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Globant S.A.  (NYSE:GLOB)
Q4 2018 Earnings Conference Call
Feb. 14, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone and welcome to the Globant Q4 and Full Year Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Ms. Paula Conde, Investor Relations Officer. Ma'am, please go ahead.

Paula Conde -- Investor Relations

Thank you, operator, and thanks everyone for joining us today on our call to review our 2018 full year and fourth 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; and Juan Urthiague, Chief Financial Officer.

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

During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally, and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our Investor Relations website, announcing this quarter results.

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

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you, Paula. Good afternoon everybody and thanks for joining us today. Happy to be here to review our 2018 full year and fourth quarter performance. At the end of the call, Juan will share our financial outlook for 2019.

2018 was another very successful year for our company. We achieved a robust revenue growth, while improving profitability and cash generation. Our full year revenue for 2018 amounted to $522.3 million, representing a 26.3% year-over-year growth. At the same time, revenue for the fourth quarter 2018 amounted to $140.1 million, a new record for the company, as an increase of 21.4% compared to the same period in 2017.

This remarkable revenue growth was driven by the acquisition of new customers and by the expansion of our deals with current customers. Most of this growth comes from media entertainment, finance, technology, travel, consumer, retail and manufacturing. This expansion across verticals signals that digitalization is reaching more industries. It is opening new opportunities for a pure-play company in digital and cognitive technologies, like we are.

During the last 12 months ended December 31, 2018, we rendered service to 373 customers, 90 of which had annual revenues over $1 million compared to 82, one year ago. During the last 12 months, we had five accounts above $20 million in annual revenues, and nine accounts over $10 million in annual revenues. We continue to grow the size of our accounts, aligned with our 50-Squared strategy.

Finally, our adjusted diluted EPS amounted to $1.74 and $0.50 for full year and the fourth quarter respectively. Later, during the call, Juan will share more details on our financial performance and our guidance for the rest of the year.

Our sustained growth show that we are on the right path to address demand and market needs. Companies are still looking to transform their business, as new users and requirements arise. At the same time, we see that many organizations tried to transform themselves, but some are not following an effective approach. For many, it becomes difficult to build a digitally native culture from scratch or change the status quo of the current IT department. It is hard to be successful using our practices to create innovative technology products.

As Forrester points out, transformation starts with developing the right set of strategy choices, and the ability to help shape digital thinking and a digital culture that supports continuous innovation. It is cemented through effective change management. As a pure digital and cognitive player, Globant is the best partner to help organizations transform their businesses. We do this with a comprehensive approach that includes; evolving their culture, we can help them get ready for new paradigms with our Future of Organizations and Agile Delivery Studios.

Second, creating digital products; through all our studios and our Agile ports, we can create digital journeys from the inception of AVIA (ph) to the complete execution.

Third, bringing digital and cognitive to the back office. With our AI cloud computing and cloud implementation practices, we can accelerate IT department to be more reactive to ever-changing business needs. And fourth, creating a full digitally native culture. We can also take over the entire technology organization and evolve it to the next level. We can turn it from a traditional IT department into a full digitally native and Agile organization.

This model demands for players that can offer a strong expertise in some of the most demanded technologies, to continue expanding our capability, last month, we announced the acquisition of Avanxo, a leading cloud transformation company. This operation enable us to expand our broad expertise in corporate process optimization and cloud technology. Avanxo shares our vision on how to deliver profound digital and cognitive informations. They pioneered the cloud system integration market in Latin America. They became the first independent platinum consulting partner of Salesforce in the region. And they are also an advanced consulting and MSP certified partner of Amazon Web Services. The company has 310 IT professionals, exceptional skilled in cloud capabilities. They were for renowned brands such as AB ABInBev, Sulamerica, Ecopetrol, Sika, Allianz, Terpel, Samsung, La Meridional, Audi, Sodimac and several others. We have found amazing team that complements our model and we are confident that the acquisition will help us propel our positioning as leaders in the digital and cognitive arena.

We also continue to put a lot of focus on latest technologies and trends to provide the best practices and services to our customers. In this sense, AI remains our top priority. We launched several initiatives to develop what we call an augmented Globant. We're reshaping our internal areas, leveraging AI to improve our business and better serve our customers and employees.

We also recently published our AI manifesto available at stayrelevant.globant.com. This set of principles reflects what we believe and encourage within Globant. They serve as a guide to our projects, as we expand on our digital and cognitive approach.

In parallel, we launched two reports to cover different trends that will share business needs in the future. The first one is Globant's new Sentinel Report, that focuses on the importance of culture, when going through a profound transformation. The report shows how to build a culture that enables innovation and relevance across organizations. To read more about this, visit sentinel.globant.com. In addition, last Monday, we launched our 2019 Blockchain Technology Business Guide. This report is a resource for organizations considering investing in blockchain integrations. We surveyed more than 650 US senior level decision makers, and their priorities regarding blockchain technologies. The report determines what steps organizations need to take to go from being excited about blockchain to executing on blockchain. To read it, please visit blockchain.globant.com.

I'm glad to share with you that last month, we signed the Cybersecurity Tech Accord. This agreement gathers 79 companies, including LinkedIn, Microsoft, Rockwell Automation and Salesforce under the same goal, to protect and empower civilians online and to improve the security, stability and resilience of the cyberspace. Today challenges make it important to have a global understanding of cyber security and its implications. We are aligned with the Accord's goal of providing the community with better information about current and future threats. We will continue creating digital products that put first, security.

