Welcome to the Globant Second Quarter 2016 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to Juan Urthiague, IRO. Mr. Urthiague, please go ahead.

Thank you, operator, and thank you all for joining us on our call to review our 2016 second quarter financial results. By now you should have received a copy of the earnings release. If you have not, a copy is available on our website www.investors.globant.com. Our speakers today are Martin Migoya, Globant's CEO, and Alejandro Scannapieco, Globant's CFO. 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 in our investor relations website announcing this quarter's results. I'd like now to turn the call over to Martin Migoya, our CEO.

Thank you, Juan. Good afternoon, everybody, and thanks for joining us today. I'm pleased to be here today to review our Q2 2016 business and financial performance. Q2 was another outstanding quarter for Globant. Our revenues for the second quarter increased 31.9% year-over-year. This positioned us well to achieve our financial performance goals for 2016. This robust growth was driven by top 10 and non-top 10 accounts, which delivered a revenue growth of 28.2% and 35.3% respectively. Our ability to develop long-term relationships and to penetrate into multiple divisions with our main customers are proceeding according to our plans. We have now 57 accounts over $1 million in annual revenues compared to $43 million one year ago. Later during the call Alejandro will share more details on our financial performance. Demand for Digital Journey is accelerating across the board in terms of industries and regions. During this quarter revenue growth was fueled by North America, LatAm and Europe in terms of regions and by travel, finance services and professional services in terms of industry verticals. Before Alejandro goes deeper into our financials, I'd like to share with you some of the initiatives that we have been working on during the past month and some trends that we foresee will drive demand in the near future. We continue to see high demand for digital offerings, coming from a wide variety of industries. As IDC points out, enterprise buyers worldwide will increase investment in digital strategy consultancy services. A trend to applied innovative technologies and associated services capabilities is accelerating as digital business priorities broaden. This context brings the best possible scenario for Globant, considering our leading role in the digital environment. The 2016 addition of the IDC MarketScaper report reflects this position and as they name us worldwide leaders of digital…

Thanks, Martin, and good afternoon, everyone. I'm going to spend a few minutes discussing our Q2 financial performance and then I will provide guidance for Q3 and the rest of the year. We finished the quarter with 5,380 Globers, 4,932 of which were IT professionals. Attrition in the last 12 months ending June 30, 2016 amounted to 18.9% compared to a 18.2% (inaudible) 2015 and 18.5% for the last quarter. The slight increase is concentrated in Argentina. I'm very pleased to announce another robust financial performance for the second quarter of 2016. Our revenues closed of the new record level of $79.9 million, 31.9% over second quarter last year and 9% over Q1 2016. During Q2 2016 Southwest Airlines became our number one customer, replacing Disney, which, as suspected, was slightly down sequentially. We are excited with the fact that high potential accounts are scaling up and becoming large and meaningful within our customer portfolio. As for our Disney relationship, it continues to be strong and we're seeing increased momentum with this account. Revenues for customers 2 to 10 increased 35.5% over second quarter of 2015 and 7.9% sequentially. Revenues for customers 11 and beyond increased 35.3% over the second quarter of 2015 and 13.1% sequentially. Our strategy to have a diversified base of multi-million dollar accounts is working out in line with our expectations. As can be seen by our industry diversification, the [opens] value proposition and service offering is attractive to companies across all industries and we remain [pretty much balanced]. We continue to target specific accounts to add into our portfolio. During Q2 we added some new high potential accounts such as one of the largest global asset managers based out of US, one of the oldest British banks and a global CPC company. One of these…

[Operator Instructions] The first question comes from Tien Tsin Huang with JPMorgan. Please go ahead.

Great. Good afternoon. Thank you. I think, Ale, you mentioned that demand has been pretty stable. I guess the theme this quarter has been discretionary spend has been a little bit weaker, especially starting in late June for many of your peers. So I'm curious if you've seen any sort of change in demand at all beyond the FX comments?

No. I'm not seeing anything big on the -- any big change on the demand, Tien Tsin. And I'm seeing it's pretty stable and expanding into other locations that we before were weaker for us. Like I said, Latin America and Spain and -- but I see overall the demand is pretty stable.

