telemedicine, and precision medicine, among other areas. The studio's first project will be the integrated breeding platform. This is a nonprofit that wants to fight global hunger by digitizing plant breeding. We are creating a new module for plant breeders so that they can breed more productive and efficient crops. We hope to make a difference, particularly in developing countries where food management is crucial. Closing out, let me say that Globan is no stranger to adversity. My three partners and I founded this company in the middle of a severe economic crisis. Through constant determination, adaptation, and innovation, We beat the odds at every corner and have delivered consistent growth and unique technological solutions for the world's top brands. With this new era of global uncertainty upon us, these top brands have an exponential greater need from dynamic relationships with end users and ensure a superb user experience. This is Globant's moment. Please take much care and stay safe. With that, I'll turn the call over to Juan Urtiaga, our CFO, for a detailed financial review on Q1 2020 and to provide guidance for Q2. Thank you very much. Please, Juan.

Thank you, Martin, and thank you all for joining us today. I sincerely hope you, your families, and colleagues are all well and safe. Let me start by summarizing our first quarter 2020 results. I will then discuss our guidance for the second quarter. We are very pleased with our overall results for the first quarter of the year, as we showed a very strong performance. Our revenues for Q1 amounted to $191.6 million, beating our guidance and representing a solid 31.1% year-over-year growth. Q1 revenue growth was 32.2% year-over-year in custom currency. COVID had minimal impact on our Q1 revenues, primarily because of our swift actions related to transitioning almost 100% of our employees to working from home, maintaining seamless delivery of services to our customers. Disney was once again our largest customer for the quarter, growing more than 45% on a yearly basis. Revenues from top 5 and top 10 accounts increased 31.9% and 31.5% respectively over the first quarter of 2019. Customers 11 and beyond increased 30.8% during the same quarter, showing solid growth all across the board. On a sequential basis, revenues increased 3.9% during Q1 2020 over the last quarter of 2019. As a result of our diversification of operations into multiple regions, we have been able to gradually reduce the impact of visionality in terms of revenues. Our customer concentration numbers for Q1 2020 remained largely stable, with our top 1, top 5 and top 10 accounts representing 11.7%, 29.1% and 41% of revenues compared to 10.5%, 28.9% and 40.8% of revenues respectively for the first quarter of 2019. Looking at diversification of our revenues by industry vertical, we remain balanced across the different industries, with media, entertainment and financial services leading the pack, accounting for 24.2% and 23.7% of revenues respectively. professional services and consumer retail and manufacturing were the fastest growing industry vertical in Q1, growing at 52.1% and 44.9% year over year respectively. Regarding the progress of our 50 square strategy, during the last 12 months ended March 31st, 2020, we had 12 customers above $10 million in annual revenues compared to 10 customers for the same period last year. and we had 112 customers with more than $1 million of annual revenues compared to 91 one year ago. We continue to expand our relationships with our key accounts, the base for our continuous growth. In terms of geographic regions, during the first quarter of 2020, 74.5% of our revenues were in North America, 19.5% in Latin America and 6% were in Europe. Once again, we continue to see strong growth and investments in digital transformation, particularly in the US and Latin America. During the first quarter of 2020, 86.8% of our revenues were denominated in US dollar, providing a natural hedge to our top line against currency fluctuations. In Q1, while the impact from COVID-19 to our revenues was minimal, we did start witnessing toward the end of the quarter some project delays and elongated client decision-making cycles, primarily in the travel and hospitality sector. During the beginning of Q2, this trend continued mainly in the travel and hospitality verticals, along with media and entertainment and retail verticals. While the COVID pandemic is creating some near-term pressure to our revenues, it is also creating opportunities to deepen our relationship with our customers. Moreover, we believe that the crisis will create material near- and mid-term business opportunities to accelerate or initiate digital transformation journeys for enterprises across the globe. At Globant, as previously discussed by Martin, we stand ready and prepared to capture those opportunities. During this pandemic, we are also witnessing consolidation of vendors at several of our clients, with us gaining greater share of the client's wallet. Turning now to profitability, our adjusted gross profit for the period increased to $75.6 million, representing 39.5% adjusted gross margin, compared to $60.1 million, representing 41.1% adjusted gross margin in the first quarter of 2019. Year-over-year adjusted gross margin decline is explained by higher costs in Argentine private world and FX movements, and active management of our business to maintain our adjusted gross margin in the 38-40% range, which give us sufficient room to invest in our business, in turn helping us maintain a robust top-line growth trend. On a sequential basis, the slight decrease is mainly related to a slightly lower utilization due to the holiday season. We finished the quarter with 