Good afternoon. And welcome to the Globant Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Paula Conde, Investor Relations Manager. Please go ahead/

Thank you, Operator. And thank you all for joining us today on our call to review our 2017 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 Web site, 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 on our Investor Relations Web site announcing this quarter's results. I’d like now to turn the call over to Martin Migoya, our CEO.

Thank you, Paula. Good afternoon everybody and thanks for joining us today. I am pleased to be here to review our business and financial performance for the three months period ended June 30, 2017. At the end of our call, Alejandro will share with you our outlook for Q3 and the rest of the year. I am happy to announce that during Q2 2017, we had another record quarter for Globant. Revenues for the full quarter amounted to $99.6 million, a robust 24.6% year-over-year net growth. We continue to see a strong growth trend in the demand of digital services, driven by businesses from a broad array of industries. As IDC points out, the proportion of digital-related consulting engagements will increase from about half to full business and IT consulting engagements in 2013, 2015 to approximately 70% of all engagements in 2020 or 2021, driving the total market for digital services and agency services well over 100 billion in opportunity worldwide by 2021. IDC has concluded that digital strategy is unanimous of business strategy as digital approach has become foundational of all parts of corporate strategy. This landscape continues to give us a huge opportunity, considering our positioning as leaders in driving business to digital. On top of this growing trend, we believe that we are at the forefront of one of the most radical changes since the disruption caused by the iPhone 10 years ago, I am talking about the artificial intelligence revolution. Like many profound transformations in the past, artificial intelligence will shake the ground in the near future. It is expected to revolutionize the way end users interact with technology and reshape the business landscape. Artificial intelligence has been available for decades, but it’s just now reaching an unparallel moment of maturity. This is due to the…

Thanks Martin and good afternoon everyone. Let me start by summarizing the results of our second quarter and six months ended June 30, 2017. I will then discuss our guidance for both the third quarter and the rest of the year. Q2 was a solid quarter of revenue, closing at $99.6 million, a robust 24.6% year-over-year net growth, and near $100 million in a quarter for the first time ever. During Q2 of 2017, Disney was once again our top one account for the quarter. Our relationship with them continues to be strong and healthy as we keep working on new exciting projects and with new divisions. On top of that, the implementation of our 50-square strategy continues to product results, and we now have six accounts over 10 million in annual revenues. Revenues for customers 11 and beyond increased 30.3% over the second quarter of 2016, and 11.8% sequentially. We expect a gradual transformation of the composition of this group of customers as we dive deeper into our 50-square program. Additionally, during Q2, we added a number of strategic accounts to the portfolio; including among others, three large insurance companies, two in the U.S. and one in the Europe, a couple of healthcare companies, one airline in Latin America and one media and entertainment company, all account that could potentially transforming into 50-square over the long term. Finally, once again, the vast majority of our second quarter revenue was generated from customers that were already working with us in the prior year; a trend that repeats overtime as we dedicate time and resources to fund our existing customer base and maintain long term relationships with our customers. Our customer concentration numbers for Q2 2017 remained fairly consistent with past quarters with our top one top five and top 10…

We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Ashwin Shirvaikar with Citibank.

Thank you guys and good performance on the top-line again. My question Martin was with regards to -- you had a comment on project size in the opportunity set for digital increasing; as these digital projects become more mainstream. Could you comment on your ability to scale these projects from a talent hiring perspective?

I think that the demand is becoming mainstream, as you said, I would take examples on some of our biggest accounts and some others that are not our biggest accounts, but are growing very, very fast. And we have, I would say, pretty much no problem to scale the projects, given that our actual pods are meant to that. We have, within the whole company now about a thousand pods that are working, each one with their own name, with their own specification and values, mission statements, all those things. And when those pods mature, happen something that we call mitosis and that mitosis means that we'll separate those teams when they have more senior members, we separate those teams into two different teams. And that's the way that we have to scale; it's not about just hiring people and training them and putting them into work, but it's about making the mitosis in the same way itself replicate itself, to generate another one with the same DNA that is equally efficient. So I think that that approach that we are following is extremely important to scale on our customers and it's also one of the reasons why our customers are selecting us.

