Globant SA

NYSE:GLOB

Earnings Call Transcript 2019-Q2

[Operator]

Good afternoon, and welcome to the Globant Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Paula Conde, Investor Relations Officer. Please go ahead.

[Paula Conde, IR]

Thank you, operator, and thanks, everyone, for joining us today. We're now going to review our 2019 second quarter financial results. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com. Our speakers today are Martin Migoya, Chief Executive Officer; 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. But first, I'd like to congratulate him on being recognized as top CEO of the year in the results oriented category of the CEO World's award. It is a true honor for all of us Globers and shows how we are setting industry benchmark for excellence.

Congratulations, Martin.

[Martin Migoya, CEO]

Think you, Paula. Hi, everyone. Thanks for joining us today.

First, let me say that receiving the Top CEO of The Year Award is a recognition to all our Globers. I'm very pleased and extremely happy about this recognition, and I want to extend that to all our people around the world that make this Company really, really great.

Together, we have created a unique culture. Our autonomous, Agile, and innovative teams are key to deliver the best solutions for our customers. So thank you very much for that. I'm pleased to share with you some updates on our business and financial performance for the three months ended June 30th 2019. At the end of the call, our CFO, Juan Urthiague, will share with you our outlook for Q3 and the rest of 2019.

Q2 was another record quarter for Globant. Our revenues for the second quarter increased to $157.5 million, representing a 23.2% year-over-year growth. At the same time, adjusted diluted EPS for this quarter was $0.53. Our ability to nurture long-term relationships and to expand into multiple divisions within our customers are leading our growth.

Before letting Juan dive deeper into our financial performance, let me go over some of our latest news. We continue to see a strong demand coming from organizations as they look to transform their business. IDC has reported that direct digital transformation investment spending will be $5.5 trillion over the years 2018 to 2021.

As digitalization and high customer expectations change, organizations need to adapt to stay relevant. Our passion is to help companies succeed in this new era. With this in mind, I'm happy to announce the launch of our new business hacking studio. We look to uncover non-traditional ways to create new business value.

Traditional transformation programs tend to struggle to show comprehensive results, mainly because of lack of tangible actions. Our business hacking framework aims to make transformation tangible and measurable. We want to make the change sustainable and find new ways to optimize culture and business impact.

The goal is to focus on transformation from behavior to technology, impacting business metrics. It is a totally new approach that will be key to help make our customers successful. You can find more information about the studio on our website, www.globant.com.

In regards to our business, we continue to see sustainable growth. During Q2, we added new logos from a wide variety of industries, including companies like American Airlines, InStride, [indiscernible] and leading organizations from media and entertainment and consumer packaged goods, among other sectors.

Let me also share a few examples about what we are doing with some of our clients. For a leading FinTech company, we're creating a set of applications that allow users to control features on their credit and debit cards. This engagement is a great example of multiple studios working together to deliver a set of exceptional products. We're creating the next-generation platform addressing the expectations of high demanding card customers.

Realogy is a leading provider of residential real estate services in the US. It is focused on empowering independent sales agent to best serve today's consumers. Since 2017, Realogy has embarked on an application legacy modernization initiative. It focuses especially in the services and solutions for its affiliated agents and brokers.

Globant has been partnering with them in this digital transformation program in areas such as data architecture, data science, analytics, user experience and front-end and back-end system development. We're also working with Stanley and Black & Decker IoT team in the creation of Connected Tools.

For the gaming industry, Globant is developing a new soon-to-be announced AAA game with Warner Games that will be released later this year. Also, continuing with our strategic relation with electronic cards, Globant is co-developing a number of games, including by a Bioware's Anthem and the EA Sport FIFA franchise.

Lastly, Globant recently began working with Machine Zone, a top grossing mobile game publisher of titles such as Final Fantasy and Game of War. To share our views on market trends, we have announced several initiatives in the past weeks. We have recently launched our latest Sentinel report, where we gather new users behavior insights.

This edition analyzed conversational design and how technology can help brands move from their blend transactional experiences into a conversational world. The report focuses on the importance of engaging with users in a more natural and organic way. You can read the report at sentinel.globant.com.

