UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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| (Mark One) |
| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2022
| | | | | |
| OR |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR |
| ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
| | Date of event requiring this shell company report |
| | For the transition period from to . |
Commission file number: 001-36535
GLOBANT S.A.
(Exact name of Registrant as specified in its charter)
Not applicable
(Translation of Registrant's name into English)
Grand Duchy of Luxembourg
(Jurisdiction of incorporation or organization)
37A Avenue J.F. Kennedy
L-1855, Luxembourg
Tel: + 352 20 30 15 96
(Address of principal executive offices)
Patricio Pablo Rojo
General Counsel
37A Avenue J.F. Kennedy
L-1855, Luxembourg
pablo.rojo@globant.com
+ 352 20 30 15 96
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common shares, nominal value $ 1.20 per share | GLOB | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 42,269,659 common shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Emerging growth company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒
Other ☐
If "Other" has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
TABLE OF CONTENTS
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts contained in this annual report, including, without limitation, those regarding our future financial position and results of operations, strategy, plans, objectives, goals and targets, future developments in the markets in which we operate or are seeking to operate or anticipated regulatory changes in the markets in which we operate or intend to operate. In some cases, you can identify forward-looking statements by terminology such as "aim", "anticipate", "believe", "continue", "could", "estimate", "expect", "forecast", "guidance", "intend", "may", "plan", "potential", "predict", "projected", "should" or "will" or the negative of such terms or other comparable terminology.
You should carefully consider all the information in this annual report, including the information set forth under "Risk Factors." We believe our primary challenges are:
•If we are unable to maintain the current resource utilization rates and productivity levels, our revenues, profit margins and results of operations may be adversely affected.
•If we are unable to manage attrition and attract and retain highly-skilled IT professionals, our operating efficiency and productivity may decrease, and we may not have the necessary resources to maintain client relationships and expand our business.
•If we are unable to achieve anticipated growth, our revenues, results of operations, business and prospects may be adversely affected.
•If we are unable to effectively manage the rapid growth of our business, our management personnel, systems and resources could face significant strains, which could adversely affect our results of operations.
•If the pricing structures we use for our client contracts are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, our contracts could be unprofitable, which could adversely affect our results of operations, financial condition and cash flows from operations.
•If we were to lose the services of our senior management team or other key employees, our business operations, competitive position, client relationships, revenues and results of operations may be adversely affected.
•If we do not continue to innovate and remain at the forefront of emerging technologies and related market trends, we may lose clients and not remain competitive, which could cause our revenues and results of operations to suffer.
•If any of our largest clients terminates, decreases the scope of, or fails to renew its business relationship or short-term contract with us, our revenues, business and results of operations may be adversely affected.
•Our results of operations could be adversely affected by economic and political conditions globally and, in particular, in the markets in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and are based on numerous assumptions. Our actual results of operations, financial condition and the development of events may differ materially from (and be more negative than) those made in, or suggested by, the forward-looking statements. Readers should read "Risk Factors" in this annual report and the description of our business under "Business Overview" in this annual report for a more complete discussion of the factors that could affect us.
Unless required by law, we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or developments or otherwise.
CURRENCY PRESENTATION AND DEFINITIONS
In this annual report, references to “Globant”, “we”, “our”, “us” or the “Company” means Globant S.A. and its consolidated subsidiaries, unless the context otherwise requires, or where we make clear that such term refers only to Globant S.A. and not to its subsidiaries.
In this annual report references to currencies are defined in the following table:
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| "U.S. dollars" and "$" | refer to the lawful currency of the United States |
| "Argentine pesos" | refers to the lawful currency of the Republic of Argentina |
| "Colombian pesos" | refers to the lawful currency of the Republic of Colombia |
| "Uruguayan pesos" | refers to the lawful currency of the Republic of Uruguay |
| "Mexican pesos" | refers to the lawful currency of Mexico |
| "Chilean pesos" | refers to the lawful currency of Chile |
| "Rupees" or "Indian rupees" | refer to the lawful currency of the Republic of India |
| "Reais" or "Brazilian Real" | refer to the lawful currency of Brazil |
| "Peruvian Sol" | refers to the lawful currency of Peru |
| "Romanian Leu" | refers to the lawful currency of Romania |
| "Belarusian ruble" | refers to the lawful currency of Belarus |
| "Euro" or "€" | refer to the single currency of the participating member states of the European and Monetary Union of the Treaty Establishing the European Community, as amended from time to time |
| "Pound", "British Sterling pound" or "£" | refer to the lawful currency of the United Kingdom |
| "Canadian dollars" | refers to the lawful currency of Canada |
| "Costa Rican Colon" | refers to the lawful currency of the Republic of Costa Rica |
| "Polish Zloty" | refers to the lawful currency of the Republic of Poland |
| "Australian dollars" | refers to the lawful currency of the Commonwealth of Australia |
| "Danish Krone" | refers to the lawful currency of Denmark |
Unless otherwise specified or the context requires otherwise in this annual report:
•"IT" refers to information technology;
•"ISO" means the International Organization for Standardization, which develops and publishes international standards in a variety of technologies and in the IT services sector;
•"Attrition rate," during a specific period, refers to the ratio of IT professionals that voluntarily left our company during the period to the number of IT professionals that were on our payroll on the last day of the period; and
•"Globers" refers to the employees that work for Globant.
"GLOBANT" and its logo are our trademarks. Solely for convenience, we refer to our trademarks in this annual report without the TM and ® symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to our trademarks. Other service marks, trademarks and trade names referred to in this annual report are the property of their respective owners.
PRESENTATION OF FINANCIAL INFORMATION
Our consolidated financial statements are prepared under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and presented in U.S. dollars. Our fiscal year ends on December 31 of each year. Accordingly, unless otherwise indicated, all references to a particular year are to the year ended December 31 of that year.
Some percentages and amounts included in this annual report have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be an exact arithmetic aggregation of the figures that precede them.
Unless otherwise indicated or the context requires otherwise, all financial information in this annual report is presented in U.S. dollars.
PRESENTATION OF INDUSTRY AND MARKET DATA
In this annual report, we rely on, and refer to, information regarding our business and the markets in which we operate and compete. The market data and certain economic and industry data and forecasts used in this annual report were obtained from International Data Corporation (“IDC”), Gartner, Inc. (“Gartner”), Forrester Research, Inc. and/or one of its affiliates
(collectively, “Forrester”), internal surveys, market research, governmental and other publicly available information, independent industry publications and reports prepared by industry consultants. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We believe that these industry publications, surveys and forecasts are reliable, but we have not independently verified them and cannot guarantee their accuracy or completeness.
Certain market share information and other statements presented herein regarding our position relative to our competitors are not based on published statistical data or information obtained from independent third parties, but reflect our best estimates. We have based these estimates upon information obtained from our clients, trade and business organizations and associations and other contacts in the industries in which we operate.
PART I.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary Risk Factors
The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully described in the Risk Factors below. This summary should be read in conjunction with the Risk Factors below and should not be relied upon as an exhaustive summary of the material risks facing our business. The following factors could result in harm to our business, reputation, revenue, financial results and prospects, among other impacts:
Risks Related to Our Business and Industry
•If we are unable to maintain the current resource utilization rates and productivity levels, our revenues, profit margins and results of operations may be adversely affected.
•If we are unable to manage attrition and attract and retain highly-skilled IT professionals, our operating efficiency and productivity may decrease, and we may not have the necessary resources to maintain client relationships and expand our business.
•If we are unable to achieve anticipated growth, our revenues, results of operations, business and prospects may be adversely affected.
•If we are unable to effectively manage the rapid growth of our business, our management personnel, systems and resources could face significant strains, which could adversely affect our results of operations.
•If the pricing structures we use for our client contracts are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, our contracts could be unprofitable, which could adversely affect our results of operations, financial condition and cash flows from operations.
•If we were to lose the services of our senior management team or other key employees, our business operations, competitive position, client relationships, revenues and results of operations may be adversely affected.
•If we do not continue to innovate and remain at the forefront of emerging technologies and related market trends, we may lose clients and not remain competitive, which could cause our revenues and results of operations to suffer.
•If any of our largest clients terminates, decreases the scope of, or fails to renew its business relationship or short-term contract with us, our revenues, business and results of operations may be adversely affected.
•We face intense competition from technology and IT services providers, and an increase in competition, our inability to compete successfully, pricing pressures or loss of market share could materially adversely affect our revenues, results of operations and financial condition.
•Our business depends on a strong brand and corporate reputation, and if we are not able to maintain and enhance our brand, our ability to expand our client base will be impaired and our business and operating results will be adversely affected.
•Our labor costs and the operating restrictions that apply to us could increase as a result of collective bargaining negotiations and changes in labor laws and regulations, and disputes resulting in work stoppages, strikes, or disruptions could adversely affect our business.
•Our aspirations and disclosures related to environmental, social and governance (“ESG”) matters expose us to risks that could adversely affect our reputation and performance.
Risks Related to our Global Operations
•Our results of operations could be adversely affected by economic and political conditions globally and, in particular, in the markets in which we operate.
•The governments of many countries in which we operate have exercised and may continue to exercise significant influence over those countries' economies, which could adversely affect our business, financial condition, results of operations and prospects.
•Inflation in the countries in which we operate could adversely affect our business and results of operations.
•Our business, results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates.
•Changes in the tax laws or in the interpretation or enforcement or the loss of any country-specific tax benefits could have a material adverse effect on our financial condition and results of operations.
•Our business, results of operations and financial condition may be adversely affected by the various conflicting and/or onerous legal and regulatory obligations required in the countries where we operate.
Risks Related to the Company and the Ownership of Our Common Shares
•The price of our common shares may be highly volatile.
•We may be classified by the Internal Revenue Service as a "passive foreign investment company" (a "PFIC"), which may result in adverse tax consequences for U.S. investors.
•Our business and results of operations may be adversely affected by the increased strain on our resources from complying with the reporting, disclosure, and other requirements applicable to public companies in the United States.
You should carefully consider the risks and uncertainties described below, together with the other information contained in this annual report, before making any investment decision. Any of the following risks and uncertainties could have a material adverse effect on our business, prospects, results of operations, margins and financial condition. The market price of our common shares could decline due to any of these risks and uncertainties, and you could lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.
Risks Related to Our Business and Industry
If we are unable to maintain the current resource utilization rates and productivity levels, our revenues, profit margins and results of operations may be adversely affected.
Our profitability and the cost of providing our services are affected by our utilization rate of the Globers in our Studios. If we are not able to maintain appropriate utilization rates for our professionals, our profit margin and our profitability may suffer. Our utilization rates are affected by a number of factors, including:
•our ability to transition Globers from completed projects to new assignments and to hire and integrate new employees;
•our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our talent delivery centers;
•our ability to manage the attrition of our IT professionals; and
•our need to devote time and resources to training, professional development and other activities that cannot be billed to our clients.
Our revenue could also suffer if we misjudge demand patterns and do not recruit sufficient employees to satisfy demand. Employee shortages could prevent us from completing our contractual commitments in a timely manner and cause us to pay penalties or lose contracts or clients. In addition, we could incur increased payroll costs, which would negatively affect our utilization rates and our business.
If we are unable to manage attrition and attract and retain highly-skilled IT professionals, our operating efficiency and productivity may decrease, and we may not have the necessary resources to maintain client relationships and expand our business.
Our business is labor intensive and, accordingly, our success depends upon our ability to attract, develop, motivate, retain and effectively utilize highly-skilled IT professionals. We believe that there is significant competition for technology professionals in Latin America, the United States, Europe, Asia and elsewhere who possess the technical skills and experience necessary to deliver our services, and that such competition is likely to continue for the foreseeable future. In addition, the accelerated adoption of remote and hybrid working models may increase outsourcing and the number of jobs that can be conducted virtually which, in turn, may further enhance competition for highly-qualified professionals. As a result, the technology industry generally experiences a significant rate of turnover of its workforce. Our business plan is based on hiring and training a significant number of additional technology professionals each year in order to meet anticipated turnover and increased staffing needs. Our ability to properly staff projects, to maintain and renew existing engagements and to win new business depends, in large part, on our ability to hire and retain qualified IT professionals.
The total attrition rate among our Globers was 16.7%, 18.7% and 13.0% for the years ended December 31, 2022, 2021 and 2020, respectively. If our attrition rate were to continue increasing, our operating efficiency and productivity may decrease. We compete for talented individuals, not only with other companies in our industry, but also with companies in other industries, such as software services, engineering services and financial services companies, among others, and there is a limited pool of individuals who have the skills and training needed to help us grow our company. High attrition rates of qualified personnel could have an adverse effect on our ability to expand our business, as well as cause us to incur greater personnel expenses and training costs.
We may not be able to recruit and train a sufficient number of qualified professionals or be successful in retaining current or future employees. Increased hiring by technology companies, particularly in Latin America, the United States, Asia and Europe, and increasing worldwide competition for skilled technology professionals may lead to a shortage in the availability of qualified personnel in the locations where we operate and hire. Failure to hire and train or retain qualified technology professionals in sufficient numbers could have a material adverse effect on our business, results of operations and financial condition.
If we are unable to achieve anticipated growth, our revenues, results of operations, business and prospects may be adversely affected.
We intend to continue our expansion in the foreseeable future and to pursue existing and potential market opportunities. As we add new Studios, introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and we may not be able to mitigate these risks and challenges to successfully grow those services or markets.
We have experienced rapid revenue growth in the past, including years of highly elevated growth rates, that may not be replicable in the future due to a number of factors, including global macroeconomic conditions. You should not consider our revenue growth in recent periods as indicative of our future performance. We may not be able to achieve revenue growth consistent with our recent history or at all, which could materially adversely affect our revenues, results of operations, business and prospects.
If we are unable to effectively manage the rapid growth of our business, our management personnel, systems and resources could face significant strains, which could adversely affect our results of operations.
We have experienced, and continue to experience, rapid growth in our headcount, operations and revenues, which has placed, and will continue to place, significant demands on our management and operational and financial infrastructure. Additionally, our decentralized staffing and the increasing number of employees that are deployed onsite at our clients or near client locations in Latin America, the United States, Europe and India have placed additional operational and structural demands on our resources.
Our future growth depends on recruiting, hiring and training technology professionals, growing our international operations, expanding our delivery capabilities, adding effective sales staff and management personnel, adding service offerings, maintaining existing clients and winning new business. Client demands, the availability of high-quality technical and operational personnel and their respective compensation rates, regulatory environments and other pertinent factors may vary significantly by region, and our experience in the markets in which we currently operate may not be applicable to other regions. As a result, we may not be able to leverage our experience to expand our delivery footprint effectively into other target markets. In addition, as we expand into new markets and expand our service offerings, we may face new risks and challenges with which we may not be familiar and which we may not be able to mitigate.
Effective management of these and other growth initiatives will require us to continue to improve our infrastructure, execution standards and ability to expand services. Failure to manage growth effectively could have a material adverse effect on the quality of the execution of our engagements, our ability to attract and retain professionals and our business, results of operations, prospects and financial condition.
If the pricing structures we use for our client contracts are based on inaccurate expectations and assumptions regarding the cost and complexity of performing our work, our contracts could be unprofitable, which could adversely affect our results of operations, financial condition and cash flows from operations.
We perform our services primarily under time-and-materials contracts. We charge clients for our services under these contracts at hourly rates, which are highly dependent on the complexity of the project, the mix of staffing we anticipate using on it, internal forecasts of our operating costs and predictions of increases in those costs influenced by wage inflation and other marketplace factors. Typically, we do not have the ability to increase our hourly rates to offset salary and other costs increases. Because we conduct a substantial part of our operations through our operating subsidiaries located in Argentina, Colombia, México and India, we are subject to the effects of wage inflation and other marketplace factors in these countries, which have increased significantly in recent years.
We also undertake engagements on a fixed-price basis, which require the estimation of the associated costs to complete the project. Revenues from our fixed-price contracts represented 15.4%, 16.9% and 13.1% of our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively.
Our pricing depends on our assumptions and forecasts about the costs we will incur to render our services or complete the related project, which are based on limited data which could turn out to be inaccurate. We also rely, to a limited extent, on suppliers of goods and services. We cannot assure that our suppliers' pricing terms will not increase and/or that we will be able to carry-forward such pricing increases to our clients.
Unexpected increases in salaries and other operating costs beyond our forecasts, which we are not able to carry-forward to our clients, or any failure by us to accurately estimate the costs of our hourly services, or to estimate the resources and time required to complete a fixed-price contract on time and on budget, or any failure to complete the project or meet our client's expectations, or any unforeseen changes in the project's scope, among others, could make our contracts unprofitable, thereby adversely affecting our results of operations, financial condition and cash flows from operations.
If we were to lose the services of our senior management team or other key employees, our business operations, competitive position, client relationships, revenues and results of operations may be adversely affected.
Our future success heavily depends upon the continued services of our senior management team and other key employees. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily, on a timely basis or at all. In addition, competition for senior executives and key employees in our industry is intense. Our compensation policies include equity-based incentive compensation plans that are designed to reward high-performing personnel for their contributions and provide incentives for them to remain with us. If the anticipated value of such incentives does not materialize because of volatility or lack of positive performance in our share price, or if our total compensation package is not viewed as being competitive, we may be unable to retain our senior executives and key employees or attract and retain new senior executives and key employees in the future, in which case our business may be severely disrupted, and our ability to attract and retain personnel could be adversely affected.
If any of our senior management team or key employees joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and key IT professionals and staff members to them. Also, if any of our sales executives or other sales personnel, who generally maintain a close relationship with our clients, joins a competitor or forms a competing company, we may lose clients to that company, and our revenues may be materially adversely affected. Additionally, there could be unauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. If any dispute arises between any members of our senior management team or key employees and us, any non-competition, non-solicitation and nondisclosure agreements we have with our founders, senior executives or key employees might not provide effective protection to us in light of legal uncertainties associated with the enforceability of such agreements.
If we do not continue to innovate and remain at the forefront of emerging technologies and related market trends, we may lose clients and not remain competitive, which could cause our revenues and results of operations to suffer.
Technological advances and innovation are constant in the technology services industry. As a result, we must continue to invest significant resources in research and development to stay abreast of technology developments so that we may continue to deliver software products that our clients will wish to purchase. If we are unable to anticipate technology developments, enhance our existing services or develop and introduce new services to keep pace with such changes and meet changing client needs, we may lose clients and our revenues and results of operations could suffer. Our results of operations would also suffer if our innovations are not responsive to the needs of our clients, are not appropriately timed with market opportunities or are not effectively brought to market. Our competitors may be able to offer engineering, design and innovation services that are, or that are perceived to be, substantially similar or better than those we offer. This may force us to compete on other fronts in addition to the quality of our services and to expend significant resources in order to remain competitive, which we may be unable to do. As we expand our software products, we may be exposed to new operational, legal, regulatory, ethical and technological risks that require us to take effective actions to protect our business.
If any of our largest clients terminates, decreases the scope of, or fails to renew its business relationship or short-term contract with us, our revenues, business and results of operations may be adversely affected.
We generate a significant portion of our revenues from our ten largest clients. During the years ended December 31, 2022, 2021 and 2020, our largest customer based on revenues, The Walt Disney Company, accounted for 10.7%, 10.9% and 11.0% of our revenues, respectively. During the years ended December 31, 2022, 2021 and 2020, our ten largest clients accounted for 35.6%, 39.1% and 42.2% of our revenues, respectively.
Our ability to maintain close relationships with these and other major clients is essential to the growth and profitability of our business. However, most of our client contracts are limited to short-term, discrete projects without any commitment to a specific volume of business or future work, and the volume of work performed for a specific client is likely to vary from year to year, especially since we are generally not our clients' exclusive technology services provider. A major client in one year may not provide the same level of revenues for us in any subsequent year. The technology services we provide to our clients, and the revenues and income from those services, may decline or vary as the type and quantity of technology services we provide changes over time. In addition, our reliance on any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service.
The loss or diminution in business from any of our major clients could have a material adverse effect on our revenues and results of operations.
We face intense competition from technology and IT services providers, and an increase in competition, our inability to compete successfully, pricing pressures or loss of market share could materially adversely affect our revenues, results of operations and financial condition.
The market for technology and IT services is intensely competitive, highly fragmented and subject to rapid change and evolving industry standards and we expect competition to intensify. We believe that the principal competitive factors that we face are the ability to innovate; technical expertise and industry knowledge; end-to-end solution offerings; reputation and track record for high-quality and on-time delivery of work; effective employee recruiting; training and retention; responsiveness to clients' business needs; scale; financial stability; and price.
