Globant SA (GLOB) 2015 Q2 法說會逐字稿

Good afternoon, and welcome to the Globant 2015 second-quarter earning release conference call. All participants will be in listen-only mode.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Juan Urthiague, Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us today on our call to review our 2015 second-quarter financial results. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.Globant.com. Our speakers today are Martin Migoya, Globant's CEO, and Alejandro Scannapieco, Globant's CFO.

Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook, and the answers to some of your questions. Such statements are subject to the risk and uncertainties as described in the Company's financial release, and other filings with the SEC.

Please note that we follow IFRS accounting rules in our accounting 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 in our investor website announcing this quarter's results.

I'd like now to turn the call over to Martin Migoya, our CEO.

Thank you, Juan. Good afternoon everyone, and thanks for joining us today.

I have to be here to share some of the important highlights that happened during this second quarter of 2015. We had another great quarter. Both our revenues and EPS came above the upper value of our guidance from the last earnings call. Our Q2 revenues were $60.6 million, the highest quarterly revenue in the history of Globant, a 22.7% year-over-year growth. At the same time, adjusted EPS for this quarter were $0.25. This strong revenue growth is a result of the work of our studios. They are ready to help our customers in their digital transformation strategy. It also reflects our positioning as a pure play on new and emerging technologies.

As most of you know, on July 8 we priced a secondary public offering of 4 million common shares, including the Green Shoe. Our goal was to provide more liquidity to our stock and strengthen our positioning as a public company. We are extremely happy with the outcome of this follow-on. The book was over-subscribed three times, and the deal was priced with no discount versus the last rate. Again, very happy with the outcome, and I want to thank you for your help and support during this process.

Before diving into our financial details, I'd like to go over the last quarter in terms of our business strategy, and review some of the market trends that we envisioned for the future that could propel our growth. As (inaudible - accent) reports point out, the IT industry is in the middle of a significant paradigm shift. The race of trends like cloud, mobile, UX, wearables, and social are driving companies in every industry to develop new strategies centered around them. One of the most important trends is (technical difficulty) for using technology as a channel to increase revenues. Companies are considering the use of technology not only as a source to improve efficiency, but also as a way to increase their customer base.

With this framework, decisions to increase budgets and wallet size are more apparent than before. Emerging technologies are receiving a bigger portion of companies' budgets. According to Gartner CMO Spend Survey 2015, companies are showing an increased investment in customer experience to drive business advantage and profitable revenue growth. The highest technology investment in 2014 is for customer experience, as 68% of organizations have a separate digital budget. This represents a huge opportunity, and we believe that we are in a great place to embrace this by reinforcing our positioning as a new-breed technology service provider.

While some other service providers in the industry of all sizes are forced to acquire companies to enter into the digital arena, or to provide a more adequate approach to this new reality, since its inception Globant core business relies on these new trends in emerging technology. Being a pure play in the emerging technologies consolidates us as a preferred choice to take brands into the new digital journey for their customers, and help them to join this new paradigm.

Our pipeline and backlog continues to be strong, including several long-term projects with our current customers, and a number of high-potential new customers. These companies include brands like Bank of Tokyo Mitsubishi, 3Wire, and one of the world's leading nutrition health and wellness companies, all coming from a wide variety of industries, such as health care, media, entertainment, and travel, among others. They really appreciate our focus to develop new digital journeys for the new technology branch of consumers, using all the emerging technologies, innovation, and design to create a real digital transformation.

On top of that, during this quarter, one of our most beloved projects was launched. Our client is BBVA Data and Analytics, and we have been working with them for two years in projects related to data science and open innovation. Recently, they launched Commerce 360, a web-based business intelligence solution developed jointly with Globant. This platform allow bank customers, owners of small and medium companies, to have access to sales information that would help them make decisions based on objective data to propel their businesses.

BBVA Data and Analytics understood that there was a tremendous value lying within the big amount of data that they generated each day. They decided to make the information available for their customers. This project has two measure benefits. First, it helps BBVA to improve its customer's loyalty. Then it helps position the bank as a leader in digital transformation. This project leveraged the power of big data, and we are extremely excited to have taken part of such an amazing endeavor.

