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Globant S.A. (NYSE:GLOB)
Q2 2018 Earnings Conference Call
Aug. 23, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the second quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your touchtone phone. To withdraw your question, please press * then 2. Please note, this event is being recorded. I would now like to turn the conference over to Paula Conde, Investor Relations Officer. Please go ahead.

Paula Conde ­-- Investor Relations Officer

Thanks, operator, and thank you all for joining us today on our call to review our 2018 second quarter financial results. By now, you should have received a copy of the earnings release. If you have not, a copy's available on our website, investors.globant.com. Our speakers today, Martin Migoya, Globant CEO, and Alejandro Scannapieco, Globant's CFO. Before we begin, I would like to remind you that some of the comments on our call 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 earnings release and other filings with the FCC. 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 like now to turn the call over Martin Migoya, our CEO.

Martin Migoya -- Chief Executive Officer

Thank you, Paula. Hi, everybody, and thanks for joining us today. I'm pleased to be here to share with you some updates on our business and financial performance for the three months ended on June 30th, 2018. At the end of the call, Alejandro will share with you our outlook for Q3 and the rest of 2018. Q2 2018 was another record quarter for Globant. Our revenues for the second quarter increased to 127.9 million representing a 28.4% year-over-year growth. This positions us well to achieve our financial performance and goals for 2018. This robust growth was driven by top 10 and non-top 10 accounts, which delivered revenue growth of 30.5% and 26.8% respectively. Our ability to nurture long-term relationships and to expand into multiple divisions within our customers by leading our growth. We now have 92 accounts with over $1 million in annual revenues compared to 76 one year ago. Later, during the call, Alejandro will share some more details on our financial performance.

Now, let me share some highlights about the market and the company. We're living amazing times for technology. Never in history, we have witnessed two massive undisrupted revolutions happening at the same time. The digital and cognitive revolutions are affecting how companies connect with consumers and employees. Also, they're affecting how companies operate, providing opportunities to make huge gains in efficiency. To give an overview, the digital space is growing at 20% year-over-year according to IDC. The cognitive field is growing at 60% according to Tractica.

On top of that, IDC estimates that by 2021, 75% of enterprise applications will use AI. We are in front of a massive opportunity and Globant is in a great position to capture these opportunities. Creating solutions in this era is a totally different game and technology isn't enough. At Globant, we're committed to help our customers in their full organizational fitness life cycle. In order to be successful, transformations need to impact every single dimension of the organization. Starting by providing the necessary tools and support for companies to embrace cultural and methodology transformations followed with accompanying our clients as they define their new digital strategies to engage consumers and employees then scaling on its construction and evolution. And the two final stages in the cycle pushes secure products to the cloud and making them available so that they reach the appropriate audience.

After that, the cycle remains in an endless and progressive loop that ensures organizations stay relevant. We deliver this cycle for our studio model, our service-forward platforms, and our agile pods methodologies. Let me provide you with a perspective about what is happening with a professional services organizations market. As technology evolved, it was assumed that professional services organizations would evolve with it. However, this is not happening with traditional players. Traditional IT sourcing vendors and huge consulting companies are trying to reinvent themselves to catch up with this fast-changing landscape but their culture remains the same. All IT and BPO typical engagements represent an enormous amount of their revenues.

Even when they make acquisitions to affect their culture, it is difficult for companies that have hundreds of thousands of employees. It is like changing their DNA. This evolution in professional service organizations is represented by Globant, a digitally native company organized around the new paradigms of innovation, entrepreneurship, digital technologies, AI, and agility. Reflecting this focus on our original development, during Q2 we have seen major accomplishments. In Latin America, South Latam is going through a smart and dedicated digital transformation process. Together, we are working on activating a digitally run formation framework that mobilizes the whole organization to evolve through active learning. The focus of this mobilization engages culture, experience, agility, data, and technology to create new behaviors and new outcomes within the organization.

In the region, we have also added several new logos including a leading travel company and different insurance companies with strong presence in the region. In Europe, we're happy to say that we continue to be recognized for our innovation and digital transformation. We were shortlisted for a 2018 BEIMA award for our work for the met police. On top of that, on our first mission, we were shortlisted for the business transformation Cannes Lions award 2018 also for our work for the met police. It is a great recognition that reflects our passion and the projects' tangible results. Accompanying the region's growth, we have closed new deals with different leading companies such as Jovanlovos and one of the world's largest fashion retailers. In the US, we continue to see sustained expansion.