We face competition primarily from large global consulting and outsourcing firms, digital agencies and design firms, traditional technology outsourcing providers, and the in-house product development departments of our clients and potential clients. Many of our competitors have substantially greater financial, technical and marketing resources and greater name recognition than we do. As a result, they may be able to compete more aggressively on pricing or devote greater resources to the development and promotion of technology and IT services. Companies based in some emerging markets also present significant price competition due to their competitive cost structures and tax advantages.
In addition, there are relatively few barriers to entry into our markets and we have faced, and expect to continue to face, competition from new technology services providers. Further, there is a risk that our clients may elect to increase their internal resources to satisfy their services needs as opposed to relying on a third-party vendor, such as our company. The technology services industry is also undergoing consolidation, which may result in increased competition in our target markets in the United States and Europe from larger firms that may have substantially greater financial, marketing or technical resources, may be able to respond more quickly to new technologies or processes and changes in client demands, and may be able to devote greater resources to the development, promotion and sale of their services than we can. Increased competition could also result in price reductions, reduced operating margins and loss of our market share. We cannot assure you that we will
be able to compete successfully with existing or new competitors or that competitive pressures will not materially adversely affect our business, results of operations and financial condition.
Our business depends on a strong brand and corporate reputation, and if we are not able to maintain and enhance our brand, our ability to expand our client base will be impaired and our business and operating results will be adversely affected.
Since many of our specific client engagements involve highly tailored solutions, our corporate reputation is a significant factor in our clients' and prospective clients' determination of whether to engage us. We believe the Globant brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented IT professionals. However, our corporate reputation is susceptible to damage by actions or statements made by current or former employees or clients, competitors, vendors, adversaries in legal proceedings and government regulators, as well as members of the investment community and the media. There is a risk that negative information about our company, even if based on false rumor or misunderstanding, could adversely affect our business. In particular, damage to our reputation could be difficult and time-consuming to repair, make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business, and adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of our Globant brand name and could reduce investor confidence in us and result in a decline in the price of our common shares.
Our labor costs and the operating restrictions that apply to us could increase as a result of collective bargaining negotiations and changes in labor laws and regulations, and disputes resulting in work stoppages, strikes, or disruptions could adversely affect our business.
As of December 31, 2022, approximately 8.5% of our Globers are covered by Collective Bargaining Agreements ("CBAs"), including all Globers from our Brazilian, French and Spanish subsidiaries, as well as some Globers from our Argentinean subsidiaries. For complete details of the covered employees see "Directors, Senior Management and Employees — Employees". There can be no assurance that our non-unionized employees will not become members of a union or become covered by a collective bargaining agreement, including through an acquisition of a business whose employees are subject to such an agreement.
We cannot assure you that we or our operating subsidiaries will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and revenues. In addition, we cannot assure you that we will be able to negotiate new CBAs on the same terms as those currently in effect, or that we will not be subject to strikes or work stoppages before or during the negotiation process. If we are unable to negotiate salary agreements or if we are subject to strikes or work stoppages, our results of operations, financial condition and the market value of our shares could be materially adversely affected.
Our aspirations and disclosures related to environmental, social and governance (“ESG”) matters expose us to risks that could adversely affect our reputation and performance.
We have established and publicly announced ESG goals, including our commitments to address climate change, digital inclusion, and diversity, equity and inclusion. These statements reflect our current plans and aspirations and are not guarantees that we will be able to achieve them. Our failure to adequately update, accomplish or accurately track and report on these goals on a timely basis, or at all, could adversely affect our reputation, financial performance and growth, and expose us to increased scrutiny from the investment community, special interest groups and enforcement authorities.
Our ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control. Examples of such risks include the availability and cost of low- or non-carbon-based energy sources, the evolving regulatory requirements affecting product circularity, ESG standards or disclosures, the evolving consumer protection laws applicable to ESG matters and the availability of materials and suppliers that can meet our sustainability, diversity and other ESG goals.
Standards for tracking and reporting ESG matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. Methodologies for reporting ESG data may be updated and previously reported ESG data may be adjusted to reflect improvement in availability and quality of third-party data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances. Our processes and controls for reporting ESG matters across our operations and supply chain are evolving along with multiple disparate standards for identifying, measuring, and reporting ESG metrics, including ESG-related disclosures that may be required by the SEC, European and other regulators, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. If our ESG practices do not meet evolving investor or other
stakeholder expectations and standards, then our reputation or our attractiveness as an investment, business partner, acquirer, service provider or employer could be negatively impacted.
Our revenues are dependent on a limited number of industries, and any decrease in demand for technology services in these industries could reduce our revenues and adversely affect our results of operations.
During the years ended December 31, 2022, 2021 and 2020, an aggregate of 41.3%, 44.8% and 46.8% of our total revenues were generated from clients in the media, entertainment and financial industries. Our business growth largely depends on continued demand for our services from clients in these industries and other industries that we may target in the future, as well as on trends in these industries to purchase technology services or to move such services in-house.
A downturn in any of these or our targeted industries, or a slowdown or reversal of the trend to spend on technology services in any of these industries could result in a decrease in the demand for our services and materially adversely affect our revenues, financial condition and results of operations. For example, a worsening of economic conditions in the media and entertainment industry and significant consolidation in such industry may reduce the demand for our services and negatively affect our revenues and profitability.
Other developments in the industries in which we operate may also lead to a decline in the demand for our services, and we may not be able to successfully anticipate and prepare for any such changes. For example, consolidation in any of these industries or acquisitions, particularly involving our clients, may adversely affect our business. Our clients may experience rapid changes in their prospects, substantial price competition and pressure on their profitability. This, in turn, may result in increasing pressure on us from clients in these key industries to lower our prices, which could adversely affect our revenues, results of operations and financial condition.
We operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects, may increase the risk that we will not continue to be successful and, accordingly, increases the risk of your investment.
The technology services industry is continuously evolving. Competition, fueled by rapidly changing consumer demands and constant technological developments, renders the technology services industry one in which success and performance metrics are difficult to predict and measure. Because services and technologies are rapidly evolving and each company within the industry can vary greatly in terms of the services it provides, its business model, and its results of operations, it can be difficult to predict how many company's services, including ours, will be received in the market. While enterprises have been willing to devote significant resources to incorporate emerging technologies and related market trends into their business models, enterprises may not continue to spend any significant portion of their budgets on our services in the future. The increasing reliance on automation, artificial intelligence, machine learning and other new technologies by our clients may reduce the demand for our services and adversely impact our results of operations. Neither our past financial performance nor the past financial performance of any other company in the technology services industry is indicative of how our company will fare financially in the future. Our future profits may vary substantially from those of other companies, and those we have achieved in the past, making investment in our company risky and speculative. If our clients' demand for our services declines, as a result of economic conditions, market factors or shifts in the technology industry, our business would suffer and our results of operations and financial condition would be adversely affected.
If we cause disruptions in our clients' businesses or provide inadequate services, our clients may have claims for substantial damages against us, which could cause us to lose clients, have a negative effect on our corporate reputation and adversely affect our results of operations.
If our Globers make errors in the course of delivering services to our clients or in the development of software solutions for our clients, or fail to consistently meet service requirements of a client, these errors, software defects or failures could disrupt the client's business, which could result in a reduction in our revenues or a claim for substantial damages against us. In addition, a failure or inability to meet a contractual requirement could seriously damage our corporate reputation and limit our ability to attract new business.
The services we provide and the software solutions we develop are often critical to our clients' businesses. Certain of our client contracts require us to comply with security obligations including maintaining network security and backup data, ensuring our network is virus-free, maintaining business continuity planning procedures, and verifying the integrity of employees that work with our clients by conducting background checks. Any failure in a client's system or breach of security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us. Any significant failure of our equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, and adversely affect our results of operations.
Under our client contracts, our liability for breach of our obligations is, in some cases, limited pursuant to the terms of the contract. Such limitations may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients, may not be limited under our contracts.
If client damages are not limited under the terms of our contracts and are deemed recoverable against us in amounts in excess of our insurance coverage, or if our claims for insurance coverage are denied by our insurance carriers for any reason, there could be a material adverse effect on our business, results of operations and financial condition and/or our reputation, which could, in turn, have an adverse effect in our business, result of operations and financial condition.
We may face losses or reputational damage if our software solutions contain undetected software defects.
A significant amount of our business involves developing software solutions for our clients as part of our provision of technology services. We are required to make certain representations and warranties to our clients regarding the quality and functionality of our software. Any undetected software defects could result in liability to our clients under certain contracts as well as losses resulting from any litigation initiated by clients due to any losses sustained as a result of the defects. Any such liability or losses could have an adverse effect on our financial condition as well as on our reputation with our clients and in the technology services market generally.
Our client relationships, revenues, results of operations and financial condition may be adversely affected if we experience disruptions in our business.
Disruptions in telecommunications, system failures, Internet infrastructure, computer virus attacks or other operational disruptions caused by factors outside of our control, such as hostilities, political unrest, terrorist attacks, natural disasters, and public health emergencies could adversely impact our ability to deliver services to our clients, which could result in client dissatisfaction, harm to our reputation, and a loss of business and related reduction of our revenues. Our business continuity and disaster recovery plans may not be effective at preventing or mitigating the effects of such disruptions, and we may not be able to consistently maintain active voice and data communications between our various global operations and with our clients due to disruptions in telecommunication networks and power supply, system failures, computer virus attacks or other operational disruptions. Any significant failure in our ability to communicate could result in a disruption in business, which could hinder our performance and our ability to complete projects on time. Such failure to perform on client contracts could have a material adverse effect on our business, results of operations and financial condition.
If our computer systems or data, or our service providers’ systems or data, are subject to security incidents or breaches, or if any of our employees misuses or misappropriates data, it may disrupt our operations, and we may face reputational damage, lose clients and revenues, or incur losses.
Our business is heavily dependent on the security of our IT networks and those of our clients, as well as our third-party providers. We have access to, and we collect, transmit and store data, including confidential client and client customer data, intellectual property, and personal data. Threats to network and data security are increasingly diverse and sophisticated, and despite our efforts, they have increased in number due in part to the growing breadth and complexity of IT networks and systems and large number of employees working remotely. Internal or external attacks on our IT servers and networks, or those of our third party processors, providers or clients, are vulnerable to cybersecurity risks, including viruses and worms, phishing attacks, ransomware attacks, denial-of-service attacks, physical or electronic break-ins, third party or employee theft or misuse, and similar disruptions, which could disrupt the normal operations of our engagements and impede our ability to provide critical services to our clients, thereby subjecting us to liability under our contracts and applicable data protection laws.
While we take measures designed to protect the security of, and unauthorized access to, our systems and data, and the privacy of confidential information and personal data, our security controls over our systems and the systems of our processors, vendors and clients with which we operate and rely upon, as well as any other security practices we follow, may not prevent the improper access to or the unauthorized acquisition, use or disclosure of data, including confidential information, personal data, intellectual property and proprietary information. We do not control the operations or facilities of our service providers that collect, store, and process data on our behalf. If any of our service providers that process data on our behalf is subject to a security incident, we may not initially be aware of it, and we may not be able to control the investigation into the incident. In addition, we may be required to notify our clients if one of our service providers is subject to a security incident that affects our clients’ data, and it may disrupt our operations and impede our ability to provide our services. Many of our client contracts do not limit our potential liability for breaches of confidentiality.
In the past, we have experienced, and in the future, we may again experience, data security incidents resulting from unauthorized access to our and our service providers’ systems and unauthorized acquisition of our data and our clients’ data including, but not limited to: inadvertent disclosure, misconfiguration of systems, phishing ransomware or malware attacks. In addition, our clients have experienced, and may in the future experience, breaches of systems and cloud-based services enabled by or provided by us. As disclosed in our Report of Foreign Private Issuer furnished to the U.S. Securities and Exchange Commission on March 30, 2022, on March 28, 2022, we detected suspicious activity on our network later determined to be unauthorized access to our network and exfiltration of certain source code and project-related documentation for certain clients, as well as certain data files. As soon as such access was detected, we activated our security protocols and promptly notified affected clients. In addition, we engaged a third-party firm to conduct a forensic investigation. The forensic investigation was finalized in August 2022 and we concluded that the number of affected clients was limited. In accordance with applicable regulations, we notified relevant data privacy authorities of the incident. In addition, we have implemented a variety of measures to further enhance our cybersecurity protections. To date this incident has not had a material impact on our operations, and we are unaware of any material impact on our client's operations; however, we cannot assure you that our preventative and mitigation actions with respect to this incident and other potential future events like it will fully eliminate the risk of a malicious compromise of our, our third-party service providers' or our customers' systems.
In addition, we may also be bound by contractual obligations related to data privacy and security. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to client, third-party or our data, or otherwise mismanages or misappropriates that data, we could be subject to significant litigation, monetary damages, regulatory enforcement actions, fines and/or criminal prosecution in one or more jurisdictions. These monetary damages might not be subject to a contractual limit of liability or an exclusion of consequential or indirect damages and could be significant. In addition, we may not be able to obtain insurance coverage for, or full insurance coverage for, all damages and losses related to security incidents, cyberattacks and other related incidents or similar risks, and any or all such damages and losses could exceed our insurance coverage or be denied by the insurance carriers for any reason, which could have a material adverse effect on our reputation and/or on our business, results of operations and financial condition.
Unauthorized access, disclosure of confidential client and client customer data, intellectual property or personal data or other loss of information, whether through breach of our or others' computer systems, systems failure, loss or theft of confidential information or intellectual property belonging to our clients or our clients' customers, or otherwise, could result in legal claims or proceedings, liability and damages under applicable laws, regulatory investigations or penalties, breach notification obligations, a requirement to provide monitoring services, breach of contract claims, significant fines, administrative sanctions, and could adversely affect our business, revenues, reputation, brand and competitive position and result in financial and other potential losses, as well as require us to expend significant resources to protect against further incidents and to rectify any problems caused by these events.
Our business results of operations and financial condition could be adversely affected by the unauthorized use of our intellectual property or our violation of the intellectual property of others.
Our success depends in part on certain methodologies, practices, tools and technical expertise we utilize in designing, developing, implementing and maintaining applications and other proprietary intellectual property (including trade secrets, patents, copyrights and trademarks); and on our ability to avoid infringing on the intellectual property of third parties.
In order to protect our intellectual property rights, we rely on a combination of nondisclosure, confidentiality and other contractual arrangements as well as trade secret, patent, copyright and trademark laws. We hold several trademarks and patents and intend to submit additional U.S. federal and foreign trademark applications for developments relating to additional service offerings in the future. We cannot assure you that we will be successful in maintaining existing, or obtaining future, intellectual property rights or registrations or that the current or future laws of the countries in which we operate or the contractual and other protective measures we take are adequate to protect us from misappropriation or unauthorized use of our intellectual property, or that such laws will not change. We further cannot assure you that we will be able to detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights, and that any such steps will be successful or that we have taken all necessary steps to enforce our intellectual property rights in every jurisdiction in which we operate and that such intellectual property laws are adequate to protect our interest.
Further, our current and former Globers could challenge our exclusive rights to the software they have developed in the course of their employment. In certain countries in which we operate, the employer is deemed to own the copyright work created by its employees during the course, and within the scope, of their employment, but the employer may be required to satisfy additional legal requirements in order to make further use and dispose of such works. While we believe that we have complied with all such requirements, and have fulfilled all requirements necessary to acquire all rights in software developed by our independent contractors, these requirements are often ambiguously defined and enforced. As a result, we cannot assure you that we would be successful in defending against any claim by our current or former Globers or independent contractors that
challenges our exclusive rights over the use and transfer of works those Globers or independent contractors created or requests additional compensation for such works.
We may also be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. We typically indemnify clients who purchase our services and solutions against potential infringement of intellectual property rights, which subjects us to the risk of indemnification claims. In addition, we are subject to additional risks as a result of our recent and possible future acquisitions and the hiring of new employees who may misappropriate intellectual property from their former employers. Indemnification and other rights under acquisition documents may be limited in term and scope and may therefore provide little or no protection from these risks. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology involving the allegedly infringing intellectual property.
Intellectual property litigation is expensive, time-consuming, could divert management's attention away from our business and are often not subject to liability limits or exclusions. A successful infringement claim against us, could, among other things, require us to pay substantial damages, develop substitute non-infringing technology, or rebrand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and would require us to cease making, licensing or using products that have infringed a third party's intellectual property rights. Protracted litigation could also result in existing or potential clients deferring or limiting their purchase or use of our software product development services or solutions until resolution of such litigation, or could require us to indemnify our clients against infringement claims in certain instances. In addition, any intellectual property claim or litigation, whether we ultimately win or lose, could damage our reputation and materially adversely affect our business, financial condition and results of operations.
Our cash flows and results of operations may be adversely affected if we are unable to collect on billed and unbilled receivables from clients.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. We maintain provisions against receivables. Actual losses on client balances could differ from those that we anticipate and, as a result, we may need to adjust our provisions. We cannot assure you that we will accurately assess the creditworthiness of our clients. Macroeconomic conditions, such as a potential credit crisis in the global financial system, could also result in financial difficulties for our clients, including limited access to the credit markets, insolvency or bankruptcy. Such conditions could cause clients to delay payment, request modifications of their payment terms, or default on their payment obligations to us, all of which could increase our receivables balance. Timely collection of fees for client services also depends on our ability to complete our contractual commitments and subsequently bill for and collect our contractual service fees. If we are unable to meet our contractual obligations, we might experience delays in the collection of or be unable to collect our client balances, which could adversely affect our results of operations and cash flows. In addition, if we experience an increase in the time required to bill and collect for our services, our cash flows could be adversely affected, which could affect our ability to make necessary investments and, therefore, our results of operations.
If we are unable to maintain favorable pricing terms with current or new suppliers, our results of operations would be adversely affected.
We rely, to a limited extent, on suppliers of goods and services. In some cases, we have contracts with such parties guaranteeing us favorable pricing terms. We cannot guarantee our ability to maintain such pricing terms beyond the date that pricing terms are fixed pursuant to a written agreement. Furthermore, should economic circumstances change, such that suppliers find it beneficial to change or attempt to renegotiate such pricing terms in their favor, we cannot assure you that we would be able to withstand an increase or achieve a favorable outcome in any such negotiation. Any change in our pricing terms would increase our costs and expenses, which would have an adverse effect on our results of operations.
Strategic acquisitions to complement and expand our business have been and will likely remain an important part of our competitive strategy. If we fail to acquire companies whose prospects, when combined with our company, would increase our value, or if we acquire and fail to efficiently integrate such other companies, then our business, results of operations, and financial condition may be adversely affected.
We have expanded, and may continue to expand, our operations through strategically targeted acquisitions focused on deepening our relationships with key clients, extending our technological capacities including services over platforms, broadening our service offering and expanding the geographic footprint of our delivery centers. We completed a number of tuck-in acquisitions in 2020, 2021 and 2022. Financing of any future acquisitions could require the incurrence of indebtedness, the issuance of equity or a combination of both. In addition, if we finance acquisitions by issuing shares or convertible debt, our existing shareholders may be diluted, which could affect the market price of our shares. There can be no assurance that we will
be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses without substantial expense, delays or other operational or financial risks and problems. Furthermore, acquisitions may involve a number of special risks, including diversion of management's attention, failure to retain key acquired personnel, unanticipated events or legal liabilities, amortization of acquired intangible assets and difficulties entering into new markets. Acquisitions may also result in significant costs and expenses, including retention payments, equity compensation, assumed and/or acquired litigation and other unforeseen claims and liabilities. In addition, any client satisfaction or performance problems within an acquired business could have a material adverse impact on our company's corporate reputation and brand.
We cannot assure you that any acquired businesses would achieve anticipated revenues and earnings. Any failure to manage our acquisition strategy successfully could have a material adverse effect on our business, results of operations and financial condition.
Our indebtedness may affect our ability to operate our business and secure additional financing in the future.
On June 2, 2022, Globant, LLC, our U.S. subsidiary (the "Borrower"), entered into a Third Amended and Restated Credit Agreement, by and among certain financial institutions listed therein, as lenders, and HSBC Bank USA, N.A., as administrative agent, issuing bank and swingline lender (the “Third A&R Credit Agreement”). The Borrower’s obligations under the Third A&R Credit Agreement are guaranteed by the Company and its subsidiaries Globant España S.A. and Globant IT Services Corp., and are secured by substantially all of the Borrower’s assets. The Third A&R Credit Agreement also contains certain customary negative and affirmative covenants, which compliance may limit our flexibility in operating our business and our ability to take actions that might be advantageous to us and our shareholders. For more information, see "Additional Information - Material Contracts."
