Earnings Call Transcript
Globant S.A. (GLOB)
Earnings Call Transcript - GLOB Q3 2022
Arturo Langa, Investor Relations Officer
Good day, and welcome to Globant's Third Quarter 2022 Earnings Conference Call. I'm Arturo Langa, Investor Relations Officer at Globant. Please note, this event is being recorded and streamed live on YouTube. By now, you 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 answer to some of your questions. Such statements are subject to 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 results. I'd now like to turn the call over to Martin Migoya, our CEO.
Martín Migoya, CEO
Thank you, Arturo, and hello, everyone. It's great to be here to share our Q3 results. Globant continues to deliver on our commitment to grow and to be the best transformation partner for our clients. My team and I are identifying the strongest growth opportunities ahead and going for them. I'm looking forward to discussing our outlook with you. But first, let's begin with the financial results. In Q3, Globant brought in $458.9 million in revenue. This represents 34.2% year-over-year growth and 6.9% quarter-over-quarter growth. We continue to lead above the broader market. We are delivering strong revenue growth, robust profitability, and generating healthy free cash flow. Globant is fully committed to delivering 360 transformations with consumer-centric solutions. We execute this through smart process optimization that helps streamline operations and achieve maximum efficiency. Our service offering helps our clients improve their cost structures. Our end-to-end capabilities help them deliver innovative experiences for their customers, leading to better top-line performance and stronger returns. As we look forward, we do anticipate some challenges caused by macroeconomic and geopolitical uncertainty affecting the global economy. However, we are ready to turn these challenges into strategic opportunities. In today's complex operating environment, we see a greater emphasis on high return on investment spending. We have the expertise and unique offering ready to meet this need. End-to-end digital transformation projects continue to deliver some of the highest returns for our customers. They streamline operations while improving top-line KPIs. According to Gartner, 69% of CFOs aimed to increase their digital technology spending to be more efficient and resilient. We're confident that Globant is well positioned to face this market opportunity. We look forward to helping our clients reinvent themselves and navigate these times. Moving forward, we will be investing in our people, new markets, our brand, and growth areas. We will keep growing, and our fundamentals remain strong. We also have a solid pipeline of projects in the near future, and we have become leaders in growth markets such as media, entertainment, health care, and life sciences. Gartner recently named Globant as the fastest-growing IT services company worldwide when looking at the full-year performance for 2021. Also, Frost & Sullivan recognized Globant as the Company of the Year for 2022 in the global digital transformation services industry. They credited this recognition to our unique studio model, the innovation hub of Globant X, and our autonomous culture. Globant now has over 26,000 employees present in more than 20 countries. As we continue to execute our main growth pillars, we deliver a deeper and broader array of services and products. I'll begin with the growth pillar of our geographic expansion. We will have a more targeted and aggressive focus on expanding in Asia Pacific and the Middle East. We have created a new regional leadership specifically focused on this market who has already been serving our customers there. As a new step in this endeavor, today, we have announced the acquisition of eWave, iWeb. Born in Australia, eWave is a digital commerce experience consultancy. They are an award-winning Adobe Platinum Partner and a Salesforce Gold Partner. eWave will reinforce Globant's digital commerce capabilities and support the company's expansion in Asia Pacific. They have offices in Australia, Hong Kong, and Singapore, and they have delivery presence in seven countries in the region. eWave has an expansive portfolio of B2B and B2C clients. They implement end-to-end digital commerce transformations in many industries and service areas, including CX design, platform engineering, optimization, and growth. Finally, we see eWave's passion for digital transformation and its culture with a global mindset as a great fit for our team. They will be valuable partners in the next stage for Globant. We're also expanding our network of clients and talent in the regions where we already work. This quarter, we expanded our presence in Italy through our acquisition of Sysdata. We're now present in all of Western Europe's five largest economies. Sysdata provides advisory capabilities and services to blue-chip companies in data analytics, business intelligence, mobile apps, and other fields. Having a bigger local team in Italy is a great step for Globant because it brings new clients such as Maserati. It will add to our relationship with our current clients there that include UniCredit and Allianz. Now to our family of studios. They continue growing, evolving, and adapting to the latest technology trends and market needs. In today's environment, companies need to accelerate their digitalization, especially in the areas of cost optimization and process efficiency. We have created a new cluster of studios for enterprise platforms to take advantage of this opportunity. This cluster consolidates our alliances and efforts with Salesforce, SAP, and Oracle. All of our finance platform specialists will be working closer together in order to support clients' reinvention from their own core. This involves improving process optimization as a backbone of the organization while taking into account the ever-changing context for every industry. As you may remember, last August, we launched the Fast Code studio upon the incorporation of GeneXus. Our aim is to boost new ways of creating low- and no-code software. This is also an applicable tool for clients that need to reduce time and cost when developing and deploying products. There is a particular market opportunity that we see right now due to the demand for efficient time to market and the growth sector of super apps. With the recent release of GeneXus 18, we now have the first enterprise-grade platform for low-code development of native super and mini apps. We have trained over 5,000 Globers in relevant specialties of the space, including UX and business analysis. As we grow, our products and platforms continue to consolidate their own identity and recognition with our client community. Let me share some quick updates on some of this. We are seeing growth in our visual testing platform, Magnify. Many of our clients are renewing and increasing their usage of the tool to improve testing quality so that they develop better products faster. Manual testing processes are being significantly reduced. The Software-as-a-Service version of the product was launched in