Globant S.A.

Good day and welcome to Globant's second quarter 2022 earnings conference call. I am Arturo Langa, Investor Relations Officer at Globant. All participants on this call will be on listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded and streamed live on YouTube. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com. Our speakers today are Martin Migoya, co-founder and chief executive officer, Juan Urtiaga, chief financial officer, Patricia Pomias, chief operating officer, and Diego Tartara, global chief technology officer. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globan to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our investor relations website announcing this quarter's results. I'd now like to turn the call over to Martin Migoya, our CEO.

Thank you, Arturo, and hello, everyone. Please join me in welcoming Arturo, our new investor relations officer. It is great to be back with you after another strong quarter of growth. I am happy to discuss how we will continue to reinvent this industry moving forward. But first, let's look at Q2. Total revenue was $429.3 million, representing 40.6% year-over-year growth and 6.9% quarter-over-quarter growth. In the eight years since our IPO, Globan has consistently delivered industry-leading growth of approximately 31% CAGR. We will keep to our growth mindset as Globan expands in its geographies, reinvention offerings, and array of platforms. Our commitment only strengthened in today's market environment. We see an increasing demand of our services and perspectives. The competitive landscape presents macroeconomic challenges. Leaders need to improve efficiency of their current business as well as finding new and better ways to reach a wider audience. They need to make decisions in a data-driven, agile, and innovative way to stay ahead of the innovation curve. We see these challenges as an opportunity. Globan will be focusing its capabilities on the fastest growing areas of the digital products and professional services industry. We see positive potential in demand. According to Gartner's recent sector forecast, business leaders are focusing on long-term ROI initiatives. These include projects in digital transformation, blockchain and artificial intelligence in contracts of three or more years. At Globan, we specialize in developing long-term relationships with our clients. We always focus on developing these relationships moving forward and create new ones. To move forward, we are executing across our strategic growth pillars. First, our geographic expansion. In June, we announced our expansion to Canada with a new office in Toronto. It will be our hub to access an amazing pool of talent and expand our reach to more organizations in the $1.7 trillion Canadian economy. We have already been serving key players in Canada for several years, including EY and Electronic Arts, among others. We look forward to expanding our offering in the coming months. We're also strengthening our presence in Europe and reinforcing our global delivery network. We're excited to announce that we have started operations in Poland. Our new talent hub in Warsaw will be the creation space for over 150 new Glovers and will be a great location to continue delivering the best products for our customers worldwide. Our second growth pillar is Globant's platform. Let me share some exciting news. We're launching a new wallet for digital assets. Within the crypto space, we see great potential with the wider adoption of the Lightning Network. With this innovation, transaction times are nearly instant and transaction costs are significantly reduced. This makes it more scalable and simple for the general public to operate. Globem will be taking this a step further by enabling people to enter the crypto space without even leaving an app that they already know and use. Our new product Lightning Chat is an intuitive custodial wallet that can be completely operated via WhatsApp. the global messaging platform used by over 2 billion people worldwide. With Lightning Chat, users interact via WhatsApp to send, receive, and swap cryptocurrencies. For those of you who have WhatsApp and who are watching this earnings call live, I invite you to try this for yourself. With your mobile device, scan the QR code you see on your screen, And we will even give you some free satoshis for the first ones to try out this new product. And finally, our third growth pillar, our studio offering. We're launching three new studios. The automotive and retail reinvention studios aim to help our clients transform these industries. Also, our new Fast Code Digital Studio will bring together our platforms to deliver better and faster services. Our CTO, Diego Tartara, will later go into detail. Now to blockchain. The blockchain technology market is estimated to reach $1.4 trillion in size by 2030. And we believe that we will drive business growth in the future with security, scalability, efficiency and transparency. To address this trend, our latest Sentinel report goes through how blockchain technology is reinventing the digital landscape. We explore the triggers for businesses to best leverage this technology and share impactful applications in various industries, highlighting both the challenges and benefits of blockchain adoption. I encourage you to check it out at sentinel.globan.com. And finally, some thoughts on what Globan is doing to positively impact our world. After achieving our commitment of carbon neutrality last year, we want to take this transformation to our value chain. Through our digital sobriety initiative, we have just put in place a carbon team to measure the positive impact of our digital products and services have on our clients, and to help them in their transformations. On top of that, our AI-powered carbon monitoring dashboard provides data-driven insights on the energy consumption of the technologies we build, as well as the ones already used by our clients. This gives our clients a greater awareness during the decision-making process of the current and potential impact of their business operations on the environment. We have implemented this program with the Inter-American Development Bank. Through our work with the IDB, they can quantify and analyze the current and potential environmental impact of the projects they finance. As part of our Be Kind to Humanity strategy, our Be Kind Tech Fund continues to advance in its vision of improving the state of the world through technology by supporting startups that mitigate its negative effects. 900 startups have applied this year alone. We're happy to share that we have just closed our first investment in Ping, a US-based voice platform solution that enables commercial drivers to hear the messages out loud. By providing a solution against texting and driving, PING hopes to avoid accidents, damages, and prevent fatalities. With our investment, we are supporting PING to roll out its patented technology to hundreds of gig economy companies around the world. We look forward to continue this endeavor with our partners and to do more projects with this fund. The Globan concept is based on delivering for all our stakeholders, whether they be clients, investors, or our own planet and society. With that, I'll hand it over to Diego Tartara, our CTO. Thank you very much.

