Globant S.A (GLOB) Q3 2018 Earnings Conference Call Transcript

Globant S.A. (GLOB -1.81%)
Q3 2018 Earnings Conference Call
November 15, 2018, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Globant third 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 telephone keypad. 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 quarter review, our 2018 third quarter financial results. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com. Our speakers today are Martin Migoya, Chief Executive Officer, Juan Urthiague, Chief Financial Officer, and Alejandro Scannapieco, Globant's EVP and General Manager of US East Region.

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

Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our investor relations announcing this quarter's results.

I'd like now to turn the call over to 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 of the three months ended September 30th, 2018. At the end of the call, Juan will share with you our outlook for Q4 2018. Later on, we will open up to questions with Alejandro as well.

Q3 2018 was another record quarter for Globant, closing at $134.6 million in revenue and a robust 22.7% year over year growth. This solid growth was mainly driven by our top ten accounts. They deliver revenue growth of 37.8% over the third quarter of 2017 and 7.9% sequentially.

As in previous periods, we continue to enlarge our relationship with our key customers. We now have 90 accounts over $1 million in annual revenues compared to 78 one year ago. Additionally, during the last 12 months, we have nine accounts above $10 million in annual revenue compared to seven accounts for the same period last year.

Finally, I'm proud to announce that we have reached our first 50 million accounts on a last 12-month basis. Later during the call, Juan will share more details on our financial performance.

Now, let me go over some of the news and highlights of the past quarter. Q3 has been an amazing period in regard to our performance, deeply correlated to the market opportunity we continue to see. As IDC points out, by 2022, over 60% of the global GDP will be digitalized, with growth in every industry driven by digital enhanced offerings, operations, and relationships. It will drive almost $7 trillion in IT-related spending from 2019 through 2022.

On top of that, by 2024, AI-enabled user interfaces and process automation will replace one-third of today's screen-based apps. By 2022, 30% of enterprises will use conversational speech technology for customer engagements. This means that to succeed in this era, organizations need to completely transform. This transform should start with their culture and business strategy up to their processes and go to market approach.

As a pure play in the digital and cognitive arena, we are consistently showing that we are the right partner to help our customers driven their transformations. We do this with a model that includes innovation, entrepreneurship, digital technologies, AI, and agility. To help our customers stay relevant in front of this digital and cognitive era, during the past month, we conducted several thought leadership initiatives.

In September, we organized Converge Colombia, focused on augmented intelligence. Speakers from Google, Amazon, Microsoft, and WorkFusion, among others, share their innovation and views with our Latin American customer base.

In October, we hosted Converge in New York. It was an amazing event to go deeper into the cognitive revolution, analyzing the ethics implications of some real case implementations. The speakers included Scott McNealy, Cofounder of Sun Microsystems, Prakash Kota, CIO of Autodesk, and Jeff Ma, from the famous MIT blackjack team.

We also launched our 2018 Artificial Intelligence Technology Business Guide, a playbook for organizations considering investing in AI. We surveyed more than 350 US senior-level decision makers about current AI beliefs and goals and how ready they are to implement the technology. The report debunked common AI needs to offer a modern perspective for how the technology can be effective for businesses. To read it, download it from aireport.globant.com.

Complementing this, we published a new addition of the Sentinel Report. This market trends study analyzes several groundbreaking technologies, including hyper-connectivity, extended reality, and robotics. It describes the implications, potential uses, and their future evolution. For more information, visit sentinel.globant.com.

We're happy to share with you a new partnership that will help us deliver better solutions to our customers. We have started to work with Wayin, a real time digital marketing software company cofounded by Scott McNealy, former CEO of Sun Microsystems. Globant will help Wayin created enhanced services for large companies.

In turn, Wayin will provide Globant with a robust marketing platform to strengthen digital strategy capabilities and marketing efforts. Together, both organizations will be able to create improved marketing campaigns for customers across digital environments. All these initiatives are combining our strong positioning as leaders in the digital and cognitive transformation.

Let me share with you some of our customers' updates per region. In Latin America, we continued to see strong growth in our business coverage, focusing on countries like Argentina, Chile, Columbia, and Mexico. Let me share some of our projects.

During Q3, we released the mobile and digital platform from the Youth Olympic Games 2018. We work on the official platform of the games to include personalized and interactive content, adding gamification to boost attendance engagement. Also, for a leading financial organization, Globant has worked on a series of AI solutions to improve internal processes.