We may also incur additional indebtedness under other credit facilities or debt securities in the future. The governing instruments of such indebtedness could contain additional restrictive covenants that may further restrict our operations and capacity of incurring additional indebtedness. Our ability to meet these covenants may be affected by events beyond our control, which could result in a default, and the exercise of remedies, including acceleration, which could materially adversely affect our financial condition.
We may need additional capital and we may not be able to obtain it.
We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain another credit facility or expand the existing one. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to additional operating and financing covenants that would restrict our operations.
Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
•investors' perception of, and demand for, securities of technology services companies;
•conditions of the U.S. capital markets and other capital markets in which we may seek to raise funds;
•our future results of operations and financial condition;
•government regulation of foreign investment in the United States, Europe, and Latin America; and
global economic, political and other conditions in jurisdictions in which we do business.
Financing or raising of capital may not be available in amounts or on terms acceptable to us, or at all. This could limit our ability to grow our business and develop or enhance our service offerings required to respond to market demand or competitive challenges.
Our ability to expand our business and procure new contracts or enter into beneficial business arrangements could be affected to the extent we enter into agreements with clients containing non-competition clauses.
Some of our services agreements restrict our ability to perform similar services for certain of our clients' competitors under specific circumstances. We may in the future enter into additional agreements with clients that restrict our ability to accept assignments from, or render similar services to, those clients' competitors or customers, or restrict our ability to compete with our clients. These restrictions may hamper our ability to compete for and provide services to other clients in a specific industry in which we have expertise and could materially adversely affect our business, financial condition and results of operations.
Risks Related to our Global Operations.
Our results of operations could be adversely affected by economic and political conditions globally and, in particular, the markets in which we operate.
Because we have global operations, global macroeconomic conditions have a significant effect on our business as well as the businesses of our clients. The global economy has experienced and may continue to experience extreme volatility and disruptions caused by, among others, health pandemics, terrorist acts, political, social and civil unrest, wars and natural disasters. For example, the COVID-19 pandemic resulted in widespread unemployment and economic slowdown. Similarly, the Russia-Ukraine conflict has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets, sanctions, embargoes and regional instability. For example, on March 14, 2022, the Government of Belarus issued a decree providing for sanctions, restrictions and other measures against certain countries and certain Belarusian entities, including our Belarusian entities. These sanctions and restrictions included, among others, sanctions for early termination of credit facilities and the prohibition on foreign shareholders from disposing of their equity in those sanctioned entities. In addition, the U.S. government has imposed enhanced export controls on certain products and sanctions on certain industry sectors and parties in Russia. The governments of other jurisdictions in which we operate, such as the European Union and Canada, may also implement additional sanctions or other restrictive measures, including potentially against the Russian government, government-related entities, or other entities or individuals. These potential sanctions and export controls, as well as any responses from Russia, could adversely affect us and/or our business partners or customers. If economic conditions worsen or new legislation is passed related to trade, fiscal or tax policies, customer demand may not materialize to levels we require to achieve our anticipated financial results, which could have a material adverse effect on our business, financial condition and results of operations. We cannot predict whether these policies and measures will be enacted or continue, or the impact, if any, that any policy changes could have on our business.
We derive a significant portion of our revenues from clients located in the United States, Latin America and Europe. The technology services industry is particularly sensitive to the broader economic environment and tends to decline during general economic downturns. If the U.S., Latin American, or European economies weaken or slow, inflation in the markets in which we operate, or a negative or uncertain political climate develops or persists, pricing for our services may be depressed and our clients may reduce or postpone their technology spending significantly, which may, in turn, lower the demand for our services and negatively affect our revenues and profitability.
We have subsidiaries in countries in Latin America, Central Europe and Asia. These Central European, Latin American and Asian countries are generally considered to be emerging markets, which are subject to rapid change and greater legal, economic and political risks than more established markets. Current and future changes in governments of those countries, could lead to political instability and disrupt or reverse political, economic and regulatory reforms, which could materially adversely affect our business and operations in those countries.
Our four largest delivery centers are based in Colombia, Argentina, India and Mexico. Latin American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability, government deadlock and political instability.
As a consequence of adverse economic conditions in global markets and diminishing commodity prices, the economic growth rates of the economies of many Latin American countries have slowed and some have entered recessions. For example, historically, Argentina, Colombia and Mexico have a history of economic instability and crises (such as inflation or recession). In addition, the Argentine economy is highly reliant on exports of commodities, such as soy, and, therefore, it is more vulnerable to fluctuations in the prices of commodities. Also, macroeconomic and social conditions in Argentina may be affected by the 2023 presidential election. Similarly, fluctuations in the Colombian economy and actions adopted by the government of Colombia have had and may continue to have a significant impact on companies operating in Colombia.
Decline in economic growth, reduction of demand for our services and other adverse effects derived from global economic and political volatility and uncertainty could have a significant negative impact on our results of operations and financial condition.
The governments of many countries in which we operate have exercised and may continue to exercise significant influence over those countries' economies, which could adversely affect our business, financial condition, results of operations and prospects.
Many commercial laws and regulations in Central Europe and Latin America are relatively new and have been subject to limited interpretation; and, therefore, their application can be unpredictable. In addition, in certain countries in which we operate, the governmental authorities have a high degree of discretion in the interpretation and application of the regulations.
Historically, governments in Latin America have frequently intervened in the economies of their respective countries and have occasionally made significant changes in policy and regulations. Our business, financial condition, results of operations and prospects may be adversely affected by:
•changes in government policies or regulations, including such factors as exchange rates and exchange control policies;
•inflation and interest rates;
•prices, tariff and inflation control policies;
•liquidity of domestic capital and lending markets;
•energy rationing;
•tax policies, royalty and tax increases and retroactive tax claims; and
•other political, diplomatic, social and economic developments.
For example, in the past, the Argentine government has required companies to double severance payments, prohibited companies from terminating employees without cause or based on a reduced utilization, and mandated salary increases, extraordinary bonuses, and additional employee benefits. In addition, the Colombian government frequently intervenes in Colombia’s economy and, from time to time, makes significant changes in monetary, fiscal and regulatory policies. Also, the Mexican government has recently implemented certain tax and labor reforms to regulate outsourcing services, which may have an impact on our internal costs and our pricing rates for services. In 2018, the United States imposed tariffs on certain foreign products, including from China, that have resulted in and may result in future retaliatory tariffs on U.S. goods and products. In addition, recent increases in inflation and interest rates in the United States and elsewhere may lead to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could adversely affect our business and operating results.
Government influence and intervention could materially adversely affect our business, financial condition and results of operations.
Inflation in the countries in which we operate could adversely affect our business and results of operations.
Following recent global economy disruptions, including the COVID-19 health pandemic, some of the countries in which we operate (including the United States and certain countries in Europe and Latin America) have experienced, or are currently experiencing, higher rates of inflation. Periods of higher inflation may slow economic growth and significantly impact our results of operations. Inflation is also likely to increase some of our costs and expenses, which we may not be able to fully pass on to our clients, which could adversely affect our operating margins and operating income. In addition, higher inflation could also increase our customers’ operating costs, which could result in reduced budgets for our customers and potentially less demand for our products and services.
As a result of rising inflation, wage costs in the technology services industry in certain countries may increase at a faster rate than in the past and wage inflation for the IT industry may be higher than the overall wage inflation within these countries. We may need to increase the levels of employee compensation more rapidly than in the past to remain competitive, and we may not be able to pass on these increased costs to our clients.
In particular, Latin American countries have historically experienced uneven periods of economic growth, recessions, periods of high inflation and economic instability. For example, since June 2018, the Practice Task Force of the Center for Quality, which monitors “highly inflationary countries”, categorized Argentina as a hyperinflationary country. During 2019, the Argentine government adopted measures intended to control inflation, which contributed to a deep recession. Despite these efforts, inflation in Argentina continued to rise, and during 2022 was 94.8%.
Unless we are able to continue reducing our costs and increasing the efficiency and productivity of our employees as well as the prices we can charge for our services, inflation may materially adversely affect our financial condition and results of operations.
Our business, results of operations and financial condition may be adversely affected by fluctuations in currency exchange rates.
Our functional and reporting currency is the U.S. dollar. However, we conduct a substantial portion of our operations outside the United States, and our business, results of operations and financial condition may be adversely impacted by significant fluctuations in foreign currency exchange rates. In addition, fluctuations in exchange rates relative to the U.S. dollar could impair the comparability of our results from period to period.
A significant portion of our costs are incurred in local currencies while a substantial portion of our revenues are generated in U.S. dollars. For example, the Argentine peso has suffered significant devaluations against the U.S. dollar declining approximately 72.5%, 22.1% and 40.6% against the U.S. dollar in 2022, 2021 and 2020, respectively, and the Colombian peso declined approximately 20.8%, 16% and 5% against the U.S. dollar in 2022, 2021 and 2020, respectively.
Our business is dependent to a certain extent on maintaining our labor and other costs competitive with those of companies located in other regions around the world from which technology and IT services may be purchased by clients in the United States and Europe. We periodically evaluate the need for hedging strategies, including the use of such instruments to mitigate the effect of foreign exchange rate fluctuations. During the years ended December 31, 2022, 2021 and 2020, our Argentine, Colombian, Chilean, Indian, Uruguayan, Peruvian, Brazilian, Mexican, European Community Countries and United Kingdom operating subsidiaries entered into foreign exchange contracts for the purpose of hedging the risk of exposure to fluctuations of the different currencies in these countries against the U.S. dollar. If we do not hedge such exposure or we do not do so effectively, an appreciation of those local currencies against the U.S. dollar may raise our costs, which could adversely impact our business, results of operations and financial condition.
In order to control local currency exchange rates, certain countries in Latin America have historically imposed exchange controls and adopted other measures, which could have a material adverse effect on our business, results of operations and financial condition. For example, the Argentine government has imposed rigid exchange controls and transfer restrictions, substantially limiting the ability of entities to obtain foreign currency and make certain payments and distributions out of Argentina. Although access to foreign currency and transfers out of Argentina can be achieved through capital markets transactions called blue-chip swaps, subject to certain restrictions, such transactions are significantly more expensive than foreign exchange through the FX Market. In addition, although the Colombian government has not imposed foreign exchange restrictions since 1990, Colombia’s foreign currency markets are highly regulated. Colombian law permits the Colombian central bank to impose foreign exchange controls to regulate the remittance of dividends and/or foreign investments in the event that the foreign currency reserves of the Colombian central bank fall below a level equal to the value of three months of imports of goods and services into Colombia.
Changes in the tax laws, or in their interpretation or enforcement, or the loss of any country-specific tax benefits could have a material adverse effect on our financial condition and results of operations.
We conduct business globally and file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate and other tax liabilities worldwide could be materially adversely affected by several factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate that have differing statutory tax rates; changes in the tax laws, regulations, interpretations and enforcement; and the resolution of issues arising from tax audits or examinations and any related interest or penalties.
We report our results of operations based on our determination of the amount of taxes owed in the various jurisdictions in which we operate. We have transfer pricing arrangements among our subsidiaries in relation to various aspects of our business, including operations, marketing, sales and delivery functions. Transfer pricing regulations require that any international transaction involving associated enterprises be on arm’s-length terms. We consider the transactions among our subsidiaries to be on arm’s-length terms. The determination of our consolidated provision for income taxes and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by authorities in various jurisdictions.
Currently, we enjoy tax benefits from promotion regimes and certain tax incentives in Uruguay, India, and Argentina, among other countries, and we may benefit from additional promotional regimes and tax benefits in the future. For detailed explanations and further discussion, see "Business Overview — Government Support and Incentives". If these tax incentives are changed, terminated, not extended or made unavailable, or comparable new tax incentives are not introduced, we expect that our effective income tax rate and/or our operating expenses would increase significantly, which could materially adversely affect our financial condition and results of operations. See "Operating and Financial Review and Prospects — Operating Results — Certain Income Statement Line Items — Income Tax Expense".
The OECD announced an initiative on January 29, 2019, to create an international consensus on new rules (referred to as “BEPS 2.0”) for the framework governing international taxation, which was supported by the publication of the Pillar One and Pillar Two Blueprint Reports on October 12, 2020. On October 8, 2021, 136 countries, including Ireland, approved a statement (known as the OECD BEPS Inclusive Framework (“IF”)) providing a framework for BEPS 2.0, which builds upon the Blueprints and a prior iteration of the IF signed by 130 countries on July 1, 2021. The revised Pillar Two Blueprint includes a global minimum tax rate of 15% for groups with a global turnover in excess of €750 million, subject to certain exclusions. On December 20, 2021, the OECD published model rules on the Pillar Two global minimum tax, containing additional details that
the jurisdictions of the Inclusive Framework are to implement in their local legislation. The new regulations are expected to be transposed into each domestic legislation by the end of 2023. Although it is difficult to determine the degree to which these changes may impact on the business, the company is working on assessing whether those rules might affect its both the effective tax rates and tax liabilities in the future.
Our business, results of operations and financial condition may be adversely affected by the various conflicting and/or onerous legal and regulatory obligations required in the countries where we operate.
We have a presence in many countries and plan to continue expanding our international operations, which may subject us to increased business and economic risks that could affect our financial results.
Compliance with complex international laws and regulations that apply to our international operations increases our cost of doing business. These numerous, and sometimes conflicting laws, and regulations include, among others, import/export controls, content requirements, trade restrictions, tariffs, taxation, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act ("FCPA"), whistle blowing, internal control and disclosure rules.
Since we provide services to clients throughout the world, and we collect, store, process, use and transfer personal data and other sensitive information, we are subject to laws and regulations related to security and privacy, as well as other numerous, and sometimes conflicting, legal requirements, including but not limited to the European Union’s General Data Protection Regulation (“GDPR”), the United Kingdom’s GDPR and the Privacy and Electronic Communications Directive 2002/58/EC, the California Consumer Privacy Act (as succeeded by the California Privacy Rights Act), and various other laws governing the protection of privacy, health or other personally identifiable information and data privacy and cybersecurity laws. These laws and regulations continue to evolve, are increasing in complexity and number and increasingly conflict among the various countries in which we operate, which has resulted in greater compliance risk and cost for us. Various privacy laws impose compliance obligations regarding the handling of personal data, including the cross-border transfer of data, and significant financial penalties for noncompliance. For example, failure to comply with the GDPR may lead to regulatory enforcement actions, which can result in monetary penalties of up to the greater of 20 million Euros (or 17.5 million Pounds) or 4% of our worldwide revenue, orders to discontinue certain data processing operations, civil lawsuits, or reputational damage.
Also, we may be unable to transfer personal data between different countries due to data localization laws, regulations, requirements and limitations on cross-border data flows. In the United States, federal, state, and local governments have enacted numerous privacy and data security laws, including consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), data breach notification laws, and personal data privacy laws. For example, state data breach notification laws may come into play in the event of a data breach, thus requiring notice to any affected individuals.
We are also subject to risks relating to compliance with a variety of national and local labor laws including, employee health safety, wages and benefits laws and independent contractor regulations. We may, from time to time, be subject to litigation or administrative actions resulting from claims against us by current or former Globers, individually or as part of class actions, including claims of wrongful termination, discrimination, misclassification or other violations of labor law or other alleged conduct. We may also, from time to time, be subject to litigation resulting from claims against us by third parties, including claims of breach of non-compete and confidentiality provisions of our employees' former employment agreements with such third parties.
In addition, legislation that restricts the performance of outsourcing services could also materially adversely affect our business, financial condition and results of operations. For example, measures aimed at limiting or restricting outsourcing by U.S. companies have been put forward for consideration by the U.S. Congress and in state legislatures to address concerns over the perceived association between offshore outsourcing and the loss of jobs domestically. Also, Mexico has recently adopted a reform to the laws regulating outsourcing and subcontracting. Pursuant to this reform, Mexican clients may not outsource services except for "specialized services" (i.e., services not within the client’s corporate purpose or main economic activity) engaged from providers subject to the compliance of certain conditions and requirements, including registration before the Registro de Prestadoras de Servicios Especializados u Obras Especializadas (Registry of Specialized Service Providers or “REPSE”). Any such legislation, regulations and measures could impair our ability to provide services to our clients.
Compliance efforts can be expensive and burdensome, and, we could be subject to regulatory investigations and orders, significant fines and penalties, mitigation and breach notification expenses, private litigation and contractual damages, corrective action plans and related regulatory oversight and reputational harm. Our real or perceived failure to comply with these regulations in the conduct of our business could result in fines, penalties (including revocation of licenses or registrations), criminal sanctions against us or our officers, disgorgement of profits, prohibitions on doing business and adverse impact on our brand and reputation. In addition, our failure to comply with these regulations in the context of our obligations to our clients could also result in liability for monetary damages, unfavorable publicity and allegations by our clients that we have
not performed our contractual obligations. Due to the varying degree of development of the legal systems of the countries in which we operate, local laws might be insufficient to defend us and preserve our rights. Our failure to comply with applicable regulatory requirements could have a material adverse effect on our business, results of operations and financial condition.
If we are faced with immigration or work permit restrictions in any country where we currently have personnel onsite at a client location or would like to expand our delivery footprint, then our business, results of operations and financial condition may be adversely affected.
A key part of our strategy is to expand our delivery footprint, including through an increase in the number of employees that we deploy onsite and near client locations. Therefore, we must comply with the immigration, work permit and visa laws and regulations of the countries in which we operate or plan to operate. Our future inability to obtain or renew sufficient work permits and/or visas due to the impact of these regulations, including any changes to immigration, work permit and visa regulations in jurisdictions such as the United States and Europe, could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to the Company and the Ownership of Our Common Shares
The price of our common shares may be highly volatile.
The market price of our common shares may be volatile and may be influenced by many factors, some of which are beyond our control, including:
•the failure of financial analysts to cover our common shares or changes in financial estimates by analysts;
•actual or anticipated variations in our operating results;
•changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors;
•announcements by us or our competitors of significant contracts or acquisitions;
•future sales of our common shares; and
•investor perceptions of us and the industries in which we operate.
In addition, the U.S. capital markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance or results of operations of those companies. These broad market fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, as well as volatility in international capital markets, may cause the market price of our common shares to decline.
Downgrades to the U.S. government's sovereign credit rating by any rating agency, as well as negative changes to the perceived creditworthiness of U.S. government-related obligations, could also have a material adverse impact on financial markets and economic conditions in the United States and worldwide. In the past, following periods of volatility in the market price of certain companies' securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations.
We may be classified by the Internal Revenue Service as a "passive foreign investment company" (a "PFIC"), which may result in adverse tax consequences for U.S. investors.
We believe that we will not be a PFIC for U.S. federal income tax purposes for our current taxable year and do not expect to become one in the foreseeable future. However, because PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25% owned equity investments) from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year. Because we have valued goodwill based on the market value of our equity for purposes of taxation, a decrease in the price of our common shares may also result in us becoming a PFIC. The composition of our income and our assets will also be affected by how, and how quickly, we spend the cash. Under circumstances where the cash is not deployed for active purposes, our risk of becoming a PFIC may increase. If we were treated as a PFIC for any taxable year during which a U.S. investor held common shares, certain adverse tax consequences could apply to such U.S. investor. See "Additional Information — Taxation — U.S. Federal Income Tax Considerations — Passive foreign investment company rules."
Our business and results of operations may be adversely affected by the increased strain on our resources from complying with the reporting, disclosure, and other requirements applicable to public companies in the United States.
Compliance with existing, new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance. Changing laws, regulations and standards include those relating to accounting, corporate governance and public disclosure; these include but are not limited to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act of 2002, new SEC regulations and New York Stock Exchange ("NYSE") listing guidelines that result out of the NYSE listing. These laws, regulations and guidelines may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. In particular, our efforts to comply with certain sections of Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404") and the related regulations regarding required assessment of internal controls over financial reporting and our independent registered public accounting firm audit of that assessment requires the commitment of significant financial and managerial resources. Testing and maintaining internal controls can divert our management's attention from other matters that are important to the operation of our business. We also expect the regulations to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming and costly.
Existing, new and changing corporate governance and public disclosure requirements could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. Our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. In addition, new laws, regulations and standards regarding corporate governance may make it more difficult for our company to obtain director and officer liability insurance. Further, our board members and senior management could face an increased risk of personal liability in connection with their performance of duties. As a result, we may face difficulties attracting and retaining qualified board members and senior management, which could harm our business. If we fail to comply with new or changed laws or regulations and standards differ, our business and reputation may be harmed.