In regard to our business, we have largely expanded our portfolio, adding new logos such as Rockwell Automation, (inaudible) and Square Enix, among many others.

Let me also share a few examples of the new deals that show our consistent growth. Rockwell Automation selected Globant a strategic software development partner to enable the digital transformation of the organization. The multiyear partnership leverages Globant Studios, Globant's product acceleration methodology and Globant's cultural transformation operating system to build the capabilities required to meet customers' most challenging expectations.

Our expertise in the finance industry continues to grow. We have signed a long-term agreement, BBVA Frances to accelerate their digital transformation in retail banking through new technologies and processes, that will improve our customer experience. For another leading bank in Latin America, we're working to transform their IT delivery area into an agile department, while also supporting the expansion of this transformation initiative toward other divisions of the company. Also, we are working with a leading musical label to consolidate their music artist data between their internal data platform, social media, and radio reproductions. The goal is to feed their current reporting system and do trends detection based on AI techniques.

We're extremely delight that organizations rely on Globant, as they embark on a profound transformation. The impact of our work is also recognized by prestigious awards, such as the BIMA awards. Last year, we received three BIMA awards for the work we performed together with the London Metropolitan Police, as part of their digital transformation. We won for transformation and consultancy in impact and the overall category. We also received the ninth biggest prize, the BEMA Advance Grand Prix. These recognitions reflect the awards mission and they celebrate British digital work that pushes the limits across innovation, craft and impact.

Globant has also won two Comparably awards of the Best Company Culture, and Best Company for Diversity. Comparably releases a set of awards each quarter, celebrating top rating companies and their leaders, based on assessments by employees. These recognitions are a result of our commitment to our Globers. We take great pride in creating a workplace, where people enjoy coming to every day, that is being recognized by the community.

Lastly, let me remark that our pipeline and backlog remains strong. With a number of high potential new customers and several long-term projects within our current customers. We continue investing in our studios to remain at the forefront of innovation. We also keep expanding geographically to better serve organizations around the globe. We remain optimistic about our ability to deliver sustainable growth in the future.

With that, I'll turn the call over to Juan Urthiague, our CFO, for a further detailed financial review on the fourth quarter 2018, and also to provide guidance for Q1 2019 and for the full year 2019.

Juan please? Thank you very much.

Juan Urthiague -- Chief Financial Officer

Thanks Martin and good afternoon everyone. I will spend a few minutes taking you through the fourth quarter and full year 2018 results. Then I will talk about our outlook for 2019.

Let me start by saying that we're very pleased with our overall results for the fourth quarter and full year 2018. Q4 was a solid quarter of revenues, grossing up $140.1 million, 21.4% over the prior year and 4.1% over the last quarter. Disney was once again our largest customer for Q4 2018, with remarkable growth. The account experienced a solid year, with good perspectives of growth for 2019.

Moreover, revenue for our top 10 accounts increased 20% over the fourth quarter of 2017 and revenues for customers 11 and beyond, increased 22.5% over the fourth quarter of 2017. Our customer concentration numbers for Q4 remained fairly consistent with past quarters, with our top one top-5 and top 10 accounts representing 10.9%, 30.9%, and 42.7% of total revenues compared to 10.4%, 28.5% and 43.2% of total revenue, respectively for the fourth quarter of 2017.

Our vertical diversification remained balanced across the different industries. With media and entertainment, and financial services leading the pack, accounting for 26.6% and 21.8% of revenues, respectively. And we continue to be well diversified in terms of customers and industries.

During the fourth quarter of 2018, 77.4% of our customers were in North America, the US as our top country. 13.5% were in Latin America and others, Argentina was our top country. And 9.1% were in Europe , Spain, as our top country.

During the fourth quarter of 2018, 85.6% of our revenues were denominated in dollars, protecting our top line against currency fluctuations. During the last 12 months, we rendered services to 373 customers. Our 50-Squared strategy continues to drive growth, and we now have a five accounts with over $20 million in annual revenues, nine accounts over $10 million, and 90 customers with annual revenues in excess of $1 million, compared to 3, 9 and 82 respectively one year ago.

Turning now to profitability. We are seeing solid improvements compared to 2017. Our adjusted gross profit for the period increased to $58.4 million, 41.7% adjusted gross margin compared to $45 million, 39% adjusted gross margin in the fourth quarter of 2017. Also showing a sequential increase of 50 basis points compared to the previous quarter. The increase in adjusted gross margin was primarily driven by a higher revenue per head, combined with FX tailwinds in most Latin American currencies.

We finished the quarter with 8,384 Globers, 7,821 of which were IT professionals, experiencing once again, a record quarter in terms of net additions. With a total headcount increase of 577 employees. Attrition for the past 12 months was 18.2%, showing a sequential decrease of 100 basis points quarter-over-quarter.

We continue to generate SG&A dilution. Adjusted SG&A decreased 60 basis points compared to Q4 2017, accounting for 19.3% of our quarterly revenue compared to 19.9% for the same period last year. Our adjusted operating income for the quarter improved relative to Q4 2017. It amounted to $23.4 million or 16.7% of revenues compared to $17.9 million or 15.5% for the fourth quarter of 2017, a 30.9% year-over-year growth.

