Globant S.A. (GLOB) Q1 2021 Earnings Call Transcript

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Globant S.A. (GLOB -1.81%)
Q1 2021 Earnings Call
May 13, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Amit Singh -- Head of Finance and Investor Relations

Good day, and welcome to Globant's First Quarter 2021 Earnings Conference Call. I'm Amit Singh, Head of Finance and Investor Relations for the US. All participants on this call will be on listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded and streamed live on YouTube. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors.globant.com.

Our speakers today are Martin Migoya, Co-Founder and Chief Executive Officer; Juan Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer and Diego Tartara, Chief Technology Officer.

Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of 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's results.

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

Martin Migoya -- Chief Executive Officer and Co-Founder

Thanks, Amit, and hello, everyone. I'm excited to speak to you today in this new format to present our first quarter earnings for 2021. This quarter, we brought in $270.2 million in revenue, representing a 41% growth over the previous year. It is the highest year-over-year growth since we launched our IPO in 2014. It reflects the opportunities we are taking advantage of as the market keeps evolving.

A few updates on our leadership team as we focus ourselves and keep growing sustainably. With them, we want to boost our offerings, regional coverage, talent and synergies between delivery, performance and operations. Co-Founder, Guibert Englebienne will become President of Globant X and Globant Ventures. He will lead our start-up accelerator and will work to develop new business and revenue models through initiatives like Augmented Coding and StarMeUp, which are all part of our Globant X division. Finally, he will also assume as the Company's President for Latin America. Co-Founder Martin Umaran takes a new role of President of Europe and Asia and Chief Corporate Development Officer. He will oversee the successful integration of companies into the family as part of our global expansion strategy.

Patricia Pomies has become our new Chief Operating Officer. Her task will be to turn our executive strategy into measurable goals for growth, delivery and execution. She will consolidate a comprehensive vision between delivery, people, performance and operations. Diego Tartara will take on the new role as Global Chief Technology Officer, overseeing our studios of expertise and how they deliver technologies that transform companies every day. Each Globant's business regions will be led by a respective Chief Business Officer, with Fernando Matzkin as Chief Business Officer for North America; Nicolas Kaplun as Chief Business Officer for Latin America; and Federico Pienovi as Chief Business Officer for Europe and Asia. And finally, I'd like to welcome Maria Pinelli as the newest member of our Board of Directors. Maria brings 34 years of experience in helping companies develop their technology products and to reach their customers. I'm happy to have her strategic advice as we keep growing our business and to serve our clients better all over the world. I'd like to congratulate all of these executives for their new appointments. We have an amazing leadership team that will enable us to achieve our goals and go beyond.

We all saw the inflection point of the digital transformation space in 2020. The increased adoption of digital technologies in all processes of our professional and personal lives is opening up exciting opportunities for our sectors, in parallel with increasing optimistic macroeconomic predictions. Industry analysts like IDC have increased their forecast for the worldwide services market due to a soft landing in 2020 and a strong return to growth in 2021. And this is Globant opportunity to position itself as a leader and preferred partner in this space, which we aim to reinvent and disrupt. That's why we continue to seek out the best talent and bring them on-board as our teams continues to expand.

Last quarter saw yet another acquisition as we welcome CloudShift to the family. I'm excited to bring in their deep sales force multi-cloud expertise to Globant so that we can take a larger role in the cloud space. At the same time, we announced the acquisition of HABITANT, a leading Spanish digital marketing agency. HABITANT's experience is fusing digital marketing, digital sales, technology, design, innovation and data. It is a complementing element so that we can continue developing unique products and solutions for lasting transformations. Looking forward, there will surely be additional exciting acquisitions that reinforce and expand our many capabilities as well as our organic growth.

Now a few notes on our geographic expansion. As we grow, we continue scaling our business throughout the globe. This quarter we announced new operations in Malaga, Spain, where we will be opening a new artificial intelligence innovation center. In Latin America, I'm pleased to announce new operations in Monterrey, Mexico; Cali in Colombia, Vina del Mar in Chile; and Bariloche in Argentina. This is in line with our strategy of being the employer of choice for the ambitious talent of the region. We have also announced a greater expansion of our operations in Miami, which will be the hub of our brand-new Smart Venues studio, a new concept to transform how patrons connect with brands. Leveraging our experience working with the entertainment and many other sectors, we're launching this studio focused on creating the best phygital experience. Through digitalization, we revolutionize how companies interact with their consumers, patrons and fans across their physical and digital spaces, allowing them to create a new user experience that is far more engaging. Creating these new ways of interaction serves as an exceptional tool to better understand customers and allows organizations to identify new and unconventional ways to generate new revenue.

Now news about the collaboration with Apple. We began working on a project with Apple through our Life Sciences Studio a year ago that seeks to improve the health and wellness of communities through a highly configurable wide-level recognition and reward platform using Apple Watch. The aim is to help clients improve the health of their customers, members or employees. The app encourages a more healthy lifestyle for its users and provide companies an ability to create deeper, more meaningful engagements.

And today, I'm pleased to announce that London Drugs, a large drugstore chain in Western Canada, is our first client to roll out this program. They have already launched a pilot rewards program in a number of stores in Vancouver that incentivize customers to complete activity goals tracked by Apple Watch, with an ambition to expand in the coming months. It should be noted that this program adheres to the most stringent privacy guidelines set by all three companies.

Let me share more updates in some of our most recent projects. We're working closely with Nissan customer experience team this year to develop a seamless customer journey across physical and digital channels. We're helping to revamp their online vehicle-ordering process, enabling their customers with greater choice and intuitive and engaging ways to choose and buy their cars. We have expanded our involvement into market operations with data systems integrations and the development of customer and business applications.

Globant continues to expand its footprint in the digital health arena. For example, during Q1, we began our partnership with Boston Scientific to provide implementation consulting services for CRM strategic rollout. We also started working with the diagnostic division of Roche to develop an automated multi-cloud solution for this global pharmaceutical and biotechnology giant. In the retail and consumer goods space, we won a very strategic engagement with Backcountry.com. This is an online specialty retailer that sells clothing and outdoor recreation gear. Globant has been engaged to partner on their digital transformation journey aimed at delivering impactful customer experiences by leveraging our digital and cognitive capabilities and technologies.

