Globant S.A. (GLOB) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon. And welcome to the Globant Q4 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 also note that today's event is being recorded. I would now like to turn the conference call over to Ms. Paula Conde, Investor Relations Officer. Ma'am, please go ahead.

Thank you, Operator. And thank you all for joining us today on our call to review our 2017 full year and fourth 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, 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 very pleased to be here to review our business and financial performance for the three and 12 months ended December 31, 2017. At the end of our call, Alejandro will share our outlook for 2018. Our revenues for 2017 increased to 413.4 million, a robust 28.1% year-over-year growth. This strong growth was driven by a large and expanded demand for digital solutions across different customers that we serve. On the vertical front, financial services and media entertainment industries had outstanding performances. For the first time in our history we had three customers with annual revenues in excess of 20 million. We finished 2017 with nine accounts over 10 million, 18 over 5 million and 82 over 1 million, compared to 6, 11 and 60 respectively for 2016. This is a clear indication of our ability to strategically grow within our key accounts. Q4 was another outstanding quarter for the company. We had revenues of 115.4 million representing 33.3% year-over-year revenue growth. Banks and technology verticals were key contributors to this growth. Top 10 accounts performed strongly with some non-top 10 accounts outperforming the rest of the company. Later during the call, Alejandro will share more details on our financial performance. Now some highlights about the market and the company. 2017 was another outstanding year for us and I like to take this opportunity to thank our amazing team of Globers. They're responsible for our growth and for nurturing long term relationship with our outstanding broacher of clients creating a great culture base on transparency, team work and innovation. Last year we were recognized by Comparably as one of the 50 companies that foster the best team experiences. Comparably publishes annual best place to work list showcasing the companies that received the highest ratings. On top of that awarded, we were also included among the best companies for diversity 2017. We're extremely proud of these recognitions and would like all our Globers for making this dream come through. In regards to the market, we continue to see a strong demand from organizations looking to transform their businesses from the inside out. As this trend grows, it leverages the power of technologies like artificial intelligence. It is now a sign that AI will shape the future. According to Gartner, in 2021, AI augmentation would generate 2.9 trillion in business value. Connected to this, during the last quarter of 2017, we published two documents on the future of our market on how we believe companies need to adapt. First, a new edition of our Sentinel Report is available at sentinel.globant.com. In this report we go back to basics to analyze the concept of transformation. We offer some concepts and tools to help organizations stay fit for the future. Second, we recently published our yearly trend report, which can be found at trends.globant.com. We analyze concepts like AI, AR, VR and the future of organizations which we believe is going to drive businesses during 2018. I invite all of you to read these documents. This should be fused with our customers and stakeholders who have started organize new ConVerge events in different cities. ConVerge is the Globant's thought leadership conference for executives and industry experts. We get together to share new ways of doing business, hearing from aspiring speakers and learn about breakthrough technologies. For three years we have been running this annual event in the US. Now following the great result from this past event, we decided to take into other cities. Last week we held one edition in London and others are going to be happening in Buenos Aires in March and in Madrid in May, to talk about augmented intelligence, the future of organizations and more. These gatherings are fundamental for all attendees to learn how to stay fit for tomorrow's challenges. During the past month we were involved in amazing process with several customers. Let me share some examples with you. We just kick off a new transformation program with [indiscernible], one of the largest spirits company in the world. The goal is to transform the way they view their business in this new era. How they engage with their customers, distributors and employees and to define a unified digital strategy across multiple countries to have a flexible and scalable architecture. Also, we work with Bose to build an iOS companion app for BOSEbuild Speaker Cube. The Speaker Cube is sold as the standard hardware [ph] which young children guided by the app assemble themselves. In the app we design interactive instructional videos featuring Bose employees, who explain both how to assemble the Speaker Cube and how electricity is turning to sound. They built leverage a Bluetooth connection as well as a microphone on the devise to unlock a step-by-step lesson in sound as children build their own personalized speaker. The program was a winner of the UX Design award and a Copy award. Another example is how by leveraging machine learning solutions, Globant is helping Wellness optimize the dynamics between tutors and students. These machine learning solutions are expected to expand tutor impact and bandwidth and improve student engagement. On top of these projects other out standings logos have showing our portfolio of customers such as Airbus, FidelityEHR and Lloyds Banking Group. For Lloyds for instance, we're working to help plan and deliver a customer first strategy. On a temporary matter, I'm glad to share new some news within our services and our platform offering. We have recently announced a collaboration with Google Cloud to offer an end-to-end OTT platform solution for the media and entertainment industry. This integrated offering leverages Google Cloud a better