Globant SA (GLOB) 2022 Q1 法說會逐字稿

Good day, and welcome to Globant's First Quarter 2022 Earnings Conference Call. I am Carolina Dolan Chandler, Chief Digital Officer at Globant. (Operator Instructions) Please note that this event is being recorded and streamed live on YouTube. 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, Co-Founder and Chief Executive Officer; Juan Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer; and Diego Tartara, Global Chief Technology 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 our 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'd now like to turn the call over to Martin Migoya, our CEO.

Good afternoon, everyone. I'm happy to be back with you again. This has been another important quarter for our company's growth. I'm excited to share some of our news and updates.

Globant's creativity, innovation and entrepreneurial culture continues to deliver strong results. In Q1, total revenue was $401.4 million, representing 48.6% year-over-year growth and 5.7% quarter-over-quarter growth. This was made possible by our ability to meet the expanding demand for digital transformation.

Regardless the short-term events in global markets and geopolitics, organizations everywhere need the right technologies to grow. Because of this Gartner estimates that through 2025, 75% of enterprises will accelerate their plans for digital business transformation. Across all sectors and geographies, users need to interact seamlessly with companies at all times. So organizations are eager to leverage all sorts of technologies and touch points to deliver superb experiences.

New ways of engaging with customers and employees, such as the Metaverse, will continue to appear. At Globant, we have built our capabilities to scale and identify new trends as they arise, just like we have done with Artificial Intelligence, Augmented Reality, the Metaverse or Blockchain technologies. We're confident in our capacity to offer clients the best mix between ideation, innovation, design and engineering. We deliver end-to-end solutions through our full agile and global delivery model.

Now before we move on, I'd like to say, on behalf of the Globant family, how shocked and sad we are regarding Russia's invasion of Ukraine. Even though we don't have operations or clients in either country, we stand with the families affected by this conflict. We will continue providing all the help that we can as the situation develops.

Now I would like to share some insights on our plan for the future as we continue to grow our teams of talent. First, regarding our geographic expansion. In Latin America, we continue executing on our plans to expand in the region. In Chile, we intend to increase our workforce by 40%. To accommodate such growth, we have recently opened a new office in Santiago.

In Buenos Aires, one of our largest talent development centers, we have opened our office in the newest high-rise building in the city, which we are calling the Globant Tower. It will enable us to continue expanding our local team. Beyond our physical locations, we want to reinforce ourselves as the employer of choice for digital nomads. In this sense, we have launched different plans to promote autonomy and flexibility. For example, our work-from-anywhere policy aims to provide flexibility for those who want to travel and develop their career at the same time.

Our second growth pillar involves Globant innovative platforms developed under our Globant X division. I'm excited to share our most recent acquisition that comes to expand our Globant X portfolio of platforms as well as the geographic reach of our clients. Last month, we announced our acquisition of GeneXus, an AI-powered low-code software solution company.

Their products simplify software development by generating enterprise applications and user experiences without the need to learn each new technology from scratch. GeneXus is a trusted partner for companies in all regions of the world with over 1,700 organizations using its products. Globant is also taking a big step in our geographic expansion into Asia with this acquisition, as 30% of its revenue comes from Japan.

Most importantly, this acquisition is directly addressing a huge trend regarding low-code and no-code software. The concept of making software development easier through AI will guide organizations' strategies for the future.

GeneXus come to address the vision and complements 2 of our Globant X platforms. First, Augoor, our Augmented Coding product that accelerates the coding process. Its AI-powered engine removes the complexity from cluttered code basis. Augoor makes code more accessible by helping people understand and automatically document code basis from multiple repositories fast and simple.

Second, MagnifAI, a product that offers automated visual testing to enable better and faster quality assurance in products. MagnifAI acts as an AI-powered magnifying glass that delivers amazing results. Today, the product is already being used by clients such as Rockwell Automation, Disney and Nissan.

And finally, we continue to drive the way forward for our Reinvention Studios. With these studios, we are helping our clients as we challenge the way things are done across different industries. Today, I'm pleased to talk about 2 new Reinvention Studios. I'll begin with our Smart Payments Reinvention Studio.

Digital payments have been an amazing growth trend for many decades and hit an inflection point with the pandemic. Today, consumers have many choices in how, where and even when to pay for their products and services. Companies across all sectors need reliable ways for clients to interface with their platforms.

With the Smart Payments Reinvention Studio, we leverage Globant's capabilities in AI, UX, analytics and blockchain to make digital payments simpler, faster and more secure. We created customized payment solutions that provide scalable adaptability to deliver frictionless experiences and drive trust.

Recently, we have also launched the EdTech Studio to respond to an important paradigm shift in education sector. Until recently, most professionals spent the early parts of their lives with formal education and then moved into the workforce. Today, disruptive technology is constantly changing the world, creating the need for lifelong learning, upskilling and reskilling. With the EdTech Studio, we leverage our vast experience in the industry to develop personalized learning pathways and provide engaging experiences.

Lastly, I would like to share some news about our Board of Directors. We are glad to welcome Andrea Petroni as our newest Board of Directors member. Based in Hong Kong, Andrea has built an extensive career at JPMorgan in business advisory, investment banking and human capital, both in Asia Pacific and Latin America. She brings a new and more diverse perspective to the table. We look forward to her insights as we seek to expand to exciting new growth markets and find even more ways to connect with partners clients and communities throughout the world.