To go into finer detail about our studios and our technology offering, I'd like to welcome Diego Tartara, our new CTO. Diego, please?

Diego Tartara -- Chief Technology Officer

Thanks, Martin, and hello, everyone. It's an honor for me to be with you this afternoon. I have the great experience of leading Globant's diverse and expansive studios for several years. In my new role as Global CTO, our aim will be to leverage our global talent and expertise to build a portfolio of solutions that enable our clients to fully embrace the future.

To get started, I have a few more new studios to announce, in addition to the Smart Venues concept. First, the Cultural Hacking studio. We know that a successful and lasting digital transformation involves not only a technological adoption, but infusing the organization with a culture of flexibility and resilience. We therefore consolidated this new studio to help businesses achieve their goals through faster and healthier cultures. Our teams work with the client to create culture and strategies, reshape the organization and form new habits and behaviors that are conducive to alignment between business goals and the organization's purpose. This studio works to unleash the talent and potential of the employees to reskill them, realign, understand cognitive capabilities and position them in the optimal place for embracing change and provide value to the organization's development. There is no way to scale-up if you don't have a sustainable culture.

We are also improving our value proposition through our new digital sales studio. For digital marketing strategies to be successful, they require more than managing media. There is a great opportunity to be more business-oriented and increase performance of digital channels by using data, AI and the right technology stack. The digital sales studio comes to address this challenge by orchestrating digital capabilities, increasing digital sales with data and technology. Digital sales acceleration means having business, marketing and technology working together, a mix to be driven by data under our 360 degrees consumer view.

Now many of you might remember the Women that Build Edition of the Globant Awards in 2020. The turnout and feeling after sharing those inspiring stories was so positive that we are launching a new edition for 2021, Digital Disruptors. Organizations of the future will be led by individuals who embrace reinvention, take risks and push the limits on what thought possible. We call them Digital Disruptors. We want to recognize those leaders who are going the extra mile to guarantee that their companies stay at the cutting-edge of every tech revolution. We've invited a fascinating list of judges who include Diego Lerner, President of The Walt Disney Company, Latin America; Michele Lezama, President of the National Action Council for Minorities in Engineering; Nuria Simo, CIO of the Inter-American Development Bank; Donald Hicks, Airbnb's VP of Trust Policy; Xapo's CEO, Wences Casares; and many more. I invite you all to check out the initiative for yourselves at digitaldisruptors.globant.com.

Let me now welcome Patricia Pomies, our new Chief Operating Officer, who will go into details on our activities.

Patricia Pomies -- Chief Operating Officer

Thanks, Diego. Hi everyone, and welcome back. It's been another great quarter as we continue to differentiate ourselves through the quality of our delivery. In this direction, we have received important international certifications based on our innovation, our inclusion of Augmented Coding as a tool that elevates our delivery and the continuous improvement of our pods. This is a recognition to the effort that our Globers make daily to ensure that we meet and surpass client expectations even under challenging circumstances.

In the outlook for 2021, we will remain on a remote-first policy for our operations. However, we have decided to open our offices to all those who voluntarily want to work from them. In essence, we will continue working from home, but at the same time, our Globers will have the flexibility to return when necessary for collaborative ideation or other relevant meetings.

We remain vigilant to the COVID-19 situation in Latin America and India, both very important location for us. We are accompanying our Globers in different ways to help them through this crisis. And we will continue to support them by offering supplies, expert's guidance and counsel and make donations to local institutions and hospitals.

We finished the quarter with 17,267 Globers; 16,284 of which were technology, design and innovation professionals. We continue our strong hiring in Q1 with a robust addition of 994 IT professionals, up to 39% year-over-year in order to meet the strong market demand.

Over the last few years, Globant has invested heavily in establishing a robust training and hiring infrastructure across the globe. Combined with our ongoing expansions, this gave us a strong ability to seamlessly increase the hiring and training as required. At this moment, we do not foresee any challenges in finding the right talent to meet the demand. Attrition for the past 12 months continued low at 14.2% compared to 15% in Q1 2020. Going forward, we continue to estimate a normalized attrition rate of 14% to 16%.

Some news on our benefits for our Globers, who are the center of everything we do. We are launching an employee stock purchase plan through the second half of this year. We are giving our Globers the opportunity to purchase shares of the Company at a discounted price so that they can have a greater stake in our performance and growth story.

We continue to expand our Be Kind concept. This initiative has guided us to take bold steps at our company, from committing to having half of our managerial positions held by women by 2025 to having transitioned to renewable energy in 2020 and going carbon-neutral, a commitment that we will achieve this year. We are doing this because we want to continue making an impact in the world and in the tech sector, helping make it more inclusive, diverse and vibrant. Related to this, I am glad to share that we have created a new initiative and space called Be One of a Kind, where we are sharing to promote the concept of inclusion and diversity. We want to make sure that everyone, especially people who are often overlooked, feel welcomed, seen and supported. I invite you to visit beoneofakind.com to learn from the stories there and maybe even share your own.

Now, a few points on our revenue performance. Disney was our largest customer for the quarter, growing strongly at 27.4% year-over-year and 14.7% quarter-over-quarter. We continue to be very well diversified within Disney, serving the majority of its business units. Other than Disney, rest of our accounts collectively grew at a solid 42.8% year-over-year, with revenues from top 5 and top 10 accounts increasing at a robust rate of 37.5% and 41.2% respectively over the first quarter of 2020. Outside of Disney, rest of the accounts collectively also grew strongly at 16.3% quarter-over-quarter as we experienced improvements in most industry verticals. Moreover, during the quarter, we continued to successfully cross-sell services with the companies we acquired in the recent past.

Regarding the progress of our 100 squared strategy, during the last 12 months ended March 31, 2021, we had 15 accounts above $10 million in annual revenue compared to 12 customers for the same period last year. We had 139 customers with more than $1 million of annual revenue compared to 112 one year ago. Overall, we continue to expand our relationships with our key accounts, the base for our continuous growth.