During Q2, we have won several new logos including Avoca, among others. Avoca partnership provides a software platform for delivering outstanding customer acquisition journeys in banking. Globant is a key partner for Avoca in implementation of the platform across different clients. Our constant expansion is mainly driven by our team, an experienced groups of Globers with outstanding skills to deliver digital and coveted transformations. Showing our thought leadership in the AI arena, we recently launched a new report on voice-activated technologies. This playbook aims to help organizations develop the strategies for successful voice implementation and technology investments.

We surveyed more than 600 senior level decision makers to understand their priorities. The report presents several interesting conclusions as companies are still preparing to take advantage of voice technologies as part of their larger digital and cognitive transformation. I encourage you to read it by visiting voice.globant.com. Also, within the coming few months, we'll be holding our next two converge events series about artificial intelligence. This gathering aims to bring together the best creative minds in the industry to discuss trends and rethink the way we do business.

On September 17th, we'll have the converge edition in Medellin, Colombia, with speakers coming from Google, Amazon, and Microsoft, among others. Later on, on October 25th, we'll host our annual VIP converge edition for Business XX at the New York Stock Exchange. During that event, we'll go beyond the AI surface to discuss real cases, ethics, implications, and more. The speakers will include leaders from Autodesk and Salesforce and Jeff Ma, kingpin of the famous MIT blackjack team. I invite you to learn more about these events at converge.globant.com. In other matters, we are glad to say that we have been named the 2018 Best Place to Work in the global enterprise international category.

The business intelligent group identifies organizations that drive performance and challenge employees in an engaging work environment. Globant was chosen for its collaborative nature and a unique work culture largely due to start me up. We're incredibly honored since it is a true testament to the trust that our employees have in Globant. To conclude, demands continue to be strong. As our by plan keeps expanding, we'll remain optimistic about delivering sustained growth. This paradigm shift demands for companies to rethink their strategies, their business, and their go-to-market approach.

We believe that we are in the best position to help them go through this process as a pure play in the digital and cognitive arenas. Our organizational fitness lifecycle together with our studios services our platforms and 50 square mobile deeply differentiates us and makes us the ideal partner. With that, I will turn the call over to Alejandro Scannapieco, our CFO, for a further detailed financial review on the second quarter 2018 and also to provide guidance for Q3 and full-year 2018. Ale, please. Thank you very much.

Alejandro Scannapieco -- Chief Financial Officer

Thanks, Martin, and good afternoon everyone. Let me start by summarizing the results of our second quarter and six months ended June 30th, 2018. I will then discuss our guidance for both the third quarter and the rest of the year. I'm very pleased to announce another outstanding growth and robust financial performance for the second quarter of 2018. Our revenues close at the new record level of 127.9 million to an 8.4% of our second quarter of last year and 6.8% of our Q1 2018. During Q2 2018, Disney was once again our largest customer. Our relationship with them continues to be strong and healthy with several different opportunities after the internal reorganization that they have had recently.

We're excited with the fact that high potential accounts are scaling up on becoming large and meaningful within our customer portfolio. Revenues for top 10 customers increased 30.5% of our second quarter of 2017 and 7.2% sequentially. Revenues for customers 11 and beyond increased 26.8% over the second quarter of 2017 and 6.5% sequentially. Our strategy to have a diversified base of multi-million dollar accounts is working out inline with our expectations. During the last 12 months, ended June 30th, 2018, we rendered services to 355 customers, 92% of which accounted for more than 1 million of final revenues compared to 76 one year ago.

During the last 12 months, we also had nine accounts above 10 million in annual revenues compared to six accounts for the same period last year. We continue to grow the size of our accounts aligned with our 50 square strategy. As can be seen, by our industry diversification, Globant's value proposition and service offering is attractive to companies across all industries and we remain pretty much balanced. Our top three industry verticals for this quarter were media and entertainment, with 24.5% of revenues. Banks, financial services, and insurance with 21.8% of revenues and travel and hospitality with 17.5% of revenues.

We continue to target the specific accounts to add into our portfolio. During this year, we added some new high potential accounts such as the leading provider of industrial automation and information products based out of US, which also contributed to enlarging our exposure to consumer retail and manufacturing space growing from 8.2% of revenues in the second quarter of 2017 to 10.1% of total revenues in the second quarter of 2018. Our customer concentration numbers for Q2 2018 remained fairly consistent with past quarters with our top one, top five, and top 10 accounts representing 11.1%, 32.5%, and 44.6% of revenues compared to 10.1%, 31.6%, and 43.9% of revenues respectively for the second quarter of 2017.

