Globant S.A. Q4 FY2020 Earnings Call

Good day and welcome to Globant's Fourth Quarter 2020 Earnings Conference Call. I'm Amit Singh, Head of Finance and Investor Relations for the U.S. All participants on this call will be in 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 Martín Migoya, Co-Founder and Chief Executive Officer; Juan Urthiague, 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 Globant 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 Martín Migoya, our CEO.

Thanks, Amit, and hello, everyone. As I join you today, we look back on quarter four, but I'd like also to reflect on the full year of 2020. We all faced unprecedented change from the major events of the year and saw an accelerated digitalization, both in business and our own personal lives. Globant responded by helping organizations adapt to this change. In Q4, we made $232.6 million in revenue, coming to a 26.2% year-over-year growth. For the full year 2020, we made $814.1 million, up 23.5% from the previous year. Looking forward, we will keep on going. There's a great opportunity for Globant to maintain strong revenue growth over the long term. We are here to reinvent the professional services industry. It is not just about technology or software products, when, in fact, the human capabilities, creativity and innovative mindset of the organization are key to a successful transformation. Globant's true value comes from our future-centric vision. We create a way forward for our clients to become, what we call, augmented organizations. We work alongside them to bring together strategy, sustainable business models, digital trends, AI and inclusive culture to unleash their potential. To do this, we're focusing on six pillars that impact every dimension of the organization: one, sustainable business strategy; two, culture and agility; three, engaging experiences; four, adaptive organizations; five, technology and data; and six, augmented capabilities. Our studios continue to bring together deep understanding of the latest technologies and trends. The studios, combined with our accelerators, allow us to deliver these transformations across all of these pillars. Let me double-click on some of these pillars. Like I say, to deliver true digital transformation, we pay special focus on rethinking business models with our customers. On this line we took a step further on December 18. We welcomed the newest member of our family Bluecap. This Barcelona-based company excels in value-added consulting, particularly in financial services. Their team of 160 consultants has a high-end expertise with some of the largest players such as Santander, CaixaBank and Sabadell. I'm very enthusiastic to have Maite Barrera, Bluecap's Founder and CEO already working with Globant's senior executive team to craft our way forward together. Bluecap's team will be key to continue strengthening our consulting portfolio in this vibrant sector and beyond. Our future centric approach also means putting sustainability at the forefront. In this new green economy, leaving sustainability on the side is no longer an option. Under our six-pillar approach, we provide organizations with a long-term roadmap to create new inclusive business legitimacy. Finally, augmented capabilities means bringing AI to enhance every area, process or service of the organization. An example of this is augmented coding. With it, we are already reinventing the concept of software creation in many of our clients, as we boost coding with artificial intelligence. As there was a major social change and a global focus on equal opportunity, at Globant this has always been a focus. Diversity is in our DNA. It is something that we celebrate both within our company and with our stakeholder community. At last quarter's earnings call, Pato and I shared with you our excitement about Women that Build awards. We wanted to recognize the overlooked accomplishments of women in technology and we want to inspire more of them to innovate, lead and embrace entrepreneurship. The turnout surpassed all expectations. It was inspirational to hear the stories of how many of these women overcame obstacles in a positive and uplifting way for their communities. I look forward to more events like this one. Diversity in technology isn't just an initiative for our sector. It is good for our company too. Our teams benefit from having a more rounded perspective to solve the world's problems. Diversity is what makes the Globant concept work. To go deeper in this concept, Patricia Pomies is with us again, our Chief Delivery and People Officer. Pato, please?