media content platform for content ingestion, make a data management, analytics and several site ad insertions. It also leverages Globant's signal OTT application platform for video app creation, duration and content management across all major consumer devices. The integrated platform offers a complete end-to-end solution for media and entertainment companies who need to monetize their content on consumer devices beyond the television set. With these combined solution, customers can now rely on two proven players in the cloud and video industry for an integrated solution. Within our future of organization studio, we're also proud to announce the launch of Star MP OS and very consistent made of smart applications that help organizations with digital transformation. The goal of this operating system is to help employees overcome inherently human limitations and create a space where they can have more meaningful interactions, empowering employees to make even more significant contributions. By fostering a culture that puts employees at the center of change, organizations feel the space where their teams feel empowered and collaboration and knowledge sharing are inherently improved. The Star Map OS comprise five solutions, Star Map, better me, be there, take part and brief me. With these new launch, Star Map presents a more sophisticated interface unifying the different applications and enhancing the user experience. More information is available at www.starmap.com. Lastly, our footprint have grown significantly during 2017 and the past quarter. We're proud to announce the opening of new offices in Madrid and the expansions for our presence in New York, Dallas and Seattle just to name a few. Looking forward to 2018, we continue to have a strong demand from companies looking to achieve digital transformations. We believe that our expertise and studio model positions us as a leader in this area and makes us an ideal partner for companies facing these transformations. Our pipeline is strong and we remain optimistic about our ability to deliver sustainable growth in the future. With that I'll turn the call over to Alejandro Scannapieco, our CFO for a detailed financial review on the fourth quarter and full year 2017 and also to provide guidance for Q1 and full year 2018. Ale, please? Thank you very much. Alejandro Scannapieco Thanks, Martin and good afternoon everyone. I'll spend a few minutes taking you through the fourth quarter and full year 2017 results. Then I'll talk about our outlook for 2018. Let me start by saying that we're very pleased with our overall results for the fourth quarter and full year 2017. It has been another year of robust growth with solid results. Q4 was another strong quarter of revenue, closing at 115.4 million, 32.3% over last year and 5.3% sequentially. Revenues for top 10 increased 24.8% over the fourth quarter of 2016 and 11.6% sequentially, showing a healthy trend. Revenues for customers 11 and beyond increased 38.6% over the fourth quarter of 2016, showing our ability to increase these accounts at a higher pace. Our 50-square strategy continues to yielding positive results and we now have nine accounts over 10 million in annual revenues compared to six accounts for the same period last year. Our customer concentration number for Q4 remain fairly consistent with past quarters, with our top one, top five and top 10 accounts representing 10.4%, 28.5% and 43.2% of revenues compared to 9.4%, 33.3% and 45.8% of revenues respectively for the fourth quarter of 2016. Our vertical diversification remains balanced across the different industries, with financial services and media and entertainment leading the pack accounting for 23% and 22.8% of revenues respectively. During the last 12 months we rendered services to 356 customers. We now 82 customers with annual revenues in excess of 1 million compared to 60 one year ago. We continue to be well diversified in terms of customers and industries with an increasing number of multimillion dollar accounts. During the fourth quarter of 2017, 78.6% of our customers were in North America, the US as our top country; 14.6% in Latin America and others, Argentina becoming our top country topping Chile and 6.8% were in Europe, Spain being the top country. LatAm continues to outpace the rest of the regions in terms of revenue growth. During the fourth quarter of 2017, 82.5% of our revenues were denominated in US dollars protecting our top line against currency fluctuations. Turning now to profitability, our adjusted gross profit for the period increased to 45 million, 39% adjusted gross margin, compared to 35.4 million, 40.5% adjusted gross margin in the fourth quarter of 2016. The margin decrease year-over-year was primarily driven by FX headwinds in some of the countries in which operate, combined with some rate inflation. Sequentially, our adjusted gross margin was stable compared to Q3, despite the usual window for selling increases during the last quarter of the year. We finished the quarter and the year with 6753 Globers, 6279 of which were IT professionals. Attrition for the past 12 months was 18% compared to 19.3% one year ago, showing a nice improvement year-over-year, mainly driven by our [indiscernible] efforts. Adjusted SG&A decreased 270 basis points compared to Q4 2016, accounting for 20% of our quarterly revenues. This impressive year-over-year dilution is a key contributor to the partial offset of FX margin pressure experienced during 2017. Our adjusted operating income for the quarter amounted to 17.9 million or 15.5% of revenues, compared to 12.6 million or 14.5% for the fourth quarter of 2016. Share based compensation expense for the quarter amounted to 3.2 million. This expense is mainly related to the plan of restricting the stock units granted to certain key employees and directors of the company during Q2, 2017 as part of our long term retention program. This expense has been trending down the last couple of quarters as percentage of revenues reaching stable levels during Q4. Financial income and expense net, amounted to a loss of 0.9 million. This net result is composed of interest income and FX gains on losses resulting from exposure of monetary assets and liabilities in local currencies. Adjusted net income