And so the second part of it was as you raise revenues but not the bottom line, and you've obviously mentioned a fairly long list of reasons Ale in that. I just want to confirm that what you meant was it's entirely FX, it's really not pricing, it's not mix, there is nothing going on. It is basically FX volatility that you're concerned with range.

Just wanted to confirm that Ashwin pretty much all of the tracks that and all of the margin pressure that we're facing is effect. Its effect in most of the currencies in Latin America that appreciated for the first six months of the year, and in Argentina it's a combination. There is very little devaluation in the first six months than there was a little bit of further devaluation with our software at the end of the quarter, and that's combined with a still wage inflation in the country.

And a quick third question, stock-based comp was really high in the quarter. I don't think it's been on a quarterly basis at this level. What's driving that, and is that a new sustainable level? What's going on, can you comment on that case?

No, it's a one off effect that's pretty much related to the issuance of where three tickets of units program for certain key employees. So you should inspect that at a normalized level, going forward.

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

Good afternoon and congrats from my side on the solid top line. So Martin and you talked about the pipeline being solid, you highlighted three-four end markets. Is there any particular end market that stood out that perhaps is your expectation that is worldwide highlighting, where you’re getting very solid traction?

I would highlight two; one is entertainment well, within the texture of media and entertainment; and the other one is finance. But we’re seeing -- it's very interesting because we’re seeing the demand being expanding in pretty much in any industry. Now, also on industry side for example, industry automation or automotive industry; every industry needs to go through this transformation. So we are seeing that effect and also we’re seeing that the effect is being across all the industries. Now, which are the places in which we are performing in a much more -- we are growing more are media and entertainment, finance, also travel, the travel space and social growing very fast. So those are the three areas that I would suggest, I mentioned.

And Ale, I understand you have salary adjustments twice a year, and I think April to October, so there is one coming in October. Is that right, did I understand that right?

That’s correct.

And so the way I look at it is for the FX headwinds. Is it fair to say that it takes basically maybe six to nine months for the salaries to catch-up with this new normal of FX? In other words, as you come to the October salary year timeframe, that’s when you would be able to get more in line with the currency situation. Is that a fair assessment?

Well, typically this type of the salary increase that we’ve seen in Argentina where we have -- that’s the only country where we have two salary windows. But in the rest of the countries, in Latin America and India, which is just one single window. In the case of Argentina, the big chunk of the salary increase happens in Q2 in April. So it takes several months because you have the ably and the jump in the costs in Q2, and then as the currency slowly at the value and you catch-up. So it takes probably between four and six months in order to catch-up. The second salary increase in October is probably one third of the total salary increase of the year. So it’s probably -- it’s going to taking less in terms of months cut-up assuming that there is smooth pace of the evaluation of the currency. Hopefully that clarifies.

So it's fair to say that the range that you’ve given now showed us an significant move in the FX front. It’s fair to see that you have a good handle I know it’s a wide range. But we should be okay right now after passing three months after -- and the April was the last time. So I’m just trying to basically quantify the confidence we should have on that range.

I understand. And we really feel comfortable with the guidance that we’re providing and the range that we’re providing. Of course, we see volatility but we still see volatility in the currency. I mean the currency started, particularly in Argentina, started with a very steady devaluation in the past month.

I think we lost Ale.

Okay. Well, that’s great. Best of luck.

No problem. Thank you very much, Anil.

All right, thanks.

But again, to summarize the question that Ale was saying -- that you asked to Ale. We’re seeing -- we’re pretty confident with that also with learning the whole process. But I would say that we are confident with that, there’s some volatility happening on the main currencies in which we are operating and we’re expecting that volatility to settle. But the range is something that we always provide, and we feel confident with that.

The next question comes from Moshe Katri with Wedbush Securities. Please go ahead.

Could you quantify the margin impact from wage inflation during the quarter? And then what was wage inflation, in general, in Argentina and what do you expecting that to be by the end of the year? Thanks.

