Globant S.A. Q3 FY2021 Earnings Call

Good day, and welcome to Globant’s Third Quarter 2021 Earnings Conference Call. I'm Amit Singh, Head of Finance for the U.S. and Global Head of Investor Relations. All participants on this call will be in listen-only mode. 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 Urthiague, Chief Financial Officer; Patricia Pomies, 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 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 Martin Migoya, our CEO.

Thanks Amit, and hello everyone! It is a pleasure to be here with you again after another exciting quarter at Globant. In Q3 2021, Globant’s revenue totaled $342 million. This represents 65% year-over-year growth. We aim to close this year with an annual revenue more than 56% above last year. This will be our highest year-over-year growth ever as a publicly traded company. We also remain very positive about future growth prospects. The pandemic was an inflection point in the market for digital transformation. In this new phase, we believe that organizations will increase their demand for partners that can help them remain relevant, agile, and resilient. IDC estimates that by 2024 digital transformation spending will make up 55% of all technology investment worldwide, reaching $6.3 trillion between 2022 and 2024. For the first time ever, over 50% of global companies will have an enterprise-wide digital transformation strategy. This is a huge opportunity for us. We'll continue to move up the value chain and provide a more complete array of end-to-end transformations with growing capabilities and boosting our offerings. Now, I'd like to shine a spotlight on three mega trends that are reshaping our world and how Globant is addressing them. First, artificial intelligence: As we have been sharing over the past quarters, this disruption is affecting nearly every process that organizations have. Here at Globant, as you may know, we apply AI to almost everything we do, from coding to mitigating bias in recruitment to sharing knowledge. Most recently, we helped launch Augmented Testing. Augmented Testing is a tool that improves the quality assurance process with AI. As an example, imagine testing a video game that is almost ready to go to market, millions of lines of code, thousands of visual elements that need to be rendered perfectly. Errors can ruin the experience for loyal gamers. A manual testing is very time-consuming. Through computer vision and neural networks, we enabled visual validations in a more efficient way; previously, these had to be done manually by QC teams. From games to apps to web-based solutions, Augmented Testing applies AI to test smarter, not harder. We are already implementing this product with our long-time client Rockwell Automation, among others, to benefit their time-to-market efficiency. The second megatrend is Blockchain: According to IDC, organizations are forecast to spend nearly $6.6 billion on Blockchain Solutions this year, 50% more than in 2020. While many have long associated Blockchain with cryptocurrencies, the technology offers the possibility to make radical changes across multiple industries. First, it can provide decentralized financial transactions, of course, but it can also offer secure and decentralized ways to store and share information such as health, property, and occasion records. It has even taken the world by surprise with the rise of NFTs, and right now, there are discussions about how Blockchain can impact AI by sharing decentralized data models. These are reasons why at Globant we are placing such an important emphasis on it. To continue expanding our Blockchain studio, this quarter we announced the integration of Atix Labs, our first Blockchain-specific acquisition. Founded in 2013, Atix Labs has operations in the United States, Argentina, and Uruguay. It also has a solid brushing pipeline with Fortune 500 clients, top global players in the crypto space, and organizations such as the IDB. By bringing them on board, we are empowering our Blockchain and crypto-related solutions. And finally, the Metaverse. We can now create virtual and more realistic representations of ourselves as avatars, much more precisely and efficiently. As you are seeing on screen, many spaces like Fortnite and Roblox already exceed that enable the creation of new worlds and experiences. Some brands are slowly tapping into this. As technology continues to evolve, it is exciting to imagine more organizations will be able to do so. To address this growing trend, we recently launched the Metaverse Studio. This studio is anchored on our expertise in gaming, blockchain, and customer experiences. The goal is to work with organizations to extend their presence, offering, and creativity through new digital spaces. This maximizes customer and employee engagement. We want to help brands reinvent how they connect with their consumers, as well as enable the surge of a new breed of fully digital players. With these trends, I believe that there has never been a more exciting time to work with technology. Technology has the power to produce great and positive impact in the world; however, we still need to be vigilant and mindful of how technology can affect our communities. On that note, Globant was proud to participate in the COP26 UN Climate Change Conference in Glasgow. Through leading the conversation on technology's role in fighting climate change, we are presenting our disruptive work in sustainable technology. Additionally, following our Be Kind To the Planet commitment, we are happy to say that we recently achieved our objective to become completely carbon neutral. The effort goes hand-in-hand with our commitment to science-based targets, where we are setting the trajectories for reducing emissions through 2030. In Q3 we also joined a steering committee of the Green Software Foundation. Members are committed to working together to build sustainable software that helps reduce carbon emissions. We're proud to be part of these relevant projects as it brings together major players in our industry. All these initiatives are a great source of pride within Globant. Now let me share with you an important project that we have just announced aligned to our Be Kind vision. As I said earlier, we believe that tech is inherently good and improves lives. It connects us through innovation for the greater good and enables reinvention. However, when misapplied, misused, or used excessively, its impact can be negative. This needs to be addressed to ensure tech is good for humanity. That's why we recently launched a $10 million venture fund called the Be Kind Tech Fund. The goal is to provide funding opportunities to startups that develop technology and applications to tackle the misuse and abuse of technology in society. The fund will focus on providing investments ranging from Seed to Series A. To reconsider and select, we will evaluate the purpose and ability of each prospect to make effective changes in user behavior and multiply good practices. The scope of these debates and the focus of the fund is broad. It can range from preventing texting and driving to solutions that can mitigate screen time abuse. You can find more about this initiative and requirements for startups at www.bekindtechfund.com. Last week, Globant had the honor of bringing together some of the most thought-provoking innovators in the world today at our Annual CONVERGE event. Under the theme of the power of invention, the forum's notable speakers included Yuval Noah Harari, Will.I.Am, and Cathy Hackl, among many others. The event was hosted by James Corden, with whom I had a great time discussing the latest transformational tech trends. More than 50,000 people registered to learn more about the future of technology and how it will impact our world. I invite you to relive it by visiting converge.globant.com. Finally, a recent development that will be a great asset for our future expansion. A few days ago, we announced the acquisition of Navint. They have deep know-how in improving business processes, strategy, and technologies across every stage of the company lifecycle: sales, service, finance, and delivery. Navint has more than 130 employees in the U.S. and the U.K. and profound Salesforce expertise. Their lead-to-revenue capabilities will help us reinforce our focus on reinventing companies' internal strategies to enable a complete transformation. Navint’s presence in the U.S. will allow us to continue growing in our largest market. We are very happy to have them on board. Welcome! Now as we look forward, I'd like to share the pillars of Globant’s strategy in the next stage of our growth story. First, reinforcing our studio offering: We will continue to focus on compounding the knowledge and capabilities of our studios of expertise. To complement our digital studios, we're launching a new platform, our Reinvention Studios. They will work with our clients to disrupt their entire industries. Our CTO, Diego Tartara, will later go into finer details on this endeavor. Second, a greater offering of products and platforms through Globant X. We'll continue expanding our portfolio to complement our service offerings. Our approaches such as StartmeUp and Augmented Coding will be given greater autonomy. We want their teams to iterate directly and rapidly with the end users; that way, they will be able to grow and improve faster. To foster this new expansion phase, we recently created Globant X's first innovation hub in Maldonado, Uruguay. We opened a new global office there and are expecting over 150 professionals to work there in 2022. And finally, our geographic expansion. This will be later explained by Patricia Pomies, our Chief Operating Officer. Now, I'd like to turn it over to Diego Tartara, our Global GTO, to go over the focus on our new and exciting technology offering. Diego, please, and thank you very much.