Okay. And then I guess as a follow-up, I heard you were building out the Pune office and quite a few seats to be impacted there. How quickly do you think you will ramp up your India facility? And I'm curious if there's any midterm implications for margins as you expand in India?

No. Thank you for the question. No, I don't expect any midterm implication for the margin. We are ready preparing now for the strong growth. And we have seen strong growth since we acquired our Indian operation. Which also speaks well about our ability to integrate that in a smooth way into our operations, which is great. And we are delighted with that. So that starts our big investment off building a bigger -- I would say a bigger office there. And we're starting to higher in a pretty consistent way in India. Having said that, implications on the margin it's too early to say right now. I mean we -- of course if things would have grown or could grow much faster there, maybe there is some implication of the margins but we are not expecting that to happen that fast.

Understood. Thank you, Martin.

You're very welcome. Thank you very much for the question, Tien-Tsin. And how are you? I forgot to say that.

I am well. I'm glad earnings season is almost over and I appreciate you guys catching up with us. Thank you.

Thank you very much.

The next question comes from Ashwin Shirvaikar with Citi. Please go ahead.

Thank you. Hi, Martin. Hi, Ale. My first question is on Disney, which seemed to grow in the low mid-single digits perhaps. As you [named it], your rear end number was lower than 7.99 for Southwest, I guess. But I am assuming that has something to do with the delayed Disney Shanghai approval. Is that what is giving you -- now that the approval has been attained -- is that what is giving you confidence in your Disney comments of the reacceleration or is there something else?

How are you, Ashwin? This is Martin. Thank you very much. The relationship with Disney, as I have said and Alejandro mentioned, I think it is extremely good. And it will keep on being very good. Now after some small demand during the first quarter, I think now it's catching up very -- in a very nice way. But on the other hand, we have Southwest growing very fast. So now became our number one account and now Disney is slightly behind it. And I think the difference aren't just happening because of one growing faster than the other, but the overall picture, which is how we are growing on the 2 to 5 accounts, which is over 35%, is also very healthy. So depending on how good Southwest is growing, we have other accounts that are growing very fast that are -- but we are been able to go deeper into that. S So I think this movement between one thing and one account being the first and another account being the first is quite healthy for the Company. And going back into Disney, it's really catching up. Disney Shanghai now is fully operational -- has been launched -- a huge success there. And you know how today, or I think yesterday -- during this week I think Disney reported earnings with a huge amount of revenue and a huge amount of over achievement on that revenue. So those are the signs that are very positive for us and I think it needs to be understood that way.

Okay. That's useful color. I guess a question on the level of visibility as you look at the second half of the year. And there was a comment with regards to -- I think Alejandro you had a comment about implied conservatism at the same time that you were actually increasing your overall expectations. So if you can go a little bit more into the details of your underlying assumptions, that would help.

Definitely, Ashwin. This is Ale. We continue to see momentum in accounts, as Martin pointed out. I think what we are seeing is a very healthy growth of many large accounts that we are trying to get into these strategic perspective for Globant and to grow them larger. So we see the benefits and the outcome of many farming efforts that we have been doing into those accounts trying to spread into different divisions, not just working with the division that hired us at the very beginning. So we continue to see that. We see momentum with integration of the company that [we work for] in UK, We Are Experience. I think that the complement between what they have in terms of digital design and the software development capabilities that we can provide is a very good complement and even for some of the already existing customers that they had. And that's the main reason behind our -- I would say confidence view towards that second half and being able to get into the level of topline that we guided. As for EPS, and as I said, there is still some FX volatility in the market in Latin America -- some currencies that are appreciating against the US dollar, especially Columbia and Argentina a little bit on the second quarter. So we're trying to be conservative on that area. Keep in mind that last year we had this huge gain and [impact] with [bonds] that was the way we were kind of upsetting the impact of the currency in Argentina. Now that is fully baked into our operational margin, into our operating income. But we need to be conservative in terms of the forward-looking view for the rest of the year. That's why we are guiding what we're guiding in terms of EPS.