Also, our CONVERGE events continue to lead the discussion around future trends. During May, we held a Bogota Edition about artificial intelligence. The event was attended by over 500 guests, who listened to speakers coming from Rockwell Automation, Citibanamex, Google and Amazon, among others.

We're also pleased to announce that on November 6, we will host our Annual VIP CONVERGE Edition in New York. The event will bring together top business execs at the New York Stock Exchange for an intense, innovative experience. We will dive into what the future looks like for augmented organizations that fully embrace the power of AI. I invite you to learn more about this event at converge.globant.com.

Also, I am very pleased to share that we have announced an investment in Singularity University. Singularity University is a global community with a mission to empower leaders. The goal is to enable them to apply exponential technologies to help solve humanity's grand challenges. We will leverage their curricula around breakthrough technologies to further prepare our global talent for future challenges.

Lastly, I am happy to share with you that we have recently announced the acquisition of Belatrix Software, a leading Agile product development company with nearly 20 years of experience and presence in Peru, Colombia, Spain, the United States, and Argentina. With this acquisition, we reinforce our leading presence in Latin America.

Also, Belatrix has field outstanding solutions for an amazing roster of clients, which includes many Fortune 500 companies. Their customer portfolio will reinforce our 50-squared approach, delivering strategic digital transformation to some of the largest organizations in the world. It will also strengthen our broad expertise in industries like finance, payments, insurance, healthcare and retail. Belatrix work with renowned brands such as Fees, BWC, NEC, Adobe and AOL.

The company has 600 IT professionals working with key trends such as digital transformation, Agile, product development and more. Let me remark that our pipeline and backlog remains strong and we feel very confident about our ability to keep delivering sustainable growth in the future.

With that, I'll turn the call over to Juan Urthiague, our CFO, for further detailed financial review on the second quarter of 2019 and also to provide guidance for Q3 2019 and for the full-year 2019. Juan, please. Thank you very much.

[Juan Urthiague, CFO]

Thanks, Martin, and good afternoon, everyone.

Let me start by summarizing the results of our second quarter and the six months ended June 30, 2019. I will then discuss our guidance for both the third quarter and the rest of the year. I am thrilled to announce another quarter of record revenues on a strong financial performance.

Our revenues for Q2 amounted to $157.5 million, implying a solid 23.2% year-over-year growth. Our revenues in constant currency for Q2 2019 increased by 24% over the same period last year. This is primarily explained by the Argentine peso and the Colombian peso.

During Q2 2019, Disney was once again our largest customer. Our relationship with them continues to be strong and healthy, with several upcoming opportunities after the internal reorganization related to the Fox deal. We are excited about the fact that high potential accounts are scaling up and becoming large and meaningful within our customer portfolio.

Our top 1, 10 and 11 and beyond customers increased 15.8%, 13% and 31.4% over the second quarter of 2018. Our 50-squared strategy to have a diversified base of multi-million dollar accounts is working out in line with our expectations. During this quarter, we continue to successfully cross-sell services coming from our recent acquisitions.

During the last twelve months, we had 12 accounts above $10 million in annual revenues, compared to nine for the same period last year and we have 97 accounts with more than $1 million in annual revenues compared to 92 one year ago. We continue to expand our relationship with our key accounts, aligned with our 50-squared strategy.

As can be seen by our industry diversification, Globant's value proposition and service offering is attractive to companies across all the industries and we remain pretty much balanced. Our top three industry verticals for this quarter were media and entertainment with 23.1% of revenues, banks, financial services and insurance with 21.6% of revenues, and travel and hospitality with 15.2% of revenues.

We are experiencing very strong growth in other verticals, such as consumer retail and manufacturing, and professional services, with increases of more than 60% and 30% year-over-year respectively, compared to the second quarter of 2018.

Our customer concentration for Q2 2019 improved during the last quarter, with our top 1 account, top 5 account and top 10 accounts representing 10.4%, 27.2% and 41% of revenues compared to 11.1%, 32.5% and 44.6% of revenues respectively for the second quarter of 2018.