Let me also share with you some update in terms of our service offering. As you know, our eagerness to stay at the forefront of technology is reflected in our studios. Studios provide the most innovative solutions for our customers. For us, it is key to stay ahead of the curve by constantly researching fields that have the potential to change the markets. This month we published a new addition of our Sentinel report, available at Sentinel.Globant.com, where we share some trends in consumer behavior that we foresee to continue growing in the near future.

In this edition, we highlight a series of dimensions of a trend known as seamless ecosystems. This means to build brand networks to encourage greater consumer loyalty and engagement. This report highlights that consumers are more sophisticated than ever before, and expect that brands deliver engaging and effortless experiences. True innovation is borne from free exchange of trust and ideas between brands and consumers. These trends, together with more paradigm shifts that we are seeing, have the potential to change how companies are looking to innovate. With that in mind, we have decided to re-think and re-launch some of our studios to propel our service offerings.

Today I'm happy to announce these new and re-branded studios. First, we are proud to present our brand-new Cognitive Computing Studio. Over the past months, we have seen cognitive computing raised as the ultimate solution to improve, companies' capacities. It has the ability to help companies to make complex decisions involving extraordinary volumes of fast data and big data. The Cognitive Computing Studio develops intelligent products and services, leveraging the power and complexity of big data. By using artificial intelligence, natural language processing, and machine learning, our solutions enable companies to extend and magnify their expertise, and to improve how they relate to their audiences with context-aware applications.

Second, we're reinforcing our Consumer Experience Studio with its new seamless experience practice. Within this practice, we'll work together with our customers to define their business's strategy and help them to integrate it into their digital ecosystem using all their digital channels as a point of contact with their end-users. Our seamless experience practice is a nexus that provides the strategy and technology needed to help companies deliver an easy-to-use creative and appealing experience that can lead to the digital transformation that consumers are expecting.

Third, the Continuous Evolution Studio now deepens its focus to help our clients improve the value of their software overtime by presenting its software evolution practice. As new trends and technologies arise, customer behavior changes, and software needs to quickly adapt. We add innovation into existing products in order to create continuous engagement among users. Last but not least, we decided to implement a different framework to foster innovation by distributing our product innovation studio throughout the entire Company.

Innovation must come from every corner of Company instead of coming from a closed group of people. It's necessary for the entire organizational structure to listen and absorb what's happening both within and outside the Company. We decided to include an innovation practice in all of our studios. In other words, we are encouraging the innovation gene to blossom in all our teams. Of course, our service offering includes eight more studios, which remains strongly focused on the latest trends and technologies: Big data, UX design, mobile, wearables and Internet of Things, gaming, enterprise consumerization, cloud ops, and quality engineering.

On a separate matter, our new operation in Asia coming after the Clarice Technologies acquisition that we announced during our last earnings call, has generated a very strong positive impact among our customers. Today the integration process is already completed in terms of business, people, structure, and operations. At the same time, we are seeing that our increased global presence and the ability to deliver the same innovative and quality services with a common creative culture, is perceived as an excellent opportunity for our customers.

To finish with this summary of Q2, let me share with you that during the last 12 months we rendered services to 344 customers. The increase versus last quarter is explained in part, but not mainly, by those customers that come together with Clarice acquisition. Based on the last 12 months, we now have 4 and 11 customers with revenues in excess of $10 million and $5 million, respectively, reinforcing our ability to grow our key accounts.

Also, we now have five accounts with revenues over $10 million based on Q2 running rates, an increase of one compared to Q1.

With that, I'll turn the call over to Alejandro Scannapieco, our CFO, for a detailed financial review on Q2, and provide guidance for the next quarter and full 2015. Alex, thank you very much.

Thanks, Martin. Good afternoon, everyone.

I'm going to spend a few minutes taking you through the second-quarter results, and summarizing the six months year to date, as well. Then I will discuss our Q3 and full-year outlook. As detailed in the press release, we posted a strong second quarter in terms of financial results, with revenues at the record level of $60.6 million, implying a 22.7% year-over-year growth, and $0.25 effective diluted EPS, compared to $0.20 for the second quarter of 2014.

As it has been the case in recent periods, this strong revenue growth was primarily driven by deeper penetration in our top accounts. Our largest customer on our top 10 accounts grew a stunning 49.4%, and 30.8% year on year, respectively. This clear indicator of our ability to grow our largest customers is a natural consequence of becoming their preferred partner when they embark on digital transformation projects. As you know, Globant is one of the few pure plays on the emerging technologies space, and this is key to validate the growth rates we have been achieving.

