Globant S.A. — FY2019 Form 20-F Summary
Business context and reporting period
Globant S.A. is a Luxembourg-based digital and cognitive technology services company listed on the NYSE under “GLOB.” The filing covers the fiscal year ended December 31, 2019, with consolidated financial statements prepared under IFRS and presented in U.S. dollars. Globant operated across 16 countries with 11,855 employees, 56 locations and 822 clients. North America generated 75.3% of revenue, Latin America and other markets 16.9%, Europe 7.1% and Asia 0.7%.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $659.3 million | $522.3 million | +26.2% |
| Gross profit | $254.2 million | $203.8 million | +24.7% |
| Gross margin | 38.5% | 39.0% | -50 bps |
| Operating profit | $80.7 million | $66.8 million | +20.9% |
| Operating margin | 12.2% | 12.8% | -60 bps |
| Net income | $54.0 million | $51.6 million | +4.7% |
| Net margin | 8.2% | 9.9% | -170 bps |
| Diluted EPS | $1.43 | $1.41 | +1.4% |
| Adjusted operating profit | $112.0 million | $84.3 million | +32.8% |
| Adjusted operating margin | 17.0% | 16.1% | +90 bps |
| Adjusted net income | $86.1 million | $63.7 million | +35.1% |
| Adjusted diluted EPS | $2.29 | $1.74 | +31.6% |
Adjusted measures exclude selected acquisition-related charges, share-based compensation, impairments and other unusual items and are not standardized under IFRS. Total share-based compensation expense was $19.9 million in 2019 versus $12.9 million in 2018.
Cash flow, liquidity, debt and balance sheet
- Operating cash flow was $79.7 million, compared with $67.2 million in 2018.
- Investing cash outflow was $151.6 million, primarily reflecting $106.3 million of acquisition-related transactions and $31.9 million of property, equipment and intangible-asset investment.
- Financing cash inflow was $56.7 million, including net borrowing proceeds, share issuance proceeds and lease-related payments.
- Cash and cash equivalents declined to $62.7 million from $77.6 million. Cash plus investments totaled approximately $82.5 million.
- Borrowings totaled $51.4 million at year-end, including $50.4 million outstanding under the U.S. syndicated credit facility. Lease liabilities were $61.4 million after adoption of IFRS 16.
- Total assets increased to $687.8 million from $437.1 million, while total liabilities increased to $249.1 million from $99.2 million. Goodwill rose to $188.5 million from $104.8 million, mainly due to acquisitions.
- Management stated that cash, operating cash flow and available credit were expected to cover anticipated needs for at least the next 12 months.
Material changes versus the prior comparable period
- Revenue growth remained strong, but reported profitability grew more slowly because of higher personnel, travel, sales and administrative costs, foreign-exchange effects and acquisition-related expenses.
- IT-professional headcount increased 40.9% to 11,021, while total employees increased to 11,855 from 8,384. Attrition declined to 14.6% from 18.2%.
- Top-ten-client concentration decreased to 39.5% of revenue from 44.0%; the largest client, Walt Disney Parks and Resorts Online, represented 11.2% versus 11.3%.
- Fixed-price revenue increased to 16.1% of revenue from 17.4% in 2018, while time-and-materials revenue represented 82.5% versus 82.6%.
- Globant acquired Avanxo for approximately $44.5 million, Belatrix for approximately $64.5 million and BI Live for approximately $3.4 million. These acquisitions added approximately $83.7 million of goodwill.
- Globant adopted IFRS 16, recognizing $58.8 million of right-of-use assets and $61.4 million of lease liabilities at December 31, 2019. The adoption reduced opening retained earnings by $2.0 million.
- Foreign-exchange losses increased to $8.8 million on a net basis within finance expense, compared with $7.4 million in 2018. Argentina’s peso depreciated approximately 59% during 2019, while local inflation was approximately 59.8%.
Outlook, commentary, risks and unusual items
The filing does not provide clear numerical revenue or earnings guidance. Management’s stated strategy is to expand with existing and new clients, remain focused on emerging technologies, recruit and retain talent, expand delivery capacity and pursue selective acquisitions.
- Key operating risks include maintaining utilization and productivity, managing rapid headcount growth, retaining skilled technology professionals, wage inflation and pricing pressure under fixed-rate or fixed-price contracts.
- Revenue is concentrated by customer, industry and geography: the top client contributed 11.2% and the top ten clients 39.5%; approximately 97.1% of revenue came from six principal industry groups.
- Argentina presents significant inflation, currency, tax, political and foreign-exchange-control risks. Restrictions may limit the repatriation of dividends, export-service proceeds and other funds.
- The Argentine Software Promotion Law expired at December 31, 2019. Globant’s subsidiaries submitted provisional applications under the Knowledge Economy Law, but final registration and implementing regulations remained pending or suspended as of the filing date.
- Unusual or non-recurring items included a $1.6 million gain on Argentine sovereign bond transactions, $0.7 million of intangible-asset impairment, $19.9 million of share-based compensation and $10.7 million of net acquisition-related charges used in adjusted operating profit.
- The filing identifies a potential tax exposure of approximately $1.8 million related to uncertain tax treatments, although no formal claim had been asserted as of year-end.
- Pending matters included a proposed $1.4 million IRS payroll-tax assessment plus penalties and interest, a proposed $2.1 million Colombian social-contribution assessment plus penalties and interest, and litigation by Certified Collectibles Group relating to a service contract. Management considered the broader claims and proceedings unlikely to be material, but outcomes were unresolved.
- Subsequent to year-end, Globant amended its credit agreement to provide a $100 million delayed-draw term facility and a $250 million revolving facility, with potential revolver increases of up to $100 million and maturity in February 2025. Pricing was LIBOR plus 1.50% to 1.75%, subject to leverage.
- The filing discusses the emerging coronavirus outbreak in early 2020 as a potential material risk, but it does not quantify an expected financial impact.
Most important facts for investors to verify
- Whether revenue growth and adjusted margin expansion can continue after incorporating Avanxo, Belatrix and BI Live.
- The sustainability of reported margins given wage inflation, currency volatility, Argentina-related restrictions and the expiration or modification of tax incentives.
- Cash conversion and working-capital requirements, particularly the increase in trade receivables to $156.7 million.
- Debt covenants, interest-rate exposure and available capacity under the amended credit facilities, including LIBOR transition provisions.
- Goodwill and acquisition-related contingent consideration, including the $188.5 million goodwill balance and $9.3 million of contingent consideration liabilities.
- The final outcome of the IRS, Colombian UGPP and Certified Collectibles Group matters.
- The treatment and timing of Argentine Knowledge Economy Law benefits and any related change in the effective tax rate.
- The effect of IFRS 16 on operating expense presentation, leverage and cash-flow comparability with 2018.
- Management’s formal outlook for 2020 and the measurable effect of the coronavirus-related disruption, which are not clearly quantified in the filing.