In terms of regions, during the second quarter of 2019, 75.2% of revenues were in North America with the US as our top country, 16.1% in Latin America and others, Argentina being the top country, and 8.7% were in Europe, Spain as our top country.

During this quarter, we saw strong growth on investments in digital transformation in Latin America. During the second quarter of 2019, 88.7% of our revenues were denominated in US dollars, protecting our top line against currency fluctuations.

Turning now to profitability. Our adjusted gross profit for the period increased to $63.3 million, 40.2% adjusted gross margin compared to $51.3 million, 40.1% adjusted gross margin in the second quarter of 2018, showing solid gross margin levels. Sequentially, the slight margin decrease of 90 basis points versus the first quarter of 2019 was primarily driven by the usual salary increase window that took place during the second quarter of the year.

We finished the quarter with 9,905 Globers, 9,215 of which were IT professionals. This represents a solid 606 increase quarter-over-quarter in the number of IT professionals. Attrition for the past 12 months was 15% compared to 20.7% in Q2 2018, showing a significant improvement in most of the development centers, particularly in Argentina.

Adjusted SG&A decreased 50 basis points compared to Q2 2018, accounting for 19.8% of our quarterly revenues. 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 our target markets.

We have been able to dilute the SG&A, despite the new tax on export of services in Argentina, included within this expense line. As a result, our adjusted operating income for the quarter amounted to $25.9 million or 16.4% of revenues compared to $20.2 million or 15.8% of revenues for the second quarter of 2018. Stable gross margin and SG&A dilution were key contributors to the mentioned operating margin expansion.

Share-based compensation expense for the second quarter of 2019 amounted to $4.9 million, representing 3.1% of the total revenues for the period. This expense is mainly related to the plan of restricted stock units granted to certain key employees and their interest of the company, as part of our long term retention plan.

Financial income and expense net amounted to a loss of $2.5 million. This net result is composed of FX gains and losses resulting from the monetary assets and liabilities in local currencies, costs related to our hedging strategies, interest expenses from our trade lines and interest income from our portfolio of investments.

Our effective tax rate for the quarter was 20.9%, fairly consistent with previous quarters. Adjusted net income for the second quarter of the year totaled $19.9 million, 12.6% adjusted net income margin, compared to $14.5 million, 11.4% adjusted net income margin for the second quarter of 2018.

Adjusted diluted EPS for the quarter was $0.53, based on 37.7 million average diluted shares for the quarter, compared to $0.40 for the second quarter of 2018, based on 36.7 million average diluted shares for the quarter. Growing at 33.1% year-over-year, EPS continued growing faster than revenues for this quarter.

Moving on to the balance sheet, our cash and investments as of June 30, 2019, were $58.2 million, compared to $86.2 million as of December 31st 2018. This decrease in cash was mainly explained by the usual seasonality in the first half of the year as we pay bonuses, holidays and income tax during this period combined with the payment of the Avanxo acquisition.

Our balance sheet remains strong with current assets of $241.2 million accounting for 43.2% of the Company's total assets. Total common shares outstanding as of June 30, 2019 were 36.6 million.

Now let's talk about the six months ended June 30th 2019. Revenue for the six months and if June 30th 2019 was $303.7 million, implying a 22.6% year-over-year growth. This increase was mainly boosted by our 50-squared 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 six months period was $123.4 million, 40.6% adjusted gross margin, compared to $98.2 million or 39.6% adjusted gross margin for the same period last year, an increase of 100 basis points.

On a year-to-date basis, we continue to see the positive tailwinds of the FX market corrections in Argentina and some other Latin American currencies. Adjusted SG&A is also showing a healthy dilution of 60 basis points, currently accounting for 20% of our revenues for the revenue for the six months ended June 30th 2019.

Adjusted burn from operations for the six months period ended June 30th 2019 was $50.6 million, 16.7% adjusted profits from operations margin compared to $37.7 million or 15.2% adjusted profit from operations margins for the same period last year, representing an improvement of 150 basis points.

