Earnings Call Transcript - GLOB Q1 2021

Amit Singh, Head of Finance and Investor Relations

Good day, and welcome to Globant's First Quarter 2021 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 Martin Migoya, Co-Founder and Chief Executive Officer; Juan Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer; and Diego Tartara, 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.

Martin Migoya, CEO

Thanks, Amit, and hello, everyone. I'm excited to speak to you today in this new format to present our first quarter earnings for 2021. This quarter, we brought in $270.2 million in revenue, representing a 41% growth over the previous year. It is the highest year-over-year growth since we launched our IPO in 2014. It reflects the opportunities we are taking advantage of as the market keeps evolving. A few updates on our leadership team as we focus ourselves and keep growing sustainably. With them, we want to boost our offerings, regional coverage, talent and synergies between delivery, performance and operations. Co-Founder, Guibert Englebienne, will become President of Globant X and Globant Ventures. He will lead our start-up accelerator and will work to develop new business and revenue models through initiatives like Augmented Coding and StarMeUp, which are all part of our Globant X division. Finally, he will also assume the Company's President for Latin America. Co-Founder Martín Umaran takes a new role as President of Europe and Asia and Chief Corporate Development Officer. He will oversee the successful integration of companies into the family as part of our global expansion strategy. Patricia Pomies has become our new Chief Operating Officer. Her task will be to turn our executive strategy into measurable goals for growth, delivery and execution. She will consolidate a comprehensive vision between delivery, people, performance and operations. Diego Tartara will take on the new role of Global Chief Technology Officer, overseeing our studios of expertise and how they deliver technologies that transform companies every day. Each Globant's business regions will be led by a respective Chief Business Officer, with Fernando Matzkin as Chief Business Officer for North America; Nicolás Kaplun as Chief Business Officer for Latin America; and Federico Pienovi as Chief Business Officer for Europe and Asia. And finally, I'd like to welcome Maria Pinelli as the newest member of our Board of Directors. Maria brings 34 years of experience in helping companies develop their technology products and to reach their customers. I'm happy to have her strategic advice as we keep growing our business and to serve our clients better all over the world. I'd like to congratulate all of these executives for their new appointments. We have an amazing leadership team that will enable us to achieve our goals and go beyond. We all saw the inflection point of the digital transformation space in 2020. The increased adoption of digital technologies in all processes of our professional and personal lives is opening up exciting opportunities for our sectors, in parallel with increasing optimistic macroeconomic predictions. Industry analysts like IDC have increased their forecast for the worldwide services market due to a soft landing in 2020 and a strong return to growth in 2021. And this is Globant's opportunity to position itself as a leader and preferred partner in this space, which we aim to reinvent and disrupt. That's why we continue to seek out the best talent and bring them on board as our teams continue to expand. Last quarter saw yet another acquisition as we welcome CloudShift to the family. I'm excited to bring in their deep sales force cloud expertise to Globant so that we can take a larger role in the cloud space. At the same time, we announced the acquisition of HABITANT, a leading Spanish digital marketing agency. HABITANT's experience is fusing digital marketing, digital sales, technology, design, innovation and data. It is a complementing element so that we can continue developing unique products and solutions for lasting transformations. Looking forward, there will surely be additional exciting acquisitions that reinforce and expand our many capabilities as well as our organic growth. Now a few notes on our geographic expansion. As we grow, we continue scaling our business throughout the globe. This quarter, we announced new operations in Malaga, Spain, where we will be opening a new artificial intelligence innovation center. In Latin America, I'm pleased to announce new operations in Monterrey, Mexico; Cali in Colombia; Viña del Mar in Chile; and Bariloche in Argentina. This is in line with our strategy of being the employer of choice for the ambitious talent of the region. We have also announced a greater expansion of our operations in Miami, which will be the hub of our brand-new Smart Venues studio, a new concept to transform how patrons connect with brands. Leveraging our experience working with the entertainment and many other sectors, we're launching this studio focused on creating the best phygital experience. Through digitalization, we revolutionize how companies interact with their consumers, patrons and fans across their physical and digital spaces, allowing them to create a new user experience that is far more engaging. Creating these new ways of interaction serves as an exceptional tool to better understand customers and allows organizations to identify new and unconventional ways to generate new revenue. Now news about the collaboration with Apple. We began working on a project with Apple through our Life Sciences Studio a year ago that seeks to improve the health and wellness of communities through a highly configurable wide-level recognition and reward platform using Apple Watch. The aim is to help clients improve the health of their customers, members or employees. The app encourages a more healthy lifestyle for its users and provides companies an ability to create deeper, more meaningful engagements. And today, I'm pleased to announce that London Drugs, a large drugstore chain in Western Canada, is our first client to roll out this program. They have already launched a pilot rewards program in a number of stores in Vancouver that incentivizes customers to complete activity goals tracked by Apple Watch, with an ambition to expand in the coming months. It should be noted that this program adheres to the most stringent privacy guidelines set by all three companies. Let me share more updates on some of our most recent projects. We're working closely with Nissan's customer experience team this year to develop a seamless customer journey across physical and digital channels. We're helping to revamp their online vehicle-ordering process, enabling their customers with greater choice and intuitive and engaging ways to choose and buy their cars. We have expanded our involvement into market operations with data systems integrations and the development of customer and business applications. Globant continues to expand its footprint in the digital health arena. For example, during Q1, we began our partnership with Boston Scientific to provide implementation consulting services for CRM strategic rollout. We also started working with the diagnostic division of Roche to develop an automated multi-cloud solution for this global pharmaceutical and biotechnology giant. In the retail and consumer goods space, we won a very strategic engagement with Backcountry.com. This is an online specialty retailer that sells clothing and outdoor recreation gear. Globant has been engaged to partner on their digital transformation journey aimed at delivering impactful customer experiences by leveraging our digital and cognitive capabilities and technologies. To go into finer detail about our studios and our technology offering, I'd like to welcome Diego Tartara, our new CTO. Diego, please?

