Globant S.A.

Good day and welcome to the Globe and Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 this event is being recorded. I would now like to turn the conference over to Amit Singh, Head of Finance and Investor Relations for the U.S. Please go ahead.

Thank you, operator. And thanks, everyone, for joining us today on our call to review our second 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.globin.com. Our speakers today are Martin Miguel, co-founder and chief executive officer, Juan Urtiage, chief financial officer, and Patricia Pomies, 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 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 Globin 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 would now like to turn the call over to Martin Megoea, our CEO.

Thanks, Amit, and hi, everyone. It is great to be with you again. I hope you all continue to be safe. This year has accelerated the need for digital transformation across all industries and regions, and the need will continue to grow. As Markets and Markets reports, the industry for digital transformation is expected to double from the current values to more than a trillion dollars a year by 2025. Here at Globan, I am excited to say that this has been another successful quarter for us. As we champion the drive for digital and cognitive transformations, In quarter two, we brought in $182.7 million in revenue, delivering 16% year-over-year growth. These figures are encouraging even that the first half of the year brought an unprecedented global event that got living room. However, our team took an inventive approach of proposing flexible and adaptive solutions for our current and potential clients. This way we were able to weather this storm. Our profitability was also healthy with an adjusted net income margin of 10.9%. We know that much uncertainty remains on the road ahead for everyone and But we also know that we face a unique opportunity. COVID-19 tested us in new ways. And from day one, I told our Glovers that we needed to be closer to our clients than ever. We're determined to emerge from this situation much stronger than before. Global companies are entering a new phase of hyper-agility that demands swift, efficient, and enjoyable collaboration between teams regardless of where they are. They need smart and seamless connections with their customers and a partner that understands how to guide them to become an agile organization of the future. At the same time, companies must also be mindful and sensitive to what is happening on our society. Diversity, inclusion, and environmental care are key. These concepts should not only be company policy, but should be shared with all our employees and stakeholders. To go over how Globan is approaching this, I would like to invite Patricia Promies, our Chief Delivery and People Officer, to give you all a perspective on how we are looking out for our Globers and our communities. Pato, please.

Thanks, Martine, and hi, everyone. It's nice to be with you again. I'm proud to say that over the past month, we have been able to keep working hard from home while we continue to meet all delivery commitments to our clients. Therefore, with our employees' needs in mind, we will continue our work-from-home status for the time being. We will develop phases of returning to the office as the public health conditions allow it. In these challenging times for our global community, organizations must lead the way to advocate for diversity and promote inclusion. They should also foster a culture where everyone can grow, regardless of their race, gender, religion, nationality, or sexual orientation, among others. Globan cannot and will not be on the sidelines. First, we launched a new campaign called All for Equality, aimed at raising awareness of diversity and inclusion in every level of decision-making. With support from our clients, an extra effort from our Globers, and our own corporate donation, we raised money that was donated to 13 organizations that work to protect and their privileged community across the world. Globant is also doubling down our Be Kind initiative, which I have shared with you on several occasions. We are moving forward with our commitment to achieve 50% of management position held by women and non-binary genders by 2025. We have implemented a framework with different stages that will help elevate gender minorities in our industry. This framework, which includes the collaboration with the key partners, span across all the stages and needs of individuals. We strive to inspire by getting more women and non-binary gender people interested in STEM fields, to educate by offering trainings and scholarship and expand gender minority participation in the IT industry, to promote equal opportunity hiring through specific policy and programs, to accompany women grow their careers through their life stages, and to elevate their growth and leadership with specific mentor programs, policies, and courses. We will continue to invest in these initiatives as we promote a global and inclusive company with equal opportunities for all our Globers. Thank you very much. Martin?

