Globant S.A. (GLOB) Q2 2020 Earnings Report, Transcript and Summary

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. As we championed the drive for digital and cognitive transformations, companies continue to respond. In quarter two, we brought in $182.7 million in revenue, delivering 16% year-over-year growth. These figures are encouraging given that the first half of the year brought an unprecedented global event that got everyone worried from the boardroom to the living room. However, our team took an inventive approach of proposing flexible and adaptive solutions for our current and potential clients. This way, we were able to weather this storm. Our profitability was also healthy with an adjusted net income margin of 10.9%. We know that much uncertainty remains on the road ahead for everyone, but we also know that we face a unique opportunity. COVID-19 tested us in new ways. And from day one, I told our Globers that we needed to be closer to our clients than ever. We're determined to emerge from this situation much stronger than before. Global companies are entering a new phase of hyper agility that demands swift, efficient and enjoyable collaboration between teams, regardless of where they are. They need smart and seamless connections with their customers and a partner that understands how to guide them to become an agile organization of the future. At the same time, companies must also be mindful and sensitive to what is happening on our society. Diversity, inclusion and environmental care are key. These concepts should not only be company policy, but should be shared with all our employees and stakeholders. To go over how Globant is approaching this, I would like to invite Patricia Pomies, our Chief Delivery and People Officer, to give you all a perspective on how we are looking out for our Globers and our communities. Pato, please.

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 and programs to accompany women grow their careers through their life stages and to elevate their growth and leadership with a specific mentor programs, policies, and courses. We will continue to invest in these initiatives as we promote a global and inclusive company with equal opportunities for all our Globers. Thank you very much. Martín? Martín Migoya: Thanks, Pato. I want to highlight the importance of all our Be Kind initiatives, making sure a true impact on society is very important for Globant. Now, let me share some of our business updates. As we expand our global presence to better serve our clients, we are repositioning key executives to lead this exciting phase. In the U.S. and Canada, Fernando Matzkin has been recently appointed as our Chief Business Officer to fully oversee our growth strategy in our largest market. Fernando will work closely with Nicolás Ávila in his new role as Chief Technology Officer for the region, and Guillermo Bodnar, Head of our Chief Solution Officers. In Europe and Asia, we will enter into new markets like Germany, France, Switzerland, and Singapore led by Federico Pienovi. In Latin America, Nicolas Kaplun will continue his leadership along with Sabina Schneider in her role as Chief Solution Officer for the region. We have also appointed Vivian Sauksteliskis as Global VP of Operations to drive our execution in our most high demand accounts. We're confident that these appointments are going to continue to lead our worldwide growth. Now, I like to double click on what we have been working on. As you may know, the financial services and FinTech industry has been growing for several years. It currently makes up nearly a quarter of Globant’s revenue. This industry has taken off during this pandemic as more economies need to go cashless. Users expect a streamlined experience from their banks and financial services providers. Our banking clients rely on our expertise to transform their digital products into smart revenue generating business lines. Cogni is a great example. This disruptive company is building a next generation platform that brings together banking, commerce, and lifestyle. Globant is building a new banking service for Cogni and enabling financial innovation targeted at a tech savvy demanding user base. Education has seen a tremendous impact as well. My kids like many of your own as well have been taking classes virtually over the past few months. Companies also need to deliver their trainings in a virtual way. For educators and organizations, this creates a major challenge to revamp their digital skills and produce high quality online content that can be delivered on time. Globant has been serving the ed-tech industry for several years and we have redoubled our efforts in 2020 in response to the pandemic, among several of our ed-tech customers, BlackBoard stands out, with nearly 100 million users, it is the largest education technology and service company in the world. They came to us to enhance their blackboard learn product line and to deliver customized solutions to their higher education segment. And finally, we must mention the most directly impacted