Share based compensation expense for the quarter amounted to $3.4 million. 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. This expense represented 2.4% of revenues for Q4 2018 compared to 2.8% of revenues for the same quarter last year.

Financial income and expenses net amounted to a loss of $1.5 million. This net result is mainly comprised of FX gains and losses, resulting from monetary assets and variabilities in local currencies and interest income. Other income and expenses resulted in a $1.4 million loss, primarily resulting from the remeasurement of investments in associates and contingent liabilities related to our acquisitions.

Our effective income tax rate for the quarter was 23.5%, in line with the average effective income tax rate for the full year. Adjusted net income for the fourth quarter of the year totaled $18.5 million, 13.2% adjusted net income margin, an increase of $4.4 million or 30.9% compared to the fourth quarter of 2017. Adjusted diluted EPS for the quarter was $0.50, based on 36.9 million average diluted shares for the quarter, increasing from $0.39 a year ago.

Let's now move to our full year 2018 performance. Revenue for 2018 amounted to $522.3 million, implying a robust 26.3% year-over-year growth. We experienced good momentum among our 50-Squared accounts and we expect to see more benefits in the coming quarters. Revenue for our top five, top 10 and 11 to the end accounts increased 40.1%, 32.5% and 21.9% respectively, compared to the previous year, showing solid growth across the board.

Adjusted gross profit for 2018 was very strong, at $212 million, 40.6% adjusted gross margin compared to $160.3 million or 38.8% adjusted gross margin for 2017, an improvement of 180 basis points year-over-year. This significant improvement was mainly due to a combination of higher revenue per head and tailwinds from the FX currencies in Latin America.

During 2018, once again, we achieved significant dilution in our adjusted SG&A as a percentage of sales, decreasing from 21.5% for 2017 to 20% in 2018. We have been very disciplined in managing our costs, as we gain scale, while we continue investing for the future, primarily to expand our sales coverage in the US and Europe. As a result of this, our adjusted operating income for 2018 increased substantially to 16.1% of sales from 13.7% a year ago. An improvement of 240 basis points.

Share based compensation for 2018 amounted to $12.9 million, 2.5% of revenues, compared to $14.5 million, 3.5% of revenues for 2017. This expense is mainly driven by our long-term incentive program, as explained before.

Financial income and expense net amounted to a loss of $5.6 million. This net result is primarily comprised of FX gains and losses, resulting from monetary assets and liabilities in local currencies, and interest on our investments and on our liabilities. This result was mainly driven by the significant depreciation of the Argentine peso during Q3 2018.

Other income net resulted in a gain of $6.2 million, mainly related to the remeasurement of the contingent liabilities of certain acquired companies. This line item is adjusted for our non-IFRS measures.

Our effective tax rate for the year was 23.5%, an increase versus 2017, mainly due to the impact resulting from the volatility of some currencies in LATAM. Adjusted net income for the year amounted to $63.7 million or 12.2% of revenues compared to $46.1 million or 11.1% of revenues in 2017. This represents a 13.4% (ph) year-over-year increase. Adjusted diluted EPS for the same year was $1.74 based on 36.7 million average diluted shares compared to $1.28 in 2017, based on 36.1 million average diluted shares.

Moving on to the balance sheet; our cash and investments as of December 31, 2018 amounted to $87 million compared to $60.7 million as of December 31, 2017. Our balance sheet remains strong, with current assets of $214 million, accounting for 48.5% of the company's total assets. Total shares outstanding as of December 31, 2018, were 36 million common shares.

During 2018, we significantly improved our cash generation. Our free cash to net income ratio for the year reached 75%. The cash that we generated was mainly used for CapEx and earn-out payments related to our acquisitions.

To wrap up, I would like to share with you our outlook for Q1 and for the full year 2019. Let me start with the demand environment and the implications for our revenues. We continue to be bullish in terms of our service offering, which we believe is fully aligned with market demand. At the same time, we are very optimistic with the progress we are seeing in our 50-Squared accounts.

Finally, hiring remains strong. With regards to gross margin, we will stick to our long-term target of 38% to 40% we pointed out in the last few calls. We will continue our training programs in (inaudible) technology and implementation of our 50-Squared strategy. We will continue managing very carefully our SG&A expenses, while investing in increasing sales coverage to expand our businesses.

During 2019, we faced some headwinds from a temporary withholding tax in Argentina. So, we expect our adjusted SG&A as a percentage of revenues to decrease 10 to 20 basis points compared to 2018. Finally, effective tax rate is expected to remain in the 21% to 23% range.

Now let me provide you with our revenue and EPS guidance for Q1 fiscal year 2019 and for the full year. Based on current visibility, we expect revenue for Q1 2019 in the range of $144 million and $146 million. In terms of adjusted diluted EPS, we are estimating a range of $0.45 to $0.49, assuming 37.1 million average diluted shares outstanding for the quarter.

Looking to the full year 2019, we expect revenues to be between $635 million and $645 million and adjusted diluted EPS to be between $2.10 and $2.20, assuming 37.4 million average diluted shares outstanding for the year.

Thanks everyone for participating on the call and for your coverage and support. Please now move into the Q&A section of the call. Operator, can you queue questions? Thanks.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions). And our first question today comes from Joseph Foresi from Cantor Fitzgerald. Please go ahead with your question.