Adjusted net income for the six months period ended June 30th 2019 was $38.4 million or 12.6% adjusted net income margin, compared to $28.4 million or 11.5% adjusted net income margin for the same period last year, representing an improvement of 110 basis points.

Adjusted diluted EPS for the six months period ended June 30th 2019 was $1.02 based on 37.5 million average diluted shares for the period, compared to $0.78 for the same period last year based on 36.5 million average diluted shares for the same period last year.

To wrap up, let me provide you with our guidance for Q3 2019 and the rest of the year, which includes the acquisition announced on Monday. Based on current visibility, we expect Q3 2019 revenues to be between $170 million and $172 million, implying at 27.1% year-over-year growth at the midpoint of the range. Adjusted diluted EPS is expected to be between $0.57 and $0.61, assuming 37.9 million average diluted shares outstanding for the quarter.

Regarding the full-year 2019, we are increasing our revenue guidance to a new range of $654 million to $660 million, an implied 25.8% year-over-year growth at the midpoint of the range. Based on this guidance, the implies revenue growth for Q4 would be 30.1% year-over-year at the midpoint of the range. In terms of adjusted diluted EPS, we are now expecting a range of $2.19 to $2.25, assuming 37.7 million average diluted shares outstanding for the full year.

Thanks everyone for participating in the call, for your coverage and support. Operator, can you please queue questions? Thank you.

[Operator]

[Operator Instructions] The first question comes from Tien-Tsin Huang of JPMorgan. Please go ahead. Tien-Tsin, is your line muted on your end?

[Tien-Tsin Huang, JPMorgan]

It is. Thanks for calling and I'm sorry about that. Good afternoon. Can you hear me?

[Martin Migoya, CEO]

Yes, Tien-Tsin, yeah, how are you?

[Tien-Tsin Huang, JPMorgan]

Hi, Juan, hi, Martin, thanks for the time. Yes. So, no big surprises, I'd say, listening to the remarks and looking at the results. I was curious, looking at how revenue landed versus your guidance in the past. We've been accustomed to you hitting the top end of your revenue or exceeding it. This quarter, you came in at the upper end of guidance. So just thinking about that pattern change, any change in demand or maybe amongst your larger clients that maybe surprised you a little bit? Or is this just like you said rounding issue on the revenue side? Just curious to get your thoughts on that.

[Martin Migoya, CEO]

Well, I mean, when we guide, - we guide trying to be neither conservative nor aggressive, trying to be very balanced. And I think that sometimes we'll surpass with other things, sometimes we are just in the range or in the top of the range.

So I think that this is the business and there's not any demand concerns that we have or the opposite. I mean, we are seeing very strong demand. We are seeing the pipeline in a very healthy manner and a very healthy situation. And we're seeing Globant in the competitive landscape in a very - in a very good shape.

Every time we are able to beat some of our competitors who are really performing great. And, we've had pretty tough comparisons during first and second quarter this year. You need to pay attention to what's happening in quarter three and quarter four. And organic growth is really, really strong for the next quarters. So, I'm a big believer in these long secular trends and Globant is performing really great in this scenario.

[Tien-Tsin Huang, JPMorgan]

Excellent, understood. It seems that way. So I wanted to ask also then, as I always do, I feel like, to you Juan, just on the gross margin, again, given all the action on the peso, can you give us some help on how to manage that and how gross margin might land in the next couple of quarters here? Thank you.

[Juan Urthiague, CFO]

Yes, you know, the division in Argentina for us is now less relevant. In terms of revenues, it's just about 4% of the total revenues. And then in terms of costs, we now have about 30% of our fit content in Argentina. And in the last couple of quarters, we've been talking about hedging the peso, it was structurally the opposite situation. People were thinking that peso was going to be stable.

So we basically hedged at higher rates. So you should see in the upcoming quarters, based on the current situation in Argentina. It is inflation would probably catch up and what we think is that the margins will stay towards the upper part of our guidance, let's talk about 38% to 40%, we think we're going to be close to 40% number.

But again, you don't need to expect any significant improvement, because we've been hedging and we will not get all the benefits of this depreciation of the peso. So you should expect stable margins, maybe a little bit higher, but stable in any case.