Thanks Martín. Hi everyone! Great to be here again. As Martin mentioned, I hope you were able to enjoy CONVERGE last week. It was a fantastic event where we discussed many of the latest trends. These trends are reshaping experiences and opening new doors for industries to radically change how things are done. As organizations and industries get ready to face more challenges to reinvent themselves to adopt, we have decided that this is the right time to expand our studio model. As you may know, our digital studio has been shaping the market by how we deliver quality services over the years. They are deep pockets of expertise with diverse and multi-industry teams. Our studios cross-pollinate in order to provide robust and well-rounded solutions for our clients. As we have continued to grow and the nature of our services has become more sophisticated, we see the opportunity to apply or acquire new learning to reinvent entire industries. That’s why I want to present our new Reinvention Studios. This new type of studio will lean on the technology expertise of the digital studios to build practices that will enable profound industry transformation. Today, I'm happy to announce that we are launching three new Reinvention Studios focused on the financial, travel and hospitality, and airline sectors. These studios complement our existing portfolio that includes gaming, media and entertainment, and life sciences. We will continue evolving our offerings in the next months. Now let me zoom in on the new Reinvention Studios. First, the Bluecap Future Finance studio. The financial services industry is going through an unprecedented transformation. Players in the space must either disrupt or be disrupted. That's why Globant is using its digital expertise in the industry with Bluecap’s financial services portfolio. The studio will boost new business models and strategies while enhancing the experience of customers. Now, let's go into the Travel and Hospitality studio. The new guest expectations for personalized digital interaction are here to stay. We focus on reinventing how brands engage with their guests and design memorable and fulfilling experiences. We leverage the latest trends and technologies to help companies create a frictionless customer-first approach that delivers relevant and context-appropriate experiences to their guests. The airline studio addresses specific challenges brought in this sector. With an exceptionally complex business landscape, we’ll leverage our expertise to help a highly competitive and regulated industry reinvent. We drive digital transformation by putting the passenger experience front and center of all strategies and boost business. We empower passengers to manage the complete life cycles of their journey in a highly personalized manner, maximizing conversion and ancillary revenue. The combination of our expertise brought by the digital and Reinvention Studios enables us to deliver comprehensive digital and cognitive transformation to organizations throughout the world. Let me share some examples of work that we are executing. We are working on the modernization of Lending Club's technology stock. Lending Club is emerging from a peer-to-peer lender to a full digital bank, and Globant is providing the needed digital horsepower and financial sector know-how to help support their evolution to new products and services growth. We work with PayWorld to take their fitness platform to the next level. We help them to deliver unique value to their members globally, making a complete shift to digital. In Q3 2021, we released a brand new experience and workout designed to help women keep training with their personalized routines. In the U.K., we have begun a new project with one of the largest housing associations in the country, the Hyde Group. The group owns over 50,000 properties and provides homes to 100,000 people. Globant is helping Hyde Group in their digital transformation journey while improving customer self-service capabilities and agent experience using Salesforce, multi-cloud products. In Brazil, Globant was chosen as a strategic partner for NC Pharma's digital transformation process. We're creating a data link that will take the company to a new level. This project brought a journey into the world of data, involving about 40 domains and areas such as legal, HR, sales, marketing intelligence, and more. The goal is to democratize data access, start their AI journey, and improve their operations. We believe that several technologies will continue to disrupt the future. As Martin mentioned, AI, blockchain, and the metaverse are some of the trends that will be key drivers for our evolution. And while some of the reasons for these are years in the making, companies must build their foundations now. They have to prepare their infrastructure and data, as well as work on virtual and physical experiences. Before I hand it over to Patricia, I'd like to invite you to read the latest Sentinel report that covers opportunities that Smart Venues present. You can access all the information at sentinel.globant.com. I would like to now hand it over to Patricia Pomies, our COO.