Thanks, Pato. I want to highlight the importance of all our Be Kind initiatives, making sure a true impact on society is very important for Globant. Now let me share some of our business updates. as we expand our global presence to better serve our clients We are repositioning key executives to lead this exciting phase. In the U.S. and Canada, Fernando Matlin has been recently appointed as our chief business officer to fully oversee our growth strategy in our largest market. Fernando will work closely with Nicolas Avila in his new role as chief technology officer for the region, and Guillermo Bodnar, head of our chief solution officers. In Europe and Asia, we will enter into new markets like Germany, France, Switzerland, and Singapore, led by Federico Pienovi. In Latin America, Nicolás Kaplum will continue his leadership along with Sabina Schneider in her role as Chief Solution Officer for the region. We have also appointed Vivian Sosteliskis, as Global VP of Operations to drive our execution in our most high-demand accounts. We're confident that these appointments are going to continue to lead our worldwide growth. Now, I'd like to double-click on what we have been working on. As you may know, the financial services and fintech industry has been growing for several years. It currently makes up nearly a quarter of Globan's revenue. This industry has taken off during this pandemic as more economies need to go cashless. Users expect a streamlined experience from their banks and financial services providers. Our banking clients rely on our expertise to transform their digital products into smart, revenue-generating business lines. Cogni is a great example. This disruptive company is building a next-generation platform that brings together banking, commerce, and lifestyle. Kloman is building a new banking service for Cogni and enabling financial innovation targeted at a tech-savvy demanding user base. Education has seen a tremendous impact as well. My kids, like many of your own as well, have been taking classes virtually over the past few months. Companies also need to deliver their trainings in a virtual way. For educators and organizations, this creates a major challenge to rev up their digital skills and produce high-quality online content that can be delivered on time. Globan has been serving the EdTech industry for several years, and we have redoubled our efforts in 2020 in response to the pandemic. Among several of our EdTech customers, Blackboard stands out. With nearly 100 million users, it is the largest education technology and service company in the world. They came to us to enhance their Blackboard Learn product line and to deliver customized solutions to their higher education segment. And finally, we must mention the most directly impacted sector this year, healthcare. I'm proud to say that we have been working alongside our clients in the healthcare and life science fields, especially in this critical time. Globan is partnering with the American College of Chest Physicians to develop their web app known as the Clinician Matching Network. This app bridges the gap between healthcare institutions that have personal needs and healthcare professionals available. We have also seen this digital acceleration in another client, Elea Phoenix. With technology and data as the core of their efficiency and experience, Globan is working with them to help them transform into a smart data-driven organization. These are just some examples of our work and how we build long-term relations with our clients. As you know, since 2016, we have been driving our growth strategy under our 50 Square vision, where we organized our most senior teams to focus on 50 clients that would bring $50 million of revenue each. Since then, our company has evolved, expanding our reach, our services, and our talent throughout industries and regions across the world. With the 50 Square program, we have brought in several key accounts, that have turned into some of our top clients. So as we look into the future, we know that we are ready to go for more. We're elevating our vision to the 100 square objective. We want to focus our most senior teams on bringing and building long-lasting relations to reach $100 million in revenues coming from our top 100 accounts. Right now, many organizations need serious change. Therefore, we brought together our most impactful services offering so that organizations not only survive, but thrive. This continuity studio offers digitally enabled solutions to strengthen business operations and create opportunities at the time when constant change is a reality. Of course, digital transformation is not just about technology, it's about culture. Companies cannot change without cultural adaption. So we complement our public offering with our cultural discovery framework. We help companies to empower their employees so that they drive innovation at scale. Many companies heavily invest on how customers interact with their brands. They need to do the same thing with their employees. We believe in designing an employee experience journey to make them truly fall in love with the company. That way, they will fully embrace the values and drive it forward. Last quarter, I laid out an augmented collaboration concept to all of you. Globan is applying its skills and AI technology to bring our client companies into the digital age. Right now, we're implementing this concept across our entire offering. This quarter, we patented our augmented coding technology. We're taking software design to a new level. This technology will be key to the transformations we carry out. Augmented coding can be used to jumpstart the onboarding of new people, to quickly learn new skills and programming languages, and even to get a clear understanding of legacy code without spending hours going through it manually. This enables engineers to work more quickly and creatively. They can spend more time on more elaborate solutions. To present this technology and show how we are reinventing coding, we will host our next Converge event on September 17th. Our keynote speaker will be Steve Wozniak, co-founder of Apple. We will be discussing innovation and the future of software development. I invite you all to join us by signing up at converge.globan.com. On June 3rd, we closed a public offering of 2.3 million common shares, including the green shoe. We wanted to raise capital for our expansion plans. We're extremely happy with the outcome of this follow-on. The book was two and a half times oversubscribed. The response we received showed that our unique positioning continues to set us apart. I want to thank you for your help and support during this process. Last week, we announced our acquisition of GA. Headquartered in Miami, GA is a leading cloud developer and digital transformation company. They bring wide expertise in cloud journey and enterprise app services to Globant, as well as a broad client portfolio in key industries such as healthcare and life science. Their clients include Johnson & Johnson, Onda, PepsiCo, Cardinal Health, Medtronic, and many others. They have strategic partnership with companies like Oracle and SAP and specialists in data science and machine learning and process intelligence. With over 1,000 IT professionals, I'm really happy to have them on board. The synergies between our teams will produce unique services to our clients. In the face of what this year has thrown at us, I'm extremely happy about how our team responded. We're not shaken in our drive to reinvent our industry. We have found our footing and have a healthy pipeline, and our business continues to expand as we go through this year. And now it's full speed ahead as we continue to grow, think, reinvent, and have some fun too. Now, I'll turn it over to Juan to go deeper into the financials. Please, Juan, thank you very much.