During the second quarter of 2018, average quarterly revenue per top five customers increased 31.8% to 8.3 million and average revenue per top 10 customer increased 30.5% to 5.7 million compared to 6.3 million and 4.4 million respectively for the second quarter of 2017. As it has been the case in previous quarters, the vast majority of our revenue was generated from customers that were already working with us in the prior year, a clear sign of our ability to form and expand existing relationships. In terms of regions during the second quarter of 2018, 78.4% of our revenues were in North America, the US as our top country, 31% in Latin America and others, Argentina being the top county, and 8.5% were in Europe with Spain as our top country. Latin America continues to outpace the rest of the regions in terms of revenue growth.

During the second quarter of 2018, 86.4% of our revenues were denominated in US dollar, protecting our top line against currency fluctuations. Turning now to profitability, our adjusted gross profit for the period increased to 51.3 million falling 1% adjusted gross margin compared to 37.9 million, 38.1% adjusted gross margin in the second quarter of 2017, an improvement of 200 basis points. The increase in adjusted gross margin was primarily driven by a more favorable FX environment in Latin America, and an increasing our utilization rates. As you recall, Q2 is typically the season when most seller increases occur and despite this, we were able to increase our adjusted gross margin 100 basis points sequentially compared to Q1 2018, as the benefit of FX tailwinds during Q2 outpace wages increases impact.

We finish the quarter with 7,279 Globers, 6,775 of which were IT professionals. Attrition for the past 12 months was 20.7% compared to 19.5% in Q1 2018 showing a sequential increase mainly driven by Argentina. As such is H&A decreased to 20.3%, 260 basis points less than Q2 2017 and 50 basis points less sequentially. This impressive year-over-year dilution contributes further to our operating leverage expansion. We have been very disciplined in managing our costs as we gain scale, while we continue investing for the future, primary to strategically to span ourselves in US, Europe, and Latin America.

As a result, our adjusted operating income for the quarter amounted to 20.2 million or 15.8% of revenues compared to 11.6 million or 11.6% for the second quarter of 2017. The improvement in adjusted gross margin combined with adjusted SGNA dilution were the two main drivers for the significant operating margin expansion in the quarter. Sure based compensation expense for the second quarter of 2018 amounted to 3.3 million representing 2.6% of total revenues for the period compared to 5.9 million or 5.9% of total revenues for the same quarter last year. This expense is mainly related to the plan offer a city stock units granted to certain key employees and directors of the company as part of our long-term retention program.

Financial income and expense net amounted to a loss of 2.1 million. This net result is composed of FX gains and losses resulting from monetary assets and liabilities in local currencies results of our retention strategies and interest income from our portfolio of investments. Other income and expenses resulted in a 4.5 million gain mainly resulting from the change in further value of contingent consideration related to our acquisitions. We suffer non-IFRS net income to exclude this effect because we believe these impacts are not indicative of what we consider to be the core of our business. Our effective tax rate for the quarter was 21.5% fairly consistent with previous quarters. Adjusted net income for the second quarter of the year totaled 14.5 million, 11.4% adjusted net income margin convert to 9.5 million, 9.5% adjusted net income margin for the second quarter of 2017.

Adjusted diluted EPS for the quarter was $0.40 based on 36.7 million average diluted shares for the quarter compared to $0.26 for the second quarter of 2017. During this quarter, EPS is growing higher than revenues. Adjusted diluted EPS for Q2 2017 previously reported as $0.27 turned now to $0.26 as we have broken down by quarter the 2017 full year acquisition-related charges already recorded in Q4 2017.

Moving onto the balance sheet, our cash and investments as of June 30th, 2018, were 57.3 million compared to 60.7 million as of December 31st, 2017. This stable level of cash was mainly explained by our decision to self-fund for the time being M&A transactions including earn-outs and capex aimed to expand our offices in Latin America, US, and Europe. Sequentially, our cash and investments positions us as of June 30th, 2018 increased 12.2 million if compared to March 31st, 2018. Our balance sheet remains strong with current assets of 175.1 million accounting for 45.6% of the company's total assets. Total common shares outstanding, as of June 30th, 2018, were 35.8 million.

