Good afternoon, and welcome to the Globant Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paula Conde, Investor Relations Officer from LatAm and Europe. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today on our quarter review, our 2019 third 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, Chief Executive Officer; Juan Urthiague, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties as described in the Company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which are how we track performance internally and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our Investor Relations website announcing this quarter results. I'd like now to turn the call over to Martin Migoya, our CEO.

Thank you, Paula. Hi, everyone. And thanks for joining us today. I am excited to share with you updates on our business and financial performance for a three months ended September 30, 2019. At the end of the call, Juan share with you our outlook for Q4 and full year 2019. Q3 2019 was another quarter for Globant, closing at $171.3 million in revenues, a robust 27.3% year-over-year growth. This solid growth was mainly driven by strong performance of our top account growing at 27.2% over the third quarter of 2018, also due to the outstanding growth outside our Top 10 accounts increasing more than 44% year-over-year. As in previous period, we continue to expand our relationship with our key customers. We now have 104 accounts over $1 million in annual revenues compared to 91 a year ago. Additionally, during the last 12-months, we had 13 accounts over $10 million in annual revenues compared to 9 accounts for the same period last year. Later during the call, Juan will share more details on our financial performance. We continue to see strong demand coming from organizations looking to transform their companies. Consumer expectations are going faster than technology, leading to continuous expansion of the market opportunity. In their digital transformation technology and industry outlook presentation, IDC analysts Shawn Fitzgerald and Craig Simpson, point out they expected to see at least $6.1 trillion in direct investment in digital transformation worldwide from 2019 up to 2022. This opportunity is touching every industry ranging from financial services and manufacturing to retail, transportation and more. In one of our recent report call Cutting Through the Chaos, we analyzed views of business leader and their strategies. The report can be accessed at www.globant.com/cuttingchaos. We found that while 87% of organizations are currently pursuing a digital transformation…

Thanks Martin. And good afternoon, everyone. Let me start by summarizing the results of our third quarter and nine months ended September 30th, 2019. I will then discuss our guidance for the fourth quarter and full year of 2019. I am very pleased to announce another quarter of record revenues and strong financial performance. Our revenues for Q3 amounted to $171.3 million above the midpoint of our guidance and representing a solid 27.3% year-over-year growth. Revenue growth was robust despite 70 by basis points of year-over-year FX headwinds in the quarter. During Q3, 2019, Disney was once again our largest customer, showing a strong acceleration of growth on a sequential basis and growing 27.2% year-over-year coming from a very tough comp. We are excited with the fact that high potential accounts are scaling up and becoming large and meaningful within our customer portfolio. In addition to strong growth of Disney, our second and beyond clients together also displaying robust growth of 27.3% year-over-year with clients 11 and beyond growing at 44.2% year-over-year. Our 50 Squared strategies to have a diversified base of multi-million accounts are progressing in line with our expectations. Moreover, during the quarter we continued to successfully cross-sell services with our recently acquired companies. During the last 12-months, we had 13 accounts above $10 million in annual revenues compared to nine accounts for the same period last year, and we had 104 accounts with more than $1 million of annual revenues compared to 91 one year ago. We continue to expand our relationship with our key accounts, aligned with our 50 squared strategies. Looking at diversification of our revenues by industry verticals, it is evident the Globant value proposition and service offerings are attractive to enterprises across all the industries. Our top three industry verticals for this quarter…

[Operator Instructions] Our first question today will come from Tien Tsin Huang with J.P. Morgan. Please go ahead.

Good afternoon. Thanks for the update. I want to ask I guess on the, I appreciate the update on the strategy just the 13 accounts above $10 million is in a good place. I'm curious of those 13 now that you've had that that's been rising, do you feel like if you have a good group there that can eventually qualify for your 50 squared strategies? Just curious how the pipeline of that next wave of large accounts are coming along.

Yes. Hello, Tien Tsin. This is Juan. How are doing? So yes I mean we are very comfortable with the way our largest customers are performing in general. We are seeing more and more accounts in our top 20, top 30 accounts growing above 5, above $10 million and that is probably one of the main positive results of the 50 squared strategies that we launched a few years ago. When we look at these accounts that are now more than $10 million and we are not reporting more than $20 million or more than $30 million but those are also segments that keep growing and we feel very comfortable about that. When we look at these you know very strong performance I mean that's -- it seems that the account we continue performing like that for the rest of the year and year after, but also when we look at customers for example 11 to 20 or 6 to 10, you're also seeing very strong growth. I do know that there was a little bit of a slowdown in the 2 to 5 that because of two specific accounts. One that we mentioned in the last call, another one it's a big project coming from Europe that got delayed, but except from that we see very strong growth in all other groups. From 6 to 10, 11 to 20, 11 to the end. So we are optimistic about the demand. We continue to see a strong market. So we are very optimistic about next year as well.