Thank you, Martin, and thank you all for joining us today. I sincerely hope you, your families, and colleagues are all well and safe during these unprecedented times. Let me start by summarizing our second quarter 2020 results. I will then discuss our guidance for the third quarter. We are very pleased with our overall results for the second quarter of this year, as we displayed strong execution amidst a turbulent macroeconomic environment. Our revenues for Q2 amounted to $182.7 million, beating our guidance and representing a solid 16% year-over-year growth. Q2 revenue growth was 17.9% year over year in constant currency. As we predicted in our first quarter earnings call, COVID-19 had an impact on our second quarter revenues. In Q2, we witnessed some project delays and also a few project cancellations, primarily in the travel and hospitality vertical. This impact was most pronounced at the beginning of the second quarter. However, the overall demand environment largely stabilized in the latter half of the second quarter. And in fact, we have started witnessing improvements in the end markets in the last several weeks. We remain bullish about the demand environment post the COVID-19 crisis and are encouraged by the recent positive trend in our bookings. That said, we also remain cautious about any potential impact to the end market due to additional waves of lockdowns, especially post-summer. As discussed on our last earnings call, because of all the swift actions related to transitioning our employees to working from home, we have continued to maintain seamless delivery of services to our customers. Moreover, due to the strong and innovative initiatives by our delivery and people team, employee productivity and morale remain high. Disney was once again our largest customer for the quarter, growing at a healthy 19% on a year-over-year basis, but it was down 12.4% quarter-over-quarter. We expect revenues from Disney to increase in the third quarter on a sequential basis, as we are now experiencing improvement in the account. As we have discussed previously, we are very well diversified within Disney, serving the majority of its subsidiaries. Revenues from top 5 and top 10 accounts increased 36.2% and 27.2%, respectively, over the second quarter of 2019. Customers 11 and beyond increased 8.2% year over year. On a sequential basis, revenues from customers 11 and beyond decreased 11% during Q2 2020 due to the impact from COVID-19, primarily in our travel and hospitality, entertainment, and some retail customers. Our top accounts are proving to be more resilient to COVID-19 impact relative to the rest. Our customer concentration numbers for Q2 2020 with our top 1, top 5, and top 10 accounts representing 10.7%, 31.9%, and 44.9% of revenues compared to 10.4%, 27.2%, and 41% of revenues respectively for the second quarter of 2019. Looking at diversification of our revenues by industry verticals, we remain balanced across the different industries, with financial services and media and entertainment leading the pack, accounting for 24.8% and 23.4% of revenues, respectively. Professional services and financial services were the fastest growing industry verticals in Q2, growing at 52% and 33.3% year over year, respectively. Regarding the progress of our 100-square strategy, during the last 12 months ended June 30, 2020, we had 13 accounts above $10 million in annual revenues compared to 12 customers for the same period last year, and we had 113 customers with more than $1 million of annual revenues compared to 97 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 second quarter of 2020, 72.8% of our revenues were in North America, 20.8% in Latin America and others, and 6.4% in Europe. During the second quarter of 2020, 87% of our revenues were denominated in U.S. dollars, providing a hedge toward top line against currency fluctuations. As we have discussed before, while the COVID-19 pandemic has created some near-term pressure on revenues, It is also creating opportunities to deepen our relationship with our customers. Moreover, we believe this 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 are prepared to capture those opportunities. Turning now to profitability, our adjusted gross profit for the period increased to $69.8 million, representing 38.2% adjusted gross margin compared to $63.3 million, representing 40.2% adjusted gross margin in the second quarter of 2019. Year-over-year adjusted gross margin decline is mainly explained by the lower revenue due to COVID-19 and lower utilization, as we have been managing our headcount with the assumption that COVID-19 crisis is short-term in nature. We finished the quarter with 12,333 glovers, 11,573 of which were IT professionals. Following several quarters of very strong net additions of Glovers in anticipation of what was expected to be a very strong 2020 prior to the COVID-19 outbreak, we decided to focus on selective hiring of IT professionals in the second quarter of 2020. This temporary adjustment in our hiring activity was in response to the evolving COVID-19 crisis and the employee exits in Q2 offset hirings during the same period. As a result, the total number of IT professionals decreased 1.5% sequentially, though still growing at 25.6% year over year. Now, as our business is picking up, we have turned our recruiting engines back on, and we expect to be again net positive in employee additions during the third quarter. Over the last few years, Globant has invested heavily in establishing robust hiring and training infrastructure across the globe. which gives us a strong ability to seamlessly ramp up hiring and training as required. At this moment, we don't expect any challenges in finding the right talent to meet the demand. Attrition for the past 12 months continued to decrease at 14.3% compared to 15% one year ago, showing a significant improvement in most talent development centers. As discussed during the last earnings call, amid the COVID-19 crisis, we have decided to avoid layoffs, as we expect the demand environment coming out of the crisis to be strong. We managed headcount by controlling hirings