Now, let's talk about the six months ended June 30th, 2018. Revenue for the six months ended June 30th, 2018 was 247.6 million implying a 31.5% year-over-year growth. Growth was mainly boosted by top accounts and new customer winds as our portfolio of high potential customers continues to grow at the very healthy pace. Adjusted gross profit for the six month period was 98.2 million, 39.6% adjusted gross margin compared to 72.5 million, 38.5% adjusted gross margin for the same period of last year, an increase of 110 basis points. On a year-to-date basis, we continue to see the positive tailwinds of FX market corrections in Argentina and some other Latin America currencies combined with an improved utilization rate.

Adjusted SGNAs also show a healthy dilution of 260 basis points currently accounting for 20.6% of our revenues for the six months ended June 30th, 2018. Adjusted profit from operations for the six month period ended June 30th, 2018, was 37.7 million, 15.2% adjusted profit from operations margin compared to 22.5 million, 11.9% adjusted profit from operations margin for the same period of last year, representing an improvement of 330 basis points. Adjusted net income for the six month period ended June 30th, 2018, was 28.4 million, 11.5% adjusted net income margin compared to 18.4 million, 9.8% adjusted net income margin for the same period of last year, representing an improvement of 170 basis points.

Adjusted diluted EPS for the six month period ended June 30th, 2018, was $0.78 based on 36.5 million average diluted shares for the period compared to $0.51 for the same period of last year based on 36 million average diluted shares for the period last year. To wrap up, let me provide you with our guidance for Q3 2018 and the rest of the year. We continue to experience sustained demand for our digital offerings and we also see traction for our strategic accounts. The continuity of the FX volatility around the globe, but primarily in the different regions where we operate combined with a still high level of wage inflation, particularly in Argentina, required us to take a conservative approach in our guidance for EPS.

In terms of gross margin, we still expect a normalized range around 38-40% as we pointed out in the last few calls and as we have been able to maintain over several quarters. Diversification of our talent base was continued to be part of our long-term strategy and that should enable us to have a more balanced cost structure while we continue investing in our 50 square strategy and training for our Globers in cutting-edge technologies.

As for adjusted SGNA, we expect additional sales covers expansion though we'll continue gaining dilution compared to last year. Finally, we expect effective income tax rates to continue within the 20-22% range. Based on current disability, we expect Q3 2018 revenues to be between 131.5 million and 133.5 million, implying a 20.8% year-over-year growth at the midpoint of the range. Adjusted EPS is expected to be between $0.41 and $0.45 assuming 37 million average diluted shares outstanding for the quarter. Regarding the full-year 2018, we expect revenues in the range of 514 million and 518 million and implied 24.8% year-over-year revenue growth at the midpoint of the range. In terms of adjusted EPS, we've expected a range of $1.65 and $1.69 assuming a 36.9 million average diluted shares outstanding for the full year. Thanks, everyone for participating in the call and for your coverage and support. Operator, can you please queue questions? Thank you.

Questions and Answers:

Operator

We will now begin the question and answer session. To ask a question, you may press * then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we will pause momentarily to assemble our roster.

The first question comes from Puneet Jain with JP Morgan. Please go ahead.

Puneet Jain -- JP Morgan -- Analyst

Hey, good quarter guys, thanks for taking my question. So your topline grew nicely in the quarter after rating 50 million in revenue in Q1. How much potential there is at that client account and also if you can talk about what's driving high growth there?

Martin Migoya -- Chief Executive Officer

This is Martin, how are you? Thank you for the question. I think the relationship with our main customer is extremely healthy. They are expanding into -- and we are expanding the operation to other areas -- and they have really bold projects to keep on expanding the digital experience into many other countries and locations etcetera. I see a potential -- which is still pretty good. We cannot wait to repeat those normal growth rates as we have had experimented in the past, continuously in the future, but there are other accounts that are taking over.

You have to remember the top 10 accounts grew on average more than 30% year-over-year. None of those accounts are accounts that -- they are accounts that we have had for years. So this is the full trend that we have seen at Globant. I see very good potential at Disney and I don't expect to keep on repeating the same growth as we have been doing in the past but I see good growth coming from it.

Puneet Jain -- JP Morgan -- Analyst

Got it, noted. That's good to know. And can you also share qualitative comments on the recent trend of sale increase in Q2? And assuming much of that happened the full currency depreciation what do you expect for wage efficient in the next round?

Alejandro Scannapieco -- Chief Financial Officer

Let me take that one. What we're expecting particularly in most of the countries is definitely very stable figures for wage increases. Argentina now accounts for less than 35% of our cash count and roughly 26% of our costs as of the last quarter. Definitely the numbers for wage increases that we expected when we started a year were different so they're more now probably on the mid-20s to high-20s but at the same time the pace of deprecations of the currency has been very aggressive.