Thank you, Diego. It’s a pleasure for me to be with all of you today. I'd like to begin by sharing our vision for Globant's growth, both in our talent and our client markets. Since Globant was founded, our dream has been to grow where the talent is. So instead of pushing professionals to move to the bigger cities to access global careers, we have opened delivery centers in smaller, closer cities and brought the opportunities to them. We have continued this strategy. In recent months, we have announced new offices in Callie, Colombia, Viña del Mar in Chile, Arequipa in Peru, Montevideo in Uruguay, Monterrey in Mexico, and Argentina. In addition, we will further consolidate our leadership in Latin America by entering new markets in the region. Most recently, we announced our new operations in Costa Rica. In Asia, we continue to grow as well. I’m glad to share that we have passed the milestone of over 3,000 Globers in India. This is more than double last year, and up to 26% since the last quarter. This makes India the fastest-growing talent center at Globant. I am also happy to see our growth in Europe. We have recently announced great expansion plans for the United Kingdom. Over the next three years, we are going to invest GBP 65 million and hire 600 new Globers. Our London offices will become the Globant Knowledge Hub of our Sustainable Businesses Studio. These investments are key to support our growth in the region for the upcoming years. Overall for Q3, our hiring remained very robust, and we finished the quarter with 21,849 Globers. Of this figure, 20,573 are technology, design, and innovation professionals. 2,223 of the new hires in the quarter were IT professionals, up 53.1% year-over-year. Attrition for the past 12 months was at 18.4%, slightly higher than our target range of 15.5% to 17.5%. This increase is largely attributed to the very strong demand for talent, as we move into the post-pandemic phase. We are now seeing a stabilization in our attrition rates. Our value proposition to our employees continues to be very, very appealing. As a reflection of this, we have received several awards in the past month. In Colombia, the organization Great Place To Work awarded us the best workplace of 2021. This is a great recognition, especially with Colombia being one of our largest talent markets with nearly 5,000 Globers. In Peru, Columbia, and Chile, the Organization Employees for the Year chose Globant among 700 companies as the number one company to work for. In Chile, the ESC Business School named us the most innovative company for 2021. Now a snapshot of the make-up of our client revenues. The Walt Disney Company continues to be our largest client, growing this quarter at 74% year-over-year and 24% quarter-over-quarter. We are very well diversified within Disney. We serve the majority of its business units and continue to expand in new areas. The rest of our accounts collectively grew 63.8% year-over-year and 10.6% quarter-over-quarter. We continue to experience momentum in most industry verticals. Moreover, we are taking advantage of the networks of the company we have recently acquired to cross-sell our services. Regarding the progress of our 100 square strategy during the last 12 months, we have 11 accounts that brought in more than $20 million of annual revenue, compared to five from last year. We also had 162 customers with more than $1 million of annual revenue compared to 118 one year ago. When we look at our regions, in Q3 65.2% of our revenues were from North America, 22% in Latin America, and others, 11.1% in Europe and 1.7% in Asia. Coming up on December 10, the Women that Build Awards Gala will take place, where the winners will be announced. We want to support, recognize, and give visibility to the women who are challenging the status quo. This second edition was held in light of the success from last year, and we are really happy with the participation so far. We received more than 1,600 nominations from women leaders from all over the world and over 70,000 votes. I invite you all to join us on the 10th. You can learn more about this at womanawards.globant.com. With that, I’ll hand it over to Juan to discuss the financials. Juan, please.