In terms of geographic regions, Europe witnessed a strong acceleration in revenues growing at 183.7% year-over-year and at 43.3% on a sequential basis. Latin America and others show continued strength, growing at 80.2% year-over-year and 17.9% sequentially. North America was up strongly at 19.3% year-over-year and 11.2% sequentially. Asia also witnessed robust growth at 78.7% year-over-year and 31.3% sequentially. We are enthusiastic about the demand we see in our growing market and foresee a healthy pipeline ahead. For 2021 and beyond, we'll keep applying our talent to help them make it happen and ensure that they have the latest training to be great.

With that, I'll pass it over to Juan to go over the financials.

Juan Urthiague -- Chief Financial Officer

Good afternoon, everyone. I hope you are all doing well and staying safe. Let me start by summarizing the results of our first quarter 2021. I will then discuss our guidance for the second quarter and for the full year 2021.

Our business in 2021 started on a very strong note and we are very pleased to announce another quarter of record revenues and strong financial performance. Our revenues for Q1 were $270.2 million, representing a solid 41% year-over-year growth. On a sequential basis, our revenues for Q1 increased 16.1%, showing a very healthy trend. This was Globant's strongest year-over-year and sequential growth since we're a public company. Q1 revenue growth was 40.3% year-over-year in constant currency. While the COVID-19 pandemic is still ongoing, it did not have an incremental impact on our Q1 results. We remain bullish about the demand environment post the COVID-19 crisis and are encouraged by the ongoing positive trend in our bookings and revenues.

Turning now to profitability. Our adjusted gross profit for the period increased to $107 million, representing 39.6% adjusted gross margin compared to $75.6 million, representing 39.5% adjusted gross margin in the first quarter of 2020. Adjusted operating income for the quarter amounted to $45 million or 16.6% of revenues compared to $29.9 million or 15.6% of revenues for the first quarter of 2020. Adjusted operating margin improved 100 basis points year-over-year and 30 basis points sequentially. As our revenue growth profile and utilization continues to improve, it will have a positive impact in our adjusted operating margin. At the same time, salary increases start in Q2 and we plan to continue investing in the Company, taking advantage of the huge opportunity in front of us.

Our IFRS effective tax rate for this quarter was 24.9%, largely in line with our guidance. Adjusted net income for the first quarter of the year totaled $34.2 million, representing 12.7% adjusted net income margin compared to $22.4 million, representing 11.7% adjusted net income margin for the first quarter of 2020. On a sequential basis, adjusted net income margin increased by 80 basis points. Starting the first quarter of 2021, we are including tax impact of non-IFRS adjustments in the calculation of adjusted net income. Excluding this tax impact, adjusted net income for the first quarter of 2021 is $37 million, representing adjusted net income margin of 13.7% compared to, as reported, $24.4 million, representing adjusted net income margin of 12.7% in the first quarter of 2020.

Adjusted diluted EPS for this quarter was $0.83 based on 41.2 million average diluted shares for the quarter compared to $0.59 for the first quarter of 2020 based on 38.1 million average diluted shares for the quarter. Excluding the tax impact to non-IFRS adjustments discussed earlier, adjusted diluted EPS for the first quarter of 2021 is $0.90, strongly above our guidance of at least $0.79 and compared to, as reported, $0.64 in the first quarter of 2020.

Moving on to the balance sheet. Our cash and cash equivalents and short-term investments as of March 31, 2021 amounted to $195.6 million. During the first quarter, we paid $42.2 million for acquisitions and repaid $25 million of our credit facility. Currently, our credit facility is fully undrawn. We also continue to successfully execute on capital allocation strategy with integrations of recently acquired companies going as planned.

To wrap-up, I would like to share with you our outlook for Q2 and for the full year 2021. We note that given the ongoing COVID-19 pandemic, there are a number of factors that we may not be able to accurately predict. Based on current visibility, we expect Q2 2021 revenues to be at least $283 million, implying 54.9% year-over-year growth. At this point, we do not expect any FX impact to our second quarter revenues. Q2 adjusted operating margin is expected to be in the 15.5% to 17% range, and adjusted diluted EPS is expected to be at least $0.84, assuming 41.4 million average diluted shares outstanding for the quarter.

Regarding the full year 2021. Given the robust demand environment we are witnessing, we are significantly increasing our revenue guidance and we now expect revenues to be at least $1.135 billion, representing 39.4% year-over-year growth. We currently assume no FX impact to our full year 2021 revenues. For 2021, we now expect our adjusted operating margin to be in the 15.5% to 17% range versus the 15% to 17% range guided before. At Globant, we continue to strongly invest in globalizing our operations, training programs in cutting-edge technologies and expanding our sales coverage. IFRS effective income tax rate is now expected to be in the 23% to 25% range for both Q2 2021 and the full year 2021. Finally, we expect adjusted diluted EPS to be at least $3.37 for the full year 2021, assuming 41.6 million average diluted shares outstanding for the full year. To note, our adjusted diluted EPS calculation now also includes tax impact of non-IFRS adjustments.

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

Questions and Answers:

Operator

Thanks, Juan. So as we go through the question-and-answer section of this call, I'll announce your name. At that point, please unmute your line and ask your questions. And please mute your line after your question is done. We also ask you to please limit your time to one question and one follow-up. Thank you. The first question today comes from the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

Hey, great. Hope you can hear me.

Martin Migoya -- Chief Executive Officer and Co-Founder

Hi Tien-Tsin.

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

Hey Martin, you guys all look great. Great presentation. Obviously, great results as well. And I appreciate the update on the people side with some of the changes. So I wanted to ask, maybe start with the people question of, I think coming out of this earnings season, everyone, we've heard a lot about wage inflation and fight for talent. I would imagine your utilization is probably running pretty high as well. It sounds like no real COVID impact. So can you just maybe give us an update on how you feel about the people side of the equation in terms of cost, utilization? It sounds like attrition is under control. But I'm curious how you feel about your ability to meet some of the demand that you're expressing here with the raised guidance.