Thanks, Martín and hi everyone. It's a pleasure to be here again with you to discuss these ideas. Within our Be Kind concept, the Women that Build award has been the biggest thing we have done so far. The response was phenomenal. We received over 10,000 nominations from 15 countries. Within each region, nominees were presented to a panel of judges from diverse fields. In all, we had 60 leaders participating on our judging panels throughout the world. The best part about Women that Build is that it allows us not only to recognize these fantastic women but to bring attention to their efforts and the issue of gender equality in our technology sector. We share their stories in our podcast and on social media and engage with many stakeholders from academia, civil society, government, and the private sector all over the world. I invite you all to check out the results and the awesome stories of these women at womenawards.globant.com. We have already grown stronger and benefited from this better outreach with our community and we will continue promoting diversity as one of our key values. This month, I am pleased to announce that Globant will join the Board of the National Action Council for Minorities in Engineering. NACME is the largest provider of college scholarships for underrepresented minorities pursuing degrees at engineering schools. We look forward to this collaboration and also to hire more minorities to join our team at Globant. In December, we also launched a new education initiative. Globant has teamed up with tech powerhouse, Mercado Libre on our joint program, known as Certified Tech Developer. This is a training program designed to achieve the rapid job placement of thousands of young people from Latin America in the technology industry. To cast a diverse and inclusive net of participants, Globant and Mercado Libre are providing 2,500 scholarships. We aim to train more than 15,000 young people throughout the region. The program will be carried out together with Digital House. It is committed to creating a new academic concept based on agile methodologies with a strong practical orientation, so the students can gain experience. And just as we focus on giving opportunities to those outside of Globant, we keep investing in our own people as well. We are crafting augmented careers for our Globers. Some of you may remember my introduction of Globant University in 2020, aimed to upskill and reskill our Globers to face digital acceleration. On this same platform, we have now developed My Growth, specifically designed to help Globers boost their career paths and enhance their learning experience at the company. I'm particularly proud of this initiative and it is a clear example of how we constantly reinvent our employee experience. On another note, I'm glad to see more diversity in everything we do. We have recently put together our first e-sports team. The Globant Emerald team competes in the League of Legends league. We are very proud that our team has become one of the first in Latin America to include women as part of the starting lineup. It is a major milestone for e-sports and we are really proud to be impacting gender diversity on so many levels. Thank you again, everyone.

Thanks, Pato. Now, some news about our expansion and new opportunities. We are passionate about bringing opportunities to where the talent is. We will keep expanding to offer more careers to professionals around the world, bringing more diversity into our company culture. In Spain, we will be opening a new office in Málaga, where we plan to hire 200 professionals to join our team. Now, I would like to introduce our new tool, FluentLab. This is one of our accelerators to help our clients create better customer interactive experiences. Backed by patented technology, this framework makes it easy to create AI-powered conversational interfaces that remain human-like. Clients can overcome the typical hassles in building an interface, so that they can communicate with their customers, resolve issues and sell in a more intuitive, efficient and fluid way. As a result of the digital acceleration brought about by the pandemic, we are optimistic about the growth of this addressable market. To learn more about it, visit fluentlab.ai. To be an augmented organization, we will keep investing in technology expertise and our management team. Therefore, I'm happy to share that we have brought Michael Feathers to Globant, as Chief Architect. Michael is one of the most renowned software designers and is the ultimate authority in working with and modernizing legacy code. He will focus on helping Globant's clients transform how they create and deliver digital products. Now some stories about our accelerated relationships with our clients. For example, we won a strategic data analytics project at Nautilus, a home fitness company that will help drive data-driven insights as an enabler in the company's digital transformation strategy. We also began partnering with McAfee to build a new infrastructure for data-driven improvement in its channel management initiatives. At Finning, Globant continues to expand its service and transformation initiatives including digitizing its dealership offering. Our partnership with ViacomCBS continues to grow, as we execute multiple projects and programs that support the development of its over-the-top product portfolio. In the gaming space, Globant continues to work in the highly anticipated Harry Potter title for Warner Bros. Games. We are working with Spectrum Hub, a startup dedicated to providing employment opportunities for individuals with autism via a digital tool and education. We are designing and developing the web platform and providing business and product strategy consulting. The purpose is to enable their business to expand and scale as their program evolves. Our first release of the web platform will be a corporate education initiative on how to start a successful autism in the workplace program. In the beverage sector, we're working with AB InBev, the world's largest consumer beverage company. They face a continuous challenge of achieving the highest standards of operational excellence. They understand that digital capabilities are the way forward for efficiency and growth. We have been working on their digital transformation in Southern Latin America, applying AI to help with revenue management, sales, and operations throughout the business. We also work with their team and senior leaders to develop their digital capabilities. We're not only expanding our reach with new customers. We are deepening our relationships with our current clients as well. Over recent months, we have been working with great minds to take them to the next level in the ad tech industry. This sector is going through exponential growth, brought on by the pandemic. The 2021 plan involves building the next generation of the digital learning platform targeted through the United States. No matter how much this company grows, we still focus on the same thing, disruptive innovation from the ground up. That's why I'm excited about our latest venture, ELSA. ELSA is an app that uses artificial intelligence to help English language learners with their pronunciation and adoption in a fun and intuitive way. Through our startup accelerator Globant Ventures, we invested in this English-speaking AI app together with Google, Monk, Endeavor Catalyst and other VCs. We are really excited about this operation as we see the value of AI for education. We will continue looking for more ways to further improve humankind with AI. Check out the app on Google Play or the App Store. Finally, I want to close out by reaffirming our conviction. Technology can be a force for good. Companies all over the world woke up to the need to go digital in 2020. We continue to see strong demand and a healthy pipeline ahead. For 2021 and beyond, we'll keep applying our talent to help them make it happen. With that I'll hand it over to Juan Urthiague, our CFO, to go into the financials. Juan, please and thank you very much.