for the fourth quarter of the year totaled 14.1 million, 12.2% adjusted net income margin, compared to 10.9% for the fourth quarter of 2016. Adjusted diluted EPS for the quarter was $0.39 based on 36.3 million average diluted shares for the quarter. Now, let's move on to our full year 2017 performance. Revenues for 2017 amounted to 413.4 million, implying a robust 28.1% year-over-year growth. Disney was once again our largest customer for 2017, with very healthy growth and positive outlook for 2018. We also saw good momentum amongst some of our 50-square accounts and very strong performance among non-top ten customers. On the vertical front, financial services and media and entertainment industries were key contributors to growth. In terms of regions, during 2017 Latin America outpaced other geographies as we have gained some very interesting new accounts in that region. Adjusted gross profit for 2017 was 160.3 million, 38.8% adjusted gross margin, compared to 136.7 million, 42.3% adjusted gross margin for last year. During 2017 we faced FX headwinds in some of our Latin America delivery centers, combined with rate inflation in Argentina. But we're still able to maintain gross margin within our desired range. During this year we achieved good dilution in our adjusted SG&A, decreasing from 22.3% for 2016 to 21.5% of sales again within the targeted dilution for the year. During 2017 our main investments in SG&A were related to expansion of delivery centers in the US, Columbia and Mexico and additional sales coverage, primarily executed during the first half of 2017. We have been very disciplined in managing our cost as we gain scale, but we continue investing for the future primarily to strategically expand our sales coverage. As a result of these, our adjusted operating income for 2017 amounted to 56.7 million or 13.7% of revenues. Share based compensation expense for 2017 amounted to 14.5 million, mainly driven by the new long term retention program as explained before. Financial income and expense net amounted to a loss of 3.1 million. This net result is composed of interest income and FX gains and losses resulting from exposure of monetary assets and liabilities in local currencies. Other income and expenses resulted in 4 million gain, mainly resulted from the change in fair value of countries and consideration related to our acquisitions. We assess our non-IFRS net income to exclude this effect because we believe these impacts are not indicative of what we consider to be the core of our business. Our effective tax rate for the year was 20.6%, a significant decrease relatively to the previous year. This reduction was mainly driven by a more balanced distribution of assets and liabilities across the company. During Q4, we also had an onetime non-cash expense related to lower differed tax assets, given the reduction in US corporate income tax rate, which was more than offset by lower tax estimates in other countries. Regarding the recent US tax reform at this point, we expect it to be neutral for 2018. Therefore, we maintain our 20% to 22% margin for effective tax rate while we continue researching on potential impacts of the US tax reform in 2019 and onwards. Adjusted net income for the year ended December 31, 2017, amounted to 46.1 million, 11.1% adjusted profit margin. And adjusted diluted EPS for the same period was $1.28 based on 36.1 million average diluted shares for the period. Moving on to the balance sheet, our cash on investments as of December 31, 2017, amounted to 60.7 million compared to 59.9 million as of December 31, 2016. This stable level of cash was mainly explained by our decision to practically sell fund for the time being, M&A transactions including earn outs and CapEx to expand our offices in Latin America, US and Europe. Sequentially our cash on investments position as of December 31, 2017, increased 16.6 million as compared to September 30, 2017. Our balance sheet remains strong. We've got an asset of 156.1 million, accounting for 43% of the company's total assets. Total common shares outstanding as of December 31, 2017, was 35.2 million. To wrap up, let me provide you with our guidance for Q1 2018 and for the full year 2018. We continue to experience sustained demand for our digital offerings and we also see traction for our strategic accounts. Business environment is healthy and we're glad to see the evolution of our 50-square accounting strategy. In terms of gross margins we speak to the normalized range around 38% to 40% we pointed out in the last few calls. The continuity of the effects will ideally be around the globe, but primarily in the different regions where we operate, combined with the significant levels of rate inflation in Argentina require us to take a conservative approach in our gross margins. We will continue diversifying our talent base, which will enable us to have a more balanced cost structure with a better handle on margins, while we continue investing in training our Globers in cutting edge technologies and implementing our 50-square strategy. As always, we'll continue managing our SG&A expenses very careful to gain additional dilution, with the intention to offset potential heat from gross margin coming from the previously described scenario. Finally, effective tax rate is expected to remain in the 20% to 22% range in line with last year. Based on current visibility, we expect Q1 2018 revenue to be between 113 million and 115 million, implying 28.5% year-over-year growth at the midpoint of the range. Adjusted EPS is expected to be between $0.31 and $0.35, assuming 36.4 million average diluted shares outstanding for the quarter. Regarding the full year 2018, we expect revenues in the range of 495 million and 505 million and imply 20.9% year-over-year revenue growth at the midpoint of the range. In terms of adjusted EPS, we're expecting a range of $1.52 and $1.62 assuming 36.7 million average diluted shares outstanding for the full year. Thanks everyone for participating on the call and for your coverage and support. Operator, can you please queue questions. Thank you.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions]. And our first question today comes from Tien-Tsin Huang from J.P. Morgan. Please go ahead with your question.

