Globant S.A. — FY2022 Form 20-F Summary
Business context and reporting period
Globant S.A. is a Luxembourg-incorporated global technology services provider listed on the NYSE under “GLOB.” The filing is an annual report for the year ended December 31, 2022, prepared under IFRS in U.S. dollars; it is not a standalone Q4 filing. Globant operated in more than 25 countries and had 27,122 employees, including 25,331 IT professionals, at year-end.
The company operates as a single reportable segment, providing software development, testing, infrastructure management, application maintenance, consulting and platform-related services. North America generated 63.8% of revenue, Latin America 22.9%, EMEA 10.5% and Asia & Oceania 2.8%.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $1,780.2 million | $1,297.1 million | +37.3% |
| Gross profit | $669.4 million | $495.0 million | +35.2% |
| Gross margin | 37.6% | 38.2% | Down 60 bps |
| Operating profit | $206.7 million | $144.4 million | +43.1% |
| Operating margin | 11.6% | 11.1% | Up approximately 50 bps |
| Net income | $149.5 million | $96.4 million | +55.1% |
| Net margin | 8.4% | 7.4% | Improved |
| Net income attributable to owners | $148.9 million | $96.1 million | +55.0% |
| Diluted EPS | $3.47 | $2.28 | +52.2% |
| Adjusted net income | $217.7 million | $158.4 million | +37.4% |
| Adjusted operating margin | 16.3% | 16.5% | Down 20 bps |
Revenue mix remained concentrated in time-and-materials contracts, which represented 82.7% of revenue, while fixed-price contracts represented 15.4%. Existing clients from 2021 generated 90.5% of 2022 revenue. The Walt Disney Company contributed 10.7% of revenue, and the ten largest clients contributed 35.6%, down from 39.1% in 2021.
Operating costs increased with headcount growth, wage inflation and acquisitions. Cost of revenue rose 38.5% to $1,110.8 million, while SG&A increased 33.0% to $456.3 million. Share-based compensation expense totaled $57.1 million, compared with $42.4 million in 2021. Finance expense increased to $16.6 million from $12.7 million. The effective tax rate was 22.5%, compared with 22.8%.
Cash flow, liquidity, debt and capital allocation
- Operating cash flow was $197.5 million, up from $179.0 million.
- Cash used in investing activities was $269.3 million, including $126.4 million of net cash paid for acquisitions and approximately $95.4 million for fixed and intangible assets.
- Cash used in financing activities was $65.7 million, compared with $244.0 million of financing inflows in 2021.
- Cash and cash equivalents were $292.5 million at December 31, 2022, compared with $427.8 million a year earlier. Cash, cash equivalents and current investments totaled approximately $340.9 million.
- Borrowings totaled $3.7 million, down from $12.2 million; lease liabilities totaled $135.1 million.
- Contractual obligations totaled $394.6 million, including $169.5 million of lease liabilities and $130.7 million of other financial liabilities.
- Management stated that available funds were sufficient for working capital and planned capital expenditures for at least the following twelve months.
Globant’s amended credit facility provides for a $100 million term loan commitment and a $250 million revolving commitment, maturing February 5, 2025. The facility transitioned from LIBOR to Term SOFR plus 0.10% and includes customary covenants, guarantees and security interests.
Material changes versus the prior comparable period
- Revenue growth accelerated the scale of the business, with employees increasing to 27,122 from 23,526 and IT professionals increasing to 25,331 from 22,167.
- Gross margin declined modestly because cost of revenue grew faster than revenue, while operating and net margins improved due to operating leverage and higher revenue growth.
- Client concentration decreased, with the ten largest clients declining from 39.1% to 35.6% of revenue and the top twenty declining from 52.0% to 45.6%.
- Globant completed eight acquisitions, including Genexus, Sysdata, KTBO, eWave, Vertic, Adbid and a 51% interest in LaLiga Tech. Aggregate consideration was approximately $271.8 million, including $188.3 million of goodwill and $82.3 million of acquired intangible assets. Certain purchase price allocations remained preliminary.
- Goodwill increased to $739.2 million from $567.5 million. No goodwill impairment was recorded.
- Attrition improved to 16.7% from 18.7%, but remained above the 13.0% reported for 2020.
- Foreign currency translation reduced other comprehensive income by $21.8 million, reflecting currency depreciation in operating markets.
Outlook, commentary, risks and unusual items
Management emphasized continued demand for digital transformation, cloud, data and AI, low-code and no-code platforms, cybersecurity, digital commerce and related services. The strategy is to expand existing client relationships, add new clients, develop products and platforms through Globant X, recruit and retain talent, and pursue selective acquisitions. The filing does not provide a quantitative 2023 revenue or earnings outlook.
- Principal operating risks include wage inflation, rising attrition, utilization and productivity declines, fixed-price contract execution, pricing pressure and intense competition.
- Demand is exposed to global economic and political conditions, particularly in North America, Latin America and Europe, as well as client spending in media and entertainment, financial services and other concentrated industries.
- Argentina experienced 94.8% inflation in 2022; currency volatility, exchange controls and tax or labor-law changes may affect costs, margins, cash repatriation and effective tax rates.
- The March 2022 cybersecurity incident involved unauthorized access and exfiltration of certain client source code, project documentation and data files. The forensic investigation was completed in August 2022; management reported no material operational impact but stated that potential economic impact could not be fully determined.
- Acquisition accounting and contingent consideration involve significant estimates. Contingent consideration had a $59.7 million fair value at year-end, with nominal future payments of $74.0 million and no stated maximum under certain arrangements.
- Recorded contingent liabilities were $13.6 million, primarily related to regulatory claims in Brazil. The company also disclosed unresolved IRS employment-tax matters with a preliminary assessment of approximately $1.3 million, of which $0.96 million in principal had been paid.
- The company does not expect to pay dividends in the foreseeable future and intends to retain funds for operations, acquisitions and expansion.
- Management and the independent auditor concluded that internal control over financial reporting was effective as of December 31, 2022. Acquired entities representing 4.6% of consolidated assets and 2.0% of revenue were excluded from the 2022 internal-control assessment.
Investor verification checklist
- Reconcile IFRS net income of $149.5 million with net income attributable to owners of $148.9 million and assess the company’s use of adjusted net income of $217.7 million.
- Review the effect of wage inflation, utilization, attrition and foreign exchange movements on the 2022 gross margin and future operating margins.
- Examine acquisition purchase price allocations, goodwill of $739.2 million, acquired intangible assets and the $59.7 million contingent-consideration liability.
- Assess free cash flow after acquisitions and capital expenditures, given $197.5 million of operating cash flow versus $269.3 million of investing cash outflows.
- Review the cybersecurity incident, potential claims, notification obligations and any subsequent financial or contractual consequences.
- Confirm compliance with the credit facility’s covenants and the maturity and liquidity profile of leases, acquisition-related liabilities and other contractual obligations.
- Monitor client concentration, renewal trends and the sustainability of demand from media, entertainment and financial-services clients.
- Review tax incentives in Argentina, India and Uruguay and potential effects from global minimum-tax rules, local tax reforms and foreign-exchange restrictions.