Good day, and welcome to the Globant Third Quarter 2019 Earnings Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Paula Conde, Investor Relations Officer for LATAM and Europe. Please go ahead.
Thank you, operator, and thanks, everyone, for joining us today on our call to review our 2019 Q3 financial results. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website, investors. Globant.com. Our speakers today are Martin Migoya, Chief Executive Officer and Juan Urthiague, Chief Financial Officer.
Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globant to our peers in the industry.
You will find a reconciliation of IFRS and non IFRS measures at the end of the press release we published on our Investor Relations website announcing this quarter results. I would like now to turn the call over to Martin Migoya, our CEO.
Thank you, Paula. Hi, everyone, and thanks for joining us today. I'm excited to share with you updates on our business and financial performance for the 3 months ended September 30, 2019. At the end of the call, Juan will share with you our outlook for Q4 and full year 2019. Q3 2019 was another record quarter for Globant, closing at $171,300,000 in revenues, a robust 27.3 percent year over year growth.
This solid growth was mainly driven by strong performance of our top accounts, growing at 27.2% over the Q3 of 2019, also due to the outstanding growth outside our top 10 accounts increasing more than 44% year over year. As in previous periods, we continue to expand our relationship with our key customers. We now have 104 accounts over $1,000,000 in annual revenues compared to 91 year ago. Additionally, during the last 12 months, we had 13 accounts over $10,000,000 in annual revenues compared to 9 accounts for the same period last year. Later during the call, Juan will share more details on our financial performance.
We continue to see strong demand coming from organizations looking to transform their companies. Consumer expectations are going faster than technology, leading to continuous expansion of the market opportunity. In their digital transformation technology and industry outlook presentation, IDC analyst, Shuang Fitzgerald and Craig Simpson, point out they expected to see at least R6.1 trillion in direct investment in digital transformation worldwide from 2019 up to 2022. This opportunity is touching every industry ranging from financial services and manufacturing to retail, transportation and more. In one of our recent reports called Cutting Through Chaos, we analyzed the views of business leaders and their strategies.
The report can be accessed at www.globant.com/cuttingchaos. We found that while 87% of organizations are currently pursuing a digital transformation initiative, only 1 third believe they are innovative and their digital maturity is cutting edge. The study also discovered that most companies still need to consider internal transformation as part of their overall strategy. All these conclusions shows the huge opportunity in front of us. As a pure play in digital and cognitive transformation, we're ready to help companies reinvent themselves for the future challenges.
At Globant, we are reinventing our company with a new approach. The goal is to continue to focus on producing real business impact for our clients. We do that based on 3 pillars. 1, we deliver engineering, innovation and design at scale. We create software books that emotionally connect our customers with millions of consumers and employees.
We do that through our studios, deep pockets of expertise on the latest technologies and trends. Our studio model fosters creativity and innovation, while allowing us to build disruptive solutions. We are also expanding our consulting capabilities through our business hacking studio. The goal is to help our customers rethink their business to increase their revenue growth. 2nd, we have an autonomous culture.
It is based on a lean structure focused on agile pods. Driven by self regulated teamwork, each pod works directly with our customers, avoiding unnecessary bureaucracy. Opposed to the traditional IT service structures, Globant modular model eliminates the need for command and control methods. It also provides teams with full independence in customer interaction. We're able to replicate our unique culture around the world by leveraging technology.
The Start Me Up OS let us disseminate our values while allowing us to gain insights on our Globers. And 3, we are disrupting our industry with artificial intelligence. By bringing artificial intelligence into everything, we are creating an augmented Globant. We're increasing Globant's capabilities and reinventing the technology industry. Some examples of how we are doing this include augmented coding, we're enhancing the coding experience to augment engineers' capacity.
With augmented coding, our collaborators can find code within the project repository. It accelerates ramp up times and improves quality on delivery. Augmented culture, as I mentioned earlier, start me up OS is a system that help us understand the human tissue within an organization. We can discover cultural leaders, influencers, trend generators and even disengaged teams. It help us detect and retain talent, promote integration and foster the company's growth.
We're using artificial intelligence to uncover cultural insights. For more information about the AugmentED GLOBAN initiatives, I invite you to visit augmented. Globant.com. We shared these views during our latest converged edition in Mexico, Madrid and New York. During this event, we welcome over 1,000 attendees eager to learn more about future trends.