Thank you. Good afternoon. I want to - good revenue results here. I think is the biggest revenue that we've seen in sometime, I am curious what drove the upside maybe versus your guidance, did you see anything unusual budget, consensual theme broad based but just want to better understand the upside on revenue?

Let me take that, I think Martin is trying to get into the phone, I think it was a midst of - you there Martin? We can't here you, so let me take the question. So I think it was a midst of facts, there were some key accounts that will grow in softer than expected and some key prospects, some budget as you mentioned that came in the last year. So I think it's everything is kind of circle around that we're at processing on how are nurturing on farming the seeking relationships and that's help definitely to articulate some lots of processing in the quarter. But I would say overall the environment is quite healthy in several of the different accounts and not only the top 10 but also if you take a look at the non-top 10 accounts it was a very healthy in the quarter as well.

Okay. And then Ale maybe for you, just on the margin I know you gave some stuff here but just maybe can you help us a little bit as the year maybe the quarters or the first half versus second half given the comparisons a little bit choppy I guess wait and the maybe share the wage inflation assumptions as well for Argentina?

I think we have been able despite FX headwinds that we have over the full year not specifically in the last quarter but over the full year, we have been able to keep up with a level of margin with higher. That was the target range that we pointed our several times 38% to 40%. What's happening in the last quarter is there was still some appreciation of certain currencies, some others the value gains you saw in the case of Argentina that you asked, Argentina is still riding at high levels of inflation. It's going down and it's definitely working towards lowering inflation, but it's led by legal. And the pace of evaluation of the currency was a little bit below the pace of inflation. So actually what's going on in Argentina is still a little bit of headwind of a net increase in cost for it. Having said so, we continue executing our business strategy. We already see some of the payoff of that strategy the cost structure is much more balanced across Globant overall. So we think we are going to be able to keep those gross margins stable despite of any potential headwind that we may have from one particular country.