Understood. Okay. Thank you.

No problem.

Thank you.

The next question comes from Anil Doradla with William Blair. Please go ahead.

Hi, guys. Congrats on another set of great results. So I had a couple of questions. So it seems based on my calculation that the average revenue per employee has picked up. Now, Martin, can you share some color in the context of [clearest] billing rates? How are they aligning towards your more corporate and what's going on on that front?

It has two affects, I think. First, our value proposition a few [renew] customers and you come with new contract, every day it's more and more clear that the value we add is higher, hence we being able to charge more. And then on the other side also the slight increase in our onsite presence and the [why] and the WAE are positioned it's we mentioned -- it's just 40 guys. It's a very small one but it's very important in terms of strategy. Those are also things that are pushing the things on the right in the right path. However, it's not affecting gross margins. So this is the interesting move that is happening. I think that although we are growing our onsite presence and we are growing our capabilities and customers are seeing more value in what we deliver, we are being able not to grow our cost at the same time but to be able to maintain gross margins. And that's the story here. I don't know Ale if you want to add --

I just want to complement on your second part of your question, Anil, in terms of India. India is slowly catching up in terms of rates. Definitely the new business that we are getting the deliveries in India is getting us better rates. Definitely those are not exactly the rates that we had in the past prior to the acquisition. But they are definitely much better than the rates that they had prior to being acquired by Globant. So I think it's so far so good. I think we're getting the value proposition in India as well. They are being able to convey that value to their customers. So I think so far so good.

Very good. And, Ale, you talked about increasing some of the sales force in the near term. And you said that right after around the time you were talking about conservatism. So the increase in sales force -- is that partially driven by the fact that you got a more uncertain macro environment, you need more feet on the -- in the -- out there in front of your clients? Or is it just part of a general strategy that is been there before?

No, it is part of our strategy. We need to increase the onsite coverage. That includes when we talk about sales force, that includes not only the few sales guys who are going to be selling our value proposition but also account partners, technical account partners, the bunch of these people that we have onsite that are constantly trying to develop that relationship onsite day to day with our customers. So I think its part of our strategy. It's not related to the fact that as we need to be conservative, we need to increase our sales force to help kind of create [conservation] from that [thought]. It's part of the strategy that has been standing there for quite some time. I don't know Martin if you want to add on that.

No, the -- our game is quite clear, Anil. And you know how fanatic we are about coverage. And coverage I think is something essential for us so that's why they increased on that aspect. And we expect to keep on deluding SG&A but keep on increasing the expenses on sales. As to the current coverage we have, it's not perfect. We need to grow a lot there. There's a point -- a lot of improvements that can be made on that specific matter or area.

Very good. And, Ale, what with the utilization in the quarter? Thanks a lot, guys.

It was very high -- unusually high. I think it was also something that we managed during the quarter. It was 85.4%. The largest in the last three years.

Thank you.

The next question comes from Avishai Kantor with Cowen and Company. Please go ahead.

Yes. Hi, everyone. Thank you so much for taking my question. My first question -- I want to start talking about ESPN within Disney. I think last quarter you mentioned that you are exploring opportunities specifically within ESPN. Can you give us some additional color on that? One of the things that gives you confidence in the improvement in Disney going forward?

No, no, no. The answer is, yes, we are confident about ESPN growing and other accounts within Disney growing but also the old stuff is coming back. It's coming back big time. So it's across the whole thing.

The core Disney parks operation?

Yes. Exactly right.

Can you give us some additional color on those potential opportunities within ESPN?

Yes. We're doing many things. Everything related to the digital journey to the digital transformation that Disney is executing and newest versions of old software and all kinds of goodies that they have for entertaining their consumers and their guests. Everything is connected to that. And now also it's going back to the backend, connecting both things even deeper to the backend and then things that we're doing there to transform the platform everyday in a more smart engine of sort [righting] consumers. All the deals are pretty much on the same line where -- by the way, they are spending a lot of money so they are really monetizing extremely well those initiatives. But that's pretty much what I can say without disclosing any other things that I cannot.