Speakers from organizations like Mastercard, Morgan Stanley, Open Bank, Repsol, Globalia, Cavify, The Hershey Company and AB InBev shared their thoughts on how industries are evolving. Very good insights and interesting points of view. For those that couldn't attend, I'd like to invite you to check our blog, stayrelevant. Globant.com, where we will be posting the different talks. In regards to our business, we continue to witness strong demand coming from a wide variety of industries and geographies.
Let me share some examples about our current work. We're working with Prisma, leading Argentine payment company to redefine its virtual wallet, Tolopago. We're creating the overall business strategy focus on merchants and end users. We're also working with Quby on their spring 2020 launch. Quby is an exciting new platform to fit quick bites of entertainment into any moment of end users' day.
The best of the creative community will be designing content intended specifically for the phone. We're providing co development for Lucky Jackpot Casino, a social casino company with leading mobile apps for video poker and keno. We have started working with Nissan's global customer experience and design teams. We're helping them to create new online experiences that support their ambition and delivering to millions of customers around the world. We're working for Globo, one of the fastest growing tech companies in Spain.
Globo helping to accelerate their digital roadmap supporting their business expansion. We're collaborating with Santander Argentina to redefine the way of working of their technology teams. We're also redefining how we can deliver value in collaboration with our business stakeholders. We work for IDB optimizing internal processes with RPA, maximizing security and efficiency during critical user termination process. Lastly, for Banquitao, we started the transformation program to build a new comprehensive home banking platform for corporate customers.
We're incorporating new technologies in order to speed up on boarding and interaction processes. During the past quarter, we continue with our global growth by increasing our talented teams throughout the world. We are increasing our operations in Europe, Asia and the Americas. On top of that, we are developing more professionals as a way to expand the industry and the opportunities it can provide for global talent. A few months ago, we launched 500 scholarships to train people in technology.
Out of the 500 scholarship, 80% have been granted to women, promoting inclusion and diversity in this industry. Today, we already have 200 people actively doing the training. We expect the rest of the courses to start between Q4 2019 and Q1 2020. This is a key initiative that will help drive more talent and diversity to a fast growing market. Lastly, 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 will turn the call over to Juan Urthiague, our CFO, for a further detailed financial review on the Q3 2019 and also to provide guidance on Q4 and full year 2019. Juan, please? Thank you very much.
Thanks, Martin, and good afternoon, everyone. Let me start by summarizing the results of our Q3 9 months ended September 30, 2019. I will then discuss our guidance for the Q4 and full year 2019. I am very pleased to announce another quarter of record revenues and strong financial performance. Our revenues for Q3 amounted to $171,300,000 above the midpoint of our guidance and representing a solid 27.3 percent year over year growth.
Revenue growth was robust despite 70 basis points of year over year FX headwind in the quarter. During Q3 2019, Disney was once again our largest customer, showing a strong acceleration of growth on a sequential basis and growing 27.2% year over year coming from a very tough comp. We are excited with the fact that high potential accounts are scaling up and becoming large and meaningful within our customer portfolio. In addition to strong growth at Disney, our 2nd and beyond clients together also displaying robust growth of 27.3% year over year, with clients 11 and beyond growing at 44.2% year over year. Our 50 Squared strategy to have a diversified base of multimillion dollar accounts is progressing in line with our expectations.
Moreover, during the quarter, we continued to successfully cross sell services with our recently acquired companies. During the last 12 months, we had 13 accounts above $10,000,000 in annual revenues compared to 9 accounts for the same period last year, and we had 104 accounts with more than $1,000,000 of annual revenues compared to $90,000,000 1 year ago. We continue to expand our relationship with our key accounts aligned with our 50 Squared strategy. Looking at diversification of our revenues by industry verticals, it is evident that Globant's value proposition and service offerings are attractive to enterprises across all industries. Our top 3 industry verticals for this quarter were media and entertainment with 23.4 percent of revenues banks, financial services and insurance with 21.3 percent of revenues and technology and telecommunications with 14% of revenues.