Got it. Thank you.

No problem.

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

Thank you. Hi Martin. Hi Ale. Good results here. My question is on contract site and checks that we do keep indicating that contract site are increasing for the kind of projects that you guys are taking on. On broadly speaking digital transformation, but each of these teams like IOT and AI and so on and so forth, can you comment on that and how much is that a driver of growth for you guys versus going out and finding new clients and so on? Hello?

Yeah, go ahead Martin. Okay. Let me take that, Ashwin. Martin is trying to fix the sound system. What's happening - I don't think it's purely related to the contract sites. I think it's a matter of how we were getting into the relationships with our customers. So further we get into those relationships, it's for us to have better visibility on opportunities on the sight of the relationships on process. That has been happening across different accounts and definitely it's a matter of trying to get into those accounts deeper and deeper. And when we gain the track of our customers, they typically open up different areas and different business opportunities for us. And that, at the end, is what's causing the contract sites to be bigger and the opportunity for us to penetrate other divisions. That has been a constant in many of the top 20 accounts in many of the 50-square accounts. So I would say it's more related to the fact that we are becoming strategic vendors of many of these customers. Once that happens, they open up the gate for us to get more profit and more sizable profit. As far as the other piece of the question, it's more related on the cutting-edge technologies and the newest technologies. We can also see the impact of that. It's like probably several quarters to go, some customers were trying to do some processes, some proof of concepts on AI, on machine learning. Once they get conferred all of that, they can get something meaningful, something sizable, something that is going to be a tangible return on investment, then you start expanding those projects and we are clearly seeing the effect in our revenue growth.

Got it. And then the second question is on M&A and it's a sort of two-part. One is, what was the - I missed what the impact of inorganic contribution was in the quarter and in 2017. And then looking ahead, obviously you have sort of similar cash balances you had before. M&A as a use of cash should we expect something similar to the pattern that you have followed a lot of tuck-in type deals?

Okay. Let me take question by question. On the first one, I mean, we don't really disclose the organic - inorganic. We quickly integrate the company that we acquire, but if you do a quick math on the two acquisitions that we made in 2017, PointSource and Ratio roughly 110 people. If you take the average rate for - a typical rate for the US and you time that by 80%, 82% utilization, probably you are going to get to 400, 450 basis points of contribution for the full year of 2017, so still organic growth was very strong in the year. We ended up the year growing 28% and probably 400 to 450 bps of that came from the acquisitions of PointSource and Ratio. As far as the cash use, we have been pretty much self-funding all M&A transactions, both acquisitions and the earn outs. Typically one of the main uses of our cash has been to keep expanding the company, so most of the CapEx goes into new offices and expansion of keeping offices together with M&A. So you should expect us to continue looking for these opportunistic M&A transactions, tuck-in and strategic acquisitions. Yes, anything else, Ashwin.

Thank you guys. Yeah, yeah. No, that was good. Thank you guys.

Okay. Welcome.

Our next question comes from Avishai Kantor from Cowen. Please go ahead with your question.

Hi and thank you for taking my question. My first question, I believe you disclosed in previous calls, what is the percentage of the head count which is based in Argentina?

Now it's 39%, Avishai.

39%. And then regarding the EPS guidance range, what needs to happen for you to reach the upper hand of the guidance range?

I think again it's pretty much related to the fact that if we are able to keep gross margins stable, definitely SG&A dilution should help us to gain operating leverage to expand operating margin and that's probably to grow EPS at the same level of top line or even above that. So I think that the key trigger here is to keep gross margin stable. As I explained Tien-Tsin that a number of several factors affecting gross margins from different currencies. I think the beauty now about our cost distribution is that we are much more balanced than in the past. So it's becoming easier to handle the different situations that we may have in the currencies and even in some countries with the rate inflation. I would say and again coming back to the question of Argentina that probably is the only outlayer in terms of rate inflation in all the countries where we operate is Argentina, so that's also good news and we're definitely liked in Argentina. Argentina had been lower and lower as a percentage of total cash.