Thanks, Martin. Hello, everyone. I'm happy to be here to share another exciting quarter regarding Globan's product offering and how we are reinventing our industry through technology. First, as Martin mentioned, we continue to expand our studio offering. This quarter, we have two new re-invention studios, Automotive and Retail. We begin with Automotive. Global mobility is undergoing a profound transformation. Software is quickly becoming the value of the car. Through conversational interfaces, drivers have a more intuitive interaction with their vehicles. The greater generation of data from vehicles also creates an opportunity to improve drivers' experience, requiring proper collection, interpretation, analysis and execution. These changes are adding new revenue streams, as car companies implement subscription-based features that can be catered to each driver's unique preferences. As the mobility ecosystem evolves, its global value is forecast to grow by more than a trillion by 2030. Through our automotive reinvention studio, we will apply our capabilities from gaming, data, AI, cloud ops, sustainability and others to augment the entire customer journey. Even the buying process is ready for reinvention with the metaverse providing more engaging touch points for prospective customers to try out new cars. We have already been re-imagining the customer journey with a major vehicle brand in the United Kingdom. creating a scalable global e-commerce solution and a seamless buying experience that transcends the digital and the physical world. We look forward to sharing more about our work in reinventing this industry in the months to come. Second, our Retail Reinvention Studio. For too long, the synergy between the operations and the customer experience side of the retail business has been fragmented. In addition to meeting high customer expectations, there are also multiple touchpoints through apps, brick-and-mortar and last-mile delivery. Coordinating processes while ensuring a positive and fluid experience has proven challenging, and retailers seek a physical experience to diversify and expand business verticals. We believe that Globan is uniquely placed to help reinvent the retail industry. We want to enable retailers to transition to a one-stop shop to meet multiple consumer needs and go outside their traditional verticals to create new revenue streams, such as financial products or insurance. That way, they will be able to stay ahead of changes in the consumer demand. On the supply side, they will have tools for complete supply chain visibility and automation, so they can execute in a way that improves customer engagement. Improving connections with customers is Globant's core business, so we're excited to apply this to this critical sector. Now let me share with you a new digital studio that I believe will change the future of coding. With the rapid pace of technological advancements and an increasing need for more digital solutions, organizations are looking to optimize their software development process. In this context, our new FASCO Studio brings together the power of our platforms to help our clients accelerate time to market. This digital studio will smartly apply our platforms of Augur for assisted coding, Magnify for smarter testing, and GeneXus for multi-experience development in an offering aimed at improving their time to value. It is an accelerated model that incorporates the best of different innovations to develop software. We expect this new approach to be the tipping point of a profound transformation in development. Now, some exciting news about the work we have been doing for our clients. Globant is working with the Los Angeles Clipper as their digital transformation partner in developing their smart venue, the Intuit Dome. We will collaborate in creating a seamless and extraordinary fun experience through the smart use of technology in and around the stadium, at your seats and in the palm of your hand. In retail, we see players continue to double down on their direct-to-consumer efforts. Glowand signed an agreement with Sephora to be a strategic partner and to provide differentiated and superior consumer experiences, leveraging metaverse, gamification, and advanced analytics solutions. Now to Europe. We are also working with one of Europe's largest banks, which provides services to 15 million individual customers and 500,000 companies. were helping to transform the underwriting process for small business finance by using artificial intelligence to calibrate optimal risk limits. This transformation has enabled them to speed up their businesses while mastering the complexity of the ecosystem, resulting in an agile and adaptive response to market opportunities. Another fascinating new project for Globant is our work with Luminous, a social enterprise focusing on enabling access to education for young people, as well as workforce development and wellness through an integrated education ecosystem. Originally established in Jordan, this organization has the ambition of educational growth throughout the Middle East and beyond. Globant sees great synergies with the ideals and objectives due to our own initiatives, such as Globant U, a certified tech developer. We are proud to be a Luminos technology partner to make their vision a reality. We are co-developing their omnichannel strategy and the delivery of both a personalized and adaptable education method that can be globally scaled. Now to Latin America, our largest talent market that this quarter was also the source of 50% of our new clients. In media and entertainment, Globan is working with Televisa Univision. we have been directly involved in the development and launch of their new global Spanish language streaming platform, VIX. This is a key milestone in the company and we have been working with them with the distribution and integration with other platforms such as Apple TV. In Brazil, we're working with Bauduco, a major food producer and with operations in more than 50 countries. We are creating a modern and robust transport incident and request management system capable of dealing with a large number of partner companies and fully integrated with SAP and carried out through the Salesforce platform. They will obtain greater control of delivery problems, bringing greater visibility, efficiency and transparency in the logistics process and frame payment. In Argentina, our work for the country's century-old state oil company YPF has been recognized by Philip Kotler's book Marketing 5.0. Global solutions using artificial intelligence improved the user experience, drove operational efficiency, and created new revenue streams for the oil company with its own digital wallet. These are some examples of the huge impact we're having worldwide. I look forward to sharing more with you in the next quarter. With that, I will hand it over to Pato.