Lastly, we are helping a leading pharmaceutical company in its digital strategy applied to dermatology. Our AI and UX studios are working on the development of a diagnostic tool that leverage artificial intelligence intelligences and image processing to identify different skin conditions accurately.

In Europe, we're working on a wide variety of strategic programs. We're helping one of the leading retailers in the world to build a more scalable API platform. Also, for a global-leading financial institution, we're working on the evolution of a mobile product that can scale to millions of consumers while being used across several countries, regulatory environments, and client journeys.

In the US, we have engaged in a major long-term deal with some of our key accounts. As an example, we have been working for MPA for more than one year in one of its most strategic digital projects. We have also started to work with a multinational professional services team in several data initiatives as part of the data transformation agenda.

Additionally, we have incorporated some important logos to our portfolio. Globant is now working with Uber, supporting the deployment and integration of Uber Eats. We're also proud to have added FanDuel to our roster of industry-leading clients. Owned by Paddy Power Betfair, FanDuel is a leader among daily fantasy sports providers and an important brand in the recent legalized sport betting market in the US.

In regard to services or platforms, I'm proud to share that we have won two W3 Gold Star Awards for our StarMeUp operating system and platform. These recognitions were given in the mobile app side for the business and mobile app sides for productivity categories. The award recognized StarMeUp for empowering employees to engage in meaningful, timely social interactions with each other through a robust application. In summary, it emphasized how StarMeUp is on the cutting edge of transforming organizational culture.

As a reflection of the platform power, we continued to see strong demand for it. During the past month, our portfolio kept expanding, including several new logos, such as British American Tobacco, Savant, and Danone's Early Life Nutrition and advanced medical nutrition departments.

Today, I am proud to introduce to you Globant Minds, a new revolutionary product that comes to complement our services or our platform's offering. Globant Minds is a new way to deliver cognitive transformation. It works on top of the massive amount of existing AI regulations and RPA solutions and complement them, providing to our customers a simplified path to leverage AI.

Globant Minds will help us provide value-added solutions for our customers by maintaining our platform up to date with every new algorithm and AI system out there. We're really excited about the potential of this platform and it will help deliver cognitive solutions and a rapid and efficient manner.

To conclude, the demand environment continues to be healthy and our pipeline strong. Companies all over the world need to change and rethink their strategies, their businesses, and their go to market approach at a faster pace. As a pure play in the digital and cognitive fields, we are in the best position to help them go through these processes in a successful manner.

We remain optimistic about our ability to deliver sustainable growth in the future. Our unique model and organizational lifecycle together with our studios, service level platforms, and 50 square program deeply differentiates us and makes us an ideal partner.

With that, I'll turn the call over to Juan Urthiague, our CFO for a further detailed financial review on the third quarter 2018 and also to provide guidance for Q4 2018. Juan, please. Thank you very much.

Juan Urthiague -- Chief Financial Officer

Thanks, Martin and good afternoon, everyone. Let me start by summarizing the results of our third quarter and nine months ended September 30th, 2018. I will then discuss our guidance for the fourth quarter of 2018.

I am very pleased with our third quarter financial performance. During this quarter, we delivered strong revenue growth in gross and operating margins and generated significant cash. Our revenues came in at a new record level of $134.6 million, 22.7% of our third quarter of last year and 5.2% of our Q2 2018.

During Q3 2018, this was once again our largest customer. Our relationship with them continues to be strong and healthy with several opportunities in different business lines. Revenues for top ten customers increased 37.8% of the third quarter of 2017 and 7.9% sequentially.

We are excited with the fact that high potential accounts are scaling up and becoming large and meaningful in our customer portfolio. During the last 12 months ended September 30th, 2018, we rendered services to 344 customers, 90 of which accounted for more than $1 million in annual revenue compared to 78 customers one year ago.

During the last 12 months, we also had nine accounts over $10 million in annual revenues compared to just seven accounts for the same period last year and five accounts above $20 million in annual revenues compared to $3 million for the same period last year. We continue to grow the size of our accounts, aligned with our 50 squared strategy.

In terms of industry diversification, we remain pretty much balanced among the different verticals that we serve. Our top three verticals for this quarter were media and entertainment with 26.2% of revenues, banks, financial services and insurance with 22.3% of revenues and travel and hospitality with 17% of revenues. Our exposure to consumer, retail, and manufacturing space keeps growing, from 8.4% of revenues in the third quarter of 2017 to 11.4% of total revenues in the third quarter of 2018.