As we look forward, Globant continues to have a strong pipeline across different clients, sectors and regions of the world. We are confident in our ability to deliver high growth in the upcoming years.

For a closer look at our expanding technological offering, I would like to turn it over to Diego Tartara, our CTO. Diego, please. Thank you very much.

Thanks, Martin, and hello, everyone. I'm here to share insight on Globant's growing network of studios and how we find new ways to help our clients transform. As Martin mentioned, we have launched 2 new Reinvention Studios.

We see that there's a need to understand the industries holistically as they face a need to reinvent due to several trends that are driving consumer expectation. One of these trends is the appearance of the metaverse. While in its early stages, it is here to stay. Organizations now face a key challenge as they need to get their business ready for this new world, while their users are still learning to embrace this new era.

We just launched our Sentinel Report about this trend with very interesting findings. We uncovered that while 73% of the respondents feel the metaverse is accessible to them, only 26% of them have experience in. So there's a huge potential for the metaverse and we'll continue accompanying our clients as they dive into this new world. To read more about this key trend, we invite you to check our Sentinel Report at sentinel.globant.com.

As we expand our digital capabilities, we want to give our clients the right tools and processes to build an organization that is ready to succeed as they digitally transform. Last month, we announced the creation of the Digital Performance Studio to improve output of teams within organizations. In 2 decades of assembling agile parts, we have learned that not all organizations have the same level of performance and disposition to carry out change. In many cases, the leaders who are tasked with fixing this let the right information to make the right decisions.

We have collected and aggregated data through our pods methodology. This new studio has turned these learnings into a proprietary platform to provide insights into the efficiency and performance of teams. These insights help leaders make informed decisions that not only improve performance, but also foster environments that are attractive for top talent.

Now I would like to share with you more about Globant's story told through our work with our clients and our partners. I'm excited to share that our digital payment platform, Power Chat, part of our Globant X portfolio, has recently closed a deal with Spanish venture capital firm, Sevenzonic. Together, we will create a groundbreaking fintech solutions set to transform how consumers make payments, moving from apps and carts to WhatsApp, the most used platform in Spain.

Moreover, we are providing engineering and arts services to Improbable, a U.K.-based metaverse technology company. They're establishing a network of interoperable Web3 metaverses powered by their Morpheus technology. This technology allows companies, brands and creators to interact in virtual spaces with less friction. We are eager to be participating in this new space, because simplifying human experiences in intuitive ways through technology is Globant's core mission.

Then we are partnering with Dropbox to create a new platform for artificial intelligence and context-driven enterprise search. This project integrates a [balustrade] of its internal and third-party knowledge repositories. This search engine will help Dropbox engineers and customer support professionals to assign better products for its customers while working smarter and faster. The AI component of this engine is expected to improve the developer productivity by as much as 15%.

In Latin America, we're working with Mallplaza, a shopping center with 23 sites and part of the Falabella Group, one of the region's largest retailers. We're partnering with them to build an agile delivery model carried out by a click-and-collect digital solution. To do this, we're bringing together hardware integration and a flexible back-office management platform for commercial partners. The result for the customer will be to seamlessly purchase a product online and pick it up from the smart locker located at one of the Mallplaza sites.

Lastly, also in Latin America, we continue to work with the financial services sector, an industry in the middle of a profound transformation. Interbanking is a leading platform for B2B payments and intelligent treasury. Through its platform, multibank operations are centralized into a single platform solution, making transactions more efficient and ensuring a streamlined accounting management. Globant is boosting their digital transformation and acceleration program to develop and launch new and disruptive digital products and capture the market momentum.

Now I'd like to turn it over to Patricia Pomies, our COO.

Hello, everyone. It's nice to be here again. I'm excited to share news on our work with our Globers as well as with our clients. I'll begin with a snapshot of Q1. The Walt Disney Company continues to be our largest client. It reflected a growth this quarter of 55% year-over-year and 5.1% quarter-over-quarter. The rest of our accounts collectively grew by 47.8% year-over-year and 5.7% quarter-over-quarter.

Our 100 squared strategy continues to show results. Over the last 12 months, we had 13 accounts that brought in more than $20 million of revenue compared to $8 million from last year. We also had 206 customers with more than $1 million of annual revenue compared to $139 million 1 year ago.

Turning into the geographic distribution of the revenues. In Q1, 63.1% of our revenue was from North America, 23.5% from Latin America, 11.1% from EMEA and 2.3% from Asia and Oceania. During our last earnings call, I shared how we monitor our Net Promoter Score as a metric to determine how our clients view the quality of our service and our overall relationship. We believe in building lasting, meaningful and transformational relations with our partners as we carry out consistent reinvention.

Over the last 12 months ending in Q1, we had a score of 66, 2 points above the previous quarter. I'm happy to see that this remains well above the IT industry benchmarks. Our team of Globers keep expanding. We are now 24,504 creative minds. This represents an increase of 41.9% year-over-year. 23,158 of our Globers are IT professionals. This represents an increase of 42.2% year-over-year.

We continue to grow our presence in all of our delivery centers, and we are proud of having consistently worked towards a well-balanced geographic distribution. Some of our locations have been growing at unprecedented rates such as India, where we have increased our headcount by 85.4% year-over-year. Our current attrition rate is 19.6%. There is no denying that competition for talent is as high as ever. However, we believe we are better prepared to adapt to new talent needs as we are constantly reinventing the Globant experience.