12,538 glovers, 11,755 of which were IT professionals. Attrition for the past 12 months continued to stay low at 15% compared to 16% one year ago, showing a significant improvement in most talent development centers, particularly in Argentina. Given the current economic impact from COVID-19, we expect attrition rate to go further down to below 15% in the following quarters. COVID-19 has impacted demand for talent and some people are less prone to changing jobs. At Globant, we manage the company for the long term. The current crisis will likely be short-term in nature, and hence we don't want to materially adjust our strategy regarding talent, especially as it relates to retention. Moreover, as discussed before, we expect the demand coming out of the crisis to be stronger than going into the crisis, and we want to be prepared to capture that demand. In addition, our Glovers, our key assets, and we have invested heavily in hiring the right talent and training them to be industry leaders. This, however, will lead to decreases in utilization and some margin compression over the next few quarters. We plan to counter some of this impact through increasing GNI hirings and keeping a strong grip on expenses. During Q2, and while the COVID-19 crisis persists, we will do selective hiring of IT professionals focusing on technologies that we do not have in excess or that will be in high demand post-crisis. Adjusted SG&A came at 20.4% of our quarterly revenues, showing an increase of 30 basis points compared to Q1 2019. We continued investing for the future, primarily to expand our sales coverage in our target markets. This focus will only increase as we plan to capture increasing demand post-COVID-19 crisis. As a result, our adjusted operating income for the quarter amounted to $29.9 million or 15.6% of revenues compared to $24.7 million or 16.9% of revenues for the first quarter of 2019. Share-based compensation expense for the first quarter of 2020 amounted to $6.3 million, representing 3.3% of total revenues for the period. This expense is mainly related to the plan of restricted stock units granted to certain key employees and directors of the company as part of our long-term retention plan. Finance expenses amounted to $2.5 million in the first quarter of 2020 compared to $1.1 million for the same period last year. This loss is mainly composed of interest expenses on borrowings and interest expenses on lease liabilities. Our financial results net amounted to a gain of $2.7 million for the first quarter, compared to a loss of $1.9 million during the first quarter of 2019. This item is primarily composed of FX results from monetary assets and liabilities in local currencies, results from our hedging strategies, and gains from transactions with bonds. Our IFRS effective tax rate for the quarter was 31.6%, coming in materially higher than our previous expectation of 22 to 24%. This increase was mainly driven by the large depreciation of Latin American currencies, primarily Colombia and Mexico, which increased the taxable base for the period, resulting in a higher income tax expense. We now expect our second quarter effective tax rate to be between 24 and 26%. and full year 2020 effective tax rate to be between 25 to 27%. Adjusted net income for the first quarter of the year totaled $24.4 million, representing 12.7% adjusted net income margin compared to $18.5 million, representing 12.7% adjusted net income margin for the first quarter of 2019. Adjusted diluted EPS for this quarter was solid at $0.64, based on 38.1 million average deleted shares for the quarter compared to 50 cents for the first quarter of 2019 based on 37.3 million average deleted shares for the quarter. Moving on to balance sheet, our cash and investments as of March 31st 2020 amounted to $134.2 million, while borrowings amounted to $125.7 million. During the first quarter of 2020, we drew an additional $75 million from our credit facility. While our cash flow generation profile satisfies our needs for investments in our business, our current credit facility of $350 million provides us the flexibility related to internal developments while also generating sufficient firepower for us to pursue any potential M&A. As mentioned in past earning calls, typically the first half of the year has negative free cash flow as we pay bonuses and the second half of the year is when we generate the majority of the free cash flow. In the second quarter of this year, we expect some impact in terms of collections as COVID-19 has impacted some of the customers in travel and entertainment industries, which have approached us requesting temporary extensions in payment terms. To wrap up, I would like to share with you our outlook for Q2. Based on current visibility, we expect Q2 2020 revenues to be at least $179 million or 13.6% year-over-year growth. At this point, we do not expect any effects impacts toward second quarter revenues. Q2 adjusted operating margin is expected to be in the 12.5% to 14.5% range, largely impacted by lower utilization, and adjusted diluted EPS is expected to be at least $0.47, assuming 38.2 million average diluted shares outstanding for the quarter. We remain confident of our strong positioning in the digital and cognitive space. The uncertainty related to the current economic conditions resulting from the COVID-19 outbreak makes it difficult to predict full year 2020 results with high levels of accuracy. Therefore, we will not be guiding for the full year 2020 for the time being. Thanks everyone for participating in the call, for your coverage and support. Operator, can you please queue questions? Thank you.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Tinson Wong with J.P. Morgan. Okay.