Thanks, Martín and good afternoon, everyone. I hope you are all doing well and staying safe. Let me start by summarizing the results of our fourth quarter and full year 2020. I will then discuss our guidance for the first quarter and the full year 2021. We are very pleased to announce another quarter of record revenues and strong financial performance. Our revenues for Q4 amounted to $232.6 million, representing a solid 26.2% year-over-year growth. On a sequential basis, our revenues for Q4 increased 12.3%, showing a healthy trend. Q4 revenue growth was 26.6% year-over-year in constant currency. In line with our expectations, the overall demand environment largely stabilized in the second half of the second quarter, and we have witnessed an improvement in the end markets since then, which is reflected in our strong sequential revenue growth both in Q3 and Q4. While the COVID-19 pandemic is still ongoing, it did not have any incremental impact on our Q4 results. That said, we do still remain cautious about any impact to our end market due to the potentially new waves of lockdowns like the ones we are currently witnessing in some parts of Europe, Latin America, and the US. However, we remain very bullish about the demand environment post the COVID-19 crisis and are encouraged by the ongoing positive trend in our bookings. As discussed in our previous earnings call, we always prioritize the health and safety of our employees and almost all of our employees continue to work from home, while maintaining seamless delivery of services to our customers. Our delivery and people teams continue to develop and execute strong and innovative initiatives to keep employees' productivity and morale very high. Disney was our largest customer for the quarter, growing strongly at 14.8% year-over-year and 10.4% quarter-over-quarter. We continue to be very well diversified within Disney serving the majority of its business units. Other than Disney, the rest of our accounts collectively grew at a solid 27.7% year-over-year with revenues from top five and top 10 accounts increasing at a robust rate of 40.2% and 40.8% respectively over the fourth quarter of 2019. Outside of Disney, the rest of the accounts collectively also grew strongly at 12.5% quarter-over-quarter, as we experienced improvements in most industry verticals. Moreover, during the quarter, we continued to successfully cross-sell services with the companies we acquired during the year. Our customer concentration numbers for Q4 2020 displayed improvement compared to the last quarter with our top one, top five and top 10 accounts representing 10.7%, 30% and 42.9% of revenues, respectively. Looking at the diversification of our revenues by industry verticals, it is clear that Globant's value proposition and service offerings are attractive to enterprises across all industries and we remain balanced in terms of vertical exposure. Our top three industry verticals for the quarter were banks, financial services and insurance with 23.7% of revenues, media and entertainment with 21.8% of revenues and consumer retail and manufacturing with 13.8% of revenues. Regarding the progress of our 100-Squared strategy, during the last 12 months ended December 31, 2020 we had 13 accounts above $10 million in annual revenues compared to 14 accounts for the same period last year. This reflects the impact from some of our travel customers hurt by the COVID-19 pandemic. That said, we had 129 accounts with more than $1 million of annual revenues compared to 107 one year ago. Overall, we continue to expand our relationships with our key accounts that form the base for our continuous growth. In terms of geographic regions, during the fourth quarter of 2020 65.9% of our revenues were in North America, 24.3% in Latin America and others and 9.8% were in Europe. In Europe, we witnessed a strong acceleration in revenues, growing at 142.9% year-over-year and 43.6% on a sequential basis. Also, Latin America and others showed continued strength growing at 54% year-over-year and 22.4% sequentially. To note, in 2020 the majority of the impact from COVID-19 was in the travel and hospitality vertical primarily in North America. During the fourth quarter of 2020, 85.8% of our revenues were denominated in U.S. dollars providing good protection to our top line against currency fluctuation. Turning now to profitability. Our adjusted gross profit for the period increased to $92 million representing 39.6% adjusted gross margin, compared to $73.5 million representing 39.9% adjusted gross margin in the fourth quarter of 2019. Year-over-year adjusted gross margin decline is mainly explained by a slightly lower utilization. However, on a sequential basis, adjusted gross margin improved 60 basis points, helped by relatively stable utilization and strong pickup in demand, partially offset by salary increases and foreign exchange fluctuations. We finished the quarter with 16,251 Globers, 15,290 of which were technology design and innovation professionals. We continued our strong hiring in Q4 with a robust addition of 1,854 IT professionals sequentially. IT professionals were up around 39% year-over-year as we prepare to fulfill the strong demand in front of us. Over the last few years, Globant has invested heavily in establishing a robust training and hiring 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 foresee any challenges in finding the right talent to meet the demand. In fact, during Q4 we achieved the largest organic increase in IT professionals in our history. Attrition for the past 12 months continued low at 13%, compared to 14.6% in Q4 2019 with a significant improvement in most talent development centers. As discussed in the previous earnings calls, going forward we view 14% to 16% attrition rate as the normalized level for Globant. Adjusted SG&A came at 19.9% of our quarterly revenues, a decrease of 10 basis points compared to Q3 2020 and a decrease of 30 basis points year-over-year. We continued investing for the future primarily to expand our sales coverage in our target markets, mainly in Europe. We believe this focus will help us efficiently capture the vast global demand for our services, especially post the COVID-19 crisis, and also helps us maintain a strong long-term revenue growth profile. As a result, our adjusted operating income for the quarter amounted to $37.9 million, or 16.3% of revenues compared to $30.4 million or 16.5% of revenues for the fourth quarter of 2019. On a sequential basis, adjusted operating margin improved 100 basis points. As our revenue growth profile and utilization continues to improve, it will have a positive impact on our adjusted operating margin. At the same time, we will continue to strongly invest in the company taking advantage of the huge opportunity in front of us. Together this leads us to believe that adjusted operating margin will trend in the 15% to 17% range in the near and midterm. Share-based compensation for the fourth quarter of 2020 was $5.2 million, representing 2.2% of total revenues for the period as compared to 3.2% for the same period last year. This expense is mainly related to the plan of restricted stock units granted to certain key executives and directors of the company as part of our long-term retention plan. Finance expenses were $3 million in the fourth quarter of 2020 compared to $2.5 million for the same