Good day, and welcome to the Globant Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask question. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Amit Singh, Head of Finance and Investor Relations for the U.S. Please go ahead.

Thank you, operator, and thanks, everyone, for joining us today on our call to review our second quarter 2020 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 Martín Migoya, Co-Founder and Chief Executive Officer; Juan Urthiague, Chief Financial Officer; and Patricia Pomies, Chief Delivery and People 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 is how we track performance internally and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our Investor Relations website announcing this quarter's results. I would now like to turn the call over to Martín Migoya, our CEO. Martín Migoya: Thanks, Amit, and hi everyone. It's great to be with you again. I hope you all continue to be safe. This year has accelerated the need for digital transformation across all industries and regions and the need will continue to grow. As markets and markets reports the industry for digital transformation is expected to double from the current values to more than $1 trillion a year by 2025. Here at Globant, I'm excited to say that this has been another successful quarter for us.…

Thanks, Martín, and hi everyone. It's nice to be with you again. I'm proud to say that over the past month, we have been able to keep working hard from home while we continue to meet all delivery commitments to our clients. Therefore, with our employees needs in mind, we will continue to work from home status for the time being. We will develop phases of returning to the office as the public health conditions allow it. In this challenging time for our global community, organization must lead the way to advocate for diversity and promote inclusion. They should also foster a culture where everyone can grow regardless of their race, gender, religion, nationality, or sexual orientation among others. Globant cannot and will not be on the sidelines. First, we launched a new campaign called #All4Equality aim at raising awareness of diversity and inclusion at every level of decision making. With support from our clients, an extra effort from our Globers and our own corporate donation we've raised money that was donated to 13 organizations that work to protect underprivileged community across the world. Globant is also doubling down our Be Kind initiative, which I have shared with you on several occasions. We are moving forward with our commitment to achieve 50% of management position held by women and non-binary genders by 2025. We have implemented a framework with different stages that will help elevate gender minorities in our industry. This framework, which includes the collaboration with the key partners, span across all the stages and needs of individuals. We thrive to inspire by getting more women and non-binary gender people interested in the STEM fields to educate by offering trainings and scholarship and expand gender minority participation in the IT industry to promote equal opportunity hiring through specific policy…

Thank you, Martín, and thank you all for joining us today. I sincerely hope you, your families and colleagues are all well and safe during this unprecedented times. Let me start by summarizing our second quarter 2020 results. I will then discuss our guidance for the third quarter. We are very pleased with our overall results for the second quarter of this year. As we displayed strong execution, amidst turbulent macroeconomic environment. Our revenues for Q2 amounted to $182.7 million, beating our guidance and representing a solid 16% year-over-year growth. Q2 revenue growth was 17.9% year-over-year in constant currency. As we predicted in our first quarter earnings call, COVID-19 had an impact on our second quarter revenues. In Q2, we witnessed some project delays and also a few project cancellations, primarily in the travel and hospitality vertical. This impact was most pronounced at the beginning of the second quarter. However, the overall demand environment largely stabilized in the latter half of the second quarter. And in fact, we have started witnessing improvements in the end markets in the last several weeks. We remain bullish about the demand environment, past COVID-19 crisis and are encouraged by the recent positive trend in our bookings. That said, we also remain cautious about any potential impact to the end market due to additional waves of lockdowns, especially post summer. As discussed on our last earnings call because of all the swift actions related to transitioning our employees, to working from home, we have continued to maintain seamless delivery of services to our customers. Moreover, due to the strong and innovative initiatives by our delivery and people team, employee productivity and morale remain high. Disney was once again our largest customer for the quarter, growing at a healthy 19% on a year-over-year basis, but it…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Tien-Tsin Huang with JPMorgan. Please go ahead.