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah, sure. Let me summarize. First, the recruiting power remains higher than ever. Well, it is higher than ever, and we're extremely happy with the amount of people we are recruiting right now. It's pretty amazed to see the amount of net incomes that we are getting every quarter, as you may see here. Utilization is higher, of course, higher than before. And the environment of demand for the people also is hotter and we believe that using all our things, tools, value proposition, uniqueness in terms of how we position our offer and our value proposition as employers will still have an advantage compared to our competitors in terms of how to attract, maintain and propose to our Globers a better value every day, as you have heard on some of the things that we explained during the presentation.

And I believe that attrition remains stable. Of course, it's not as low as it was in the middle of the pandemic, but that also connects with how the market is behaving in terms of demand. And we're seeing a pretty large demand. We are seeing not enough pressure on prices, which is interesting. So that's the full picture. Not really concerned about that. Of course, we're doing everything we do. And we will keep on improving, which is the most important part, keep on improving the value proposition for our current Globers and for our future Globers.

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

Okay. Great. Then maybe as my quick follow-up then, Juan, just on the gross margin side, staying with that theme. Anything to call out for the second quarter or for the balance of the year? Thank you.

Juan Urthiague -- Chief Financial Officer

Yeah. Thank you, Tien-Tsin. How are you? So for the second quarter and for the rest of the year, we continue to think that the 38% to 40% range, the target that we have set up long term all remains valid. If you look at Q1, we ended at 39.6%, slightly ahead of Q4 last year. During Q2 and Q3, we have salary increases, but also we have a business that is very, very strong and with utilization, we should be able to offset some of that impact. So I would say basically that we will continue to be within the range, 38% to 40%, and we will continue to have a very efficient organization in terms of SG&A. If you look at the operating income guidance that we provided, it was 15.5% to 17%, slightly up from 15% to 17% that we were guiding in the last quarter. So overall, we think that the profitability of the Company is very strong, is solid. Thank you, Tien-Tsin. Good to see you.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you, Tien-Tsin.

Amit Singh -- Head of Finance and Investor Relations

Next question comes from the line of Bryan Bergin from Cowen. Bryan, please go ahead.

Bryan Bergin -- Cowen & Co. -- Analyst

All right. Thanks. Good afternoon. So based on the growth performance, it would appear the majority of your client base is back to pre-COVID spending pace. But I'm curious if there are still parts of the portfolio that are not yet back to a normalized rate. If there are, where are those? And are you building recovery in those as well to the rest of the balance of the year and the guide?

Martin Migoya -- Chief Executive Officer and Co-Founder

Hi, how are you?. Thank you for your question. Look, the two sectors that are not still coming back are cruise lines, which is -- we hope it will come back very soon as the restrictions will lift up very soon in the US, I feel. And the second thing is -- the second place are airlines, and some of them are picking up and going back again. Some of them were maintained, as I explained on other calls and some others are just struggling to survive. So I believe that those are the two segments. All the rest of the segments are growing, and I feel that those two segments will come back very soon, including media entertainment, of course, all the streaming part is very, very strong as always. The in presence entertainment like the parks and resorts, so on and so forth, are picking up very fast. So this is my view right now. Maybe I'm missing something, but this is the most important part.

Bryan Bergin -- Cowen & Co. -- Analyst

Okay.

Juan Urthiague -- Chief Financial Officer

I think if you look at -- Bryan, if you look at all the other industries, you are seeing very, very strong growth and we are seeing actually very strong demand and a very strong level of bookings. So with all that exception that Martin mentioned, all the rest of the business is building up very, very well.

Bryan Bergin -- Cowen & Co. -- Analyst

Okay. That actually dovetailed into a follow-up. I wanted to ask about just pace of bookings. Did it accelerate in the quarter from what you were seeing before or did it maintain good pace? Any qualitative commentary you can give there?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah. Well, we've got a pretty large acceleration in Europe, in Latin America and also in the US and we see that acceleration in booking being transforming revenue. And as you've seen, the growth has been very significant, historic growth. And the guidance for the next quarter is also pretty solid. So that's connected to an acceleration on the demand. And that thing that we were talking, the pandemic really generated like a pretty I would say, interesting place for our services. And everybody is trying to get the things for tomorrow, everybody is trying to accelerate their projects. That doesn't mean in my opinion that it will slow down in the future because it's a trend that will never change now. And I believe that this is something that is pretty clear right now.

I don't know, Pat, if you want to add something on the demand side.

Patricia Pomies -- Chief Operating Officer

Yes, of course. I think, I mean, we are seeing a strong demand on gaming industry also. So there, we have been working with different partners in terms of how to again mitigate some other industries. In the space of the digital payments also, we are seeing a strong demand there. Online learning, of course is something that probably is not going to change, not in the near future. I think that we have a strong demand there also. Social networking, I think there are different kind of verticals that also are being impacted for this post-COVID situation or at least in some of the industry, we are seeing a very, very good trends in our pipeline and on the demands.

Bryan Bergin -- Cowen & Co. -- Analyst

Thank you very much.

Patricia Pomies -- Chief Operating Officer

You are welcome.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you.

Amit Singh -- Head of Finance and Investor Relations

The next question comes from the line of Maggie Nolan from William Blair. Maggie, please go ahead.

Martin Migoya -- Chief Executive Officer and Co-Founder

Maggie?

Juan Urthiague -- Chief Financial Officer

We cannot hear.

Patricia Pomies -- Chief Operating Officer

We cannot hear you, Maggie.

Maggie Nolan -- William Blair & Company LLC -- Analyst

Can you hear me now?

Patricia Pomies -- Chief Operating Officer

Yes.

Juan Urthiague -- Chief Financial Officer

Yes.

Martin Migoya -- Chief Executive Officer and Co-Founder

Yes.

Maggie Nolan -- William Blair & Company LLC -- Analyst

Great. When you look at the Q2 guidance, one, when you think about the quarter-over-quarter change in the margins, I just wanted to clarify, is that driven by mostly the impact to salary increases and is that a larger impact this year than you would have seen in years prior?