This signals that digitalization is expanded into an expected industry, such as manufacturing, which opens new opportunities to companies like us. Our customer concentration numbers for Q3 2018 showed a slight increase, although remains healthy and consistent with past quarters. With our top one, top five, and top ten accounts representing 11.9%, 33.4%, and 45.8% of revenues compared to 10.3%, 26.8%, and 40.7% of revenues, respectively for the third quarter of 2017.

During the third quarter of 2018, average quarterly revenue per our top five customer increased 53.2% to $9 million and average revenue per top ten customer increased 37.8% to $6.2 million compared to $5.9 million and $4.5 million respectively for the third quarter of 2017.

As we indicate n 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 farm and expand existing relationships. In terms of regions, during the third quarter of 2018, 77.5% of our revenues were North America, the US as our top country, 12.5% in Latin America and others, Argentina being the top country, and 10% were in Europe, Spain as our top country.

Europe has resumed growth after a few quarters of investments in the team. During the third quarter of 2018, 85.1% of our revenues were denominated in US dollars, protecting our topline against currency fluctuations.

Turning now to profitability, our adjusted gross profit for the period increased to $55.5 million for a 1.2% adjusted gross margin compared to $42.8 million, 49% adjusted gross margin in the third quarter of 2017, an improvement of 220 basis points.

The increase in adjusted gross margin was primarily driven by a more favorable FX environment in Latin America and an improvement in our utilization rates. In order to cope with the current demand environment, we increased our IT headcount by 510, reaching a new record level of quarterly net hirings for the company. We finished the quarter with 7,807 total Globers, 7,285 of which were IT professionals.

Attrition for the past 12 months was 19.2% compared to 20.7% in Q2 2018, showing a sequential improvement of 150 basis points. Adjusted SG&A decreased to 19.7%, 80 basis points less than Q3 2018, and 60 basis points less sequentially. This year over year dilution contributes further to our operating levers expansion.

We have been very disciplined in managing our costs as we gain scale while we continued investing for the future, primarily to strategically expand our sales coverage in the US, Europe, and Latin America. As a result, our adjusted operating income for the quarter amounted to $23.2 million or 17.3% of revenues, compared to $16.4 million or 15% of revenues for the third quarter of 2017.

The improvement in adjusted gross margin combined with adjusted SG&A dilution were the two main drivers for the significant operating margin expansion in the quarter. Share-based compensation expense for the third quarter of 2018 amounted to $3.3 million, representing 2.5% of total revenues for the period, compared to $4.5 million or 4.1% of total revenues for the same quarter last year.

This expense is mainly related to the plan of restricted stock units granted to certain key employees and directors of the company as part of our long-term retention program. Financial income and expense net amounted to a loss of $1.1 million. This net result is composed of FX gains and losses resulting from monetary assets and liabilities in local currencies, results of our hedging strategies, and interest income from our portfolio of investments.

Other income and expenses accounted for a gain of $3.1 million, many resulting from the changing fair value of contingent considerations related to our acquisitions. We adjust our non-IFRS net income to exclude this effect.

Our IFRS effective tax for the quarter was 26%. This increase was mainly driven by the large depreciation of the Argentine peso, which increased the taxable base for the period, resulting in a higher income tax expense.

Adjusted net income for the third quarter of the year totaled $16.8 million, 12.5% adjusted net income margin, compared to $13.6 million, 12.4% adjusted net income margin for the third quarter of 2017. Adjusted EPS for the quarter was $0.46 based on 36.8 million average diluted shares for the quarter compared to $0.37 for the third quarter of 2017.

Moving on to the balance sheet, our cash and investments as of September 30th, 2018 were $79.2 million compared to $60.7 million as of December 31st, 2017. Sequentially, we generated significant cash, increasing $22 million in our cash and investment position as of September 30th, 2018 compared to June 30th, 2018.

During Q3 2018, we repaid $6 million in financial debt. We mainly use cash to pay for M&A transactions, including error notes and CapEx to expand our offices in Latin America, US, and Europe. Our balance sheet remains strong, with current assets of $196.5 million, accounting for 8% of the company's total assets.