Diego Tartara, CTO

Thanks, Martin, and hello, everyone. It's an honor for me to be with you this afternoon. I have the great experience of leading Globant's diverse and expansive studios for several years. In my new role as Global CTO, our aim will be to leverage our global talent and expertise to build a portfolio of solutions that enable our clients to fully embrace the future. To get started, I have a few more new studios to announce, in addition to the Smart Venues concept. First, the Cultural Hacking studio, we know that a successful and lasting digital transformation involves not only a technological adoption, but infusing the organization with a culture of flexibility and resilience. We, therefore, consolidated this new studio to help businesses achieve their goals through faster and healthier cultures. Our teams work with the client to create culture and strategies, reshape the organization and form new habits and behaviors that are conducive to alignment between business goals and the organization's purpose. This studio works to unleash the talent and potential of the employees to reskill them, realign, understand cognitive capabilities and position them in the optimal place for embracing change and provide value to the organization's development. There is no way to scale up if you don't have a sustainable culture. We are also improving our value proposition through our new digital sales studio. For digital marketing strategies to be successful, they require more than managing media. There is a great opportunity to be more business-oriented and increase the performance of digital channels by using data, AI and the right technology stack. The digital sales studio comes to address this challenge by orchestrating digital capabilities, increasing digital sales with data and technology. Digital sales acceleration means having business, marketing and technology working together, a mix to be driven by data under our 360 degrees consumer view. Now many of you might remember the Women that Build Edition of the Globant Awards in 2020. The turnout and feeling after sharing those inspiring stories was so positive that we are launching a new edition for 2021, Digital Disruptors. Organizations of the future will be led by individuals who embrace reinvention, take risks and push the limits on what is thought possible. We call them digital disruptors. We want to recognize those leaders who are going the extra mile to guarantee that their companies stay at the cutting-edge of every tech revolution. We've invited a fascinating list of judges who include Diego Lerner, President of The Walt Disney Company, Latin America; Michele Lezama, President of the National Action Council for Minorities in Engineering; Nuria Simo, CIO of the Inter-American Development Bank; Donald Hicks, Airbnb's VP of Trust Policy; Xapo CEO, Wences Casares; and many more. I invite you all to check out the initiative for yourselves at digitaldisruptors.globant.com. Let me now welcome Patricia Pomies, our new Chief Operating Officer, who will go into details on our activities.