Thanks, Diego. Hello, everyone. I begin with an overview of our main clients. The Walt Disney Company continues to be our largest client. As expected, Disney grew 42.8% year over year and 2.2% quarter over quarter. the rest of our accounts collectively grew by 40.4 percent year over year and 7.5 percent quarter over quarter our 100 square strategy continued to show results over the last 12 months we had 13 account that brought in more than 20 million dollars of revenue compared to nine from last year We also had 233 clients with more than $1 million of annual revenue, compared to 154 one year ago. Regarding geographical distribution of our revenues, in Q2, 64.5% of our revenue was from North America, 23.8% from Latin America, 9.7% from EMEA, and 2% from Asia and Oceania. Our growth is not only attributed to our new clients, but how we have built relationships with our current clients. Here, we remain committed to improving our Net Promoter Score. For us, it's key to monitor how our clients perceive our quality and how satisfied they are with our overall relationship. It is a great indicator of how willing they are to promote our services among their own networks. As of Q2, the score has reached 75, seven points up from last quarter and well above the industry benchmark of 41. Over the last 12 months ending in Q2, Globanz showed a net promoter score of 70. Four points above the score announced in Q1, comparing the previous 12 months. We are extremely proud of this result, as they show the commitment of our team not only to deliver for, but to engage with our customers. Now, regarding headcount. Our global team continues to expand. This quarter, we hired 1,252 new Glovers and reached a total headcount of 25,924 professionals. 24,410 of whom are IT professionals. Our IT headcount grew by 33% year over year. Our attrition rate is currently 19.9% and has remained nearly flat quarter over quarter. The most recent data is quite encouraging. In June, we had the lowest level of head count attrition year to date. We expect to see this downward trend to continue over the second half of this year. We are reinforcing our value proposition to create a company that adapts our talent needs, evolving in benefits, career development and flexibility. We will keep on offering vibrant job opportunities for Globers through our open career platform. Additionally, Globant University is constantly growing to provide unparalleled upskilling and career-long learning. Globant is also sharing its entrepreneurial spirit and disruptive culture with our external community. So far this year, we have held two editions of Tech & Fest in Mexico City and Medellín. Tech & Fest is our event series aimed to advance the conversation on the latest tech trends in a fun environment. Almost 20,000 people register for the event, making an incredible experience for the attendees. As you all know, one of Globan's key differentiators is our agile pods. Diverse and autonomous teams that interact with our clients to craft the best solution. We launched this methodology in 2012 and it was a critical element in our global scale up. Today, Globan has a significant amount of experience and data from nearly two decades of delivery for hundreds of blue chip clients. Through our platforms, Globant University and MyGrowth, we are leveraging this data to measure and improve the performance and engagement of our pods. With more targeted feedback, we can boost Globart's experience at the company, accelerating their team maturity and delivering great value to the clients. And now, an exciting new development for Globant and our community. As we continue seeking permanent reinvention, we want to hear and learn from diverse perspectives that can enrich our vision. The future will be led by the new generations who will drive our world and industry forward. So we want to hear from them to boost inspiration. Therefore, we created the Council of Igniters, the first company advisory board made up of centennials. We have brought together influencers from today's youngest generation who will have a regular dialogue with globans on the important issues, from the future of work, D&I, education and other pivotal topics. We are excited to incorporate this dialogue into our creative perspective. This brings me to our Be Kind initiative, which continues to develop. We are back for a third edition of the Women That Build Awards, aimed to recognize and inspire women who are shaking up the gender reality in our technology sector. This year, we will have new categories for technology influencers and board executives. For those of you joining us this afternoon, we encourage you to share this award with your networks to nominate extraordinary women of today so that we can inspire the game changer of tomorrow. Check it out at womenawards.global.com. In addition to promoting women in our sector, we are doing our own part by closing the gender gap in our own company. Over the past quarter, we have been consistently incorporating more female Globers at every level of our organization. This effort is aligned with our target of having 50% of Globan's managerial positions to be held by women and non-binary peers by 2025. One of our key areas in Be Kind is also to help humanity through technology. During the past years, we have built different products to face key issues for different communities. Today, we are glad to share the launch of our newest app focused on neurodiversity called Emocionalmente. This app is designed to help young people with autism. It enables them to recognize different emotions in others, associate them to everyday life situations, and implement ways to manage them. We have launched this app in Spanish, and it is already available for free on the Google Play Store. This is just one example of how technology can impact humanity for the better. It has been very encouraging to see Globant recognized by our community. Great Place to Work recently ranked Globant among the top 25 workplaces in Latin America, and Fast Company ranked us among top 100 great workplaces for innovators. Also, I'd like to congratulate Martin himself. Comparably, recently acknowledged him on their list of the 25 best CEOs at large companies, rated by employees of minority backgrounds. I am extremely proud to see that all our initiatives are contributing to a unique work environment. This environment was developed by the Globers throughout our company. We have seen them take the initiative in hosting office gatherings, creation spaces and innovative collaborations among their colleagues. Their initiative inspire us to recognize some of them as our cultural ambassadors so that they can take an even more protagonistic role in driving global values forward. We have great opportunities ahead of us and we continue to strive for be the best place for the talent. Thank you, everyone. And with that, I will turn it over to Juan for the financials.