Failure to establish and maintain effective internal controls in accordance with Section 404 could have a material adverse effect on our business and common share price.
As a public company, we are required to document and test our internal control over financial reporting pursuant to Section 404, which requires management assessments and certifications of the effectiveness of our internal control over financial reporting. We have concluded that our internal control over financial reporting is effective as of December 31, 2022 (see Item15. Controls and Procedures for additional information). However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. We may identify material weaknesses in the future and, accordingly, we may not be able to conclude that our internal control over financial reporting is effective in future periods as required by Section 404.
If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing, cost or management attention that would be required with respect to remediation actions and testing or their effect on our operations. In addition, our independent registered public accounting firm may be unable to provide us with an unqualified report as required by Section 404, or we may be required to restate our financial statements for errors resulting from material weaknesses in our internal controls over financial reporting, and we may fail to meet our public reporting obligations and investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares.
Our exemption as a "foreign private issuer" from certain rules under the U.S. securities laws may result in less information about us being available to investors than for U.S. companies, which may result in our common shares being less attractive to investors.
As a "foreign private issuer" in the United States, we are exempt from certain rules under the U.S. securities laws and are permitted to file less information with the SEC than U.S. companies. As a "foreign private issuer," we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our common shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as companies that are not foreign private issuers whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information. As a result, our shareholders may not have access to information they may deem important, which may result in our common shares being less attractive to investors.
We do not plan to declare dividends, and our ability to do so will be affected by restrictions under Luxembourg law.
We have not declared dividends in the past and do not anticipate paying any dividends on our common shares in the foreseeable future. In addition, both our articles of association and the Luxembourg law of August 10, 1915 on commercial companies, as amended (loi du 10 août 1915 sur les sociétés commerciales telle que modifiée) (the "Luxembourg Companies Law"), require a general meeting of shareholders to approve any dividend distribution except as set forth below.
Our ability to declare dividends under Luxembourg law is subject to the availability of distributable earnings or available reserves, including share premium. Moreover, if we declare dividends in the future, we may not be able to pay them more frequently than annually. As permitted by Luxembourg Companies Law and subject to the provisions thereof, our articles of association authorize the declaration of dividends more frequently than annually by our board of directors in the form of interim dividends so long as the amount of such interim dividends does not exceed total net income made since the end of the last financial year for which the standalone annual accounts have been approved, plus any net income carried forward and sums drawn from reserves available for this purpose, less the aggregate of the prior year's accumulated losses, the amounts to be set aside for the reserves required by law or by our articles of association for the prior year, and the estimated tax due on such earnings.
We depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments, which they may not be able to do.
Our subsidiaries conduct all of our operations. We have no relevant assets other than the equity interests in our subsidiaries. As a result, our ability to make dividend payments depends on our subsidiaries and their ability to distribute funds to us. The ability of a subsidiary to make these distributions could be affected by covenants in our or their financing agreements or by the law of their respective jurisdictions of incorporation. If we are unable to obtain funds from our subsidiaries, we will be unable to distribute dividends. We do not intend to seek to obtain funds from other sources to pay dividends.
Our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation, which could adversely impact trading in our common shares and our ability to conduct equity financings.
Our corporate affairs are governed by our articles of association and the laws of Luxembourg, including the laws governing joint stock companies. The rights of our shareholders and the responsibilities of our directors and officers under Luxembourg law are different from those applicable to a corporation incorporated in the United States. There may be less publicly available information about us than is regularly published by or about U.S. issuers. In addition, Luxembourg law governing the securities of Luxembourg companies may not be as extensive as those in effect in the United States, and Luxembourg law and regulations in respect of corporate governance matters might not be as protective of minority shareholders as state corporation laws in the United States. Therefore, our shareholders may have more difficulty in protecting their interests in connection with actions taken by our directors and officers or our principal shareholders than they would as shareholders of a corporation incorporated in the United States.
Neither our articles of association nor Luxembourg law provides for appraisal rights for dissenting shareholders in certain extraordinary corporate transactions that may otherwise be available to shareholders under certain U.S. state laws. As a result of these differences, our shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. issuer.
Holders of our common shares may not be able to exercise their pre-emptive subscription rights and may suffer dilution of their shareholding in the event of future common share issuances.
Under Luxembourg Companies Law, our shareholders benefit from a pre-emptive subscription right on the issuance of common shares for cash consideration. However, in accordance with Luxembourg law, our articles of association authorize our board of directors to suppress, waive or limit any pre-emptive subscription rights of shareholders provided by Luxembourg law to the extent our board deems such suppression, waiver or limitation advisable for any issuance or issuances of common shares within the scope of our authorized share capital. Such common shares may be issued above, at or below market value as well as by way of incorporation of available reserves (including a premium). This authorization is valid from the date of the extraordinary general meeting of shareholders, which was held on April 22, 2022, and ends on April 22, 2027, the fifth anniversary of the date of such meeting. In addition, a shareholder may not be able to exercise the shareholder's pre-emptive right on a timely basis or at all, unless the shareholder complies with Luxembourg Companies Law and applicable laws in the jurisdiction in which the shareholder is resident, particularly in the United States. As a result, the shareholding of such shareholders may be materially diluted in the event common shares are issued in the future. Moreover, in the case of an increase in capital by a contribution in kind, no pre-emptive rights of the existing shareholders exist.
We are organized under the laws of the Grand Duchy of Luxembourg and it may be difficult for you to obtain or enforce judgments or bring original actions against us or our executive officers and directors in the United States.
We are organized under the laws of the Grand Duchy of Luxembourg. The majority of our assets are located outside the United States. Furthermore, the majority of our directors and officers and some experts named in this annual report reside outside the United States and a substantial portion of their assets are located outside the United States. Investors may not be able to effect service of process within the United States upon us or these persons or to enforce judgments obtained against us or these persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against us or these persons in courts located in jurisdictions outside the United States, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for an investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against us or these persons. Furthermore, Luxembourg law does not recognize a shareholder's right to bring a derivative action on behalf of the company except in limited cases.
As there is no treaty in force on the reciprocal recognition and enforcement of judgments in civil and commercial matters between the United States and the Grand Duchy of Luxembourg, courts in Luxembourg will not automatically recognize and enforce a final judgment rendered by a U.S. court. A valid judgment in civil or commercial matters obtained from a court of competent jurisdiction in the United States may be entered and enforced through a court of competent jurisdiction in Luxembourg, subject to compliance with the enforcement procedures (exequatur). The enforceability in Luxembourg courts of judgments rendered by U.S. courts will be subject prior any enforcement in Luxembourg to the procedure and the conditions set forth in the Luxembourg procedural code, which conditions may include the following as of the date of this annual report (which may change):
•the judgment of the U.S. court is final and enforceable (exécutoire) in the United States;
•the U.S. court had jurisdiction over the subject matter leading to the judgment (that is, its jurisdiction was in compliance both with Luxembourg private international law rules and with the applicable domestic U.S. federal or state jurisdictional rules);
•the U.S. court has applied to the dispute the substantive law that would have been applied by Luxembourg courts;
•the judgment was granted following proceedings where the counterparty had the opportunity to appear and, if it appeared, to present a defense, and the decision of the foreign court must not have been obtained by fraud, but in compliance with the rights of the defendant;
•the U.S. court has acted in accordance with its own procedural laws;
•the judgment of the U.S. court does not contravene Luxembourg international public policy; and
•the U.S. court proceedings were not of a criminal or tax nature.
Under our articles of association and also pursuant to separate indemnification agreements, we indemnify our directors for and hold them harmless against all claims, actions, suits or proceedings brought against them, subject to limited exceptions. The rights and obligations among or between us and any of our current or former directors and officers are generally governed by the laws of the Grand Duchy of Luxembourg and subject to the jurisdiction of the Luxembourg courts, unless such rights or obligations do not relate to or arise out of their capacities listed above. Although there is doubt as to whether U.S. courts would enforce such provision in an action brought in the United States under U.S. federal or state securities laws, such provision could make enforcing judgments obtained outside Luxembourg more difficult to enforce against our assets in Luxembourg or jurisdictions that would apply Luxembourg law.
Luxembourg insolvency laws may offer our shareholders less protection than they would have under U.S. insolvency laws.
As a company organized under the laws of the Grand Duchy of Luxembourg and with its registered office in Luxembourg, we are subject to Luxembourg insolvency laws in the event any insolvency proceedings are initiated against us including, among other things, Regulation (EU) No. 2015/848 of the European Parliament and the Council of May 20, 2015 on insolvency proceedings (recast). Should courts in another European country determine that the insolvency laws of that country apply to us in accordance with and subject to such EU regulations, the courts in that country could have jurisdiction over the insolvency proceedings initiated against us. Insolvency laws in Luxembourg or the relevant other European country, if any, may offer our shareholders less protection than they would have under U.S. insolvency laws and make it more difficult for them to recover the amount they could expect to recover in a liquidation under U.S. insolvency laws.
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We were founded in 2003 by Martín Migoya, our Chairman and Chief Executive Officer; Guibert Englebienne, our President of Globant X, Globant Ventures and Latin America; Martín Umaran, our Chief Corporate Development Officer and President of EMEA; and Nestor Nocetti, our Executive Vice President of Corporate Affairs. Our founders' vision was to create a global company that succeeds by transforming organizations and providing opportunities for talent around the world to make a positive global impact.
We have benefited from strong organic growth and have built a roster of world-class clients, many of which are at the forefront of emerging technologies. Over that same period, we have expanded our network of locations, and we are now present in more than 25 countries. In addition, we have garnered several awards and recognition from organizations such as Endeavor, the IDC MarketScape, Gartner, Everest Group, Frost & Sullivan, Global Services, Great Place to Work, the International Association of Outsourcing Professionals, Fortune and Fast Company, and we have been the subject of business-school case studies on entrepreneurship at the Massachusetts Institute of Technology, Harvard University and Stanford University in conjunction with the World Economic Forum.
In 2009, we created our Studio Model. Our Studios have deep pockets of expertise across industries and in the latest technologies and trends. We believe our Studio model helps us foster creativity and innovation while allowing us to build, enhance and consolidate expertise around a variety of emerging technologies. In order to leverage specific expertise and deliver tailored solutions to address our clients' technological challenges, Globant has launched twenty-one Digital Studios (e.g. Data & AI, Cloud Ops, and Fast Code), eleven Industry Reinvention Studios (e.g. Healthcare & Lifesciences, Gaming, and Finance), and four Enterprise Platform Studios (e.g. Salesforce, SAP, and Oracle). This Studio Model has been our trademark for delivering quality services over the years, allowing us to better serve our ever-evolving industry and assist our customers in transforming their organizations.
In July 2014, we closed the initial public offering of our common shares in the United States. Since then, we have closed five follow-on offerings in the United States, with the most recent offering occurring in May 2021.
While our growth has primarily been organic, we have made complementary acquisitions since 2008. Our acquisition strategy is focused on deepening our relationship with key clients, extending our technology capabilities, broadening our service offering and expanding the geographic footprint of our delivery centers worldwide. In 2020, we acquired Grupo Assa Worldwide S.A. ("Grupo Assa") to reinforce leadership in digital and cognitive transformation, and Spain-based BlueCap Management Consulting S.L. ("BlueCap"), to expand our footprint in the EMEA region and strengthen consulting services in the financial and investment sector. In 2021, we acquired Cloudshift, a leading Salesforce partner in the UK that specializes in multi-cloud digital transformation. Also, we acquired Hybrido Worldwide, S.L. ("Habitant") to reinforce our capabilities in digital marketing, MadTech and digital sales, and enhance our footprint in Europe. We also acquired an 86% stake in Walmeric Soluciones S.L. ("Walmeric"), a company that specializes in marketing automation technology, combining lead management, online marketing and sales enablement. The Walmeric transaction represents our first product-oriented acquisition and is expected to strengthen our capabilities with respect to digital marketing and digital sales. To expand and further improve our blockchain and crypto-related solutions, we acquired Atix Labs S.R.L. and Atix Labs LLC ("Atix"), a professional services company that specializes in blockchain. In November 2021, we acquired Navint Partners, LLC and certain of its affiliated entities (collectively "Navint Group"), a leading lead-to-revenue Salesforce partner to strengthen our Salesforce Studio's end-to-end business transformation capabilities and expand our service footprint in the United States, Europe, Middle East and Africa ("EMEA"), and India. In 2022, we acquired Genexus, a low/no code leading platform to foster our product portfolio; Vertic, a digital marketing consultancy, to consolidate our global creative network; Sysdata, a leading business and technology consultancy, focused on delivering digital transformation, to strengthen our delivery capabilities in Italy; and eWave, a digital commerce experience consultancy, with strong expertise in Adobe and Salesforce commerce solutions, to strengthen our delivery capabilities in Asia-Pacific. We also recently reached an agreement with La Liga, Spain's top-flight soccer league, to create a new global technology company to lead the reinvention of the sports and entertainment industry.
In 2019, we launched Be Kind, our long-term sustainability framework. Be Kind is an essential part of our culture in which we encourage everyone to be kind to themselves, their peers, the planet and humanity.
In 2021, we established Globant X, an incubator focused on nurturing and cultivating our homegrown innovation. Globant X aims to productize our most transformative technology into platforms.
In 2021, in connection with our Be Kind to the Planet commitment, we became carbon neutral and signed the Science-Based Targets commitment to reinforce our mission to fight climate change. Our efforts to become a net-zero company are aligned with our commitment to make the world a better place.
In 2020 and 2021, IDC MarketSpace recognized Globant as a Worldwide Leader in CX Improvement and a Major Player in Worldwide Salesforce Implementation Services, respectively. In 2022 Globant received several recognitions from trusted specialists, including: Major Contender in Industry 4.0 by Everest Group; 2022 Company of the Year Award for Digital Transformation Services by Frost & Sullivan; and Leader in the 2022 SPARK Matrix for Healthcare IT Services by Quadrant Knowledge Solutions.
Globant was recognized by Brand Finance as one of the fastest-growing IT Services Brands in its “IT Services 25 2023 Report.” Globant was appointed as the 8th strongest IT brand globally gaining two positions in strength this year compared to 2022. Also in this year, Globant was recognized by S&P Global and Corporate Sustainability Assessment (CSA) in the Sustainability Yearbook 2023 for our ESG efforts during 2022.
In 2022, Globant produced its first two commercial films: "Seek Reinvention" and "Meet the Future - Reinventing Consultancy." Also, the Company announced a multi-year partnership with FIFA to wide-range its FIFA+ content app and sponsor global top football competitions, including FIFA World Cup Qatar 2022, and FIFA Women's World Cup Australia & New Zealand 2023.
In November 2022, the Company announced its expansion across Asia-Pacific and the Middle East with the creation of a new, fully dedicated regional unit called “New Markets”.
Corporate Information
Our executive office is located at 37A Avenue J.F. Kennedy L-1855, Luxembourg, and our telephone number is + 352 20 30 15 96 . The R.C.S. number related to Globant S.A. is B 173727. We maintain a website at http://www.globant.com. Our website and the information accessible through it are not incorporated into this annual report.
The SEC maintains an internet site at http://www.sec.gov that contains reports, information statements, and other information regarding issuers that file electronically with the SEC.
B. Business Overview
Overview
Established in 2003 by four friends in Argentina, we have evolved to become a leading global technology service provider. Today, we are a publicly-traded company, with our common shares listed on the NYSE under the ticker symbol "GLOB". We continue to maintain the entrepreneurial spirit of our founders throughout our business.
We were one of the first companies to deliver engineering, innovation and design at scale, and we believe that professional services organizations must evolve with technological advances. We have had success facilitating digital transformations while many traditional IT outsourcing vendors and consulting companies have and continue to struggle.
Our clients are facing an accelerated need to bridge their digital business gaps to better support their customers and employees. We leverage our cross-industry expertise and deep understanding of technology to focus on key areas of our clients' businesses to facilitate their digital transformations.
We strive to make the world a better place and, in furtherance of that objective, we focus on three key areas: our Be Kind initiative, our talent and culture, and our services. We believe our focus on these areas has contributed to our success and our clients’ success.
We take pride in our people, and consider them to be our greatest strength. We are committed to growing our community with an emphasis on diversity and inclusion. We have development centers in North America, Latin America, Europe and Asia, where we have established initiatives to promote and assist individuals who wish to join the IT industry. As of December 31, 2022, we had 27,122 Globers worldwide, and operations through subsidiaries with offices and Globers in more than 25 countries.
Our principal operating subsidiaries are located in Argentina, Chile, Colombia, Brazil, India, Mexico, Peru, Spain, United Kingdom, United States and Uruguay.
For the year ended December 31, 2022, 63.8% of our revenues were generated by clients in North America, 22.9% in Latin America, 10.5% in Europe, Middle East & Africa and 2.8% in Asia & Oceania.
Our clients include leading global companies such as The Walt Disney Company, which was among our top ten clients in the year ended December 31, 2022. Additionally, for the year ended December 31, 2022, 90.5% of our revenues came from existing clients who used our services in the prior year. We believe our success in building our client base in one of the most sophisticated and competitive markets for IT services demonstrates the strength of our value proposition, the quality of our execution and the value of our culture of innovation and entrepreneurial spirit.
The market opportunity
We are witnessing a transcendental time for technology. Significant technological advancements and societal shifts occurred during the past decade that have impacted businesses. As a result, organizations have a significant opportunity to expand into new areas of the market.
COVID-19 has caused radical changes throughout the world, many of which we believe are here to stay. These changes are pushing organizations to evolve and accelerate their digital transformations. In light of economic uncertainty, customer engagement will remain one of the top strategic business objectives for organizations worldwide, and the need to evolve rapidly has never been more critical.
Demand for IT will remain strong as companies pursue digital transformation initiatives in response to economic turmoil, with a renewed focus in accelerating time to value on digital investments. According to IDC, digital transformation spending will reach $3.4 trillion in 2026, with the United States accounting for nearly 35% of the worldwide total and surpassing the $1 trillion mark in 2025.
As organizations push for operational efficiencies and cost reductions, industry analysts also expect a growth in more traditional back-office operational needs. Gartner predicts that Global IT spend will total $4.6 trillion in 2023, growing at a rate of 5.1% up from 0.8% growth in 2022.
By 2024, digital-first enterprises will enable empathetic customer experiences and resilient operating models by shifting 70% of all tech and services spending to as-a- service and outcomes-centric models, according to IDC.
By 2026, enterprises that successfully generate digital innovation will derive over 25% of their revenue from digital products, services, and/or experiences, according to IDC.
By 2026, 85% of enterprises will combine human expertise with artificial intelligence ("AI"), machine learning ("ML"), natural language processing and pattern recognition to augment foresight across the organization, making workers 25% more productive and effective, according to IDC.
Business and Tech trends
Industries and organizations are preparing to exist and innovate as they adapt to a world reinvented. In 2023, market instability and the rise of empowered consumers will push industries and organizations to create breakthrough solutions, building flexible paths that will secure their longevity during both disruptive and calmer periods.
Business models will continue to focus on strategic alliances across industries and establish a new paradigm for customer relationships. Organizations must take proactive steps to identify new opportunities and detect places for optimization and efficiencies to continuously drive growth. As industry boundaries begin to fade, the need for collaboration and innovative business alliances will continue to emerge.
The ability of people and organizations to be flexible and to adapt to new situations will be a competitive advantage in 2023 and beyond. Vertical structures are being challenged as innovative technologies create a new way to lead. Leadership roles need to be redefined to enhance the development of teams by providing employees with opportunities for experimentation, learning, innovation, and specialization.
Sustainability initiatives will continue to enhance an organization's ability to develop and execute strategies that promote cultural and economic change. Businesses can utilize technology to create sustainable purposes and goals, making them part of the climate solution while attracting like-minded employees. Developing a well-established technological
infrastructure will enable organizations to offer the necessary elements to drive productivity and collaboration within a hybrid workforce model. Data and AI will be critical in the creation of engaging workplace experiences.
The concept of fast code, enabled by low-code and no-code tools, will be at the forefront of technology for organizations continuing their digital transformation. Approaches like Super Apps will allow companies to keep up with ever-changing technology while keeping an integrated approach to customer experience. Additionally, with staffing models evolving, the need for systems and processes to quickly make sense of the existing code base will also be an important factor.