Consumer, Retail and Manufacturing, Professional Services and Technology and Telecommunications were our fastest growing industry verticals in Q3, growing at 54%, 51.9% and 51% year over year, respectively. Our customer concentration for Q3 2019 displays ongoing improvement with our top 1, top 5 and top 10 accounts representing 11.9%, 26.1% and 38.6% of revenues compared to 11.9%, 33.4% and 45.8% of revenues, respectively, for the Q3 of 2018. In terms of geographic regions, during the Q3 of 2019, 77.1% of revenues were in North America, the U. S. As our top country 17% in Latin America and others, Argentina being the top country and 5.9% were in Europe, Spain as our top country.
During this quarter, we saw strong growth and investment in digital transformation in Latin America. During the Q3 of 2019, 86.3 percent of our revenues were denominated in U. S. Dollars, providing good protection to our top line against currency fluctuations. Turning now to profitability.
Our adjusted gross profit for the period increased to $69,600,000 representing 40.6 percent adjusted gross margin compared to $55,500,000 representing 41.2 percent adjusted gross margin in the Q3 of 2018. The margin decrease year over year was primarily driven by FX headwinds. Last year, we benefited from the large depreciation of the Argentinian peso, so we had a tough comparison given the outstanding Q3 2018 margins. Sequentially, our adjusted gross margin experienced an improvement of 40 basis points versus Q2 2019. We finished the quarter with 11,293 Globers, 10,462 of which were IT professionals.
This represents a solid 1247 increase quarter over quarter in the number of IT professionals. This quarter also marks a huge milestone for the company, exceeding 10,000 Globers worldwide. The strong net hires in the quarter is driven by our robust pipeline across industries and geographies. Attrition for the past 12 months was industry leading at 14.1% compared to 19.2% in Q3 2018, showing a significant improvement in most talent development centers, particularly in Argentina. Going forward, we now view 14% to 16% attrition rate as a normalized level for Globant.
Adjusted SG and A decreased 30 basis points compared to Q3 2018, accounting for 19.4% 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. During 2019, we have been able to successfully dilute SG and A despite the new tax on export of services in Argentina, including within this expense line. As a result, our adjusted operating income for the quarter amounted to $30,900,000 or 18.1 percent of revenues compared to $23,200,000 or 17.3 percent of revenues for the Q3 of 2018. This year over year decrease in gross margin was more than offset with SG and A and D and A dilution, leading to a robust 80 basis points improvement in our adjusted operating margins year over year.
We are very proud of this margin level for a company of our size. Share based compensation expense for the Q3 of 2019 amounted to $4,800,000 representing 2.8 percent 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 directors of the company as part of our long term retention plan. Financial income and expense net amounted to a loss of $3,500,000 This net result is composed of FX gains and losses resulting from monetary assets and liabilities in local currencies, costs related to our hedging strategies, interest expenses from our credit lines and leases and finally, interest income from our portfolio of investments. Our GAAP effective tax rate for the quarter was 21.7%, fairly consistent with previous quarters.
Adjusted net income for the Q3 of the year totaled $23,500,000 representing 13.7 percent adjusted net income margin compared to $16,800,000 representing 12.5 percent adjusted net income margin for the Q3 of 2018. Adjusted diluted EPS for the quarter was very solid at $0.62 based on 37,800,000 average diluted shares for the quarter, above the upper end of our guidance range and compared to $0.46 for the Q3 of 2018 based on 36,800,000 average diluted shares for the quarter. Growing at 35.7% year over year, EPS continued growing faster than revenues for this quarter. This is an outstanding result in terms of EPS growth. Moving on to balance sheet.
Our cash and investments as of September 30, 2019, was $59,500,000 compared to $86,200,000 as of December 31, 2018. Cash generation in the 3rd quarter was very robust but reflects more than $57,000,000 payment for M and A. Now let's talk about the 9 months ended September 30, 2019. Revenue for the 9 months ended September 30, 2019, was $475,000,000 implying a 24.3% year over year growth. This increase was mainly boosted by our 50 Square 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 9 month period was $193,000,000 40.6 percent adjusted gross margin compared to $153,600,000 40.2 percent adjusted gross margin for the same period last year, an increase of 40 basis points. On a year to date basis, we continue to see the positive tailwinds of the FX market corrections in Latin American currencies. Adjusted SG and A is also showing a healthy dilution of 50 basis points currently accounting for 19.8 percent of our revenues for the 9 months ended September 30, 2019. Adjusted profit from operations for the 9 months period ended September 30, 2019, was $81,600,000 or 17.2 percent adjusted profit from operations margin compared to $61,000,000 or 15.9 percent adjusted profit from operational margin for the same period last year, representing a solid improvement of 120 basis points. Adjusted net income for the 9 month period ended September 30, 2019, was $61,900,000 or 13% adjusted net income margin compared to $45,200,000 11.8 percent adjusted net income margin for the same period last year, representing an improvement of 120 basis points.