Thank you. Great to connect. It looks like a great quarter. On the second quarter, it looks like the guidance, the implied deceleration was a little bit better than what we had expected. So I'm curious, on the second quarter here, how broad-based were some of the delays that you're describing? It sounds like it's mostly travel and entertainment. And now that we're about halfway through the quarter, are you starting to see some of the the delays get back started again with the projects getting underway again? Just curious what you're seeing right now real time. Thank you.

Yeah. Hello, this is Juan. How are you doing? Thanks for the question. So, you know, as you pointed out, so far most of the impact that we are seeing is concentrated on travel entertainment. Some of those projects are coming back. Some of them so far are still on hold. So it's a mixed situation in that industry. Other industry are holding up well. But as you know, you know, we have several customers in those industries. That's why we had to, or our forecast for the second quarter is a little bit lower than our number for Q1. But, you know, given what we are seeing in the market, we believe or we feel that the $179 million for Q2 is a reasonable amount. number for Q2. And again, as I was saying, you know, most of that is coming from some projects getting delayed or some small cancellations, primarily in travel and hospitality. All the other industries are reasonably holding up so far.

Okay. No, that's good. That's encouraging, actually. Just as my follow-up, then, just thinking about longer-term margins, I know you gave the second quarter. That's helpful. you know, with the success of work from home and you're talking about augmented AI and everything else, do you see potential for higher productivity to drive improved margins longer term than before in a post-COVID world?

You know, I think it's still early to say. Clearly, there's going to be changes in the way we work, in the way people go to offices, in maybe the number of people or the number of offices. that we will need in the future. But I think it's too early to say. We are in the process of learning how working from home and working in the new environment is going to be like. So I think at this point, of course, we do believe that utilization is going to come up again as soon as we start to see more demand coming back. And that will improve the margins relative to Q2. But I think it's too early to say what's going to be the longer-term impact of the new reality of working from home or working from offices in a different way. I don't know, Martin, if you want to add anything on that.

No, I'm fine. I think it's quite fun.

Okay. Very good. Nice job, guys. Thank you.

Thank you, Dinjin.

Thank you. Thank you, Dinjin. Thank you. And the next question comes from Ashwin Trivakar with Citi.

Thank you. Hi, Martin. Hi, Juan. Hope you two are doing well. Likewise, for the second quarter, the outlook looks a little better than what we thought. I'd ask you to provide a little bit more color with regards to specific visibility of what you're hearing from other verticals in terms of, you know, is there a secondary impact? How are you managing things such as hiring pace, utilization? Are you hearing any comments with regards to pricing conversations? Some qualitative details around those things would be great. Thank you.

Sure. Thank you for the question, Ashwin. This is Martin. Look, I see like, you know, overall, I see like a plateau on pessimism. And although I don't think it's improving, I don't think it's going worse. So my feeling is that that is also followed by not such a... Sorry, it's not mine. Not such a high pressure on... not such a high pressure on pricing. So that's on one side. So not a lot of, you know, at this moment, not a lot of renegotiation of terms. So on that aspect, it looks like the situation kind of plateau. Now, going into utilization, which I think is what's your second question, please let me know. Juan can help you with that one.