Organizations will ultimately have to address consumer pressure to participate in the new web ecosystem or risk losing customers. Blockchain has been an important technology for years, but 2023 will be a pivotal year for companies promising new unique phygital experiences. Organizations are looking for new ways to access consumers who demand experiences connecting the virtual world with the real world. According to our most recent Tech Trends report, in 2023, the use of non-fungible tokens ("NFTs") is expected to become more nuanced, personalized, and commercialized as the Web3 ecosystem moves past the "jpeg" era of NFTs, characterized by low utility digital art projects.
2023 will put the metaverse to the test. Billions of dollars have been invested into this incredible technology, and the market is eager to see some truly impactful and real applications of this new product. We believe there are some signs that point to the mass adoption of the metaverse. Major players in the metaverse space pushing towards a viable product in 2023 will open the door to reduced costs and lower barriers to entry, allowing the technology to reach more businesses and impact people's lives worldwide.
We believe that the use of AI will continue to accelerate and influence the strategies of organizations that we serve. Foundation Models and Generative AI are recent examples of this paradigm shift. We have been investing in developing our AI capabilities and expertise for more than six years, and we are prepared to address this significant new opportunity. We believe that digital products will frequently have AI layers and Large Language Models that can simplify software development creation.
Strategy
We seek to maintain our status as a leading digital transformation services provider that leverages the latest technologies and methodologies to help organizations respond to the changing demands of their customers and employees. The key elements of our strategy for achieving this objective are, described below:
Grow revenue with existing and new clients
We will continue to focus on delivering innovative and high value-added solutions that drive revenues for our clients, thereby deepening our relationships and leading to additional revenue opportunities with them. We will continue to target new clients by leveraging our engineering, design and innovation capabilities and our deep understanding of emerging technologies and industries. We will focus on building our brand in order to further penetrate our existing and target markets where there is a strong demand for our knowledge and services.
Remain at the forefront of emerging technologies and digital transformation
We believe our Studios have been highly effective in enabling us to deliver innovative software solutions that leverage our deep domain expertise across industries, in emerging technologies and related market trends. As new technologies emerge and as market trends change, we will continue to add Studios to remain at the forefront of innovation and digital transformation, which will enable us to enter new markets and capture additional business opportunities.
Development of products and platforms
We will continue to focus on expanding our product and platform offerings to complement our service offerings. Globant X is the division of the Company focused on next-generation products and platforms that help organizations excel and reach their goals more efficiently. Acting as a guide for digital transformation, Globant X productizes ideas and accelerates from proof of concept to minimum viable product to expansion, catapulting them to in-market success.
Attract, train and retain top-quality talent
We place a high priority on recruiting, training, and retaining employees, which we believe is integral to our continued ability to meet the challenges of the most complex software development assignments. In doing so, we seek to decentralize our delivery centers by opening centers in locations that may not have developed IT services markets but can provide professionals
with the caliber of technical training and experience that we seek. In doing so, we offer highly attractive career opportunities to individuals who might otherwise have had to relocate to larger IT markets. We will continue to develop our scalable human capital platform by implementing resource planning and staffing systems and by attracting, training and developing high-quality professionals, strengthen our relationships with leading universities in different countries, and help universities better prepare graduates for work in our industry. We have agreements to teach, provide internships, and interact on various initiatives with several universities throughout the world.
Selectively pursue strategic acquisitions
In building on our track record of successfully acquiring and integrating complementary companies, we will continue to selectively pursue strategic acquisition opportunities that deepen our relationships with key clients, extend our technology capabilities, broaden our service offerings and expand the geographic footprint of our delivery centers in order to enhance our ability to serve our clients.
Competitive Strengths
We believe the following strengths differentiate Globant and create the foundation for continued rapid growth in revenues and profitability:
Deep domain expertise across industries, in emerging technologies and related market trends
We have deep domain expertise across industries, in emerging technologies and related market trends. We organize our areas of expertise in Studios, which we believe provide us with a strong competitive advantage and allow us to leverage prior experiences to deliver superior solutions to clients.
Long-term relationships with blue chip clients
We have built a roster of blue chip clients such as Google, Electronic Arts, and The Walt Disney Company, many of which themselves are at the forefront of emerging technologies. In particular, we have been working with Disney and Electronic Arts for more than ten years. We believe that our success in developing these client relationships reflects the innovative and high value-added services that we provide along with our ability to positively impact our clients' business. Our relationships with these enterprises provide us with an opportunity to access large IT, research and development and marketing budgets. These relationships have driven our growth and have enabled us to engage with new clients.
Global delivery with access to deep talent pool
A key element of our strategy is to expand our delivery footprint, including increasing the number of employees that work onsite at our clients or near client locations. We will continue to focus on expanding our global delivery footprint to gain access to additional pools of talent to effectively meet the demands of our clients.
Highly experienced management team
Our management team is comprised of seasoned industry professionals with global experience. Our management sets the vision and strategic direction for Globant and drives our growth and entrepreneurial culture. On average, the members of our senior management team have 20 years of experience in the technology industry giving them a comprehensive understanding of the industry as well as insight into the industries in which our clients operate, emerging technologies and opportunities for strategic expansion.
Our services
Companies are facing an accelerated need to adapt their business models, multiply their impact and enable a path for future success. We believe that organizations with the ability to adapt and respond to changing demands from customers and employees will survive and thrive.
We help our clients re-examine their core business models and effectuate changes in to enable sustainable success.
We deliver our services through our Studio model, Globant X, and our global autonomous culture, each of which is further described below.
1. Our Studios:
We believe that our Studio model is an effective way of organizing our company into smaller operating units, fostering creativity and innovation while allowing us to build, enhance and consolidate expertise around a variety of emerging technologies and industries. Our 30+ Studios are deep pockets of knowledge, bringing expertise to technologies and industries. We utilize our Studio model to deliver tailored solutions focused on specific challenges and improving the connection between organizations and their customers and employees.
Our Industry Reinvention Studios were designed to focus on specific industries in order to assist our customers reconfigure their businesses, operations, and technology to respond to demands from customers and employees.
Our Digital Studios focus on developing business models and technical capabilities in the latest technologies and trends to help our customers with their digital transformation, digitizing processes, experiences, and their relationships with their stakeholders, among others.
Our Enterprise Platform Studios combine Globant's knowledge and expertise in enterprise platforms such as Salesforce, SAP, and Oracle with its world-class technologies to drive process innovation, optimization, and customer value.
Our Industry Reinvention Studios:
Airlines: Enhancing passengers experience through digital innovation
By recognizing the airline industry's highly competitive and regulated nature, we leverage our cross-industry expertise to drive digital transformation and boost business for our clients by putting the passenger experience at the forefront of all strategies.
The portfolio of services we provide through this Studio includes:
•Airlines eCommerce - One Order: We provide strategic consulting to our clients intended to mitigate complexities in their businesses and embrace an order-centric approach. Leveraging the power of data, we help our clients build customized, unique experiences for their passengers, enabling them to handle trips, products, and services in a seamless manner.
•New Distribution Capabilities (NDC): We provide public application programming interface ("API") consulting that leverages our extensive experience in NDC and OpenTravel industry standards across different versions and implementation strategies as an alternative to classic indirect channel solutions. NDC Strategy allows airlines independence from global distribution systems for distributions, enabling better and more specific ancillary offerings and improved fulfillment capabilities.
•Augmented Revenue Management: We aim to augment Revenue Management Analysts' capabilities through the use of technologies such as Artificial Intelligence ("AI") and Machine Learning ("ML"). We provide analysts with a better understanding of trends in the marketplace, enabling the automation of the simpler and more mechanical decisions while allowing them to work on more complex decisions, such as those that have a greater opportunity for revenue improvement.
•Hyper Connected Operations: In a world reshaped by the Covid-19 pandemic, airlines have a major opportunity to embrace AI to enhance operations and crew management. Its use enables faster decision making and better communication with the crew and ground personnel. It allows rapid and effective irregular operations, or IROPS, management and real time optimization by detecting already identified patterns and simulating “what if scenarios” proactively. An integrated customer database with a crew system enables a better customer relationship management of FFP with a higher level of personalization, as well as better visibility of customer needs and situations during a disruption.
•Conversational User Experience: We leverage Machine Learning Techniques and AI to increase the ability of the passenger to interact in a human-like way with IVRs and contact centers, which enables a better experience for complex customer needs.
Automotive: where mobility meets scale
This Studio leverages opportunities in the automotive industry, building the bridge from where this industry currently stands, to where it’s headed. Our experts and partners are creating cutting-edge solutions, scaling and enhancing customer experiences, leveraging AI for efficiency and boosting new business models.
The portfolio of services we provide through this Studio includes:
•Software-Defined Vehicle - We help OEM’s and mobility companies with the implementation of software architecture to better access, understand, use, and update services necessary for new mobility solutions.
•Mobile Customer Engagement - We increase customer engagement with designed personalized marketing content, engaging digital experiences, and real-time data analysis.
•Connected Mobility - We unlock the power of the vast data lake to build intelligent, personalized features and revenue-generating mobility services.
•Autonomous Driving - We help our clients implement autonomous systems, robotics, and machine learning to accelerate autonomous vehicle development.
•Manufacturing & Supply Chain - We improve manufacturing operations and overall equipment effectiveness by capturing, analyzing, and visualizing plant floor data. We also implement AI and machine learning to process all supply chain information to track and trace the entire production process with unparalleled efficiency.
•Product Engineering - We assist our clients in reducing time to market by empowering product developers and engineers with the ability to solve complex problems using high performance computing, model-based design, and large-scale parallel simulations.
•Mobility enters the Metaverse - We help our clients boost new revenue streams through the development and launch of gaming platforms, NFT designs, product showcases, virtual venues and events, and even virtual immerse trainings.
•Sustainability - We support our clients to evolve into an environmentally responsible organization by embedding sustainability and sustainable innovation across the value chain. Future transportation technology will be sustainable.
EdTech: creating immersive learning experiences
The education industry is facing a new paradigm shift, in which learning and teaching experiences are undergoing a digital transformation. This Studio helps to personalize those experiences with scalable technology solutions to build more robust, accessible, engaging, and compelling content throughout the entire learning cycle.
The portfolio of services we provide through this Studio includes:
•Lifelong Learning - We work on the combination of Web3 technologies, stackable micro-credentials, assignment planning, and counseling that can empower learners and improve their livelihoods.
•Personalized & Adaptive Learning - We leverage applied data, accessibility, real-time tailoring, and dynamic content strategies to deliver personalized and adaptive learning experiences.
•Immersive Learning Experiences - We design and create VR/AR/XR simulations and build Smart Venues and Phygital spaces such as Metaverse or gamified experiences, that enable the ability to share information in new ways, which enhances learning.
•Community Engagement - A deep understanding of what it means to deliver lifelong learning experiences includes other relevant aspects like personal student support, mentoring, and tutoring. Physical and mental well-being are also an essential part of learning, and we assist our clients in ensuring that students are supported in their learning experience.
Finance: driving innovation in financial institutions
This Studio leverages our in-depth expertise in the financial sector to deliver customized transformational programs tailored to our client’s needs, which boost new business models and enhance the experience of customers.
The portfolio of services we provide through this Studio includes:
•Digital Lending - We empower financial institutions to adopt the most innovative digital lending practices and enhance the experience for banks, specialized lenders and consumers.
•Commercial Effectiveness -The way in which financial institutions have offered their services to customers has completely changed. Customer expectations are at an all-time high, competition is increasing, and margins are under constant pressure. We help financial institutions reinvent their commercial strategy, transforming their distribution model, customer value propositions, branch-network productivity and incentive schemes to gain efficiency and effectiveness in all customer interactions.
•Finance, Sustainability & Regulation Analytics - To optimize their results, financial institutions must efficiently deploy their resources and capital. Optimization requires an accurate cost-benefit analysis of financial and non-financial risks, such as transitions risks and physical risks. Based on our expert knowledge in finance and regulation, and the use of advanced data and AI capabilities, we are enabling financial and capital management to adapt to new challenges.
•Transformation and Post-Merger Integration - The banking industry is going through continuous consolidation cycles, driven by the need to increase efficiency. We help financial institutions design their target operating models and provide functional support and Smart PMO during the integration process.
•Payment Solutions & Open Banking - We assist financial institutions with their payment solutions to evaluate and reshape their existing capabilities, fraud and acceptance models, processes and customer journeys, among others. These solutions are driven by our deep knowledge of advanced analytics and awareness of new open banking trends and their impact on the entry of new competitors.
Gaming: Engaging through play
Our Gaming Studio specializes in the design and development of world-class games and digital platforms, which work across console, PC, web, social and mobile channels.
We enable our clients to leverage game mechanics by helping them develop a vision and execute an idea through production, launch and operation. We believe that our expertise and experience with some of the most recognized companies in the gaming industry enables us to add value to our customers' businesses. We utilize our experience, creative talent, well-established technology frameworks and processes to scale and foster innovation.
The portfolio of services we provide through our Gaming Studio includes:
•Game and graphic engineering - We engineer gaming and graphics to support Unreal, Unity, C++ and custom game engines including rendering systems and game engine support.
•UI and UX design - We assist companies with design, engineering and art, and QA support.
•Online services - We help companies to integrate lobby services, multiplayer, match-making, user authentication, events, achievements, eCommerce and cloud-supported backends.
•Game as a service (GaaS) - We provide services to establish subscriptions, microtransactions, online stores, notifications, promotions & offers into games.
•High tech tools - We engineer platforms for rendering, level design, community, engine optimization and more.
•DevOps - We assist companies in their continuous integration and development and cloud services for AWS, Azure, Google Cloud Platform, and custom solutions.
Healthcare & Life Sciences: Reinventing the Life Sciences ecosystem through tangible technologically-driven solutions
Technology and life sciences are now intertwined. We aim to bridge the gap to help life sciences and healthcare organizations achieve their mission of delivering innovation and services faster and more efficiently by enabling them to enhance patient value and improve outcomes.
The portfolio of services we provide through this Studio includes:
•Drug Discovery - We assist our clients with their work in improving treatments for patients by bringing better drugs to market faster and enabling personalized medicine through an application of AI/ML to early drug discovery. Services include development of algorithms for biological targets identification, drug design, drug screening, drug repurposing, and chemical synthesis to scalable AI platforms to manage multiple product pipelines. In addition, the application of natural language processing ("NLP") to literature mining assists our clients in unlocking the wealth of data in public and private databases for drug discovery and translational medicine.
•Clinical Trials - We provide companies with services that facilitate patient-centric and data-enabled decentralization of clinical trial ("DCT") operations to democratize patient access to clinical research, drive efficiency, and reduce timelines and cost. We also help companies leverage digital technologies to support patient identification, recruitment, and engagement, as well as remote patient monitoring and at-home care. We also enable companies to deploy AI/ML, blockchain, and IoT capabilities on top of a strong data strategy and infrastructure to develop innovative and scalable data platform solutions for decentralized and hybrid clinical trials.
•Disease Management & Value Based Healthcare - We offer our clients services that facilitate user-centered and engaging patient experiences that combine technology and behavioral science, helping our clients enable people and patients to meet their health goals, such as adherence to chronic treatment, increased physical exercise, and maintaining doctor appointments. Our customers are provided with technological solutions that support prompt diagnosis in rare diseases as well as non-communicable chronic diseases, such as high blood pressure, cancer and migraine. We also work with companies to create strategies and end-to-end solutions to manage the entire health data lifecycle, whether it be healthcare use, real-world evidence-based research projects, or to generate insights for decision-making.
•Go To Market Strategy - We help organizations to create customer-centric strategies to put the patient first and accelerate the launch of products and services. Augmented organizations can deploy innovative customer engagement tactics by developing a personalized offering through omnichannel, with MadTech and Data Strategy as backbones.
Media and Entertainment: Reach and engage new audiences
With this Studio, we partner with our clients to build meaningful relationships with their customers by providing the most effective and relevant ways of creating, managing, delivering, and monetizing content.
The portfolio of services we provide through this Studio includes:
•Broadcasting: We help radio and media operators to optimize their existing broadcast platform by combining cloud-based platforms and everything-as-a-service (XaaS) models.
•Streaming Experiences - We design, build, launch and sustain premium video experiences across every mobile device, OTT box, Smart TV, and Game Console for the best media companies in the world, driving user engagement and increasing monetization.
•Media Supply Chain - It's not just about apps. Media solutions are highly complex, fragmented and interdependent. Every step in the workflow is critical. Everything must seamlessly operate as part of a larger whole. We understand and provide services that support the entire media supply chain; from ingest and transcode through to content distribution and publishing, all the way to user experience and playout.
•Quality Lab - Using the latest technologies in Quality Engineering, including Test Automation and Load & Performance Testing, our QA process is a core part of the development lifecycle, ensuring the quality and consistency
of the experience across an ever growing ecosystem of devices and platforms, and is able to handle high volume events.
•Customer Insights & Monetization - Combining our capabilities in Digital Marketing and Data and AI, we build modern and scalable data platforms that put the customers in the middle, tracking and aggregating all touchpoints along their journey, to better understand their needs and preferences, improving their experience, reducing churn and boosting LTV.
•Reliability Operations Center - By combining our expertise in Cloud Engineering, DevOps and Cybersecurity, we help our clients to accelerate and automate deployments of new features, improve time to resolution of production issues and increase the overall platform reliability and security by optimizing their platforms, cloud environments and systems through smart monitoring with a cost-effective and scalable solution that can drive significant savings in OPEX costs.
Retail: Transforming relationships and unlocking value
Exceeding customer expectations is only part of the retail journey. There’s a whole supply chain challenge behind the scenes that’s critical to the sector. We boost innovation through digital retail solutions for full supply chain visibility and automation in tandem with creating phygital experiences that boost engagement for customers.
The portfolio of services we provide through this Studio includes:
•Closer to the customer - By integrating technology, business and design, we help our clients transform end-to-end shopper experiences. Whether it is creating human-centric, data-driven and tech-enabled experiences both in the online and offline world, driving engagement in the metaverse, or creating phygital innovations, we help connect with customers in new ways, driving hyper-personalized omnichannel experiences.
•Smart Loyalty - By leveraging behaviors and insights from adjacent industries, we utilize data and technology to unleash the power of customer loyalty, and expand it to monetize data to partners and other stakeholders.
•Transforming Operations - We help companies transform and redefine each step of their day-to-day operations and strategy using cutting edge technology and analytics. Companies can leverage blockchain technology to ensure traceability of products, warehouse automation, and planning of floor operations and delivery.
•Next-gen commercial management - The retailers who will be at the vanguard of growth will be the ones who leverage data, AI, and technology to boost the impact of commercial decisions. From using real-time data to set dynamic pricing, to utilizing digital and analytic tools to innovate next-gen merchandising, the future of retail is dynamic.
•Beyond Innovation - We’re always working to identify and define new business models that drive alternative revenue streams for clients. The core offering of a retailer is only one part of an ecosystem that brings additional value. The path towards sustainable growth involves expanding mindsets, opening the aperture of what’s possible.
Smart Payments: empowering the future of payments
We provide strategic business and technical consultancy to help organizations analyze their payment programs, develop technical integration, and deliver experiences that are seamless, personalized, and engaging.
The portfolio of services we provide through this Studio includes:
•Payments for Digital Commerce - By applying human-centered design methodologies, we drive behavioral insights into front-end innovation, define back-end transformation roadmaps and architecture, and ultimately achieve business objectives, including improved conversion rates, loyalty, and trust.
•Alternative Payments - We work with our clients to integrate smart payment methods and solutions by analyzing, advising, and co-creating the best scalable solution according to each industry and each client’s needs.
•Rewards & Loyalty - We work with our clients to innovate, design, and implement rewards programs. Leveraging strategic service design concepts, we activate behavioral insights derived from customers' interactions. We develop scalable, open designs that support both individual and co-branded campaigns with clients and their partner ecosystem.
•Payments & Cards Analytics - We help our customers design analytics solutions that can deliver powerful insights across the value chain of the digital payments and cards business to enhance customer experience, create new products, increase revenue, and reduce risk.
Sports: Top-tier technology for top-tier sports organizations
World-class sports organizations are focused on developing and enhancing their technological capabilities. To outperform competitors on and off the field, sports organizations must maximize sponsorship value year after year, while still delivering a robust fan experience. We’ve partnered with some of the biggest names in sports, leveraging data, technology, and gaming to increase reach and build sustainable fan engagement, while increasing monetization opportunities.
The portfolio of services we provide through this Studio includes:
•Fan Engagement - We utilize technology to generate new conversations and maximize loyalty with new and existing fans by leveraging zero-party data to generate hyper-personal interactions.
•Fantasy and E-Sports - We help leagues turn spectators into participants through the utilization of cutting-edge participatory technology.