Patricia Pomies, COO

Thanks, Diego. Hi, everyone, and welcome back. It's been another great quarter as we continue to differentiate ourselves through the quality of our delivery. In this direction, we have received important international certifications based on our innovation, our inclusion of Augmented Coding as a tool that elevates our delivery and the continuous improvement of our pods. This is a recognition of the effort that our Globers make daily to ensure that we meet and surpass client expectations even under challenging circumstances. In the outlook for 2021, we will remain on a remote-first policy for our operations. However, we have decided to open our offices to all those who voluntarily want to work from them. In essence, we will continue working from home, but at the same time, our Globers will have the flexibility to return when necessary for collaborative ideation or other relevant meetings. We remain vigilant to the COVID-19 situation in Latin America and India, both very important locations for us. We are accompanying our Globers in different ways to help them through this crisis. And we will continue to support them by offering supplies, expert guidance and counsel and make donations to local institutions and hospitals. We finished the quarter with 17,267 Globers; 16,284 of which were technology, design and innovation professionals. We continue our strong hiring in Q1 with a robust addition of 994 IT professionals, up to 39% year-over-year in order to meet the strong market demand. Over the last few years, Globant has invested heavily in establishing a robust training and hiring infrastructure across the globe. Combined with our ongoing expansions, this gave us a strong ability to seamlessly increase the hiring and training as required. At this moment, we do not foresee any challenges in finding the right talent to meet the demand. Attrition for the past 12 months continued low at 14.2% compared to 15% in Q1 2020. Going forward, we continue to estimate a normalized attrition rate of 14% to 16%. Some news on our benefits for our Globers, who are the center of everything we do. We are launching an employee stock purchase plan through the second half of this year. We are giving our Globers the opportunity to purchase shares of the Company at a discounted price so that they can have a greater stake in our performance and growth story. We continue to expand our Be Kind concept. This initiative has guided us to take bold steps at our company, from committing to having half of our managerial positions held by women by 2025 to having transitioned to renewable energy in 2020 and going carbon-neutral, a commitment that we will achieve this year. We are doing this because we want to continue making an impact in the world and in the tech sector, helping make it more inclusive, diverse and vibrant. Related to this, I am glad to share that we have created a new initiative and space called Be One of a Kind, where we are sharing to promote the concept of inclusion and diversity. We want to make sure that everyone, especially people who are often overlooked, feel welcomed, seen and supported. I invite you to visit beoneofakind.com to learn from the stories there and maybe even share your own. Now a few points on our revenue performance. Disney was our largest customer for the quarter, growing strongly at 27.4% year-over-year and 14.7% 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 42.8% year-over-year, with revenues from top 5 and top 10 accounts increasing at a robust rate of 37.5% and 41.2%, respectively, over the first quarter of 2020. Outside of Disney, the rest of the accounts collectively also grew strongly at 16.3% 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 in the recent past. Regarding the progress of our 100 squared strategy. During the last 12 months ended March 31, 2021, we had 15 accounts above $10 million in annual revenue compared to 12 customers for the same period last year. We had 139 customers with more than $1 million of annual revenue compared to 112 one year ago. Overall, we continue to expand our relationships with our key accounts, the base for our continuous growth. In terms of geographic regions, Europe witnessed a strong acceleration in revenues growing at 183.7% year-over-year and at 43.3% on a sequential basis. Latin America and others show continued strength, growing at 80.2% year-over-year and 17.9% sequentially. North America was up strongly at 19.3% year-over-year and 11.2% sequentially. Asia also witnessed robust growth at 78.7% year-over-year and 31.3% sequentially. We are enthusiastic about the demand we see in our growing market and foresee a healthy pipeline ahead. For 2021 and beyond, we'll keep applying our talent to help them make it happen and ensure that they have the latest training to be great. With that, I'll pass it over to Juan to go over the financials.

Juan Urthiague, CFO

Good afternoon, everyone. I hope you are all doing well and staying safe. Let me start by summarizing the results of our first quarter 2021. I will then discuss our guidance for the second quarter and for the full year 2021. Our business in 2021 started on a very strong note, and we are very pleased to announce another quarter of record revenues and strong financial performance. Our revenues for Q1 were $270.2 million, representing a solid 41% year-over-year growth. On a sequential basis, our revenues for Q1 increased 16.1%, showing a very healthy trend. This was Globant's strongest year-over-year and sequential growth since we're a public company. Q1 revenue growth was 40.3% year-over-year in constant currency. While the COVID-19 pandemic is still ongoing, it did not have an incremental impact on our Q1 results. We remain bullish about the demand environment post the COVID-19 crisis and are encouraged by the ongoing positive trend in our bookings and revenues. Turning now to profitability. Our adjusted gross profit for the period increased to $107 million, representing 39.6% adjusted gross margin compared to $75.6 million, representing 39.5% adjusted gross margin in the first quarter of 2020. Adjusted operating income for the quarter amounted to $45 million or 16.6% of revenues compared to $29.9 million or 15.6% of revenues for the first quarter of 2020. Adjusted operating margin improved by 100 basis points year-over-year and 30 basis points sequentially. As our revenue growth profile and utilization continue to improve, it will have a positive impact on our adjusted operating margin. At the same time, salary increases start in Q2, and we plan to continue investing in the Company, taking advantage of the huge opportunity in front of us. Our IFRS effective tax rate for this quarter was 24.9%, largely in line with our guidance. Adjusted net income for the first quarter of the year totaled $34.2 million, representing a 12.7% adjusted net income margin compared to $22.4 million, representing an 11.7% adjusted net income margin for the first quarter of 2020. On a sequential basis, adjusted net income margin increased by 80 basis points. Starting in the first quarter of 2021, we are including the tax impact of non-IFRS adjustments in the calculation of adjusted net income. Excluding this tax impact, adjusted net income for the first quarter of 2021 is $37 million, representing an adjusted net income margin of 13.7% compared to, as reported, $24.4 million, representing an adjusted net income margin of 12.7% in the first quarter of 2020. Adjusted diluted EPS for this quarter was $0.83 based on 41.2 million average diluted shares for the quarter compared to $0.59 for the first quarter of 2020 based on 38.1 million average diluted shares for the quarter. Excluding the tax impact to non-IFRS adjustments discussed earlier, adjusted diluted EPS for the first quarter of 2021 is $0.90, strongly above our guidance of at least $0.79 and compared to, as reported, $0.64 in the first quarter of 2020. Moving on to the balance sheet. Our cash and cash equivalents and short-term investments as of March 31, 2021, amounted to $195.6 million. During the first quarter, we paid $42.2 million for acquisitions and repaid $25 million of our credit facility. Currently, our credit facility is fully undrawn. We also continue to successfully execute on the capital allocation strategy with integrations of recently acquired companies going as planned. To wrap up, I would like to share with you our outlook for Q2 and for the full year 2021. We note that given the ongoing COVID-19 pandemic, there are a number of factors that we may not be able to accurately predict. Based on current visibility, we expect Q2 2021 revenues to be at least $283 million, implying 54.9% year-over-year growth. At this point, we do not expect any FX impact to our second quarter revenues. Q2 adjusted operating margin is expected to be in the 15.5% to 17% range, and adjusted diluted EPS is expected to be at least $0.84, assuming 41.4 million average diluted shares outstanding for the quarter. Regarding the full year 2021. Given the robust demand environment we are witnessing, we are significantly increasing our revenue guidance, and we now expect revenues to be at least $1.135 billion, representing a 39.4% year-over-year growth. We currently assume no FX impact to our full-year 2021 revenues. For 2021, we now expect our adjusted operating margin to be in the 15.5% to 17% range versus the 15% to 17% range guided before. At Globant, we continue to strongly invest in globalizing our operations, training programs in cutting-edge technologies and expanding our sales coverage. IFRS effective income tax rate is now expected to be in the 23% to 25% range for both Q2 2021 and the full year 2021. Finally, we expect adjusted diluted EPS to be at least $3.37 for the full year 2021, assuming 41.6 million average diluted shares outstanding for the full year. To note, our adjusted diluted EPS calculation now also includes tax impact of non-IFRS adjustments. Thanks, everyone, for participating in the call, for your coverage and support.