And then it's really impressive revenue growth and revenue base, because that's related to some market share gains in the business of doing apps over the top TV channels on other vendors like Roku, Amazon, AppleTV, can you expand a little bit on that?

There are several factors there, Avishai. Some new relationships and partnerships, I mean we talk about the Roku partnership. We also talk about the partnership with Google. All those things are working and are allowing us to enter into new doors and new divisions. So that's feeling some of the growth. But again as I explained before, I think the key driver here has been to deeper translator the relationships and to become a strategic partner, also, the market that we have now in US onsite with our customers is much stronger. So what's happening is that that is allowing us to capture new opportunities and to be able to working out with our customers to have daily talks with them trying to understand and to foresee what are the opportunities for Globant to keep selling and cross-selling our experience. So that's definitely what's propelling our growth and we have a strong focus on the top 10 accounts, which is also now yielding some results.

Alejandro, can you hear me?

Yeah, now, yes. Go ahead.

Finally, okay. So, no - sorry, because I was mute for some reason by the conference center.

So, no, that's going into that question, I will love to add that the stability good much between what we offer and what our customers need. And if you see when we go into the customers and we convince them and we show would think and why what we will think and how we make connections in an emotional way with consumers so on and so forth, we need exactly what they are looking for and that much many times make us win on top of other competitors. So I would say that much - the most - the single most important thing that we have seen for sustainable growth. Then how about this translating to many different accounts as I was explaining in many different shapes. But again the exact match between the massive bigger transformation that is happening and the need of our customers and how to transform their culture into new area, this is exactly what they are looking for. This is exactly what they're looking for, this is exactly what Globant does.

And then longer term, can you build a little bit of CSS like business in supporting those all the TV channels?

Sorry, I didn't get the question. Long term?

Longer term regarding - can you build a CSS like business that supports OTT TV channels, this is regarding the work for top TV channels?

Yeah, we don't call it CSS. We think we are a service organization not a PUB [ph] organization and we are pushing our concepts of service into our platform. So we have several platforms that can really - and are growing very, very fast. One of them is, as I had mentioned on the earnings release, I mentioned the Star Map OS which is composed of many different platforms and those platforms serve mainly as the game changer to change the culture of the organization while they need to transform digitally. So we see that segment of business growing and that will drive some business during 2018 and we see from 2016 to '17 massive growth on that area and we are expecting to happen in 2018 too. Now how much of that represents, well, it's still in the early days but it is growing very, very fast.

Thank you so much.

You are very welcome. Thank you for joining.

Our next question comes from Maggie Nolan from William Blair. Please go ahead with your question.

Hi guys. I wanted to ask about your new vertical from last quarter, the automotive vertical. Can you talk about your work within automotive and any projects that you are particularly excited about that could become meaningful to you?

Well, we are initiating conversations with big automotive company and we have some customers on that segment. It's representative. We have strong, fast all the same aspects that we mentioned for other customers. They have a massive challenge on how to engage with their consumers and their drivers and we are helping them in many different aspects to get connected to them better, how to cost better the devices that they have, how to drive better with a connected car and how the future of electric cars will play into many different areas. So we are excited about this new segment and we are expecting to have some interesting interactions.

Okay. Great. And then I just wanted to ask about the current pricing environment. Thanks, guys.

Pricing environment remains pretty good for us. There is not a lot of pressure that we see. Of course, competition is hard and we always say that. But we feel that the pricing that we are having is very good pricing compared to other competitors. Normally we win because of our professional proposal. It's not a price selection issue. And I think that this strong muscle that we have now in US now will keep on increasing the probabilities of us being able to charge better for our services and increase our revenue per head.

Thanks.

Thank you very much.