Drew Kootman -- Cantor Fitzgerald -- Analyst

Hi, this is Drew Kootman on for Joe. I had a quick question on the growth for the top 10 -- outside the top 10 clients. It looks like it accelerated, while the top 10 decelerated. Could you touch on what you saw in those groups and what you expect moving forward?

Juan Urthiague -- Chief Financial Officer

Yeah, hi. How are you doing? This is Juan. So overall revenues increased solid 26% year-over-year. You know, when I look at our top 10 accounts, we saw a 20% year-over-year growth during Q4. And you know when we look at customer 11 to the end, we see a revenue growth of 22% year-over-year growth. So, I think, like -- we saw good growth across the board and even our top one, top five, top 10 and even 11 to the end accounts. So I am not sure which is the number you are looking at.

Drew Kootman -- Cantor Fitzgerald -- Analyst

I was looking compared to last quarter, I think the top 10 accounts -- let me see. I think it was growing like 38%?

Juan Urthiague -- Chief Financial Officer

Look overall, you know, I mean we grew 21.4% overall in the quarter. I think that when we look at -- I don't have number that you are looking, in front of me. But overall, we see it doing 1.5 -- 21.4% for the -- the company. 22% for 11 to the end, and it is 24%, 25% year-over-year. So I think it's still very good growth. There is nothing really to worry about. We continue to see good growth among our top accounts. All our you know, high potential 50-Squared names are performing well in line with our expectations. And we are (inaudible) next year.

Drew Kootman -- Cantor Fitzgerald -- Analyst

Okay, thank you. And then for the Argentina tax. Could you go in a little more detail? I know you mentioned 10 to 20 bps decrease in SG&A. I was just wondering, if it will affect anything else or just any more detail around that?

Juan Urthiague -- Chief Financial Officer

Yeah. So the new Argentina withholding tax basically has an impact on the exports, I believe, from Argentina. Argentina is now about 35% of our headcount and about 20% of our costs. That tax is basically for business, for (inaudible) exports in the guidelines that we provided, both for adjusted EPS and also when I discussed our expectations for SG&A, we are already including the impact of that tax and I think that you know -- that tax should be around for $12 million to $13 million for the year at this point.

Drew Kootman -- Cantor Fitzgerald -- Analyst

Sounds good. Thank you.

Juan Urthiague -- Chief Financial Officer

You're welcome.

Operator

Our next our next question comes from Tien-Tsin Huang from JPMorgan. Please go ahead with your question.

Puneet Jain -- JPMorgan -- Analyst

Hi, this is Puneet sitting in for Tien-Tsin. So Juan, you talked about seeing high revenue per head. Is it more of a function of mix, as you diversify away from Argentina toward more on-site? Or are you also seeing like-to-like price increases, which is driving high revenue per employee?

Juan Urthiague -- Chief Financial Officer

Yeah, yeah. So we closed this year at $74,000 per employee, which is a 3% year-over-year growth. But if you look at the breakdown, I believe you will probably see those numbers in the presentation that we will post in our IR website tomorrow, you will see that actually the offshore share of the total headcount increased, during this year. So this is actually a -- this is not a mix driven increase, it's actually driven by, you know, higher pricing, which is also driven by the demand of the services that we have in our service offering.

Puneet Jain -- JPMorgan -- Analyst

Understood. And then one question we often get from investors is, potential impact of macro uncertainty on client digital spending. Are you seeing any adverse impact on client decision making, or spending on discretionary digital projects at all?

Martin Migoya -- Chief Executive Officer and Co-Founder

Hi Puneet, this is Martin. How are you?

Puneet Jain -- JPMorgan -- Analyst

I am good.

Martin Migoya -- Chief Executive Officer and Co-Founder

Fine. The overall, I would say, feeling that we have in the accounts, as I mentioned, is that the pipeline is still very strong. I mean, I'm not seeing the macro uncertainty being translated into the forecasts or the spending that our customers are planning to do. I mean, this is something that we are seeing now, and we are are seeing that at the current quarter, it's going on too. During Q4, maybe a little bit of less of the high, high traction that we had on the previous quarter. But I think that, overall, it was pretty stable, and now I am seeing the pipeline very-very strong and, in essence, you know, remember, the digital demand is not coming from the companies itself, but from their consumers pushing them to the changes or who is afraid of changing the brand, if they don't like it. So that demand is very strong, it's not based on just cost reduction, but on expansion of revenue. So I don't see any change on that demand, given the uncertainties that you mentioned. But I feel they are a little bit reverted (ph) already. So I feel good about that.

Puneet Jain -- JPMorgan -- Analyst

Got it. Thank you.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you, Puneet.

Operator

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

Ashwin Shirvaikar -- Citigroup -- Analyst

Thank you. Hi Martin, hi, Juan. Good afternoon.

Martin Migoya -- Chief Executive Officer and Co-Founder

Good afternoon

Juan Urthiague -- Chief Financial Officer

Hi Ashwin.

Ashwin Shirvaikar -- Citigroup -- Analyst

Hi. Congratulations on the results. I want to start with asking about the growth forecast. So when I look at the 1Q top line growth estimate versus the full year, there is a slower growth on 1Q, than the full year, and it seems to be because of the tough comp, that you had. But I want to confirm that there are no other factors and also I missed what you might have said about the Avanxo inorganic impact for the year.