Hi. This is Puneet sitting in for Tien-Tsin. Nice quarter. So, Martín, now that we are into five months of this pandemic. How's your competitive profile changing? Are you seeing that clients are increasingly going to digital specialists like yourself versus legacy forms? Martín Migoya: Well, look, there's a movement towards – can you hear me, Puneet? How are you? Sorry, and thank you for the question. We are seeing like a lot of demand happening on the pure digital players increasing. Seeing that, meaning either from the entertainment industry or from the finance industry, those players are really picking up very, very fast. Like you saw Disney, and we expect, as Juan said a few minutes ago, that we are coming back in the demand within our main customer, which is great news. So last quarter, I said that I was seeing like a plateau on the pessimism. I still see that right now, a plateau on the pessimism and some interesting facts starting to happen. And again, every industry, every government, every institution, every single interaction that you need to have at planetary level with your consumers, customers, citizens, whatever will need to be totally different. So, we are seeing demand on those companies that are understanding this new challenge.

Got it. And your third quarter guidance implies double-digit sequential growth. How much of the growth could be attributed to – that got pushed out from 2Q versus growth that stems from long-term trends of increasing digital mix shift? And is there any business that you expect will deteriorate from 2Q into 3Q? Any verticals like travel and all that could further deteriorate from current levels?

Hello Puneet, how are you doing? This is Juan. So, we're looking into Q3. We are estimating about 12% organic growth in the quarter, plus another 6%, 6.5% coming from inorganic. That is a pick – there is both. I mean there is a pickup from historical ongoing relationships. Some companies that kind of work in a wait and – a little bit of in a wait and see in Q2 to understand what was going to be the full impact of the crisis, they are coming back because they are starting to be more optimistic about what's going to happen. We have seen some impact on travel and hospitality as it was expected. That will continue a little bit during Q3. They are still not coming back strong. We have seen some of them coming back a little bit, but there's still some of the airlines, some of the cruise lines that continue to struggle and pushing out some projects. So the Q3, again, is a combination of some companies that were on a wait and see until they have a little bit more clarity when they are coming back, and the acceleration of digital formation, in general, as Martín was explaining, given the new way in which companies are interacting with employees, with consumers, with the rest of the population in general.

Got it. Thank you. Thank you. And this augmented coding looks really cool. We will look for more details there. Thank you. Martín Migoya: Yes, absolutely. Thank you so much Puneet.

Your next question will come from Bryan Bergin with Cowen. Please go ahead.

Hey, good afternoon. Thank you. I wanted to ask – you mentioned that you're encouraged about the trends in bookings. Can you give us any color or metrics that you might be seeing there? Really any color on the pipeline or the signings cadence pre-COVID versus where it may be today? Martín Migoya: Yes. Sure. Thank you very much. How are you? Look, the cadence looks like it was pretty bad during the beginning of the second quarter and the beginning of the pandemic and all that portion when all the impact that we received, mainly from releases, mainly from projects ending on those industries that are more affected, but not that much in the term – in terms of the bookings as a general speed. It was never too low. What we are seeing now is like a much – like a larger number of bookings happening a little bit faster than before and a little bit longer term than before. This is the trend. And we never saw a deacceleration on the bookings that was too big, but what we saw was like some big projects releasing people because of the problems that we are seeing. Now we are seeing two moment: a slow on the releases on how projects are ending, and then we are seeing an acceleration, slight, a slight acceleration on the way new bookings are being generated. Is that clear enough?

That make sense. Thank you. And then I'm kind of curious on really just the slope of this growth recovery and how you're thinking about it. I guess more so, how are clients thinking about the spend and the pace of spend on the digital transformation program? You mentioned in your view that this is a short-term phenomenon. Would you say there is so much pent-up demands that once we get some macro certainty, the kind of flood or the dam and floodgates release? Or is this something more gradual than that? Martín Migoya: No. We are seeing something gradual. Although people – I think people and companies understand that this thing is short term in nature, and there are already vaccine candidates. There are already advanced – there are countries that are starting to generate vaccines, and not just Russia that what we heard a few days ago. So, I think the market in general is understanding this as a relatively short-term issue. So, what we are seeing is this coming back is being taken as a more solid trend than when I dated to report the first quarter three months ago. So, this is what I'm seeing now. And again, the trend is coming from those companies that need to make that transformation happen.

And maybe, Bryan, to add on top of that, there are some new trends that will very likely continue. The increase in streaming services, the increase in online education, gaming, all the new games that are being played out there, more being played out there, more e-commerce than ever. So, there are some trends, which are actually reshaping the way which people in care good companies, which would be something positive for the industry going forward.