Amit Singh, Head of Finance and Investor Relations

Thanks, Juan. As we move into the question-and-answer portion of the call, I will announce your name. At that time, please unmute your line to ask your questions and remember to mute it again after you’re finished. Thank you. The first question today comes from Tien-Tsin Huang from JPMorgan.

Tien-Tsin Huang, Analyst

Great. Hope you can hear me. Obviously, great results as well. And I appreciate the update on the people side with some of the changes. So I wanted to ask, maybe start with the people question of, I think coming out of this earnings season, everyone, we've heard a lot about wage inflation and fight for talent. I would imagine your utilization is probably running pretty high as well. It sounds like no real COVID impact. So can you just maybe give us an update on how you feel about the people side of the equation in terms of cost, utilization? It sounds like attrition is under control. But I'm curious how you feel about your ability to meet some of the demand that you're expressing here with the raised guidance.

Martin Migoya, CEO

Yes, sure. Let me summarize. First, the recruiting power remains higher than ever. Well, it is higher than ever, and we're extremely happy with the amount of people we are recruiting right now. It's pretty amazing to see the number of net incomes that we are getting every quarter, as you may see here. Utilization is higher, of course, higher than before. And the environment of demand for the people also is hotter. And we believe that using all our tools, value proposition, uniqueness in terms of how we position our offer and our value proposition as employers will still have an advantage compared to our competitors in terms of how to attract, maintain and propose to our Globers a better value every day, as you have heard on some of the things that we explained during the presentation. And I believe that attrition remains stable. Of course, it's not as low as it was in the middle of the pandemic. But that's also connected with how the market is behaving in terms of demand. And we're seeing a pretty large demand. We are seeing not enough pressure on prices, which is interesting. So that's the full picture. Not really concerned about that. Of course, we're doing everything we do. And we will keep on improving, which is the most important part, keep on improving the value proposition for our current Globers and for our future Globers.

Tien-Tsin Huang, Analyst

Okay. Great. Then maybe as my quick follow-up then, Juan, just on the gross margin side, staying with that theme. Anything to call out for the second quarter or for the balance of the year?

Juan Urthiague, CFO

Yes. Thank you, Tien-Tsin. So for the second quarter and for the rest of the year, we continue to think that the 38% to 40% range, the target that we have set up long term all remains valid. If you look at Q1, we ended at 39.6%, slightly ahead of Q4 last year. During Q2 and Q3, we have salary increases, but also we have a business that is very, very strong and with utilization, we should be able to offset some of that impact. So I would say basically that we will continue to be within the range, 38% to 40%, and we will continue to have a very efficient organization in terms of SG&A. If you look at the operating income guidance, that we provided, it was 15.5% to 17%, slightly up from 15% to 17% that we were guiding in the last quarter. So overall, we think that the profitability of the Company is very strong, is solid.

Amit Singh, Head of Finance and Investor Relations

The next question comes from the line of Bryan Bergin from Cowen.

Bryan Bergin, Analyst

All right. So based on the growth performance, it would appear the majority of your client base is back to pre-COVID spending pace. But I'm curious if there are still parts of the portfolio that are not yet back to a normalized rate. If there are, where are those? And are you building recovery in those as well to the rest of the balance of the year and the guide?