October, and we will expand the features in the months to come. Our platform, Augoor, which accelerates the way to create code, also continues to grow. After a year of implementing this tool at Globant, software development has become faster and more efficient. We look forward to seeing this efficiency multiplied through the services we offer our clients, positively impacting their development costs. Now some thoughts on growth areas that we are very proud of. As you may remember, in 2020, we launched our Smart Bene concept. This vision is to reinvent the user experience in live sports and entertainment through technology. After the exceptional digital adoption following the 2020 pandemic, we have seen the growing need for this transformation. Fans now demand more, and they should. In Q3, we scored significant goals in turning this vision to life, landing some exciting new projects. In late September, my team and I went to Spain to publicly announce our joint venture with La Liga, Spain's top soccer league and one of the largest in the world. Together, we will leverage Globant's experience in delivering industry transformation with La Liga's expertise in global sporting events. We're creating a new global technology company that will deliver digital reinventions to sports organizations by leveraging Web 3.0 technologies, metaverse, and gaming capabilities, among other fields. three weeks later, we announced a multiyear partnership with FIFA to become the global platform supporter of FIFA Plus, their signature content app. This agreement gives us global exposure for our brands. Globant will be seen on the screen during every World Cup match. This is a significant step for us. We strongly believe in the power of sports in bringing people together and the key role that technology plays in doing so. Finally, I admit that I am a soccer fan, but I'm excited that Globant will be working on other sports as well. We have signed a multiyear partnership with the Los Angeles Clippers to provide the game-changing digital platform for their new Intuit dome opening in 2024. Globant will turn Steve Balmer's vision of a digital fan-centric experience into reality. It is an honor to be working on this transformation to create such a meaningful and seamless user experience. Our goal is to achieve maximum benefit for staff, players, and fans. In addition to these exciting new projects, I'm happy to see Globant's vision of tech trends and our society shared with our audiences. On November 2, we hosted our eighth annual Converge event. It is an opportunity for Globant to bring together some of the world's creative and leading voices. This year, we focused on the issue of reinventing connections to explore how technology is changing the way our society interacts. I, myself, had the pleasure of sitting down with Bob Iger, former Disney Chairman and CEO. We had a great conversation about the future of technology, the constant pursuit of perfection, and Disney's reinvention. Some of my colleagues had similar talks with thought leaders, including Arianna Huffington, Karlie Kloss, and Refik Anadol. The recording is available at converge.globant.com. Closing out, I continue to believe that we are among the most dynamic, innovative, talented, and diverse organizations in the world. We're constantly reinventing the way we offer our services and products, as well as how we structure our teams to take advantage of every opportunity. I am confident in the future and in our continued expansion and growth. It is a pleasure to work with our Globers, who broaden the horizon of digital transformation every day. With that, I'll turn it over to Diego Tartara, our Global CTO. Thank you very much.
Diego Tartara, Global CTO
Thank you, Martin, and hello, everyone. It's great to be back with you to discuss the evolution of Globant's technology offering. We're making exciting advances into new technologies and platforms for our clients. We're also providing them with the solutions to improve their systems and platforms to optimal efficiency. I'd like to begin with a closer look at what Martin mentioned about our studios. We launched two new enterprise studios for SAP and Oracle. As Martin mentioned, they will become part of the enterprise platform studio cluster together with Salesforce and process optimization studios. This cluster will help current and prospective clients increase productivity, reduce costs, and maximize their business results. Now, some new developments regarding our current studios that are reinventing the game for our clients. Our Healthcare and Life Sciences studio is capitalizing on opportunities in each sector, now that technology and life sciences are completely intertwined. This studio is working with a British multinational pharmaceutical and biotech company. We're helping them to develop a virtual contact platform that expands the reach of doctors who today are not accessible due to geography, relocation of resources, among other reasons. This industry reinvention studio has earned recognition for its work. In September, Quadrant Knowledge Solutions named Globant an industry leader in the 2022 Park matrix for health care IT services. They highlighted our low- and end-to-end consulting capabilities to enhance customer impact and service excellence for clients as the reasons behind their recognition. In Financial Services, business ecosystems are notoriously complex and undergoing a transformation through technology. We have been expanding and leveraging our expertise in global clients through our finance studio. This team is leading business transformation and advanced analytics with proprietary models, helping clients to optimize data usage and quickly adapt their management models. This studio is currently working with a top 10 European bank that offers a full range of financial services for 15 million individual customers and about 500,000 companies in several European countries. Globant is carrying out a transformation in digital lending for their SME segment. We're helping transform the full end-to-end experience and go-to-market value proposition for SMEs. The customer experience is now more efficient and improved for optimum satisfaction. Through AI technology and advanced analytics, we are assisting in reinventing these clients' credit and lending decisions, which is particularly important during times of higher interest rates and market volatility. Now, some news regarding our sustainable business studio. Globant launched this studio in 2020 because we understand the role that disruptive technologies can play in closing sustainability gaps. The studio has been providing solutions that achieve both a stronger strategic focus as well as an incorporation of sustainable processes. This quarter, the studio performed a research initiative for Inmarsat, the world leader in satellite communications, to explore the positive impact of space technology towards the net zero emissions goal. The findings revealed that existing satellite technologies could save up to 5.5 billion tonnes of CO2 per year. This is particularly encouraging because it brings us one step closer to creating