Martin Migoya -- Chief Executive Officer and Co-Founder

I will let Juan to cover the Avanxo inorganic impact. I will cover your first question; when you're comparing -- comparing against a pretty good quarter for 2017. So Q4 2018 is compared against a very good quarter of Q4 2017. So the comp is very complicated. If you normalize that growth, it will be around 25%. If you normalize the growth of the of last year, and compare the growth of the last quarter, compare with that, you will get about 25%. So it's nothing strange here. We are getting tough comp, given the volatility on our growth rates during last year. So nothing that is connected to the business itself. It's plain execution and really tough comps compared to Q4 2017.

Juan Urthiague -- Chief Financial Officer

And Avanxo, well on that, Ashwin, we are really happy with the acquisition with Avanxo. Very interesting, they are already seeing -- actually already three contracts that we closed together with them, has actually brought in additional capabilities into the company and our regions know -- the region (inaudible) that we have -- have taken this acquisition really really well, and they're already working the process together.

So when we look at Avanxo and considering that, you know, there going to be a lot of -- a very quick integration between the two companies. Basically Avanxo is a company which came with about 300 IT professionals, all of them located in offshore locations, mostly Colombia, Chile and -- sorry, Colombia, Mexico and Brazil. So I think if you do the math with the offshore -- with the offshore revenue per head share and then the initial stage and all that, we would probably arrive to a number, which is about 200 basis points for the year.

Ashwin Shirvaikar -- Citigroup -- Analyst

Got it. Understood. And then question I had was, it's about six months since the WPP ownership stake was sold or since WPP sold its ownership stake. I'm curious as to whether you are beginning to see any sales momentum at WPP's competitors, as far as the digital advertising type of services? I know that before they acquired the stake, you used to have good relationships with some of the competitors. So can you talk about that market?

Martin Migoya -- Chief Executive Officer and Co-Founder

No. We didn't change our behavior. Before we were trying to get the customers, they get as part of the family and now we're trying to get the customers as not part of the family. So I mean, it doesn't change anything. We're not seeing, very often, WPP competing in the technology space as we are doing, with any of their companies. So overall, no impact in terms of the business and of course, we are not being with -- we were not being refrained and we are not being refrained from trying to compete for those customers.

Ashwin Shirvaikar -- Citigroup -- Analyst

No, I meant competing for say, business from OmniComm and IPG and companies like that. That's what I meant. Not from...

Martin Migoya -- Chief Executive Officer and Co-Founder

Honestly, on the customers we have and potential customers that we are competing, we are not seeing them at all. I don't know, this is just my situation right now. Maybe the next quarter we see them. But right now we're not seeing them.

Ashwin Shirvaikar -- Citigroup -- Analyst

Okay. I could follow-up later. Thank you. Thanks.

Martin Migoya -- Chief Executive Officer and Co-Founder

Yes. Thank you so much.

Juan Urthiague -- Chief Financial Officer

Thank you, Ashwin.

Operator

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

Maggie Nolan -- William Blair -- Analyst

Hi, good afternoon. You guys are talking positively about demand and you gave a strong guidance for the year. And I know you're coming off of strong pricing and rev per head in 2018. But does this perhaps imply that you're expecting higher price increases compared to last year?

Juan Urthiague -- Chief Financial Officer

I think prices will remain pretty stable during this year. I don't see any upside on that specific side. Yeah, we will continue trying to gain more and more efficiency on the SG&A, and of course on our gross margins and looking for efficiencies everywhere, as we always do, and as we have been doing since our IPO, when we did 32% on SG&A and this year we're doing 20% on SG&A. So this is a representation of what we -- of our mentality and how we like to conduct our business. In terms of pricing, of course, we can always try to increase them and to (inaudible) of that. I would not expect it, you know, in a consistent manner to happen during this year.

Martin Migoya -- Chief Executive Officer and Co-Founder

There is no pricing included in the guidance Maggie.

Maggie Nolan -- William Blair -- Analyst

Okay. And then as you look forward to your plans for 2019, how are you expecting that headcount diversification initiative to play out, or how are you expecting to progress against kind of that goal you've laid out of having each location below 25%?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah. So, right now, we now have our operation in Latin America, which is still the largest operation that we have. Within Latin America, you are seeing Colombia growing very fast, Mexico growing very fast, and then some other smaller countries growing as well. And then you see Argentina growing at a very -- at a much slower pace and becoming smaller as a percentage of the total. Right now, Argentina is about 35% of the total. Colombia at 25% became the second largest location and we see LATAM overall today, LATAM is overall about 80% of our headcount. We see that going slightly down overtime. And we see India, which is right now 12%, growing to -- between 15% and 18% over the next two years. And then we have a very small recent operation in Eastern Europe, we are starting there, and we want that to start showing into the headcount map overtime. Then the US and Europe, we continue to want to have those locations combined between around 12% of our headcount. So that's overall what we're looking for.

Maggie Nolan -- William Blair -- Analyst

Very good. Thanks and congrats.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you, Maggie.

Juan Urthiague -- Chief Financial Officer

Thank you, Maggie.