Juan Urthiague -- Chief Financial Officer

Interesting question. So I think that when you look at quarter two, in terms of gross margin, clearly, you may expect a small impact as salary increases kick in. Even though the market is hot, we also have the ability to keep on increasing utilization a little bit, and that should help us offset that part of that impact in the very short term, right? And then eventually, pricing discussions that are happening with our customers should also kick in and help us with the margins back to where they're supposed to be, right? So I would say that you should expect a small impact during the Q2 numbers and probably it's not going to happen at the operating income level. Operating income is solid as well for the second quarter. And then for the rest of the year, we should be able to recover part of that as we continue to talk to our customers.

I mean, I think that the demand side is very, very strong, and that should help to offset some of the impact that we may have. I don't think it's going to be very different from other years. We're just -- I think that after two quarters, Q2, Q3 last year, where things were kind of calm, we are just coming back to what it was prior to COVID, right? It's not different from what we have seen over the last several years. This is a market that is strong, there is a lot of demand. There is an acceleration coming out of -- or rebounding out of the COVID crisis in Q2 and Q3. So we're just coming back to a normal scenario like it was prior to COVID, with of course a little bit of an additional acceleration that of course, has an impact on the labor market.

But again, when you look at our ability to bring people into the Company, we added 1,000 people, 900, pretty much of which were organic, so very strong organic growth. We continue to believe that those companies that have a great value -- offer great value to employees will continue to attract talent. We have very attractive projects, very attractive culture, it's a unique organization. And you've seen over the last two, three years when the market was also booming that we have been able to bring a lot of amazing engineers and designers into our company. So we are not -- even though we acknowledge that there is a tougher market, we also think that we will continue to be very attractive as we have been over the last three, four years in terms of bringing people into the lot.

Maggie Nolan -- William Blair & Company LLC -- Analyst

Okay. Great. And then, Martin, in a scenario where you partner with a company like Apple, like you outlined in your remarks, can you give us some insight into how your team and their teams work together and where Globant is able to kind of take the lead and show their strengths?

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah. It was an idea that we took together with the Apple team. And it took us a while, like a year, to finalize agreement with Apple and to be able to develop the application and now this application can be sold to any health insurance company or any health-related company that wants to provide some kind of incentive for people to behave in a more healthy way and it's an application that is mounted on the Apple Watch. And then when you use that application, we have to watch, measure some of your things and activities, and then you get rewarded with discounts and many other things connected to your activity. And then how we get paid on that is pretty interesting because it's not because of the development that we did but it's because it's connected to the amount of users and it's monthly payment for every user that we get. Is that clear?

Maggie Nolan -- William Blair & Company LLC -- Analyst

Yes. Thank you.

Martin Migoya -- Chief Executive Officer and Co-Founder

You are very welcome, Maggie.

Juan Urthiague -- Chief Financial Officer

Thank you very much, Maggie.

Amit Singh -- Head of Finance and Investor Relations

The next question comes from the line of Ashwin Shirvaikar from Citi. Ashwin, please go ahead. Ashwin, we can't hear you.

Ashwin Shirvaikar -- Citigroup -- Analyst

Hey, can you hear me now?

Juan Urthiague -- Chief Financial Officer

Yes.

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah.

Ashwin Shirvaikar -- Citigroup -- Analyst

Cool. Good quarter, guys. I might have missed this. I was wondering if you could talk about organic versus inorganic growth in the quarter as well as the increment in terms of the outlook. And you made an interesting acquisition, I guess another interesting acquisition recently, HABITANT, if you could talk about that.

Juan Urthiague -- Chief Financial Officer

Maybe I can -- Ashwin, I can start with the organic, inorganic question, and I'll let Martin talk about the acquisitions, right? So as you know, and always, we work very hard to integrate companies that we acquire. Now having said that, our estimate for Q1 is that the organic growth was north of 23%. For the Q2 number, which we guided 55% or 54.9%, our best estimate of the organic growth is approximately 37%. And then for the full year number, which we guided 39.4%, again, our best estimate in terms of organic is around 27.5%. But again, keep in mind that it's not easy to -- sometimes to isolate the effects of some of the acquired companies as we integrate very fast, which is part of our strategy of integration.

I don't know, Martin, if you want to comment on [Speech Overlap].

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah. The other comment, we acquired -- we announced or we commented on the presentation about two acquisitions: one that is CloudShift that is connected to our strategy of creating every day more value around cloud operations and in particular, sales force. Now it's adding that ability in Europe, which we had it very concentrated in Latin America and we are shifting that into Europe and it's very interesting to see how that is progressing now because the demand is quite high.

And then on the digital marketing space, we believe that there's a space there to talk about digital sales. And there's a space in which we have been playing for some time. But adding HABITANT, which is one of the leading digital sales companies in Spain is something that is deciding us a lot of value in front of our customers and a new segment to keep expanding the way we talk with them and to keep expanding the wallet of -- or sorry, the portfolio of offering that we have. So remember, organic growth is about being able to talk about new things with our customers every day and these two acquisitions are 100% connected to that idea.

Ashwin Shirvaikar -- Citigroup -- Analyst

Understood. And then second question. The recent organizational changes and sort of the bulking off of the structure I thought was very interesting. Should one think of that as a precursor to perhaps a relatively aggressive phase of global growth? You're basically preparing the structure for that?

Martin Migoya -- Chief Executive Officer and Co-Founder

Look, we have always been prepared for that.

Ashwin Shirvaikar -- Citigroup -- Analyst

Yeah, I understand.

Martin Migoya -- Chief Executive Officer and Co-Founder

You think you're asking me -- you're asking me, Martin, you're preparing for growth. Look [Speech Overlap]

Ashwin Shirvaikar -- Citigroup -- Analyst

It sounds horrible but the globalization structure, I mean.