Okay. So, you really have some sharp and high pockets of growth versus some more obvious ones that will be gradual, and there are a couple… Martín Migoya: It’s okay.

Appreciate that. Thank you.

Thank you, Bryan.

Your next question will come from Arvind Ramnani with Piper Sandler. Please go ahead.

Hey, guys. Congrats on a terrific quarter. Martín Migoya: Thank you.

You're very bullish on the overall demand environment, and it looks like there are many looks like there are many different looks like there are many different opportunities. Can you help us understand how are you prioritizing your investments in terms of developing specific offerings? And secondly, your investments in terms of developing specific offerings? And secondly, are there specific areas that are a small portion of your current revenues which you think will become more substantial over the next two to three years. Martín Migoya: Yes. In terms of the prioritization of where we invest, as you have seen, we launched two, three new studios, and we are beefing up some others that we had from before in terms of investment, in terms of where we are seeing. For example, on the conversational space, we're seeing a big trend. On the gaming space, we are seeing some trends going up, but not just on producing games but also on operating games, which is something that is becoming big. Also, we are investing in the life science space with the last acquisition we did. We acquired like a big group of people and big clients to own the life science space in which we have already people and projects there, but they were not that substantial as they are today. So that's another big investment that we are doing. The second part of your question was, sorry?

Yes. Are there any specific areas of your offerings which are specific areas of your offerings which are only very small portion of your current revenues but over the next two, three years, you think will become much, much larger? Martín Migoya: Look, I think the conversational space, although now it is small, it would be very big as everything is moving into conversations and people are doing – are thinking about how they save on building applications that compete on the App store, on thinking about how I place a robot behind Facebook Messenger or WhatsApp or any of those platforms, so we can accelerate that. That's one point. The end point that I see that given this new technology that we're bringing to the market is augmented coding. We are kind of reinventing the way in which – the way of being – of generating code is happening, and we see that as an acceleration of our current clients and current services. Although right now, we are implementing that all across, as we said, all across our customers. And I think that, that could drive big things for the future. And the third one is our platform that we are using in a very successful way, which is StarMeUp OS. We have been dealing with that for many years already, and I think now we are discovering some ways to make it grow faster. But those are the two or three things that could be really big for towards the future. And of course, we just did the acquisition on the life science phase. Now I think life science, it could be really be connected to this.

Great. I just had one more question. I know Puneet had asked this, but let me ask you in a different way. Certainly, 2Q is very good. And 3Q also, you provided a really good guidance. Are there any workflows in 2Q or 3Q which are one-off in nature? Or are there any projects which are just short term and one-off in nature? Or are – is sort of the upside in revenue is coming from projects that are much more ongoing and the ability to continue into 4Q and into next year?

So, this is Juan here. How are you, Arvind? So, look, I mean what we have and what we continue to see are transformational programs, right? We may have seen some companies slowing down a little bit on that at the beginning of the Q2. Keep in mind that we decided to keep our employees in the company because basically, we thought that we were very positive that this was going to be short term. So now those companies are starting little by little to come back and to accelerate again on some of those projects. We are ready to start because basically, we kept pretty much all the people in the company, and now we came back with strong hiring to be able to face that demand. So now you will see not only those programs that were kind of slowed down, accelerating and coming back. But also, there will be some new logos, some new companies that are now deciding that it's the time that they cannot wait any longer to start these transformational programs. So no, I don't think there are one-offs. What you do have is some projects that were slowed down coming back.

Great. Great. Thank you very much and I will get back in the queue for additional questions.

Thank you. Martín Migoya: Thank you.