It's a blend, Moshe -- how are you doing. It’s a blend because you have the effect of what’s happening in Argentina, but you also have the effect of Latin America currency depreciating against the U.S. dollar this technically states the Mexican peso. And on a year-to-date basis, it’s appreciating almost 15% against the U.S. dollar. So it’s a blend of course that in fact of the effective taxes is coming from Argentina, wage inflation in the country is running at mid 20s to low 20s, while the pace of the valuation year-to-date has been only 5%, that has been the combined effect.

And then as a follow up, two things; one, is there any possibility to factor that, these increased costs in future engagements in terms of how you contract days; and then just remind us what was your headcount in Argentina as a percentage of total headcount. Thank you very much.

I would assume that when you are talking about factoring that into the contracting in the engagements with our customers. Should that be the case?

That is correct.

Yes, should that be that case. Honestly, the way we’re trying to manage this is basically by decentralizing Argentina and expanding our current base first, because we believe in decentralizing the clients for the client in many different places and largely in our capabilities, our skill set and the possibility of facing up larger deals. The side effect of that we’re decentralizing Argentina and we’re lowering the reach of Argentina. I think the government in the country is doing many different things to lower inflation. So we’re very optimistic in the mid run in terms of the how inflation is going to turn out in 2018. But in the short run, it’s us managing costs by moving projects from different locations. Now we have the ability to place projects in many different places all across Latin America, India and also U.S. So that should be the leading driver. We don’t want to mess up our customers with renegotiations, because of certain wage increases in one of the countries where we operate; it's just that we need to manage that.

And on the headcount mix in Argentina?

Headcount mix as of today it's 43%, so it’s running probably -- if you compare that to one year ago, we’re running 9 percentage points, 900 basis points below. So Argentina as you see in the quarter is decreasing as a percentage of today headcount. With that that will likely have probably new location about 25% of our headcount, it's going to take time with Argentina, but everything as reported we're decreasing Argentina as a percentage of the total.

The next question comes from Tien-tsin Huang with J. P. Morgan. Please go ahead.

Just to add on to Moshe's questions around the contracts. From a pricing standpoint, any change in your pricing philosophy given what's going on with inflation and labor mix, and perhaps competitiveness in hiring talent?

Look, there is some changes, some changes that we are doing that we have been making them from the beginning of this year and in last year, which are changes to follow a little bit more our costs. But I would say that given, in general, contracts are being renewed at new prices, so we're not seeing any pressure on the pricing side. And we were seeing our prices have -- our new contracts are going up nicely without any injury on demand. So we see that as a very interesting effect of our -- it's immense between our 50-square program and fewer digital positioning that we have. So I don’t know if that answer your questions.

No, it does, that’s helpful. And then just as a quick follow-up, just the revenue guidance change. How much of that is inorganic from acquisitions versus any other organic changes? Sorry if I missed that, just want to make sure I got that.

Organic is most of it, inorganic is just a bit on the guidance, organic is -- most of it based on some customers that are structured quite very well.

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

When you talk about scaling, do you expect to do more M&A, and how should we think about the balance between M&A and margins?

Look, for us, M&A has purely strategic movement. It's never about the volume, and we've said this many, many times. So if there is any strategic move that we can do, like the acquisitions that we did in the past, I would say year or year and a half, that has to do with expanding our footprint in the U.S., and we're very committed to that. And now we have a pretty decent footprint in the U.S. compared to what we have. So if there is a strategic reason to do it, we will do it. Otherwise, we’ll refrain from doing it. So we see now our footprint in the U.S., which is quite healthy. So we’ll keep on searching new strategic areas to expand our business. And of course, we're looking into more strategic areas to expand our businesses but it will not keep on happening on the same way that we saw it until now, unless we find something very unique of course.

I guess maybe asking in a different way. How should we think about margins in 2018? And do you have any specific margin targets or long term outlook or long-term outlook that you can share with us?