Martin Migoya, CEO

Thank you for the question. The two sectors that are still not fully recovering are cruise lines, which we hope will bounce back soon as restrictions in the U.S. ease. The second area is airlines; some are starting to recover, while others are struggling to survive. I believe these are the two segments lagging behind. All other segments are experiencing growth, and I feel confident that these two will also recover soon. The media and entertainment sector, especially streaming, remains very strong, and in-person entertainment like parks and resorts is picking up rapidly. This reflects my current view, though I may be missing some details, but this is the key part.

Juan Urthiague, CFO

If you look at all the other industries, you are seeing very strong growth. We are experiencing robust demand and a high level of bookings. Aside from the exceptions that Martin mentioned, the rest of the business is progressing very well.

Bryan Bergin, Analyst

Okay. That actually dovetailed into a follow-up. I wanted to ask about just pace of bookings. Did it accelerate in the quarter from what you were seeing before? Did it maintain good pace? And any qualitative commentary you can give there?

Martin Migoya, CEO

Yes. Well, we've got a pretty large acceleration in Europe, in Latin America and also in the U.S., and we see that acceleration in booking being transformed into revenue. And as you've seen, the growth has been very significant, historic growth. And the guidance for the next quarter is also pretty solid. So that's connected to an acceleration in the demand. And that thing that we were talking, the pandemic really generated like a pretty. I would say, an interesting place for our services. And everybody is trying to get the things for tomorrow, everybody is trying to accelerate their projects. That doesn't mean, in my opinion, that it will slow down in the future because it's a trend that will never change now. And I believe that this is something that is pretty clear right now. I don't know, Pat, if you want to add something on the demand side.

Patricia Pomies, COO

Yes, of course. I think, I mean, we are seeing a strong demand in the gaming industry also. So there, we have been working with different partners in terms of how to, again, mitigate some other industries. In the space of the digital payments also, we are seeing a strong demand there. Online learning, of course, is something that probably is not going to change, not in the near future. I think that we have a strong demand there. Also, social networking. I think there are different kinds of verticals that also are being impacted for this post-COVID situation or at least in some of the industry, we are seeing very, very good trends in our pipeline and on the demands.

Amit Singh, Head of Finance and Investor Relations

The next question comes from the line of Maggie Nolan from William Blair.

Maggie Nolan, Analyst

Great. When you look at the Q2 guidance, one, when you think about the quarter-over-quarter change in the margins, I just wanted to clarify, is that driven mostly by the impact of salary increases? And is that a larger impact this year than you would have seen in years prior?

Juan Urthiague, CFO

That's an interesting question. In looking at the second quarter, you might anticipate a slight impact on gross margins due to salary increases. While the market is strong, we also need to boost utilization a bit, which should help mitigate that impact in the short term. Additionally, pricing discussions with our customers should contribute to restoring our margins to expected levels. So, I would say to expect a minor impact in Q2, though it likely won't affect operating income, which remains solid for the quarter. As we move through the year, we should be able to recover some of that through ongoing conversations with our customers. Demand is very strong, which will help offset some of the effects we encounter. I don't anticipate significant differences compared to previous years; after a calm Q2 and Q3 last year, we are returning to the pre-COVID conditions. This market is robust, with plenty of demand and an acceleration coming out of the COVID crisis during Q2 and Q3. We're seeing a return to a normal scenario like before COVID, albeit with a bit of additional acceleration, which does impact the labor market. However, regarding our capacity to attract talent, we've added 1,000 people, with about 900 being organic growth. We believe companies that offer great value to employees will continue to draw in talent. We have appealing projects, a strong culture, and are a unique organization. Over the past few years, despite a booming market, we've successfully attracted many talented engineers and designers. So, while we recognize that the market is more challenging, we believe we'll remain an attractive option for talent, as we have been in recent years.

Maggie Nolan, Analyst

Okay. Great. And then, Martin, in a scenario where you partner with a company like Apple, like you outlined in your remarks, can you give us some insight into how your team and their teams work together and where Globant is able to kind of take the lead and show their strengths?

Martin Migoya, CEO

Yes. It was an idea that we took together with the Apple team. And it took us a while, like a year, to finalize agreement with Apple and to be able to develop the application. And now this application can be sold to any health insurance company or any health-related company that wants to provide some kind of incentive for people to behave in a more healthy way. And it's an application that is mounted on the Apple Watch. And then when you use that application, we have the watch measure some of your things and activities, and then you get rewarded with discounts and many other things connected to your activity. And then how we get paid on that is pretty interesting because it's not because of the development that we did, but it's because it's connected to the amount of users, and it's a monthly payment for every user that we get. Is that clear?

Amit Singh, Head of Finance and Investor Relations

The next question comes from the line of Ashwin Shirvaikar from Citi. Ashwin, we can't hear you.