Thank you and good afternoon everyone. I hope you are all doing well. Let me start by summarizing the strong results of our second quarter 2022. I will then discuss our guidance for the third quarter and for the full year 2022. I am pleased to announce that in the second quarter, our company showed a robust sequential acceleration in our top line, best-in-class EPS growth and solid free cash flow generation. We posted another quarter of record revenue levels and industry-leading financial performance, while continuing to execute on all key pillars of our strategy. Our revenues for Q2 were $429.3 million, representing a solid 40.6% year-over-year growth, reflecting the strong and resilient demand environment for our business. On a sequential basis, our revenues for the second quarter of this year increased 6.9% versus 5.7% in the first quarter of 2022, showing a robust and healthy expansion. Q2 revenue growth was 42.1% year-over-year in constant currency, 1.5 percentage points above our headline figure. and over 36.6% year-over-year growth in organic terms. While we continue to analyze the fluid macroeconomic environment, we continue to see technology as a key pillar in every single one of our clients' strategies and a way for them to future-proof their organizations. On that note, we confidently believe we can continue to deliver robust levels of growth and profitability in the upcoming years, driven by the multi-year secular tailwinds facing our business. Turning now to profitability, our adjusted gross profit for the period increased to $168 million, representing a 39.1% adjusted gross margin. Despite salary increases taking place in our key markets during this quarter, adjusted gross margin was pretty much flat year over year, a reflection of the positive pricing dynamics that we continue to see in the market and our focus on profitable growth. Our gross margin levels continue to be within the industry leaders, reflecting the value that our clients see in our services, the technologies that we bring to the table, and the speed in which we are able to transform our clients' digital capabilities. Adjusted operating income for the quarter amounted to $69.2 million or 16.1% of revenues, almost flat versus Q2 2021. The resilient demand and pricing environment, the SG&A efficiencies driven by our increase in size, along with our increasing exposure to services that help us break revenue and employee growth linearity, will continue to have a positive impact on our adjusted operating margin. At the same time, we will continue our ongoing investments in the company to capture the huge opportunity in front of us. Our IFRS effective tax rate for the quarter was 22.5%, largely in line with our guidance. Adjusting our income for the second quarter of the year totaled $52.1 million, representing 12.1% adjusting our income margin and up 10 basis points compared to the second quarter of 2021. Adjusted diluted EPS for this quarter was $1.22 based on 42.8 million average diluted shares for the quarter and above our quarterly guidance of $1.20 per share. Adjusted EPS for Q2 implies a solid 38.6% year-over-year growth. Moving on to the balance sheet, our cash and cash equivalents and short-term investments as of June 30, 2022 amounted to $361.7 million. Currently, our credit facility of $350 million is fully undrawn. Starting this quarter, we will be reporting cash flow on a quarterly basis. Cash flow from operations for Q2 was $45 million, compared to $28.1 million in the same quarter of 2021. During the second quarter, we generated free cash flow of $17.2 million, compared to free cash flow of $10.5 million in the same quarter last year. As mentioned in our last earnings call, typically the first half 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 our free cash flow, which has on average represented around 60% of adjusted income over the last few years. At the end of Q2, DSO was 75 days, compared to 80 days for the same quarter last year. We also continue to successfully execute on capital allocation strategy with integrations of recently acquired companies going as planned. All in, we continue to deliver strong revenue growth, robust levels of profitability and free cash flow generation, continuing our commitment to deliver consistent and significant value to all our shareholders and key stakeholders. Now, let's talk about our business going forward. I would like to share with you our outlook for Q3 and for the full year 2022. As discussed earlier, we are witnessing a robust demand environment. Based on current visibility, we expect Q3 2022 revenues to be at least $456 million, implying 33.4% year-over-year growth. This guidance figure considers approximately 2% points of FX headwind and 3% points from prior acquisitions. Q3 adjusted operating margin is expected to be in the 16-17% range, and adjusted diluted EPS is expected to be at least $1.24, assuming 42.9 million average diluted shares outstanding for the quarter. Regarding the full year 2022, given the overall outlook in market conditions, we are increasing our revenue guidance this quarter, and we now expect full year revenues to be at least $1,775,000,000, representing 36.8% year-over-year growth, of which we estimate 34 percentage points of organic growth. This guidance figure considers approximately 3 percentage points of FX headwind and 2.8 percentage points of inorganic contribution. Our strong growth guidance significantly exceeds end market growth rates. For 2022, we continue to expect our adjusted operating margin to be in the 16-17% range. At Globant, we continue to strongly invest in globalizing our operations, training programs in cutting-edge technologies, and expanding our sales coverage. IFRS effective income tax rate is expected to be in the 22-24% range for both Q3 2022 and the full year 2022. Finally, we expect adjusted diluted EPS to be at least $5.03 for the full year 2022, representing a solid 33.8% year-over-year growth. Adjusted EPS guidance assumes 42.9 million average diluted shares outstanding for the full year. Thanks everyone for your participation in the call, for your coverage and support.