period last year. This loss is mainly composed of interest expenses on lease liabilities and interest expenses on our borrowings. Other financial results, net amounted to a gain of $1.4 million for the quarter compared to a loss of $0.5 million during the fourth quarter of 2019. This item is primarily composed of foreign exchange results from monetary assets and liabilities in local currencies resulting from our hedging strategies and gains from transactions with bonds. In the fourth quarter, we recorded a gain of $1.7 million in other income and expenses net. Approximately $1.1 million were related to the fair value of the contingent consideration associated with one of our acquisitions, and were removed from the adjusted figures. Our IFRS effective tax rate for the quarter was 32.7%, coming above our guidance impacted by the retroactive effect of a new regulation with higher-than-expected taxes in one of our main talent development centers. Adjusted net income for the fourth quarter of the year totaled $28.5 million, representing 12.3% adjusted net income margin, compared to $24.2 million representing 13.1% adjusted net income margin for the fourth quarter of 2019. On a sequential basis adjusted net income margin increased by 50 basis points. Adjusted diluted EPS for the quarter was $0.70 based on 40.9 million average diluted shares for the quarter compared to $0.64 for the fourth quarter of 2019 based on 38 million average diluted shares for that quarter. Moving on to the balance sheet. Our cash and investments as of December 31, 2020 amounted to $298.2 million, while borrowings amounted to $26 million. During the fourth quarter, we generated healthy free cash flow of $20.7 million, paid $50.9 million for acquisitions and repaid $50 million of our credit facility. Full year 2020 was a solid year for free cash flow generation, despite the ongoing COVID-19 environment and our free cash flow to adjusted net income was around 50% in line with the last two years. We also continue to successfully execute on capital allocation strategy with integrations of recently acquired companies going as planned. Now, let's talk about the full year 2020 performance. Revenues for 2020 were $814.1 million, implying a solid 23.5% year-over-year growth. Globant delivered robust 20%-plus year-over-year revenue growth in a year in which we witnessed one of the highest levels of macro uncertainty in recent times. We started 2020 in a very strong footing, but faced pressure on our revenues during Q2, due to the COVID-19 pandemic. However, since then the revenue and bookings profile has been trending up. This year has proved that the digital services provided by Globant are extremely critical for the growth of corporations across industry verticals. Our 2020 M&A deals also performed strongly and we are successfully cross-selling services with our recently acquired companies. Adjusted gross profit for 2020 was $319.2 million or 39.1% adjusted gross margin compared to $266.5 million or 40.4% adjusted gross margin for the full year 2019 a decrease of 130 basis points year-over-year. This margin compression was due to the impact of COVID-19 in the form of lower utilization, some impact to our revenues and some selective temporary client price concessions in the early part of this year. Adjusted SG&A for 2020 accounted for 20.2% of revenues increasing 30 basis points compared to last year primarily due to the impact of COVID-19 on our revenues. During 2020, we continued to invest to capture the significant opportunities in front of us. Adjusted profit from operations for 2020 was $124 million or 15.2% adjusted profit from operations margin compared to $112 million or 17% adjusted profit from operations margin for last year representing a decrease of 180 basis points and driven primarily by the impact of COVID-19. As you remember, Globant decided to not lay off its employees in response to the top line pressure from COVID-19 and kept a higher-than-normal talent pool during the early part of this year, which in turn allowed the company to accelerate its growth as the demand environment started to normalize. Share-based compensation expense for 2020 amounted to $24.6 million, representing 3% of revenues compared to $19.9 million representing 3% of revenues for 2019. As explained before this expense is mainly driven by our long-term incentive program and was in line with our target. Finance expenses were $10.4 million for the full year 2020 compared to $6.7 million for the last year. This loss is mainly composed of interest expenses on lease liabilities and interest expenses on borrowings. Other financial results net amounted to a gain of $3.6 million for the year compared to a loss of $5.9 million during 2019. This item is primarily composed of foreign exchange results from monetary assets and liabilities in local currencies resulting from our hedging strategies and gain from transactions with bonds. During 2020 we recorded a loss of $1.9 million in other income and expenses net. This was mainly related to the re-measurement of the fair value of contingent consideration associated with our acquisitions. Given that this impact comes from M&A transactions as mentioned above, the majority of this line item is adjusted from our non-IFRS measures. Our IFRS effective tax rate for the year was 29.2% coming above our guidance primarily impacted by the retroactive effect of a new regulation with higher-than-expected taxes in one of our main talent development centers. Adjusted net income for 2020 was $97.3 million or 12% adjusted net income margin compared to $86.1 million or 13.1% adjusted net income margin for the last year. Adjusted diluted EPS for 2020 was $2.45 based on 39.7 million average diluted shares for the year compared to $2.29 for the last year based on 37.7 million average diluted shares. To wrap up, I would like to share with you our outlook for Q1 and for the full year 2021. We have decided to reinstate our full year guidance although we note that given the ongoing COVID-19 pandemic there are a number of factors which we may not be able to accurately predict including the demand environment trend throughout 2021. Based on current visibility, we expect Q1 2021 revenues to be at least $258 million or 34.7% year-over-year growth. At this point, we do not expect any FX impact to our first quarter revenues. Q1 adjusted operating margin is expected to be in the 15% to 17% range and adjusted diluted EPS is expected to be at least $0.79 assuming 41.2 million average diluted shares outstanding for the quarter. Regarding the full year 2021, we expect revenues to be at least $1.47 billion or 28.6% year-over-year growth. We currently assume no FX impact to our full year 2021 revenues. For 2021, we expect our adjusted operating margins to be largely stable in the 15% to 17% range while we continue to invest in training programs, in cutting-edge technologies and expand our sales coverage. IFRS effective tax rate is expected to be in the 25% to 27% range for both Q1 2021 and the full year 2021. At this point, we expect the tax rate to be towards the lower end of this range. Finally, we expect our adjusted diluted EPS to be at least $3.20 for the full year 2021 assuming 41.5 million average diluted shares outstanding for the full year. Thank you everyone for participating in the call and for your coverage and support.