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

Hi. This is Ted on for Maggie. Martín, so during the quarter, you touched on your prepared remarks, you announced some new members of your management team, including to general managers in Europe. Should we read into this in terms of increasing focus and building out the presence in Europe more meaningfully? And maybe any color you can add on expectations for Europe in the near-term here? Thank you. Martín Migoya: Hi. How are you? Thank you. Tell my regards to Maggie. The answer – the short answer is yes, and so we are looking into many different customers in Europe and compete from many other customers. We see our competitive offering very attractive for the Europe market, and I believe that this year could be a very good year. As you have seen, the year-over-year growth that we deliver for Europe – it's quarter-over-quarter growth, sorry, that we delivered for Europe, it's very good. And I believe that, that trend will keep on happening. So, the answer is yes. We separated Europe in two. We analyzed how we are going to – so how we're going to be investing there. We are thinking about new countries. We're thinking about new spaces for revenue, countries like Germany, for example, that before were pretty much unexplored, and now we're seeking opportunities there. I think that this is enough color for the questions.

Yes, may be to add on top of that, Europe for Globant has been a $50 million operation, and it's very clear that the size of the customers, the need of – the needs that those customers have are the same than the ones that we have in the U.S. So, for us, it's really an unpenetrated market. So, it's a very large opportunity, and we are putting a lot of effort and investment to materialize that opportunity.

That’s great. Thanks for the color on that. And then I wanted to ask about the overall pricing environment and maybe how that's progressed over the quarter and changed since the first quarter. Thank you.

Yes, look, during the second quarter, as expected, some industries and some companies that have been partners for a long time were being really impacted by the COVID situation. They came and asking for some concessions and things like that. And very, very selectively on very, very few cases where we really felt that those companies have been long-term partners and that they were being impacted by the COVID. We did have some small concessions. Now that situation is coming to an end. And I think that, together with the recovery in the overall market and the overall industry, the pricing discussion will come back as it has always been. It's a very hot market historically. And in the hot market, when you are providing a service that is in very high demand, you're typically able to get a premium or an increase in your pricing. So maybe it's not still that moment yet, but it shouldn't be too far from now.

All right, thank you very much.

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

Thanks. Hi, Martín. Hi, Juan. Hope you are well. My first question is with the 100-Squared initiative. I think you have currently one client, about $50 million. So, I am kind of wondering what the meaning is currently of announcing or expanding the – from 50-Squared to 100-Squared. Are you going to ramp up spending on sales? Is this – is it just more of a very long term, yes, we want to get to much larger clients? Is there – I mean I just want to get some color on this. Martín Migoya: Yes, I'm not thinking about changing that. It's just change in the vision, not change in margins, expecting change in margins for that. I am just changing the vision. I mean we are not that far from becoming a $1 billion company, and I think that having a 50-Squared room is not enough for the vision of the company and for the vision that we need to have. We need 100 customers instead of 50 that can drive $100 million in revenue instead of $50 million in revenue. So that's a renewed vision for our team and a renewed vision for what we want to do in the market. Now if that would imply anything different from what we had on the 50-Squared problem, the short answer is no. And we'll try to keep on driving growth and fostering those accounts that are growing fast, investing in those accounts in the same way we did in the past, in the same proportion we did in the past. Of course, there are regions that need some additional investment, but it has always been the case. So, I don't see anything changing, but the aim and the spirit of what we want to do was the company message for you guys, as analyst, a message for our team, too, for the whole company.

Okay. So, you – because I also see that the total number of active clients has gone down. And I'm kind of wondering, is that a function of just near-term impact of COVID? Are you perhaps refocusing and stepping away from clients so you can refocus on a narrower list that you can go after more actively? Or is it just normal ebb and flow of business?

Sure. Hello, Ashwin. Hope you are well as well. Look, as you know, we've grown the company a lot, keeping the same amount of customers for a while. So, what we were doing was basically focusing on the ones with more potential, and over time, ending some relationships with not really a lot of future. Then we had a number of acquisitions that significantly increased the total number of customers. But again, as we continue to push the company towards focusing on long-term customers with high potential, which is basically the vision that we have, that's why the 100-Squared now, what that means is that we will keep on focusing on those accounts. We will work with the others. Some of the others eventually may fade away because, again, the focus of the company is on those customers that can really, really invest and change what they do, change what they want to do with technology, and we can help them. So, I wouldn't look at the total number of customers. And in fact, we recently announced a deal that will probably increase again the number of total customers, but what I think what is more important is the quality of those customers and how every single quarter will continue to increase the number of accounts over 1 million, over 5 million, over 10 million, over 20 million. So that is the focus of what we are trying to do. That's why I wouldn't really look into the total number of customers.