Additionally, during Q2, we added a number of specific accounts to the portfolio, including among others, one of the largest slide manufacturers in the world, and the largest European food producer. Finally, the vast majority of our second-quarter revenue was generated from our customers that were already working with us in the prior year.

For the second quarter of 2015, our top 1 customer represented 12.3% of total revenue, top 5 customers represented 32.8%, and top 10 customers represented 47.7% of revenues, compared to 10.1%, 29%, and 44.8% of revenues, respectively, for the second quarter of 2014. The slight increase in concentration is due to the remarkable growth in our top-one account, Disney, which is hiring us on additional projects in new divisions. We believe that our portfolio is well diversified for a company of our size, with marquee customers that could drive sustainable growth over the next five years.

Compared to the second quarter of 2014, average quarterly revenue per top 5 customer increased 39% to $4 million, and average revenue per top 10 customer increased 30.8% to $2.9 million. We are very pleased with the strong growth we are achieving in our top and strategic customers. This reinforces our value proposition and gives us a robust base to grow in 2015 and onwards.

During the second quarter of 2015, 85.2% of our customers were in North America, the US is our top country; 9.7% in Latin America and others, Chile our top country; and 5.1% were in Europe, UK top country. Our top three industry verticals for this quarter were media and entertainment with 24.6% of revenues, technology and telecommunications with 20.9% of revenues, and professional services with 15.4% of revenues. We continue to be pretty much balanced across different verticals.

During the second quarter of 2015, 94.6% of our revenues were denominated in US dollars, depicting very limited exposure to FX fluctuations on our top line. As mentioned before, our second-quarter revenue amounted to $60.6 million, which imply a 22.7% growth year over year. Following with the rest of the P&L line items, our adjusted gross profit for the period increased to $23.4 million, 38.7% adjusted gross margin, compared to $20.9 million, 42.3% adjusted gross margin in the second quarter of 2014; and $21 million, 38.5% adjusted gross margin in the first quarter of 2015. Adjusted gross margin increased 20 basis points sequentially.

The margin decrease versus the second quarter of 2014 is explained mainly by three factors. Number one, Q2 2014 is still enjoying the feeling of the benefit of the 23% devaluation that occurred in January 2014 in Argentina, our main development center. Number two, a slightly lower utilization, given that we're training a large number of people in some of the emerging technologies like mobile, Internet of Things, and cloud computing, in order to cope with the strong demand of such practices. Number three, the strong [hapcan] grow, which will contribute to achieving this year's revenue target.

Adjusted net income for the second quarter of the year totaled $8.6 million, 14.3% adjusted net income margin, an increase of $2.7 million, or 45.5% versus the second quarter of 2014. Adjusted net profit for the period was also boosted by stronger gains on transactions with bonds. During this quarter, we continued investing heavily in sales and marketing, and we had extraordinary expenses related to the acquisition of Clarice Technologies, and the follow-on offering mentioned by Martin before. Adjusted diluted EPS for the quarter was $0.25, based on 34.9 million average diluted shares for the quarter, increasing from $0.20 a year ago.

Now let's move on the balance sheet. Cash and investments as of June 30, 2015, increased to $63.7 million, compared to $62.2 million as of December 31, 2014. Borrowings decreased to $0.9 million, from $1.3 million at the end of last year. Our balance sheet remains as strong, with current assets of $128.1 million, accounting for 65.2% of the Company's equity. Total shares outstanding as of June 30, 2015, were $34 million common shares.

Moving on to the six months ending June 30, 2015, revenue for six months ended June 30, 2015, was $150 million, implying a 24.4% year-over-year growth. Growth is boosted by top-10 customers, and new wins as our portfolio of customers continues growing at the very healthy pace. For the six months ending in June, our top one customer represented 11.3% of total revenue. Top 5 customers represented 31.9%, and top 10 customers represented 47.8% of revenues, compared to 8.7%, 27.2%, and 42.2% of revenues, respectively, for the six-month period ending June 30, 2014.

Revenue for the top one customer increased 61.7% from the same period of last year. Average revenue per top 5 customer increased 46%, and average revenue per top 10 customer increased 41.2%, compared to the same period from last year. We are very excited that our top customers can see the value we provide, and decide to amend our mutual relationship.