•Sponsorship Acceleration - Utilizing cutting-edge digital tools, we empower our clients' partners to maximize the return on investment of sponsorship deals and ensure repeat business.
•Media / OTT - We help organizations reach and engage new audiences with their content through AI and expansive streaming capabilities. Our clients are empowered with the ability to reinvent and over deliver in a rapidly changing landscape.
•Next Gen venues - Through a mix of augmented reality, interactive seating, sustainability, image recognition, edge computing, and more, smart stadiums will not only extend the physical experience of sports but reinvent it by providing a new way of accessing the event.
•Augmented Strategies - We provide the latest technologies to improve training and overall athlete performance. By providing timely in game data to the organization, coaches and training staff are able to make informed decisions in an efficient manner.
Hospitality & Leisure: Building experiences that create long lasting memories
Guests expect personalized, end-to-end digital interactions.. We leverage the latest trends and technologies to help companies create a frictionless customer-first approach that delivers relevant and context-appropriate experiences to their guests.
The portfolio of services we provide through this Studio includes:
•Phygital Guest Experiences - We merge the digital and physical worlds to create unique and frictionless experiences. We help our clients understand their guests to create the right experience. With an omnichannel data-driven approach, our phygital guest experiences offer different ways to interact with brands. Through marketing and discovery, bookings, eCommerce, and loyalty programs, and leveraging our Digital Studios, we significantly improve guest experience.
•Employee Operations - Through an integrated legacy system, a simplified user experience, and automation for repetitive manual processes, we help employees focus on creating new experiences and connections with their guests. With our expertise in Cultural Hacking, we also help our clients to keep their workforce engaged, recognized, and working in a fun, innovative environment.
Our Digital Studios:
Agile Organizations: Enabling organizational evolution in the constant change of business.
Organizational agility is the difference between a company flourishing or disappearing. We’re constantly studying the art of adaptation, perfecting tools and tactics such as evidence based management, value stream flow, and adaptive strategy cycle, which help companies successfully navigate uncertainty.
The portfolio of services we provide through this Studio includes:
•Business Agility - We provide strategic consulting services that help organizations develop organizational capabilities, behaviors, and ways of working that offer the freedom, flexibility, and resilience to compete and thrive in the digital age.
•Ambidextrous Capabilities - We establish processes and structures for organizations to exploit the current value propositions and explore new ones simultaneously.
•Value flow effectiveness - We set up capabilities that enable the continuous improvement of value flows achieving efficiency and effectiveness and enabling organizations' end-to-end lean flow management.
•High Performance Teams - We develop and establish practices, metrics and ways of working that allow teams to improve and pursue high performance.
•Organizational Morphology & dynamics - We design and co-create new structures, dynamics, processes and interactions that empower collaboration, alignment, self organization, ownership and innovation. We aim to reduce dependencies, time to market and bureaucracy by improving the decision making process
Blockchain: Driving decentralized solutions
We design and build tailored decentralized and resilient solutions that boost strategic business value enabling efficiency, immutability and transparency.
The portfolio of services we provide through this Studio includes:
•Digital Tokenization - We design solutions to leverage token economics and non-fungible tokens to empower the ownership of digital assets. Through digital tokenization, we help organizations to develop novel business models in a variety of industries, including art, music, finance, manufacturing, real estate and supply chain.
•Smart Contracts - We design and build fast, transparent and secure decentralized solutions that enable transactions and agreements to be carried out without the need for a central enforcement mechanism. We help our clients to scale down on intricacy and costs associated with traditional methods without compromising authenticity and credibility.
•Decentralized Finance ("DeFi") - We use our in-depth cross-industry knowledge to help organizations adopt DeFi-based solutions to optimize, automatize and improve the overall security of their operations. We guide our clients in the design, implementation and exploitation of distributed, transparent, fast and secure blockchain-powered financial products and services.
•Platforms Consulting & Development - We provide strategic consulting on how to effectively leverage blockchain for business transformation. We partner with our clients to devise and implement tailored blockchain-powered solutions for key businesses and industries.
Business Hacking: Disruptive ways to create new business value
Digitalization and high consumer expectations are radically changing the way we interact with each other, and organizations who know how to manage these trends will be successful. Our business hacking framework is designed to make transformations tangible, measurable and in order to find new ways to optimize culture and business impact.
The portfolio of services we provide through this Studio includes:
•Digital Business Acceleration - We help accelerate business transformation by focusing on key strategic levels, including process, data, technology, experience, and culture.
•Digital Business Growth - We find new ways to strengthen and scale business while boosting the revenue of existing digital assets to maximize return on investment.
•Digital Business Innovation - We focus on the creation of new business models, value propositions and value monetization, exploring the limits of existing core business and revenue streams, by analyzing data and consumer behavior within the context of a sustainable transformational program.
CloudOps: Helping our customers embrace their cloud transformation journey
By combining the best in cloud technologies, DevOps practices, and innovative capabilities we facilitate new and more efficient ways of doing business.
The portfolio of services we provide through our CloudOps Studio includes:
•Cloud Transformation Advice - By leveraging our Enterprise Cloud Transformation framework we can help our customers develop a roadmap that factors in the following key pillars of a successful journey to cloud: business, people, process and technology.
•Building Cloud Environments - Our Enterprise Cloud Transformation Framework helps our customers leverage proven best practices and a deep pool of real-life experiences to tailor their cloud presence to particular business challenges. Our five step approach to building cloud-native environments will enable customers to implement flexible, scalable and highly available solutions to meet present and future needs.
•Moving Workloads to the Cloud - Our Enterprise Cloud Transformation Framework includes a variety of strategies to move applications to the cloud.
•Cloud Support & Operation - Our services have been designed to operate cloud infrastructure through a skill-flexible, cost-effective offering that can cover a variety of practices with an elastic pricing model. Our 24x7-capable support services leverage the skilled support model to resolve incidents and complete requests faster than the traditional multi-tier support approach.
•Chaos Engineering - Chaos Engineering is responsible for implementing state-of-the-art techniques and practices to create, build and assure what we call a “llity-pattern” (scalability, reliability, availability, quality) for our customer's products, applications and services. We use Chaos Engineering tools to design and execute use cases that test and identify bottlenecks in our customer's cloud environment. Our approach focuses on helping companies predict issues rather than fixing incidents from network and application outages. We combine cloud testing with specific application testing techniques to ensure broader coverage.
•Site Reliability Engineering - We provide guidelines to prepare the appropriate infrastructure, observe and analyze performance and execute countermeasures for risks.
Conversational Interfaces: Humanizing the technology
Language and voice are some of the most powerful tools we’ve evolved for communication. We believe customers want to engage with companies in a more human way and our accelerators can make it possible.
The portfolio of services we provide through this Studio includes:
•Assistants & Channels - Whether a company wants to have presence in Alexa, WhatsApp or Slack, our platform has connectors for all of them, and can setup, enable or disable them as needed.
•Conversation Engine - Our platform has built-in features to accelerate a company's assistant capabilities. We have components for onboarding, corporate login, connecting to Salesforce or even completing business domains as virtual wallets.
•Natural Language Processing - Companies are often deciding between Rasa or DialogFlow for processing natural language. We can help you make up your mind or even switch between them seamlessly if you decide to do so.
•Conversational Transformation - A company's business needs to be part of the conversational revolution, as their customers want to engage their digital channels in a more natural way. We can help fill the gap of the multidisciplinary team required to build that custom experience from the ground. We have experience designing, building and testing conversations through different channels.
Cultural Hacking: Powering cultural transformations
We focus on crafting cultures of empowered and innovative people that help organizations reach their purpose and business goals.
The portfolio of services we provide through the Studio includes:
•Organizational Design - We assist our clients in building organizations to fulfill their mission statements. We assign people to each area, create a people-centric mentality, design skill requirements, and build a change management plan that keeps businesses running while creating a new model.
•Leadership Mindset & Organizational Upskilling - We empower leaders and employees to reach their full potential through training, mentorship and coaching, along with other techniques to create the right mindset to manage changes and evolutions.
•Cultural Strategy - We define a cultural strategy that empowers people and accelerates business results. We discover and create a comprehensive roadmap to successfully deliver every stage of a transformation plan including a holistic view of business, data, processes, experiences and talent journey. We co-create the key aspects of our customers' culture including the purpose, values and competencies of the organization.
•Talent Journeys - We craft amazing experiences to lead people to organizations where there is great coherence between strategic goals, values, communication, competences, and the talent experience. We define specific journeys including onboarding, recruiting, staffing, innovation, diversity, leadership, and learning. We generate a direct impact on companies' employer branding.
•Change Management - We ensure the success and adoption of new technologies and business changes by actively focusing on managing change and creating bridges between the old and the new.
Cybersecurity: Building secure digital experiences
We help organizations create secure digital experiences by improving the maturity of software development processes. We have built proprietary security tools to enable businesses to gain better visibility into security risks and quickly take action when needed.
The portfolio of services we provide through this Studio includes:
•Cybersecurity Assessment - We evaluate customers' cybersecurity maturity with two key targets: the organizational security assessment and the technical assessment.
•DevSecOps - We help organizations build secure software using industry-recognized best practices, design secure applications by integrating security into the architecture and infrastructure design, and reduce software development costs with security by design, resulting in fewer defects, vulnerabilities, and code fixes during production.
•Cloud Security - We leverage cybersecurity frameworks and best practices in order to implement cloud security, which is based on the following five pillars: identity, network, application, detection, and continuity.
•Cybersecurity Operations - Our Shared Services center has a 24x7 CyberSOC that offers organizations the following: incident detection, incident response, and vulnerability assessments quickly identify and perform a remediation action.
Data & AI: Discovering the real value of data
Using Design Thinking methodologies, we partner with companies’ internal teams to discover, define, and build the best data products and data strategies to meet their business needs. Following agile methodologies, we evolve products and designs from early definitions to get them live in production, ensuring that throughout the process business stakeholders are involved and aligned with the final product.
The portfolio of services we provide through this Studio includes:
•Data Strategy - We believe data can be a side effect of a company's operations or a pivotal element in its business strategy. Data strategy is about how a company captures, analyzes, maintains and processes data in order to augment its business value. We believe in a focus on technology and design choices to build value in a scalable, reliable and reproducible way, and the tools set in place to improve the way personnel can make and act on their decisions. With our extensive experience and top notch technical expertise and business acumen, we guide our clients in empowering their business models through data, consult on technological decisions, and on the processes and change management to make them effective.
•Insights - We believe collecting and accessing the right data is important, but the greatest value comes from analyzing and interpreting the data, to better understand the situation, generate new insights and decide on actionable outcomes. This requires a data-savviness for which most businesses lack bandwidth, coupled with business knowledge of their strengths. We partner with our clients to extract the best information from their data and assist them in their operations and strategy side by side and day to day.
•Data as a Product ("DaaP") - Companies understand that data is one of their most valuable assets. That is why we work together to co-create data products and maximize value from them. Our expertise in different business verticals allows us to execute projects following best practices and quality standards. With the premise to generate internal and external value through data, we help our clients create a variety of solutions with different focuses such as improving customer experience, optimizing costs, generating revenue, and obtaining data insights, among others.
•Data Platforms - Exploiting valuable and relevant data is of paramount importance to the success of modern organizations, from harnessing insights up to generating revenue streams from novel data products. Data platforms have emerged as the cornerstone solution that enables organizations to efficiently exploit and benefit from data in a cost-efficient, scalable and secure manner. We partner with our clients to design and build data platforms as integrated technology solutions that enclose the elements required to support the entire data lifecycle, from data governance to AI and machine learning models.
•MLOps - In our experience, companies have embraced the concept of DevOps in the last couple of years which has enabled them to make software reach scale at higher levels. Data products such as data visualizations or AI models also need a similar set of practices that help the organization manage their availability in a similar fashion. Our experience on software engineering combined with our deep knowledge of data & AI has allows us to develop MLOps practices that enable organizations to manage these products at scale. MLOps means transitioning from POCs into full scale enterprise data solutions.
Design: Designing relevant experiences
The Design Studio delivers quality, design, strategy, and production to address worldwide digital challenges. We base the definition of our design on the evidence of consumer behavior and observation of market trends. We create solid and relevant solutions that appeal to both users and businesses.
The portfolio of services we provide through this Studio includes:
•User Experience - By identifying verbal and non-verbal stumbling blocks, we refine and iterate to create an exceptional user experience. From user research and usability analysis to interactive design, we enhance interactions, information architecture, usability and persuasion. We help our clients inspire their communities, foster adoption and drive conversion results.
•Visual Design - We utilize an insightful and conceptual approach to create and execute designs. We develop visual elements of an interphase and implement a brand personality into the interaction design. We establish relationships with the users by creating emotional interfaces and brands based on deep analyses of end-users and market trends. In much the same way that a piece of art appeals to the human eye, we strive to visually and emotionally engage users.
•Service Design - Service design involves the activity of mapping, prototyping and planning cutting-edge product-service systems and how the actors should interact to bring those omni-relevant experiences to market. From strategic and operations management to business design, we apply a holistic approach to understand, create and orchestrate strategic scenarios, working in collaboration with multidisciplinary teams. Our service designers co-design with clients and customers translating research insights into actionable plans and viable opportunities for growth.
Digital Sales: Increasing digital sales through new marketing, data and technology.
Our Digital Sales Studio aims to solve key business problems and boost results by disrupting traditional sales and marketing processes through our end-to-end model with customer data and lead management technology.
The portfolio of services we provide through this Studio includes:
•Media & Traffic Acquisition - Working alongside our Digital Marketing and Design Studios, we blend physical and digital experiences to engage with clients and prospects. We use zero and first-party data to understand online and offline behavior, and to target the right audience. We use advanced segmentation engines to personalize every interaction, and also develop unique media strategies that blend traditional and non-traditional channels to be relevant at every interaction.
•Advanced Lead Management - We leverage Lead Qualification and Conversion Rate Optimization initiatives by using AI and personalization engines with a clear performance-oriented focus. Our Advanced Lead Generation practice will help companies reach their desired engagement levels with relevant, dynamic, and personalized content as companies drive prospects towards acquiring their products and services.
•Lead to Sales - Through our advanced attribution models and use of the latest technology, we can increase company success rates by both integrating relevant data points (contact center, owned media, offline data, among others) and obtaining a unified view of the customer journey that is mapped with a sales funnel. Visualizing and using that information can help to build and adjust company strategies and turn qualified leads into sales.
•Customer Development - By using innovative channels and assets, we deliver unique experiences to customers, achieving higher lifetime values. We collect and process relevant data to understand customer behavior that enables us to deliver more efficient marketing strategies.
•Data, Martech & Adtech - MarTech and AdTech capabilities are the pillars of the digital sales transformations. We prepare marketers to collect, manage and activate data properly through connected architectures, which creates more relevant and identity-based experiences. To deliver the best results and manage user consent and privacy properly, we use a sustainable approach that ensures data quality, tech expertise, agile implementations and collaborative operations.
•Operational Success - We create collaborative operating and governance models to enable our clients to conveniently orchestrate internal and external stakeholders.
Digital Experience Platforms: Leading consumer experience to intelligent digital journeys
Our Digital Experience Platforms Studio focuses on crafting contextualized cross-channel experiences across customer digital journeys using seamless, personalized and scalable solutions.
In the cognitive era, we believe that disruptive thinking in the search for new roads to gain consumers and the support of adaptive technologies are key to success. Within our Digital Experience Platforms studio, we help companies to find smart new ways to engage their consumers through innovative omnichannel delivery to bring their services and products to unknown spaces to them.
The portfolio of services we provide through the Studio includes:
•Augmented CMS - We help create omnichannel experiences. We do this by delivering an integrated cross-channel content strategy that enables a business to manage multiple channels and customer interactions, with the result of a unified experience for the customer. Through predictive personalization we deliver relevant and ubiquitous content to each consumer.
•Augmented Commerce - Through design-led thinking we discover consumers’ ideal touch points and recommend digital channels to reach consumers while leveraging Augmented reality, voice-user interface, unmanned kiosks, rewards and gamification.
•ePayments - We understand the technology that companies need, including tokenization and biometrics, and have a deep understanding of the different regulatory environments for ePayments. We also recognize the challenges including the lack of standardization, consumers lacking in familiarity, and cybersecurity. We can quickly implement new digital methods, such as contactless payments and digital wallets.
•Educational technology - We embrace technology to make learning more engaging. We are ready to create engaging online learning products that we believe inspire us all to continue to learn and develop new skills. We provide dedicated services for educational organizations in need of digital learning solutions, as well as for businesses looking to transform how they train their employees.
Digital Performance: Maximizing technology delivery
We reinvent how people, processes, and technology work together because high functioning teams produce the most valuable work product.
The portfolio of services we provide through this Studio includes:
•Roster - We drill into data to identify opportunities and diagnose issues across all other dimensions.
•Context - We identify process flow, collaboration, and resource issues.
•Capability - We identify capability levels and gaps, and their consistency across teams and organizations.
•Performance Enablement - We understand how well teams are empowered to perform at their best.
•Happiness - We identify attrition risks and their root causes.
Digital Marketing: Making brands more engaging
The Digital Marketing Studio combines a data-driven approach with forward-thinking creativity to detect and solve organizations' most pressing, deep-rooted digital marketing challenges. By working cross-functionally and leveraging technology to design, we create and execute high-impact, innovative strategies that exceed business' goals.
The portfolio of services we provide through this Studio includes:
•Marketing Strategy - We develop digital marketing strategies focused on business needs, shifting from product-centric to customer-centric. We help introduce a digital marketing strategy, create a brand position, and re-define our customers' go-to-market strategy
•Marketing Analytics - We believe that being data-driven is imperative for making business decisions in the digital transformation era. We use relevant data to answer business questions, discover and enhance relationships, predict unknown outcomes, and automate decisions.
•Content - We create and implement content strategies based on a brand’s business goals, challenges, and audiences. We believe in content as a way to develop awareness and authority for a brand. We provide content strategy, creation, publishing, moderation, and optimization services.
•Social Media - The best way to be customer-centric is to create direct conversations with customers and prospects, engaging with them where they are, and deliver relevant, compelling messaging. We provide social media strategy, community management, and social media listening services.
•Search Engine Optimization and App Store Optimization - We help organizations give their brand a voice and a personality. We assist companies in improving their brand and domain authority, and attracting more qualified traffic. We do this via search engine optimization ("SEO"), as well as app store optimization ("ASO") strategies and services.
•Marketing Intelligence - We use and interpret data to detect marketing opportunities and trends relevant to drive business goals forward. We deliver dashboards, reports and actionable insights analysis.
•Digital Advertising - We craft campaigns that leverage relevant data while staying cost-conscious. Our services include SEM, social and display ads, monetization, programmatic advertising, and direct selling.
•Marketing Automation - We deploy marketing automation technologies to be customer-centric and deliver personalized communications and have experience with all major automation tools. We can help our customers measure the ROI of their marketing efforts, nurture and score leads, automate tasks and workflows, and more.
Fast Code: Move faster. Deliver value.
We deliver value at a high rate by leveraging our set of flexible and ever-evolving platforms that accelerate software development. By improving time-to-value, we help our clients tackle present and future challenges.
The portfolio of services we provide through this Studio includes:
•Lead time reduction - Blending our expertise in Lean Agile Software Development, DevOps, and AI with state-of-the-art techniques and accelerators, we improve each organization's time-to-value, reducing the time between a business need emerging to its fulfillment and market fit.
•TCO Optimization - Taking advantage of advanced technologies we disrupt the traditional application development process to increase productivity, quality and reduce skill-set requirements for developers.
•Business Continuity - We future-proof companies' technology infrastructure with a sustainable vision and reduce the risk of technical debt, which is a strategic asset for business continuity.
Internet of Things: Connecting the physical world
We specialize in providing end-to-end solutions focusing on edge and IoT platform development. Our wide expertise in hardware integration and embedded software development that seamlessly merges into Cloud Platforms ecosystems blurs the boundaries between the physical and digital worlds.
We help our customers to develop new business opportunities and enhance existing products and services, bringing new ones to life.
The portfolio of services we provide through this Studio includes:
•Edge Development - We integrate and enable both standard and non-standard hardware platforms pushing companies' device capabilities forward.
•IoT platforms - With our platforms, we can develop device management strategies, update campaigns, data storage, data visualization, applications, services integration, data analytics and digital twin-based applications.
•Research and development - Our ideation funnel inputs client business needs, metrics, and use cases together with our flexibility to power ideation. With the aid of product development and user experience teams, this materializes into a device integrated with its services.