Thank you, Juan. So before going into the Q&A section of this call, I would like to turn it back to Martin, who will share with us our new global campaign. Martin, please go ahead.

Thank you, Arturo, and thank you, everyone, for participating today. It would be great to show you a little bit of what we are doing in terms of spreading our brand and spreading our word. So please go ahead with the reproduction of the commercials that we have been launching exactly yesterday, I think. So go ahead, please. Thank you.

Hey, Chris.

What's happening? Mike's about to reach 1,000 slides on the new client presentation. What?

$9.97. $9.98.

Oh, I need to highlight product delivery. Get me an incomprehensible graphic ASAP.

Love for mental charts. $1,000. Oh, wait, I didn't save it.

Okay, it's it. Okay, all right, it's over. There we go. Meet the future of digital transformation. Globant. Secret invention.

Thank you, Martin. So now, as we go into the question and answer section of this call, I will call each of the analysts' names. Please, at that moment, unmute your line and make the question. After you have made your question, please mute your line back again. And also, we would kindly ask that you limit yourself to one question and to one follow-up. So with that in mind, we'll go to the first question on the lineup. Tianxin Huang from JP Morgan. Please go ahead. Your line is open.

Great, thank you, Arturo. Good growth here, as usual. I wanted to ask if you don't mind just on... on visibility, the question I'm sure everyone's going to focus on. I'm asking because I'm thinking about the growth, obviously very good. The level of upside is more consistent with what we saw last quarter, but not quite as high as what we saw during the pandemic. But again, more consistent with what we saw pre-pandemic. So I'm curious around visibility and if you've changed your philosophy on guidance at all now that we have a little bit more of a pattern. coming off the pandemic. Thank you.

Let me take the second part of the question. In terms of philosophy, as we have been saying since the beginning of the year, the pandemic is over. And because of that, we were going to start guiding the same way that we used to guide prior to the pandemic. you know, trying to provide that guidance to the market that, you know, we feel confident that we can achieve or hopefully slightly exceed, as it has been the case for the last three quarters. So, as we said at the beginning of the year, you know, we are guiding with the same philosophy that we had since the IPO in 2014. As you know, then during the pandemic, because there was so much volatility and so many things going on, it was harder to guide with economies opening and closing very quick. But we did say very clearly at the beginning of the year, and we continue to say going forward, that our guidance philosophy will be the same that we have had since our IPO in 2014 and in the pandemic. And as for the visibility, I will probably let Martin.

Yeah. Thank you, Juan. And thank you, Dean Jin, for the question. Visibility is still very good. I mean, most of our customers are in good shape, and that's very important. And if there's a recession, it's difficult for us to see exactly where it's coming and which sectors. Although we have seen some sectors in the high-tech space that are suffering a little bit, we see some others that are going very good. Our largest customer, Disney, is having a good moment in terms of growth. They surpass Netflix in terms of monthly subscribers of the whole set of platforms that they have. And that's very encouraging. And parks still are going great. And our growth, as we said, with Disney, it was slower during the second quarter, but it's already showing signs of going faster on the third quarter. So visibility keeps on being quite good, and our exposure to those potential areas of problems on a potential recession is not that high neither. So... Overall, it's good. So I don't know if you want to do the follow-on to clarify anything.

