Globant S.A. annual report, Q4 FY2021

Globant S.A. Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 20-F prepared under IFRS in U.S. dollars; it does not provide a clearly separate fourth-quarter financial statement. Globant is a Luxembourg-based digital transformation and technology services provider listed on the NYSE under “GLOB.”

Business context

Globant provides software development, consulting, design, engineering, cloud, data and artificial-intelligence services through a global Studio model. It operated in 18 countries with 23,526 employees at year-end, including 22,167 IT professionals. North American clients generated 64.1% of revenue, Latin America and other markets 22.6%, Europe 11.7% and Asia 1.6%.

Key financial metrics

Metric	2021	2020	Change
Revenue	$1,297.1 million	$814.1 million	+59.3%
Gross profit	$495.0 million	$304.3 million	+62.7%
Gross margin	38.2%	37.4%	+0.8 percentage points
Profit from operations	$144.4 million	$83.9 million	+72.0%
Operating margin	11.1%	10.3%	+0.8 percentage points
Net income attributable to owners	$96.1 million	$54.2 million	+77.2%
Diluted EPS	$2.28	$1.37	+66.4%
Operating cash flow	$179.0 million	$99.9 million	+79.2%

Adjusted gross profit was $512.7 million, or a 39.5% margin, compared with a 39.1% margin in 2020. Adjusted operating profit was $214.3 million, or a 16.5% margin, compared with $124.0 million and 15.2% in 2020. Adjusted net income was $158.4 million, or a 12.2% margin, compared with $90.6 million and 11.1% in 2020. These are non-IFRS measures and should not be viewed as substitutes for IFRS results.

Liquidity, capital resources and debt

Cash and cash equivalents were $427.8 million at December 31, 2021, compared with $278.9 million at year-end 2020.
Current investments were $32.6 million; cash and current investments totaled approximately $460.4 million.
Total borrowings were $12.2 million, down from $26.0 million in 2020. No amounts were outstanding under the principal U.S. revolving and delayed-draw credit facilities at year-end.
The credit agreement provides for up to $100 million of delayed-draw term loans and $250 million of revolving capacity, with potential additional revolving capacity of up to $100 million. Maturity is February 2025.
Total lease liabilities were $134.5 million, including $25.9 million current and $108.6 million non-current.
Net cash used in investing activities was $272.9 million, including $173.8 million for acquisitions and $76.4 million for fixed and intangible assets. Total capital expenditures were $89.6 million.
Net cash provided by financing activities was $244.0 million, principally reflecting $286.2 million of net proceeds from the May 2021 equity offering, partially offset by debt repayments, share repurchases and lease payments.
Management stated that available funds and operating cash flow were sufficient for anticipated working capital and capital expenditure needs for at least the next twelve months.

Material changes versus 2020

Revenue growth was broad-based, with particularly strong increases in consumer, retail and manufacturing; professional services; healthcare; technology and telecommunications; and Europe. Travel and hospitality benefited from recovery after the 2020 COVID-19 disruption.
Time-and-materials revenue increased to $1,062.2 million, or 81.9% of revenue, while fixed-price revenue increased to $218.8 million, or 16.9%, from 13.1% in 2020.
Customer concentration declined: the top ten clients represented 39.1% of revenue versus 42.2% in 2020; the largest customer, Walt Disney Parks and Resorts Online, represented 10.9% versus 11.0%.
IT-professional headcount increased 45.0% to 22,167, while total employees increased from 16,251 to 23,526. Attrition increased to 18.7% from 13.0%.
Cost of revenues rose 57.3% but declined to 61.8% of revenue from 62.6%. SG&A increased 57.9% but declined modestly to 26.4% of revenue from 26.7%.
Share-based compensation increased to $42.4 million from $24.6 million, and depreciation and amortization increased materially due in part to acquired intangible assets.
Net impairment losses on financial assets increased to $7.6 million from $3.1 million, primarily reflecting higher expected credit-loss provisions.
Finance expense increased to $12.7 million from $10.4 million. Other financial results changed from a $3.6 million gain to a $3.9 million loss, including lower gains from Argentine bond transactions and losses on financial assets measured at fair value through profit or loss.
Globant completed five acquisitions in 2021: Cloudshift, Habitant, Walmeric, Atix Labs and Navint Group. Acquired businesses contributed $29.7 million of 2021 revenue and $4.7 million of net income; the accounting for Navint remained incomplete at issuance of the financial statements.

Guidance, outlook, risks and unusual items

The filing does not provide a specific quantitative 2022 revenue, margin or earnings guidance. Management expects to continue growing existing and new client relationships, expanding Studios and platforms, recruiting talent and pursuing selective acquisitions.
Management identified digital transformation demand, emerging technologies, product and platform development, geographic expansion and strategic acquisitions as principal growth drivers.
Key operating risks include elevated employee attrition, competition for skilled technology professionals, wage inflation, utilization and productivity, fixed-price contract estimation, pricing pressure and the ability to scale infrastructure.
Revenue and profitability are seasonal, generally stronger in the third and fourth quarters and weaker in the first quarter because of holidays and reduced working days in Southern Hemisphere delivery locations.
COVID-19 remained a risk to client demand, collections, delivery capacity, pricing, margins and cybersecurity, although management concluded that liquidity and the going-concern position remained strong.
Argentina-related risks include inflation, currency devaluation, foreign-exchange controls, restrictions on dividend transfers and dependence on the Knowledge Economy promotional regime. The Argentine peso depreciated approximately 22.1% against the U.S. dollar in 2021.
Foreign-exchange exposure is significant because most revenue is denominated in U.S. dollars while many personnel and operating costs are incurred in local currencies. The company uses forward and futures contracts to mitigate portions of this exposure.
Goodwill increased to $573.0 million from $392.8 million, primarily due to acquisitions. No goodwill impairment was recognized, but valuation depends on projected revenue growth, margins, terminal growth and discount rates.
Legal contingencies included a $7.25 million settlement of the Certified Collectibles Group dispute, partly reimbursed by insurance, and a preliminary $1.3 million IRS payroll-tax assessment awaiting final confirmation. Management stated that other possible-loss proceedings were not expected to be material.
The company became carbon neutral in 2021 and signed the Science-Based Targets commitment, but ESG compliance, reporting costs and stakeholder expectations remain identified risks.

Investor verification points

Verify the absence of separately reported fourth-quarter 2021 results; this filing principally reports full-year data.
Reconcile IFRS net income of $96.1 million with adjusted net income of $158.4 million, including share-based compensation, acquisition-related charges and other adjustments.
Assess whether revenue growth and margin performance can continue despite 18.7% attrition, wage inflation and rapid headcount expansion.
Review the valuation and integration risks associated with the five 2021 acquisitions, particularly the incomplete Navint purchase-price allocation and the $573.0 million goodwill balance.
Monitor client concentration, especially Walt Disney Parks and Resorts Online at 10.9% of revenue and the top ten clients at 39.1%.
Evaluate cash conversion and working-capital requirements, including the $104.1 million increase in trade receivables and the $272.9 million use of cash for investing activities.
Review the $63.9 million of acquisition-related contingent consideration and the $15.4 million put obligation for Walmeric’s minority interest.
Assess the effects of Argentine inflation, exchange controls, currency movements and the continuation of tax incentives on margins and cash repatriation.