Adjusted gross profit for the six-month period was $44.4 million, 38.6% adjusted gross margin, an increase of 15.4% year over year. Gross profit is growing at a lower pace than revenues, given the positive tail wind of the devaluation that impacted H1 2014. The strong investments in training we are doing this year, which has slightly decreased our utilization during this period. Adjusted net income for the six-month period ended June 30, 2015, was $16.2 million, 14% adjusted profit margin. Adjusted diluted EPS for the same period was $0.47, based on 34.7 million average diluted shares for the period.

We finished the quarter with 4,512 Globers, 4,121 of which were IT professionals. Attrition in the last 12 months, ending June 30, decreased to 18.2%, compared to 19.9% for the 12 months ending March 31, 2015, as a result of a number of initiatives including geographic decentralization, project rotations, and selected compensation changes.

To wrap up, I would like to share with you our outlook for Q3 2015, and for the full year ending December 31, 2015. We expect to continue delivering strong revenue growth and profitability, as it has been the case in prior years, and our commitment when we made the IPO and the recent follow-ons. We also expect to continue making strategic investments into the business, including but not limited to training and studios' capacity and delivery centers. Based on current visibility, we are increasing our respective revenue for 2015 to be between $247 million and $251 million, implying a 24.7% year-over-year increase at the mid-point of the range.

In terms of margins, our 2014 gross margin was among our highest at 41%, and 170 basis points above 2013. As discussed in prior calls for 2015, we expect gross margin to be below 2014 levels due to additional investments in our operations and in studios, and some FX head winds in Argentina, which we seek to offset at the net income slash EPS level by some SG&A dilution, and the continuity of our current FX hedges' strategy to the gain from ongoing operations. Adjusted diluted EPS for the year is now expected to be in the range of $0.90 to $0.96, assuming 34.9 million average diluted shares outstanding for the full year.

Turning to our guidance for the third quarter, we expect revenue to be between $63.5 million and $65.5 million. Adjusted diluted EPS is expected to be in the range of $0.20 to $0.24, assuming 35.2 million average diluted shares outstanding for the quarter.

Thanks everyone for participating on the call, and for your coverage and support. Let's please now move to the Q&A section of the call. Operator, can you please queue questions? Thank you.

We will now begin the question-and-answer session.

(Operator Instructions)

Tien-tsin Huang, JPMorgan.

Great, thanks. Good quarter here. A couple questions. Martin, on the rolling out of the new studios, I know there's been a trend, but can you remind us what drives the formal decision to go ahead and launch a new studio? Do you have a strategic account interest where you think you have work to justify it, and how do you balance putting talent into that studio versus obviously keeping the right talent in some of the other older studios?

Hello, Tien-tsin. Thank you very much for the question. Well, it is very clear as we have been seeing from our customers that every industry is really looking into how artificial intelligence or machine intelligence or cognitive computing in general, as we ended up calling it, everybody's wondering how those industries can help them -- sorry, how those new technologies can help them.

We have been trying, and we have been using those technologies for many years already, but never pack them into a new studio. Although it's not a new practice for us, we decided to create a new studio -- give it the entity of being a new studio, in order to transmit the message that we are really using those technologies to help our customers bring a better consumer experience to their consumers.

We are taking some talent that have been working on this kind of project from other studios and bringing them into this new studio, and at same time transmitting the message we will be investing in many different areas across artificial intelligence and machine learning, but not in a way that we don't get results. We are, as you may know already, we are very oriented to results. We are very oriented to how we use that in specific cases with specific universes. For example, we are driving a semantic banking application where we are using machine intelligence or natural language processing to understand how to interact with the bank consumer on the mobile app for a bank or on a web app for a bank.

That's the kind of approach we want to transmit. In essence, we will be investing in this space of knowledge a lot. We have done a lot in the past, but now it will be much more profound in our strategy of getting closer to our customers and consumers. I don't know if that answers your question, but maybe it lost -- or it needs a portion.

No, it does. I know cognizance is a big topic, so that's a good to hear. On the growth this quarter, obviously good, tough comp. I'm curious what's the outlook for your top client for the second half of the year? Anything we should consider? Mathematically, the six through 10 clients, it looks like it was down a little bit sequentially? I know you're at a tough comp year over year, but curious if there's any call-outs or anything unusual there? Thank you.