[Operator]

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

[Maggie Nolan, William Blair]

I wanted to follow up on the gross margin. You've obviously done a fair amount of hiring in the last couple of quarters. So I'm kind of wondering, if you can give us some more of the puts and takes on the gross margin. Are you seeing anything in the way of utilization, dropping in light of that hiring and how much of that is offset by foreign currency benefits?

[Juan Urthiague, CFO]

Yes, I mean, it's actually a good point. As Martin was saying, we continue to see strong demand. When we look at our pipeline for the rest of the year, we are very positive about the rest of the year. And based on that and based on the fact that we have some room in the margins, we'll be hiring little bit in anticipation, because this is about hiring and training people. And the new thing there is, we require a lot of training. So we've been doing that, we are doing that. Utilization is a little bit down this quarter, it's about 81%. So it's about 1 to 1.5 percentage points below the last quarter.

But again, based on what we're seeing for the second part of the year, we think that - it's the right approach. By training more people, we are showing with these numbers, 600 people net all organic this quarter, it's the largest number of organic net additions we have had. So in a very tough and competitive market, we continue to show that we are able to attract great talent and we are training these people for the projects that we see in the pipeline.

[Maggie Nolan, William Blair]

And then, you know, thinking about the people and the environment there. The attrition was low, this quarter, it was low last quarter, you mentioned that's been a focused area. So what in particular are you doing to bring that attrition down, particularly in Argentina where it's been problematic? And then should we consider this kind of the new norm, the new level of attrition that we should expect going forward?

[Martin Migoya, CEO]

What we're doing in terms of - in terms of attrition and in terms of maintaining our people and maintaining our Globers is not different from what we have been doing in the past. I think that the - we have made more accent on understanding how barriers are being developed at Globant and we have been demonstrating that and our HR team has been doing a great job on that.

Also, we have been pushing a lot the idea of our mission and our mission and, becoming the best company in the world doing what we do and then changing in some way the world doing what we got to do, which is creating so proposals and creating great experiences for our customers. And that is being picked up very well by people in the region and people in Argentina in particular where becoming the employer of choice is due to the potential for expansion of their careers that we are providing.

So that's the angular tone of the whole strategy at Globant and it has been received very, very well by the people. And we have been doing more explanation and real cases of those policies really happening. And we have been striving a lot on our economy of our part.

That's something extremely important for us for our people that are really delivering the things to our customers being able to take decisions and to make our customers more happy with that. That's of the essence of what we do. So overall, I think there's a really nice momentum happening at the attrition, sorry, on the retention side and that is being reflected in the numbers that we are seeing.

[Maggie Nolan, William Blair]

Thank you.

[Martin Migoya, CEO]

Trying to answer your new standard, well, we are guiding between 15% and 16% for year 2019. I don't know if that's going to be maintaining or not, we're not guiding strategically for the future the attrition, but we are very positive and very optimistic about that number during this year and the impact that will have in our ability to develop the company.

[Operator]

The next question is from Moshe Katri with Wedbush. Please go ahead.

[Moshe Katri, Wedbush]

Thanks. Juan, I think you disclosed your growth by top 1, 5, 10 and 11 clients. Can you repeat that again?

[Juan Urthiague, CFO]

Yes. So, we got the one customer, which is Disney, grew 15.8% year-over-year this quarter. On that one, I'd like to mention that we're seeing a much stronger second half. We are very optimistic about how the situation is changing at Disney, we've been talking about some of our key sponsor to Disney taking bigger roles in the new organization after they merge with Fox.

So, again, very optimistic about Disney in the second half of the year. Top 5 grew 3%, that was driven by one airline which did not grow this quarter. Top 6 to 10 grew 39%, so very strong growth in the 6 to 10. That is very - we now have some very large organizations that just got into the top 10, one of which you saw is a huge manufacturer - software producer for manufacturing plants, among others. But again, going at 39%, top 10% grew 13%, again, strong number, if we exclude this airline, the growth was going to be very close to the 20%. And then 11 to the end grew at 31%.