Okay. Yes, no, that's why I asked, thank you for that for the couple of accounts you said that in 2 to 5 you had some issues that's why I was asking if 6 to 10, if there's potential for that to replace those 2 and to keep the growth trajectory going. That's why I asked?

Yes. And also we continue to think that those the airline that we spoke in the last quarter, company is going to come back. I mean we feel comfortable. The relationship is very strong there and the other one is a bank in Europe and there's an international project that I mean we did a big project in Europe that needs to go international and that's got a little delayed, but each one account so we are thinking about a better Q4 for Europe and a good 2020 for Europe as well. So it just specific things, all the rest of the accounts of top one, 6 to 10, 11 to 20, there is a lot of potential there.

Our next question will come from Ashwin Shirvaikar with Citi. Please go ahead.

Thank you. Hi, Martin. Hi, Juan. How are you? I guess the question I have is if you can maybe provide an update on any competition, are you seeing any differences from before either in your new client pursuits or maybe in your act of not getting deeper into existing clients. And it kind of goes back to the popular thing of the earlier question because this is the second quarter in a row that revenues ended up being in the guided range instead of your historical track record of beating. And it's also been a while since you did not raise the upper part of the guidance, the first time in three years or something you did not raise, so I'm kind of curious what's going on in your revenue outlook.

Yes. So in terms of-- the first question in terms of competition, competition remains similar what it used to be. Maybe Accenture, ThoughtWorks, sometimes and EPAM those are like the main accounts that usually compete, most of the times it is Accenture. The deals are getting bigger but again we're not seeing any differences in terms of the market. I mean the demand remains strong. The accounts that we are working with are embarking on large transformational deals. So we are seeing good opportunities. In terms of our guidance, again, we always like to guide where we know that we will end. I do appreciate that in some quarters in the past we were able to exceed the guidance we provided, but again we are, again in the guidance and we are raising $1 million for the year. So in general when we look at and when we guide what we like to do is basically guide whatever we know that we can be, if we can exceed better like we did for example with EPS, but the commitment we try to do always do is target what we guide.

Appreciate that and then follow-up question is on headcount up 44% that's a good number there. How much of that is organic versus if you adding Belatrix and what is Belatrix contribution in 4Q?

Belatrix was about 600 people. So we added another 600 and something organic. So it -- again, it was as you said, a very -- a very large increase in the number of engineers, and half of it comes from organic and the other half comes from the acquisition of Belatrix. The good thing there or the good news there is that as the teams from Belatrix were in Latin America, in Argentina, Colombia, and Peru, we have already merged the teams even including mixing people in some offices, and we are already using their engineers and our customers. Some of our engineers and some former Belatrix customers. So that is a very easy integration in a way for us.

Got it. Good to know. That seems like a good cultural fit. Thank you.

Our next question will come from Maggie Nolan with William Blair. Please go ahead.

Hi, I just wanted to follow up on that commentary about Europe and the customer there. Is this really a one-off instance in Europe that's kind of account specific or is there anything that we should be deriving from this instance that maybe other accounts may see some more weakness or that Europe, in general, could potentially be weaker?

Hello, Maggie. Thanks for the question. So in terms of this specific customer, I mean, at the end of the day, this is a very large project. The part that we were going to take off the international version, got delayed because there was another vendor that got delayed before. So our part on that project will start at a later stage because of that. It's a one-off customer. In fact, we believe that Europe for Q4 is going to be better than Q3. We are not at this point experiencing anything across multiple customers, it's just a specific customer. We do have some new logos in Europe with high potential. So we are not concerned about Europe. It's just the one customer thing and it's a specific project thing that is not really related to us. It just got delayed because of another vendor, but hopefully it's going to come back by the end of the year or starting next year.

Okay, understood. And then as we start to think about 2020, obviously, you pointed out, there was a little bit of a tough compare on the margins, in this quarter, given currency movement. So, how should we think about that margin at both the gross margin level going into 2020? And then, as well as at the operating level, including any leverage that you're able to address?