No, nothing unusual. Just the normal process of the customers, Tien-tsin. The natural -- those ups and downs, but relationships -- all relationships are extremely healthy in general.

Great. For your top client, second half anything to consider?

Top client is really invested in the success of the project, and rolling out the project into many other areas. The main project of their next-generation experience. Also, we are selling already are few -- we mentioned in former earnings calls, we are selling to other divisions of Disney, and into other places around that same account. No changes there.

That's great. Thank you.

Ashwin Shirvaikar, Citi.

Hi, Martin. Hi, Alejandro, good quarter here. My first question is a follow-on to Tien-tsin there. As you look at the growth of non-top 10 clients, have you even talked to -- are you better served by maybe adding more farming capabilities in terms of sales, as opposed to hunting and increasing that base of clients? Any thoughts on the sales force and how they operate?

Yes, as I said before, our vision, long-term vision, is to have customers that we can make $40 million each on those accounts. That's our long-term vision. 50 customers, $40 million in revenue. That's the long-term thing for us. On those other accounts that are not growing that fast or they are growing slower, we have a collection of different scenarios. They are in some cases very small companies that are not our target. Some other cases, big companies that are going through a difficult moment or a difficult transition. Then there are some other companies that are small that and growing, which we will never get to that $50 million or $40 million a year.

We are now changing a little bit. Although we keep on paying attention to the biggest account, we are -- we have decided to start training another force of people that will be targeting those smaller accounts, though not top-20, let's say, accounts and starting to pay attention in a different way, in a more evolved way. That's the next big step. The first big step was to concentrate on the accounts we want for our future. Once we got that, now we're going to the next up, that is investing in all the other accounts, which some of them may be converted into those big accounts, but right now are not in a good moment or not growing as we would like.

If I may add to that, Ashwin, within those non-top accounts, we also have a number of new logos. But as you know, it's a typical pattern in terms of growth for Globant. We start very small, but those are accounts with great potential. That has been happening, for instance, with a very large travel company, airline company, the largest food producer in the world, a large company in the health care sector. Those are very small companies and still not in the top 20 customers. But again, they represent big opportunities in terms of size and scale in the future.

Those points make a lot of sense. In terms of -- as you take the, as you call it Martin, the more evolved approach to sales, does that implying a higher SG&A cost? Are there specific investments you're making that we should contemplate in our model?

I think, Ashwin, let me take that one -- this is Alejandro. I think it's definitely it's going to be in absolute value you're going to see an increase in SG&A more on the sell side than on the G&A side. But definitely on a relative value, I think we'll keep diluting SG&A. I think we have set up the structure of the Company so that we can rely in many shared services that we have set up across the Company. We have preferred the Company to be scalable. I think most of the marginal investment is going to come on the sell side. In absolute value SG&A is going to grow, but on a relative value, and together with the growth that we see in the top line, you shouldn't be that line increasing. On the contrary, it should be slightly decreasing.

Okay, understood. Then last question. Clarice, any traction or any incremental comments on how as you make more of your clients aware of the acquisition, of these capabilities, could you share some commentary on the traction that you may be seeing?

Yes, well in general, Ashwin, it's very well received. Our customers are all happy. Many of them have specific needs. We are starting to ramp up some things already in India that before maybe could have been stuck in other locations. In that aspect, I think the operating is very well received by our customers. For us, it is also they are well received not just because of their location, it's well received because of what they do. Remember, we are not in the game of traditionalized sell sourcing, which India is normally associated to that. We are in the game of creating digital journeys for our customers. We're keeping agenda of every single CEO of every company around the world.

Everybody is wondering how I can seduce better my consumers, how I can attract better them. How we can create a journey for them, which is really seamless. That's the reason why also Clarice, or India -- Globant in India, like we end up calling it -- Globant in India is getting also traction, because the guys there and the know-how they have is pretty aligned to that idea. That's how much I can say, but I don't know if you have any other specifics out there, I could dig in, I don't know.

No, that was very useful. Thank you for the comments. That was my last question, thank you.

Thank you very much.

Anil Doradla, William Blair.

Hi, guys. Congrats on the continued strong results, Martin and Alejandro. I had a couple of questions. Building upon the previous question on cognitive computing, the studio, clearly there's an aspect of communicating to the clients that you're ready for prime time and you're going out with this. But can you give a little bit more color? I know the previous gentlemen asked a question around it, but I'm coming back to it. Around design wins around cognitive computing, you talked about I think a little bit in the mobile banking space. Can you spend a minute or two talking about, a little bit more color on some of the wins there?