Thank you, Juan. Thank you, Martín. And thank you, Pato. So as we go to the question-and-answer section of this call, I will announce your name. At that point, you’ll be asked to unmute yourself and turn on your camera, and you’ll be able to ask your questions. Please mute your line after your question is done. We also ask you to please limit your time to one question and one follow-up. Thank you. So the first question today comes from the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Hey, guys. Good to see you all virtually. Can you hear me okay? Perfect. So I wanted to obviously, impressive double-digit growth sequentially and it looks like you're expecting that again in the first quarter. Disney was double-digit as well in the fourth quarter. So my question for you, Martín and Juan, is just thinking about your outlook and how you put it together this year versus last year, what would be different in your mind? I'm very curious, obviously, I always ask about visibility, but I'm curious. Is it more broad-based? Is it a lot more focused on some key accounts in terms of the potential to drive some of this continuation of growth? I'm just curious how you view this outlook differently from what you did a year ago.

Sure. How are you really, Tien-Tsin? Really nice to have you in this new format. Look, we see demand coming from pretty much every industry in every sector in every company. And it's not that we are seeing, I mean, Disney growing and others not growing. This new reality has triggered and turned on the demand and the desire of every company to go digital and that's kind of pushing and helping us to have that demand across the board. So it's not a specific sector. I could not mention one because when you see them all separated, you see demand in the automation sector, in the finance sector, in the ad tech sector, and even in the entertainment sector. We still need to see the recovery from the airline sector and I would say hospitality sector in general. But I would say that all the other sectors are still very, very fast. And as I said before, companies in Latin America are doubling down saying, okay, this is our moment to amend the way we operate and we are helping them with those kinds of things. So even in those sectors that are not blooming or not growing now, we see investments happening and taking advantage of this moment to make the digital transformation.