a pathway to reach net zero emissions by 2050 - a goal that is looking more possible through consistent global education and implementation from both the public and private sectors. As leaders in technology, we recognize that our own company can have a multiplier effect in the global effort to help the planet. This is made possible through education and training. We're now providing company-wide green IT training to both inform and inspire our global team. Just as we had our entire company training on both AI and blockchain in recent years, regardless of their focus area, they now will be encouraged to design and develop digital solutions according to low-carbon tools, processes, and best practices. The training offers education fundamentals, green software, and digital sobriety. It provides sustainable coding practices for Web UX, mobile, and back-end specialists, and best practices to efficiently create and manage data, optimizing cloud infrastructure in terms of both cost and energy consumption. Now, some additional context on exciting projects for some new clients. Our work with FIFA aims to supercharge the growth of the FIFA+ streaming platform. Globant will create new features and connected experiences for FIFA users while supporting the platform's distribution. By doing this, FIFA will be able to exponentially increase the viewership of its official content while allowing fans to share their preferred content with friends and family on larger screens. As you heard earlier, we were selected as the official digital transformation partner of the Intuit Dome, the new home of the LA Clippers. When completed in 2024, it is expected to be one of the most technologically advanced smart venues in the world. Globant has begun to co-develop the digital roadmap for the brand-new arena. We will apply our most disruptive technologies to bring to life a new user experience that includes seamless ticketing, personalized loyalty programs, touch-and-go payments, point of sales, among other features. Globant's differentiation is that we are offering all of these different services in a cohesive 360 implementation package in an extensive and close partnership with the L.A. Clippers. Also in North America, we are partnering with Amazon Web Services to enable a large-scale cloud transformation for Stryker, one of the world's leading medical technology companies. We are working on voice communication services for their nearly 2,000 institutions, which include hospitals and healthcare facilities throughout the world. We are planning to offer these services through a highly scalable multi-tenant solution via the AWS Cloud. Globant is playing a key role in transforming the existing monolithic IP service into a microservices architecture, enabling Stryker to add new customers at twice the previous speed, saving them millions of dollars over the next three to five years. In Latin America, we are working with Grupo Riquelme, a multinational retailer with operations in that region, to carry out a major expansion plan. Their ambition for both organic and inorganic growth presents the need and opportunity to redefine the operating model and technology strategy to accelerate the fulfillment of the group's business objectives. Our joint work includes a brand-new IT strategy, an organizational group that leads several quick-win business cases, and a roadmap that will help Grupo Riquelme transform their IT to support their business ambition. In Mexico, we're working with a leading retailer that approached Globant because they wanted to enter the fintech space. We developed a virtual wallet and enabled the company to issue its own debit card for global purchases and ATM withdrawals. This has enormous multiplier potential in Mexico, where 60% of the population remains unbanked. Globant carefully designed workflows to meet the goal of creating a banking interface that offers the best user experience, understanding that many of the users will be using such technology for the first time. Within the first month, more than 5,000 digital accounts were opened, and the growth has been exponential. By the end of the fourth month, 180,000 monetary transactions were carried out. Today, it is being used by almost four million people. It is a true honor for Globant to be working on this business because of the financial inclusion it provides to society. Now, some updates on our exciting work for Nissan. In 2019, Nissan chose Globant as a partner to support its global customer experience vision based in London. Today, our teams work together in Europe and the Americas in support of the Nissan Ambition 2030 aimed at empowering mobility and beyond for a cleaner, safer, and more inclusive world. We're also working with them to reinvent the customer experience of buying a new car, enabling them with technology to improve and add new touchpoints. In October, we hosted the global Nissan Customer Experience Summit at our new flagship office in London. Over 70 Nissan executives were in attendance from all over the world. With that, I'll hand it over to Pat Pomies.
Patricia Pomies, COO
Thanks, Diego. Hi, everyone. I'm happy to be with you all again. Let's begin with the breakdown on revenue. The LTC company continues to be our largest client, growing by 25% year-over-year and 8.6% quarter-over-quarter. The rest of our accounts collectively grew by 35.4% year-over-year and 6.7% quarter-over-quarter. Our 100-square strategy continues to show results. Over the last 12 months, we have 13 accounts that brought in more than $20 million of revenue compared to 11 from the same period the year before. We also have 255 clients with more than $1 million of annual revenue compared to 162 a year ago. Regarding our geographical distribution of our revenues, in Q3, 64.9% of revenue came from North America, 21.9% from Latin America, 10% from EMEA, and 3.2% from Asia and Oceania. While fully committed to building relationships with new clients, we also see strategic value in accessing the networks of our current clients as an effective way to grow. That's why we continue to focus on the Net Promoter Score. We use this to measure how our clients refer us within their communities. Over the last 12 months ending in Q3, Globant showed a Net Promoter Score of 74. This is four points above the score announced in Q2 comparing the previous 12 months. Generally, the Net Promoter Score is consistently above 75 and well above the industry benchmark of 41. We remain committed to delivering our projects with operational excellence and high quality. Now to headcount. Our global team continues to expand. In Q3, our total headcount reached 26,541 Globers, with 24,922 of them being IT professionals. This marks a 21.5% year-over-year growth. Globant's annual attrition rate is currently at 18.5%. It's the lowest in two years and 140 basis points below Q2's annual figure. Talent continues to choose Globant. We offer some of the most engaging projects anywhere in the world and the chance to work on the latest transformation that enable long-term career opportunities. Moving forward, we will continue to strengthen and foster our corporate culture