I we have been talking though about the normalized margin range of between 38% and 40%. I think the margin pressure that we’re facing this year is a little bit extraordinary. I think that it’s a combination of several effects, as I pointed out and I decide during the call. So the combination and participation of Latin America currencies plus this combination of very slow devaluation in Argentina combined with wage inflation. But we’re continuing to be executing on plan of decentralizing in Latin America and also India. We’re moving projects to several different places, and that at the end is definitely given us some edge in terms of balance in terms of how we manage margin. And on top of that, what we clearly see that brand new technology, particularly don’t related to the most emerging technologies, AI, some machine learning things, cognitive computing, are allowing us to charge the better rate. Also, some of the acquisitions that we have made are going to be into having a better drop on our rate. So all of that combined also with a smart and efficient use of resources, make us to believe that 2018 is going to be a better year in terms of margin profile, but still within that range of 38% to 40% that I mentioned.

And then the last one for me, I guess, I’m wondering are you concerned about talent at this point, particularly in Argentina; obviously, wage inflation is up; you did the stock comp pulling up, which should probably retain obviously more people. So maybe if you could comment on just about being able to retain the talent there, and if you can give us some attrition rate in Argentina versus the global one you reported that would be great. Thanks.

Attrition is trending down. We don’t provide the numbers of attrition every quarter, but we provide once a y. Please correct me Ale if I’m wrong. But it’s trending down so we have good puts on that front. On the other side, we have no problems with talent given that we are spread around in a base of talent that is very, very big, just doesn’t make -- it's [100 million] people and also where we have presence in India with 1.2 million, almost 1.2 billion people. So we have no lack of talent or conditioning to get talent from Argentina or from any of the other 17 countries in which we operate. So we think that we will keep on expanding and having great access to talent. We feel that also we are a great choice for keep the carrier of our Globers relevant, given the kind of projects we have, given the kind of customers we have. And working for Globant they realized that -- what they realized is that they can gain actually some of the best runs in the world period. They can stay relevant because they work with the latest technologies and using the latest concepts on shopper creation. And that’s attractive of being part of Globant, and people know, our people know and the people from the market also know that and they value that. So that’s why I don’t see any constraint right now in terms of talent in any of the countries in which we operate.

If I may complement that answer, Joe, attrition this quarter went down to 18%. There was a pretty nice decrease on attrition. As we decentralize, definitely the attrition tends to be better at the core company.

Ale, do you have the attrition rate in Argentina?

It’s running in mid 20s, while the rest of countries are pretty much in mid-teens.

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

Wanted to first ask in the prepared remarks you talked a little bit about positive trends in the financial services sector. Can you give us some color there as to what’s driving that better performance, may be some of the services you’re hearing from the clients, or some of the types of clients you’re driving?

There are several strategies in which banks and other financial institutions are going after these digital conformation projects. In some cases, they create a new company and they just start from the scratch creating new banks like happened to one of our customers. In other cases, they focus on making total transformation of how they see the creation of software probes and how they run their company. They are now thinking about running their company as a product itself, which is quite interesting. On some other cases, we are seeing total transformations in terms of management of the organization to get focus into this new trend, which is leading to projects which are inside the same company, inside the same financial institution but with many different -- very different stakeholders than before. And then some other more traditional banks are going the way trying to transform their internal IT department into something more agile and more nimble to be able to catch up with the speed of development they need in different days. So of course all of this has come under nomination, the nominator which is regulatory; things always speak down; the go-to-market strategy; big IT departments; big spending with traditional vendors that they need to start changing, and all those things takes time. But we’re very happy with the progress we’re making in that industry. And overall, I see that as a very high potential industry for Globant in the next -- in the coming years.

And then can you talk a little bit more about the strategic rationale and the capabilities around the PointSource acquisition. And any more color you could give us on either revenue contribution or margins relative to the core would be helpful as well.

I will give you the strategic rationale and then we’ll let Alejandro to do the other part. So on the strategic side, first, it’s a part of the East Coast where we pretty much we didn’t have anything. And on the East Coast we now have a delivery center, which is pretty solid about 70 professionals are working now at our office in Raleigh, North Carolina, which is a great place to scale out the talent here in the U.S. So that’s one strategic geographic coverage factor. So that is complementing the other two acquisitions we did in Seattle. So now we have around 700 people in total in the U.S., which is a pretty decent name in terms of coverage and in terms of percentage of the total headcount of Globant. So that's one part. The second part and most important part is the complement that these guys from PointSource are bringing to the table. They have a lot of experience on insurance company, which we can leverage and then they have a pretty interesting approach to do digital transformation, which we can also leverage in some aspects within; so those two are the strategic things. And then the coverage and the size of the operation here in the East Coast is much better, and right now, that’s what I am thinking here.