Metaverse: We open portals into the metaverse
The Metaverse Studio focuses on opening portals to digital spaces for our customers by providing a pipeline for digital twin generation and enhanced content production systems, resulting in a presence in the different virtual online worlds. We help companies create and operate their new virtual spaces where they can extend their brand presence and product offering, which maximizes engagement with their clients and employees while reinventing their business verticals.
The portfolio of services we provide through our Metaverse Studio includes:
•Projection to the Metaverse - Our Strategic Consulting program is aimed at exploring business needs, fit of different existing metaverses, limitations, implementation and operation costs involved, and includes a custom creation program plan for particular scenarios. We help brands to explore the different storytelling options available to digitize their culture and services and define the proper steps for implementation with the proper art style and visualization support.
•Virtual Worlds & Digital Twins - We help the top centralized and decentralized metaverses gateway and systems providers all over the world by supporting their product, engineering, infrastructure, art, and quality assurance needs across different platforms and regions. We co-create simulations, synthetic environments, and Industry 4.0 Software solutions that support our client implementations and visions of the Metaverse.
•Virtual Productions - We create the most compelling content production assets that supports different campaigns and uses across various industries. We are experts in art production pipeline and real time productions using game engines. We design and implement product showcases and virtual venues, and provide event support and immersive training development.
Product: Delivering best-in-class digital products
We help clients solve the right problems, delivering value for customers and client organizations from strategy through product delivery.
The portfolio of services we provide through this Studio includes:
•Product Strategy - We focus on market research, business model definition to help companies identify customer acquisition strategies and products in order to close the gap between corporate strategy and identified problems. Product Managers help companies discover core user problems, define effective solutions, implement product development practices, establish product organizations, evolve product governance, and define go-to-market strategies.
•Product Management and Delivery - Fully engaged product owners who are able to collaborate with stakeholders, customers, and development teams to set vision, experience, and outcome objectives. Through iterative wins, we develop continuously focused product solutions that are driven by priority value.
Quality Engineering: Enabling quality everywhere
Our Quality Engineering Studio focuses on reducing our clients' business risks. We provide a comprehensive suite of innovative and robust testing services that ensure high-quality products to meet the needs of demanding, technology-avid users. Cutting edge quality strategies increase test efficiency, decrease time to market and reduce the risks inherent in producing challenging digital journeys.
Our "round the clock" approach leverages the close-knit nature of quality assurance across geographies and time-zones to achieve continuous testing. This approach aligns with build schedules to utilize our onshore, nearshore and offshore teams to their maximum potential.
The portfolio of services we provide through this Studio includes:
•Agile Testing - Although many organizations have adopted Agile methodologies to build quality into their practices, testing remains a challenge for teams. With our expertise in Agile testing, we help organizations adapt their testing approaches and tools, as well as their traditional roles and responsibilities to these new practices.
•Automation Testing - We have deep expertise in offering test automation services and developing test automation solutions and frameworks. Test automation is a key testing practice to increase test efficiency, reduce time to market, and be less prone to the human error inherent in manual testing.
•Load and Performance Testing - We help organizations create a 360 degree performance test plan. Our services cover the spectrum from the backend and database, to mobile app and frontend performance testing. We are experts in application performance monitoring. We identify in real-time the user experience, resource consumption, and map transactions and applications to infrastructure components.
•AI Testing - We use AI-based tools to improve, enhance and enable testing strategies. We also use testing strategies to evaluate and improve the performance of AI-systems. With machine learning we improve the performance of test automation frameworks. Our AI testing services include functional, differential, and UX/UI testing. For organizations implementing and using machine learning models, we can define and implement customized testing strategies to assess and validate different machine learning models.
•Game Testing - Our team of gaming professionals have deep experience in launching AAA games to market. Our work ranges from the upfront design to testing, to market launch and continuous development. We bring together expertise in game development and testing, and our services span the spectrum of different gaming platforms. We offer dedicated gaming frontend and backend quality engineering services, ranging from functional and performance testing to GUI, security, and API testing.
•Mobile Testing - Testing mobile applications, whether hybrid or native, requires thoughtful planning to guarantee adequate coverage across different devices and platforms. We offer compatibility testing, responsive design testing, test automation, and acceptance testing, among other practices. We have experience scaling mobile testing and providing comprehensive testing strategies for some of the world’s largest companies.
•Data Testing - One of the main challenges facing businesses today is how to make sense of all the data they collect. To do this, they need consistent, quality data. Our QE experts work alongside data scientists to help our clients build testing strategies to ensure high quality data. Our data quality services include evaluating different data levels, ensuring data consistency, and checking business rules.
•Accessibility Testing - Today's digital solutions need to provide equal access and opportunity to people with disabilities by complying with accessibility standards. We help our customers to improve the quality of their digital products by identifying the barriers that prevent interactions and hinder accessibility. We help organizations adhere to standards such as the Web Content Accessibility Guidelines 2.0 (WCAG).
•Media and OTT Testing - We have a team of specialized media over-the-top (OTT) testing engineers. We assess media OTT applications against market trends, expected quality levels, user experience, and store certification validations. We offer predefined test scenarios that can be customized to a company’s needs.
•Conversational Interfaces Testing - Text-based (chatbots) and voice-based (voice assistants) conversational interfaces can deliver powerful experiences but mimicking human interactions is highly challenging. It’s not enough for conversational systems to just understand a customer. Our team can help ensure you also deliver an enjoyable and friendly experience. Our team brings together expertise in several disciplines, including voice UI design, interaction, visual, motion and audio design, and UX writing.
Scalable Platforms: Enabling digital products through robust and future-proof architecture
We provide a proven path to strategize and build the digital platforms that will be the foundation of our customers' business transformation.
To enable digital products through a robust architecture, we apply our best practices and patterns on the design of a back-end ecosystem, which allows our clients to accelerate their businesses in an agile way. We have broad experience providing back-end solutions that support scalability, security, availability, performance, quality and high adaptability to internal and external integrations. We focus on complex architecture modeling, microservices and API management strategies to accelerate the digital transformation by providing capabilities that businesses need in order to bring systems together, secure integrations, deliver improved customer experiences and capitalize on new opportunities.
The portfolio of services we provide through this Studio includes:
•Strategic Architecture Consulting - In a world where companies are looking to grow and gain distinctive competitive advantages through technical innovation, strategic alignment between business and technology has become critical. Identifying gaps between business and technology strategies, understanding a company's IT stack maturity level, deciding between build vs buy and defining a technology roadmap that makes sense to its organization are just a few of the complexities. We help companies to manage these intricacies with an agile view. We apply our wide experience to working with best practices, methodologies and cutting-edge techniques.
•Platforms Evolution - Solutions that are not properly maintained and evolved can become more complex over time, due to, among others, short-term fixes, increased technical debt, lack of proper testing coverage and inadequate CI/CD strategy. Changes and releases can become more complex and riskier where development teams struggle to understand the potential impacts & side effects of the changes they are implementing. As a result, solutions may be unable to meet the business’ targeted time-to-market, and it’s not possible to leverage new technologies nor seize optimization opportunities. We focus on helping companies evolve and run their applications efficiently by pairing them with teams that are specialized in evolving and maintaining existing ecosystems.
•Augmented Composable Solutions - Augmented Composable Solutions can adapt and rearrange their capabilities based on changes to an organization's business needs. The pace of change is ever increasing which will continue to accelerate the rate of digital transformation. APIs backed by evolutionary architectures, like microservices deployed into cloud native environments, enable adaptability, fast scalability, time-to-market and better access to information. Increasing organizational capacity to generate insights and augment information through AI can decrease response time to market demands and reduce inefficiencies.
UI Engineering: Building Digital products
We specialize in building the next generation of User Interface ("UI") digital products leveraging the latest technologies and architectures, multi-device techniques, big-scale applications, component based systems, intelligent user interfaces and the latest trends in user experience.
By providing a set of UI practices and technologies, we create engaging products through interactive interfaces across multiple channels and devices, independent of platforms, that deliver the same experience in a frictionless way. Those interfaces are aware of users, from context to context and device to device. They act proactively to make the experience simpler, leaner and faster, and suggest new behaviors based on interactions. We deliver leading digital products for users, making use of tools, frameworks and components, and providing a single architecture and codebase with the right functionality in any platform.
The portfolio of services we provide through this Studio includes:
•Multi-channel Frontend Experiences - Where a company lacks experience building websites and applications, or has numerous products but is experiencing issues in its development, or needs guidance to follow different kinds of standards and policies, we can help such company improve its maturity and capabilities.
•Accessibility - Designing and developing for accessibility helps all consumers. We develop our apps across all form factors with accessibility as a priority, ensuring that information is easily available to each and every customer of a company's product. We do this by including accessibility into the whole product life-cycle. From inception, design and specification throughout development and delivery, we have the knowledge required and expertise to build accessibility compliant applications according to different policies and regulations, such as the Americans with Disabilities Act (ADA) in the United States.
•Immersive Experiences - We leverage expertise in Extended Reality ("XR") and Natural UI ("NUI") to enable users to engage in unique environments, interactions, and experiences.
•Frontend Vitals - We have built our in-house expertise to enhance the scalability, security, and reliability of any solution we deliver.
Sustainable Business: Reinventing business through climate action and sustainable tech
We operate at the intersection of digital technology and sustainability. We offer our clients tech-based and data-driven sustainable business solutions, altogether a practice that we call "IT for Green".
The portfolio of services we provide through this Studio includes:
•Sustainable Business Consulting - Climate and technology strategies tend to operate in parallel. Separated roadmaps, unaligned stakeholders, and gaps in skills are still barriers for organizations to accelerate reinvention. Our Sustainable Tech strategies and programs lead to actionable carbon neutrality roadmaps, building on our practices of Data, IoT, Artificial Intelligence, Blockchain, Cloud, and many more.
•Awareness & Readiness - We foster a holistic approach to sustainable culture through bespoke and tailored sessions, training, e-learnings, change management, and adoption programs.
•Carbon Numbers - Through a science-based and data-driven approach, we calculate carbon, energy, water, and waste budgets for processes and supply chains to provide transparent sustainability metrics for all organizations on their path towards carbon neutrality and beyond.
•Climate Finance - We help our clients and partners comprehend and forecast climate finance risks through transparent, impactful, and responsible reporting practices and frameworks, such as TCFD, SASB, and SBTi.
•Digital Sobriety & Green IT - We help organizations reduce digital footprints by creating a low-carbon coding culture through best practices and training.
Our Enterprise Platforms Studios:
Oracle: Empower companies' end-to-end sustainable value chain
We help companies evolve the end-to-end value chain with Oracle applications, cloud platforms, and next generation technologies. With 20+ years of Oracle experience in global enterprise transformation combining business consulting, AI/ML-enabled process transformation, organizational change management, and agile practices, we’re highly focused on assuring revenue streams, reducing costs, and optimizing operations.
The portfolio of services we provide through this Studio includes:
•Cloud Journey - We accelerate cloud adoption, and boost business results with an optimal cloud roadmap design, implementation and continuous evolution. We empower Oracle Cloud Applications and JD Edwards with Oracle PaaS and OCI IaaS, along the full lifecycle.
•Global Enterprise Model - We bring deep experience in Global Enterprise Models, including M&A/Divestitures, to help clients harmonize and consolidate processes, applications and data across the enterprise.
•Value change transformation with Navigate - Navigate, powered by Globant, delivers augmented process intelligence for Oracle Applications - enabling clients to monitor, measure, and unlock valuable process optimization opportunities across the enterprise - from Finance and Supply Chain to Customer and Employee Experience.
•Advanced Analytics for Oracle - Globant’s Advanced Analytics and Machine Learning capabilities apply next-gen technologies with Oracle PaaS and Oracle Cloud Infrastructure to speed applications integration and extension.
•JDE Power-up with Globant - We upgrade and lift JD Edwards to Cloud PaaS and OCI IaaS implementations for increased scalability, security and continuity.
Process Optimization: efficiency driven by technology
In a fast-changing market, businesses across the world are focusing on making their operations more efficient, adaptable and resilient to increase their return on investment. By partnering with our clients to drive efficiency through technology, we reduce risk by preparing operations against uncertain events. We support business reinvention starting from the core, enhancing operations and processes, and readying the foundation of the organization for transformation.
The portfolio of services we provide through this Studio includes:
•Navigate - Globant’s Navigate AI Decision Platform uses cutting-edge technologies to create a digital twin of an organization. By combining process mining, data science, and machine learning, Navigate enables a company to analyze the effectiveness of its organization, measure throughputs, monitor lead times, and anticipate bottlenecks. These insights translate to streamlined decision-making, and the ability to quickly solve business problems.
•ServiceNow - With ServiceNow we enable organizations to transform their businesses, drive desired outcomes, and build engagement and satisfaction. We work with our clients to drive IT transformation, Employee Experience, and Customer Service that activates the ultimate digital experiences for their customers, partners and employees.
•MAIDA - MAIDA is Globant’s AI platform that brings innovation and the latest technologies to application management services (AMS).
•Process Mining - Process mining combines process management and data science to provide a fact-based view of how processes are executed in production.
•Intelligent Automation - Intelligent Automation removes soul-crushing work from a company's employees and, at the same time, boosts productivity. Smart bots interact with companies' various IT systems and mimic the work of a typical person.
Salesforce: Seek reinvention with through Salesforce
Using Salesforce and its technology ecosystem, we enable organizations to transform their business, drive desired outcomes, and build customer loyalty and growth. Our customer-centric, data-driven, and business-led approach helps customers create better experiences with Salesforce and augmented digital engagements with their customers, partners, and employees.
The portfolio of services we provide through this Studio includes:
•Sales and Customer service - Using the Salesforce Customer 360 Platform, we help transform sales and services processes, fueling them with predictive analytics, insights, and actionable recommendations. With Sales Cloud, we help grow sales productivity and transformation, from contact and lead management to opportunity and partner relationship management.
•Digital Marketing - Successful marketing strategies require improved customer segmentation and highly personalized campaigns. We help companies to get to know, identify and communicate with each customer, recognizing them as an individual with their own needs.
•Application and Data Integration - We help our customers migrate and connect to the cloud or on-premise while maintaining high security standards.
•Analytics - Using Table CRM (formerly Einstein Analytics) and Tableau, we offer a broad spectrum of analytics and AI services that allow our customers to transform their sales and service processes, as well as their marketing and e-commerce practices.
•Customer Data Management - We offer the design, implementation and operation of a DataOps schema according to the needs and maturity of our customers, to manage their data in the most optimal way.
•E- Commerce - We deliver a complete commerce experience for our customers' B2C or B2B clients. Going beyond a front-end application, we combine our knowledge of the entire value chain to deliver an end-to-end process including marketing, customer service, business intelligence and more.
•Salesforce Industries - With embedded industry-specific functionality, and best practices, organizations transform their business processes, solve industry-specific challenges, improve their products’ life cycle, and create unique digital and omnichannel experiences. Our services span the spectrum from planning to implementation, to continuous support and optimization.
SAP: Accelerating value for enterprise-wide reinvention
Our extensive experience developing complex SAP projects help us deliver end-to-end business process transformation across an entire enterprise. Our SAP experts bring best practices in agile frameworks, enterprise-wide integration capabilities and the cutting-edge technology expertise required for business transformation.
The portfolio of services we provide through this Studio includes:
•Seek Reinvention with S/4Hana & Rise - We reinvent business models and processes, accelerate cloud adoption and connectivity, facilitate compliance and reduce risk with S/4Hana & RISE with SAP.
•SAP Business Technology Platform Business Technology Platform ("BTP") - We guide our customers in their SAP transformation journey by leveraging BTP through program health checks and workshops.
•Process optimization with Navigate - Using process mining and machine learning to understand the proper behavior of a process, Navigate provides alerts when those standards are not met, simulating multiple possible scenarios and enabling companies to make intelligent data-driven decisions.
•Integrated industry-oriented SAP accelerators ecosystem - Our Globant Upgrade and Launch Platform ("GULP") fast kit will supercharge a company's industry specific S/4Hana journey that will deliver value at a high rate.
•Analytics - Globant will design a company's data governance model, enabling augmented data driven predictive models under Globant´s unique user experience.
•Development, Automation & Integration - Globant has extensive experience and knowledge of technologies to transform a company into becoming an Intelligent Enterprise.
2. Globant X
Globant X is the division of the Company focused on next-generation products and platforms that help organizations excel and reach their goals more efficiently. Acting as a guide for digital transformation, Globant X productizes ideas and accelerates from proof of concept to minimum viable product to expansion, catapulting them to in-market success.
Globant X’s lineup of platforms:
•Augoor - Our patented AI-powered tool makes code more accessible and beneficial for developers, managers and companies by helping them to comprehend and automatically document codebases from multiple repositories.
•MagnifAI - Our automated testing platform leverages the power of AI to improve and simplify quality assurance in complex visual testing scenarios. This tool helps businesses meet customers' expectations with an enhanced visual experience while improving quality, lowering costs, and reducing time-to-market.
•StarMeUp - StarMeUp is a behavioral-science-based, AI-enhanced platform that helps companies optimize their culture and create a sense of meaning and belonging at work to decrease attrition and increase employee productivity.
•WaaSabi - WaaSabi is a Wallet-as-a-Service that allows any company to process payments and collections over WhatsApp or any other digital experience in a scalable and cost-efficient model.
•Walmeric - Walmeric is a lead-to-revenue management product that helps B2C companies with assisted sales to reach their business objectives through accelerated sales and marketing, increasing their conversion rate and reducing their cost per acquisition.
•GeneXus - GeneXus is an enterprise low-code software development platform that leverages the power of AI to automate and simplify the creation, evolution and maintenance of software solutions.
•Navigate - Navigate is a fast, AI-driven assessment platform for business processes, revealing data-driven insights, finding opportunities of enhancements and efficiencies, and providing real-time predictive insights.
•BeHealthy - BeHealthy is an innovative white-label platform that promotes wellness and brand engagement through a configurable rewards program.
•FluentLab - FluentLab is an accelerator platform that creates meaningful conversational experiences. It is also a powerful no-code chatbot for non-technical authors.
3. Global autonomous culture:
We have developed a software product design and development model, known as Agile Pods. It is designed to better align business and technology teams. Driven by a culture of self-regulated teamwork and collaboration across skills, partners and country borders.
Leveraged across divisions, Agile Pods are dedicated to mature emerging technologies and market trends, and provide a constant influx of mature talent and solutions that create intellectual property for our clients. They are self-organized teams that work to meet creative and production goals, make technology decisions and reduce risk. These teams are fully responsible for creating solutions, building and sustaining features, products or platforms. Agile Pods are in constant contact with our clients and are in full control of the products we create, which augments their autonomy and ultimately propels productivity. We manage this by having the Agile Pods at the forefront of our inverted organizational chart, existing with a customer-centric and autonomous culture.
In addition, savings are delivered to clients due to sustained productivity boosts as the Agile Pods begin to operate at a higher maturity level. We ensure consistency, accountability and replicability by having Agile Pods follow a well-defined set of maturity criteria. Maturity models describe levels of growth and development as follows: Maturity, Quality, Velocity, and Autonomy. Each level acts as a foundation for the next and lays out a path for learning and growth. As Agile Pods evolve from one level to the next, they are equipped with the understanding and tools to accomplish goals more effectively.
Associated metrics guide improvement efforts and generate quantitative and qualitative insights to inform iterative design and planning decisions.
Our Delivery Model
Our cultural affinity with our clients enables increased interaction that creates close client relationships, increased responsiveness and more efficient delivery of our solutions. As we grow and expand our organization, we will continue diversifying our footprint by expanding into additional locations globally.
We believe our presence in many countries creates a key competitive advantage by allowing us to benefit from the abundance of high-quality talent in the region, cultural similarities and geographic proximity to our clients.
About our Be Kind initiative
We thrive by reinventing businesses and transforming organizations to be ready for a digital and cognitive future, providing world-class opportunities for talent to make a positive impact around the globe.
Our Be kind Initiative is a global ESG strategy that unites positive impact programs for all of their main stakeholders and consolidates initiatives to tackle critical issues, such as diversity, equity and inclusion, climate change, education and ethics in AI, among others.
Be kind flows with four pillars:
1. Be kind to yourself
We believe work and personal life purposes must be aligned. The reinvention of the future of business is contingent on people's well-being.
Be kind to Yourself ("BKY") focuses on comprehending the pathway we need to take to unleash our full potential. Understanding people’s well-being depends on a strong work-life balance and taking care of their physical and emotional health. BKY proposes a holistic approach based on the three pillars of our nature: Body, Mind and Spirit.