and attrition. This has led to a decrease in utilization, which impacted margins during Q2. We are countering some of this impact through freezing G&A hirings and keeping a strong grip on expenses. That said, we now expect utilizations and margins to trend slightly up in the third quarter. Adjusted S&A came at 20.7% of our quarterly revenues, an increase of 80 basis points compared to Q2 2019, despite having achieved quarter-over-quarter savings in dollar terms. We have continued investing for the future, primarily to expand our sales coverage in our target markets. This focus will better prepare us to capture the increasing demand post-COVID-19 crisis and help maintain a robust long-term revenue growth profile. As a result, our adjusted operating income for the quarter amounted to $24.6 million, or 13.5% of revenues, compared to $25.9 million, or 16.4% of revenues, for the second quarter of 2019. As utilization and revenue growth profile improves from here, we expect adjusted operating margin trend to improve from current levels as well. Share-based compensation expense for the second quarter of 2020 amounted to $6.5 million, representing 3.6% 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 $2.7 million in the second quarter of 2020, compared to $1.3 million for the same period last year. This loss is mainly composed and interest expense on borrowings. Other financial results net amounted to a gain of $0.9 million for the quarter, compared to a loss of $1.4 million during the second 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 25.1%, coming in line with our expectation of 24% to 26%. we still expect the full year 2020 effective tax rate to be between 25% and 27%. Adjusted net income for the second quarter of the year totaled $19.9 million, representing 10.9% adjusted net income margin, compared to $19.9 million, representing 12.6% adjusted net income margin for the second quarter of 2019. Adjusted deleted EPS for the quarter was 51 cents, based on 38.8 million average deleted shares for the quarter, compared to 53 cents for the second quarter of 2019, based on 37.6 million average deleted shares for the quarter. Moving on to the balance sheet, our cash and investments as of June 30, 2020 amounted to $404.1 million, while borrowings amounted to $76.8 million. During the second quarter of 2020, we raised $301 million in a primary follow-on offering for 2.3 million shares. repaid $50 million of our credit facility and had a strong free cash flow generation over the quarter. We would like to thank our shareholders for the success of the follow-on transaction, which was more than 2.5 times oversubscribed and was also our first primary equity issuance since our IPO in 2014. While our cash flow generation profile satisfies our needs for investments in our business, our current credit facility of $350 million, along with more than $300 million cash raised recently through our public offering of common shares, provides with the flexibility related to internal investments while also generating sufficient firepower for us to pursue any potential strategic M&A. This cash position also materially strengthens our cash-to-market cap ratio. During the second quarter, and despite some impacts from COVID-19, we generated free cash flow of $20.2 million. As mentioned in past earning calls, Typically, the first part of the year has a lower free cash flow as we pay bonuses and taxes, and the second half of the year is when we generate the majority of the free cash flow. Now, let's talk about the six months ended June 30, 2020. Revenue for the sixth month ended June 30, 2020, was $374.3 million, implying a 23.2% year-over-year growth. This increase was boosted by our strategic accounts and new customer wins, as our portfolio of high-potential customers continues to expand. Adjusted gross profit for the six-month period was $145.4 million, 38.9% adjusted gross margin, compared to $123.4 million, 40.6% adjusted gross margin for the same period last year. a decrease of 180 basis points. On a year-to-date basis, this margin compression was mainly explained by the lower revenues due to the impact of COVID and lower utilization, as we manage our talent pool, assuming this crisis to be short-term in nature. Adjusted SC&A increased 50 basis points, accounting for twenty point five per cent of our revenues for the last six months ended june thirty twenty twenty adjusted profit from operations for the six-month period ended june thirty twenty twenty was fifty four point five million or 14.6% adjusted profit from operations margin, compared to 50.6 million, or 16.7% adjusted profit from operations margin for the same period last year, representing a decrease of 210 basis points. Adjusted net income for the six-month period ending June 30, 2020, was 44.3 million, or 11.8% adjusted net income margin, compared to $38.4 million, 12.6% adjusted net income margin for the same period last year, representing a compression of 80 basis points. Adjusted deleted EPS for the six-month period ended June 30, 2020 was $1.15, based on 38.4 million average deleted shares for the period, compared to $1.02 for the same period last year, based on 37.5 million average deleted shares. To wrap up, I would like to share with you our outlook for Q3. Based on current visibility, we expect Q3 2020 revenues to be at least $203 million or 18.5% year-over-year growth. At this point, we do not expect any FX impact toward third quarter revenues. Q3 adjusted operating margin is expected to be in the 13.5% to 15.5% range. And adjusted diluted EPS is expected to be at least $0.58, assuming 40.9 million average diluted shares outstanding for the quarter. Included in this Q3 guidance we estimate GA's contribution as 11 million in terms of revenues and two cents of adjusted diluted EPS. We remain confident of our strong positioning in the digital and cognitive space. Given that the end market still has material uncertainty due to the COVID-19 evolution and impact, predicting full year 2020 results with very high levels of confidence is not feasible at this time. 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.