Yeah, so thank you, Ashwin. I hope you two are healthy in these difficult times. So utilization in Q2 is going to come down a little bit. We believe that this crisis or this situation is going to be short-term, or at least we think that the economy will start recovering in the near future. And because of that, we are trying to, you know, keep all the knowledge, all the experience that we have built over the last few years in our company. And that's why, you know, utilization is going to come down a little bit, especially in Q2. Having said that, the way we are managing, you know, the situation right now is basically we are only hiring those skills that we know that are very, very hot and that we really, really need. And we are working a lot on training people to make sure that, you know, we are ready to cope with the demand that is coming. So you will see a lower number of issues in Q2, but that's because we prefer to manage utilization that way by keeping all the knowledge or most of the knowledge that we have within the company keep training our people, even if that has a small impact on margins and utilizations in the short term. We are building a business for the long term. We believe that we will be in a very good position once all this situation improves because the need for digital transformation, the need for digitalization is going to increase. And Globant, we believe, is the right partner for those companies that we need that type of talent and that type of services in the future.

Those are fair points and good to hear. So I guess the second question, and one, you provided a lot of good detail there on the balance sheet side of things. The clarification I wanted to ask you about was the drawdown of the credit facility, $125 million, which makes up the vast majority of the $134 million in cash that you have. Basically, you're trying to manage timing of bonuses versus poorer collections, and the collections comment, was that more of a very sector-specific comment, or was it a little bit broader?

No, so the bonuses were paid in January, sorry, in Q1, actually in March, so that's already impacted in the cash in the balance sheet as of the end of March. We decided to draw the line just to make sure that it was at the very end of the quarter when all this started, so we just wanted to be on the safe side and to have money in the balance sheet in case the situation deteriorated further. At this point, we are not using that money. We have it in the bank there already and waiting to be used in case it's necessary. Collections, as you mentioned, we did have on the travel and hospitality sector some selective discussions with some customers where we had to or we agreed with them for a temporary extension in payment terms, but those were just very, very few cases. But again, we still decided to take that money, to throw that money and keep it in the bank just to be on the safe side. But so far, we didn't need to use any of that money.

Got it. Understood. Thank you.

Thank you. Thank you, Ashwin. Thank you very much. Thank you.

Thank you. And the next question comes from Maggie Noland with William Blair.

Hi, thank you. Within that 2Q guidance that you gave, Juan, what is the expectation for performance from some of your top account buckets, both in terms of the revenue and the margin figures that you gave?

Hello, Maggie. How are you? Thank you for the question. So, you know, within our top accounts, there are only two accounts. that are in the travel sector and one in the entertainment sector. We will see some impact on one of the travel companies. The other one is actually holding up very well because they went through a vendor consolidation and we came out as the preferred vendor and we're actually growing that account. The other account in the travel sector is going to be impacted and we will see a decrease in that account. And then in the one in the entertainment sector, you know, we are holding up quite well. Of course, we did have some impact because of, it's actually Disney is our number one account, as you know. We did have some impact on the parks division because the parks are closed, as you guys know. But, you know, at Disney in the last six, seven years, we have been able to expand into multiple areas of the business. and all the other areas of the regions are holding up well and growing, so that is offsetting part of the impact that we had on the past. In any case, the relationship with that account continues to be very, very strong, and we expect to come back once the situation recovers from them. And then in terms of margins, again, we don't think the margin in the specific accounts are going to come down. I mean, we are not having any meaningful discussion in terms of pricing or anything like that. I mean, it's just very selective. The impact is going to be on the overall margins, and that's going to be because of the slightly lower utilization overall that we're going to have. Because again, you know, as I was discussing before, we believe that this is going to be an opportunity for Globant in the future. This is going to generate demand for Globant in the future. because of all the trends that you're going to see in terms of digitalization. And because of that, you know, we decided to keep all the skills that we have within the company, all the people that we have been training over the last few years, and that's why we believe that, you know, for the company and also for the shareholders, it's a better decision to maybe have a slightly lower margin, but be ready for a strong comeback once the situation improves.

And on the vendor consolidation point that you've brought up both in the script and now, is this something, are these initiatives that were in place prior to coronavirus, or is vendor consolidation a trend that you're seeing more so as a result of coronavirus? And what are you hearing from clients in terms of why they're choosing Globant and why Globant is able to pick up that market share.