Sure. And my next question on the wage inflation, was wage -- were wage increases in line with expectations? And what are we expecting -- are we still expecting wage inflation to be more stronger in the first half of the year versus the second half?

They were pretty much in line to our expectations. Again, as we said for several quarters, the situation is quite different in many of the countries where we operate and in Latin America and even in India and Argentina. Argentina is a separate story. I think now the government is definitely working towards lowering the inflation in the country -- that they are bearing very vocal about that. They are being measures that they have taken in order to lower inflation. But all the adjustments they make to the economy in the first six months of their government definitely affected inflation -- the devaluation affected inflation. So inflation in the first half in Argentina still very high but it's declining toward the second half. So our assessment of salaries in the first half was pretty much aligned to what we expected. And definitely the big chunk of that salary increase happens in April. So it's Q2, then we have a second window that it's going to happen in October for Argentina and the rest of the countries. In Latin America and the India we just have one single window that ready happened in April.

Okay. And my last question -- is increasing stock-based comp related mostly to M&A activity?

It's a combination but it's pretty much related to that, Avishai.

Great. Thank you so much and good luck the rest of the year.

Thank you.

The next question comes from Jason Kupferberg with Jefferies. Please go ahead.

Hi this is Christen Chen in for Jason. Thanks for taking my question.

No problem.

Just following on Tien Tsin's question about the [demand] environment, we have also heard from some of your peers that in specific verticals like financial services and travel -- I'm sorry, in healthcare we have seen some weakness. Can you comment on what you guys are seeing from those verticals? Thanks.

I haven't mentioned healthcare. I mentioned the finance sector in which we are seeing a lot of digital transformations that needs to happen and by trying to cope with the new [fintech] wave of companies that are disrupting their industry. So I see there a lot of demand on that side. So I am not seeing weakness on that specific industry. Healthcare -- I have not a full opinion around healthcare. It is a segment for us it is not extremely important. But as far as we -- as far I see, the customers that we have on the healthcare industry are really performing quite well and they have new projects and new ideas coming up. Also there retail, the CPC segment, is also picking up and very nicely. And in general, the travel [nature] is going very well. So those are the areas where I see traction. But you know, the market is so huge and realities of the Company are so different. And what we do is so different from what other companies do that some how that maybe you see for some kind of services weaknesses, for some others the demand will continue strong. So I think I see that as a normal behavior of the market.

Okay. Great. Thanks for the extra color. And can you just tell us what geographies are you looking to add head count? And just quickly, what was employee attrition for the quarter?

Christen, this is, Alejandro. As far as geographies, again, we're trying expand in the regions where we are currently hiring people and hiring talent. That's meaning Latin America combined with India and also US. We are increasing our onsite presence in US. Now also we are increasing the presence in UK with acquisition of these British companies. As far as attrition, it has been at 18.9%. So below 20%. A little bit of an increase compared to the last quarter. That was 18.5%.

Great. Thanks for taking my questions.

No problem.

The next question comes from Joseph Foresi with Cantor Fitzgerald. Please go ahead.

Hi. Just going back to financial services, could you give us some color -- are those new accounts and are you replacing an existing vendor in any of those accounts?

Some of them, yes. Most of them not. So that answers the first part of your question. Displacing other vendors, yes. In some locations we are playing against some of the it traditional game players in those big accounts but with an expertise which is much more appropriate to the need that they have now. Now they need to engage in different things. It's not about regulatory software. It's not about core banking systems or maintaining the core banking working or just the [whole] banking but now it's about [seducing] consumer. And in that new game, we're pretty much alone playing with some other vendors that are trying to hit us there. But normally we are displacing some vendors in that specific space. So that is the answer to your question. We displaced some vendors but normally we are playing in a place which is new for the banks. And banks have not been experts at seducing consumers and even less through the internet or through technology. So now they need to do it because they will be disrupted by new companies fintech companies coming up. That's the situation.

Okay. And then on a headcount side, the rate or growth rate of the headcount slowed a little bit. And I'm just wondering, have you altered your headcount or your hiring plans at all? Because it seemed like attrition hung in there but utilization went up. Is there anything we should read into the amount of people that you are hiring?