Yes. So thinking about the moment as my follow-up and a similar question around acquisitions, do you see the potential to do more in the way of acquisitions to sort of satisfy some of this growth you're seeing from the client base? Or is this potentially more of a year for you to focus internally and focus organically, et cetera?

Organic growth has been like the main thing this year. We did a couple of very interesting acquisitions like the one we did with Bluecap in Barcelona. They have an amazing team and are pushing us into a new landscape that we never saw before, which is pretty interesting. So we'll continue doing things that make sense for us. That generates a new tool for our business development team to use in front of their customers, and I'm obsessed with that. The fact that every day we're competing against great competitors we have out there. We need to have the tools to win the game. It's something that keeps me up at night. The way Globant will keep on growing through the inorganic space will depend on how effectively we can keep adding tools into our portfolio to become more effective each time we are in front of a customer. Organic growth has been great, is being great. And the outlook for this year, as I said, is really good.

Yes, to add to that, the organic growth we continue to experience, particularly the recovery after Q2, is impressive. The expectation for next year is that the organic growth embedded in that figure is already around 20%. We are just beginning the year, and while we are taking a cautious approach because COVID is still a factor, we believe that organic growth will continue to improve as it has throughout the year since the pandemic.

Hi, guys. Good evening and good afternoon. I wanted to ask on the workforce here. So, even if we take out Bluecap, it looks like you're still up 12% or 13% sequentially on the billable base. Can you comment on the key regions, where you're adding that headcount? And also how are you thinking about the evolution of how work gets delivered? Are you adding headcount in regions under the assumption they're going to be in centers or more of a virtual model?

Thank you for the question, Bryan. One of the key decisions we made in Q2 was to retain our employees and maintain the strong brand we've established in the shop market. This positions us well to increase our revenues as demand recovers. We’ve observed a steady improvement in demand, and we concluded the year on a high note, achieving a record hiring month in December. We're expanding significantly in India and seeing positive growth there. Operations in Brazil and Mexico are also on the rise; we've overcome previous challenges in Brazil, and growth in Mexico is ongoing. Other countries have remained stable, all showing absolute growth, although Argentina saw a slight decline in percentage of total headcount while still increasing in numbers. As a global company, we're becoming even more international. Our revenue distribution this year highlights a more balanced portfolio, with the US leading but significant growth in Latin America and EMEA as well. Our clients and the deals we pursue are increasingly global, prompting requests for larger operations in various regions. Expect to see further growth from India, Eastern Europe, Continental Europe, the US, and essentially everywhere.

No. I think after listening to the question, I forgot the second question.

Yes. Sorry.

Now, listening to the answer sorry.

Yes, I can address this. As you know, we are still working from home. Our offices are ready to start operating whenever necessary, especially if any clients have specific requests. However, our priority remains with our employees, and we are taking care of their needs. Our work-from-home framework is functioning exceptionally well, and we continue to see higher productivity than ever. Additionally, the quality of our delivery is at the highest level. We've successfully partnered with our clients during these challenging times, which reflects a strong year for us as we adapt to working from home. If there are any unique requirements from clients that necessitate office work, we have implemented specific COVID protocols to accommodate those needs.

Okay. And just a quick follow-up here, as you're adding headcount we've noticed you've got a lot in the last two years, and as we look at the numbers per capita revenue that has come down. So I'm just trying to think about as you're adding so much, how are you considering worker productivity? And how should billable per employee metrics trend as you kind of walk through 2021 and into 2022?