So I think at the end of the year probably we're gonna be more than offsetting any particular wage increase as we tend to do when we face these particular situations of the running away of the currency and then afterwards possible depreciation we take advantage of the second window of seller increases that's happened in Q4 for Argentina. That's the only country where we have two windows and we try to assess salaries in such a way that we remain competitive but as I said, this year definitely the face of devaluation has been going faster than wages and I expect that trend to continue for the rest of the year.

Operator

The next question comes from Ashwin Shirvaikar with Citi. Please go ahead.

Aswhin Shirvaikar -- Citi -- Analyst

Thank you. Hi, Martin. Hi, Ale, congratulations on the good results. So my first question is -- I wanted to break down the revenue growth on components if you can provide sort of headcount growth versus pricing benefit and any comment on utilization? And also, sort of the contribution of acquired revenue. I believe point switch is no longer going to contribute as an acquired entity.

Alejandro Scannapieco -- Chief Financial Officer

Hi, Ashwin. Thank you for the comments. As far as topline growth, it's pretty much driven by the top counts if you compare that to headcount growth. Headcount is growing 20% flat whereas topline is growing much faster. There has been an increase in utilization in the quarter 200 basis points in utilization, 84% was the utilization for the quarter, which is typically 200 basis points above the traditional average for Globant.

So very good footprint in utilization in the quarter. And the last part of your question regarding Point Source, keep in mind we acquire Point Source by the middle of the quarter. As you said, is the only remaining acquisition that we have in the quarter. We haven't done any further acquisition for the past year. So that the contribution from Point Source in the quarter has been really, really irrelevant, very minimal.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. It seems that the average size of your interesting relationships it continues to grow -- the opportunity FEP seems robust. And in fact, when I look at sort of beyond top 10, it might be happening to the work you're doing for clients that maybe they're not on your 50 square list. Is this accurate and how much do you have invested in sales or relationship management to continue to manage this? And as the projects and relationships get bigger, does that include your revenue visibility?

Alejandro Scannapieco -- Chief Financial Officer

So what's happening, Ashwin, as we launch 50 square we have a strong focus also on the known 50 square accounts because our goal there is to get as many as we can -- 50 square accounts. So we find and we dedicate a lot of time to those non-top 10, non-top 20 accounts where we have several 50 square accounts. We tried to assemble teams at the very beginning and when we start the relationship and we start growing, probably working with just one thing of division, a couple of projects, we try to assemble teams that we share based on the expertise and based on some vertical expertise sometimes. And we start growing from there.

Then, each accounts become meaningful, we start assembling fully dedicated teams and trying to penetrate other divisions. But that's the common pattern for every single account at Globant. You know that since we launched 50 square, we are dedicating a lot of time efforts, people, and self-efforts to increase the relationships with not only the top ten of 20 accounts but also with the non-top 20 accounts. So that relationship is already happening as you said.

If you take a look at the growth rates of non-top 20 accounts, they're growing probably a little bit less than that -- then the top line for the whole company, but still growing at very healthy rates. And they're definitely part of our focus. Some of the accounts are not yet 50 square but we believe and we truly trust the fees that they're finding those accounts to make them 50 square in the years to come.

Ashwin Shirvaikar -- Citi -- Analyst

And then, safe to say, year revenue isn't definitely going up because of this.

Alejandro Scannapieco -- Chief Financial Officer

Yes.

Operator

The next question comes from Maggie Nolan with William Blair. Please go ahead.

Maggie Nolan -- William Blair -- Analyst

Hi Ale, Hi Martin. Congrats from me as well. I'm wondering how the labor market is in your chosen geographies. Is there any noteworthy change in the competitor's environment now compared to over the last year or so?

Martin Migoya -- Chief Executive Officer

No. We haven't seen any major change. Colombia is performing very well. Mexico is performing very well. Argentina is performing very well, too. India is doing great for us. And we are gaining in places like Colombia, Mexico, and India where we are growing very fast. We're gaining a lot of momentum in terms of the projects that we are bringing there and in terms of the opportunities that we're bringing to those professionals. We are seeing Globant gaining momentum and gaining attractiveness on those markets. Also, in Argentina, in the interior of the provinces where every day is becoming better and better.

So I see a landscape, which is pretty favorable for us, we're recruiting a record number of people every month but there's a reason for that. There are two factors that really attract clients to Globant. Being the first, the kind of projects and the kind of customers we have. We're working with the best brands on the planet. And that's very relevant for the professional careers of people.