No it was -- hi, Joe. This is Ale. It was purely related to management of margins and utilization trying to keep up with the margins despite certain FX headwinds. So we managed utilization, we manage the talent pool. It's something that we closely look in terms of protecting margin. So that is the only thing probably that you can read behind the lines -- between -- for that headcount increased number for this quarter.

Okay. And then the last one for me -- you talked about on a couple different calls potentially trimming some of your client base to focus your resources. I am wondering, have you started that initiative at all? And if you have, what have you found as you started to focus those resources on the accounts that could pay the most? I'm just wondering where you stand with that?

We are progressing with that. I mean nothing that we need to announce here. We are progressing. It's the nice organization that we are doing within the Company. As a result of that, we're starting to see some results like the Southwest account in which we focus a lot of attention, which is not building on the last three months. But paying more attention to that made us be able to get wider into the account, which is what we are looking for. So I think that overall the whole reorganization is doing quite well and it’s progressing. It's not something that we would do from one day to the next. Those things are maybe to be developed under a certain period of time and need to evolve under a certain period of time. So we'll be trying to execute and trying to do that in a more -- and to talk about that when we have more results in the hands and when we have more information to give to the market. So that's why we're not talking about that in this quarterly review. And if I may add, Joe, in terms of -- you can actually see an increase of seven new customers in the quarter. That is pretty much related to the acquisition of We Are Experience -- so customers coming from these new acquisition.

Got it. Okay. Thank you.

The next question comes from Moshe Katri with Williams Trading. Please go ahead.

Thanks. Congrats on Southwest. I have two questions. The first one going back to attrition. So you've indicated at it spiked up sequentially year-over-year. And I think, Ale, you said that was predominantly in Argentina. One, can you kind of give us -- remind us what is the headcount mix in terms of where we are in Argentina. What was it a year ago? And then what are you doing to kind of -- is there anything to get concerned about here? And what are you doing to kind of address some of these issues?

Hi, Moshe. It's a fair question. Definitely the big driver of attrition is still Argentina. Again, to explain, this whole thing about the government trying to put things in place in terms of inflation caused a little bit of shakiness in the first half of the year. Definitely the inflationary environment tends to move people and put people into more active mode in terms of looking for jobs. Having said that, Argentina is slowly declining at the present (inaudible) headcount because we are growing very, very nicely in some other locations as well. So Argentina now is 52% of the headcount. If you just look backwards two years ago it was more than 80%. So it reduced to 52%. We have locations like Colombia, Mexico, India and even US that are growing very fast. Having said that, I'm going to the second part of your question. We continue executing our plans to lower attrition that is pretty much decentralizing from tier one cities. The attrition in Argentina is also concentrated in two cities, that is Buenos Aires and Cordoba. So we keep decentralizing from tier one cities. We keep enlarging the base of the pyramid, getting more pressures into the Company that's allowing us to have a pretty much balance headcount pyramid that is also going to be helpful to lower attrition. And also we foster and we encourage project mobility. That is something that is very important for millennials. So I think there is nothing to worry. Again, as we said several times, having a very low attrition is bad, having a very high attrition is bad as well. So we will continue executing our plan to lower attrition. But we think this particular situation in Argentina is going to turn more into a normalized environment toward the second half.

All right. Understood. And then the last question -- you and I, I think, had a conversation a couple of months ago and you were talking about your plans to expand a bit more aggressively into Europe, get some salespeople and get more presence. Has that changed at all, given some of the -- given -- because of Brexit and some of the issues that going on on the continent right now? Thanks.

We have a pretty aggressive plan in Europe starting in Spain and the UK, specifically. I think that the Brexit thing doesn't affect us within -- it would be more [Scotts] coming because of that. So I don't see the short-term any change on that. But we are increasing and keeping on with the same plans as we had before the Brexit for Europe.

Great. Thank you.

The next question comes from Frank Atkins with SunTrust. Please go ahead.

Thanks for taking my question. I wanted to ask about the pipeline a little bit. Are you seeing any changes in contract size? Any larger contracts as you look forward?