Simply put, we want Globant to be the best place to work anywhere in the world. To make this dream reality, we are developing a new internal approach for talent and career management. The new Glober-centric model focuses on what each Glober needs to encourage autonomy, creativity and teamwork. We simplify processes as all the internal areas focus on solving any challenges our Globers may have.

From career development to onboarding and benefit, we embrace a Glober-centric mindset as a reflection of our inverted pyramid or chart where the organization's primary goal is to achieve both Glober and client satisfaction.

In parallel, we are improving the Glober experience by offering benefits that align to each stage of the Globers' career and personal lives. With a diverse approach, we have mapped benefits that go beyond the standard ones and address different needs for different times, such as parental leave, leadership training and counseling. It's been an ongoing principle of this company to offer opportunities in this industry for talent all over the world.

Through our Be Kind initiative, we have put in place different courses and programs that aim to help people join the blooming IT industry. Today, I am happy to share that we will be granting 15,000 scholarships for people to be trained in technology. This is in line with our previous run of 5,000 scholarships in the Code Your Future initiative.

We are really proud of the positive impact that these programs are having in the broader community, and we expect to continue investing in similar initiatives. At the same time, we believe that it's imperative to inspire the younger generations. We want to transform reality through education and bring the right tools to inform, motivate and facilitate access to STEAM careers around the world.

Our project Inspire aims to help teenagers throughout the world see the endless opportunities that the technology field offers through workshops, courses and much more. We set the goal of reaching up to 1 million young people so that we can spark the next generation of disruptive innovation. I'm extremely proud to see that all of our initiatives are contributing to a great work environment.

We are really happy with the recognitions we are receiving for our culture, such as Great Place to Work. In this ranking, we have been named a Great Place to Work in all the countries where we apply such as the United States, Argentina, Uruguay, Colombia, India and Mexico. We're in front of a huge opportunity, and we'll continue to strive to be the best place for the talent.

Thank you, everyone. And with that, I will turn it over to Juan for the financials.

Thank you, and good afternoon, everyone. I hope you're all doing well. Let me start by summarizing the results of our first quarter. I will then discuss our guidance for the second quarter and full year 2022.

We are delighted with our overall results for the first quarter of 2022 as our business continued to show robust momentum. Revenues for Q1 were $401.4 million, representing 48.6% year-over-year growth and 5.7% sequential growth. Globant continues to deliver industry-leading growth, and we continue to be enthusiastic about the future of our company. We estimate organic revenue growth for Q1 was around 43% year-over-year. On a constant FX basis, Q1 growth was 49.2%.

As discussed in prior calls, the demand for our end-to-end digital services and platforms is stronger now than where it was before the start of the COVID-19 pandemic. We feel confident in delivering robust levels of growth in the upcoming years as companies continue investing in digital transformation for their operations.

Turning now to profitability. Our adjusted gross profit for the period increased to $158.4 million, representing 39.5% adjusted gross margin compared to $107 million representing 39.6% adjusted gross margin in the first quarter of 2021. Adjusted operating income for the quarter amounted to $67.5 million or 16.8% of revenues compared to $45 million or 16.6% of revenues for the first quarter of 2021. Demand and pricing environment continues to be strong, largely offsetting the ongoing inflation in the labor market. And we also continue to drive SG&A efficiencies with our increasing size.

In addition, we continue to drive a small, though, increasing amount of revenues from services, products and platforms that support breaking revenue and employee growth linearity. Together, this will help us maintain a healthy adjusted operating margin profile and continue making the required investments in the company to seize the attractive market opportunity in front of us.

Our IFRS effective tax rate for the quarter was 23.8%, largely in line with our guidance. Adjusted net income for the first quarter of the year totaled $50.8 million, representing 12.7% adjusted net income margin compared to $34.2 million representing 12.7% adjusted net income margin for the first quarter of 2021.

Adjusted diluted EPS for this quarter was $1.19 based on 42.7 million average diluted shares for the quarter compared to $0.83 for the first quarter of 2021 based on 41.2 million average diluted shares for the quarter. Adjusted EPS for Q1 implies a solid 43.4% year-over-year growth.

Moving on to the balance sheet. Our cash and cash equivalents and short-term investments as of March 31, 2022, amounted to $370.1 million. As expected, Q1 free cash flow was negative, as it concentrated tax and bonus payments. Q2 is expected to improve. And during the second half of the year, we forecast a significant free cash flow generation in line with prior years. Currently, our credit facility is fully undrawn. We also continue to successfully execute on our capital allocation strategy, with integrations of recently acquired companies going as planned.

Now I would like to talk about our guidance for Q2 and for the full year 2022. Based on current visibility, we expect Q2 2022 revenues to be at least $425.5 million or 39.4% year-over-year growth. This expected revenue growth includes a negative FX impact of 2.5 percentage points.

Q2 adjusted operating margin is expected to be in the 16% to 17% range. IFRS effective tax rate is expected to be in the 22% to 24% range. Adjusted diluted EPS is expected to be at least $1.20, assuming 42.8 million average diluted shares outstanding for the quarter.

Regarding the full year 2022, we expect revenues to be at least $1.768 billion or 36.3% year-over-year growth. This expected revenue growth includes a negative FX impact of 2 percentage points. For 2022, we expect our adjusted operating margins to be in the 16% to 17% range, while we continue to strongly invest in training programs and cutting-edge technologies and expand our sales coverage to further develop our business.