And the second thing is, we're providing five dimensions of change for our people. They can change on verticals going from one vertical to another, we can change the projects if they love the vertical but they retire about one customer, they can go to another in the same vertical, which we have really deep penetration in the verticals that we work. They can even change their career, stop being a perfect manager and become a client partner or stop being a client partner and become a technical expert on something that they love.

They can change countries; they can change -- well, many different dimensions that they can choose. So Globant is prepared for that and it's prepared for every Glober to be able to choose and the organizational will try to help. Of course, in a mature way but Globant is becoming one of the best places to work as I stated in my previous review. Well, the best place to work in Latin America and in the regions in which we operate, including India and the others, and Europe and the US, too.

Maggie Nolan -- William Blair -- Analyst

And then on utilization, you've had pretty high utilization levels this quarter and last quarter as well. Do you think that these are kind of new, normal levels? Or do you think that you'll move back down toward your average utilization either this year or even into next year?

Alejandro Scannapieco -- Chief Financial Officer

I think over time we have been improving the way we handle our efficiency across the teams, I think the fact -- I mean, Martin mentioned that now we're much more well diversified across different locations and that's definitely helping us to monitor better the shallows in the accounts and the juniors in the accounts, some of the others that we spend in the fix price contracts, in the two-year contracts. So we are confident that we can maintain this kind of levels of utilization. I think this is the result of hard work and diversification among different locations where we have been at scale.

Operator

The next question comes from Avishai Kantor with Cowen. Please go ahead.

Avishai Kantor -- Cowen -- Analyst

Hi, great execution guys. My first question just the clarify, so your Q3 revenue guidance and essentially Q4 guidance, that's all organic amount, right? Seems that points was undiversified for about a year ago?

Alejandro Scannapieco -- Chief Financial Officer

That is right, Avishai.

Avishai Kantor -- Cowen -- Analyst

Thanks. And my second question, the margin performance -- and you mentioned, Martin, you said that India is doing great. Is part of their margin performance related to you being able to share -- shift some of the work between some of the Latin American countries to India? Let's say, in a higher percentage compared to previous times?

Martin Migoya -- Chief Executive Officer

It's one of the portions but it's not that important. I think that we are moving -- we grew significantly in India but its improvement in margin is coming from different places. First, from internal efficiencies that we are doing and how we operate. And second, from some kind of tailwind, we are getting on the exchange. For example, in Argentina, and for example, in other places. So the two main factors are one, the operational efficiencies we gain. Second, the movement of some things of India and the tailwind on the exchange rate. Ale, do you want to add something to that?

Alejandro Scannapieco -- Chief Financial Officer

I think it's precisely that. It's a combination of factors. Utilization has also helped us to manage better margins, as well.

Avishai Kantor -- Cowen -- Analyst

Okay. And my next question, you talked about Disney and you mentioned that you're growing, expanding into some new interesting areas with some of your key clients outside of Disney. Any specific examples that you can share? I know sometimes its hard, but any specific area?

Martin Migoya -- Chief Executive Officer

It's difficult but as I mentioned, we're exploring other countries or other areas within the company, other companies they have acquired and they are acquiring. So the expansion is in many dimensions, it's not just one area. And we keep being one of their preferred vendors there.

Avishai Kantor -- Cowen -- Analyst

So it's basically you being able to leverage recent acquisitions which took you into new areas combined with the 50 square plan, basically, the combination of both, this is what's driving it?

Martin Migoya -- Chief Executive Officer

Exactly right.

Operator

Your next question comes from Joseph Foresi with Cantor Fitzgerald. Please go ahead.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hello, this is Mike Reed on for Joe. I appreciate you taking our question. Do you think you can give us more detail on where you might be gaining more traction in some of the merging technology studios, such as artificial intelligence and Internet of things?

Martin Migoya -- Chief Executive Officer

Yes, we have our -- just to clarify your question, you want to expand on the artificial intelligence studio?

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Yes. Just maybe some areas in particular where those are beginning to gain more traction?

Martin Migoya -- Chief Executive Officer

Yes, absolutely. Artificial intelligence for us has been a place in which we started gaining a lot of traction. We are treating that as a platform, we are not selling artificial intelligence by the hour like we do in other projects. So for us, the promises of expanding our platform efforts on artificial intelligence are extremely important. Then, I would like to say that we are in the middle of all the unwritten platforms that are out there in the market. And we are like the connection between all those platforms and algorithms and our customers.