Adjusted diluted EPS for the 9 month period ended September 30, 2019, was $1.65 based on 37,600,000 average diluted shares for the quarter compared to $1.24 for the same period last year based on 36,600,000 average diluted shares for the same period last year. To wrap up, let me provide you with our guidance for Q4 2019 and the full year. Based on current visibility, we expect Q4 2019 revenues to be between $182,000,000 $184,000,000 implying a robust 30.6% year over year growth at the midpoint of the range. Adjusted diluted EPS is expected to be between
0 point
58 $2 assuming 38,000,000 average diluted shares outstanding for the quarter. Regarding the full year 2019, we expect revenues to be between $657,000,000 to $659,000,000 an implied 26% year over year growth at the midpoint of the range. In terms of adjusted diluted EPS, we are now expecting a range of $2.23 to $2.27
assuming 37,700,000
average diluted shares outstanding for the full year. Thanks, everyone, for participating in the call, and for your coverage and support. Operator, can you please queue questions? Thank you.
We will now begin the question and answer Our first question today will come from Tien tsin Huang with JPMorgan. Please go ahead.
Hey, thanks.
Good afternoon.
Hey, good afternoon. Thanks for the update. I want to ask, I guess, on the I appreciated the update on the strategy. Just the 13 accounts above 10,000,000 dollars is in a good place. I'm curious of those 13 now that you've had that has been rising.
Do you feel like you have a good group there that can eventually qualify for the for your 50 Squared strategy? Just curious how the pipeline of that next wave of large accounts are coming along.
Yes. Hello, Tim Jean. This is Juan. How are you doing? So yes, I mean, we are very comfortable with the way our largest customers are performing in general.
We are seeing more and more accounts within our top 20, top 30 accounts growing above $5,000,000 above $10,000,000 And that is probably one of the main positive results of the 50 Squared strategy that we launched a few years ago. When we look at these accounts that are now more than $10,000,000 and we are not reporting more than $20,000,000 or more than $30,000,000 but those are also segments that keep growing, and we feel very comfortable about that. When we look at Disney, a very strong performance. I mean, that's it seems that the account will continue performing like that for the rest of the year and the year after. But also when we look at customers, for example, 11 to 20 or 6 to 10, you are also seeing very strong growth.
I do know that there was a little bit of a slowdown in the 2% to 5%. That's because of 2 specific accounts, one that we mentioned in the last call, another one, it's a big project coming from Europe that got delayed. But except from that, we see very strong growth in all other groups, top 1, 6 to 10, 11 to 20, 11 to the end. So we are optimistic about the demand. We continue to see a strong market.
So we are very optimistic about next year as well.
Okay. Yes. No, that's why I asked with and thank you for that for the couple of accounts you said that in 2% to 5%, you had some issues. That's why I was asking if 6% to 10%, if there's potential for that to replace those 2 and to keep the growth trajectory going. That's why I asked the question.
Yes. And also, we continue to think that those the airline that we spoke in the last quarter, at some point, is going to come back. I mean, we feel comfortable. The relationship is very strong there. And the other one is a bank in Europe.
And there was this there is an international project that and we did a big project in Europe that needs to go international, and that got a little delayed. But it's going to come. So we are thinking about a better Q4 for Europe and I would 2020 for Europe as well. So it's just specific things. All the rest of the accounts, top 1, 6 to 10, 11 to 20, there is a lot of potential there.
Terrific. Great. Thank you.
Our next question will come from Ashwin Shirvaikar with Citi. Please go ahead.
Thank you. Hi Martin. Hi Juan. How are you?
Hey, how are you doing?