Hello, Maggie. This is Martin. There are several factors playing here. The number one factor is that the value proposition and the kind of projects we are doing is really key for many of those customers. So we're seeing, although there are crises everywhere, we're seeing that these projects are being accelerated now. Now, Why us? Because, you know, for the same reasons we have been talking about many, many years. We're pure play. We know how to do these things better than our competition, hopefully. And that's the number one reason. The second reason is how we have decided to approach to those customers that are really need for help. And I think we took a very smart decision to help those customers that we like. that we trust in their business too, and to help them in ways which are very creative, understanding their business cycle and understanding our business cycle. I think that this approach is pretty unique in the industry, and it's something that we have been able to differentiate our approach from many of our competitors in terms of how we manage the payment terms, how we manage our projects and the upsides that we have, in case the projects are successful, so on, so forth. And that was a very creative way of understanding how to help them in this situation. And the third factor is that, you know, many of those customers, the connection, the cultural connection between us and the customer is pretty high. So whenever they need to cut, they will find out, you know, where to cut first rather than cutting our teams that had a big chunk of their knowledge and the know-how of the projects that they are executing and the reason why their customers are selecting them. So I think there's a mix of situations. Coronavirus is a crisis and for me it's an accelerating factor of global selection and that's why I said a few minutes ago this is global moment and I think that we are able to show this difference every day in the field against our competitors, and it's working out really great. So that's the comment to what Juan mentioned.

All right. Thank you. Glad you're all well.

Thank you, Maggie.

Thank you, Maggie.

Thank you. And once again, Please press star then one if you would like to ask a question. And the next question comes from Brian Bergen with Cowan.

Hey, thank you very much. Hope you're all doing well. I wanted to ask on talent and resourcing. As demand does start to pick up here, how are you thinking about recruiting in a virtual world? Are there any limitations or concerns for you to add people versus the traditional way?

Hello, Brian. Nice to hear from you. So in the last several quarters, we have been adding more than 600 people, proving that we are a very attractive company to work for. People are actually deciding to work for Globant in what used to be an extremely competitive environment. So we have been able, because of the type of customers that we have, the type of projects that we have, the brand that we created to become the brand of choice for many engineers, not only in Latin America but also now in India and some countries also in Europe. So we have been hiring a lot of talent in the past. We were preparing for a very, very strong year. The number for Q1 actually shows that we were set for a record year. But, you know, now we have to face a different environment and, you know, we will hire in a different way at the very beginning. You know, we'll be hiring especially during Q2. You should expect us to hire in very selectively those technologies that we want to expand, those technologies that we believe are going to be in very high demand once the situation improves. And, of course, we have to do that managing our utilization and our margins at the levels where we want them to be and where we guide them to be. So that's going to be the strategy in terms of hiring. I don't know, Martin, if you want to expand on how we think that hiring is going to look like in the next couple of years and quarters.

Yeah, I think there are plenty of opportunities to attract great talent. right now, as you know, this situation is driving, it's not really driving smart decisions everywhere. I mean, crisis sometimes trigger, you know, just cut because the sake of cutting costs, so on and so forth. And that really, that fact really really great talent into the market. And so I see the future as, you know, having pretty good opportunities to attract such a talent that maybe has been, you know, in trouble during the last weeks or months. So I believe we will have pretty strong opportunities looking forward. As always, you know, and I have been answering this question for many, many years already, as always, I see the talent market as a pretty good place for us, given our positioning and given what we have to offer to them. So, in essence, I don't see any problem. And even more, I see opportunities moving forward.

Okay. That's helpful. And then I want to ask on revenue per employee. So just looking how that's trended over the last year or so, I think down mid-single digits on a trailing 12 basis. Can you just comment on some of the changes there? Just maybe the nature of some of the activities that are coming on through M&A or anything else we should be thinking about in those metrics?