Thank you and good afternoon everyone. I hope you're all doing well. Let me start by summarizing the results of our third quarter 2021. I will then discuss our guidance for the fourth quarter. We are very pleased with our overall results for the third quarter of this year, as our business continued to show robust momentum. Revenues for Q3 were $341.8 million, representing 65% year-over-year growth and 12% sequential growth. We are delighted that Globant continues to deliver industry-leading growth and we expect this trend to continue. We estimate organic revenue growth for the quarter to be above 52%. As discussed in our last earnings call, the business environment is largely back to pre-COVID levels, and our Q3 results, coupled with our robust pipeline, make us believe that the demand for our services and platforms is stronger now than before the pandemic. We feel confident in delivering healthy elevated levels of growth in the upcoming years. Turning now to profitability, our adjusted gross profit for the period increased to $136.1 million, representing a 39.8% adjusted gross margin, which is an 80 basis point improvement compared to the third quarter of 2020. Adjusted operating income for the quarter amounted to $56.3 million, or 16.5% of revenues, compared to $31.6 million or 15.3% of revenues for the third quarter of 2020. The demand and pricing environment continues to be strong, allowing us to offset inflation in the labor market, and we are also able to drive SG&A efficiencies with our increasing scale. This, together with our growing exposure to services, products, and platforms that will help us break revenue and employee growth linearity, will continue to help us deliver healthy adjusted operating margins while maintaining strong investments in the company to capitalize on the massive opportunity in front of us. Our IFRS effective tax rate for the quarter was 21.6%, below our guidance, as inflation adjustments drove taxes lower than our initial expectations in certain geographies. Adjusted net income for the third quarter of the year totaled $41.9 million, representing a 12.3% adjusted net income margin compared to $23 million, representing an 11.1% adjusted net income margin for the third quarter of 2020. Adjusted diluted EPS for the quarter was $0.98 based on 42.8 million average diluted shares for the quarter compared to $0.56 for the third quarter of 2020 based on 40.8 million average diluted shares for the quarter. Adjusted EPS for Q3 implies a solid 73.5% year-over-year growth and is 850 basis points above our robust year-over-year revenue growth in the quarter. Moving on to the balance sheet, our cash and cash equivalents and short-term investments as of September 30, 2021, amounted to $482.6 million. During the third quarter, we generated strong free cash flow of $71.2 million versus $21.6 million in the third quarter of last year. Our free cash flow to adjusted net income was around 170%. During this quarter, we paid $44.1 million for acquisitions. Currently, our credit facility is fully undrawn. We continue to successfully execute on our capital allocation strategy, with integrations of recently acquired companies going as planned. Now, I would like to talk about our guidance for Q4 2021. As discussed, the demand environment remains robust. Based on current visibility, we expect Q4 2021 revenues to be at least $359 million or 54.3% year-over-year growth. At this point, we do not expect any FX impact on our fourth quarter revenues. Our fourth-quarter revenue guidance implies full-year revenue guidance of at least $1.276 billion or 56.7% year-over-year growth versus prior guidance of at least $1.236 billion or 51.8% year-over-year growth. Q4 adjusted operating margin is expected to be in the 16% to 17% range, implying full-year 2021 adjusted operating margin guidance range of 16% to 17% as well versus prior guidance range of 15.5% to 17%. The IFRS effective income tax rate is expected to be in the 22% to 24% range for Q4 2021. Adjusted diluted EPS is expected to be at least $1.01, assuming 42.9 million average diluted shares outstanding for the quarter. This implies full-year 2021 adjusted diluted EPS guidance of at least $3.70 versus our prior guidance of at least $3.58. Thanks everyone for participating in the call, for your coverage, and support.

Thank you, Juan. So as we have done in the past, as we go through the question-and-answer session of this call, I’ll announce your name. At that point please unmute your line and ask your questions. But please remember to 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 very much. So the first question today comes from the line of Tien-Tsin Huang from J.P. Morgan. Tien-Tsin, please go ahead.

Thank you, Amit. I want to ask just on the demand side. Things are great, sounds like pricing is in a good place as well. Your gross margin came in quite strong, but you're rolling out some new studios, you're still hiring very aggressively, you're integrating acquisitions. Has your thinking around margin changed sort of in the mid-term? I know 16% to 17% you land nicely in that zone as the guidance suggests, but are you thinking that there's more need to invest at this stage to sustain this kind of growth? Just curious what the thinking is there.

Thank you, Tien-Tsin. How are you? Look, I think that the strength of the business at this point allows us to keep on expanding and investing while maintaining the level of credit margins that you are seeing right now. We continue to see 16% to 17% as a good number for the near future. It allows us to keep on investing aggressively in the business, expanding to new studios, new geographies. So basically we do believe that that's a number that we can sustain in the near term.

Okay, great. Then my follow-up, just with some of the new studios, I know the last couple of acquisitions are a little bit different, so I'm wondering if the revenue per employee model here is different. I would imagine it's going to be higher, but just curious how that cycles into the outlook? Thank you.

Yeah, I mean the last two deals that we did, I mean the ones that we just announced, Atix, and Navint, the lead-to-revenue company. The second one is more U.S. based and U.K. based, so the revenue per head is higher, still it's a very small acquisition, right. It's about 130 people, so that doesn't necessarily impact the revenue per head. But we do see revenue per head moving upward as new deals, reassignings, and ongoing discussions in terms of pricing kick in, and eventually that should drive revenue per head up in the near future. And then you know that's pretty much the answer in terms of how that's going to impact revenue per head at this point, Tien-Tsin.

Great, great results guys thank you.

Thank you very much, Tien-Tsin. The next question comes from the line of Ashwin Shirvaikar from Citi. Ashwin, please go ahead.