Martin Migoya -- Chief Executive Officer and Co-Founder

Yeah. Look, it has to do with the idea of being prepared with every day new blood, new management into our teams. In general, most of them are coming from the inside of the Company many, many years ago and doing amazing careers within the Company, like the case of Diego and Pato. And also some additions like Nicolas Kaplun and -- coming from Accenture or some other -- people that has been working for years in the Company like Federico Pienovi or Fernando Matzkin that are leading Europe and US respectively. So this is something that we are putting a much deeper effort into making stronger our regions. Even playing with the founders of the Company connected to that, Martin Umaran connected to Spain, being the President of Spain, working very closely with Federico Pienovi. He moved into Madrid. And now we are given like a totally different spin into the organization in Europe. And Guibert moving as President in Latin America and also President of Globant X, which is some of the most strategic things that we are doing within Globant that includes Augmented Coding, includes all the augmented Globant staff, including StarMeUp and other platforms.

So this is a pretty big step into a next phase of the Company. We're already a $1.1 billion organization. And we need to think different. We want to reinvent the industry, and that needs to be connected with a change or evolution on our management. So Diego Tartara also coming from the Company many, many years ago. So look, it's a pretty interesting thing. The Board also evolved into a more diverse board. Now we have Maria Pinelli, former partner of Ernst & Young, also one of our customers, but she retired from Ernst & Young. Now she is coming into our Board of Directors. A lot of value-added she will add to the organization. So we are preparing the Company for big things in the future. And I'm very happy with all the management changes and everything that is going on in the Company. Of course, there are always things to improve. I won't say no to that. But we're preparing the Company for next things that are going to be big.

Patricia Pomies -- Chief Operating Officer

Yes. I want to add something to that, Martin. I mean, I think that this reorganization has to do not only with, of course, preparing ourselves for growing. We are growing all the time, but the last couple of years, we had to reinvent ourselves many, many times. And all the time that we have done that is because we are hearing our customers, because they are asking different kind of partnerships with us. So that means that we need to be prepared to be different or have different flavors in different areas. For example, EMEA, LATAM, US, I mean, we are being prepared there to be closer to our clients, to understand what they need to be there with their culture, to be near them. And that has been our strategy for the last couple of years, being closer to our clients, understand what they need, understand how we can be prepared. And that means also this reorganization.

In the case of operations, I mean, coming together with people, with performance and with the quality of the delivery, that has to do with one vision and working together as a team, understanding where our Globers are needing and when they need us and be there and prepare the business also to attend that. So I think it is important to have that in mind. We are reinventing the industry and we are reinventing ourselves.

Ashwin Shirvaikar -- Citigroup -- Analyst

Got it. Thank you.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you, Ashwin.

Amit Singh -- Head of Finance and Investor Relations

Thank you very much, Ashwin. Let's move to our next question, and it comes from Surinder Thind from Jefferies. Surinder, please go ahead.

Surinder Thind -- Jefferies LLC -- Analyst

Thank you for taking my question. I guess the first question I'd like to ask about is just the visibility, and this is kind of a follow-on to the bookings question. Obviously, the magnitude of the beat was pretty big last quarter. So can you comment on that a little bit? And how we should actually view the guide as it suggests there's a sequential slowdown in terms of your organic growth?

Juan Urthiague -- Chief Financial Officer

Maybe I can start with that question. So when the year started, the COVID situation was still impacting pretty much all our demand markets, the US, Europe and also Latin America. And again, it was hard to anticipate up to what extent the recovery was going to continue or the speed of that recovery. Clearly, it was a little bit stronger than we anticipated, and that's why we were able to beat the guidance in a slightly bigger way than what we did in the past. We still have, in our delivery centers, a lot of impact from COVID. Most of our people in Latin America, India, a little bit Eastern Europe, and in these regions' vaccination is not going as fast as it is going in the US or in Continental Europe. So that creates a little bit of uncertainty around that. But I think that what is clear, and is becoming more clear is that those companies that were not impacted or strongly impacted by COVID, accelerating on their projects. And that's why we are going to see this strong level of bookings that we are seeing in the last couple of quarters.

Going forward, again, we always guide, and this is our philosophy forever. We like to guide in a place where we feel that we will be able to meet or hopefully exceed those numbers. And that's our philosophy. Of course, these are not -- these are still uncertain times, and you need to take some extra precaution than we would normally take or we have normally taken in the past. But again, the business is strong. We continue to see strong bookings coming. We continue to hire very aggressively in the market and we continue to prepare the Company, as Martin and Pato described, to become even larger and more global. That's why you've seen some of those employee changes or structural changes that we discussed.

Surinder Thind -- Jefferies LLC -- Analyst

That's helpful. And then switching topics here in the ESG question. Did I hear you correctly that you guys are carbon-neutral at this point or is that a goal that you're trying to get to? And I just want -- I wanted to clarify that.

Martin Migoya -- Chief Executive Officer and Co-Founder

Pato, you want to take it?

Patricia Pomies -- Chief Operating Officer

Yes, of course. I mean we are working this year in terms of being carbon-neutral. We have this plan, this program, Be Kind, that we launched a couple of months ago and we have been very, very progressive in terms of the sustainability program. So we have built a sustainability studio in order not only to help ourselves be a sustainable company, also to help our clients and being closer to them to be sustainable. I think that the Be Kind to the Planet, that is one of the main verticals in this Be Kind program, has been progressing. So yes, in 2021, we are going to be carbon-neutral. And I think that is an amazing thing to celebrate also, of course.

Surinder Thind -- Jefferies LLC -- Analyst

That actually sounds pretty wonderful. So just to clarify my perspective. Is that primarily like there's just -- it's a function of reduced travel or is there other things that we should be thinking about that that you've hit the goal where maybe others are struggling to reach that goal?

Martin Migoya -- Chief Executive Officer and Co-Founder

It's a combination. I think it is a combination between different things. I mean, it's not that we're going to be reducing travel. I mean travel has been reduced as a result of the pandemic. We believe that it will come back. It won't come back that fast. But it's a combination between that and Globant compensating the carbon footprint that we have as a company. And in essence, Globant has a pretty low carbon footprint with the activity we do. But in any case, we are very conscious about that, and we want to be very conscious about where we are producing.