Yes, sure. Well, the studio has been created today, so I will talk about what we have been doing in the past in other customers. Let's go back to the seamless experience that we need to provide to the consumer. When you are providing, when you are expecting to provide a seamless experience to the consumer, we're not talking any more about just a single mobile application, Anil. We're talking about a mobile application that needs to be totally integrated in the move to channel with many different applications in many different platforms.

But the secret behind giving the customer a good consumer experience has nothing to do with the application itself. Rather, it has to do with which is the information that you are providing to that specific person which is relevant to his experience at that specific moment and in that specific place. For that to happen, we have been using many things around machine learning, around artificial intelligence, around many different things, gathering information with our Big Data studio -- and not just big data, but also fast data and algorithms that learn and extract knowledge from that data that are able to provide that context-aware information that would end up providing a great experience for consumers.

That is, I would say, the core of how we have been using artificial intelligence within Globant. Now we are taking out that, and putting that in black and white for our customers. This is a game about talking about fast data, events that are happening at the ERPs or administrative distance of our customers, and those events should trigger behaviors on the applications that are being built behind it. We are in the forefront guys of a totally different consumer experience that will be lead by artificial intelligence, but used in a very specific way. I think that's the new approach we want to -- the message we want to convey.

Building digital experiences, building these kind of amazing seamless journeys for our consumers is not about building one mobile app. It's about building the mobile app and then fitting with artificial intelligence and a lot of other things like gaming and [demification], and user experience, rule engines, many different things that can provide that specific amazing connection with a consumer.

I don't know if that's clear, but that's how we have been using artificial intelligence at Globant, and now we are pushing that out into our new studio. That has many different instances. I mentioned the banking system, but also in entertainment industry we're doing so. We're applying that also on the airline industry. We're applying that on the banking industry. Banks are typically institutions which have many different systems, all of them interacting with the consumers in a very anarchical way. With that, it's not very easy to have a seamless experience from a bank.

That's another moment in which artificial intelligence needs to come. For us, that's why it's so important, this new studio is so important to take faster decisions and be able to support the experience, have the right recommendation engine for them, so on, so forth. This is what we're doing right now, and that's why the importance of the -- sorry, the Cognitive Computing studio.

Great. Now Martin, when I look at the attrition -- and can you give some color around the attrition in your top five or 10 accounts, versus the rest of the accounts? Is there some material difference in the attrition levels, or is it pretty much consistent across your whole account base?

Let me take that, Anil. This is Alejandro. I think attrition, it happens all across the board in the same level. We mentioned several times attrition is concentrating on the lower base of the pyramid. That has been the case over the pass of time. It is the same case across the board there. Some of the accounts, some of the largest accounts where attrition is a little bit lower based on the attractiveness of the projects -- that might be the case of Disney, our largest customer, where attrition is very low.

Again, I think we try to keep focus on our plan to lower attrition. We have discussed a lot about what the reasonable level of attrition, having low-level attrition is bad, having a high level attrition is also bad. We try to stand in the middle. We have been running at the low 20%s for quite some time. We have been able to reduce that by almost 200 basis points over this last quarter. I think that's paying off in terms of the strategy that we set up, decentralization combined with a large innovative pyramid, competitive compensation, and also pricing mobility. All in all, I think we do have our plan to lower attrition. Definitely attrition happens at the same level all across the board with the different accounts.

Great. Alejandro, when I look at your ability to hire the top-notch talent from colleges and universities by having day-zero, day-one preferences, can you walk us through now that you've got Clarice and the acquisition and presence in India -- you're going to be competing with a lot of other folks in this space. How do you see yourselves, maybe not now but a path towards day-one, day-zero hiring preferences in the colleges and universities?

Thank you for the question. I think it's clear there's many opportunities for us to explains why we are different. When we offer the jobs and we attract the talent that we are recruiting these days, what you need to have in mind is that every single project that we are doing at Globant is really amazing, with some of the best customers in the planet with some of the best possible projects, in the consumer-facing space, which is an absolutely new frontier for things, and where things are happening.