Yeah, yeah. I'll take that one, Brian. So there's a combination of things over there. First one, more important, is the change in the mix. You know, the on-site changes Teams for us are about 5% to 6% of our total employees, compared to about 8% or 9% a few years ago. So when you look at the revenue per head, the revenue per head of a local employee is usually two or three times the revenue of an offshore employee. So that's one factor that is impacting the number. Second factor, as you pointed out, is M&A. Some of the companies that we acquired and also the expansion that we have in some countries in Latin America came at a slightly lower revenue per head. So you have a little bit of a mix there impacting the number. And finally, the last one, and I think one of the most important ones, is that the last four or five quarters we were seeing demand and demand picking up and the pipeline building getting bigger, right? So if you look at the number of people that we were adding in the last several quarters, it has been a very, very large number. The growth in terms of net additions was higher than the revenue growth. So we were preparing the company for what we were seeing in Q1, actually. We were seeing a very strong 2020 for this year, and we were getting ready for that in advance. So I think the combination of those factors is what explaining you the slight decrease in the value per head number. But I want to emphasize this point. There is no price reductions or anything like that. In fact, we still see, I mean, not right now. This is not the time to maybe, you know, want to increase our price. But, of course, there was, until March, not a single discussion about pricing. So it was more about the mix. It was more about the number of people that we're bringing to the company to get them trained. than anything else.

Okay. Very helpful. Thank you very much.

You're welcome.

Thank you. And the next question comes from Roshi Khatri with Woodbush Securities.

Hey, thanks. Good to hear your voices. Good to hear everything. Everybody's fine. Just to follow up and maybe let's start with a housekeeping item. Can you talk a bit about the headcount for regions, you know, Argentina and some of the other regions where we are?

Yes, sure. So Argentina right now is 29% of the total headcount, followed by Colombia at 27%, Mexico 11%, India 10%, and then you have some other regions there. So again, Argentina is again down on a relative basis. It went up in absolute numbers, but it's down on a relative basis. So we continue to decentralize the company and Argentina is now only 29% of the total headcount. If we were just looking at billable headcount, so developers and engineers, Colombia is slightly ahead of Argentina by now. So Colombia is just by a few people larger than Argentina in terms of billable people. We still have some of our staff areas in Argentina. So that's why the total number is higher for Argentina overall.

Understood. And then should we assume that some of the typical traditional cost pressure out of Argentina is probably lessening given the environment?

Look, at this point, you know, with the crisis and what's going on all over the world, I think that it's there is a little bit less of pressure in terms of costs. People and companies in general are protecting themselves and are not being aggressive. So the market is not as aggressive as it used to be in prior years. So, you know, I don't see that level of pressure that you were seeing, you know, up until last year, you know. And that's not just for one country, that's across the globe. People in general and companies are more in a defensive way. So we don't expect to see the same level of pressure that we used to see in the past.

Thanks, that's helpful. And then the last question is for Martin. Maybe you can talk a bit about some of the conversations you're having with clients in terms of what they are planning to do down the road post-COVID but what's COVID actually making them do looking at their infrastructure and looking at your portfolio of advanced technologies that you have on board?

Thanks. Hi, how are you? Thank you so much for the question. Look, it depends a lot on the industry. There are certain industries like travel, for example, and in particular airlines, which are trying to kind of reinvent what they are doing. So the dialogue now is Let's use this moment to kind of reinvent the whole company. So I think in that way, it will be healthy for some of those companies, although they're living a huge crisis right now. When they are out, when they start flying, when they start resuming operations, they will be in a totally different shape. The same happened with some companies on the entertainment side. with public statements from their CEO saying, you know, we are looking into a totally different company after getting out. And we are seeing that, and we are helping them in many of these situations. Talking specifically about the, well, sorry, going to other industries where, you know, the impact is not big, or on the other hand, it's improving, like, for example, let's say retail or healthcare companies or even finance we're seeing also like a lot of investments accelerating and this is where seeing demand right now it's like a change in shape on the demand accelerating these proposals to be ready uh beforehand and to be ready before you know the crisis ends so i see uh like this new normal that is happening right now uh where you know office spaces will be reshaped uh Globan included in that list, where we learn from day to night that we can work from home in an efficient manner, but there are some things lost. Well, there's a lot of things that are happening in that space as we speak in different industries. Talking specifically about culture, I think that this is one of the most challenging things As I said before, many things are lost when you are working from home. That encounter that could happen in an aisle, exchanging an idea over a coffee, those things don't exist anymore and have been replaced by just proactive and planned meetings. So I think we have the product and we have been playing with that for years now around how to create those casual or random contacts among the company. And we are seeing a lot of demand in that space around how to replicate the office kind of serendipity into something totally working from home. And we are seeing a lot of demand from companies understanding that that's going to be a problem and that in some way there's a need for technology to go one level up from where we are today in terms of just interacting by Zoom or interacting with, you know, a document share system. This is like the basic stuff we'll have to, like, 1.0. And now we need to go to 2.0. And 2.0 means how we foster the culture, how we use artificial intelligence to help to recreate those contacts that didn't exist anymore when you're at home, I think it's going to be the new normal. The percentage we see that the percentage of people working from home from now on will be much higher. It won't be 100% at all, but it will be much higher than before. And that will have an impact on the kind of tools that companies will need to have. And we're ready with the tools We already have. That's why the concept of augmented collaboration is extremely important for us to serve those needs and to be able to be close to those customers. So digital transformation goes anywhere, including on how to help people to work from home. And that's the whole idea.