Ashwin Shirvaikar, Analyst

Can you hear me now?

Juan Urthiague, CFO

Yes.

Martin Migoya, CEO

Yes.

Ashwin Shirvaikar, Analyst

Cool. Good quarter, guys. I might have missed this. I was wondering if you could talk about organic versus inorganic growth in the quarter as well as the increment in terms of the outlook. And you made an interesting acquisition. I guess, another interesting acquisition recently, HABITANT, if you could talk about that.

Juan Urthiague, CFO

I can begin by addressing the organic and inorganic growth question, and then Martin can discuss the acquisitions. As you know, we work diligently to integrate the companies we acquire. For Q1, we estimate that organic growth was over 23%. For Q2, which we guided at approximately 55%, our best estimate for organic growth is around 37%. For the full year, which we guided at 39.4%, our best estimate of organic growth is roughly 27.5%. However, it's important to note that isolating the impacts of acquired companies during our rapid integration process can be challenging. Martin, would you like to add anything about the acquisitions?

Martin Migoya, CEO

Yes. We announced two acquisitions: CloudShift, which aligns with our strategy to enhance value in cloud operations, particularly with Salesforce. This expands our presence into Europe, where we've previously focused on Latin America, and we are seeing strong demand. Additionally, in the digital marketing sector, we see opportunities related to digital sales. By acquiring HABITANT, a leading digital sales company in Spain, we enhance our value proposition to customers and open up new segments for engagement. It’s essential to remember that organic growth involves consistently introducing new ideas to our customers, and these two acquisitions are fully aligned with that approach.

Ashwin Shirvaikar, Analyst

Understood. And then a second question. The recent organizational changes and sort of the bulking off of the structure, I thought, was very interesting. Should one think of that as a precursor to perhaps a relatively aggressive phase of global growth? You're basically preparing the structure for that?

Martin Migoya, CEO

Look, we have always been prepared for that.

Ashwin Shirvaikar, Analyst

Yes, I understand.

Martin Migoya, CEO

You're inquiring about our preparation for growth. This involves bringing in fresh talent and management into our teams. Most of these individuals have a longstanding history with the Company and have built impressive careers here, such as Diego and Pato. Additionally, we have welcomed new faces like Nicolás Kaplun from Accenture, and others who have years of experience with us, like Federico Pienovi and Fernando Matzkin, who are leading our efforts in Europe and the U.S. respectively. We're putting significant effort into strengthening our regional operations, which includes close collaboration between Martín Umaran, who is overseeing Spain, and Federico Pienovi, who has relocated to Madrid. We're redefining the organizational approach in Europe, with Guibert stepping in as President of Latin America and also leading Globant X, which focuses on strategic initiatives like Augmented Coding and other innovative platforms such as StarMeUp. This marks a substantial advance for our Company. As we progress, it's crucial for us to think innovatively; we aim to transform the industry, which requires evolution in our management. Diego Tartara, who also has deep roots within the Company, is part of this evolution. Our Board has also become more diverse, welcoming Maria Pinelli, a former partner at Ernst & Young and a valued customer who brings significant insights to our Board of Directors. We are gearing up for significant future developments, and I'm optimistic about the management changes and overall progress within the Company. While there is always room for improvement, we are readying ourselves for the exciting opportunities ahead.

Patricia Pomies, COO

Yes. I want to add something to that, Martin. I mean, I think that this reorganization has to do not only with, of course, preparing ourselves for growing. We are growing all the time. But the last couple of years, we had to reinvent ourselves many, many times. And all the time that we have done that is because we are hearing our customers, because they are asking different kinds of partnerships with us. So that means that we need to be prepared to be different or have different flavors in different areas. For example, EMEA, LATAM, U.S., I mean, we are being prepared to be closer to our clients, understand what they need, to be there with their culture, to be near them. And that has been our strategy for the last couple of years, being closer to our clients, understanding what they need, understanding how we can be prepared. And that means also this reorganization. In the case of operations, I mean, coming together with people, with performance and with the quality of the delivery, that has to do with one vision and working together as a team, understanding where our Globers are needing and when they need us and be there and prepare the business also to attend that. So I think it is important to have that in mind. We are reinventing the industry, and we are reinventing ourselves.

Amit Singh, Head of Finance and Investor Relations

Let's move to our next question, which comes from Surinder Thind from Jefferies.

Surinder Thind, Analyst

I guess the first question I'd like to ask about is just the visibility, and this is kind of a follow-on to the bookings question. Obviously, the magnitude of the beat was pretty big last quarter. So can you comment on that a little bit? And how we should actually view the guide as it suggests there's a sequential slowdown in terms of your organic growth?