Total common shares outstanding as of September 30th, 2018 were $35.9 million. Last November 2, we amended and expanded our previous financing agreement. We entered into a five-year trade agreement with HSBC, Citi, and BNP Paribas. Under the facility, we may now borrow up to $50 million on or prior to May 1st, 2019 and they are delaying term loan facility and up to $150 million under a revolving trade facility.

Interests on the loan should accrue at LIBOR plus 175 basis points. There are 20 basis points of commitment fee for unused amounts. The trade agreement also contains certain customary negative and affirmative covenants. We are proud of closing this financing to support our continuous growth under very competitive terms.

Now, let's talk about the nine months ended September 30th, 2018. Revenue for the nine months ended September 30th, 2018 amounted to $392.2 million, implying a robust 28.2% year over year growth. Growth was mainly boosted by top accounts and new customer wins as our portfolio of high potential customers continues to grow at a very healthy pace.

Adjusted gross profit for the nine-month period was $153.6 million, 40.2% adjusted gross margin compared to $115.3 million, 38.7% adjusted gross margin over the same period last year, an increase of 150 basis points. On a year to date basis, we continued to see the positive tailwinds of the FX market corrections in Argentina and some other Latin American countries, coupled with an improvement in utilization.

Adjusted SG&A is also showing a healthy dilution of 190 basis points, currently accounting for 20.3% of our revenues for the nine months ended September 30th, 2018. Adjusted profit from operations for the nine-month period ended September 30th, 2018 was $61 million, 15.9% adjusted profit from operations margin compared to $38.9 million, 13% adjusted profit from operations margin for the same period last year. We're presenting an improvement of 290 basis points.

Adjusted net income for the nine-month period ended September 30th, 2018 was $45.2 million, 11.8% adjusted net income margin compared to $31.9 million, 10.7% adjusted net income margin for the same period last year, representing an improvement of 110 basis points.

Adjusted diluted EPS for the nine-month period ended September 30th, 2018 was $1.24 based on 36.6 million average diluted shares for the period compared to $0.89 for the same period last year based on 36.1 million average diluted shares for the same period last year. This represents a 39.5% year over year growth.

To wrap up, let me provide you with our guidance for Q4 2018. We continue to experience sustained demand for our digital offerings and we also see traction from our strategic accounts. The continuity of the FX volatility around the globe, but primarily in the different regions where we operate combined with high levels of inflation, particularly in Argentina, require us to take a conservative approach in our guidance for EPS.

In terms of gross margin, we expect to close the year in the 39% to 41% range, slightly above our historical target of 38% to 40%. Diversification of our talent base, we continue to be part of our long-term strategy and that should enable us to have a more balanced structure. While we continue investing in our 50 square strategy and training our Globers in cutting-edge technologies.

For adjusted SG&A, we expect additional sales coverage expansion, though we will continue dilution compared to last year. Finally, we expect effective income tax rates to normalize within the 21% to 23% range for the quarter. Based on current visibility, we expect Q4 2018 revenues to be between $138 million and $140 million, implying a 20.4% year over year growth at the midpoint of the range.

Adjusted EPS is expected to be between $0.45 and $0.49, assuming 37 million average diluted shares outstanding for the quarter. Regarding the full year 2018, we are increasing our guidance by $5 million at the midpoint of the range. We now expect revenues of $520 million to $522 million and imply 26% year over year revenue growth at the midpoint of the range. In terms of adjusted EPS, we are expecting a range of $1.69 to $1.73, assuming 36.8 million average diluted shares outstanding for the full year.

Thanks, everyone for participating on 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 telephone keypad. 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 Xinxin Wang with JP Morgan. Please go ahead.

Xinxin Wang -- JP Morgan -- Analyst

Thank you. Good afternoon. Juan, welcome back to the call. I think what stood out to me was you guys did quite a bit of hiring this quarter which is a good leading indicator. I'm curious where are you hiring geographically? What areas? Any potential forward implications to your expense or margin base given the hiring?

Juan Urthiague -- Chief Financial Officer

Thanks for the welcome back. Q3 was really good in terms of net hiring. We added a little bit more than 500 IT professionals during this quarter. As it has indicated in the last few quarters, the locations where we're growing the fastest are Columbia, Mexico, and India. We continue to see those locations outpacing the rest of the locations where we are.

We think that at the end of the day, that will help us to have a more diversified strategy, which is what we have been implementing since the IPO. We also allow us to tap into talent pools in every region. Also, as you know, we have a small operation in Belarus that has also been growing, but the numbers are still small.