No. It is very good we have signed some big deals on I would say others I was not but I think is good it's regularly by the end of the quarter, second-quarter for Globant and we have seen a pretty interesting traction in both segments that I mentioned in my speech specifically on travel and finance sector and media and entertainment. Those are sectors that are strong that will keep on being strong because they are very healthy and very healthy is a business so is good it's in good shape and we will keep on traction. No change to your specific question, no change in the size of the deals neither on the duration of the deals deals pretty much on the same or maybe a little bit longer so we are very relaxed with that. We see no measure issues there.

Okay. And wanted to ask a little bit about the tech and telecommunications vertical. Any changes there or is it just the growth rate of the other sectors has been faster?

There are no changes there. Telecommunication sector there are no changes there we're having conversation with some big telcos and different parts of Europe and also some conversations in the US . No big changes there.

Okay, great. And last one for me as you listen to your clients and look at the portfolio of studios now anything you are looking at in terms of building out capabilities?

We just launched two new platforms. For us on the service side on the Services Over Platforms side we have Acamica and Collokia dozer two really interesting developments for our company during the last few months. On Acamica which is an e-learning platform and the other Collokia which is a platform that is extremely interesting has some algorithms to understand who knows what within an organization so for us is extremely useful and we think it could also be very useful for many other firms out there. We will integrate that into our service offering. In individual journeys within employees within companies. That's the situation on the capability. More studios are being cooked in the oven in terms of the dynamics the technology very exciting things are happening on technology and things like that that we need to be very open-minded to that. And also everything that has to do with visibility and being omnirelevant and being always on the top of what is happening we're looking to. In terms of delivery capabilities India keeps on being very strong in terms of growth but also Latin America pretty much all the rest of the countries are really strong on that. That's a situation.

The next question comes from [indiscernible] Please go ahead.

Hi. Thanks for taking my question. I just have a couple of questions on your top 10 accounts has there been turnover in your top 10 accounts latest numbers how large is the client to qualify as a top 10 account?

The size if I understood the question properly Arvind the size of the customer to get into the top 10 hasn't changed dramatically. What is happening is as we're gaining scale with the customers it's going to require more revenue to get there. If you take as an example in the last 12 months we only had one account only $20 million now we are on over $30 million now we have two over $20 million 10 accounts over $10 million and so on and so forth. So we are growing the scale and the size of the customers definitely being in the top 10 is going to require more revenue but that's the Avenue that we are taking.

Great and has there been turnover in top 10 accounts or is it stayed fairly stable?

It's pretty stable. You may have one, two, or three accounts moving around moving up and down but we have been pretty stable. Keep in mind we have a big chunk of our revenue from recurring customers so it's a very stable portfolio.

Great. And then I have a question for you regarding India I know you already provided some color but with India offering clearly it's a big number 1200 I think you mentioned could you be brought during your service offering or be more the same from India and secondly in India are you recording from undergrad schools are you recording from particular types of graduate schools or from other contributors? If you could provide color that would be helpful.

Sure. The first thing to understand is when we acquired that company nine in India we acquired a because of two reasons. First because we wanted to get access to more talent and our game is about having global talent and we tried to seek talent everywhere we are. That's the first reason. Which is possible. That's a first reason. The second reason is their culture and what they do were very similar to what we do. In fact they have more experience than us for example on engineering work. In terms of doing digital journeys for engineering products for engineering companies. I don't know if that is clear or not that that's the specific knowledge that they brought to the table. So we expanded that. I know your question is targeted to say hey Martin will you examine other IT services traditional IT service space but it's not the plan for now. We have no plans on that. We try to stay away from that because it's a totally different culture where it's needed. It's a totally different company where you need to do. The traditional game compared to what we do which is absolutely different which is creating digital journeys which is a new way and the new wave of services companies coming. I think that answers your question but please let me know if I need to clarify.

This concludes our question-and-answer session. I would like to turn the conference back over to Martin Migoya for any closing remarks.

Thank you very much, everybody, for being here and we're very proud of having you following us and investors and please stay tuned on more things to happen . Thank you very much for all your time.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.