We will now begin the question and answer session. To ask your question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then 2.

And there will be a brief pause for the first question.

And our first question will come from with JP Morgan. Please go ahead.

Hi. This is Puneet sitting in for Tenzing. Nice quarters. So, Martin, now that we are into five months of this pandemic, how is your competitive profile changing? Are you seeing that clients are increasingly going to digital specialists like yourself versus legacy firms?

Well, look, there's a movement toward... Can you hear me? Hi, Puneet. How are you? Sorry. Thank you for the question. We are seeing, like... like a lot of demand happening on the pure digital players increasing. Saying that, meaning either from the entertainment industry or from the finance industry, those players are really picking up very, very fast. Like, you know, you saw Disney and we expect, as Juan said a few minutes ago, that we are, you know, coming back in the demand within our main customer, which is great news. So last quarter I said that, you know, I was seeing like a plateau on the pessimism. I still see that right now, a plateau on the pessimism, and some, you know, interesting facts starting to happen. And again, every industry, every government, every institution, every single interaction that you need to have at planetary level with your consumers, customers, citizens, whatever, will need to be totally different. So we're seeing demand on those companies that are understanding this new challenge.

Got it. And your third quarter guidance implies double-digit sequential growth. How much of the growth could be attributed to work that got pushed out from 2Q versus work that stems from long-term trends of increasing digital mid-shift? And is there any business that you expect will deteriorate from 2Q into 3Q, any verticals like that? travel and all that could further deteriorate from current levels.

Hello, Bonit. How are you doing? This is Juan. So we're looking into Q3. You know, we're estimating about 12% organic growth in the quarter plus, you know, another six, six and a half coming from inorganic. That is, you know, there is both. I mean, there is a pickup from, you know, historical ongoing relationships. Some companies that kind of were on a wait and see during Q2 to understand what was going to be the full impact of the crisis, they are coming back because they are starting to be more optimistic about what's going to happen. We have seen some impact on the travel and hospitality as it was expected. That will continue a little bit during Q3. They are still not coming back strong. We have seen some of them coming back a little bit, but there's still some of the airlines, some of the cruise lines that continue to struggle and pushing out some projects. So the Q3, again, is a combination of some companies that were on a wait and see until they have a little bit more clarity and they are coming back. And the acceleration of digital transformation in general, as Martin was explaining, given the new way in which companies are interacting with employees, with consumers, and with the rest of the population in general.

Got it. Thank you. Thank you. And this augmented coding looks really cool. We'll look for more details there. Thank you.

Yeah, absolutely. Thank you so much, Vineet.

And our next question will come from Brian Bergen with Cowan. Please go ahead.

Hey, good afternoon. Thank you. Wanted to ask, you mentioned that you're encouraged about the trends in bookings. Can you give us any color or metrics that you might be seeing there, really any color on the pipeline or the signings cadence pre-COVID versus where it may be today?

Yeah, sure. Thank you very much. How are you? Look, the cadence looks like it was pretty bad during the beginning of the second quarter and the beginning of the pandemic and all that portion when all the impact that we received main from releases, main from projects ending on those industries that are more affected, but not that much in terms of the bookings as a general speed. It was never too low. What we are seeing now is like a much, like a larger number of bookings happening a little bit faster than before, and a little bit longer term than before. This is the trend. We never saw a de-acceleration on the bookings that was too big. What we saw was some big projects releasing people because of the problems that we are seeing. Now we are seeing two moments, a slow on the releases on how projects are ending, And then we are seeing an acceleration, slight acceleration on the way new bookings are being generated. Is that clear enough?