Okay. No, that's perfect, Martin. Thank you for that. I was going to ask... Patricia, a little bit more about it. But I have to ask, if you don't mind, on the crypto, the wallet. Let me ask about the wallet. That's a little bit different. So it sounds like Globant will own that product and go directly with customers or consumers with that product. Did I hear that correctly? Is this sort of a new idea for the country? Patricia also talked about the autism thing, which was really interesting, but interesting to see a little bit more direct consumer offerings from Globant. Yeah.

I hope you have read the QR and get the satoshis. But having said that, it would be great to clarify this. We are always thinking about new ways of interaction. And we feel that the crypto space also needs a kind of a reinvention in terms of how it interacts with consumers. So what we're presenting today is a platform that could be used by any of our customers in case they need. This is a closed beta test, and it's not involving a massive amount of customers. I was getting a report about 65 people downloaded the QR. That's the maximum of 100. It's a very close, limited trial test. Again, we will keep on thinking about our philosophy of having these platforms for those that really want to get into the game. And, you know, we thought it was a very good idea to show it in this way, like, you know, live. I mean, giving up some satoshis so you can play with it, check with the WhatsApp what you can do. You can exchange them. We're using the service of an exchange on the back end of Ripio. And you can exchange that from Satoshis to USDC. You can ask for a small bill or a check to send it to any of your friends over WhatsApp. That other person will be able to cash in those Satoshis. So you can send it in the format of... send one dollar, so you don't know how many Satoshis you are sending, but yeah, you're sending one dollar to the other person, which is the most important part, and then at the moment the other person cash it in, the Satoshis get converted at that specific exchange rate. So it's a pretty interesting interface. In the moment you receive those Satoshis, you have a new crypto wallet, pretty much without the effort of doing anything. If you type address to the bot, it will tell you the Bitcoin address that you have to top up your wallet if you want. So it's a pretty impressive interface. We thought it was a good idea to show it this way. But our philosophy remains the same, doing platforms for our customers in case they need it, but not entering 100% into the B2C platform.

Got it. No, it's fun to see the customer experience live. So I appreciate that, guys. Thank you.

Welcome. Thank you very much for the question.

Thank you.

Thank you very much, Xinxin. So our next question comes from Ryan Potter of Citi. Ryan, your line is open. Please go ahead.

Hey, thanks for taking my question. And I guess I'll take the question. Can you give some details on how attrition has been trending recently? Maybe some color on how it's been trending in July? And does it continue to be concentrated largely in Argentina? And I guess, can you provide some more details on how Argentina attrition itself has been improving and how you expect attrition to kind of play out the rest of the year?

Hi. Well, we see that, as we mentioned, I mean, attrition remained flat, as we mentioned on the last quarter. And the good news is that we are seeing a really good number in June and July. So we think that we are going to continue with that downward trend for the second half of the year. Tradition in Argentina is stable this last two months also, and I think that is the trend. Of course, the rest of Latin America, you know that it is still a kindly hot market, but we are very stable because we continue to have very solid value proposition for our employees. In fact, the last Pulse interview that we made to all our Globers made a great, great result that I feel very comfortable working in Globant and they feel very good emotionally and spiritually and of course emotionally. and working in Globant. So I think that is the way we like to do it. I mean, trying to bring more career path, more opportunities, and improve our value proposition in terms of the career that they want to do in a company like Globant. So I think that answering your question, I mean, we see that that one, it's going to be down, I mean, in the second half. That is what we expect, of course.

Got it. That's good to hear. And then I guess just touching on the Latin America demand environment, I believe you mentioned you saw some strong new logo growth in Latin America. So I was wondering if you could kind of broadly discuss some of the trends you're seeing in the Latin America demand market. Is this an active focus currently and do you expect Latin America as we're setting up revenue to kind of increase over time?

Yeah, thank you for the question. Latin America, for us, is like our home. And we believe that the brand of Globant in Latin America is a very strong brand. And we want to use that. We have been building this brand for the last 19 years. And I believe that the response we're seeing from the customers and the needs that are being increased by the demand It's really interesting, and we don't want to walk away from that opportunity. So we are investing a lot in growing Latin America. We will keep on growing. I cannot say that percentages will change, but yes, I can say that we are very serious about how to help our customers, how to help reinvent the whole set of customers that we have in Latin America. So I'm very bullish about what's happening in that specific region.

Great. Thank you. And like the commercials, by the way, great job. Thank you so much.

Thank you.

We need your feedback, by the way.

Thank you, Ryan. So our next question comes from Zachary Azerman from Cohen. Zach, your line is open. Please go ahead.

Hi, thanks. This is Zach on for Brian Bergen. Our first question is a macro one. Any sense that clients are treating 2023 potential spending differently at this juncture?