Hey, good, good. Thanks. I guess the question I have is if you can maybe provide an update on any competition. Are you seeing any differences from before either in your new client pursuits or maybe in your act of getting deeper into existing clients? And it kind of goes back to the purpose, I think, of the earlier question because this is the 2nd quarter in a row that revenues ended up being in the guided range instead of your historical track record of beating.
And it's also been a while since you did not raise the upper part of the guidance range. The first time in 3 years or something, you did not raise. So I'm kind of curious what's going on in your revenue outlook?
Yes. So in terms of the first question, in terms of competition, competition remains similar to what it used to be, being maybe Accenture, Codeworks, sometimes EPAM. Those are like the main accounts that we usually compete. Most of the times with Accenture. The deals are getting bigger.
But again, we are not seeing any differences in terms of the market. I mean the demand remains strong. The accounts that we are working with are embarking on large transformational deals. So we are seeing good opportunities. In terms of our guidance, again, we always like to guide where we know that we will end.
I do appreciate that in some quarters in the past, we were able to exceed the guidance we provided. But again, we are again in the guidance, and we are raising $1,000,000 for the year. So in general, when we look at the way we guide, what we like to do is basically guide wherever we know that we can be. If we can achieve better like we did, for example, with APS. But the commitment or what we try to always do is target what we guide.
Appreciate that. And then follow-up question is on headcount, up 44%. That's a good number there. How much of that is organic versus adding Bellatrix? And what is Bellatrix's contribution in 4Q?
When we added Bellatrix was about 600 people. So we added another 600 and something organic. So again, it was, as you said, a very large increase in the number of engineers, and half of it comes from organic and the other half comes from the acquisition of Velatrix. The good thing there or the good news there is that as the teams from Velatrix were in Latin America, in Argentina, Colombia and Peru, we have already merged the teams even including mixing people in some offices. And we are already using their engineers in our customers, some of our engineers in some form of Elastic's customers.
So that is a very easy integration in a way for us.
Got it. Good to know. That seems like a good cultural fit. Thank you.
Thank you, Ashwin.
Our next question will come from Maggie Nolan with William Blair. Please go ahead.
Hi. Just wanted to follow-up on that commentary about Europe and the customer there. Is this really a one off instance in Europe that's kind of account specific? Or is there anything that we should be deriving from this instance that maybe other accounts may see similar weakness or that Europe in general could potentially be weaker?
Hello, Mario. Thanks for the question. So in terms of this specific customer, I mean, at the end of the day, this is a very large project. The part that we were going to take of the international version got delayed because there was another vendor that got delayed before. So our part on that project will start at a later stage because of that.
It's a one off customer. In fact, we believe that Europe for Q4 is going to be better than Q3. We are not, at this point, experiencing anything across multiple customers, just a specific customer. We do have some new logos in Europe with high potential. So we are not concerned about Europe.
It's just a one customer thing, and it's a specific project thing that is not really related to us. It just got delayed because of another vendor, but hopefully, it's going to come back by the end of the year or starting next year.
Okay, understood. And then as we start to think about 2020, obviously, you pointed out there was a little bit of a tough compare on the margins in this quarter, given currency movements. So how should we think about that margin at both the gross margin level going into 2020? And then as well as at the operating level, including any leverage that you're able to drive?
Yes. So as always, in terms of revenues, we are very optimistic. We feel that the demand is there. The customers that we are the right customers. The new logos that we are signing have a lot of potential.
So we are we continue to think that organic 20% plus a little bit more coming from acquisition is the long term target that we should have. We are right now working at the budget, so I cannot guide or give any more color in terms of revenues, but we are optimistic. We are seeing good numbers coming from our regions across the globe. So we are happy with what we are seeing so far. In terms of margins, when you look at today's margins, adjusted operating income on a year to date basis, we are running at around 17%, coming from about 15.9% last year, year to date.
So we think that we have for the company that we are the sites that we have today, stable margins is what we should be targeting going forward. We have made significant improvements in terms of our margins, both for the operating and net income margins over the last 4, 5 years. But and we believe that we have achieved very solid margins. Our gross margin is running at around 40%. SG and A has been diluted significantly since we did the IPO.
And the operating income that we have today at around 17%. We think it's a very good number and we should target to have stable margins going forward.
That's very helpful. Thank you.