Again, this is part of the 50-squared strategy. We have our portfolio of customers and what we can see is that in the 11 to 30, 11 to 40 customers, there are some growing stars, some names that more-and-more you're going to see in the top 20 and the top 10. So all-in-all, except from 2 to 5, we saw a strong growth and those are the numbers for this quarter, Moshe.

[Moshe Katri, Wedbush]

So in the 2 to 5 category, how much do you think that impacted your top line growth for the quarter? And then in that respect, looking at the second half or guidance for the year, how much of that is specifically organic growth? Thank you.

[Juan Urthiague, CFO]

Yes. So in the 2 to 5, it's about total $2 million bonus start - they should have 500.5 within that group. But again, when you look at the top 10 and 11 to the end, you still see very solid growth, 11 to the end at 31%, so strong number.

And then for the question about the organic and inorganic, it is becoming more complicated to answer that, because as you know we integrate very, very fast, in the case of Avanxo, the company that we acquired back in February, we are already serving 10 customers together. So, it's not easy to say, the revenues were organic or inorganic, because in most cases, those are customers of Globant that now we have been able to cross-sell with the services of people that came with the acquisition.

So for the year, we guided 26%, $657 million, and a little bit more than, I mean, depending on how you account for the organic and inorganic little bit more than 20% would be organic, probably between 20% and 21%, again depending on how you account for some of those numbers and the rest could be considered coming from the acquisitions. But again, the amount of cross-selling and the way we're integrating the companies, is very, very healthy.

I mean, we are very, very happy how the Avanxo acquisition and both the Avanxo integration is going on. As I said, several customers are being sell or - lot of cross-selling, I mean, solving a lot of cross-selling and now with the new deal as the company that we just acquired, we are already thinking about a very, very fast integration.

[Operator]

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

[Ashwin Shirvaikar, Citi]

Good, good, thank you. So my first question, just going back to Belatrix. Could you talk a little bit about the capabilities that the acquisition brings? And is this - do they serve mostly local plants in Latin America or is it similar to what you do with servicing U.S. plants? And then one on the acquisition, you raised the mid-point of revenue, $16 million. So just to clarify on the previous question, of that $16 million raised, we are calculating $13 million to $15 million, maybe coming from acquisition, is that correct? Or is that too high? If you could comment on that.

[Juan Urthiague, CFO]

I think the lower end - I mean, again, depending on how you account the cross-selling, at the lower end of the original.

[Ashwin Shirvaikar, Citi]

And the capabilities on Belatrix and how it will impact --

[Martin Migoya, CEO]

Ashwin, I will take that. The answer to that is pretty interesting. We have seen in the last year - and we have been seeing for years now, a pretty interesting company, a pretty disciplined company. They are a fully interesting supplement to the operations we have in Latin America. They have offices in places that we had very small offices.

So in Mendoza, in Argentina and Peru, and also in Barcelona, in Spain, they have a very good operations and are a very good complement for us in terms of geographic expansion and dispersion. And also being able to cover our geography in a much more efficient way. So that's one rationale coming from the geographical expansion and coverage.

The second one is connected to our 50-squared program and that's we - they have certain - several customers, which are extremely interesting that could really become a 50-squared account. And we saw that inside that company, we said, okay this is pretty interesting, because those customers could take us years for us to develop. So we saw a pretty nice shortcut in terms of including several 50-squared accounts that we didn't have.

And last was the ability, specifically speaking, very nice support on the financial and insurance sector, also into the health and travel - sorry, health and retail. Those sectors are sectors where Belatrix were very strong even the experience they have. Also on the payments sector, they have a pretty solid customer, one of the largest payment processing company in the planet is - it's their customer.

So we're very excited about the acquisition, very excited about the quality of the people, which is the last part, but not least. Is the quality of the people and the cultural fit we found in Belatrix. So I think it's a great addition to our team. It's an immediate plug and play, there's not a huge integration risk connected to that. And there's a lot of cross-sell to be done in each of the categories that we are seeing.