Yes, so, as always in terms of revenues, we are very optimistic. We feel that the demand is there, the customers that we have are the right customers. The new logos that we are signing, have a lot of potential. So we are -- we continue to think that organic 20% plus a little bit more coming from acquisition is the long-term target that we should have. We are right now looking at the budget. So I cannot guide or give any more color in terms of areas, but we are optimistic. We are seeing good numbers coming from our regions across the globe. So we are happy what we are seeing so far. In terms of margins, when we look at today's margins, adjusted operating income on a year-to-date basis, we are running at around 17% coming from about 15.9% last year, year-to-date. So, we think that we have for the company that we are -- the size that we have today, stable margins is what we should be targeting going forward. We have made significant improvements in terms of our margins, both for the operating and net income margins over the last four years, five years. But, and we believe that we have achieved very solid margins, our gross margin is running at around 40%. SG&A has been diluted significantly since we did the IPO. And the operating income that we have today, at around 17%. We think it's a very good number, and we should target to have stable margins going forward.

Our next question will come from Arvind Ramnani with KeyBanc.

Hi. Thanks for the question this is Michael Vidovic speaking for Arvind. So could you just comment on Latin America and trying to saving cost there and then the US. Thank you.

Can you repeat -- comments on Latin America?

Yes, please.

Yes. So you mean in terms of revenues?

Yes. Just in terms of execution and like trend you are across there.

Yes. So Latin America has been growing a lot for us in the last few quarters, part of it is organic. Some of the deals that Martin mentioned like in the some deals with some banks here in the region. A big, a very big deal with an airline here in the region. So it's strong. There is a lot of investment going on and you can see that in the revenue number. Also there have been some benefits from the deals that we did in the past. [Indiscernible] has a big presence in Brazil and we are seeing good progress in all Brazilian operation, which is something very important to us. And in terms of execution, Latin America continues to be our largest region in terms of talent and growing a lot in terms of talent, this quarter we have added another 600 plus engineers organically plus in organic park, attrition came down to below -- around 14%. So what we have seen is that our ability to attract talent not only Latin America but also in the rest of the world remains very solid. And that is very important because as you guys know this is a very highly competitive sector and our ability to attract and retain talent has been improving significantly, which puts us in a very good position for 2020 and onwards. So execution on that front in the case of Latin America is very, very solid.

Great and then can just talk about the overall feedback upon your converge series and how is that-- how do you feel about the general environment over the next year given that?

Yes. We think that the event was very successful. There were like a 1,000 people attending the conference. And very appealing speakers, companies top world class companies attended the event. They talked about some of the projects they are doing; some of the projects they are doing with us. We have --we were able to discuss augmented Globant concepts. How we think that the industries can evolve, how we will evolve our company using more AI in the way we work, in the way our developers work. So we got very, very good feedback and of course I mean typically in this event, you also get some leads and that was a very successful event in our view.

Our next question will come from Bryan Bergin with Cowen.

Hi, thank you. Wanted to ask on the top client to some of the areas that were driving the strength you saw there. They've obviously been in the news also their new platform. Can you talk about potential opportunities that you think you might have there also in the future?

Yes, hello, Bryan. Yes, Disney, as we mentioned in the last call and I think also in the previous call was going to come back and real fast. And we saw that in these numbers. One of the areas where we're growing the most is the BTIC, which is the area that among other things has a Disney plus. We will work all around, I mean we don't do -- as you know, we don't do the platform itself, but we'll work all around the platform helping Disney to get content and to organize content around the platform, we felt this need to work on getting statistics and using the information that they can get out of the platform. For example to sell merchandise and things like that. So we are very connected to the platform and we think that Disney as we mentioned in the last few calls have a lot of potential and we continue to see that potential for the rest of the year and for 2020. So even though Disney is going to perform really, really well again as we mention in the last few calls this is not our one business or a one company thing when you look today at our revenue concentration even though the top one is 11.9% a very important thing. Our Top 5 is now 26% and Top 10 is 38%. So that means that our level of the dependence on one or two or five specific customers is decreasing. These are a very good thing going forward. There are -- I mean work for the main companies in every industry. As you can see we are --we continue to be very diversified in terms of industries. And that should be very positive for the future of the company.

Okay, thanks. And I just wanted to follow up here the delivery location investments that you are making. Can you just talk about how your efforts in scaling the Central and Eastern Europe locations are progressing?