Thank you, Bryan, I'll address that. There are several factors affecting the revenue per employee metric. Compared to 2017, when on-site teams constituted about 11% of our workforce, that figure has now reduced to between 5% and 6%. This shift has been largely driven by our customers, who are finding significant value and successful project outcomes from nearshore locations. Since we often share time zones with our clients, this demand tends to come at a lower rate. Additionally, as Martín mentioned earlier, we are making substantial investments in internal projects like augmented coding, which takes resources that could otherwise be billed. We believe these initiatives will be transformative, so we prioritize investing in them. Furthermore, we continue to see strong demand, which has intensified after COVID, and we are committed to hiring and training more personnel to meet this demand. Our gross margin has remained stable in the range of about 38% to 40%, with this quarter's gross margin at 39.6%. Despite the decrease in revenue per employee, we have maintained our margins. Looking ahead, we expect an improvement. Our projections for Q1 and the rest of the year indicate that some of that revenue is beginning to return, and our investments are starting to yield results, which should ultimately increase revenue per employee. While we focus on maintaining margins, we also recognize the necessity of future investments. We believe these investments will significantly impact the industry, explaining the recent decline in that figure. Martín, do you have anything to add? That's our perspective on the situation.

Yes. Juan mentioned that the revenue per head is decreasing primarily due to changes in the combination of onshore and offshore projects. As the pandemic progressed, our model demonstrated its effectiveness without requiring extensive onsite coverage, which affected the revenue per head. This was the main factor. Additionally, we are investing in future tools like augmented coding, which requires significant effort and capital. This contributes to the distortion in that number, but it's crucial to focus on the gross margin, which has remained stable. The overall quality of our business remains consistent.

Okay. Thank you very much, Bryan. Next question. Next question comes from the line of Maggie Nolan from William Blair. Maggie, please go ahead.

Hi, thank you. Juan you mentioned positive trends in bookings a couple of different times. Is there any additional detail you can share on that?

Yes. Sure. This is something that we've been mentioning over the last three calls with this one. The year basically behaved with a very strong Q1 or end of 2019. We saw the impact of the COVID-19 pandemic during Q2. Then we saw a stabilization towards the end of Q2. And since Q3 and onwards we continue to see increasing levels of bookings, increasing demand from customers that maybe at some point were hesitant about restarting investments. Now that they see some light at the end of the tunnel in terms of the pandemic and they can quantify the impact of the pandemic, they realized that they need to make these investments sooner rather than later. So what you're seeing is a strong momentum in the demand from multiple industries. Very good momentum in healthcare, very good momentum with financial services, insurance payment companies, and very good momentum with anything related to e-commerce and retail, these companies that are getting ready to engage 100% digitally with consumers. We are seeing a situation where a lot of demand is coming. We still need to see the recovery in travel and keep in mind that travel was a big sector for us right? So hopefully at some point that will become a tailwind for us. But that's basically, Maggie. It's a strong momentum. Of course, even though we are very optimistic, we also need to be a little bit prudent as some countries are more complicated than others. We don't know how fast the vaccine is going to be distributed and so on and so forth.

I also want to mention that in the gaming industry, we have been maintaining a strong pipeline and solid relationships with our partners in that sector, as well as in media and entertainment. When those industries were ready to move forward, we were prepared to assist because, as Martín stated earlier, we have been equipping our team through various initiatives like the Globant University mentioned last quarter. These efforts are effectively preparing our talent, so we are ready to meet client demands wherever they arise.

All right. Maggie, you are muted, sorry. Okay. Thank you very much. The next question comes from the line of Surinder Thind from Jefferies. Surinder, please go ahead.

Thanks, guys. So a two-part question. One just following up on the idea of global expansion in new locations for delivery centers and the idea of balancing that model of delivery centers versus work-from-home. Can you talk a little bit about the decision to maybe set up offices in certain countries? Is there a minimum level of scale that you're trying to anticipate there? Or is there the potential to truly change the delivery model in the sense that you can have a much more distributed workforce? Or do you still need to have, for every location, pick a number of 200 people in an office or something or some sort of headcount number in a given location?

I can take that one and then Pato can complement maybe. Thank you, Surinder for the question. This new reality means that we are also rethinking office space, and that means that we won't have any more one seat per each of our Globers. Well, if they want, yes. But in general, we will work much more balanced between work-from-home and work in the office. So that means that gives us a lot more flexibility. The new offices we are putting together are totally different from the past offices we are designing. They have much more space for meetings. They have much more space for having lunch or dinner or meetings and to be a huge place to get together with people. This is the new reality. This is what's happening. The message behind it is that it's allowing us also to start much more global recruiting, which we are already doing much more global recruiting. Even as we are going global to recruit in many more places, those guys will be connected to some country or to some cities and specific city. We will need to have some specific presence in those places where we can gather with them and we can get them together. While this will happen, we'll keep on having the need for having a specific presence, but now with a totally different dynamic and metrics in terms of how much office space we need to open up a new city. We can now open up a new city with very little effort, which before was a totally different game. I think that answers your question regarding how you will scale-up. Now the scale-up looks much different than before and I'm truly excited about this new reality because we were dreaming about this for many, many years. Now it looks like it's happening.