So for me, it was a pretty simple decision. It is a pretty large company, but it is something that will really help us to go faster in the industries and in the geographies that we are operating.

[Ashwin Shirvaikar, Citi]

Understood. That's good to hear. So Juan, last question on from me is, with regards to Europe, in Q1, you've kind of announced the opening of a new office in Paris. You've been clearly operating in Spain and England for some time. Could you give us an update with regards to sort of the demand - that you're seeing from there and how the buildup of Europe is going for you?

[Juan Urthiague, CFO]

Sure, Europe is going quite well. We have seen pretty large customers where we closed pretty, I would say strategic and impact proposals and I'm pretty confident that we'll keep growing pretty fast. The office in France help us with some other customers that we are looking for including Disney which operates in France.

And I think it's a pretty good - it's a pretty healthy operation overall. In London, we have - is a base where we have one of the largest operations in terms of our consulting and now business hacking as I announce studio. So I think the overall perspective for Europe is quite good, it's very good.

[Martin Migoya, CEO]

By the way, in Europe this quarter, growth was 26.5%, Ashwin.

[Operator]

The next question is from Bryan Bergin with Cowen. Please go ahead.

[Bryan Bergin, Cowen]

I wanted to ask about your progress penetrating the B2B and the industrial client base, as I think I heard you call one of them earlier. Are you seeing progress in others that you can comment on?

[Martin Migoya, CEO]

Yes. That industry, consumer retail and manufacturing - and especially talking about manufacturing, we saw growth north of 40% in that particular sector on this quarter. And we're seeing that over the course of the last few quarters as well. I think that the fact that digitalization is now not just focused on consumers, but also on employees and users of software, for example, in the case of Rockwell which is one of the companies that we discussed a few quarters ago. That is an ongoing trend that is going to get bigger and bigger.

Two years ago, we were just talking about digitalization of consumers, now we're seeing other companies, companies like XPO Logistics, for example, which is growing a lot for us, among others in that sector J&J. Those are companies that have been performing really, really well and we are seeing that they are just - they're not just focusing anymore on the consumer, but also on internal employees and the users of their products, which may not be consumer, sometimes our employees of other company.

So we think that trend has started about two years ago, is only going to increase, and we are expecting more growth to come from those industries.

[Bryan Bergin, Cowen]

And just a clarification around coming earlier on the hedge position, is it - when does that come off? Is it just through the election time frame? How should we be thinking about I guess currency impacts potentially beyond '19 and your strategy around that?

[Juan Urthiague, CFO]

So, as of now, we are hedged until the end of the year. So basically what does it mean is that for the first few months until mid Q4, we're coming with a hedge that started before the depreciation. So we will see a benefit on the margin offset by some of the hedges that we did. And then for the last part of Q4, we will close new hedges at much higher rates.

So for that part, we may see some improvement in terms of margins or some more meaningful improvement in terms of margins. But again, a few quarters ago, people were worried because the peso was flat, it was not moving at all. And by that time, we decided that hedging at about 60 pesos per dollar, more or less, that was a good decision.

Now, we have some margins, as we have said in the last four quarters, north of - or slightly above 40%. We continue to see margins around that level. But we're not going to see a significant improvement, because we have hedged before. But again, we will continue to have very healthy margins, we're not seeing - we're not going to have any negative impact either.

[Operator]

[Operator Instructions] The next question comes from Joseph Foresi with Cantor Fitzgerald. Please go ahead.

[Joseph Foresi, Cantor Fitzgerald]

I had a question - a couple of questions, but the first one is around pipeline and conversion to growth rate. I think you talked a little bit about the inorganic contribution and it sounded like the growth rate this year is probably 20% plus organic and then maybe a couple of percentages from the inorganic. Based on the pipeline that you're starting to see build into 2020, what do you think is sort of the - and I'm not asking for guidance, but the general idea around what organic growth should look like going forward? And do you expect acquisitions to be part of that conversation? And if so, what can we think about from a contribution there?

[Juan Urthiague, CFO]

Yes. Hi, Joe, how are you doing?

[Joseph Foresi, Cantor Fitzgerald]

Good.

