Globant S.A. 2020 Form 20-F Summary
Business context and reporting period
Globant S.A. is a Luxembourg-incorporated technology services company listed on the NYSE under “GLOB.” The filing is an annual report for the fiscal year ended December 31, 2020, prepared under IFRS in U.S. dollars. It is not a standalone fourth-quarter filing; the filing text does not provide a clear Q4-only revenue or earnings figure.
Globant provides software development, testing, infrastructure management, application maintenance, consulting and related digital transformation services. At year-end, it had 16,251 employees, 56 offices in 16 countries and 798 clients. North America generated 70.5% of revenue, Latin America and other markets 20.9%, Europe 7.6% and Asia 1.0%.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $814.1 million | $659.3 million | +23.5% |
| Gross profit | $304.3 million | $254.2 million | +19.7% |
| Gross margin | 37.4% | 38.5% | Down 110 bps |
| Profit from operations | $83.9 million | $80.7 million | +4.0% |
| Operating margin | 10.3% | 12.2% | Down 190 bps |
| Net income | $54.2 million | $54.0 million | +0.4% |
| Net margin | 6.7% | 8.2% | Down approximately 155 bps |
| Diluted EPS | $1.37 | $1.43 | Down 4.2% |
| Adjusted profit from operations | $124.0 million | $112.0 million | +10.7% |
| Adjusted operating margin | 15.2% | 17.0% | Down 180 bps |
| Adjusted net income | $97.3 million | $86.1 million | +13.0% |
| Adjusted diluted EPS | $2.45 | $2.29 | +7.0% |
Adjusted measures exclude items including share-based compensation, acquisition-related charges, impairment, COVID-19-related charges and other specified items. They are non-IFRS measures and may not be comparable with similarly named measures used by other companies.
Cash flow, liquidity, debt and balance sheet
- Net cash provided by operating activities was $99.9 million, compared with $79.7 million in 2019.
- Net cash used in investing activities was $124.0 million, including $52.5 million of fixed and intangible asset investment and $75.1 million of acquisition-related transactions.
- Net cash provided by financing activities was $241.5 million, primarily reflecting $300.9 million of gross proceeds from the June 2020 common-share offering, partly offset by debt and lease repayments.
- Cash and cash equivalents were $278.9 million at December 31, 2020, compared with $62.7 million at December 31, 2019. Cash and current investments totaled approximately $298.2 million.
- Working capital was $330.0 million, compared with $130.3 million in 2019.
- Total liabilities were $408.8 million and total equity was $879.9 million. Borrowings totaled $26.0 million, including $25.0 million outstanding under the U.S. credit facility.
- The credit facility matures February 5, 2025, bears interest at LIBOR plus 1.50% or 1.75%, and is subject to financial and operating covenants. The facility is guaranteed by Globant S.A. and Globant España S.A. and secured by substantially all assets of Globant, LLC.
- Contractual obligations totaled $252.2 million, including $102.6 million of lease liabilities and $80.5 million of other financial liabilities, substantially related to business combinations.
- Management stated that existing cash, cash equivalents and operating cash flow should be sufficient for anticipated needs for at least the next 12 months.
Material changes versus the prior comparable period
- Revenue growth was driven by increased demand in banking, financial services and insurance; media and entertainment; consumer, retail and manufacturing; professional services; and healthcare. Travel and hospitality revenue declined from $92.8 million to $67.6 million because of COVID-19.
- Time-and-material revenue increased to 85.9% of total revenue from 82.5%; fixed-price revenue declined to 13.1% from 16.1%.
- Top-ten-client concentration increased to 42.2% of revenue from 39.5%; the largest client, Walt Disney Parks and Resorts Online, represented 11.0% versus 11.2%.
- Cost of revenues increased 25.8%, faster than revenue, and SG&A increased 25.9%. The filing attributes margin pressure to foreign-exchange effects, wage inflation, higher headcount and increased operating investment.