IFRS effective tax rate is expected to be in the 22% to 24% range for the full year 2022. Finally, we expect our adjusted diluted EPS to be at least $4.94 for the full year 2022, assuming 42.9 million average diluted shares outstanding for the full year.

Thanks, everyone, for participating in the call, for your coverage and support.

Thank you, Juan. As we go through the question-and-answer section of this call, I will announce your name. (Operator Instructions)

The first question today comes from the line of Tien-Tsin Huang from JPMorgan.

Nice results, of course. I wanted to ask on the low-code, no-code. Been -- we've been hearing a lot about that in the marketplace. And of course, you guys did the GeneXus acquisition, which you thought was really interesting. So I'm just curious, Martin and team, how do you think about that and how it fits with just broader application development, right? It just feels like there's going to be a change in effort if you believe that low-code, no-code takes off in a better way.

So I guess I'm trying to understand how does application development change from building the application, as we're so used to seeing, to building the tools, right, that help others build applications on their own. So I'm just trying to understand what that means down the road for the broader model.

Absolutely, Tien-Tsin, thank you so much for the question and thank you for being here today. I believe that augmenting and changing the way we create software is absolutely an imperative for this industry. I mean it's part of reinventing the industry in which we are. And I think Globant is playing a big role there.

And we have started already with the Augmented Coding initiative now called Augoor. And that product is taking a lot of traction and is gaining really amazing levels of how to document, how to understand code in a different manner and, with that, how to help developers to create better code.

And we were thinking about a way in which we can integrate that understanding of the code into how we can create code much faster. And we have examples within GeneXus operating entire core banking systems of 5 million lines of code using kind of a natural way of describing things and dragging and dropping fields and ways of explaining a system what to do.

So I believe between GeneXus, between our Augoor and MagnifAI, which is our augmented testing initiative, which computer vision help testers to discover which are the differences that are in the prototype and then on the real product that has been developed. We are creating kind of an augmented engineering vision that will propel the developer of software towards the future.

And my perspective there is when we talk about reinventing the way this industry has been developing in the past, I'm talking about concrete steps, concrete actions into that initiative. So yes, okay, with low-code, I think it's augmented engineering. I think it's a way to create software in a totally different manner.

Of course, this is just one more initiative on that vision that we have. And we will keep giving more and more steps towards that with Augoor, with MagnifAI, with GeneXus and integrating maybe more products on the platform. But I would love to hand it over to Diego to explain more about that because this is something that we love. So Diego?

Sure. Like Martin said, I mean, first -- one thing. I got in touch with GeneXus 20 years ago as a developer. GeneXus, at that point, had been in the market for another 10 years. So -- and at that point, I remember that there was a discussion about like the low-code, no-code tools taking over. And here we are, 20 years after, they coexist.

However, given the rapid change in technology, the footprint of low-code, no-code solutions, multi-platform development frameworks, et cetera, is growing and is growing fast. And this is a clear change, and we want to be drivers of this change, not followers.

GeneXus is a very, very strong and mature platform that allows you not only to create software without coding, but not just to settle with a traditional templatized type of interfaces, but it has evolved and incorporated a very solid, strong design tool into the tool itself, allowing you to create top-notch type of software.

So our bet here is to drive the next 10 years in terms of how you develop software. This is part of an integral ecosystem. It's only one move, like Martin said. We want to -- we are thinking about 10 years ahead, what's going on, what will be going on, and we want to be there like now, study now.

So again, GeneXus, I think it's a very strong tool. There will be opportunities for Globant to use it as a baseline for different type of solutions, and that will bring immediate results. But looking further down the road from a strategic standpoint, I think it's amazing. This move is amazing.

Thank you both for the thoughts. Let me just ask a quick follow-up if that's okay. Just, Juan, on the guidance, of course, I have to ask a guidance question. Just with the raise here, what were the pieces that changed? I think you said 2 points on FX. That's pretty consistent with what we had. But what about the organic, the inorganic contribution? Any change there and anything else to call out?

Yes, sure. So for the year, we guided $1.768 billion, which is about 36.3% year-over-year growth, of which we estimate around 33.5% organic growth. So -- I mean GeneXus is a very -- it adds around $5 million for the rest of the year because the deal is going to close, hopefully, in the next 2, 3 weeks. So it's a very small impact for this year.

However, as Diego and Martin explained, it's very relevant to us. So in summary, 36.3%, out of which 33%, 33.5% are organic. And for the full year, we are seeing about 2 percentage points of negative impact coming from FX, primarily due to the euro and the GBP, which have depreciated significantly relative to the dollar.

The next question is going to come from the line of Ryan Potter from Citi.

Congrats on a good quarter. I just wanted to touch on talent market and competition there. Given the ongoing geopolitical situations, a lot of your competitors have started to look more aggressively in areas like Latin America and India here for talent. So I was just wondering if you're seeing any incremental competition for talent in those markets and if you believe this can lead to elevated wage inflation or attrition in those markets over time?

Well -- I mean thank you for your question. Well, the last couple of months, of course, I mean, the situation was a little, well, as Martin mentioned, was not very happy for all the world. So that was the first thing that we want to say. I mean we were all shocked about what was happening. But yes, I mean, what -- we have been building, of course, and growing as fast as you see in our numbers. And the talent that we are acquiring are from the places in India. India is growing mostly than other places and the same as Colombia and Argentina.