Very difficult to answer that question. We are not seeing that right now. That's all I can say. We're not seeing that right now in any of our customers. But I don't know. You never know what's going to happen. I believe that even in a complicated environment that it could be, I would say that the demand for what we do will remain very strong. And I was very specific on that on my speech, my initial speech. Why? Because these guys will keep on needing technology. And I still believe that technology is the largest possible driver for improvement of efficiency and improvement and winning market share in pretty much all the industries. So I believe that that's a pretty solid trend that won't change, and Globan will benefit from that. So let's see how it evolves. But we are not seeing now any specific effect on the planning of next year.

Got it. And the follow-ups on top client here, Disney. some new leadership appointments, specifically in its streaming unit. Can you kind of characterize the current conversations with the counterparts in the business? And what gives you the confidence? It sounds like there's some reacceleration. What gives you the confidence that this is sustainable? And is the expectation that it will return to grow in line with the company average in the second half of the year?

Yeah. I believe that, well, Disney is a great company, and we are great partners with them. We have been working for them for more than 10 years. And the stakeholders that we are seeing on the streaming side are not new in the company, and we know them. And I believe that the investment on the streaming platform will keep on being and keep on growing. Not just that, but also going into other areas. I believe that maybe they will be going into the metaverse. They will be going into the NFT space. They're going to many other places. So, and that's why I'm positive about the evolution of that customer, specifically that customer in terms of what they want to do. And the success, as I said, the success is so large. that now they have more subscriptions than Netflix. And when I saw that news, I said, okay, yeah, right. Everything is about the quality of the content. And this is exactly what's happening. And that's why I'm so excited about what's going on in Disney in terms of the evolution of their business. And of course, that will drive more and more things for us to do. Of course, we don't have the crystal ball here, but I'm very optimistic about the overall situation that Disney is living right now.

Good to hear. Thank you.

Thank you very much. Thank you.

Thank you so much, Zach. So our next question comes from Maggie Nolan from William Blair. Maggie, your line is open. Please go ahead.

Hi, how are you? Can you give us a little bit more color one on the expectations for the impact of things like salary increases and price increases and foreign currency on the margins in the back half of the year?

Sure. Hi Mike, how are you? So, you know, there are like multiple pieces going on there. On the salary front, we have been increasing salaries during the second quarter, and we will have some other increases in the last part of the year. At the same time, we have been increasing our revenue per head consistently over the last 18 months. And we have been able, at the same time, to maintain our gross margins pretty much north of 39%, which is a very healthy level. We continue to see gross margin in the historical 38% to 40% range, so we don't see a lot of variation there. So we do believe we will be able to offset any incremental salary increase that we may have over the rest of the year. That's on the salary. There was another part of the question, Maggie? Salary and pricing and something else you mentioned, I think.

Salary, pricing, foreign currency.

Foreign currency, okay. And then on the foreign currency, you know, we have two different situations there. One on the top line, and we are losing revenue because of how the FX is playing in Latin America and also in Europe. For the second quarter, our growth would have been 42.1%, you know, if it wasn't for the effects changes that we have seen. For the guidance for the year, you know, we guided for the full year 36.8%, and that includes three percentage points of negative effects impacts. So we could have ended guiding 39.8%. So that's on the top line. It's a negative impact. on the margins, you would have expected that to be positive, and that is the case. But we will, and we are reinvesting that additional money, getting ready for 2023, expanding our business into new locations. So far this year, we opened places like Poland, places like Canada, Ecuador, Costa Rica. and we plan to keep on expanding our operations. We have been also investing in our studio offering, and Diego has been talking about that during the call and also in prior calls, and we will continue to do that. So any efficiencies that we are getting from DFX on the cost side are being reinvested, but we are losing some on the top line.

Okay, that's really helpful. Thanks. And then as you think about the back half of the year and the overall demand environment, are there any differences between your end verticals, the industries that you serve, and how those clients are thinking about budgets or any kind of differences in terms of how you expect those verticals to perform, maybe what you expect to be the strongest?

As I said, our exposition to those segments which are more impacted right now, which is basically big tech, we have a large customer there, which is Google. And we haven't seen any impact on that specific account. And then on the other side of the others, they are our customers, but we don't have such a huge exposition, so we're not at all concerned about that. On the rest of the segments, I'm seeing very positive trends. I mean, on the financial sector, on the travel and leisure, on the entertainment space. On the CPG, on pharma, on all of those segments, I don't know if I'm forgetting anything here, but all of those segments, we're seeing very strong demand. And, of course, demand is not the same as it used to be in the first half of 2021. Right. It was like crazy. But it didn't come back to the pre-pandemic level. So we're above the pre-pandemic level, below the, I would say, the mid-portion of the pandemic side. So that's the overall situation that we are seeing, Maggie. I don't know if you want me to clarify on any other specific area. Yeah.

No, that was very helpful. Thanks for taking my questions.

Thank you so much.

Thank you.