And we are routing the best possible algorithms pretty much in real time, sometimes depending on the channels to be able to understand better, which is a reasonable answer better a question on specific areas. Let's say, image recognition or character recognition or speech detection or tech simplifications or whatever area we would like to add on the artificial intelligence side. The offering that we are providing to our customers there is totally different. We're packaging this solution for our customers in a totally different mind so it's very well received among our customers, this new expansion.

Together with other studios like the cyber securities studio, which is gaining lower traction too, and also the studio around mobile. And we're gaining a lot of traction too, is our future organization studio and our action delivery studio. Those two studios are studios that aim mainly to change the culture of the organizations and to affect and to provide tools to make a much better digital transformation and cognitive transformation -- not just the technologies but also the tools to transform and affect the culture of your company. So that's like an abstraction of the things that are going faster these days within Globant.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. And then second, just, any changes in the main environment or spending its financial services, may be particularly at banks?

Martin Migoya -- Chief Executive Officer

No, it's similar. We haven't seen any backlash there. Indeed, we are seeing now budgeting sessions for many of the banks. Expenditures look pretty healthy for next year, too.

Operator

The next question comes from Frank Atkins with SunTrust. Please go ahead

Frank Atkins -- SunTrust -- Analyst

Thank you for taking my questions. I wanted to see if I could get a quick update on the hedging program? And given the degree in movement in some of the major currencies in inflation, are you contemplating any changes to the hedging program?

Alejandro Scannapieco -- Chief Financial Officer

The currency hedging program that we have in place is typically placed to cover some of the exposure that we have in the local currency to some net monetary assets in some countries, particularly in Mexico, Colombia, and Argentina. But that's not the big exposure toward local currencies, so those are small cases. We definitely use a combination of some local future markets to assemble some futures there.

Then, on the salary side, definitely, the perspective that we see for this year -- we take the year-to-date numbers. Every single country is running higher devaluation than the date of evaluation inflation. And even in the case of Argentina, where inflation is still high, the pace of devaluation is running faster. So typical in those countries we're not hedging the cost eye of the salary. But then, we're doing some hedging to forward contracts on the net monetary outfit position. But those are small hedges.

Frank Atkins -- SunTrust -- Analyst

Okay, that's helpful. And then, has there been any changes in any of the pricing environments for the particular studios?

Martin Migoya -- Chief Executive Officer

No. We haven't seen any change neither -- I mean, there's pressure -- I mean, we're competing against other companies. But I haven't seen any massive change or any significant change in the pricing environment. Indeed, our operating is growing quarter-over-quarter so we're really happy with that and that's a reflection of -- remember, we're not talking about pricing at Globant, we're talking about most of our resources off-shore because we have 10% of our people on-site.

So when you compare apples to apples, we have almost two times the pricing tradition IT outsourcing vendors have. So we're selling something different. And we are not seeing that much pressure. There's such a demand for talent, for teams, for ports, for knowledge that I think companies are starting to realize that is not a big deal around negotiating a price but it's better to get the pressure sometimes.

Frank Atkins -- SunTrust -- Analyst

Okay, great. And if I could ask one more about cash flow? What, in your view, is a healthy cash flow conversion rate and where do you think this is going kind of longer term as you look at the cash flow trajectory?

Alejandro Scannapieco -- Chief Financial Officer

Our plan is to improve year-over-year. I think for us the use of cash in the early days has been important in terms of assembling delivery centers in many different places, using the capex that we needed in order to grow fast. I think we are reaching to a point where the improvement of free cash flow generation and free cash flow conversion to improve every single year. Again, you're gonna see the filing in Luxembourg tomorrow.

I think we had a very weak Q1, that's typical seasonality but then a very strong Q2 in terms of free cash flow generation and that should be the trend going forward. If you ask me, it's still too early to get into the high 70s or low 80s of some other bigger sized company, but that should be the trend for us going forward. So we should get there within the next two or three years.

Operator

The next question comes from Arvind Ramnani with KeyBanc. Please go ahead.

Arvind Ramnani -- KeyBanc -- Analyst

Hi, thanks for taking my question. I just want to kind of revisit a question on artificial intelligence. Could you provide some color? Can you parse out -- when I look at AI offering, how much of it is basic, like RPA type of offering? Was this kind of more of the cognitive part of AI? Was this kind of basic like analytics? Are you afraid this is gonna break out the stake competence RPA cognitive analytics and how that's gonna feed into your AI practice? That would be helpful.