And moving forward, it's not just that we want to compensate our carbon footprint, but also, we want to compensate the carbon footprint that our employees have. I mean we are making numbers now and trying to understand if that's possible or not, but the idea would be that if you work at Globant, you are sure that you're receiving your monthly compensation and also you're receiving carbon compensation that makes neutral your activity as a human on that specific year.

So we are very conscious about that. Taking care of the planet for us is one of the main things. Otherwise, we want to be -- totally out of the -- out of control very soon. So I think that this Be Kind initiative that Pato introduced is extremely important for the Company because not just taking care of planet, but taking care of our peers with more -- being more diverse, more inclusive as we are trying to demonstrate every year and with very concrete commitments on training, women that are trying to come into the industry, promoting women that are inside our organization, having a very clear commitment of having a 50% composition between women and men on our management on 2025.

And then, of course, taking care of the humankind, which is Be Kind with the humankind, which is the third pillar, which is how we use technology for the best of the world instead of using technology just for things that are not healthy for the employment creation, so on, so forth. We added a fourth pillar, which is take care -- Be Kind with Yourself -- To Yourself. And that means that we are including everyday more and more options for our Globers to take care of themselves, to take care of their bodies, to take care of their minds.

And I don't know, Pat, if you want to add something to that.

Patricia Pomies -- Chief Operating Officer

Yes, of course. I mean, Be Kind to Yourself is the last initiative that we launched and it has to do with, of course, start talking about mental health in the organization, right, inside the organization. And that means, of course, not only, of course, taking care of your body, of course, it has to do with mindfulness. It has to do with how we, as an organization, are taking care not only about our Globers, because we are feeling all the time that our Globers are in a context, in a family, in a different scenario. So as we see our Globers, we are seeing their families and their structure and how they are living on everyday basis.

So on this working-from-home scenario, we have put a lot of energy in this strategy, Be Kind to Yourself, giving them tools, understanding what are their pains, putting some psychologists in terms of having calls and trying to be closer to them, so we can help them. I think all the organizations should have this kind of conversation about mental health inside the organization. And that is something that we have been doing in the last couple of years, but we put a very, very strong efforts in the last couple of quarters, so I mean, in order to be closer to our Globers. That also has to do with the career path that we are building for our Globers and how we try to take care of them in terms of their professional career, also in terms of the Globant University. So I think it has to do with a mix of things that makes Globant a different culture and a very attractive culture for the new generations and for the talent.

Amit Singh -- Head of Finance and Investor Relations

Thank you, Pat and thank you, Surinder. We'll move on to our next question, which comes from Steve Enders from KeyBanc. And just as a reminder, please limit your time to one question and one follow-up. Steve, please go ahead.

Steve Enders -- KeyBanc Capital Markets -- Analyst

Okay. Great. Thanks for taking my question. I just want to get a better sense of some of the acquisitions you made in the past few quarters and how you're seeing the cross-sell opportunity with those. And yeah, if can you just start with that, that would be great.

Martin Migoya -- Chief Executive Officer and Co-Founder

Have you seen what, the synergies, you said?

Steve Enders -- KeyBanc Capital Markets -- Analyst

So yeah, the synergies you're seeing with some of the acquisitions you've made in the past few quarters and the cross-sell opportunity there.

Martin Migoya -- Chief Executive Officer and Co-Founder

Great. Thank you for the question. Look, all of them are performing great. And I would say that the strategy we're following during the last few quarters of concentrating on new offerings for our value proposition is really important. And I feel that -- let's start with the case of Bluecap, the Spanish company that we bought, I think, in quarter four. That was an amazing upgrade on how we relate with all the financial systems in Europe. I think that now we are expanding that, I don't think -- we're expanding that into Latin America now. We are expanding that into some customers in the US, so that's great.

Then the second, when we talk about acquisitions like [Indecipherable] or CloudShift, which are, as I said, connected with the cloud expansion with Salesforce and everything that is happening on that space, that is picking up in pretty much every customer we do because they like the Globant way of doing those things. And I think that when we acquired those companies, we paid a lot of attention on their culture, how they do things, how similar they are to what we do.

And now when we talk about gA, we are increasing our portfolio with healthcare, we're increasing our portfolio with ERP migration, ERP reinvention, which is something that is happening right now, migration to the cloud, everything that has to do with the back-end of their company. And also with understanding how the Company creates and analyze its own internal processes. So that is performing quite well and moving into many different customers that we already have.

So overall, they're performing -- the synergies is like the essential part that we see when we do acquisitions and how we can expand what they offer into all our 800-plus customers. I don't know if that's the exact number. Please, Juan, correct me. All our 800 plus customers. So I think that I'm very happy with the progress of each of them. And of course, we cannot be 100% sure that all of them will work perfectly in the future. But at least right now, we are very happy with them.

Juan Urthiague -- Chief Financial Officer

Just a comment on that. Again, very strong organic growth, Q1, Q2 for the full year. And then, of course, accelerated and combined with the new services and the cross-selling coming from acquisitions. The two things are performing really, really strong this year. So I think it's worth having that very clear.

Steve Enders -- KeyBanc Capital Markets -- Analyst

Okay. That's great to hear. And just want to -- just a housekeeping question on -- get a better sense of the impact on the tax rate on the guide here from the non-IFRS adjustment there.

Juan Urthiague -- Chief Financial Officer

Yeah. So for full year, we guided $3.37 with the tax impact, with the adjustment. So without that tax, the way we used to calculate the adjusted EPS, it would have been $3.63. So there was around 20-something cents impact coming from the tax, but we believe that it improves our reporting. So that's why we decided to walk ahead and make this change.

Amit Singh -- Head of Finance and Investor Relations

And given the time constraint, I'll ask -- we'll take a few more questions. I will just ask everyone to limit to one question, please. So let's move on to the next question, which comes from Arturo Langa from Itau. Arturo, please go ahead.

Arturo Langa -- Itau BBA -- Analyst

Hi, good afternoon everyone. I was just -- well, I had two but I guess I'll just ask the first one. Do you see any impacts, both from operations and maybe --

Martin Migoya -- Chief Executive Officer and Co-Founder

Go ahead, Arturo. Ask two of them.