- Headcount increased from 11,855 to 16,251, while total attrition declined to 13.0% from 14.6%.
- Income tax expense increased to $22.3 million from $15.0 million, and the effective tax rate rose to 29.2% from 21.8%, principally due to the effect of Latin American currency weakness.
- Globant completed four 2020 acquisitions: Grupo ASSA, Xappia, Giant Monkey Robot and BlueCap. Goodwill increased to $392.8 million from $188.5 million. The purchase-price accounting for the 2020 acquisitions was preliminary in several cases.
- Share-based compensation expense increased to $24.6 million from $19.9 million. Shares issued in the June 2020 public offering generated approximately $300.9 million of proceeds.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide a clear quantitative revenue, margin or earnings guidance outlook for 2021. Management expects continued demand for digital transformation, artificial intelligence, cloud, data and other emerging technologies, and plans to grow through existing and new clients, innovation, talent development and selective acquisitions.
- COVID-19 created uncertainty regarding customer demand, pricing, payment terms, collection risk, employee productivity, work-from-home costs and cybersecurity. The company recorded $3.1 million of additional expected-credit-loss expense and $2.6 million of COVID-19-related operating charges, while receiving $0.5 million of rent concessions.
- The company recorded a $9.6 million gain on Argentine sovereign bond transactions, compared with $1.6 million in 2019. This was an unusual contributor to other financial results.
- Foreign-exchange exposure is significant because most revenue is denominated in U.S. dollars while many costs are incurred in local currencies. The Argentine peso depreciated approximately 40.6% in 2020, while Argentine inflation was reported at 36.1%.
- The company is exposed to wage inflation, utilization and attrition risk, pricing and fixed-price contract execution risk, client concentration, intense competition, cybersecurity incidents, intellectual-property claims, regulatory and tax changes, and integration risks from acquisitions.
- Argentina presents heightened risks from inflation, currency devaluation, exchange controls, restrictions on repatriating funds, tax changes and economic uncertainty. The Knowledge-based Economy regime provides tax benefits but requires registration and continuing compliance.
- The IRS proposed approximately $1.4 million of payroll-tax assessments plus penalties and interest for certain subsidiaries; the matter remained unresolved at December 31, 2020.
- A lawsuit by Certified Collectibles Group relating to a service contract remained pending, with motions to dismiss unresolved. The filing states that other possible-loss proceedings were not expected by management to have a material effect.
- Internal control over financial reporting was assessed as effective by management and the independent auditor, although the 2020 acquisitions were excluded from the control assessment and audit. The excluded acquisitions represented approximately 3.5% of consolidated assets and 4.3% of consolidated revenue.
- The company does not expect to pay dividends in the foreseeable future and expects to retain funds for operations, acquisitions and expansion.
Most important facts for investors to verify
- Whether revenue growth and adjusted profitability remain strong after normalizing for acquisitions, share-based compensation, acquisition charges, COVID-19 items and the $9.6 million bond-trading gain.
- Whether gross, operating and net margins recover from their 2020 declines as wage inflation, foreign-exchange movements and utilization evolve.
- The final purchase-price allocations, goodwill and intangible-asset valuations for Grupo ASSA, Xappia, Giant Monkey Robot and BlueCap.
- The collectability of trade receivables, particularly from travel and hospitality customers, and any further changes in payment terms or expected credit losses.
- Compliance with credit-facility covenants, LIBOR replacement provisions and the maturity profile of acquisition-related contingent consideration and lease liabilities.
- The status and potential financial exposure of the IRS assessment, CCG litigation, Grupo ASSA-related Brazilian proceedings and other tax, labor and regulatory matters.
- The continuing availability and economic value of Argentine, Uruguayan, Indian and Belarusian tax incentives.
- The impact of Argentine exchange controls and currency volatility on cash transfers, dividends from subsidiaries, costs and reported margins.
- Customer concentration and renewal trends, including the top client’s 11.0% revenue contribution and the top ten clients’ 42.2% contribution.