Yeah, that makes sense. Thank you. And then I'm kind of curious on really just the slope of this growth recovery and how you're thinking about it. I guess more so, how are clients thinking about the spend and the pace of spend on these digital transformation programs. You mentioned your view that this is a short-term phenomenon, but you say there is so much pent-up demand that once we get some macro certainty, the kind of flood or the dam and floodgates release, or is this something more gradual than that?

No, we're seeing something gradual, although, you know, people, I think people and companies understand that this thing is short-term in nature. and there are already vaccine candidates, there are countries that are starting to generate vaccines and not just Russia that we heard a few days ago. So I think the market in general is understanding this as a relatively short-term issue. So what we're seeing is this coming back is being taken as a more solid trend than when I did it to report the first quarter three months ago. So this is what I'm seeing now. And again, the trend is coming from those companies that need to make that transformation happen.

Maybe, Brian, to add on top of that, there are some new trends that will very likely continue. The increase in streaming services, the increase in online education, gaming, all the new games that are being played out there, more e-commerce than ever. So there are some trends which are actually reshaping the way in which people interact with companies, which would be something positive for the industry going forward.

Okay, so you really have some sharp and high pockets of growth versus some more obvious ones that will be gradual in their recovery. Yes. Okay, appreciate that. Thank you.

Thank you, Brian. Thank you, Brian. And our next question will come from Arvin Ranani with Piper Sandler. Please go ahead.

Hey, guys, congrats on a terrific quarter. So, you know, the purely... You know, you're very bullish on the overall demand environment and it looks like there are many different opportunities. You know, can you help us understand how are you prioritizing your investments in terms of developing specific offerings? And secondly, you know, are there specific areas that are a small portion of your current revenues which you think will become more substantial over the next two to three years?

Yeah, in terms of the prioritization of where we invest, as you have seen, we launched two, three new studios, and we are beefing up some others that we had from before in terms of investment, in terms of where we are seeing, for example, on the conversational space, we're seeing a big trend. On the gaming space, we're seeing some trends going up, but not just on producing games, but also on operating games, which is something that is becoming big. Also, we are investing in the life science space. With the last acquisition we did, we acquired a big group of people and big clients to own the life science space. We had already people and projects there, but they were not that substantial as they are today. So that's another big investment that we are doing. The second part of your question was, sorry?

Yeah. Are there any specific areas of your offerings which are only a very small portion of your current revenues, but over the next two, three years, you think will become much, much larger?

Look, I think the conversational space, although now it's small, it will be very big. Everything is moving into conversations and people are thinking about how they save on building applications that compete on the app store and thinking about how I place a robot behind Facebook Messenger or WhatsApp or any of those platforms so we can accelerate that. That's one point. The other point that I see is that given this new technology that we're bringing to the market is augmented coding. we are kind of reinventing the way in which the way of generating code is happening. And we see that as an acceleration of our current clients and current services. Although right now we are implementing that all across, as we said, all across our customers. And I think that that could drive big things for the future. And the third one is our platform that we are using in a very successful way, which is Start Me Up OS. We have been dealing with that for many years already. And I think now we are discovering some ways to make it grow faster. But those are the two or three things that could be really big towards the future. And of course, we just did the acquisition on the life science space. Now, I think life science, it could be really big connected to this.

Great, great. And I just had one more question. I know Puneet had asked this, but let me ask you in a different way. Certainly, 2Q is very good, and 3Q also, you provided really good guidance. Are there any workflows in 2Q or 3Q which are one-off in nature, or are there any projects which are just short-term and one-off in nature, or is sort of these upside and revenues coming from projects that are much more ongoing and the ability to continue into 4Q and into next year?

So this is Juan here. How are you, Arvind? So what we have and what we continue to see are transformational programs, right? We may have seen some companies slowing down a little bit on that at the beginning of the Q2. Keep in mind that we decided to keep, you know, our employees in the company because, you know, basically we thought that we were, you know, very positive that this was going to be short term. So now those companies are starting little by little to come back and to accelerate again on some of those projects, we are ready to start because basically we kept pretty much all the people in the company. And now we came back strong with hiring to be able to face that demand. So now you will see not only those programs that were kind of slowed down, accelerating and coming back, but also there will be some new logos, some new companies that now decided that it's the time that they cannot wait any longer to start these transformational programs. So, no, I don't think they are one-offs. What you do have is, you know, some projects that were slowed down coming back.