of putting people first with an emphasis on kindness. We want to ensure the well-being of our Globers so that they achieve the best version of themselves. That's why we regularly listen to our teams to customize our value proposition and redefine the workplace experience, compensation, and benefits accordingly. In July, we surveyed our Globers in a periodic engagement pulse, over 80% responded that they were feeling really well physically, mentally, and emotionally. This is great news for our efforts to make this company a great place to work. However, it also speaks to the importance of talent as a strategic asset for Globant. I'm pleased to see that Globant's talent center strategy is being recognized in the markets where we work. In Latin America, home to 74.6% of our Globers, we recently received several recognitions. In Mexico, others ranked us among the top 10 best employers in the country. Employers for Youth recognized Globant among the best employers in Costa Rica, Peru, Brazil, and Chile, and number one in Ecuador. Our Globers continue to find new opportunities within the company. Our open career platform launched in March has been an effective tool in diversifying the talent opportunities right here at this company. It offers Globers an agile and intuitive way to apply for new positions, geographical areas, and career challenges. Over 6,000 Globers have applied to find new opportunities within the company. Additionally, Globant University is constantly growing to provide upskilling and career-long learning. During Q3, we launched an AI engine on our digital campus to intuitively suggest new content every day to our Globers and the social learning forum to boost educational exchange. Roughly 22,000 Globers used this. And now to the pillars of our Big Kind initiative, which continues to drive Globant's relationship with all of its communities. As I mentioned during the last earnings call, our Bill awards Globant's recognition to support and promote the development of talented women leaders in technology, is back for a third edition. More than 1,200 women from 50 countries were nominated in our five categories: Board Executive, Digital Leader, Tech Entrepreneur, Rising Star, and Techfluencer. They received more than 110,000 votes from all over the globe. I look forward to sharing with you some of the amazing women leaders that will be recognized in the coming months. Now some exciting updates on our Big Kind Tech Fund. You may remember that we launched this last year. This fund is unique in the world. It is especially focused on supporting startups whose business is to provide solutions to some of the negative effects of technology. Today, we are proud to announce that the fund is investing in Polemic. This is the first platform to introduce Web 3 technology to the world of ideas and opinions. The startup's mission is to upgrade how people support and oppose opinion leaders, disrupting the echo chambers cultivated by traditional social media platforms by automatically showing different viewpoints on their leaders' opinions and financially rewarding detractors who engage in a smart and civilized debate. As the fund's mission continues and its network grows, we are happy to have more institutions joining forces with us. The MIT Sandbox Innovation Fund is partnering with our Big Kind Tech Fund to raise awareness among students about negative effects of technology. Their aim is to encourage them to develop ventures that tackle issues such as AI biases, online harassment, abuse, and polarization. Our signature scholarship program, Coding Future, continues to expand. This scholarship includes access to talks, boot camps, and global courses to boost employability. In Colombia, currently Globant's largest talent market with nearly 5,700 Globers, we launched a special edition of this program called Empoderate in collaboration with the Bogota City government. The aim is to provide educational opportunities and employability to the population affected by the internal armed conflict. We will be giving scholarships to 500 people to give them a pathway to work in the sector. Before the end of the year, aligned with our public commitment to granting 15,000 Coding Future scholarships by 2025, we will be offering at least grants for an 8-month training process to people from Latin America, 50% of which will be offered to women. I'm proud to see that these educational efforts are being globally recognized. In October, Fortune magazine included Globant for the first time among the top 50 companies with ideas that are changing the world due to the profound social impact of the Coding Future program. And with that, I'd like to hand it over to Juan Urthiague, our CFO.
Juan Urthiague, CFO
Thank you, and good afternoon, everyone. I hope you're all doing well. Let me first recap the solid results for the quarter. Then I will provide our guidance figures for the fourth quarter and the full year 2022. We are proud of the financial results delivered in the third quarter. We managed to post another quarter of strong growth, profitability, and cash generation. Every Glober's effort across the organization is reflected in our results today. Also, we want to thank each and every one of our clients for the trust placed in Globant. Our revenues for Q3 were $458.9 million, representing a 34.2% year-over-year growth. On a sequential basis, our revenues for the third quarter of this year increased 6.9%, and Q3 revenue growth was 36.7% year-over-year in constant currency, 2.5 percentage points above our headline figure. Inorganic contributions to growth stood at three percentage points in the quarter. Our business model continues to prove resilient in this macroeconomic environment. We continue to assess the increasingly complex economic outlook and observe that growth is moderating towards historic averages after an exceptional period of growth during the pandemic years. However, we continue to see our long-term growth drivers as unchanged, and we continue to believe that we are in the early stages of a multiyear secular growth trend. Under the current environment, we see a greater potential for our service offering because it is expensive and adaptable to client needs. Globant's value proposition continues to be unique in the industry. We continue to see technology as a solution for a wide array of challenges being faced across the business landscape. Our premier end-to-end capabilities continue to drive high ROIs for our clients, while our port delivery model allows us to adapt quickly to market conditions. Also, our focus on robust delivery and client satisfaction, coupled with a global and diversified delivery model, are all factors contributing to why our clients continue to choose to work with us. We believe some of these factors are reflected in our growth rates, which remain amongst the highest in the industry. We remain focused on our profitable growth formula. Our adjusted gross profit for the period increased to $179.6 million, representing a 39.1% adjusted gross margin unchanged quarter-over-quarter. As we manage both the demand and supply equation, FX hedges, wages, and