You're welcome.
Our next question will come from Arvind Ramnani with KeyBanc. Please go
ahead. Hi, thanks for the question. This is Michael Widovich speaking in for Arvind. So could you just comment on Latin America and trends you're seeing across there and then the U. S?
Thank you.
Can you repeat comment on Latin America?
Yes, please.
Yes. So you mean in terms of revenues?
Yes. Just in terms of execution and like trends you're seeing across there?
Yes. So Latin America has been growing a lot for us in the last few quarters. Part of it is organic. Some of the deals that Martin mentioned in the call like the Prisma deal, some deals with some banks here in the region, a big a very big deal with an airline here in the region. So it's strong.
There is a lot of investment going on, and you can see that in the revenue number. Also, there has been some benefits from the deals that we did in the past. Avanxo has a big presence in Brazil, and we are seeing good progress in our Brazilian operation, which is something very important to us. And in terms of execution, Latin America continues to be our largest region in terms of talent and growing a lot. In terms of talent, this quarter, we added another 600 plus engineers organically plus the inorganic part.
Attrition came down to below to around 14%. So what we are seeing is that our ability to attract talent, not only Latin America but also in the rest of the world, remains very solid. And that is very important because as you guys know, this is a very highly competitive sector, and our ability to attract and retain talent has been improving significantly. We've put us in a very good position for 2020 and onwards. So execution on that front in the case of Latin America is very, very solid.
Great. And then can you just talk about the overall feedback from your converged series? And how is that how do you make how do you feel about the DARE environment over the next year given that?
Yes. We think that the event was very successful. There were like 1,000 people attending the conference and very appealing speakers. Companies top world class companies attended the event. They talked about some of the process they are doing, some of the process they are doing with We were able to discuss augmented key event concepts, how we think that the industry is going to evolve, how we will evolve our company using more AI in the way we work, in the way our developers work.
So we got very, very good feedback. And of course, I mean, typically in these events, you also get some leads. And that was a very successful event in our view.
Our next question will come from Bryan Bergin with Cowen. Please go ahead.
Hi. Thank you. I wanted to ask on the top client, just some of the areas that were driving the strength that you saw there. They've obviously been in the news also their new platform. Can you talk about potential opportunities that you think you might have there also in the future?
Yes. Hello, Brian. Yes, Disney, as we mentioned in the last call and I think also in the previous call, was going to come back and grow fast. We saw that in these numbers. One of the areas where we're growing the most is the DTAC, which is the area that, among other things, has Disney plus We work all around we are not I mean, we don't do the as you know, we don't do the platform itself, but we work all around the platform, helping Disney to get content and to organize content around the platform, which has this need to work on getting statistics and using the information that they can get out of the platform, for example, to sell merchandise and things like that.
So we are very connected to the platform, and we think that this means, as we mentioned in the last few calls, has a lot of potential, and we continue to see that potential for the rest of the year and for 2020. So even though Disney is going to perform really, really well, again, as we mentioned in the last few calls, this is not a one business or a one company thing. When you look today at our revenue concentration, even though the top one is 11.9%, a very important thing is that top 5 is now 26% and top 10% is 38%. So that means that our level of dependence on 1 or 2 or 5 specific customers is decreasing, which is a very good thing going forward. There are a lot I mean, we work for the main companies in every industry.
As you can see, we are we continue to be very diversified in terms of industries, and that will be very positive for the future of the company.
Okay. And I just wanted to follow-up here. The delivery location investments that you've been making, can you just talk about how your efforts in scaling the Central and Eastern Europe locations are progressing?
Yes. So in the case of Central and Eastern Europe, we have operations in Romania and in Belarus. As of now. The operation in Belarus is going very strongly, very nicely. We have some anchor customers in the gaming industry, and we are very optimistic about that.
In the case of Romania, that operation is also growing nicely. Again, we are still early stages integrating that operation into the rest of Globant, but we find extremely good talent in both regions, and we find complementary skill sets to the rest of the organization. So the fact that now we have a big operation in Latin America, a growing and a very big operation in India. And this emerging operation in Eastern Europe, I think, is very positive in terms of our ability to hire and attract talent going forward. So we believe we're in the right places in different stages of maturity.