Hello folks! Congratulations on the good solid quarter. You guys did mention obviously that the level of the demand trends continues to be strong, and should be at sort of a heightened range for some time to come. You know, not really looking obviously for 2022 guidance, but in the past you have indicated that mid-20’s type of level that’s possible. Are you now thinking potentially higher than that, and certainly the headcount increases would suggest that you can actually support a much higher growth rate. So can you kind of pull that together for us and talk about what’s achievable?

Yes, so thank you, Ashwin, for the question. I mean yeah, business continues to be very, very strong. Even though it's still early to discuss in detail 2022, what we can say at this point is that you know last quarter we did mention 23%, 24% organic plus one coming from acquisitions that we have done up to that point. Now we are able to increase it slightly, that number, even though, as I say it is still very early, and we will provide detailed guidance in February. We do see 24% to 25% organic plus around 2.5% coming from the recently announced deals as a possible number for next year. I mean on the labor market, as you said, you know we have been hiring very strongly during this year. I mean it seems I would say since Q2 last year, which was the quarter of the pandemic, every quarter since then we have had very strong hiring and again you know the market, of course, there is a lot of competition, but we do see and we do believe that we have a very attractive value proposition for employees. We will continue to attract talent in an aggressive way. Q4 might be a little bit lower in terms of the net additions because we have New Year and the typical seasonality that happens and people will go on holiday, especially because of you know how the last year was basically. But again, we continue to see good traction in the market, we continue to still see our name, our brand as a preferred option in many of the countries where we are operating. And again, there is competition, yes, but we do believe that we have the right recruitment power and the right brand and the right projects and the right technologies to continue attracting talent.

Great! And as a follow-up you know, when you look at the top clients that you have, Disney obviously leading the pack, but as you look at them and the path that you had in terms of, let's call it wallet share gains at those clients, is that maybe indicative of this repeat plan you can follow that maybe accelerates your 100 square plan?

Okay, I think – hi Tien-Tsin, how are you? Sorry, Ashwin… I normally enter into the batch one you know. We enter into the batch one with Tien-Tsin, okay, sorry. No, I think the demand is still very solid. In all our key accounts, we have seen the numbers of Disney which are pretty impressive, and they are really mind-blowing. I would say that it is not of course possible to keep that, you know, impressive performance moving forward. But yes, we feel that pretty much all our largest customers are in the mood of changing and improving and spending more money on their digital transformation. I don't see that trend changing right now because, you know, they are not ready yet and they need to keep on doing things. And that is not just the domain of the large brands, but also a domain I would say of our smaller customers, not smaller customers, but smaller brands too. I mean there's pretty good consensus around that the demand is still there, it’s very strong and it will keep on being strong during next year. Now, you know you can never predict anything here, but as of now, the consensus within Globant is that demand will keep on being very strong during this last quarter and at least, you know the first portion of next year, and then we'll know, but in my opinion it will keep on being very strong during 2022 too.

Perfect! Thank you very much, Ashwin. Next, we'll go to Bryan Bergin from Cowen. Bryan, please go ahead.

Alright, how are you guys? Thank you. So I wanted to dig in a little bit around the India base. So I heard you mention 3,000 Globers, up 2x, your fastest growing talent center. Can you talk about the financial implications of that as you grow in that country, as it may relate to consolidated per capita revenue and margins? And is that exposure a bigger factor in the uptick of attrition recently in the short term here?

Look, the first part of the question, you know, India has continued to show very, very good momentum for us. As you know, we started that operation several years ago through an acquisition. As of now, you know the talent development center from India is 100% fully integrated into our day-to-day operation, and as we become more and more global, many of our customers ask us for well projects, and sometimes we decide to staff them out of our India TDC. In terms of revenue per head, India might be slightly below some of the Latin American countries, but it's not really a big difference. So we don't really see an impact on the revenue per head coming from there. In terms of margins, it is slightly less profitable than other locations. At the same time, I think that today, you know, we hire senior people, and as we hire people over time, the cost of that people becomes more and more globalized in a way. So I don't think looking at you know a talent development center, right – the talent development center is going to really help. I think we need to think about the company on a consolidated level, and eventually as we move forward, one of the things we learned from COVID is that people can be anywhere. What matters are the skills, and we will see over time I think the cost of people from all over the world, you know, going to a certain mean. So we don't really see revenue per head being significantly impacted. We also don’t see margins significantly benefited from that in the medium and long term. You know short term, you may have it different there, but that's basically the answer. As for attrition, still attrition is driven by Argentina where, you know, the macroeconomic situation tends to push people to get sometimes other opportunities in smaller companies that are sometimes able to attract them. But I don't think – it’s not India that’s driven up the consolidated attrition as a whole. I mean the market has been halted everywhere but at the same time that you know, attrition came up a little bit above our expectations. We do believe that over time we will take it more to the target range that we always provided, and the attrition situation as I say is not driven by one specific country, but when we look at Globant, the one country with more attrition is Argentina, it's not India.

Okay, thanks for that one. And then recent deals like Walmeric and Navint and I guess Avanxo in the past, they seem to be somewhat more closely related to some packaged SaaS versus complete custom development. I’m curious if that is something we should continue to expect from you. And aside from Salesforce, are there other SaaS ecosystems you think are very attractive right now where you have penetrated?