Xinxin Wang -- JP Morgan -- Analyst

Okay. That's good. All outside of Argentina. I guess as my follow-up, I'll ask the guidance for this year all makes sense -- can you give us a little bit of hint or direction on margins for 2019 given what you've seen? I know there are a lot of moving pieces. But I think it would be helpful. Thank you.

Juan Urthiague -- Chief Financial Officer

Yeah. So, we are working on next year's numbers. What we are seeing as of now is that there are, as you said, a lot of moving pieces. We have strong margins right now and we are seeing also margins for Q4 for the next year, the combination between inflation and effect in different currencies while we are operating, create some noise. But we continue back to the same target that we set up some years ago. We will target 38% to 40% gross margin and we will also work hard to keep a limit of dilution on SG&A. But as of now, we would say 38% to 40% in terms of gross margin.

Xinxin Wang -- JP Morgan -- Analyst

That's great. Thank you.

Operator

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

Maggie Nolan -- William Blair -- Analyst

Hi, guys. I'm hoping you can give us your updated thoughts on tax rates, particularly into 2019, especially as we start to think about how tax rates in some of your geographies may change.

Juan Urthiague -- Chief Financial Officer

Yeah. How are you doing? In terms of tax, typically, tax rates are stable in the 21% to 23% range. However, when we have quarters where there is a significant depreciation of a currency, especially in the case of Argentina, that puts some noise in the income tax for the specific quarter. But assuming that the peso will depreciate at a stable rate, we continue to think that 21% to 23% is a rational tax rate for next year.

Maggie Nolan -- William Blair -- Analyst

Okay. Then can you give us an understanding of if you're seeing any early traction from clients with your enhanced marketing offering in the context of that partnership with Wayin?

Alejandro Scannapieco -- Executive Vice President and General Manager of US East Region

Yes, Maggie, this is Ale. We're making good traction in several different angles and several different industries. We are, as you know, executing several different initiatives in terms of marketing lead-generation initiatives. I think that combined with the farming of existing relationships is definitely yielding very good results. We see a lot of traction, particularly in the financial services vertical, in the media and entertainment vertical, in the professional and services industry.

I think what's something that is happening in the marketplace and that we have seen lately is that a combination of the acceleration of some digital projects and digital migrations in some of the counts also combined with some early initiatives on the AI and cognitive space. So, all of them together, they're definitely gaining traction. So, we're at the sweetest part of what is happening in the marketplace in terms of demand and very well-positioned with our companies.

Maggie Nolan -- William Blair -- Analyst

Thanks, Ale. Congrats again, Juan.

Operator

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

Avishai Kantor -- Cowen & Company -- Analyst

Good afternoon, everyone. The first question on Disney, which remains very strong growing 42% year over year and 30% sequentially -- can you give us a sense where the growth is coming from between parks and the media divisions to as much as you can elaborate on that?

Alejandro Scannapieco -- Executive Vice President and General Manager of US East Region

Sure. How are you doing, Avishai? I think the opportunity at Disney remains very large. As you probably are aware, Disney just restructured their divisions between consumer interactive and international. We're very well positioned in those places. The big traction continues to be the theme park division, the division within this environment. Having said so, we have also made progress on media. We have also made progress with ESPN.

I think the overall relationship with Disney is very healthy. This whole thing about the restructuring, it's even playing as a tailwind for us. Some already existing accounts like Nat Geo are also part of Century Fox. That's also going to yield another opportunity. Hopefully, Disney is going to become the first 50 squared customer for Globant. Overall, I can say that [inaudible] division is a theme park division. We're also seeing traction from other divisions at Disney. That was our plan since inception.

Avishai Kantor -- Cowen & Company -- Analyst

My next question on Uber Eats -- is that global or just in Latin America?

Alejandro Scannapieco -- Executive Vice President and General Manager of US East Region

For the time being, it's only Latin America.

Avishai Kantor -- Cowen & Company -- Analyst

Is there a potential to expand into other regions? Do you think that's possible?

Alejandro Scannapieco -- Executive Vice President and General Manager of US East Region

We think so. It's the first project that we're running with Uber. I think it's very experimental in Latin America. We're very happy with the nature of the project. So, definitely, this could be the beginning of a very large relationship.