[Juan Urthiague, CFO]

When we look at - I mean we're seeing probably around 21% organic rounded number, can be a little bit more in Q4, it's probably going to be stronger than that. So we are seeing an acceleration in the second half of the year with this performing much better than in the first half of the year, among other accounts, but also some of the non-top 10 contributing driven growth.

We are seeing an acceleration in the organic part especially for last part of the year, I think, we've always said at the time of the IPO and we have been able to do to achieve over the last five years the - remains volume 20% plus organic. That is kind of the baseline scenario for us, that's where we start the year.

And then because that demand this year we're seeing more and more of the 50-squared accounts, you know, becoming $10 million, $20 million in revenues for us. And that is what makes us feel very comfortable with 20% plus on organic part.

And then, inorganic is part of the business at this point, you see that there is a need for new capabilities. There is a need for new geographies. There is a need for consulting skills and doing deals around those lines is something that we are looking for. I mean, sometimes we can close a deal, sometimes it's more difficult, sometimes valuations are an issue, sometimes they are not. But I think you should expect us to continue with more than 20% plus and some inorganic - from some of the deals that we are pursuing.

[Joseph Foresi, Cantor Fitzgerald]

And then just with Disney, I know historically some of your revenue has been linked to park openings and magic band and some of the work that you've done there. Is that part of - still part of the growth story and the return to growth onboarding kind of new parks? Or has that business matured and there's a larger other pieces that you're doing and that you're counting on in the back half of the year?

[Martin Migoya, CEO]

Yes, I think there's something happening now within Disney that is public knowledge, which is the integration with the huge merger that they did, and that in some way is creating many new opportunities for us, which is of course, inside the parks and resorts, but also in other areas like direct to consumer international in the organization, also they're consolidating operations and the opportunities there for us are growing very, very fast. That's why Juan was mentioning about the third and fourth quarter of Disney which is our largest customer catching up in a pretty interesting way.

So that's something we're seeing in a pretty interesting way. And then with respect to the position of Disney, my personal opinion and as in the competitive landscape and space, I think they are doing great. There's something that is really - they're creating a massive brand with a massive reach for all ages. And we are part of that, so we're extremely happy of having Disney as a customer and we have high expectations about the future growth.

[Joseph Foresi, Cantor Fitzgerald]

And then I'm just going to sneak one last one in. You've been putting up this 20% plus growth rate. Maybe you can just describe for us what your projects look like today and heading into 2020 versus maybe what they looked like two years ago, and what the differences are. And I'm looking for stuff maybe outside of a 50-squared plan. Because obviously they're changing on the inside, but you're on the outside, it's hard to tell. So maybe you could just elaborate a little bit on that. Thanks.

[Juan Urthiague, CFO]

I didn't get - out of the 50-squared, which was the question, sorry. I think I missed it.

[Joseph Foresi, Cantor Fitzgerald]

Yes. No, I was curious as to like on the inside how deals - you feel deals have changed heading into 2020 versus what they might have looked like two years ago, because obviously the growth rates have continued to be over 20%. But I'm sure that the capabilities, the size, the scope, the focus, even outside of 50-squared has changed quite a bit. Thanks.

[Martin Migoya, CEO]

Yes, absolutely. I look - Globant as a company is a more mature company and our people are more mature people. And the fact that they know much deeper insights on the business in which we operate are leading to a totally different kind of deals.

Now, that's why we're talking about now a lot of the deals that have real impact on the revenue side of our customers, like we have hundreds of examples during the last year-and-a-half or two years. So that's something that is changing a lot. Also, we are seeing that given our scale, now we're close to more than 10,000 people, close to 11,000 people Globers.

We are seeing like a much better capability of the company to tackle much larger deals, and before we're not possible for Globant, and so we're seeing that change in scale and that benefit of the benefit of size really kicking in the deals where we are closing right now. So I hope that answered your question?

[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, CEO]

So thank you very much, everyone, for participating in the call. Thank you for your support and continuous interest in the company and for the coverage, and looking forward to see you on our next earnings call. Thank you very much.

[Operator]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.