pricing, we target to deliver to our clients high value-added services and to our shareholders and stakeholders above industry average growth. Our gross margin levels continue to reflect the value that our clients see in our services relative to the rest of the industry. Adjusted operating income for the quarter amounted to $73.7 million or 16.1% of revenues, flat quarter-over-quarter. Adjusted operating margin for the first nine months of 2022 stood at 16.3%, relatively unchanged on an annual basis. We are proud of these results. After nearly tripling the company's revenues since year-end 2019, we have also managed to preserve profitability levels. We are excited about what lies ahead, and we are convinced that growth opportunity is still immense. We will continue to invest to capture that growth. We are excited about building a more famous brand, executing on our 100 square strategy, enhancing our global delivery and our studio model, and reinventing the industry through Globant X. Regarding below-the-line items, our IFRS effective tax rate for the quarter was 21.9%, largely in line with our guidance. Adjusted net income for the third quarter of the year totaled $54.7 million, representing an 11.9% adjusted net income margin. Adjusted diluted EPS for this quarter was $1.27 based on 42.9 million average diluted shares for the quarter, $0.03 above our quarterly guidance of $1.24 per share. Adjusted EPS for Q3 implies a solid 29.6% year-over-year growth. We continue to execute our balance sheet management and capital allocation priorities. We believe that our balance sheet is strategically suited to fund our growth ahead at a time in which the market is starting to offer attractive opportunities inorganically and organically. Our cash and cash equivalents and short-term investments as of September 30, 2022, amounted to $369.2 million. Currently, our credit facility of $350 million is fully undrawn. We continue to carry a net cash position in our balance sheet, which, coupled with our organic operating cash flow generation, should provide ample and attractive funding to support our organic and inorganic growth strategies in the short term. We posted a strong quarter in terms of cash generation. Cash flow from operations for Q3 2022 was $76 million, while capital expenditures in the quarter amounted to $30.1 million. From a free cash flow perspective, we generated $45.9 million, representing 84.1% of our adjusted net income for the quarter. At the end of Q3, DSO was 76 days, in line with the same quarter one year ago. Overall, third quarter 2022 reflects the outsized growth and above-average profitability of our company and a solid free cash flow generation, continuing our commitment to deliver value to all our shareholders and key stakeholders. We remain committed to our profitable growth formula. Now let's talk about our business going forward. I would like to share with you our updated outlook for the full year 2022. Despite the current macro uncertainties, we continue to be positive about the growth opportunity for Globant and our industry. Based on current visibility, we are increasing our full-year guidance to $1.778 million or 37.1% year-over-year growth. This guidance figure considers approximately two percentage points of FX headwind. This full-year guidance implies Q4 2022 revenues of at least $488.5 million, or 28.6% year-over-year growth. Full-year and Q4 adjusted operating margins are expected to be in the 16% to 17% range. The IFRS effective income tax rate is expected to be in the 22% to 24% range for both Q4 2022 and the full year 2022. Adjusted diluted EPS for the year is also increased and is now expected to be $5.06, assuming 42.8 million average diluted shares for the year and implying an adjusted EPS for Q4 of $1.38, assuming 43 million average diluted shares outstanding for the quarter. Thanks, everyone, for participating in the call, for your coverage and support.
Arturo Langa, Investor Relations Officer
Thank you, Juan, and hi, everyone. So with that in mind, I'd like to take the first question from our audience from Tien-Tsin Huang from JPMorgan. Please go ahead.
Tien-Tsin Huang, Analyst
Yes. So the fourth quarter outlook was encouraging; nice sequential growth. Is there a way to maybe help us understand what's changed in the last 90 days with respect to what you had for the fourth quarter? I know the FX has moved. You have the acquisition of eWave? I just want to make sure we understand what's changed.
Juan Urthiague, CFO
Sure. So thank you, Tien-Tsin, for the question. Over the last couple of months, as you know, we have closed the acquisition of eWave, and at the same time, we continue to expand organically our business around the world. We continue to see strong growth ahead of us. And as you know, we updated our guidance both for the full year and for the fourth quarter, raising it now to 37.1% year-over-year basis and 28.6% for Q4. The macro environment has changed a little bit. We continue to see some companies working on the budget for 2023 and maybe taking a little longer to close that budget. But overall, we continue to see growth ahead of us, and the Q4 guidance, I think, is a very solid number. It's pretty much unchanged from what we guided in the previous quarter.
Tien-Tsin Huang, Analyst
Okay. Great. Glad to hear. And then I know you mentioned Disney clearly grew very quickly. But looking at clients two through five or two through 10 in general, any surprises there? It looks like it was down a little bit sequentially. Curious how broad-based that is? Any interesting call-outs or considerations?
Juan Urthiague, CFO
This may have had an amazing quarter with us. We grew 8.8% sequentially. But as you said, in the other two brackets, two to five and six to 10, you see actually two particular customers that, in one case, are in the travel sector and the other one is in the financial sector, both of them in Latin America. In the case of the travel company, it's a very big project that we have been working on for the last three, four years and expanding that relationship significantly. That project is now moving into an ongoing evolution phase. And while we continue to work with them on finding new investment ideas and opportunities, the level of growth in that account came down a little bit. The other one is, again, a financial institution in Latin America. So it's very specific to those two customers. All the rest of the customers in the top 10 have grown in line with the company and Disney, as you said, had a very good quarter, something that we also anticipated back in August when we had our previous quarter.
Arturo Langa, Investor Relations Officer
So our next question comes from Ashwin Shirvaikar from Citi.
Ashwin Shirvaikar, Analyst
Thank you and good quarter. My first question is about headcount. It seems that growth has slowed somewhat. Are you evaluating the demand environment and adjusting your approach, or becoming more cautious? Can you share your thoughts on headcount growth moving forward? Additionally, please consider factors like attrition and utilization in your response. How do you expect those to trend?