And of course, I mean, some of the talent that we have, you know that we have a small office in Belarus and we have an office in Romania that is helping contain the situation there. So for us, I mean, keeping the base and growing the talent, I mean, has been something that, of course, I mean, we sustain and we keep the -- we hope that we're going to continue sustaining for the rest of the quarter. And I don't recall...

In terms of wage inflation, yes, definitely, we will see more wage inflation throughout this year. There is competition for talent pretty much all over the world. Now we believe we have the right culture, the right projects, the right value proposition for people to continue joining our company. And we feel comfortable to keep on attracting the talent that we need to meet our targets.

Yes. And I will complement with one more concept, I would say that Latin America is a pretty large continent. And it's not about one day, we cannot operate anymore in our place and now we turn into Latin America, and that's easy. And you need to have capillarity, and we have the largest capillarity in the market in Latin America, by far.

So I believe that even though that competition may look like a challenge to us, it's an opportunity because everybody is looking into Latin America now, and we are the largest and the biggest -- with the largest popularity in the region, and that gives us like a very good starting point to start discussions. So I believe that although that trend that you're seeing is happening, we're in the best possible position. And one more thing, which is we're convincing thousands of newcomers into the industry in Latin America every month, and that's a very important thing for the future and for the sustainability of how to develop and how to create this industry.

So as summarizing to your question, I believe this is an opportunity to us rather than a challenge. And that's only strength, our positioning as leaders in the region having the largest capillarity and the largest reach in terms of cities, amount of employees and capabilities to recruit and to go deeper into other places as we are doing now. So one of our core pillars for growth is that we want to expand every day into more places in Latin America, but not just in those cities -- sorry, in more countries, but also in more cities.

Talent, as we have seen during the pandemic, and we have been talking about this for the last 10 years at least, 15 years at least. Talent is everywhere. And the more capillary you are, the more -- the closer you are to where that talent is the better. And that's what we have been teaching forever. And now it's happening. So very glad to have this opportunity. And as Patricia said, it's very difficult to -- the moment that we are living in terms of all the things that are happening in Ukraine and Russia and all the region I think it's very bad. We'll keep on helping, and we keep on analyzing the situation as much as we need.

And also just, I guess, touching on attrition in the quarter. It seems like it ticked up a little bit. So I was wondering if there was any areas in terms of countries or skill sets for those concentrated the most. I know in past quarters, you said attrition was kind of heightened a little bit in Argentina with some new competitors coming in the space. So I don't know if it was still high in Argentina? And then just one more on that front. In terms of the Belarus headcount that you guys have, any color in terms of what you guys plan on doing with that in terms of you plan to maintain your presence or if it's going to be a kind of slow exit?

Yes. So attrition this quarter reached 19.6%, a slight increase compared to last quarter. We believe that attrition is going to stay around that number for the next quarter. And eventually, we should start seeing some decrease in the second part of the year. It continues to be driven by Argentina primarily, where given the macroeconomics, there is still a lot of things happening that make people may be more willing to change jobs sometimes. We don't see it happening in other countries at the same level. So it's more concentrated, I would say, in one country. As for the second part of your question about Belarus, probably, I know, Pat, if you want to take it there?

I don't...

Perhaps on Belarus people moving out...

Yes. Of course, I mean -- yes. I mean we moved some people from Belarus to Argentina. I mean we opened that, and we have been very close to them, trying to explain the situation, of course, and giving them the tools to -- if they want to move or if they want to continue their career in Globant. As you know, we have this DNA in Globant that is Globant everywhere. So you have the opportunity to move from different cities. So we help there, and we moved some families to Argentina, where they are living right now, and they are planning -- some of them are planning to stay for long. Others, I mean, are evaluating if they are coming back or probably moving to other places.

Of course, we have a strong -- I mean, we keep the office functioning and open there in Belarus, and we are really close to there. We have been helping with different strategies in the zone like in Romania and in Ukraine. I mean we have been opening positions for women, for example, that are now the head of the families in some of those cases. So we have been recruiting some people in the front there. So I think that there's a lot of things, and we also opened an office in Poland, so we can operate there. And we can, of course, be near some people that just want to move or found new opportunities near the places they live.

We have less than 200 -- we have around 200 people?

Yes. 200 in Belarus, yes, that is -- they're really important for us. Their families that are really important for Globant, of course.

The next question is going to come from the line of Arturo Langa from Itau.

Congratulations on the results. I had 2 questions. I think the first one is on the back of the GeneXus question. It would appear to me that one could offer GeneXus' a much wider access to blue chip clients. And I just think that's a very big opportunity for that type of acquisition and expanding that product to a much wider -- or a much better set of clients. I just wanted to get your guys just thought around that. And then the second one is I wanted to ask about a project that you finalized or carrying out for YPF in Argentina for the oil company in Argentina regarding the payment solutions. I just thought it's interesting that in a country that's inflation of the current macro environment with inflation and such that a company such as YPF would bet on digital transformation and sort of double down on that effort. And I also wanted to congratulate Patricia on your recent award for COO. So congratulations, those will be my 2 questions.