Yes. So in the case of Central and Eastern Europe, we have operations in Romania and in Belarus as of now. The operation in Belarus is going very strongly, very nicely. And we have some on-board customers in the gaming industry and we are very optimistic about that. In the case of Romania, that operation is also growing nicely. Again, we are still early stages integrating that operation into the rest of the Globant but we find extremely good talent in both regions. And we find complementary skill sets to the rest of the organization. So the fact that now we have a big operation in Latin America is growing and a very big operation in India. This emerging operation in Eastern Europe, I think is very positive in terms of our ability to hire, attract talent going forward. So we believe we're in the right places in different stages of maturity and of course Eastern Europe is a newer location for us. But both locations are performing in line of our expectations.

Our next question will come from Joseph Foresi with Cantor Fitzgerald. Please go ahead.

Hi. First question just on Disney. I think you said it's growing I think 25% plus and we thought that that was going to continue. What exactly are you doing for Disney? And do you expect that to be sort of consistent through 2020?

Yes. So in the case of -- Disney as you said we work for multiple sectors, we work for the parks and resorts division. We work for the cruise lines. We work for the TV channels that they own, the TV stations that they own. We work for DTIC which is directly to consumer international which is where Disney plus sits. So we are kind of working in multiple areas, all of them are growing at different levels but all of them are growing. The one that is growing the fastest at this point is DTIC which is the one that has the Disney plus platform included there. We are --again doing a lot of work to get, to help Disney increase or and improve the usability and the level of content that they are into the platform. That is one of the areas of more growth and then on the park addition, we are helping Disney on some of their parks that are outside of Florida to bring some functionality like the one that we've been working with them in Florida.

Got it. So -- but it isn't one project, just around the magic band, you're in one particular geography. It's a bunch of different work that's going to carry the growth there.

That is correct. Affordable geographies, multiple stakeholders even multiple companies within Disney group right, Disney group is --it's a huge company and we are working for very different stakeholders. Also for Fox, we do work Fox, so multiple stakeholders there.

Got it. Okay. And my follow-up, just on the organic growth side. What's the organic growth in Q4? And can you remind us of your thoughts around, sort of, long-term margins? I know you've taken on some new acquisitions. I'm just wondering if those are accretive or dilutive. And if you expect to offset it? Thank you.

Thank you, Joe. So yes I mean again for Q4 we are targeting around again depending on how you measure some of the engineers that are working for our customers so on and so forth, we're targeting around 20% to 21% organic and the rest about 8% to 9% inorganic contribution that's work you for going forward we continue to think that 20 organic plus some contribution or associations that is what we expect for the midterm. And then in terms of margins, the companies and we both as usually these are smaller companies on the gross margin they are at similar levels where we are. In terms of SG&A usually they come in a little bit heavier SG&A but once you merge the two companies eventually you start to see some efficiencies over there. And hence that's what we think that margins going forward to be kind of more stable for the next year or so.

Our next question will come from Diego Aragao with Goldman Sachs. Please go ahead.

Yes. Thank you for taking my question. Hi, Martin. Hi, Juan. I just -- the first question is regarding the length of the contract. I mean you are clearly expanding on your strategy to grow within existing customers. So I was wondering if you can just comment on the length of the contract and new agreements you are signing up at this point with these clients. Thank you.

Sure, Diego. Yes what you are seeing and it has been a trend in the last two years is an extension in the length of the average contract. The reason for that is that what used to be digital projects now became digital programs or company or company-wide transformational programs. And we are doing a number of those in different industry. So the average length is right now at around 16 months, but of course the legal contract let's say average right because what happens a lot is that project gets renewed and renewed again and again every year. So when we look at our top 10 accounts for example, we've been working with them for more than eight years on average. So and in some cases we'll be working on the same project or similar project for example for one gaming company for more than eight or nine years already. So what you see is that program and projects specifically those are that consumer facing projects actually never end. They keep evolving and evolving and adding new features, new functionalities. They keep growing and growing as long as they are successful. So just to answer your question short, it's growing, it's now at 16% on average -- 16 months on average, but we continue to see that expanding over time as the digital programs become a larger part of the revenues that we have.

That's super helpful. Thank you for that. And, I guess, my second question is just a follow-up regarding Latin America. I do understand that you have a very little exposure actually, like to Chile and Bolivia. And I know those countries are facing a very, let's say, a lot of uncertainty on the political side, so I was wondering if you can just comment whether you have like some revenues exposure to those countries and -- and the number of employees you have, and whether we should be worried about something for the fourth quarter? Thank you.