Juan Urthiague, CFO
Sure. Thank you, Ashwin, for the question. The level of hirings and the level of net additions are always a combination of higher attrition and utilization levels. In the current environment, while we continue to observe how budgets are going to be approved for next year, we have been working on the utilization number, which went up more than two percentage points during this quarter, working also on the attrition level that came down from 19.9% to 18.5%. We will continue to monitor all the macro variables combined with how the industry evolves and be flexible in the number of people that we attract or hire in a particular quarter. We still have room to grow on the utilization level. We still believe that attrition numbers can come down, and we will continue to monitor all the macroeconomic variables and how our customers continue to perform and be flexible and ready to accelerate hiring as soon as we have more clarity into the future.
Tien-Tsin Huang, Analyst
Understood. My other question is about the new studio announcement regarding Oracle SAP. It seems very promising. Are you entering more regular system integration type work, similar to what other traditional system integrators do? How will you differentiate the type of work in this area?
Martín Migoya, CEO
Thank you, Ashwin. I may take the first portion and then I will let Diego take the other. Look, this is something that our customers are requesting from us. They love the way we work, and they love how we integrate our teams and maintain our culture. We have seen significant growth in this specific segment during the past years, and we decided to invest in a new set of studios as a natural evolution. When you start working on the front end, then you need to work on the back end to be able to connect that to the back end. But then the teams doing the back end see new ways of doing things, and we want more of this. And this is happening with client after client, yielding a new way of doing things that were previously done differently. So that's the dynamic that is occurring. I think clients are pushing us more than us pursuing that in a proactive way, but we are very happy with what's going on, and I think we will be investing more in that specific space because there's a lot to change and a lot to reinvent, and Globant's signature is extremely important in that space where status quo is the key to the sector.
Diego Tartara, Global CTO
I think you pretty much covered it. I just want to add that I think there is currently a mixed conception regarding platforms being cookie-cutter or how you implement software. Platforms have become very robust, but also they allow you to go beyond what they used to. Today, you have platform accelerators that are great in terms of achieving fast time to value while also allowing companies like ours to specialize in implementations to create remarkable experiences. That's how we're aligning and partnering with these platforms in every specific sector. Just as an example of that, eWave has given us considerable expertise within the Salesforce cloud commerce sector, reinforcing our knowledge. This is, again, I think what brings us to enhance end-to-end capabilities, while conserving the DNA of Global, which is reinventing industries, creating the best experiences, and connecting with clients.
Arturo Langa, Investor Relations Officer
So our next question comes from Moshe Katri from Wedbush. Moshe, please go ahead.
Moshe Katri, Analyst
Very strong results. Congrats. Two questions. The first one on Disney. So Disney had very strong results for the quarter. Do you have any preliminary comments on how, what should we expect from Disney in the calendar? I'm assuming you're having some discussions with various units that you're dealing with, but any color here could be helpful.
Martín Migoya, CEO
Yes. We believe and we are positive about the long-term relationship we have with them, and we see the relationship growing. We are ranked among the top partners that they have. We work very hard for that to happen. So we feel that the relationship will keep on expanding in different areas and different places. What we see is parks being very robust in terms of activity. On the other side, on the direct-to-consumer side, things are also healthy in terms of new developments. Overall, I believe that next year will be a positive year for Disney, too, and next quarter, of course. So this is what I'm seeing right now. I don't know what's going to happen in the future with the macroeconomic situation, but I believe our relationship with Disney is great, and the company overall is in very good shape.
Juan Urthiague, CFO
If I can add something there, Moshe. If you look at our growth with Disney, in this quarter it was very solid, 25% year-over-year. But also if you look at the growth to the end, all the rest of our customers had solid growth as well. Our top 10 accounts now account for 34% of our revenues, coming down from almost 40% a year ago. The point I want to make here is that sometimes growth may be driven by some of the top accounts, including Disney. Other times we have a great portfolio of customers that may be in the 11 to 40 or 11 to 50 that can also contribute to that growth. The fact that now our top 10 is a smaller percentage allows for flexibility to grow in multiple parts of the organization. The reality is that a proportion of our revenues comes from public companies, which creates a great opportunity for us to keep expanding and growing our business; it doesn’t depend on just one customer.
Moshe Katri, Analyst
I appreciate that. As a follow-up, Martin, at the beginning of your introduction, you mentioned that some companies are starting to focus more on return on investment or ROI. Are some of your peers also noting that their clients are shifting away from a growth mindset and becoming more cost and ROI-focused? Is that something you are observing? And is that altering the type of work you are doing for your enterprise clients?
Martín Migoya, CEO
No, it's not changing. I believe that focus is because we can provide an increase in revenue and efficiencies when it comes to costs at the same time. We are that kind of company that has historically worked on how to increase revenue. Now we have a very efficient model of delivering technology from many different places in the world, but not just that—we also have tools like Magnify, Augoor, and all of our offerings to accelerate and multiply efficiencies within the same teams producing what we develop. So I think those two factors combined are what I refer to when saying customers are focusing more on return investments. It's not just about creating more revenue; now it's about being more efficient too.
Arturo Langa, Investor Relations Officer
So our next question comes from Ernesto Gonzalez from Morgan Stanley. Ernesto, please go ahead.