Operator

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

Avishai Kantor -- Cowen and Company -- Analyst

Yes, hi. Can you give us maybe an update on the traction in the early days of the services over platform offerings? And maybe you can share some internal goals, what should -- how should we look at revenues, let's say, two, three years from now coming from that platforms offerings?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah, I think -- the traction overall is very good. I mean, we are receiving the customers that we are doing every -- that we are receiving and the customers that this platform is opening for us, is really very, very interesting, because once you enter there, you get coverage. I mean, pretty much everybody knows you. And when everybody knows you, then doing business inside those accounts is much easier. So, it opens doors, it generates more awareness about our brand, and those things are extremely important.

In terms of growth of the platforms, last year, it was about 1% of our revenue and we have the expectations during the next four, five years to -- for that to become about 5% to 10% of our revenues. This is something that we have as an internal objective, is not something that we will disclose year-by-year. But our the objective is for that to become a pretty consistent part of our revenue and our strategy of growth, because when we enter into an account selling, some of the clients we have to enhance the culture or change, (inaudible) culture, the digital culture. Then the most probable scenario is that they end up buying other things, which are our traditional services and that's very profitable for us, and it's a very -- I would say -- it's an excellent way to enter customers that we have discovered. So we're very happy with the initiative and we will keep on pushing more and more things on our platforms to be successful.

Avishai Kantor -- Cowen and Company -- Analyst

Okay. And then regarding the strong growth at your top client, is that coming from the product side of the business? Is that driven by the studios and media side of the business? Is that a combination? What's really driving that? What seems to be very strong growth in the last few quarters?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah. Last year, Disney had a great performance. It grew above 40%, which is pretty impressive for a certain account of this size. We don't expect Disney to keep growing forever at 4% a year. So, as you may imagine, this is something we need to be very careful about. But Disney, it's a very healthy relationship and now the expansions that they are getting with -- the acquisitions that they are doing is something that will impact us in a very positive way. But we need to be careful with that.

I think the growth is coming from everywhere. I mean, all the accounts, like the one that I just announced, Rockwell, a few minutes ago on my speech, Rockwell will be a pretty good -- a kind of pretty solid account in the next few quarters, and growth is coming from hunting and from farming, and from many different -- if you see how we are diversified across many industries, you will see that the balance among many different verticals is very good, and has been very good in the history. It doesn't mean that our growth comes from media, entertainment, financial sector, food and leisure, now manufacturing, also from -- well from every segment that we have a presence.

So you see there, that the common factor there is that the need is across the board. The need is across the board. The need of a company like Globant is across the board. So I would not mention, Avishai, a single line or customer or industry that is pushing more than others.

Avishai Kantor -- Cowen and Company -- Analyst

Understood. Thank you very much for the detailed answer.

Juan Urthiague -- Chief Financial Officer

Thank you, Avishai.

Martin Migoya -- Chief Executive Officer and Co-Founder

No problem. Thank you, Avishai .

Operator

Our next question comes from Moshe Katri from Wedbush Securities. Please go ahead with your question.

Moshe Katri -- Wedbush Securities -- Analyst

Okay, thanks. How should we think about wage inflation in 2019? I think you've indicated where Argentina is in terms of total headcount. I think we've been waiting for the (inaudible) to kind of contain wage inflation. Maybe you can talk a bit about that. And then how does this affect non-GAAP EBIT margin? I think the EBIT margin number in Q4 was very strong. Maybe some color on that as well. Thank.

Juan Urthiague -- Chief Financial Officer

Hello. Moshe, how are you doing? This is Juan.

Moshe Katri -- Wedbush Securities -- Analyst

Yes Juan.

Juan Urthiague -- Chief Financial Officer

So you know we know the company is much more diversified, hence Argentina being at 35% of headcount and about 20% in terms of costs. It's now less financial (ph). You know in the past, inflation in Argentina have may have a significant impact on our numbers, because we have about 50 or even 70% at the time of the IPO of our headcount in Argentina. But the strategy in personnel diversification that we followed during the last four or five years, has now put us in a much better situation. Having said that, Argentina is expected -- the inflation that the government is estimating for the year is about 25%, which is of course the highest inflation that we will have across the board.

And then for all the other countries, we are talking about single digit inflation, maybe India could be about 10%, but all the other countries are going to be 3%, 4%, 5% for the year. We believe that, you know -- we have room -- I mean currencies continue to depreciate. The dollar is very strong. So we believe that the impact of salary inflation will be offset by the -- by currency depreciation in most countries, and in the case of Argentina, what we have already done was hedging for the first half of the year, basically selling the dollars forward. So we are colder for the first half of the year, in the case of Argentina.

Moshe Katri -- Wedbush Securities -- Analyst

So what sort of FX tailwinds are factored in your guidance for the year, in terms of recent...?

Juan Urthiague -- Chief Financial Officer

No, we don't have any more tailwinds there. What we have is, basically -- the assumption is that, FX will -- whatever happens with FX is going to be offset by currency -- sorry, by inflation. So net-net, we expect not to have the benefits nor headwinds coming from FX.

Moshe Katri -- Wedbush Securities -- Analyst

And the non-GAAP EBIT margin for the year?

Juan Urthiague -- Chief Financial Officer

The number that -- what I guided was 38% to 40% of gross margin, and I also guided about 19.8% to 20% SG&A. So That minus our D&A, which is going to be in the same range where we are today, will give you our operating margin number. If you do the math, it should be about 15%, something like that.

Moshe Katri -- Wedbush Securities -- Analyst

Okay, understood. Last question, Martin was talking about this I think last year you have been looking at expanding more into Europe. And it has been an initiative that's been kind of a multi-year initiative. Where are we in that ongoing effort? Thanks a lot.