Yes, thank you for your question. So, in the case of Bolivia, we don't have any operations or any customers there. So -- and then in the case of Chile, which is there, and plus the other countries are right now, is going through some political issues. We do have some revenues, actually we are growing quite a lot there, and we are working for some of the largest companies in Chile. At this point, we are not seeing any impact of the political issues that they have, you know that these companies continue to invest. We are working on long-term projects there. So we haven't seen any impact in terms of our employees, they continue to go to the offices, they continue to go to work, they continue to work at the customer premises, and we haven't had any issues over there. And we expect, we hope that the situation gets resolved as soon as possible for everybody.

Very clear. Thank you. And maybe, just a quick follow-up, I mean if we would look in constant currency. How much are you growing in Latin America? Thank you.

Yes, so the revenue. The impact of FX was about 80 basis points on the revenue. So instead of growing 27.3% as a company, you know at constant FX, we have grown about 28.1%. Again, we have very little exposure, especially, in Latin America, we tried to reduce, and to invoice our customers in dollars. We try to avoid using local currencies. We only -- we typically have like contracts in dollars, and then, when we pay our salaries, in most of the countries where we're operating. We pay salaries in local currencies. So, in a way -- the way it works is that, on the revenue, have little impact on the cost side, and that's why, sometimes we talk about, you know, FX impact on our costs. That's why you may have some benefits or headwinds depending on how currencies evolve over time.

Our next question will come from Arturo Langa with Itau BBA. Please go ahead.

Hi. Good afternoon, everyone. Thank you for taking my question. Just two very quick, but the first one is, so organically, just to confirm, but I estimate that revenue growth was close to 24%, which is mostly in line but a bit above the 23% of the previous quarter. I just wanted to verify that. And then second, regarding Argentina, could you remind us what the plans for the government are regarding the export taxes. I understand that we should be working as they were to stay, but I believe that they will be renegotiated or potentially up for discussion either 2021 or 2022. If you could just remind me the dates, that would be very helpful. And also what your expectations are there? Thank you.

Yes, so, hey, Arturo, thank you for your question. So, for the first question, again, both the regarding the [Indiscernible] deal and the Belatrix deal, the integrations are going very fast. They are selling, and our customers who are selling their customers, the team target mix. So, sometimes it's not so easy to do -- to put an exact number, but we are -- we estimate that for Q3, 20.5% to 21.5% of revenues, are organic purely organic. And then you have another 6% to 7% coming from customers that came with the acquisitions. And that's for the first question. For the second question, the export tax, it stays until the end of December 2020. It is ARS0.04 per $1 of exports, and then by the end of 2020, the governments will decide what they're going to do with that tax.

Thank you. And for that -- in that regard, you're working -- your base scenario is that it will stay or do you think there is a high likelihood that it could be removed.

Look, I have to work with whatever is stated in the regulation, which is, that it's going to disappear. Of course, internally we work with different scenarios. But this is -- what -- we need to think that what's going to happen is that it's going to disappear.

Okay. And on that point, is there any other piece of regulation that you're looking out for in Argentina or anything that we should keep our eyes on considering the -- the incoming government will likely face -- or likely -- or has a majority in Congress?

Again, it's -- we don't want to speculate on things that could be, I mean, there are multiple scenarios that are possible. What we can tell you is that, Globant starting in 2003, we grew the company with different governments. We took it public under the previous administration. We continue to grow with this administration. So Globant is global company. Only 3% to 4% of revenues are coming from Argentina. Only about 30% of headcount is in Argentina, and the other 70% is outside of Argentina. So we will continue growing in Argentina, as we will continue growing outside of Argentina as well. We are a global company, and we need to deal with multiple current countries. We operate in 16 different countries, as we speak, and our target markets are still primarily in the US and Europe.

Okay, but nothing specific to the sector, though? Nothing specific to the technologies -- [Multiple Speaker]

No, Arturo -- if you want, there was some good news. I mean, like in the case of Argentina, the new government. Sorry, the previous government, I mean, administration passed the new regulation for the -- which extend the benefits that we have under the software promotional offer i.e. 10 years. The new elected President [Indiscernible] is, in Mexico, by the way, a few weeks ago, was very optimistic about the industry. I mean, our industry generates a lot of employment in the country. I mean that we are a country where we are operating. It generates dollars because it's primarily an exports industry. So, I think every government in every country would want this type of industries to grow. And the elected President, Mr. Fernandez was very positive in his visit to our offices. End of Q&A

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

Okay, so thank you guys for joining the call. Thank you for your continued support, and see you soon. Bye-bye.