That's helpful. Just in that context, last question on my side. How is the whole selling process or the pitching process for new prospects different? has been going in this era where you can't really travel, prospects cannot visit some of your facilities. How are you kind of handling the whole situation?

That's a very smart question. I think that, well, all the questions are smart, but this one is especially smart. I think that there's a whole new challenge for all our sales guys and all our business development people around the world on how to connect, how to create those relationships when you are not able to be in person in a meeting in a place. However, to my surprise, we have been able to accelerate and close large deals and large things happening. Nobody knows this new thing is happening and nobody knows which are the next steps, including ourselves. But we are experimenting pretty interesting stuff. For example, big deals are being closed now without any specific in-person meeting, and they're being closed anyway. So that really surprised me, and I think that the future will look much more like closing deals and making more connections through online channels rather than just in-person meetings, which, by the way, in exchange, is pretty good for the planet because the carbon footprint would be much smaller for closing a deal, which was something that we were concerned about, the amount of traveling we needed to do to be able to close one deal, to fly from one cost to the other cost, or to fly from Latin America into Europe, or from Europe into the U.S. So I see that that's going to be like a new kind of dynamic. We're experimenting on that. but we are seeing good stuff happening already. People can connect over this kind of tools, and they are executing extremely well.

Great. Moshi, just to add on that, something that we've been doing a lot in the last few months is getting together with all our sales teams, with all our business unit directors, discuss ideas, discuss, you know, there's a lot of innovation going on, a lot of very creative ideas of how to engage with customers, you know, how to win deals, how the situation or the relationship with our customers is evolving. And that, in those meetings, you know, we discuss a lot about that. We do them very often. And, of course, we also review, you know, about the opportunities, how things are going, and so on and so forth. But, you know, we have been very, very creative, very, very innovative in ways to engage with our customers, and I think that's going well.

Well, no, just a quick comment on that. I think that in this new era, massive engines of coverage will not pay off that much. So what I'm trying to say is that, you know, in this new era, we will have like more a content-based connection, you know, rather than a pure relationship connection. And this is a very important shift that I'm seeing happening. And for us, it's extremely good because, you know, we are very deep in our content. We are really innovative in what we are able to bring to our customers. This is, I would say, much more important now because we have that content, we have that innovation, as opposed to something that we don't have that much, which is, you know, a huge engine to cover, you know, 100% of the corporations like other companies have. So I think that this is like a pretty special moment for us in this aspect, too.

Impressive. Thanks, guys.

Thank you. And as that does conclude the question and answer session, I would like to return the floor to Martín Magoya for any closing comments.

So thank you very much for all of you joining. Really pleased for the coverage you are providing to us and for the time you're spending with us. I know it has been tiring and has been a long earnings call season. And really happy to have you here and really looking forward to keep talking over the next quarters as this situation develops and hopefully evolves favorably. So thank you very much. I'm looking forward to contacting the next quarter.

Thank you. The conference has now concluded. Thank you for attending today's presentation. We now disconnect your lines.