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

Thanks, just going back to the margin discussion. Ale, what sort of - and I think Tien-Tsin may have asked you that question. What sort of assumptions are embedding for rate inflation and the model for 2018? And then should we expect - what should we expect for non-GAAP EBIT margin? I know you spoke about gross margins, non-GAAP EBIT margins look like this year. Thanks.

Hi, Moshe. How are you doing? As far as assumptions, I can tell you that in most of the Latin America countries where we operate and India, we are talking about meeting the recent inflation combined with probably a level of depreciation of the currency, especially after the increasing the rates in US and some of the expectation of what's happening with the US and all over the world. That's kind of the guideline that is embedding and baking into our guidance. As far as Argentina, that is always the question. We are typically forecasting something in the mid-teens range. That's pretty much aligned with the forecast that was provided and the targeting that was provided by the central banking in the country and we are expecting the evaluation is going to be pretty much close to that mid-teens. So that's kind of the forecast in terms of rate inflation and currencies in the several different countries where we operate. As far as EBIT margin, again we expect it to keep gaining operating leverage as it happened in the last quarter of the year. I think overall the conditions for rate inflation and currencies, it's a little bit more stable than what we had in 2017 that combined also with the fact that we have definitely like head count in several different occasions. So we are running towards our target of having probably no location above 25%, 30% of the total head count of Globant. So all those variables combined, I think we are going to be expanding operating leverage probably between 50 and 100 bps again.

Thank you.

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

Hi, guys. This is Mike Reed [ph] on for Joe. I appreciate you taking our question. I wanted to build out there and ask where some of these SG&A and operating leverage is coming from and where you might expect to see further leverage inefficiencies come from?

It's mainly coming - the SG&A leverage is mainly coming of the fact that, first, we are very disciplined in how we monitor our expenses. We still keep investing in the sales organization, but we have built up the structure to serve a much larger company, a company at the scale with several different processes that we have put in place. Now we also have several services between mainly two countries, Argentina and India, so that's helping us a lot to dilute SG&A as we grow the company and it's also a matter of a scale. As the company grows the scale, we are definitely being able to lose SG&A and we expect that trend to continue, yes.

Okay. And then many geographically what's driving of the Latin America real strong growth, is that organic and inorganic and then again it looks like revenues may have fallen a little bit and if you could speak to what might be causing that?

No. Latin America is 100% organic. I mean no acquisition that we done that has revenues in Latin America. So it's about companies in Latin America really needing to transform their business and to make it different and they are realizing now that they need to change and they need to change fast. So that, we have an example of the agreement we announced with YBF [ph] which is the biggest petroleum company in Argentina that I think it would drive an important growth for us in Latin America during 2018 and IN the same way other big companies that we have customers that are boosting for that transformation to happen. So that's Latin America. Europe, I don't see any reason why we are falling thee, I don't think so. We are not.

In fact it's dropping slower than LatAm that's what's happening in LatAm and I would say Europe.

Okay. Yes. Yeah, it's growing but it's growing slower. So there is not - I don't know if I got the question right.

Okay. I was just going by the quarterly numbers as a percentage of revenue see to fall pretty precipitously, but I guess that it's just a function of the Latin America growing so much faster.

Oh, yeah, yeah, yeah, that's the point. And Europe is growing but it's growing slower and in the past quarter Europe was growing faster than Latin America. In the past, those things happened. But Latin America and Europe are two places that we saw the lot of investment being done. So we have big space that both of them would be good growth places for us.

All right. Thanks guys.

You are very welcome. Thank you.

Our next question comes from [indiscernible]. Please go ahead with your question.

Yes. Thank you very much, Paula, Martin, and Alejandro for taking my question. I have a couple of questions, one about in your strategy how do you think about and considerably how do you think about the progression of revenues from services over platforms meaning how important it is to grow it, how much growth do you see from this coming and what place do you see to have from your total revenue pie in the next years basically and that's the first question.