That's a value proposition we have. Again, trying to optimize the corporate process, or implementing a bank ERP, or implementing a business (inaudible - accent) practice or trying to do any kind of other work, which is of course very profitable. It's great, that's fine. But when we are in front of the candidate and we explain that this is the path, this is the dream, this is what we want to create, this is how we want to change the life of our consumer, of the consumers of the [bose] we do, they absolutely fell in love with our proposal.

I don't see any major huddle on that aspect, because of that specific and differential value proposition that we have. I think in India we have a huge opportunity, too. In India it's a place where traditional IT players are really the dominant players. Just a very small portion of what they do is what we do. That's one more reason to understand why in India, not just in America now, in India we can be successful with the attraction of talent, and recruiting as many people as we want, or as we need. I hope that answers your question.

Very good. Yes, definitely Martin. Thanks a lot, and congrats and best of luck.

Thank you very much, Anil.

Jason Kupferberg, Jefferies.

Thanks, guys. I just wanted to ask a question about Europe. I know it's obviously a small geography for you guys today, but over the longer term, curious what sort of market opportunity you see there, in terms of your ability to penetrate? It does seem like a lot of European enterprises in general are becoming more open to outsourcing, and obviously your services are in the sweet spot?

Jason, thank you very much for your question. Listen, Europe for us is very important. Remember, the first customer we had in our history was in London, so for us Europe is important. We haven't been performing or growing in the way we wanted. I think we didn't have the right time that we made big changes there. We didn't have the right team to do so. But as a caveat, we have one of the largest customers that we have announced -- we cannot talk about the name, but imagine, as I said in my script, the largest health and food company in a very small country in Europe. I cannot tell the name, but you may imagine it. We are engaging with them in exactly what we were -- I was explaining around how to change consumers' experience with that specific brand.

Things are starting to happen again in Europe for Globant. As you said -- I totally agree with you -- we have a huge opportunity, given that pretty much every company in Europe will need to feed those new voracious consumers -- those technology-voracious consumers. We think that would surprise them. All in all, not happy with how we are performing in Europe. However, we are making changes and we are making it better for the future of Globant, I think.

If I may add to that, Jason, I think also Europe was not our primary target. For quite some time, we focused and we dedicated most of our qualified resources to US. Now I think it is a time where we do have the skill to have also a focus in Europe. As Martin said, it is a great opportunity for us, very challenging. Definitely the market is there. The value proposition that we have is something we can definitely expand to European customers. Definitely you will see and you will hear from us in terms of Europe, because that's the next area of focus for us in terms of our value proposition and the services we provide.

Okay. We'll stay tuned on that. Turning to the guidance for the year, I know a 25% revenue growth at the mid-point. How much of that should we think of as coming from pricing? What are the pricing trends? Are you enjoying some pricing power, just given the differentiation in your service offerings?

We do see pricing power, especially in the new deals. Tied up and leaning to what Martin explained in terms of providing customers with a seamless experience, and trying to digitalize experiences of their customers with great software development. Those deals are definitely coming at better rates. I would say a little bit of that might be pricing empowerment, but it's a slight upward trend. I wouldn't say -- it's pretty much the organic growth coming from new deals and new projects with existing customers. 85% of our revenue stream comes from existing customers. That's the big chunk of the guidance and increasing the guidance.

You have another -- which I don't think it will change us here, but historically we have been delivering an increase on the revenue per head, which at the end of the day is an increase on the price that we are charging. But I don't know, Juan, if you have the exact number right there to provide, but how was historically that progression?

I don't have it here with me, Martin. I will get back to Jason with the numbers.

Okay. We will follow up on that, Jason.

That's no problem. Lastly, any detail you have on where cash flow came out for the quarter -- operating or free cash flow?

Yes, I think probably it's worth talking about the cash flow for the first half. The net operating cash flow was $5 million for the first half. We also have CapEx of $8 million. Pretty much all the CapEx is related to the expansion -- big expansion in Mexico, big expansion in Columbia, big expansion in Argentina. Then the free cash flow, if we include the bonds there, the free cash flow conversion was 37% for the first half of the year. It's pretty much aligned to the free cash flow conversion that we had last year. That was 37% including the bonds

Okay, thank you.

No problem.

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

Okay, thank you very much operator. Thank you very much for participating on the call. We are very happy with the results that we got this quarter, and with the guidance that we are provided for the next quarter, too; and looking forward to seeing you on the next earnings call. Thank you for much for your help and support, as always

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