Martin Migoya -- Chief Executive Officer and Co-Founder

I think we are in very good shape. The business in countries like Spain and England have propelled a lot. Now we have also the inclusion of another delivery center in Eastern Europe. So we are beginning to cover that in a pretty efficient way from those centers in Eastern Europe, and the business is tractioning very well, I would say in three, four countries in Europe.

So revenue is growing in a pretty healthy way. The engagement and the quality of engagements are really surprising in terms of what we are proposing to our customers. Full transformations and full like -- you cannot make a digital confirmation, if your culture is wrong. So for example, if you want to do a digital transformation, you need to change your culture to change the whole thing. So we are seeing those kind of engagements, where we can help those organizations to transform the culture, to do the digital transformation, to take them to the next level in a much more holistic approach than in other regions. So we are really very well surprised, and very happy with the performance of our Europe team.

Moshe Katri -- Wedbush Securities -- Analyst

Great. Thanks.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you very much.

Juan Urthiague -- Chief Financial Officer

Thank you, Moshe.

Operator

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

Frank Atkins -- SunTrust -- Analyst

Thank you for taking my questions. Wanted to ask first, nice progress on the cash flow conversion. Can you talk about a little bit how far there is to go on that, and what are your goals for cash flow conversion improvement, as well as CapEx going into this year?

Juan Urthiague -- Chief Financial Officer

Yeah, thank you for your question, Frank. Yeah, I mean, free cash generation was clearly one of the highlights of 2018. Free cash to net income is around 75%. Free cash flow adjusted net income is about 61%, and that's pretty much doubling from the numbers that we had in 2017. So strong progress on free cash generation. For this year, you know, our expectation is to stay at similar levels where we are today. We think that the number that we achieved during 2016 -- 2018 was really very solid for our company.

We expect CapEx to come down (inaudible) revenues, a little bit more. I mean, now we are being much more efficient in terms of CapEx. The size of the opportunities that we are building, helps us a lot in terms of, you know, making some efficiencies in that CapEx spending, as well when we are negotiating contracts for laptops for computers, for licenses, given that we are getting more scale. The per person or per seat cost is actually getting lower. So free cash, we are expecting to be at similar level to where it was in 2018. And that might be held a little bit for -- from lower CapEx as a percentage of revenues. But it was one of the highlights of the year, we are very happy with that number.

Frank Atkins -- SunTrust -- Analyst

Okay, that's great. And can I ask a little bit about sales force update. Can you give me a little bit of color in terms of how well you are staffed and how are the skill sets in staffing by Studio, by region, and then kind of the balance of farming versus hunting, as you look into next year?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah, sure. We are very focused now in our regions. We have been expanding our coverage, in a really systematic way, and you know reinforcing those regions that we have within the organizations who have the right coverage. The sales investment that we plan of the we've planned, although we are diluting SG&A. The S (pH) is growing and we are planning to keep covering more and more customers and to get deeper into -- and closer expanding our teams in the US, our teams in Europe, our teams close to where we generate the revenues.

So the overall action is that, also we are thinking that it's not just you know the sales guys, the ones that really covers the account and gets the deals. I mean, you know more than half of the time deals are coming from our delivery teams. The teams that are close to the customer, understanding what happened there, so on and so forth. So we are now, like making this kind of transformation, where we are presenting to have a much deeper salesforce, getting close to our customers. But that salesforce not necessarily are traditional salespeople, but in essence, delivery peoples on the technical side, the operations management side, that understand very well how the customer develops, and are able to detect those opportunities and transform them into real business.

So this is the approach that we are having today. We're investing a lot of money there. Not just on the salesforce, but also on the delivery side, to have a much further and deeper coverage and thus reflective as a result on the growth rates that you are seeing in the top 10 and non-top 10 accounts. So the 50-Squared (inaudible) is still extremely important for us. We still believe and we have already the first customer, that is in the $50 million range, which is a hit even for us and we'll keep on adding more customers hopefully to that -- to at least, and (inaudible) update. We are investing a lot of money, in improving that coverage.

Juan Urthiague -- Chief Financial Officer

Frank, just more on that. In terms of hunting and farming, as you know, we have been focusing a lot on farming, and the farming numbers for 2018 was actually very-very high, close to 94%. So most of the revenue that we generated last year, actually came from farming. And we think that is a direct consequence of the 50-Squared program. But again, as Martin said, you know, we continue to hunt farm grade (inaudible) and we will continue doing so, as long as we believe that those accounts have high potential for the company.

Frank Atkins -- SunTrust -- Analyst

Okay, great. Thank you very much.

Juan Urthiague -- Chief Financial Officer

Thank you, Frank.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you.

Operator

(Operator Instructions). Our next question comes from Arvind Ramnani from KeyBanc. Please go ahead with your question.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Hi guys. Thanks for taking my question. I just wanted to just circle back on the Studios -- you all have talked about and that's kind of central to your strategy. Are you able to share some specific metrics in the studios, specifically what I'm looking for -- which of your studios are the largest and also then, which are the ones which are growing the fastest?