And of course, Eastern Europe is a newer location for us, but both locations are performing in line with our expectations.
Our next question will come from Joseph Foresi with Cantor Fitzgerald. Please go ahead.
Hi. First question just on Disney. I think you said that it's grown I think 25 percent plus, and we thought that, that was going to continue. What exactly are you doing for Disney? And do you expect that to be sort of consistent through 2020?
Yes. So in the case of in Disney, as you said, we work for multiple stakeholders, right? We work for the Parks and Resource division. We work for the cruise lines. We work for the TV channels that they own, the Disney plus sits.
So we are kind of working in Disney plus sits. So we are kind of working in multiple areas. All of them are growing at different levels, but all of them are growing. The one that is growing the fastest at this point is DTIC, which is the one that has the Disney plus platform included there. We are, again, doing a lot of work to get to help Disney increase or improve the usability and the level of content that they add into the platform.
That is one of the areas of more growth. And then on the parts division, we are helping Disney on some of the parts that are outside of Florida to bring some functionalities like the one that we've been working with them in Florida.
Got it. So but it isn't one project just around the Magic Band in one particular geography. It's a bunch
of
different work that's going to carry the growth rate.
That is correct. Multiple geographies, multiple stakeholders, even multiple companies within DISAN Group, right? DISAN Group is a as you know, it's a huge company and we are working for very different stakeholders. Also for Fox, we do work for Fox, so multiple stakeholders there.
Got it. Okay. And my follow-up, just on the organic growth side. What's the organic growth in 4Q? And can you remind us of your thoughts around sort of long margins?
I know you've taken on some new acquisitions. I'm just wondering if those are accretive or dilutive and if you expect to offset it? Thank you.
Yes. Thank you, Joel. So yes, I mean, again, for Q4, we are targeting around again, depending on how you measure some of the engineers that are working for our customers, so on and so forth. But we are targeting around 20% to 21% organic and the rest, about 8% to 9% inorganic contribution. That's for Q4.
Going forward, we continue to think that the 20 organic plus some contribution for acquisitions that is what we expect for the midterm. And then in terms of margins, the companies that we bought, as usually, these are smaller companies. On the gross margin, they are at similar levels where we are. In terms of SG and A, usually, they come with a little bit heavier SG and A. But once you merge the 2 companies, eventually, you start to see some efficiencies over there.
And hence, that's why we think that margins going forward should be kind of more stable for the next year or so. Thank you. You're welcome.
Our next question will come from Diego Aragao with Goldman Sachs. Please go
ahead. Yes. Thank you for taking my question. Hi, Martin. Hi, Juan.
I guess the first question is regarding the length of the contracts. I mean, you are clearly expanding on your strategy to grow within existing customers. So I was wondering if you can just comment on the length of the contract and new agreements you are signing up at this point with these clients.
Diego, so yes, what you are seeing and this has been a trend in the last 2 years is an extension in the length of the average contract. The reason for that is that what used to be digital projects now became digital programs or company wide transformational programs. And we are doing a number of those in different industries. So the average length is right now at around 16 months. That's, of course, the legal per contract, let's say, average, right?
Because what happens a lot is that projects get renewed and renewed again and again every year. So when you look at our top 10 accounts, for example, we've been working with them for more than 8 years on average. So and in some cases, we've been working on the same project or similar project, for example, for 1 gaming company for more than 8 or 9 years already. So what you see is that projects, specifically those that are consumer facing projects, actually never end. They keep evolving and evolving and adding new features, new functionalities.
They keep growing and growing as long as they are successful. So just to answer your question short, it's growing. It's now at 16% on average 16 months on average, but we continue to see that expanding over time as the digital programs become a larger part of the revenues that we have.
That's super helpful. And I guess my second question is just a follow-up regarding Latin America. I do understand that you have a very little exposure actually like to Chile and Bolivia. And I know those countries are facing very, let's say, a lot of uncertainty on the political side. So I was wondering if you can just comment whether you have like some revenues exposure to those countries and the number of employees you have and whether we should be worried about something for the Q4?
Yes. Thank you for the question. So in the case of Bolivia, we don't have any operations or any customers there. So and then in the case of Chile, which is the other country that right now is going through some political issues, we do have some revenues. Actually, we are growing quite a lot there.