Great, great. Thank you very much, and I'll get back to you with a few additional questions.

Thank you. Thank you. And our next question will come from Maggie Nolan with William Blair. Please go ahead.

Hey, this is Ted on for Maggie. Thanks for taking my question. Martine, so during the quarter and you touched on your prepared remarks, you announced some new members of your management team, including two general managers in Europe. Should we read into this in terms of increasing focus and building out the presence in Europe more meaningfully? And maybe any color you can add on expectations for Europe in the near term here. Thank you.

Hey, how are you? Thank you. The short answer is yes. We are looking into many different customers in Europe and competing for many other customers in Europe. We see our competitive offering very attractive for the Europe market. I believe that this year could be a very good year. As you have seen, you know, the year-over-year growth that we deliver for Europe, it's quarter-over-quarter growth, sorry, that we deliver for Europe, it's very good. And I believe that that trend will keep on happening. So the answer is yes. We separated Europe in two. We analyzed how we're going to So how are we gonna be investing there? We are thinking about new countries. We're thinking about new spaces for revenue. Countries like Germany, for example, that before for Globant were pretty much unexplored. And now we're seeking opportunities there. I think that this is enough color for the questions.

Yeah, maybe to add on top of that, Europe for Globant, has been a $50 million operation. And it's very clear that the size of the customers, the needs that those customers have, are the same as the ones that we have in the U.S. So for us, it's really an unpenetrated market. So it's a very large opportunity, and we are putting a lot of effort and investment to materialize that opportunity.

That's great. Thanks. So thanks for the color on that. And then he's going to ask about the overall pricing environment and maybe how that's progressed, uh, over the quarter and changed since the first quarter. Thank you.

Yeah, look, uh, uh, you know, during, during the second quarter, uh, I've expected some industries and some companies that have been partners for a long time, uh, where we really impacted by the COVID situation. they came and asking for some concessions and things like that. And very, very selectively in very, very few cases where we really felt that those companies have been long-time partners and that they were being impacted by the COVID. We did have some small concessions. Now that situation is coming to an end. And I think that together with the recovery in the overall market and the overall industry, the pricing discussion will come back as it has always been. It's a very hot market historically, and in a hot market, when you are providing a service that is in very high demand, you're typically able to get a premium or an increase in your pricing. So maybe it's not still that moment yet, but it shouldn't be too far from now.

All right, thank you very much.

And our next question will come from Ashwin Srivikar with Citi. Please go ahead.

Thanks. Hey, Martin. Hi, Juan. Hope you're well. My first question is with the 100 square initiative. I think you have currently one client about 50 million. So I mean, I'm kind of wondering what the what the meaning is currently of announcing or expanding the you know, from 15 square 200 square? Are you going to ramp up um, you know, spending on, on sales? Is this, uh, no, is it just more of a very long term, you know, yeah, yeah. We want to get to much larger clients. Uh, is there, I mean, just want to get some color on this.

Yeah, no, I don't, I'm not thinking about, uh, changing that. It's just changing the vision, not changing, you know, margins, expecting changing margins for that. Um, uh, I'm just changing the vision. I mean, uh, we are not that far from becoming a billion-dollar company. And I think that having a 50-score program is not enough for the vision of the company and for the vision that we need to have. We need 100 customers instead of 50 that can drive $100 million in revenue instead of $50 million in revenue. So that's a renewed vision for our team and a renewed vision for what we want to do in the market. Now, if that would imply anything different from what we had on the 50-square problem, the short answer is no. And we'll try to keep on driving growth and fostering those accounts that are growing fast, investing in those accounts in the same way we did in the past, in the same proportion we did in the past. Of course, there are regions that need some additional investment, but it has always been the case. So I don't see anything changing, but the aim and the spirit of what we want to do with the company, a message for you guys as analysts, a message for our team too, and for the whole company. Okay.

So are you, because I also see that the total number of active clients has gone down. I'm kind of wondering, is that a function of just, you know, near-term impact of COVID? Are you perhaps, you know, refocusing, stepping away from clients so you can refocus on an error list that you can go after more actively, you know, or is it just normal ebb and flow of business?