As far as contribution, Frank, what I can tell you is that definitely they’re going to be accretive; they have been growing faster than Globant; they are the smaller size, but they are growing faster than Globant; and definitely even from the margin total for our onsite business, they have a pretty nice margin profile that is going to be contributing to us. And they are deeply penetrated, as Martin pointed out, into the insurance, retail and supply chain verticals, which is very interesting for us.

The next question comes from Arvind Ramnani with Keybanc Capital. Please go ahead.

This is Jason Washburn in for Arvind. You guys mentioned demand being propelled by averaging tax, such as AI?

Around the AI, I think we have a huge opportunity. The main thing is that we're leaving -- as the iPhone got 10 years ago and in the new pretty much we work expanding the same technologies over and over. Now, we are at the verge of a new total transformation and a new -- as the digital information is happening now, we feel that a currency transformation will happen in the future. And this is as a next big movement that pretty much every company will need to embrace, because it's coming, either you embrace it or you will be a victim of it. So what we feel is that we have been already started with our cognitive computing studio about two years ago, and now we are expanding how deep we want to go into that. Because right now, it's very cheap and very easy to get into those artificial intelligence solutions to solve many problems that the companies may have even on business process outsourcing to automating any kind of -- or helping -- taking decisions in a better manner. There are hundreds of processes that could be automated by artificial intelligence and machine learning in the coming years, and that's a huge revolution that is going on top of the digital transformation. So as an independent company, we're not tied to any kind of particular platform like any of the big vendors are. We are able to tap into the best possible technology if it is from IBM or from Google or even Amazon or from whomever it’s providing these algorithms or processing power to help us. So I feel that we’re really in a great position to monetize this next big transformation. So that’s why I’m not talking anymore about just digital transformation. But I think more about digital transformation enabled through artificial intelligence or digital transformation plus cognitive transformation, and we are the ones that will make it happen. We have already many, many cases in which we are helping our customers with that. And also we have instructed that that pretty much every Globant needs to know about artificial intelligence, and need to understand the rudimentary of artificial intelligence to understand how to apply that into every single project and every single process even within our company. So I think there is a market revolution that we’re leaving technology; again technology is surprising us, it's going faster -- it's going much faster than what we expected a couple of years ago. So we decided to put full scene ahead on that and to start talking about that as the central part of the digital transformation as we deliver it.

And then I guess what percent of revenues would you say driven by AI and what investments have you made up to this point in AI?

No, we haven’t making a lot of investments and a lot of projects with our customers. We don’t disclose that information about percentages coming from that. We mix servicing within -- because it is our core so cannot differentiate, this is coming from artificial intelligence, because normally it’s mix within the project that we are currently doing.

And then if I could squeeze in one more, just with margins. What leverage do you guys having place to help to offset some of those headwinds?

Definitely, the leverage is on, again on the decentralization and the balance by different locations. India is a very good lever to improve market; we are moving several projects into India because the side effect, I mean, we’re moving projects into India, because we have the quality and the talent there; we’re leveraging to expand some projects in Europe, where the times on caps by doing some and start in India; we’re even doing some projects with some of our top customers in India, combining that with Latin America. For instance for DC, we now have a couple of teams in India doing business, so that’s a very good lever. And definitely the other thing is pricing. Most of these emerging technologies can have some leverage on pricing. There has been no placing in that space, so you become shortlisted and there aren’t a number of investors who are capable of doing the kind of digital stuff, so that’s also to gain some leverage on pricing.

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

Yes, thank you very much operator. Well, thank you very much everybody for joining us and looking forward to see you on our next earnings release. Thank you for your questions and for your understanding.

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