Avishai Kantor -- Cowen & Company -- Analyst

Thank you so much for the details. I'm very happy to see you guys survived the first leg of the Super Classico.

Operator

Again, if you have a question, please press * then 1. The next question comes from Joseph Foresi with Cantor Fitzgerald. Please go ahead.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi, I guess the old team is back together, Juan. I think you've covered most of 2019 or some of the early stuff around 2019. Maybe you could talk a little bit about the topline, even if it's in general terms, what you think growth is going to be like. Also, this quarter, it seemed like Disney was back at it, but maybe the accounts outside of the top accounts didn't grow at that pace. Maybe you can break down growth for us from Disney versus not Disney to the extent you can on the long-term side.

Juan Urthiague -- Chief Financial Officer

So, in general, as you can see from our hiring, we feel very confident about the opportunity that we are facing. When we look at the revenue growth in our top accounts, yeah, Disney did extremely well, growing 41% year on year. But when we look at the top five, we see 53%. We look at the top ten, 37% and even when we look at the rest of the accounts, the growth is still there. So, we are very, very happy with how most of our top accounts are performing.

Also, we have some new names that are not yet a top ten account but we are already working with them, some we can name. Are just mentioned Uber. Some we cannot name as of now. We know that those are great opportunities for 2019. We are working on some interesting projects. If we continue to be successful, that will bring a lot of revenue going forward.

As for the future, we always remain with the same targets that we always have of around 20% organic growth. That's what we have been saying since the IPO. I was just looking at the numbers earlier today. Our guidance for 2018 is around 26% for the year. It's the fifth year in a row above 26% or up, I believe, 26%. So, we feel very confident about the opportunity. We are seeing very good traction, not only from Disney but also from other very large accounts. Also, we have some new names that also make us comfortable about 2019.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Then on the margins, I know you gave some rough ideas around the 40% range. What's the expectation for FX built into the margin guidance?

Juan Urthiague -- Chief Financial Officer

Yeah. When we look at Q4, I mentioned during the call between 39% and 41%. Basically, we expect this business to remain stable where it is right now, at least until the end of the year. Then for the future, it will depend on, of course, how the economy is doing here. There are a lot of moving pieces in terms of the macroeconomy at this point, but we think that according to what the government put up in the economic plan. The precision of the peso will follow the inflation of the country, at least that is what has been stated by the Minister of the Economy. If that's the case, that's good for us.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. Just the last one for me on the Argentinian economy -- any concerns around wage inflation inner country? And maybe you could talk about how the economy is affecting day to day business and maybe labor supply as we head into next year.

Juan Urthiague -- Chief Financial Officer

Yeah. Joe, unfortunately, inflation in Argentina has been between 20% and 30% for the last 10 years and we have managed the company very successfully in that environment. Of course, it would be better if inflation goes down. Hopefully now, today, the House and the Senate passed the budget for next year and it has a lot of fiscal cuts, a lot of fiscal decisions that should eventually take inflation down.

So, we have been dealing with inflation. We are used to that. We think that we have been able to manage it in the last ten years and we expect to be doing so. We really understand how to manage it.

Alejandro Scannapieco -- Executive Vice President and General Manager of US East Region

If I may add to that, Joe, I think the government now is trying to articulate to the Central Bank a very tight monetary policy. Interest rates are up to the sky. I'm not saying that is going to dramatically reduce inflation in the short run, but it should have impact of probably three or four months from now. So, our expectation is at a certain point that inflation is going to ease up a little bit, we still are talking about high levels of inflation, as Juan pointed out.

Juan Urthiague -- Chief Financial Officer

Also, if you read about the Argentinian economy, you will see that the government talks about a moving range for the peso and that range will increase by 3% per month. So, basically, what that means is the government expects the Argentinian peso to move in line with inflation.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

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

Martin Migoya -- Chief Executive Officer

Thank you very much, everyone. Looking forward to see you on the next earnings release. Thank you very much for participating and for your continued support on every quarter. Thank you.

Operator

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

Duration: 43 minutes

Call participants:

Paula Conde ­-- Investor Relations Officer

Martin Migoya -- Chief Executive Officer

Juan Urthiague -- Chief Financial Officer

Alejandro Scannapieco -- Executive Vice President and General Manager of US East Region

Xinxin Wang -- JP Morgan -- Analyst

Maggie Nolan -- William Blair -- Analyst

Avishai Kantor -- Cowen & Company -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

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