Got it, understood. And then a quick clarification on the Q3 outlook. I missed what you said, the total inorganic contribution would be. So, there's gA and then there's only one month, I think, of Belatrix, no?

So, we guided $203 million, $11 million of those will come from inorganic. In the case of Belatrix – it's fully, fully integrated. I don't think – I mean the teams are all working together, the customers have been distributed together with the rest of the organization. So, I'm mostly talking about gA’s contribution because we just bought that company. And again, as always, you will see us very quickly integrating the teams and everything, but what we're estimating right now is $11 million coming from this acquisition.

Got it, so the 5% sequential is pretty good in this environment. Okay, thank you.

Thank you.

And our next question will come from Cesar Medina with Morgan Stanley. Please go ahead.

Hi, congratulations on the results. I want – I mean, you sort of touched on this earlier, but I wanted to get more visibility to the extent that, that's possible on how you are doing with new clients, new logos, especially on the new studio that you just launched. Thank you. Martín Migoya: Yes, sure. Hi. How are you? I think that there are many different fronts here. On the conversational studio that I said, we are having like a lot of demand from many different company size customers, from midsized company to large-sized companies. We're having like demand in terms of we need to be present on that new channel, and we are delivering those solutions to them, and we are working on those solutions with them. Then on the life science space, which is a new space for us, we're getting a lot of demand during this day. It's not just through what it came from the acquisition, but also big brands that we closed this quarter as new customers that we didn't have before. So, this is also very exciting for Globant. Then on the – which is the other one, conversational, the life science are the two main. Then we have on the gaming space. We're seeing like a migration on the deals going from – I mean no, it's not a migration but an addition going from creation and development of games into operation of games, and these games are being very intensive in terms of how many servers they have online, how many millions of people they need to serve. And with this pandemic, this all got accelerated. So, I'm feeling and I've seen like a lot of demand on that specific space. And then on the cash replacement space, I would say, it's kind of a fintech thing, we're seeing also a lot of activity. And many things are happening in many countries. And remember, the cash itself is like a vector where the virus can get transmitted. And people are preferring not to use cash, and that is being reflected in the demand we are seeing in that specific space. So those are four main areas where we are seeing a lot of activity right now. And of course, everything that it has to do with entertainment, online entertainment is growing very, very fast. And our main customers just got 100 million subscribers into their platform, into Disney Plus. That's remarkable. That happened in just 6, 7 months. So, I feel that something that's – that it will keep on generating things for us and we are placed in the right place.

Great, thank you. Martín Migoya: You’re very welcome.

And our final question today will come from Alex Kurtz with KeyBanc Capital Markets. Please go ahead.

Yes, thanks. Martín Migoya: Thanks, Alex Kurtz.

[Technical Difficulty] in Q4 given the challenges of hiring enough people during this period here with COVID. How should we frame hiring plans into the end of the year and into next fiscal year? I think that would be helpful for the models.

Hi. How are you? This is Pato. Well, we are seeing a pick in the hiring in Q3. You know that, as Martín and Juan were explained before, I mean we have many clients growing faster and asking for new talents, and we are developing new specific talent with the new studios also. So that we are hiring, I mean, in the peak for Q3. So, we are expecting to continue growing on that side. Juan, you want to…

Yes, thank you.

Yes, maybe…

Please go ahead.

Maybe on top of that, all of our engines are ready to hire from distance. We have been a very decentralized company for a long time, but we have always been able to – we are used to doing interviews on Zoom to do the first couple of updates in the office, meeting with people through a digital channel. So, this is just a little bit more of what we have been doing for a long time. But we are fully, fully ready to keep on hiring, to keep on onboarding people. All the training is ready to be done online or offline, whatever way. So, I mean it's going to be – I mean I think we're ready for the challenge of hiring in the current environment.

Thank you.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Martín Migoya for any closing remarks. Martín Migoya: Thank you very much everyone for participating in our Q2 earnings call 2020. And really looking forward to see you on our next earnings call and again and as always, thank you very much for your support and attention during all these years. Thank you. Bye-bye.

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.