Ernesto Gonzalez, Analyst
Hi. Thank you for taking our question. We would like to get your thoughts and expectations on how talent management layers in the global tech industry have accelerated. How do you believe this could impact your ability to staff personnel and your attrition costs? Also, are there differences between labor markets or regions in general?
Martín Migoya, CEO
So the first part of the question, I didn't get it. I don't know if...
Juan Urthiague, CFO
Yes. What is the impact of delay of the tech sector on our business? I think Pat is going to take.
Patricia Pomies, COO
Okay. Thank you for the question. The market is still strong. Technology is in high demand these days. I think that in terms of how it's impacting our human talent, it's not direct these days. We have invested in how we handle our talent at Globant for the last couple of years by putting people at the center of the organization, and that has yielded results in terms of lower attrition. As you can see, we expect attrition to remain at the same levels for the next quarter and to continue being lower. I think that in the macroeconomics and circumstances happening, some companies in the tech industry are making layoffs, but Globant has been doing well in keeping our talent through these years, especially amidst the pandemic. We are also keeping that in mind. The demand for tech profiles in Latin America remains very strong, and we have been able to be recognized as the top employer in many countries in recent months. The relationship we have with our employees has been great. Our engagement surveys have yielded very positive results. So the kind of relationship and opportunities we give our employees is favorable. We are closely monitoring our KPIs in terms of utilization and attrition.
Arturo Langa, Investor Relations Officer
So our next question comes from Kate Carsten from William Blair.
Kate Carsten, Analyst
Congrats on the quarter. Diving into the talent area a little bit more. I know that hiring has slowed, but I'd like to know when you do hire now, are there certain skill sets that you're prioritizing when you do hire?
Patricia Pomies, COO
Well, of course, I mean, these days, the idea has not been that we are prioritizing skill sets different from a month before. The demand is strong for us, and there is a specific profile we have been exploring for the last couple of years that have to do with the right talent for Globant. The platform offers people not only to stay in one project or one career forever—they have the chance to work with many clients and have accessibility to go wherever they want. That is the kind of skill set we are looking for these days related to a company that wants their employees to grow faster than ever and be the best versions of themselves. That is the type of talent we are pursuing. Over the last months, we have been closely working with some specific countries facing crises to identify the right people who can grow with us. We have also reorganized some of our structure in recent months to better approach our clients, which aligns with the kind of management we are leading in front of clients. The 100-square strategy is an example of this. It places our best talent next to our clients to be partnered with them. The key is truly people who are curious and want to learn while keeping pace with a company that is growing as fast as can be indicated by our recent results.
Kate Carsten, Analyst
Great. That is helpful. I noticed you mentioned you are putting a targeted focus on Asia Pacific and the Middle East. Can you talk to me a little bit more about the opportunities you see for Globant in those areas?
Martín Migoya, CEO
Yes, sure. I can take that one. I think that Asia Pacific for us has been an area that has been absolutely underdeveloped in the past. Some time ago, we decided that this should change and become one of the main areas for expansion. So we started with acquisitions like we did today, announcing the acquisition of eWave in Australia. They also have operations in Singapore, Hong Kong, and other places, which will help us. Additionally, when we acquired GeneXus, they had an operation in Japan that will complement these operations. I believe there's a significant opportunity there when you add Asia Pacific plus the Middle East and other countries in which we operate that were sometimes not taken, like India. Overall, when you consider all of those factors, it represents a significant market where needs are quite similar to what we serve to our customers in the U.S., in Europe, and in Latin America. So I think it's a good vector for growth for us moving forward.
Arturo Langa, Investor Relations Officer
So our next question comes from Surinder Thind from Jefferies. We'll jump back to Surinder. But our next question comes from Bryan Bergin from Cowen.
Bryan Bergin, Analyst
As you kind of look forward here and scenario plan for what may come, can you just talk about current levels of visibility in the business? How do you think about the impacts of potential recessionary pressure? And is there any simplistic way to segment the mix of work that you're doing that might be more exposed versus what's more durable or the amount of clients or mix of clients that are extending their budgeting cycles? Just trying to think about how growth resilience can fare here given the macro and the customer conversations that you're having?
Juan Urthiague, CFO
Sure. Thank you, Bryan, for the question. Yes, over the last probably two quarters, the global economy has been under a bit of pressure with different things happening in different regions. Now we're getting close to year-end, and yes, we are observing some customers delaying their budget processes and some projects ramping up a little lower due to budgets not being approved for next year. This slightly reduces the visibility that we would typically have by this time of year. At the same time, we continue to see good levels of growth, as you can see by our guidance for the rest of this year. We continue to see Globant investing to be ready for when the macro environment returns, as can be seen by the investments we are making, such as in marketing with respect to the World Cup, as well as in how we are evolving our studio model. We are a company that continues to move forward. We have just closed a company acquisition today, and we continue to push ourselves forward. We don't stop because of the macro; we just need to keep evolving and getting ready for when it comes back. If visibility for next year in a typical year would be around 80%, we are a little below that number—perhaps more like 70% for now. But we remain optimistic because Globant continues to evolve, adapt, invest, and get ready, as always, as if this were a normal year. We are taking precautions, especially regarding hiring, until we have more clarity.
Bryan Bergin, Analyst
Okay. That's helpful. And then just shifting over to margin. Can you just talk about some of the drivers that are factored into that Q4 outlook? It looks like a pretty healthy ramp sequentially that's implied.