Yeah, sure. Thank you for the question, Bryan. I think that there's some momentum happening on the Salesforce space in particular, because, you know, the demand is very high and it’s a platform that is really broadly adopted by many people. That doesn't mean that we don't develop custom solutions in that case, because in every implementation there’s a lot of custom implementation, custom development, and custom connection with internal systems of the companies, and this is where we're doing our magic. I think this is a pretty special part of the digital transformation, and we’ll keep on investing in that specific front. I think in the case of Walmeric, it is slightly different. I mean there we enter into more the cycle of conversion of leads into real sales, and that's something that is not the same thing as the CRM, but it’s how you monetize the leads that you're producing through the traditional internet marketing stuff. With that, we have a specific solution for them, we have a specific solution that can – for our customers that can accelerate that conversion, and it’s a specific play that we have not seen in many different platforms on how to make more efficient that conversion from digital marketing into real sales. So the short answer is, yes, we will keep on investing in more software as a service platforms, but always we remain with the concept in mind that in each of them we need to develop many new things to be able to connect those platforms to the current stack of technology that they have.

Thank you very much, Bryan. The next question comes from Maggie Nolan from William Blair. Maggie, please go ahead.

Thank you. Great to see you guys!

Hi, Maggie!

So, you're expecting several years of elevated growth. Is this consistent across your different geographic exposures or is there a particular geography that you think can be an incremental growth driver?

I don't know, Pat, do you want to take it?

– : The growth that we have been seeing has been pretty much across every region, and when you see for example Latin America growing organically in a pretty solid manner, but also Europe, but also the United States, so it's all over the place. It's across pretty much all geographies. And together with what Pat was saying, which is you know keep on exploring other destinations to grow our talent, I would say that this is like a pretty good picture of how we are thinking. Growth is coming – of what we are leading, growth is coming from pretty much everywhere and reacting and growing our talent base pretty much everywhere and expanding everywhere we can.

Yeah, Maggie, when you look at the numbers, you know the size of our business in Europe, it's still very small. The size of our business in Latin America, even though it's been growing, it is still small right. So the opportunity is massive for both regions. The U.S., of course, as you know, it's pretty much limitless, so future opportunity there. And finally Asia, you know we are doing about $5 million, $6 million right now per quarter in Asia, and again, that's another opportunity right? I mean we don’t need to forget. I mean we are still not specifically pursuing that, but you know all of a sudden we really have a $20 million to $25 million a year run rate. And again, as we become more global, we work for global companies and we have global talent development centers; that leads to opportunities in other regions than the typical regions we have been targeting. So again, massive overall and global market opportunity and we do see growth coming from all regions, Maggie.

Thank you. And then, have there been any changes to your promotion or compensation cycles, or are those additional levers that you would have to control attrition, and what gives you confidence that attrition has stabilized?

Sorry, Martin, you told me? Okay, I’ll take this. Yes, we have been doing a different approach in terms of benefits and compensation. I mean we are calling the total compensation line in Globant, we are talking about that these days, but that has to do not only with our long-term incentive, but of course with the compensation package, with new benefit, things that our employees are eager to understand and are asking for some different things these days. As you know, after this pandemic, I mean we have been with some stress and some burnout in some cases in specific countries, so we haven’t been able to make partnerships with different platforms, with different kinds of specialists, and we have put in place a program with psychologists and physicists and everything that has to do with keeping our mental and physical health for our Globers central. So I think all these things have to do with that Globant is not only taking care of the people working at Globant as Globers. We are also taking care of the family and we are looking after that. So I think it is interesting. That is our employee brand right, that is completely I think way beyond our other competitors in terms of what we can achieve and what we can offer as a culture, and that makes a huge differentiation between other companies that are probably only attacking this with compensation. We are attacking this with a different kind of 360 plan for us.

Thank you.

Thank you very much, Maggie. Next, let's go to Arturo Langa from Itaú. Arturo?

Good evening guys. Thank you for the presentation. Congratulations! They are very useful to help understand your story. I just wanted to understand one, the situation point. I mean it's coming a lot from Argentina and maybe that has to do with the fact that some developers have access to a freelance market and therefore a more attractive sort of exchange rate than a regulated one in Argentina. How much of that factor would you say is contributing to that higher attrition in Argentina? And maybe if you can remind us, what percentage of total headcount is currently or Argentina currently represents?

Yeah, if you can increase your mic Arturo, that's going to be great. If I got your question right, yes, clearly in Argentina – that type of competition you know of people getting money abroad or people getting paid in crypto, I mean we have to live with that and we have many other things that we can do as a company to fight back or to help. You know what happens is that at the end of the day when we look at who we are losing people to, we lose people typically to startups, typically to some small product companies, and those are the ones that are using that market. More recently we've seen a lot of that happening. Eventually you know, that's something that cannot last forever. It’s unfair competition and eventually it should fix, but that's where people look at, where we're losing people to, because of that type of market. Argentina, I mean again we are about 25% to 40% in Argentina and attrition is you know, it's driven by Argentina; it's the highest number in the industry. And as you pointed out, it is related to the way some companies are compensating people, and that's something that we cannot do basically. But that's pretty much that’s around attrition now. Still keep in mind that as I mentioned before, we are seeing attrition stabilizing when we look at attrition per month. We are seeing that number stabilizing or even coming slightly down. You know keep in mind that we are coming from an extremely low number in Q2 last year you know when the pandemic started. You know at the very beginning, there was pretty much no attrition; people were not changing jobs. Then you saw like a spike and then we started to see a more stable number when we look at the monthly number, right. That's where we feel that attrition has stabilized and makes us feel comfortable, but again we need to see how the market continues to evolve going forward.