Martin Migoya -- Chief Executive Officer

Most of it is cognitive. RPA is a space that we are exploring. We have not a huge indent into RPA. We consider it at some point, RPA will be replaced by traditional machine learning, machines learning how to recognize documents and things and screens and automating the work in a much more efficient job. That's our long-term view on RPA. That doesn't mean that at some point it won't enter into that but I'm much more focused on cognitive machine learning stuff, machine learning projects we are presenting to our customers in a proactive way. That of course sometimes includes some data analytics and non-supervised machine learning that takes some kind of patterns within some set of data that we get from our customers.

But right now, projects are more around bots that can answer in a very efficient way question from customers, algorithms that takes fraud into customs. We are more in the side of teaching machines how to recognize frauds to provide them and analyze them in an efficient way, how to teach machines how to recognize attrition or talent. Those are the things on projects we are proposing proactively to our customers and it's being very well received.

And again, it's not that we are using one technology or another technology, we are using Microsoft or Amazon or Google, we are trying to use all of them and we are trying to make a layer of abstraction for our customers so they can use artificial intelligence without the need of researching which is the best algorithm for each particular solution at every single moment. And this is one of the most interesting value acts that we have for our customers.

Arvind Ramnani -- KeyBanc -- Analyst

Great. In the prepared remarks, you kind of talked about your -- kind of a lot of AI work being disciplined and making sure they all don't convert to time and material. Can you talk a little bit about what essentially pricing model you have for these engagements and also explain how your sales team that is essentially incentive to basically sell ANM, how are you changing the mindset to focus on selling or value?

Martin Migoya -- Chief Executive Officer

For years we have been pushing and we have been saying that for us, it's extremely important as a company and as a next generation service to provide our services in the best possible way. That means that our company has been talking about platforms and using platforms and increasing their revenue on platforms for many years already. And we haven't earned it through our positions; we did organically, which is really amazing.

So all of our servers have been trained for many years already in trying to sell our platforms. It started by selling the starting with Wedge, which has already hundreds of thousands of users, if not millions in the platform. The idea is that we will be charging -- let's say that we put a machine learning system that is watching cameras. And those cameras are detecting, let's say, are detecting fires or accidents or assaults or any kind of crime or reports or a gunfire. Every detection that we generate with our algorithms is being charged on a per camera basis per month, to give an example.

There's a set of three that the customer pays but then the ongoing work of those algorithms are renewed. We charge a customer in a total of increment; it's not per the hour but per detection on the system. I think that explains a little bit. Salesforce is already trained and we are selling a new platform for their portfolio.

Arvind Ramnani -- KeyBanc -- Analyst

If I can just squeeze one last one in, you have been leading this whole digital developers and whole digital space for a long time now, but can you maybe explain which of your studios are seeing really high growth above 50-60%, whatever the number is versus kind of -- which of the studios have gained scale and some of the growth rates are not as high? Basically, explain which ones are seeing the highest growth.

Martin Migoya -- Chief Executive Officer

Yes. Look, there are always going faster than others so I am seeing a lot of growth on artificial intelligence, we're seeing four digits growth on artificial intelligence, triple-digit growths on future organizations. We're seeing high double digits on mobile. We're seeing a lot of demand on the cloud ops and the cloud environment operations. We're seeing also huge growth on the cybersecurity, which is a studio we just launched.

So we're seeing very high growth on some studios and some, for example, other studios that used to be quite aggressive in terms of growth now have emerged into artificial intelligence, like the data that is moving all the growth into our artificial intelligence studios. And then some others are going slower, for example, gaming, for us is going slower because the gaming industry is growing but it's not growing as fast as it was in 2008, ten years ago.

So that studio is very healthy, very profitable, but it's growing slower. And then, we have some other studios that are growing slower, too. We have about 20 studios; I would say we have many that are growing fast and some that are growing slow. That's a kind of picture.

Operator

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

Martin Migoya -- Chief Executive Officer

Thank you very much and thank you, everybody, for your attention that you devote every quarter to us. We are looking forward to seeing you on the next earnings call. Thank you very much.

Operator

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

Duration: 60 minutes

Call participants:

Paula Conde ­-- Investor Relations Officer

Martin Migoya -- Chief Executive Officer

Alejandro Scannapieco -- Chief Financial Officer

Puneet Jain -- JP Morgan -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

Maggie Nolan -- William Blair -- Analyst

Avishai Kantor -- Cowen -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Frank Atkins -- SunTrust -- Analyst

Arvind Ramnani -- KeyBanc -- Analyst

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