sector this year, healthcare. I'm proud to say that we have been working alongside our clients in the healthcare and life science fields, especially in this critical time. Globant is partnering with the American College of Chest Physicians to develop their web app known as the clinician matching network. This app bridges the gap between healthcare institutions that have personal needs and healthcare professionals available. We have also seen this digital acceleration in another client, Alea Phoenix. With technology and data as a core of their efficiency and experience Globant is working with them to help them transform into smart data driven organization. These are just some examples of our work and how we build long-term relationships with our clients. As you know, since 2016, we have been driving our growth strategy under our 50-Squared vision, where we organized our most senior teams to focus on 50 clients that will bring $50 million of revenue each. Since then our company has evolved, expanding our reach, our services and our talent throughout industries and regions across the world. With the 50-Squares program, we have brought in several key accounts that have turned into some of our top clients. So, as we look into the future, we know that we are ready to go for more. We’re elevating our vision to the 100-Squares objective. We want to focus our most senior teams on bringing and building long lasting relations to reach $100 million in revenues coming from our top 100 accounts. Right now, many organizations need serious change. Therefore, we brought together our most impactful services offering, so that organizations not only survive, but thrive. This Continuity Studio offers digitally enabled solutions to strengthen business operations and create opportunities at the time when constant change is the reality. Of course, digital transformation is not just about technology. It's about culture. Companies cannot change without cultural adoption. So, we complement our bulk offering with our cultural discovery framework. We help companies to empower their employees, so that they drive innovation at scale. Many companies heavily invest on how customers interact with their brands. They need to do the same thing with their employees. We believe in designing an employee experience journey to make them truly fall in love with a company. That way they will fully embrace the values and drive it forward. Last quarter, I laid out an augmented collaboration concept to all of you. Globant is supplying its skills and AI technology to bring our client companies into the digital age. Right now, we're implementing this concept across our entire offering. This quarter, we patented our augmented coding technology. We're taking software design to a new level. This technology will be key to the transformations we carry out. Augmented coding can be used to jumpstart the onboarding of new people to quickly learn new skills and programming languages and even to get a clear understanding of legacy code without spending hours going through it manually. This enables engineers to work more quickly and creatively. They can spend more time on more elaborate solutions. To present this technology and show how we are reinventing coding, we will host our next Converge event on September 17. Our keynote speaker will be Steve Wozniak, Co-Founder of Apple, who will be discussing innovation and the future of software development. I invite you all to join us by signing up at converge.globant.com. On June 3, we closed a public offering of 2.3 million common shares, including the greenshoe. We wanted to raise capital for our expansion plans. We're extremely happy with the outcome of this follow on. The book was 2.5 times oversubscribed. The response we received showed that our unique positioning continues to set us apart. I want to thank you for your help and support during this process. Last week, we announced our acquisition of gA. Headquartered in Miami, gA is the leading cloud developer and digital transformation company. They bring wide expertise in cloud journey and enterprise app services to Globant as well as a broad client portfolio in key industries such as healthcare and life science. Their clients include Johnson & Johnson, Honda, PepsiCo, Cardinal Health, Medtronic and many others. They have strategic partnership with companies like Oracle and SAP, a specialist in data science and machine learning and process intelligence. With over 1000 IT professionals, I'm really happy to have them on board. The synergies between our teams will produce unique services to our clients. In the face of what this year has thrown at us, I'm extremely happy about how our team responded. We're not shaken in our drive to reinvent our industry. We have found our footing and have a healthy pipeline and our business continue to expand as we go through this year. And now it's full speed ahead as we continue to grow, think, reinvent and have some fun too. Now I'll turn it over to Juan to go deeper into the financials. Please, Juan. Thank you very much.