Got it. That's helpful. I have a question about the guidance. Looking at the past couple of quarters, it’s clear that performance has exceeded expectations due to a quicker-than-anticipated economic recovery. However, as I consider your future guidance, it seems there is still some conservatism reflected in your comments regarding lockdowns and COVID. Can you quantify the level of conservatism in this guidance compared to your previous guidance when the situation was different?

Sure. I'll respond to that, Martín. Surinder, we have traditionally provided guidance that we believe we can reliably meet, which has been our practice since we became a public company in 2014. We feel confident about our guidance for Q1 as always. However, looking at the rest of the year, there remains some macro uncertainty. There are still countries where we provide and sell services that face challenges. Several industries, particularly travel, which have seen significant growth with Globant, are still affected, and it's unclear when they will recover. Our approach is to reaffirm the full year while being cautious. As the year unfolds and we gain clearer visibility, which seems to be improving, we will adjust our guidance accordingly. Nevertheless, it’s important to avoid unnecessary risks while COVID remains a factor. Currently, everyone on this call is working from home, and in some regions, the situation is still quite severe. Moving forward cautiously and reaffirming our full year guidance is the prudent course right now, and we will keep updating that as the year goes on.

Hi. Yes. Hello everybody. Very good to see all. Thank you for taking my question. So, first, maybe just a follow-up question regarding the revenue outlook, because I just want to make sure that I got the right messaging here. What's the revenue contribution by region that you want to take into consideration for your full-year guidance for 2021, especially because I want to understand whether or not, we should be considering FX as part of the growth equation here? Thank you.

No. First, we are seeing growth in Latin America and Europe. Last quarter, their growth was slightly faster than in the US because the US has a larger share of the travel and hospitality sector. Depending on how well travel and hospitality recover, we could see all regions growing at a similar rate. If that doesn't happen, EMEA and Latin America may grow more quickly. Regarding foreign exchange for next year, about 86% of our revenue is in US dollars, so only a small portion is in other currencies. Current macro reports suggest the dollar may weaken, which could positively impact our revenue. However, we remain focused on our dollar targets and do not consider FX fluctuations in our strategies; our goal is to achieve our dollar revenue targets.

I have a second question regarding the number of clients. It seems like the number of clients is decreasing slightly year-on-year, which makes sense given your strategy to expand project scope with existing clients rather than significantly growing with new clients. With that in mind, I would like to understand what we should consider moving forward, particularly in terms of finding the right balance between new clients and existing clients. Thank you.

Yes. Thank you, Diego. I'll take that question. It's much more important for you to focus on the number of accounts over $1 million or over $5 million as opposed to focusing on the total number of customers. Every time we do a deal, sometimes they come with some very small customers that have a smaller potential and eventually, they don't grow that much. We basically end up focusing on selling more to the high-potential clients right? We have the 100-Squared strategy in place, which is the evolution of the 50-Squared. We want to focus on these very large global companies that will make Globant significantly larger in the future. So I think that as opposed to looking at the total number, which is fine if it goes down we will be fine it's still very high, right? 800 customers. But I would put a lot more emphasis on the above $1 million, above $5 million and how we are performing in those sectors.

Hello. Sorry for the delay. I was wondering if you can give us a comment regarding your plans for Bluecap and what type of client engagement could that bring to Europe?

Thank you, Cesar, for your question. Bluecap brings a profound understanding of analytics, specifically in risk assessment. This team can predict the performance of various assets and client profiles that banks manage, along with the potential financial impact of each customer segment. We intend to continue utilizing this capability for new projects. Additionally, we plan to expand this knowledge to other sectors, as the same predictive abilities can be applied across different industries. Initially, we will focus on developing solutions for the financial sector before branching out to other industries, which I find very exciting. This explains our approach.

Thank you, Martín. Thank you, everyone. That will be all for the Q&A section today. Thank you all for joining. Thank you all to the analysts for asking intelligent questions. I will now ask Martín to please provide the closing comments. Martín, please go ahead.

Thank you very much, Amit. Well thank you very much everyone for joining number one. I hope this new format is something that you like. We will try to keep on improving it and making it better each time. So thank you very much. Again, thank you very much for your coverage and support. Looking forward to see you in the next quarter. Bye-bye.