I don't know if you have another question, but let's move on to the next analyst, Surinder Thind from Jefferies. Surinder, please go ahead.

Thank you for taking my question. I'd like to start a question about the elevated growth rate. Can you talk about it maybe from the perspective of the shape of the pyramid at this point and how that's impacting or is there a lot more junior hires at this point. And there was an earlier question about the promotion cycle. So when you're growing at, you know, a 20% headcount pre-pandemic, obviously, there may be a two, three-year cycle for promotions. When you're going at 50%. Is there a promotion cycle elevated? How are the teams adjusting? How's all that being structured and managed?

No look, I mean why if we are growing fast as a promotion, the promotion cycles should change, I mean it doesn't make a lot of sense. Now, in terms of not because of how fast we are growing, but yes, because that we need to move faster because of the market and how hard it is. Promotion cycles in itself have not changed and we won't change it. Now we are having like a more aggressive way to understand specific cases and go more into each case faster, and that's how we are trying to tackle the situation we are getting now, of course always being cautious about the budget we have and the amount of money we have to be able to fix those cases. But we are not changing because of the growth speed, the cycles. And the second part of your question, or the first one was?

The pyramid?

The pyramid is still looking pretty much the same. I mean most of the hires that we do have to do with people that have from the outside, with people that have that knowledge. Also now we are putting together a lot of younger people without that specific experience with initiatives like what we are doing with Digital House and jointly with Mercado Libre, our program which is the certified tech developer. Well, those things are bringing people from other places in the market to what we are doing today, and to the development world, and we are hiring them and we are training them, and those guys are starting to feel our thoughts. But in a sense, I would say with this 50% growth or more than 50%, it’s like 65% growth year-over-year, we are not seeing a massive shift in what we are hiring and how we are hiring, and we didn't change the mix of young talent as supposed to have more lateral hires and more already trained hiring. So we're seeing that mix pretty much the same. But what we are doing is we're laying down with all the efforts we are having to train women, to train young people, to retrain people and repurpose people from other jobs into these new technology areas. We are setting the foundation to be able to grow much faster in the region than before because we have all those tools to help us overcome the shortage situation. So this is something that we are very proud of and we talk a lot about that. So that’s why I think it deserves a special mention on this chapter, and specifically to address your concern around what you just mentioned.

Can I add something on top of that? Hi Surinder, several years ago we started changing and switching our approach in terms of how we hire talent in the company. In the past we had like a very immediate approach; given the opportunity we went after the talent. We are now switching to a more proactive approach where we actually forecast our growth, the technologies, the trends, and we hire talent in advance. That gives us the opportunity to properly train people, so when they get into the parts and start delivering, quality will not suffer. I think that change allowed us to support the growth we are seeing today while maintaining quality. Another thing you mentioned with regards to the cadence of the growth and promotions for the people, that might have changed possibly, but not because of the market conditions. We started several years ago with something that we call MyGrowth, where we transferred, we created a platform we on-boarded what we call the work ecosystem for the different type of technologies and people can actually get a grip on their career, and that's very important. So we translated the career, but we gave our Globers tools to accelerate their development and that has been working very, very good for us. So I think the slight increase we are seeing is a response to that, not actually the market conditions.

That's helpful. And then as a related follow-up. This is maybe more for Patricia. Can you maybe talk a little bit about how one of the things that most employees, people look for is long tenured career path and opportunity, which you guys clearly provide here. But can you also talk about the intangible part of this which is from a cultural perspective or the culture that Globant is known for as you kind of build up more distributed offices, as you build up more smaller offices and then the fact that again you're hiring quite quickly, how you kind of then view that though the organization because obviously you can keep people with compensation to some extent, but at the same time you're also trying to make sure that the culture stays intact, which is also gently important part of keeping the attrition rate low.