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 was down 12.4% quarter-over-quarter. We expect revenues from Disney to increase in the third quarter on a sequential basis, as we are now experiencing improvement in the account. As we have discussed previously, we are very well diversified within Disney serving the majority of its subsidiaries. Revenues from top five and top 10 accounts increased 36.2% and 27.2% respectively over the second quarter of 2019. Customers 11 and beyond increased 8.2% year-over-year. On a sequential basis, revenues from customers 11 and beyond decreased 11% during Q2 2020 due to the impact from COVID-19 primarily in our travel and hospitality, entertainment and some retail customers. Our top accounts are proving to be more resilient to COVID-19 impact relative to the rest. Our customer concentration numbers for Q2 2020 with our top one, top five and top 10 accounts representing 10.7%, 31.9%, and 44.9% of revenues compared to 10.4%, 27.2% and 41% of revenues respectively for the second quarter of 2019. Looking at diversification of our revenues by industry verticals, we remain balanced across the different industries, with financial services and media and entertainment, leading the pack, accounting for 24.8% and 23.4% of revenues respectively. Professional services and financial services were the fastest growing industry verticals in Q2, growing at 52% and 33.3% year-over-year respectively. Regarding the progress of our 100-Squared strategy, during the last 12 months ended June 30, 2020, we have 13 accounts above $10 million in annual revenues compared to 12 customers for the same period last year. And we had 113 customers with more than $1 million of annual revenues compared to 97 one year ago. We continue to expand our relationships with our key accounts, the basis for our continuous growth. In terms of geographic regions during the second quarter of 2020, 72.8% of our revenues were in North America, 20.8% in Latin America and others, and 6.4% in Europe. During the second quarter of 2020, 87% of our revenues were denominated in U.S. dollars, providing a hedge to our top line against currency fluctuations. As we have discussed before, while the COVID-19 pandemic has created some near-term pressure on revenues, it is also creating opportunities to deepen our relationship with our customers. Moreover, we believe this crisis will create material near and midterm business opportunities to accelerate or initiate digital transformation journeys for enterprises across the globe. At Globant, as previously discussed by Martín, we're prepared to capture those opportunities. Turning now to profitability, our adjusted gross profit for the period increased to $69.8 million, representing 38.2% adjusted gross margin compared to $63.3 million representing 40.2% adjusted gross margin in the second quarter of 2019. Year-over- year adjusted gross margin decline is mainly explained by the lower revenue due to COVID-19 and lower utilization as we have been managing our headcount with the assumption that COVID-19 crisis is short term in nature. We finished the quarter with 12,333 Globers, 11,573 of which were IT professionals. Following several quarters of very strong net addition of Globers in anticipation of what was expected to be a very strong 2020 prior to the COVID-19 outbreak, we decided to focus on selective hiring of IT professionals in the second quarter of 2020. This temporary adjustment in our hiring activity was in response to the evolving COVID-19 crisis and the employee exits in Q2 offset hirings during the same period. As a result, the total number of IT professionals decreased 1.5% sequentially, those still growing at 25.6% year-over-year. Now, as our business is picking up, we have turned our recruiting engines back on and we expect to be again, net positive in employee additions during the third quarter. Over the last few years, Globant has invested heavily in establishing robust hiring and training infrastructure across the globe, which gives us a strong ability to seamlessly ramp up hiring and trainings as required. At this moment, we don't expect any challenges in finding the right talent to meet the demand. Attrition for the past 12 months continued to decrease at 14.3% compared to 15%, one year ago, showing a significant improvement in most talent development centers. As discussed during the last earnings call, amid the COVID-19 crisis, we have decided to avoid layoffs, as we expect the demand environment coming out of the crisis to be strong. We managed headcount by controlling hirings and attrition. This has led to decreasing utilization, which impacting margins during Q2. We are countering some of these impact through freezing G&A hirings and keeping a strong reap on expenses. That said, we now expect utilizations and margins to trend slightly up in the third quarter. Adjusted SG&A came at 20.7% of our quarterly revenues, an increase of 80 basis points compared to Q2 2019, despite having achieved quarter-over-quarter savings in dollar terms. We have continued investing for the future primarily to expand our sales coverage in our target markets. This focus will better prepare us to capture the increasing demand post COVID-19 crisis and help maintain our robust long-term revenue growth profile. As a result, our adjusted operating income for the quarter amounted to $24.6 million or 13.5% of revenues compared to $25.9 million or 16.4% of revenues for the second quarter of 2019. As utilization and revenue growth profile improves from here, we expect adjusted operating margin trend to improve from current levels as