We are working for some of the largest companies in Chile. At this point, we are not seeing any impact of the political issues that they have. These companies continue to invest. We are working on long term projects there. So we haven't seen any impact.
In terms of our employees, they continue to go to the office, they continue to work, they continue to work at the customer premises, and we haven't had any issues over there. And we expect, we hope that the situation gets resolved as soon as possible for everybody.
Very clear. And maybe just a quick follow-up. I mean, if you would look in constant currency, how much are you growing in Latin America?
Yes. So the revenue, the impact of FX was about 80 basis points on the revenue. So instead of growing 27.3% as a company at constant FX, we would have grown about 28.1%. Again, we have very little exposure, especially in Latin America. We try to reduce and to invoice our customers in dollars.
We try to avoid using local currencies. We only we typically have like contracts in dollars and then when we pay our salaries, most of the countries where we're operating, we pay salaries in local currencies. So in a way, the way it works is that on the revenue, you have little impact on the cost side. And that's why sometimes we talk about FX impact on our costs. That's why you may have some benefits or headwinds depending on how currencies evolve over time.
That's clear. Thank you.
You're welcome.
Our next question will come from Arturo Langa with Itau BBA. Please go ahead.
Hi, good afternoon, everyone. Thank you for taking my question. Just 2 very quick, but the first one is, so organically, just to confirm, but I estimate that revenue growth was close to 24%, which is mostly in line, but a bit above the 23% of the previous quarter. I just wanted to verify that. And then second, regarding Argentina, could you remind us what the plans for the government are regarding the export taxes?
I understand that we should be working as if they were to stay, but I believe that they will be renegotiated or potentially up for discussion either 2021 or 2022? If you could just remind me the date, that would be very helpful. And also what your expectations are there? Thank you.
Yes. So hello, Arturo. Thank you for the question. So for the first question, again, both the Avanxo deal and the Velasquez deal, the integrations are going very fast. They are selling in our customers.
We are selling their customers. The teams are getting mixed. So sometimes it's not so easy to do to put an exact number. But we are we estimate that for Q3, 20.5% to 21.5% of revenues are organic, purely organic. And then you have another 6% to 7% coming from customers that came with the acquisitions.
That's for the first question. For the second question, the export tax stays until the end of December 2020. It is Ps. 4 per dollar of exports. And then by the end of 2020, the government should decide what they are going to do with that
tax. And for that in that regard, you're working your base scenarios that it will stay? Or do you think there's a high likelihood that it could be removed?
Look, I have to work with whatever is stated in the regulation, which is that it's going to disappear. Of course, internally, we work with different scenarios. But this is we need to think that what's going to happen is that it's going to disappear.
Okay. And on that point, is there any other piece of regulation that you're looking out in Argentina or anything that we should keep our eyes on, considering the incoming government will likely face or has a majority in Congress?
Again, it's we don't want to speculate on things that could be I mean, there are multiple scenarios that are possible. What we can tell you is that Globant started in 2003. We grew the company with different governments. We took it public under the previous administration. We continue to grow with this administration.
So Global is a global company. Only 3% to 4% of revenues are coming from Argentina. Only about 30% of headcount is in Argentina. The other 70% is outside of Argentina. So we will continue growing in Argentina as we will continue growing outside of Argentina as well.
We are a global company, and we need to deal with multiple current countries. We're operating in 16 different countries as we speak, and our target markets are still primarily the U. S. And Europe.
Okay. But nothing specific to the sector though? Nothing specific to the technology sector?
If you want, there was some good news. I mean, like in the case of Argentina, the new government sorry, the previous government I mean, the Macquarie's administration passed the new regulation for the knowledge law, which extends the benefits that we have under the software promotion law for another 10 years. The new elected President who visited our offices in Mexico, by the way, a few weeks ago, was very optimistic about the industry. I mean, our industry generates a lot of employment in the country and in every other country where we are operating. It generates dollars because it's primarily an exports industry.
So I think every government in every country will want these type of industries to grow. And the elected President, Mr. Fernandez, was very positive in his visit to our offices.
This concludes our question and answer session. I would now like to turn the conference back over to management for any closing remarks.
Okay. So thank you guys for joining the call. Thank you for your continued support, and see you soon. Bye bye.
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