Thank you, Arturo, very much. I mean I feel very honored because this is a team building thing and being, of course, I mean, voted by some other peers. There were more than 30,000 people voting on the COO role. So being there on the top 50 has been something that we are doing altogether in Globant is just one for all of us. So it shows that we are good in team building here. So thank you, Arturo. And about GeneXus, I think I'll let Diego to explain.

Sure. So with regards to GeneXus, definitely, we have actually many plans in terms of how's the go-to-market for GeneXus. The existing model, you probably know is they use partners and fund creating solutions and they say the GeneXus used to sell the tool as a solution, and that was the way it was commercialized. I think we have the potential to do much more now that we have a joint effort. And definitely, what you mentioned about going to blue-chip company is one of them.

With regards to YPF, they started actually a long time ago. YPF, by the way, is the largest oil and gas producer in Argentina. And they started a transformation in terms of what they had to offer in 10 years for 2030. And as a part of that transformation, one of the things they needed to resolve is how they relate with the users, what was their mission and how the gas stations were going to be transformed, right? And the set of services being offered there was going to be transformed.

So we partnered with them a long time ago. And as part of that job, besides creating the app, that was the second largest wallet in Argentina in terms of transaction, is much more. It's a means by which you receive services from both YPF. You connect to the gas station. You pay with the wallet. So actually, it's very central to the value proposition today. And they had a -- if you go through their KPIs, ones we set as part of our success, cost reduction, improvement in the NPS, et cetera, we've just rock it. I don't know, 100% increase in the members of the reward system, 80% growth on their active users, 60% of their payments in the gas stations go through the wallet. So it's a major success. So actually, YPF is, yes, they had a weak time a long time ago, but it's actually paying off as a business has been very profitable.

The next question is going to come from the line of Diego Aragao from Goldman Sachs.

Congrats on the results. Interesting to see solid trends in a very challenging environment. So again, congratulations. So my question is regarding the overall macroeconomic environment and the slowdown we are seeing in the economic activity. The is impacting your business, let's say, in the coming years, either in a sale of that company might need to invest more in digitalization in order to do more efficient? How do you see this eventually representing a kind of risk for overall demand?

Diego, thank you very much for the question here. It's Martin. It's an interesting question. I believe that the long-term demand for our services and, in general, for any kind of digital transformation efforts are still intact. And they are way beyond an interest rate, right? They're way beyond that. They were beyond inflation. And companies will need to keep on doing what they are doing now, which is basically transforming, reinventing their businesses and that trend will keep on going. And that trend -- no matter which analysts you see, all of them are forecasting like huge trends in growth of this market, so on and so forth.

Now what could happen in the short term with those kind of companies needing to pay more money for interest rates instead of paying that same money for digital transformation, we don't know. But what I can tell you is what I already said in my initial statement, which was our pipeline looks great bigger than ever. And there's still a lot to do in terms of market share. And I want to be very concrete here, which is -- but there's still a need to do things in a different way, which we bring to the market and other competitors don't.

So I believe that here, there is a trend -- there's a very clear trend going towards the industry. Also, there's a very clear trend going to companies that are reinventing this space. And in the same way, people are moving from having traditional cars into Tesla's. Well, more businesses are trying to see how they do the same thing they have been doing in the past in a different way. and we're playing with that.

So I believe our demand will be very strong towards the future. Of course, for us, it's a day-to-day fight, explaining what we do different to our customers, to the industry, to whatever. So I believe those 2 things will be pretty much independent from any interest rate increase. And I believe that the demand will keep on being very strong.

And I guess just maybe a follow-up question. I mean, when you look to M&A, how this can eventually complement your portfolio, your footprint? How important it will be M&A, specifically in the next 12 months, right? Given where valuation is for you right now and where it used to be a couple of, let's say, a month ago? So I was wondering whether this is also already impacting some of the private companies and some of the founders and how they see their business?

Happy to answer. Well, the percentage of inorganic growth is (inaudible). But I would tell you that impact on our valuation is absolutely reflecting an impact that will go slower into the private market valuation, which will lead to opportunities, which we are already seeing them. And what I can tell you is that we are seeing like 3 different lines of growth on the inorganic side. The first one being geographical expansion and figuring out how to expand faster in Europe, how to expand faster in Asia, how to expand faster in Latin America.

The second, which is how we keep on adding things into augmented engineering concept, as I was saying before, how we keep on adding things into augmented coding or GeneXus' like things or platforms in general. So that's another way avenue of acquisitions that, by the way, there's some interesting things happening there because valuations of private companies and public companies on the software side has been changing a little bit, and that's an interesting opportunity. And then, of course, the customer side, I mean, any specific acquisition on things that we don't do yet or we want to improve like we have been doing with some companies which are in Spain, with many other things.

So I see here like those 3 avenues in a very healthy way and also seeing concrete opportunities given valuations changing, which, in essence, they are very tactic because I don't think it's a long-term thing. But I guess, it's very tactic thing, and it's a moment to pay attention to those things and take quick action and decisions. So I don't know, Juan, if you want to complement?

No. I mean, again, as always, Globant is an organic growth play. This quarter of the 48.6%, a little bit over 43% was actually organic. So for the full year number out of the 36.3% that we guided, roughly 33%, 33.5% are organic. So mostly, we continue to see strong momentum in organic business. And as Martin was saying, we will always complement our offering with inorganic strategic deals as we have been doing in the past.

The next question is going to come from the line of Surinder Thind from Jeffries.