Juan Urthiague, CFO

At the beginning of the year, the COVID situation was still affecting demand in various markets, including the U.S., Europe, and Latin America. It was challenging to predict the extent and speed of the recovery. However, the recovery turned out to be stronger than anticipated, which enabled us to exceed our guidance more significantly than in the past. We still face considerable COVID-related impacts in our delivery centers, especially in Latin America, India, and parts of Eastern Europe, where vaccination rates are not progressing as quickly as in the U.S. or Continental Europe, creating some uncertainty. Nonetheless, it is becoming more evident that companies less affected by COVID are accelerating their projects, contributing to the strong bookings we've witnessed in recent quarters. Going forward, we maintain our commitment to providing guidance that we believe we can meet or exceed. Although these times remain uncertain and require extra precautions, our business is robust, and we continue to see strong bookings and are hiring aggressively. We are preparing the company, as mentioned by Martin and Pato, for growth and greater global presence, which accounts for some of the employee and structural changes we've discussed.

Surinder Thind, Analyst

That's helpful. Switching topics to the ESG question, did I hear you correctly that you are carbon-neutral at this point, or is that a goal you are working towards? I just wanted to clarify that.

Martin Migoya, CEO

Pato, you want to take it?

Patricia Pomies, COO

Yes, of course. I mean, we are working this year in terms of being carbon-neutral. We have this plan, this program, Be Kind, that we launched a couple of months ago. And we have been very, very progressive in terms of the sustainability program. So we have built a sustainability studio in order not only to help ourselves but to be a sustainable company, also to help our clients and be closer to them to be sustainable. I think that the Be Kind to the Planet, that is one of the main verticals in this Be Kind program, has been progressing. So yes, in 2021, we are going to be carbon-neutral. And I think that is an amazing thing to celebrate also, of course.

Surinder Thind, Analyst

That actually sounds pretty wonderful. So just to clarify my perspective, is that primarily due to reduced travel, or are there other factors we should consider that have allowed you to reach this goal while others are struggling to do so?

Martin Migoya, CEO

It's a mix of factors. We're not planning to reduce travel further, as travel has already decreased due to the pandemic. We believe it will return, although not quickly. Our approach involves not only addressing our own carbon footprint as a company, which is fairly low with our activities, but also compensating for the carbon emissions generated by our employees. We're currently calculating the feasibility of this compensation model, aiming to ensure that working at Globant means receiving not only monthly pay but also carbon offsets that make an individual's annual impact neutral. We take environmental stewardship seriously, as it's one of our primary focuses. We recognize that neglecting this responsibility could lead to dire consequences. The Be Kind initiative, introduced by Pato, is crucial because it's about more than just the environment; it also emphasizes supporting diversity and inclusivity with specific commitments, such as training for women entering the industry and achieving gender parity in management roles by 2025. Additionally, we are committed to using technology for the greater good, avoiding applications that harm job creation. We have also added a fourth pillar focused on self-care, providing more resources for our team members to prioritize their physical and mental well-being. Pato, would you like to add anything?

Patricia Pomies, COO

Yes, of course. I mean, Be Kind to Yourself is the last initiative that we launched, and it has to do with, of course, start talking about mental health in the organization, right, inside the organization. And that means, of course, not only, of course, the taking care of your body, it has to do with mindfulness. It has to do with how we, as an organization, are taking care not only about our Globers; because we are feeling all the time that our Globers are in a context, in a family, in a different scenario. So as we see our Globers, we are seeing their families and their structure and how they are living on an everyday basis. So on this working-from-home scenario, we have put a lot of energy in this strategy, Be Kind to Yourself, giving them tools, understanding what their pains are, putting some psychologists in terms of having calls and trying to be closer to them so we can help them. I think all organizations should have this kind of conversation about mental health inside the organization. And that is something that we have been doing in the last couple of years, but we put a very strong effort in the last couple of quarters so I mean, in order to be closer to our Globers. That also has to do with the career path that we are building for our Globers and how we try to take care of them in terms of their professional career, also in terms of the Globant University. So I think it has to do with a mix of things that makes Globant a different culture and a very attractive culture for the new generations and for the talent.

Amit Singh, Head of Finance and Investor Relations

We'll move on to our next question, which comes from Steve Enders from KeyBanc.

Steven Enders, Analyst

Okay. Great. I just want to get a better sense of some of the acquisitions you made in the past few quarters and how you're seeing the cross-sell opportunity with those. And yes, if can you just start that, that would be great.

Martin Migoya, CEO

Thank you for the question. All of our acquisitions are performing well. Our strategy over the last few quarters has focused on enhancing our value proposition with new offerings, which is crucial. Starting with Bluecap, the Spanish company we acquired in the fourth quarter, this has significantly improved our relationship with financial systems across Europe. We are now expanding these offerings into Latin America and to some customers in the U.S. Similarly, with acquisitions like Sappia and CloudShift, which are integral to our cloud expansion with Salesforce, we see positive traction with nearly every customer as they appreciate the Globant approach. During the acquisition process, we carefully considered the cultural alignment and operational methods of these companies. Additionally, with gA, we are broadening our portfolio in health care and focusing on ERP migration and innovation, particularly towards cloud integration and enhancing internal processes within companies. The performance has been strong across various customers we already serve. Overall, the synergies from these acquisitions are vital, allowing us to extend their offerings to our more than 800 customers. I'm pleased with the progress of each acquisition, though we acknowledge that we cannot guarantee perfect outcomes in the future. However, we are satisfied with their current status.