So we see that as an accelerator for the revenue that we kind of create in other things at Globant. If you see - we don't disclose exactly the revenue growth coming from that perspective from that area. But if you see in all the cases it has been like the door opener for many other services at the end that provides you to those same customers. So I see like a progression of revenue coming from services over platform growing much faster than all the rest of the regions, because it's still small, but every year it's a little bit more important and we have been pushing this function for many years now and now we have a pretty solid offering that we didn't have before when we decided to enter into that and it's 100% organic. I mean the platforms and ideas and things are unique things that we have collected from our experience working with customers. So they are pretty unique platforms. There is not direct competition on how we can tackle in the problem of change in the culture while changing digitally your company. So I have a lot of hope that this will be big for us in a few years, but let's go step by step and let's set the right expectations. We are thinking that this is still small compared to other areas or other studios that we have but it is growing fast.

Would it be fair - as a follow-up question, but would it be fair to say that you perceive more of your service over platform opportunity more than accelerate or client open et cetera rather than response to your need to have more recurrent revenues meaning are you worried about the level of non-recurrent revenues that you have?

Thank you very much. It's a great question. We have never been worried about the recurrence of our revenue, because we made last year - 10 years - this year we are making 10 years with electronic rights and 10 years with some other big customers that we have and this is about long-term relationships and we love to serve our customers and to build those long-term relationships and so I'm not concerned about the recurrence of the revenue, because we have demonstrated over the years that we are capable enough to make that happen. I think that our customers now need different things. And when we started five, six years ago, we need to provide those things and we need to be able to go fast and to be able to deliver that kind of - those kind of solutions that otherwise they cannot do it or it's very expensive for them to do it and we are providing them in a very convenient way and a very fast way. At the same time, it's working as a door opener. So it's like a balance, very balance situation, but again I'm not concerned at all with the area of the recurrent revenue. We have the recurrent revenue for years and years from one - some of the - most amazing brands in the planet. So I'm not really concerned about that.

Our next question comes from Arvind Ramnani from KeyBanc. Please go ahead with your question.

Hi. Hey, guys. Congrats on a good quarter. Overall, can you tell us how you are feeling this year versus last year? Specifically can you comment both kind of conversations if they are existing, book of business, as well as your pipeline and to the extent you can quantify any of these that will be great?

We don't quantify the pipeline. I said that the pipeline is strong and it's stronger than ever. We see a big trend towards transformation and artificial intelligence projects and our customers are requesting that a lot. That's something that we can talk about and the potential bookings and contracts that we are winning are really amazing and just digital information which has won a big multi-year contract, multi-billion dollar contract and it would be one of our biggest competitors out there that had been in the account forever. So those other kinds of things are important to understand from the perspective of Globant. Now how big or how small is the pipeline or how much is our combustion there, those are very, very confidential numbers that we won't disclose.

And ladies and gentlemen, our final question today comes from Frank Atkins from Suntrust.

Thanks for taking my question. I wanted to ask a little bit about the banking and financial services vertical. I think in your prepared remarks you talked about some strengths there. And have you seen any client behavior changes as a result of the regulatory tax changes as clients maybe evaluating higher CapEx spend in the US?

No, we haven't seen that yet. I mean I think it's too soon to see that change on budgets or money allocations. I think it's too soon. I mean maybe you would start see those things, at least on the things we do and we see the finance vertical like a very strong vertical for us and they are investing a lot of money and they are concerned about all the threats and things that are happening and how to react and connect their consumers. So that's our sweet spot and they are proceeding also how to digitally transform, how to become more nimble, more agile, and those things Globant is also able with our studio around the actual transformation. It's also able to help a lot and that has seen an important driver of business with banks for us. So overall we see a very good traction on the financial sector. Not yet any impact on the transformation so on and so forth that we see. I mean we'll keep on seeing in the next coming months and quarters. But so far I haven't seen any and Ale, if you want to add anything into it?

No. Fair enough.

Okay. Thank you, Frank.

And ladies and gentlemen, now we will conclude today's question-and-answer session. At this time, I would like to turn the conference call back over to Mr. Martin Migoya for any closing remarks.

Well, thank you very much everybody for joining again our call. I'm very happy with the quarter and looking forward to see you on our next earning call. Thank you very much.

Ladies and gentlemen, that does conclude today's conference call. Thank you for attending. You may now disconnect your lines.