I guess I'd like to focus on the guide in the quarter. I guess when I think about the guide and the sequential growth, can you help me understand if you would argue that it's a little bit weaker than historic? So can you comment on that? There's usually typically sequential growth is strongest in the second quarter. So can you help me understand that commentary you see near term versus, obviously, the picture that you guys have talked about secular demand trends?

Yes. The full year number is a slight increase compared to what we guided at the beginning of the year. So it continues to be on the same range, a slight increase from 35% to 36.3%. On the quarter, what we see this year is a more stable quarter-over-quarter growth. We did roughly 5.7% growth quarter-over-quarter. We are guiding to around 6% quarter-over-quarter growth for Q2. And when you do the math, you will see an acceleration in Q3, which always happens given the number of days and all that. Q2 has April, which is a month where there is a lot of holidays, and that has some seasonal impact, especially in April. But I mean the year seems to be like more stable in terms of quarter-over-quarter growth. You're going to see similar levels of growth throughout the year.

When Martin was talking about the long-term strong demand, I mean the numbers still show that, right? Because 36% for the year, of which 33% are organic is significantly above pre-pandemic levels when we used to grow 22%, 23% plus inorganic. So we are talking about 10 percentage points above the pre-COVID level, which is, I think, very solid growth, especially given the current environment and where we are. And I definitely believe that the long-term demand given how companies changed their needs, how people changed their behavior to live in a more digital world, I think those are very clear indications of the long-term opportunity as well as we always talk about the geographic opportunity. When you look at how big we are in Europe, you can see an enormous opportunity over there. When you look at Asia, which is pretty much nonexistent for changed their needs, how people changed their behavior to in a more digital world. I think those are very clear indications of the long-term opportunity as well as we always talk about the geographic opportunity.

When you look at how big we are in Europe, you can see an enormous opportunity over there. When you look at Asia, which is pretty much nonexistent for us, that's another opportunity. So I think we have more (inaudible) in Q3, sorry, which typically happens for us and then slightly lower than Q3 quarter-over-quarter growth. But all in all, you're going to see kind of all the quarters between 5.5% and, let's say, 7% quarter-over-quarter growth, at least that's what we are seeing as of now.

And then as my follow-up question, this was just more of a help me understand, I heard something about fintech relationship with the venture capital firm products. Any color on that? Is that why the third party? Is there something different that's being done here versus when you build applications for, let's say, the London Drugs project, Apple Watch and so forth that was you guys building your own product. So what is different here? Is that more productization in terms of the approach?

No. I mean, I don't know how familiar you are with [Bio Chat] but Bio Chat is a platform that is based on any conversational interface to be able to create digital accounts to send money to create like a fintech solution, which is our answer to some of that future trends in terms of conversational interfaces. Now that's a product that we have been developing and a platform that we have been developing with the years. And together with that development of the platform, we got approached by a fund in Spain that wanted to use that technology to create like a final solution, like a solution for customers. So we partnered with them to bring the technology, all right. We will get paid for that technology, and they will do the whole equity play like creating the final solution, the -- creating the payment solution in Spain. So they are doing everything they need to do to make it happen. So -- but that was the spirit of the deal. I don't know if that answers your question or...

There's -- that's helpful we can take offline.

Yes. We maintain something very, very clear for us, which is we always are technology providers. We do not intend to compete with any of our customers in the sector, and we won't do it. But we -- in this case, we are providing technology, to whoever wants that technology, and we are allowed to do it, we will do it. But this does not change anything from that.

The next question is going to come from the line of Moshe Katri from Wedbush.

Congrats on very strong numbers. A couple of things. First, can you talk a bit about your European business? I know it's relatively small. And from our perspective, this is where we could see some slowdown or maybe some weakness down the road? And then as a follow-up, can you talk a bit about what's driving your significant count growth in India, which has been really impressive and maybe talk about the headcount mix out of India? And where do you think that kind of goes down the road?

Okay. I forgot the first part already.

The European business.

The European business. Nice place, by the way.

It's fantastic.

European exposure, I see Europe growing very fast. I mean, our operation in Europe is much stronger than before, but still very small. So I see very concrete opportunities there. Some M&A opportunities we are taking a look at. And again, I don't see the effect that you are describing in terms of maybe something happens there, but still the need for digital transformation for every company is absolutely there. So I don't know what can happen. But I believe that Europe will be strong for us and the growth that we'll get in Europe during this year will be very strong as we will show in the numbers.

So I don't know. If something very strange happens, more strange that already happened, maybe we can have another discussion around that. But for how things are going right now, I believe that growth there will be very strong. And the M&A activity will keep on being as strong as we have done in the past. So that's on the Europe side on the...

Which countries are exposed in Europe?

Yes, let me complement a little on that one. So most of our exposure as of now is in the U.K. and Spain. And then we have some exposure to Germany. We have some exposure to Italy, some exposure to France and to Switzerland. Those are today the main areas where we have exposure. But I think that maybe even if Europe as a whole or as a continent grows slowly than the rest of the world, the fact that we are a very small player. It's around 10% of our business over there, gives us the opportunity to win by just -- because we are small. We have also, as Martin said, we have been looking -- and we have done a few deals in the past, and we have invested organically in building the team. So I think we should start seeing a very good growth coming from Europe as well.