Juan Urthiague, CFO
Yes. Yes, on the margin side, like the same throughout this year, we continue to see operating margins in the 16% to 17% range. There are different factors at play, such as potential FX benefits in Latin America. At the same time, we continue to invest heavily to prepare for next year, including investments in sales and marketing teams, coverage, new studios, and adding capabilities to our offering. Therefore, we believe that not only in this quarter but also for next year, that level of 16% to 17% operating income is a good target to have as a company.
Arturo Langa, Investor Relations Officer
Our next question comes from Walter Chiarvesio from Santander. Congrats on the results. I would like to dig deeper into the sports segment, in which you have announced this partnership and initiatives with Aleafia. How do you see this in the medium term in terms of—I mean, the market must be huge in terms of the number of potential clients and big wallets there. Is there any visibility on this that we could quantify, and could that indicate a notch up in growth rate compared to the historical rate? Looking forward, should we see this as something that is encouraging and significantly impacting the growth rate in the next couple of years, or will we see only a couple of examples of clients?
Martín Migoya, CEO
That's a great question. Thank you so much. Look, I believe that what we are doing with all those sport initiatives and sports-related projects has to do with reaching a size where we must dramatically change how we connect and position our brand. This deal has a dual objective. On one side, we are creating technology for all these institutions we are working with—for FIFA, FIFA+, La Liga, La Liga Tech, and at the same time, we are positioning our brand as sponsors of those same brands. I believe this is a significantly large market. We are currently engaged in conversations with many other leagues and teams interested in creating seamless experiences analogous to how we created for Disney. This is a vector of opportunity, and I do believe the impact we expect from this change in numbers moving forward cannot be measured now. Just the World Cup and our relationship with FIFA for the 2022 World Cup will be watched by three billion people. Going forward, we also have the women's World Cup in Australia and the Sub-17 World Championships; the esports championships from FIFA are also upcoming. These will all be sponsored by us, where we continue developing FIFA+. Our position is that we want to brand our connection so that we can explain to the world that we are changing the technology for sports that people love. This is a huge marketing effort linked to our technological efforts, running simultaneously. I believe that it is an innovative approach to position our brand and that it will yield significant impact moving forward. However, are we now in a position to measure that? Unfortunately, I can't answer yes. Yet, I hope this will unlock many new opportunities that we can't imagine today.
Arturo Langa, Investor Relations Officer
Our next question comes from John Nutt from Piper Sandler.
John Nutt, Analyst
Good afternoon. Thanks for taking my questions. Expanding your footprint in the APAC region has clearly been a focus. Are there any other geographies or regions that are particularly of interest for possible future expansion? And along the same line, what do you see changing in revenue mix by geography over the next few years? Are there regions you want to make more or less exposure to?
Martín Migoya, CEO
We will need another planet if you want us to keep expanding! But I don't discard that idea. In any case, based on our current plan, we are pretty much in every continent except for Africa. I think there will be some movement there at some point in the future. But right now, our focus lies on Asia-Pacific, Europe, Latin America, and North America. Particularly in Europe, we believe expanding and establishing major operations in countries like France or Germany is essential. We have a growing operation in Italy thanks to our acquisition, which is extremely important. If you ask me, I think Europe should increasingly account for a larger revenue share. Latin America is also poised for rapid growth. We see Brazil and Mexico as having potential for large growth. North America has just seen our expansion into Canada with many new opportunities. Asia Pacific, Australia, and the Middle East are also critical regions with considerable market opportunity for us. Overall, I’d say we will focus heavily on those four areas: Asia Pacific and the Middle East, Europe, North America, and Latin America. Those are the regions where we plan to invest significantly in growth.
Arturo Langa, Investor Relations Officer
Our next question comes from Diego Aragão from Goldman Sachs.
Diego Aragão, Analyst
Yes. Can you please provide some color on how the Globant X business unit performed this quarter in terms of growth and how much it represented regarding revenue, as well as whether this is already contributing positively to your margins or still diluting them?
Juan Urthiague, CFO
In terms of Globant X, we continue to invest in a number of platforms, some of which are already generating revenues. Others are in a kind of friends-and-family stage where we're testing them with some customers that are good partners of ours, and finally, we have others that are just proofs of concept. When we look at the level of revenues generated by these platforms, right now it is around 2% to 2.5% of our revenues. They are growing at a nice pace. It's still a small number in the overall revenue from Globant, but it’s growing well. In terms of margins, all these platforms are designed to improve our overall margins, especially when you look at the gross margin level. Of course, as we invest, they bring depreciation and amortization; they currently have a marginally diluting effect. But at the gross margin level, they are improving our overall margins.
Diego Aragão, Analyst
Understood, Juan. Is there any particular platform driving most of the growth, or is that coming from various solutions and applications?
Martín Migoya, CEO
Yes. Look, StartMeUp is doing great. Additionally, I would say that Magnify is reaching a mature situation where our customers are consuming more every day, and that's great news. Also, projects linked to La Liga and other technologies we’ve developed in our agreement are generating revenue. There’s a wealth of platforms for streaming to prevent piracy for many platforms that are generating revenue clearly, and that’s an important addition to our offerings. Augoor is another platform generating revenues that are differentiating our offerings for our customers. Those are the areas where we see the most expansion and growth.
Arturo Langa, Investor Relations Officer
So thank you, everybody. That will be the Q&A session for today. With that, I will now ask Martin to provide some closing comments. Martin, please go ahead.
Martín Migoya, CEO
Well, thank you very much, Arturo. We are very happy to be here today. Thank you very much for your continued support and understanding, and I look forward to seeing you in the next quarter. Thank you.