Well, thank you for your question. I think that it is really interesting to understand that right now what was the base of Globant, that we are a digital native company, is really helping in order to how we are attracting that talent. Because we have our digital frame where you know that we use these agile pods. So from the very first beginning of this, I mean we have been making diverse teams. I think this has been teams that we have made from different countries, different places around the world, and diversity is what gives our culture that sense of innovation and entrepreneurship, that is in the DNA of our culture. And so I think that what is important to understand now is that culture is in that. Of course, we have been able to redesign the onboarding process for many Globers last year. We have hired many, many new Globers to the company. So how you attract that and how you retain them or how you sustain them. So we are offering a unique path in terms of career. We don't work in silos in Globant. You can choose a career and you can change in the middle, you can change from location, I mean so those that means different kinds of things that have to do with the agility of this company and with the possibilities that have been a digital native company. According to the offices, what we are proposing these days is we have open offices, right? And we are encouraging people to go to their offices for purpose or for these serendipity sessions or things that, well, when you want to share ideas or some places that having a coffee sometimes is better than probably having a meeting. But we are very respectful about what each Globers in the pods where they belong, wants to decide to do. So today, what we are proposing is that inside the pod and the autonomy that we give to those pods decide what they want to do. If they want to go to an office twice a week, once a week or, I don’t know, once a month. I mean this has to do with the nature of their projects that they are doing, and of course the needs of the clients. Our net promoter score has been I mean the highest than ever in Globant this last quarter. So I think that means that our clients are really happy about what we are doing, and we are over the range of the industry, that is around the 30s, 40s and we are far away from that; we are around the 60s. So I think that that means a lot also for our culture. And I think that today what we are very serious about, is about taking care of the people and in terms, as I mentioned before, in this holistic way. These things about offering career, the possibility to work with the top clients in the world. I mean North America had tremendous growth this last quarter, and we have incredible new clients with the new possibilities there to be creative, and you can do that from any place in the world. Of course, we have offices and we still believe that offices are places that we want to keep and we want to probably to really assign them, that is what we are doing in some places doing more these kinds of chill-out or workplaces where creativity is a place where you can find it in the office more easily. So I think that in answering your question it has to do with keeping our culture of agility, or being kind, not only with our peers, but also with yourself. I mean I think that has to do with things that we have been our values for the last 16, 17 years.

Thank you very much, Surinder. Thank you, Pat. The next question comes from the line of Arvind Ramnani from Piper Sandler. Arvind, please go ahead.

Hey, thanks Amit. Martin, I just want to go back to a conversation we had several years back, I think it was 2014, 2015, and you were saying it is very kind of limiting our growth because to hire a bunch of people and get them trained and keep the culture was difficult. But now, obviously, the company has scaled, you have a lot more geo locations. Anyway, you're hiring at a pace that was far greater than what it was six or seven years back, and just with that backdrop, how are you able to sort of maintain that. In some sense, it’s kind of large numbers as you grow bigger your growth rate comes down, but your growth rate is accelerating as you've grown much bigger in size. How are you able to sort of recruit those folks, and then kind of make sure the kind of organization is staying intact and the culture is staying intact?

Yeah, thank you for the question. I will mention two things. The first is the use of technology to maintain the culture. Through StarMeUp and all the tools that we use, the idea of changing for example, the feedback process clearly, one feels a carrier to something that can be done at any moment and requested at any moment. The notion that any idea or any act within the company that is connected to our value can be celebrated, can be understood, can be seen by others. That technology that we're using is helping us, and helped us a lot during the pandemic to be able to keep our teams connected, but not connected among themselves, connected in terms of culture, connected with the core of our culture. So the use of technology, as I have been saying in many, many of my earnings calls, I think I have already like 50, I don't know 30, too many, 37 years, so about 30 earnings calls. I pretty much in every call I mention using technology to augment your culture, using technology to maintain your culture is the essence of this business. Of course, it's not that easy to understand, but when you keep on growing and you see that that culture is being maintained, it’s extremely important to understand why, so that's one thing, how we use technology to connect and maintain our culture. And the second thing, I would say is that the concept of the pod, that Pat was explaining a few minutes ago. Having those pods that have a lot of degrees of autonomy, by the way, just I announced today that you know we will give them the autonomy to figure out which is the best idea to connect better with their customers and to serve better their customers and to decide from where they need to work. If they can combine office and home or they can do everything from home or they can do everything from the office, they will have the power to decide where to work from. So this is just an example of autonomy we believe in. I believe that if we keep on pushing the autonomy of those pods and we keep on insisting on the concept that those pods are on the top of this organization, and that we are here all of the rest, we are here to serve those pods to be successful, then it's much easier to maintain, it's much easier to expand the organization when that’s a concept, when there's just a few layers between the top and bottom of the pyramid, and our pods which are on the top connected with our customers, and just a few layers there is extremely important to understand that this is a reason why you can keep on scaling this organization beyond the traditional growth rate that we had before. I don't know, I can keep on going with this question for the next five years, but...

To compliment that on the physical side of things, we also took approximately two years ago – no, a little bit over that, we launched our TDCs initiative, the Talent Development Centers. These are geo locations where one of the first things we took care of is having proper technical representation. So approximately 40% of the headphone from studios. Management now has been in centralized locations, gaining and getting the right people. So we have technical ambassadors who have been longtime Globers, making sure that every office feels like Globant, so that complements our digital initiatives.

Perfect! Thank you very much and good luck for the rest of the year.

Thank you.

Thank you so much.

Alright, perfect! Thank you very much, everyone. Unfortunately that's all the time we have today for the Q&A. Again, thanks everyone for joining. I’ll now pass the mic to Martin for the closing comments. Martin, please go ahead.

Thank you very much everyone for coming here, for being here today. I know we are much more than what we have been in past earnings calls. We have made a huge improvement, so congratulations to all those who have been working on these huge improvements and how this earnings call looks. I hope you enjoy it, otherwise we’re going to need to come back to the best one. So I hope you enjoy it. Looking forward to seeing you next quarter, and thank you as always for your support and understanding, and for covering us the way you’re doing. Thank you so much. Bye-bye!

Thank you.