Sure. Hello, Aswin. Hope you're well as well. Look, as you know, we've grown the company a lot. keeping the same amount of customers for a while. So what we were doing was basically focusing on the ones with more potential and over time ending some relationships with not really a lot of future. Then we had a number of acquisitions that significantly increased the total number of customers. But again, as we continue to push the company towards focusing on long-term customers with high potential which is basically the vision that we have that's why the 100 square now what that means is that we keep on focusing on those accounts we work with the others some of the others eventually may fade away because again the focus of the companies on those those customers that can really really invest and change what they do change what they want to do with technology, and we can help them. So I wouldn't look at the total number of customers. And in fact, you know, we recently announced a deal that will probably increase again the number of total customers. But I think what is more important is the quality of those customers and how, you know, every single quarter we continue to increase the number of accounts over 1 million, over 5 million, over 10 million, over 20 million. So that is the focus of what we are trying to do. That's why I wouldn't really look into the total number of customers.

Got it. Understood. And then a quick clarification on the Q3 outlook. I missed what you said the total inorganic contribution would be. So there's GA and then there's only one month, I think, of Bella cakes, no?

Yes, so we guided $203 million. $11 million of those will come from inorganic. Okay. At this point, it's fully integrated. I don't think, you know, I mean, the teams are all working together. The customers have been distributed together with the rest of the organization. So I'm mostly talking about GA's contribution because we just bought that company. And again, as always, you will see us very quickly integrating the teams and everything, but what we're estimating right now is $11 million coming from this acquisition.

Got it. So about 5% sequential is pretty good in this environment. Great. Thank you.

Thank you.

And our next question will come from Cesar Medina with Morgan Stanley. Please go ahead.

Hi. Congratulations on the results. I mean, you sort of touched on this earlier, but I wanted to get more visibility to the extent that that's possible on how you are doing with new clients, new logos, especially on the new studios that you just launched. Thank you.

Yeah, sure. Hi, how are you? I think that there are many different fronts here. On the conversational studio that I said, we are having a lot of demand from many different company-sized customers, from mid-sized companies to large-sized companies. We're having demand in terms of we need to be present on that new channel. And we are delivering those solutions for them and we're working on those solutions with them. Then on the lifetime space, which is a new space for us, we're getting a lot of demand during these days. It's not just what it came from the acquisition, but also big brands that we closed this quarter as new customers that we didn't have before. So this is also very exciting for Globan. Then on the conversational, the life science are the two main. Then we have on the gaming space, we're seeing like a migration on the deals going from, I mean, it's not a migration, but an addition going from creation and development of games into operation of games. And these games are being very intensive in terms of, you know, how many servers they have online, how many millions of people they need to serve. And with this pandemic, this all got accelerated. So I'm feeling and I'm seeing like a lot of demand on that specific space. And then on the, you know, cash replacement space, I would say, it's kind of a fintech thing. uh we're seeing also a lot of activity and many things are happening in many countries and remember you know uh the cash itself is like a vector while where the virus can get you know transmitted and people are preferring not to use cash and that is being reflected in the demand we're seeing in that specific space so those are for you know main areas where we're seeing a lot of activity right now and of course everything that has to do with entertainment on online entertainment is growing very, very fast. And, you know, our main customer just got 100 million subscribers into their platform, into DC+. That's remarkable. That happened in just six, seven months. So I feel that that's something that it will keep on generating things for us and we are placed in the right place.

Great, thank you.

You're very welcome. And our final question today will come from Alex Kurtz with KeyBank Capital Markets. Please go ahead.

Yeah, thanks. Thanks, Alex Kurtz.

Given the challenges of hiring enough people during this period here with COVID, how should we frame hiring plans into the end of the year and into next fiscal year. I think that would be helpful for the models.

Hi, how are you? This is Pato. Well, we are seeing a peak in the hiring in Q3. You know that as Martin and Juan were explaining before, I mean, we have many clients growing faster and asking for new talents, and we are developing new specific talents with the new studios also. So we are hiring, I mean, in the peak for Q3, so we are expecting to continue growing on that side.

Juan, you want to? Thank you.

Maybe on top of that, all of our engines are ready to hire from distance, you know, We have been a very decentralized company for a long time. So we have always been able to, you know, we are used to doing interviews on Zoom, you know, to do the first couple of days in the office, meeting with people, you know, through a digital channel. So, you know, this is just a little bit more of what we have been doing for a long time. But we are fully, fully ready to keep on hiring, to keep on onboarding people. All the training is ready to be done, you know, online or offline, whatever way. So, I mean, it's going to be, I mean, I think we're ready for the challenge of hiring in the current environment.

Thank you.

And this will conclude our question and answer session. I'd like to turn the conference back over to Martin for any closing remarks.

Thank you very much, everyone, for participating in our Q2 earnings call 2020. And really looking forward to see you on our next earnings call. And again, and as always, thank you very much for your support and attention during all these years. Thank you. Bye-bye.

And the conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.