Arturo Langa -- Itau BBA -- Analyst

They're simple ones. So just is Colombia, what's happening on the ground, any concern, maybe from an FX perspective or from any other angle? And then the second one is maybe thinking in a five-year horizon, how much should Europe represent in terms of top line?

Martin Migoya -- Chief Executive Officer and Co-Founder

Those are the two questions?

Arturo Langa -- Itau BBA -- Analyst

Yeah.

Martin Migoya -- Chief Executive Officer and Co-Founder

Okay. Juan, you can take -- I mean in terms of the geopolitical situation of Colombia, we're concerned about what's going on there. Nothing that we think will affect our business. We're all working from home and people are safe and we haven't had any issues with our own people. So we hope that this will little by little they'll be diluted and a normal situation will come back.

Regarding the other part of the question, Juan, please, or Pato?

Juan Urthiague -- Chief Financial Officer

Sure. So Arturo, we are investing here in Europe. It's been an ongoing investment for us for the last two years. We see no reason why Europe as a continent cannot be as big as the US, right? I mean, if you look at some of our peers, they are making billions out of Europe. So there is no limit. There's no size, no specific size that we're targeting. We know that we can grow significantly over the next several years in Europe. And there is no reason why that should not happen. I mean, we just need to keep focusing, keep on investing, bringing the right talent, buying the right companies, and we will get there.

Patricia Pomies -- Chief Operating Officer

Yes. Arturo, as Martin mentioned in the beginning of this Q&A, I mean, I think we have put a very solid team in Europe as one of the founder also is there as President of EMEA and also working in corporate development. I think that EMEA for us is a big, big market. So we are putting all our efforts also there to build a stronger region there. And I think that is the most important thing these days, right? This is -- of course, it took us a little more to develop there, but we are thinking big there also.

Amit Singh -- Head of Finance and Investor Relations

Thank you very much and thank you, Arturo. The next question comes from the line of Vitor Tomita from Goldman Sachs. Vitor, please go ahead.

Vitor Tomita -- Goldman Sachs -- Analyst

Hello and thanks for taking our question. So first of all, I'll follow-up on some of the previous questions. In a more general way, could you give us some more color on how you are seeing the drivers for the end at this point of the pandemic? So mainly, for example, if companies are being motivated more by seeking cost efficiency or by the need to innovate more customer-facing operations or more generally, whether there are any specific types of projects that are seeing the most demand? Thank you.

Martin Migoya -- Chief Executive Officer and Co-Founder

Sure. Thank you for the question. Look, in general, what we are seeing, as I have been remarking in some of my past quarters' earnings calls, the first thing is the first trend and the most, I would say, demanding trend is the fact to get closer to consumers. This is our specialty. From the automation industry to the media entertainment to the football -- to the football production companies to stadiums, going through the pharma industry, I mean, all across the board, we're seeing pretty much the same trend, which is, oh, suddenly the pandemic make us think about the idea of not needing anyone in the middle between us and the brand and the consumers. So we need to change the way we sell our products and understand better who are our consumers. That is happening also, for example, in CPG.

So everybody that before was trying to distribute their products through channels, leaving that final connection to consumers into those channels, trying to get back and say, OK, now that we have the tools, we have the technology to get closer to those consumers, we need to go directly to them to understand them better, to understand how to contract products and services for them better and to connect with them in a more emotional way. And that thing that we started with Disney 13, 14 years ago, now is expanding into pretty much every industry like wildfire. And I think the pandemic has been like a very important trigger for that thing happening now. And it will keep on happening as education move into that, as governments move into that, as pretty much everything moves into that direction, which is quite amazing because it's exactly one of the things that we will invest and it's something that we'll keep on growing toward the future.

Now how you deliver that, how you reinvent the way in which you deliver that connection with consumers makes a huge difference at the time of competing for those deals. And at Globant, we are convinced that we have like a brand-new way of approaching those customers that need to reach those consumers, using AI, using our studio model, using the autonomy of our pods, all of the things that we are doing to be able to provide services in a different way. So those are the projects that I'm seeing like more and more often. Even a few days ago, I had a meeting with a real estate company. And before, they were selling the projects to big institutional funds, now they want to get into the blockchain to be able to sell tokens connected to those real estate projects. Again, a new way of crowd-funding, a new way of connecting to those, maybe not such high ticket investors, but lower ticket investors, and it's really amazing. It's something that we've never seen before, and it's pretty exciting.

Vitor Tomita -- Goldman Sachs -- Analyst

Awesome. Thank you.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you so much, Vitor.

Amit Singh -- Head of Finance and Investor Relations

So that will be all for the Q&A section today. Thank you all very much for joining. At this point, actually, I'll pass it back to Martin to please provide the closing comments. Martin, please.

Martin Migoya -- Chief Executive Officer and Co-Founder

Thank you, Amit. Well, thank you very much for everyone participating in this new format. Thank you to all those that didn't ask questions but participated in a way watching what we have to say this quarter, looking forward to keep connecting with you and looking forward to keep driving Globant to the next level. Thank you, and see you next quarter.

Juan Urthiague -- Chief Financial Officer

Thank you. Bye.

Amit Singh -- Head of Finance and Investor Relations

Thank you, everyone.

Martin Migoya -- Chief Executive Officer and Co-Founder

Bye-Bye. Cheers.

Patricia Pomies -- Chief Operating Officer

Thank you.

Duration: 28 minutes

Call participants:

Amit Singh -- Head of Finance and Investor Relations

Martin Migoya -- Chief Executive Officer and Co-Founder

Diego Tartara -- Chief Technology Officer

Patricia Pomies -- Chief Operating Officer

Juan Urthiague -- Chief Financial Officer

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

Bryan Bergin -- Cowen & Co. -- Analyst

Maggie Nolan -- William Blair & Company LLC -- Analyst

Ashwin Shirvaikar -- Citigroup -- Analyst

Surinder Thind -- Jefferies LLC -- Analyst

Steve Enders -- KeyBanc Capital Markets -- Analyst

Arturo Langa -- Itau BBA -- Analyst

Vitor Tomita -- Goldman Sachs -- Analyst

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