Juan Urthiague, CFO

Just a comment on that. Again, very strong organic growth, Q1, Q2 for the full year. And then, of course, accelerated and combined with the new services and the cross-selling coming from acquisitions. The two things are performing really, really strong this year. So I think it's worth having that very clear.

Steven Enders, Analyst

It's great to hear. I have a housekeeping question to better understand the impact on the tax rate from the non-IFRS adjustment in the guidance.

Juan Urthiague, CFO

For the full year, we guided at $3.37 considering the tax impact and adjustments. Without the tax, based on our previous method of calculating adjusted EPS, it would have been $3.63. The tax had an impact of around 20 cents, but we believe this change enhances our reporting, which is why we decided to proceed with it.

Amit Singh, Head of Finance and Investor Relations

And given the time constraint, I'll ask for a few more questions. So let's move on to the next question, which comes from Arturo Langa from Itaú.

Arturo Langa, Analyst

I had two questions, but I will start with the first one. Do you see any impacts, both from operations and maybe...

Martin Migoya, CEO

Go ahead, Arturo. Ask the two of them.

Arturo Langa, Analyst

Yes.

Martin Migoya, CEO

Okay. In terms of the geopolitical situation in Colombia, we are concerned about what is happening there, but we do not believe it will affect our business. Everyone is working from home, and our team is safe, with no issues reported. We hope that the situation will gradually improve and return to normal. Now, regarding the other part of your question, Juan or Pato, please go ahead.

Juan Urthiague, CFO

Sure. So Arturo, we are investing here in Europe. It's been an ongoing investment for us for the last two years. We see no reason why Europe as a continent cannot be as big as the U.S., right? I mean, if you look at some of our peers, they are making billions out of Europe. So there is no limit. There's no size, no specific size that we're targeting. We know that we can grow significantly over the next several years in Europe. And there is no reason why that should not happen. I mean, we just need to keep focusing, keep on investing, bringing the right talent, buying the right companies, and we will get there.

Patricia Pomies, COO

Yes. Arturo, as Martin mentioned at the start of this Q&A, I believe we have assembled a very strong team in Europe, with one of the founders serving as President of EMEA and also engaged in corporate development. EMEA represents a significant market for us, and we are dedicated to strengthening our presence there. This is the most crucial focus for us right now. It has taken us a bit longer to establish ourselves in that region, but we have big ambitions there as well.

Amit Singh, Head of Finance and Investor Relations

The next question comes from the line of Vitor Tomita from Goldman Sachs.

Vitor Tomita, Analyst

So I'll start a follow-up on some of the previous questions. In a more general way, could you give us some more color on how you are seeing the drivers for the end at this point of the pandemic? So mainly, for example, if companies are being motivated more by seeking cost efficiency or by the need to innovate more customer-facing operations? Or more generally, whether there are any specific types of projects that are seeing the most demand?

Martin Migoya, CEO

Thank you for the question. Overall, what we're observing is a significant trend towards getting closer to consumers, which is our specialty. This trend spans various sectors, including automation, media entertainment, and pharmaceuticals. The pandemic has shifted our perspective, making us realize the necessity of eliminating intermediaries between brands and consumers. Consequently, we need to reformulate our sales strategies and gain a deeper understanding of our consumers. This is also evident in consumer packaged goods, where companies are increasingly looking to connect directly with consumers to enhance their understanding and emotional engagement. What began with Disney over a decade ago is now widespread across many industries, triggered significantly by the pandemic. As more sectors adopt this approach, we see it aligning perfectly with our investment strategy for future growth. How we redefine our connections to consumers will be crucial in remaining competitive. At Globant, we believe we have developed a novel way to engage these customers through AI, our studio model, and the autonomy of our pods, enabling us to offer services innovatively. Recently, I met with a real estate company that is now exploring blockchain to sell tokens linked to their projects, shifting from targeting large institutional investors to attracting a broader base, which is truly exciting and unprecedented.

Amit Singh, Head of Finance and Investor Relations

Perfect. So that will be all for the Q&A section today. Thank you all very much for joining. At this point, actually, I'll pass it back to Martin to please provide the closing comments. Martin, please.

Martin Migoya, CEO

Thank you, Amit. Well, thank you very much to everyone participating in this new format. Thank you to all those that didn't ask questions but participated in a way watching what we have to say this quarter. Looking forward to keep connecting with you and looking forward to keep driving Globant to the next level. Thank you, and see you next quarter.

Juan Urthiague, CFO

Thank you. Bye.

Amit Singh, Head of Finance and Investor Relations

Thank you, everyone.

Martin Migoya, CEO

Bye-Bye. Cheers.

Patricia Pomies, COO

Thank you.