Martin Migoya -- Chief Executive Officer and Co-Founder

Well, we are seeing growth in many different studios. Some small studios that are growing much faster and some big studios, that are growing slower because, they are already big. So I think that the studios you know are managing pretty much all our talent, and as you know, they have deep pockets of expertise on the different areas that we are discovering. For example, we're seeing lot of growth on the artificial intelligence studio. We are seeing lot of growth on the mobile studio. We are seeing also on big data and the consultancy studio, where ideation takes place, and we are seeing some other studios like for example, the new Salesforce studio that we got together with Avanxo, the cloud computing Studio. They are growing in a pretty consistent manner. Although the performance is not stellar, those studios are very consistent year-over-year in the growth.

So, I think that also, there are some other studios and -- like cyber security, there are pretty new ones. They are growing very-very fast, because they are very-very small. But also, I think that there are some other studios like, for example, gaming, which are very -- performing in extremely great way. Although the gaming industry itself is not booming. So it's not growing that fast.

So, there is a blend on performance, but I would say, out of our 20 studios, more than 15 studios are really performing extremely well. Then the rest are connected to areas that are growing a little bit slower. So -- but then, for example, you have a Future of Organizations and our Agile Delivery studios. Both those studios are rocking, because they are presently matching every single proposal that we are doing, and that's something that companies really understand that need, in a very big way. So, this is our overall perspective of the studios and how they are performing.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Great. And from my understanding, your studios are not restricted by geography, right?

Martin Migoya -- Chief Executive Officer and Co-Founder

No, no.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Okay. And just to kind of follow-up on a question Maggie had asked earlier, around the kind of -- expanding outside of Argentina and kind of with LATAM still being kind of a important geography. Do you all feel like pretty good from wage inflation and FX perspective, or is that something you all feel you will need to still manage a little bit carefully?

Juan Urthiague -- Chief Financial Officer

No. Hi Arvind, how are you? This is Juan. So Argentina, when we went public, represented 70% of our headcount. So we had a big exposure to whatever was happening in the macro over here, right. But now, when we look at Argentina, in terms of headcount, it's about 35%, and it's going to become even less in the upcoming quarters, as a percentage of the total. We are much more diversified. So -- and also, if you look at what's happening with the currencies last year, it actually depreciated quite a lot, quite significantly.

So overall, even though there might be some wage inflation in Argentina. The fact that Argentina is smaller and that we already have the tailwind from the depreciation last year, makes us feel comfortable in terms of our gross margin expectations for Argentina, and also for the region. You know, when we look at all the other countries in the region, Mexico, Colombia, Chile, even Brazil, much more stable economies. You don't see the currency moving a lot. And typically the currency depreciates a little bit with the dollar, and that helps us to offset the impact on salary increases that you have. But they are always talking about low single-digit numbers. So, that's not an issue.

So, inflation right now is becoming less of an issue for us, especially because the only country where we face high inflation is becoming less relevant in the overall headcount structure that we have.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Great, great. And then just last question for me is kind of more about the -- kind of opportunity in SaaS and cloud. And there is certainly a view of that, the last kind of Chapter 1 of cloud was driven mostly by consumer facing apps and the public cloud and the next phase of SaaS and cloud will be driven more from the back-end systems and in hybrid cloud. Just want to see if you all agree with that, and are you all kind of repositioning your kind of capabilities to take advantage of that trend?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah, I think we -- when we go to the customers, we equally listen about private and public cloud. And it's something that really is picking up our attention on how companies are kind of -- in some aspects. But doing some backlash to the typical cloud. But also the concept is very -- the concept, although that is very strong. So they're trying to perform the same capabilities that they have, using private clouds, with their own -- within their own domain or within their own control.

But we see the cloud movement in a pretty strong manner. We are heavy users and most of our customers are heavy users of the cloud. We see a massive competition coming from the main players to fight for the leadership on that space, which I think is really attractive for the customers, and we see big savings also coming from the cloud. So the hybrid model is great. The private model is great. But I think the concept independently is private, hybrid or public, is the strongest part and what you need to pay attention to, and what we are paying attention in our cloud studio.

Connected to these, there is a lot of cybersecurity issues that need to be taken care. So, it's like our cloud studio is very well connected to our cybersecurity studios, because things happen where things are out of control, and those two studios need to work together to keep the things under real control. So that's my take a look going on what's going on right now with my customers. I don't know if that answer your question or not, but this is what my understanding of the reality right now.

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

Great. Thank you very much and good luck for 2019.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you so much. Thank you so much for your question.

Operator

Ladies and gentlemen, that will conclude today's question-and-answer session. I'd now like to turn the conference call back over to Martin Migoya for any closing remarks.

Martin Migoya -- Chief Executive Officer and Co-Founder

So, thank you very much everyone for participating in our call and looking forward to see you on the next one. Cheers. Bye-bye.

Operator

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.

Duration: 64 minutes

Call participants:

Paula Conde -- Investor Relations

Martin Migoya -- Chief Executive Officer and Co-Founder

Juan Urthiague -- Chief Financial Officer

Drew Kootman -- Cantor Fitzgerald -- Analyst

Puneet Jain -- JPMorgan -- Analyst

Ashwin Shirvaikar -- Citigroup -- Analyst

Maggie Nolan -- William Blair -- Analyst

Avishai Kantor -- Cowen and Company -- Analyst

Moshe Katri -- Wedbush Securities -- Analyst

Frank Atkins -- SunTrust -- Analyst

Arvind Ramnani -- KeyBanc Capital Markets -- Analyst

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