Thank you, Maggie. So our next question comes from Surrender Thin from Jeffries. Surrender, please go ahead. Your line is open.

Thank you. A follow-on question about the guidance. When I think about the 3Q guide and then I kind of back into the 4Q numbers, it looks like you're generally... maybe higher than average historical growth rate there on a quarter-over-quarter basis, especially given the lower day count. Can you talk about that a little bit? Is there perhaps a large project that's signed that you're expecting to go in 4Q? Or how should we think about the dynamic of 3Q versus 4Q given?

Yeah. Thank you for the question. So, yes, on Q4, the implied growth quarter over quarter is a little bit higher than the one that you have in Q3. And that is driven by certain large projects that are, you know, ramping up and are going to be like at foot speed in the fourth quarter. So that's why the expectation of a stronger than maybe an average quarter for Q4 is, you know, is what we are guiding at this point.

And related to that, was that just simply a timing issue of certain projects being pushed into 4Q, or was that just the way the timing worked out?

No, it's just the way it worked. Different deals happening at the same time and ramping up different moments. That's why some of them are showing mostly towards the last part of Q3, and some are starting in October, and we're already getting ready for that. That's what we're seeing a little bit of higher growth in Q4. Got it.

And then a related question in terms of there was an earlier discussion about a lot of new client and new growth in Latin America. When you think about these new relationships, are you approaching them from a dollar denomination perspective or? given that a lot more of your revenues are denominated dollars and the geographic footprint of those revenues.

Yeah. Typically, in many countries, we continue to close contracts in Latin America in U.S. dollars. There are a few exceptions, but those are exceptions to the rule. Most likely, we will typically sign up a contract in dollars or rates in dollars.

Okay. Thank you. That's it for me.

Thank you.

Thank you very much.

Thank you.

Thank you, Surinder. So our next question comes from Arvind Ramani from Piper Sandler. Please.

So I just wanted to ask about the demand environment. You clearly outlined that demand continues to be fairly robust and healthy. But are you able to comment on the nature of work that clients are prioritizing? Are clients moving more from growth initiatives to cost initiatives or are some of the larger projects basically going through more evaluation or additional levels of approvals for some of the larger projects?

No, we haven't seen a change on the composition of the deals that we are doing. We're seeing pretty much the same. It would have been very obvious to us if that would have been the case. So, yeah, that's pretty much it. I mean, we have seen pretty much the same type of projects. And the speed of closing... As I said, it was not as fast as the first quarter of 2021, but it's not on the pre-pandemic level. It's still higher. So this is the overall idea.

Okay, perfect. And then on the kind of talent, I mean, I'm trying to get to kind of gross margins, right? With the gross margins, I mean, how are you kind of fighting the dynamic of this... Bill rate increases versus salary hikes. And is that also having an impact on on attrition? And how should we think about it for the next six to 12 months?

Yeah, thank you, Arvin. So, yes, I mean, we have been saying since the beginning of this year, we've been working with customers on pricing. These are long-term relationships, and because of that, customers understand that in a hot labor market, in a hot inflation market worldwide, We need to work together. We need to increase salaries sometimes. We need to increase rates also if they want us to keep scaling with them with the quality that is expected. And again, since these are long-term relationships, most likely the conversations end up well, and we find a way whether it is with an increase for the overall team or for an increase on a specific project. We agree on an increase in the future. I mean, there are multiple ways in which you can make things work out with each different customer. And we have been, because of that, we have been able so far to maintain our margins pretty much in line even in a very hot labor market scenario. We expect to continue to see more of both, more of additional salary increases, but also additional rate increases going forward. Inflation, even though in the U.S. started to stabilize, it's still high in most countries. And that, of course, is something that our customers are also seeing, and we will need to work together to adjust our rates accordingly as well. So we expect our margins, you know, overall, both gross and operating, and net income, to be stable throughout the year. Of course, you know, sometimes you increase salaries today, you increase rates tomorrow, or the other way around. I mean, the company as a whole, on average, we expect stable margins for the rest of the year.

Perfect. And this last question on tax rate, how should we be modeling tax rate for for this year, and if you can give us color on next year, that would be great as well.

I think, you know, tax is a combination of 20 plus countries at this point. So, you know, depending which country grows faster than other and many, many other things, it can move a little bit. But, you know, we typically target between 22 to 24% as a target effective tax rate, IFRS effective tax rate. So that's a number that we're guiding, as we mentioned in our guidance slide.

Perfect. Thank you. You're welcome. Welcome.

Thank you so much.

Thank you so much, Arvind. So that will conclude the question and answer portion of our call today. With that, I would like to turn the call over to Martin for some closing remarks. Martin, please go ahead.

Thank you. Thank you. Well, thank you very much, everyone, for participating on this call. As always, very happy to report our very good results. Looking forward to see you in the next quarter. Cheers. Bye-bye.

Bye-bye.