well. Share-based compensation expense for the second quarter of 2020 amounted to $6.5 million representing 3.6% of total revenues for the period. This expense is mainly related to the plan of restricted stock units granted to certain key employees and directors of the company as part of our long-term retention plan. Finance expenses amounted to $2.7 million in the second quarter of 2020 compared to $1.3 million for the same period last year. This loss is mainly composed of interest expenses on lease liabilities and interest expense on borrowings. Other financial results, net amounted to a gain of $0.9 million for the quarter compared to a loss of $1.4 million during the second quarter of 2019. This item is primarily composed of FX results from monetary assets and liabilities in local currencies, results from our hedging strategies and gains from transactions with bonds. Our IFRS effective tax rate for the quarter was 25.1% coming in line with our expectation of 24% to 26%. We still expect the full year 2020 effective tax rate to be between 25% and 27%. Adjusted net income for the second quarter of the year totaled $19.9 million representing 10.9% adjusted net income margin compared to $19.9 million representing 12.6% adjusted net income margin for the second quarter of 2019. Adjusted diluted EPS for the quarter was $0.51 based on 38.8 million average diluted shares for the quarter compared to $0.53 for the second quarter of 2019, based on 37.6 million average diluted shares for the quarter. Moving on to the balance sheet, our cash and investments as of June 30, 2020 amounted to $404.1 million, while borrowings amounted to $76.8 million. During the second quarter of 2020, we raised $301 million in a primary follow on offering for 2.3 million shares. We paid $50 million of our credit facility and had a strong free cash flow generation over the quarter. We would like to thank our shareholders for the success of the follow on transaction, which was more than 2.5 times oversubscribed, and was also our first primary equity issuance since our IPO in 2014. While our cash flow generation profile satisfies our needs for investment in our business, our current credit facility of $350 million along with more than $300 million cash raised recently through our public offering of common shares provides with the flexibility related to internal investments while also generating sufficient firepower for us to pursue any potential strategic M&A. This cash position also materially strengthens our cost to market cap ratio. During the second quarter and despite some impacts from COVID-19, we generated free cash flow of $20.2 million. As mentioned in past earning calls, typically, the first part of the year has a lower free cash flow as we pay bonuses and taxes. And the second half of the year is when we generate the majority of the free cash flow. Now, let's talk about the six months ended June 30, 2020. Revenue for the six months ended June 30, 2020 was $374.3 million implying at 23.2% year-over-year growth. This increase was boosted by our strategic accounts and new customer wins as our portfolio of high potential customers continues to expand. Adjusted gross profit for the six months period was $145.4 million, 38.9% adjusted gross margin. Compared to $123.4 million, 40.6% adjusted gross margin for the same period last year, a decrease of 180 basis points. On a year-to-day basis, this margin compression was mainly explained by the lower revenues due to the impact of COVID and lower utilization. As we manage our talent pool, assuming this crisis to be short term in nature. Adjusted SG&A increased 50 basis points accounting for 20.5% of our revenues for the last six months ended June 30, 2020. Adjusted profits from operations for the six-month period ended June 30, 2020 was $54.5 million or 14.6% adjusted profit from operations margin compared to $50.6 million or 16.7% adjusted profit from operations margin for the same period last year, representing a decrease of 210 basis points. Adjusted net income for the six-month period ending June 30, 2020 was $44.3 million or 11.8% adjusted net income margin compared to $38.4 million, 12.6% adjusted net income margin for the same period last year, representing our compression of 80 basis points. Adjusted diluted EPS for the six-month period ended June 30, 2020 was $1.15 based on 38.4 million average diluted shares for the period compared to $1.02 for the same period last year based on 37.5 million average diluted shares. To wrap up, I would like to share with you our outlook for Q3. Based on current visibility, we expect Q3 2020 revenues to be at least $203 million or 18.5% year-over-year growth. At this point, we do not expect any FX impact our third quarter revenues. Q3 adjusted operating margin is expected to be in the 13.5% to 15.5% range. And adjusted diluted EPS is expected to be at least $0.58 assuming $40.9 million average diluted shares outstanding for the quarter. Included in this Q3 guidance, we estimate gA's contribution as $11 million in terms of revenues and $0.02 of adjusted diluted EPS. We remain confident of our strong positioning in the digital and cognitive space. Given that the end market still has material uncertainty due to the COVID-19 evolution and impact predicting full year 2020 results with very high levels of confidence is not feasible at this time. Therefore, we will not be guiding for the full year 2020 for the time being. Thanks everyone for participating in the call for your coverage and support. Operator, can you please queue questions? Thank you.

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.