On the second part of India, India right now is the third largest development center for Globant. We have been expanding very aggressively. It's fully integrated to the company the same way as Colombia, the same way as Mexico. By the way, Colombia now is larger than Argentina for this quarter. So what you're seeing is a company that's becoming more regional and more global at the same time. That's why you start to see places like India just competing with Argentina, competing with the rest of the countries, not compete, I mean, we work together in the same projects, but you're going to see it in the middle of everywhere. And I think we have a strong presence in Pune. We are opening in another city very, very shortly. You'll hear about that very, very soon. And we definitely see India becoming a much larger operation. Today, it's around 16%. And we do see India getting to 20% to 25% in the next few years.

And where is Argentina?

Argentina, right now, it's around -- it's 20%.

The next question is going to come from the line of Bryan from Cowen.

This is Zach on for Bryan. First question from us relates to the geopolitical situation over in Eastern Europe and the demand fall out. Just curious, has Globant signed any incremental business with clients that have derisked exposure to the conflict region? And the current utilization levels give Globant the flexibility to take on additional clients who are looking to derisk exposure?

Short or long version? Thank you for the question. It's a single question. Short version is yes. And a much longer version would be, we're seeing that demand happening as we speak. And on the other side, our recruiting engine and training engine and all the capacity engine in general is absolutely ready to take over all those pieces of demand at the speed they are coming. So perfectly fine for that and it's becoming, unfortunately, a driver of growth for us.

Yes. And then on the second part of your question, we can -- of course, we have room in the utilization. Utilization was around 79.6% for Q1. That gives us around 2 to 4 percentage points of additional utilization. We have done in the past -- we have been in the past at levels of 82% to 84%. So there is some room there. But I mean we don't need that. I mean we can also take on those additional deals by expanding our headcount. I think utilization is one of the levers that is also there to eventually help us offset some of the cost pressure that we may have, which, as we discussed before, it's there.

And the follow-up for us is on lapses, which is the cyber breach that took place at the end of Q1. Are you able to quantify the revenue impact in Q1 or if there was any spillover in Q2? Have there been any lingering issues on the client side or the delivery side? And if you could just talk about any changes that Globant has put in place to mitigate?

I'll take the first part, Diego, you want to talk out. So on Q1, there was no impact because the event happened. I think it was the last -- the day before the last of the quarter. And then on Q2, there is some immaterial -- very, very small impact that is -- that happened during the month of April.

So regarding the current status and then what happened, as you probably know, about 6 weeks ago, we received a cyber attack. That was a lapse us clean -- as the one executing that attack. We contained the situation very quickly. We evaluated the extent of the attack. By the time we finished our first run, we identified that approximately about 1% of our clients have been exposed to some extent, some information, meaning some documentation and source code. For the most part, that information, given the places and the servers they got access to was outdated or deprecated.

So we immediately put in place our business continuation program. We connected with every client, both the ones being affected and the ones that weren't affected. Within a couple of weeks, we have restored our normal operation for the most part. Like 99% of our operation was restored within a couple of weeks. As of today, only one small client has partially gone back to operation. So I'm confident to say that the situation has been contained, and this is approved. This has been the first attack of this type in 19 years. We have a lot of learnings, but I can say that after this episode, we proved to be quite prepared. We had lots of opportunities for improvement here and there. But in terms of us being prepared as a company, I think we passed the test.

The next question is going to come from the line of Jamesmichael Sherman-Lewis from Piper Sandler.

Congratulations on the strong first quarter. A couple for me. First up on pricing, margins certainly held up in the quarter. But what early proof points do you have the clients are comfortable with larger bill rate increases? And also that there'll be a sufficient magnitude to offset sustained inflation.

So as you pointed out, during Q1, we have solid margins, not only in Q1, but over the last 5 quarters, we have seen a good level of margins, and we were able to offset all the cost increases that started to happen early last year. We have increased our revenue per head roughly 13% year-over-year, that's a very solid number. And that basically was the main driver for us offsetting the cost increases. We do believe that costs will keep on increasing. We will continue to have price negotiations, price talks with our customers, the current inflationary environment clearly calls for those discussions and customers live in the same world where we live.

They hire people also in the technical sector. So they also know that there is some cost inflation there. And I mean we will continue to have those conversations. We will work on our utilization levels eventually to help us offset part of that. And hopefully, again, we target to maintain margins in the historical 38% to 40% gross margin. We have been on the upper range of that, but we believe that we should be able to stay within the range even in this inflationary environment.

And as a follow-up to Diego's earlier demand question, have you seen any crops yet in enterprise demand for digital transformation? And then to put a pin on that, with steeper declines potentially in the global economy, how should we think about the relative stickiness of digital versus legacy services?

So I think part of this has been addressed in terms of our demand. So with regards to digital transformation and the efforts of the company, the one thing that I can say that has changed from last year to this year is, if you see our pipeline, maybe the time it takes to close the deals from the beginning of the opportunity has extended a little bit compared to last year, but the appetite for digital transformation moving from legacy to digital is stronger than ever. So it continues to be very, very good. So -- and we expect that trend, even with the current economical situation and geopolitical situation, we continue to see that very solid, very stable. So no headwinds there.

That will be all for the Q&A section today. Thank you for all. I will now ask Martin to provide the closing comments.

Thank you, everyone, for participating today, and thank you for joining us. And looking forward to keep talking and let's stay in contact soon. Thank you very much.