We have implemented some activities focused on physical health, such as: weekly webinars focused on nutrition, exercise preventive medicine, and others; a Gym Home platform and special discounts at gyms; yoga and massages onsite; online doctor and nutritionist appointments; a Stop Smoking Program; and availability of fruit and other healthy snacks onsite.
We believe that mental health is a fundamental human right and we want to address it adequately. At Globant, we provide every Glober with a subscription to "Insight Timer member plus", a leading wellness app that has a daily mood check-in tool and over 150,000 guided meditations, courses, and work topics from leading mindfulness teachers, musicians, and psychologists that help to calm the mind, reduce anxiety, manage stress, assist with sleep, and improve happiness. We also provide weekly webinars focused on stress management, emotional intelligence, smart working, financial well-being, and other topics.
Related to wellness at work, every Glober can take a BKY day, a day to enjoy and connect with their self in the way they like best. Also our Employee Assistance Program ("EAP") is a platform that provides for a unique and confidential space offers well-being benefits, ways to manage health risks, and ways to inspire positive changes. Globers have immediate access to clinical counselors through video, live chat, telesupport, and online groups on topics such as health and safety concerns; relationship and family matters; and work-related issues.
2. Be kind to peers
Be kind to your Peers ("BKYP") focuses on Globant's Diversity, Equity & Inclusion ("DEI") commitments and structures our quest to generate a positive impact on society. We believe that these concepts improve our work environment and foster innovation.
BKYP is performed in every country we operate in by simultaneously activating global campaigns and adapting them to our community's precise needs.
We drive a DEI culture with the following four tenets:
•Gender & Sexuality: We are taking concrete steps to reduce the gender gap. We emphasize the importance of hacking barriers and expanding opportunities so everyone can thrive regardless of gender, gender expression, and sexual orientation.
◦Women that Build Awards: These awards are a way of inspiring and proving support to those women who can inspire others to join the science, technology, engineering and mathematics industry.
◦She Leads: This program is designed for women and non-binary individuals at Globant who want to continue to acquire and build skills for their career development through mentoring sessions, storytelling workshops, and women's circles. As a part of the program, each participant is assigned a mentor who accompanies them through meetings to discuss career development, personal challenges, and other topics.
•Accessibility & Neurodiversity: By recognizing and battling prejudices and labels, we can focus on what is truly important about a person: their skills, knowledge, values, and attitudes.
◦UnlimITed Community: UnlimITed is a program aimed to transform our organizations by creating workspaces that enhance the experience of people with disabilities, where unlimited possibilities inspire others to unleash their maximum potential in the company and industry.
•Multiculturalism & Ethnicity: We believe that different ideas, perspectives, and life experiences converge on better solutions. Merging our backgrounds to devise new solutions is the right pathway.
•Generational Diversity: We seek a range of experiences and perspectives from a generationally diverse pool of Globers to improve our culture and client service.
3. Be kind to humanity:
Be kind to Humanity ("BKH") is to be kind “through technology”, taking action to impact the lives of millions of people tackling global concerns, promoting innovation, and providing inclusive opportunities.
Humanity has unique and complex challenges. Inequity, mistrust, and discrimination are impacting every society. Global dilemmas of society need to be correctly addressed. From Migrants, refugees, and internally displaced persons to people in socioeconomically vulnerable situations, we need to provide them with genuine and inclusive opportunities. That's why we want to ensure that the opportunities created by the latest technologies are shared with everyone and positively impact humanity.
Some initiatives are:
Code your Future: This initiative originated in 2019 as Globant's scholarship program for young people to study technology. Today, it is made up of various opportunities for training at a global level and in local communities, giving special consideration to minorities.
Globant Labs: Globant Labs is where Globers, through our collaborative culture, create, developer and carry out projects. Globant Labs promotes the development of initiatives that have a real and measurable impact, provide tech innovation, are scalable in their reach and aligned with one of Be Kind pillar commitments. Through the Globant Labs, we support the development of innovative solutions provided to the community that tackle some of the most significant humankind issues, such as autism, childhood malnutrition, climate change, and illiteracy.
Be Kind Tech Fund: This initiative is managed by Globant Ventures, and is publicly committed to investing $10 million in start-ups developing apps, products, and platforms that tackle the misuse of technology and its negative impact on society. Online harassment, information bubbles & polarization, data privacy and security, screen time abuse and AI bias are some of our main focuses in this work area.
4. Be kind to the planet
Be kind to the Planet ("BKP") has long been engaged in transforming people's lives by reducing emissions and creating a more sustainable world. Through this program, we continue to support projects that restore the planet and lead our clients to achieve their environmental commitments.
Climate change is an urgent call for business leaders. Our ESG commitments for the BKP pillar are: Globant’s public commitments to carbon neutrality and reduction trajectories aligned with the Science-Based Targets Initiative’s standards of the United Nations Race to Zero Initiative. Our “Digital Sobriety” techniques are intended to support our clients, through the design of digital services and products, in their quest to reduce CO₂-eq.
The BKP Initiatives are:
Climate Strategy: Our strategy joins the global movement of leading companies to tackle climate change by promoting, both internally and externally, four simultaneous efforts: (1) Measure: Calculating Globant's Carbon Footprint as a first step to managing our environmental impact; (2) Reduce: Aligning with Science Based Targets initiative and joining the Race to Zero global movement; (3) Compensate: We are Carbon Neutral since last year, and we keep supporting carbon offset projects that promote environmental well-being; and (4) Disclose: Publicly disclosing our efforts to transition to a low-carbon economy is essential to being transparent and providing confidence in our climate strategy. Globant uses 100% renewable electricity in all of our operations.
Green Software: We partner with the Green Software Foundation, an institution of global organizations committed to creating best practices for building sustainable software to reduce carbon footprints. We understand technology's impact on the environment and share the responsibility to invest in making our products and software greener.
Our talent and our culture
Our culture
Our culture is the foundation that supports and facilitates our distinctive approach and advances our organization forward. It can be best described as entrepreneurial, flexible, sustainable and team-oriented, and is built on three main motivational pillars and six core values.
Our culture is built on three main motivational pillars and six core values.
Our motivational pillars are: Autonomy, Mastery and Purpose. Through Autonomy, we empower Globers to take ownership of their client projects, professional development and careers. Mastery is about constant improvement, aiming for excellence and exceeding expectations. Finally, we believe that only by sharing a common Purpose we will build a company for the long-term that breaks from the status quo, is recognized as a leader in the delivery of innovative software solutions and creates value for our stakeholders.
Our core values are:
•Think Big – We believe that we can build a world-class company that provides Globers with a global career path. Our work is based on constant challenges and growth.
•Constantly Innovate – We confront every "impossible" and seek to innovate in order to break paradigms.
•Aim for Excellence in Your Work – We know that problems we face now will reappear in future projects so we try to solve the obstacles that affect us today.
•Be a Team Player – We encourage Globers to get to know their colleagues and to support one another. Together, we are going to improve our profession, company and countries. We operate as one team whether it's solving a problem or celebrating excellent results. We also all have the right to be heard and respected.
•Have Fun – As Globers, we believe in finding pleasure in our daily tasks, creating a pleasant work atmosphere and building friendships among colleagues.
•Be kind – This value represents our vision of doing business and conducting ourselves in an ethical manner, with integrity, and our responsibility to improve our society, transform ourselves through kindness and make the world a better place.
Our workplace embodies our culture
We reimagined and designed workplaces to enhance the overall work experience. We developed a new model office focused on where and how Globers want to work.
Globant's offices are being reshaped to meet a social purpose, providing flexibility and a wide range of options. We want to provide employees with the ability to work in different environments, feel comfortable in the way they work, and undergo a full workday without having to be in the same space constantly. Experiencing the office also means developing Globant’s culture. We prioritize spaces where people can share, connect and exchange moments that would be difficult to experience if everyone was at home. We seek to consolidate a sense of belonging and continue to foster our core values.
Fostering employees’ career growth
Globers who are eager to grow, expand their knowledge, and discover new possibilities have a vast number of opportunities available to them at Globant. We want to empower them to make their own decisions and contributions to the company and make the most out of these five professional development dimensions:
•Technology - Our more than 30 Studios consolidate experience in more than 100 emerging technologies and practices where Globers can learn, develop, specialize and stay relevant. We have numerous trainings and development opportunities that allow them to grow professionally.
•Clients - We have a portfolio of leading global brands that Globers can work with over the course of their career.
•Industries - We work with leading companies from different industries, such as media, health care, finance, travel, gaming and e-learning. This enables Globers to benefit from an in-depth look into many industries and gives them the opportunity to specialize in one.
•Specialty - Globers can transition their career, role or position. They can develop their career by gaining seniority in their current path or moving internally into other roles in different areas of expertise.
•Geocultural diversity - We encourage Globers to seek new opportunities and embrace cultural exchanges. Our Globers can work on projects with people from diverse cultures and have the chance to live an international experience. We have open positions and relocation opportunities in all of the countries where we operate.
Innovation
As fundamental values of our day-to-day, innovation and creativity are not managed from a specific area. Instead, these values are emphasized throughout our company.
In our view, it is critical that each and every one of our Globers be an innovator. In addition to offering a flexible and collaborative work environment, we also actively seek to build the capabilities required to sustain innovation through several ongoing processes and initiatives.
Entrepreneurship
Globant was created as a start up. It was built by entrepreneurs and, over the years, many Globers have made a difference by creating and driving innovation. Entrepreneurship is one of our keys to success, and we encourage Globers to dream and create meaningful and rewarding experiences for our customers.
We have our own accelerator for tech startups named Globant Ventures. The objective of Globant Ventures is to promote the emergence of new entrepreneurs that are involved in cutting-edge areas of technology, such as Artificial Intelligence and other emerging trends.
Availability of high-quality talent
We believe that Latin America has emerged as an attractive geographic region from which to deliver a combination of engineering, design, and innovation capabilities for enterprises seeking to leverage emerging technologies. Latin America has an abundantly skilled IT talent pool. According to the Science and Technology Indicator Network (Red de Indicadores de Ciencia y Tecnologia), over 345,000 engineering and technology students have graduated annually from 2012 – 2016 from universities in Latin America and the Caribbean region. Latin America's talent pool (including Mexico, Brazil, Argentina, Colombia and Uruguay) is composed of approximately 1,000,000 professionals according to different sources, such as Stackoverflow, SmartPlanet and Nearshore Americas. This labor pool remains relatively untapped compared to other regions such as North America, Central and Eastern Europe and Asia. The region's professionals possess a breadth of skills that is optimally suited for providing technology services at competitive rates. In addition, institutions of higher education in the region offer rigorous academic programs to develop professionals with technical expertise who are competitive on a global scale. Furthermore, Latin America has a significant number of individuals who speak multiple languages, including English, Spanish, Portuguese, Italian, German and French, providing a distinct advantage in delivering engineering, design and innovation services to key markets in the United States and Europe.
India offers significant graduate talent. According to the Strategic Review of The National Association of Software and Services Companies (NASSCOM), the Indian IT-BPM Industry currently employs around 4 million people. In terms of students, more than 5 million students graduate every year, and almost 15% of these graduates are considered employable by Tier 1/Tier 2 companies.
Government Support and Incentives
Argentina
The Knowledge Economy Law No. 27,506 (the "Knowledge Economy Law"), which replaced the Software Promotion Law No. 25,922 (the “Software Promotion Law”) went into effect on January 1, 2020 for the legal entities adhered to the Software Promotion Law, and is effective until December 31, 2029. Pursuant to the Knowledge Economy Law, the beneficiaries will enjoy the following benefits:
•Stability in the enjoyment of the regime benefits.
•Exemption from any value-added tax withholding or collection regimes only in the case of export operations.
•A reduction in the corporate income tax liability originated in the promoted activities of 60% for micro and small enterprises, 40% for medium-sized enterprises and 20% for large enterprises.
•Allowance to deduct as cost any payment or withholding of foreign taxes on taxed income of Argentine source.
•Granting of a tax credit bond of up to 70% of the social security contributions of the employees associated with the promoted activities. Such bonds can be used within the following 24 months (extendable for additional 12 months with
justified cause) to pay Income Tax (up to a percentage of the exports reported each year), Value Added Tax or other federal taxes. The bonds may be transferred on one occasion if the beneficiary has exports of services related to the promoted activity which represent at least 70% of its annual revenue. The amount of bonds to be issued could be increased to 80% of the paid social security contributions when the newly-hired employees are members of certain minorities.
•Duties on export of services taxed at 0% rate from December 22, 2020.
In order to maintain the benefits, the beneficiaries must prove every two years that they meet certain requirements.
On October 11, 2022, the Argentine Executive Branch created the Investment Promotion Regime for Exports of Knowledge Economy Activities, pursuant to which eligible entities (i.e., entities submitting projects for investments in infrastructure, capital goods and working capital that seek to increase exports through an investment of over $3.0 million), can benefit from an exception to the mandatory repatriation through the FX Market of an amount equal to up to 20% of the foreign currency received as foreign direct investment. Beneficiaries registered in the National Registry may enjoy an additional benefit consisting of a free availability of up to 30% of the foreign currency received from the incremental net exports, which may be used for paying salaries in foreign currency.
Our subsidiaries, Atix Labs S.R.L., Decision Support S.A., BSF S.A., IAFH Global S.A. and Sistemas Globales S.A were approved as beneficiaries of the Knowledge Economy Law by the Subsecretary of Knowledge Economy and incorporated into the National Registry on July 8, 2021, September 24, 2021, October 15, 2021, December 14, 2021, and February 8, 2022 respectively. Benefits are granted as of January 1, 2020.
India
In India, under the Special Economic Zones Act of 2005, the services provided by export-oriented companies within Special Economic Zones (each, a "SEZ") are eligible for a deduction of 100% of the profits or gains derived from the export of services for the first five years from the financial year in which the company commenced the provision of services and 50% of such profits or gains for the five years thereafter. Companies must meet the conditions under Section 10AA of Income Tax Act to be eligible for the benefit. Other tax benefits are also available for registered SEZ companies.
Some locations of our Indian subsidiary are located in a SEZ and have completed the SEZ registration process. Consequently, we started receiving the tax benefit on August 2, 2017. With the growth of our business in an SEZ, our Indian subsidiary may be required to compute its tax liability under Minimum Alternate Tax ("MAT") in future years at the current rate of approximately 21.3%, including surcharges, as its tax liability under the general tax provisions may be lower compared to the MAT liability.
Uruguay
In 1988, Law No. 15,921 created Uruguay's Free Trade Zone regime allowing any type of industrial, commercial, or service activity to be carried out in a specifically delimited areas of the Uruguayan territory and be performed outside Uruguay.
The main benefits include the following:
•An almost full tax exemption (Corporate Income Tax "IRAE", Net Wealth Tax-IP, Value Added Tax – VAT and several withholding taxes) and customs duties exemption; and
•Foreign employees may opt out of the Uruguayan social security system and, with regard to personal income tax, opt to be subject to Non-Residents Income Tax at a 12% flat rate instead of Individual Tax.
On December 8, 2017, Uruguay’s Executive Power enacted Law No. 19,566, introducing changes to Law No. 15,921, The new Law allows for services rendered to third countries from the Free Trade Zone to also be rendered to corporate income taxpayers inside the Uruguayan, non-Free Trade Zone territory.
Our subsidiary in Uruguay, Sistemas Globales Uruguay S.A., is situated in a Free Trade Zone and is eligible for the fiscal benefits.
Methodologies and Tools
Effectively delivering the innovative software solutions that we offer requires highly evolved methodologies and tools. Since inception, we have invested significant resources into developing a proprietary suite of internal applications and tools to assist us in developing solutions for our clients and manage all aspects of our delivery process. These applications and tools are designed to promote transparency, and knowledge-sharing, enhance coordination and cooperation, reduce risks such as security breaches and cost overruns, and provide control as well as visibility across all stages of the project lifecycle, for both our clients and us. Our key methodologies and tools are described below.
Quality Management System
We have developed and implemented a quality management system in order to document our best business practices, satisfy the requirements and expectations of our clients and improve the management of our projects. We believe that continuous process improvement produces better software solutions, which enhances our clients' satisfaction and adds value to their business.
Our quality management system is certified under the requirements of the international standard ISO 9001:2015, the CMMI Maturity Level 3 process areas (which indicates that processes are well characterized and understood, and are described in company standards, procedures, tools and methods) and PMI by implementing the following practices:
•Assuring that quality objectives of the organization are fulfilled;
•Defining standard processes, assets and guidelines to be followed by our project teams from the earliest stages of the project life cycle;
•Continuously evaluating the status of processes in order to identify process improvements or define new processes if needed;
•Objectively verifying adherence of services and activities to organizational processes, standards and requirements;
•Providing support and training regarding the quality management system to all employees to achieve a culture that embraces quality standards;
•Informing related groups and individuals about tasks and results related to quality control improvement;
•Raising issues not resolvable within the project to upper management for resolution; and
•Periodically gathering and analyzing feedback from our clients regarding our services to learn when we have met expectations and where there is room for improvement.
Since 2013, Globant certified ISO 27001, a standard that provides a model for establishing, implementing, operating, monitoring, reviewing, maintaining, and improving an information security management system (ISMS). The process of certifying ISO 27001 ensures that ISMS is under explicit management control. In 2016, we migrated successfully to the ISO 27001:2013.
Glow
In order to manage our talent base, we have developed a proprietary software application called Glow. Glow is the central repository for all information relating to our Globers, including academic credentials, industry and technology expertise, work experience, past and pending project assignments, career aspirations, and performance assessments, among others. Every Glober can access Glow and regularly update his or her technical skills.
We use Glow as a management tool to match open positions on Studio projects with available Globers, which allows us to staff project teams rapidly and with the optimal blend of industry, technology and project experience, while also achieving efficient utilization of our resources. We believe, based on management's experience in the industry, that we are one of few companies in our industry to employ such a tool for this purpose. Accordingly, we believe Glow provides us with a significant competitive advantage.
Clients
At Globant, we focus on delivering innovative and high value-added solutions that drive revenues and brand awareness for our clients. We believe that our approach deepens our relationships and leads to additional revenue opportunities. We also target new clients by showcasing our engineering, design and innovation capabilities along with our deep understanding of digital journeys, emerging technologies and related market trends.
Our clients include primarily medium to large-sized companies based in the United States, Europe, Asia, Middle East and Latin America operating in a broad range of industries, including Media and Entertainment, Professional Services, Technology and Telecommunications, Travel and Hospitality, Healthcare, Banks, Financial Services and Insurance, and Consumer, Retail and Manufacturing. We believe clients choose us based on our ability to understand their business and help them drive revenues, as well as our innovative and high value-added business proposals, tailored Studio-based solutions, and our reputation for high quality execution. We have been able to grow with, and retain our clients by merging their industry knowledge with our expertise in the latest market trends to deliver tangible business value.
We typically enter into a master services agreement (or MSA) with our clients, which provides a framework for services and a statement of work (or SOW) to define the scope, timing, pricing terms and performance criteria of each individual engagement under the MSA. We generate 43.8% of our revenue from long-term projects with terms greater than 24 months.
During 2022, 2021 and 2020, our ten largest clients based on revenues accounted for 35.6%, 39.1% and 42.2% of our revenues, respectively. Our top client for the years ended December 31, 2022, 2021 and 2020, The Walt Disney Company, accounted for 10.7%, 10.9% and 11.0% of our revenues, respectively.
The following table sets forth the amount and percentage of our revenues for the years presented by client location:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | |
| | | (in thousands, except percentages) |
| By Geography | | | | | | | | | | | | |
| North America | | $ | 1,135,148 | | | 63.8 | % | | $ | 831,300 | | | 64.1 | % | | $ | 574,275 | | | 70.5 | % |
| Latin America | | 408,354 | | | 22.9 | % | | 288,315 | | | 22.2 | % | | 169,440 | | | 20.8 | % |
| Europe, Middle East & Africa | | 186,723 | | | 10.5 | % | | 151,334 | | | 11.7 | % | | 61,788 | | | 7.6 | % |
| Asia & Oceania | | 50,018 | | | 2.8 | % | | 26,129 | | | 2.0 | % | | 8,636 | | | 1.1 | % |
| Revenues | | $ | 1,780,243 | | | 100.0 | % | | $ | 1,297,078 | | | 100.0 | % | | $ | 814,139 | | | 100.0 | % |
The following table shows the distribution of our clients by revenues for the years presented:
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Over $5 Million | | 65 | | 42 | | 32 |
| $1 - $5 Million | | 194 | | 143 | | 97 |
| $0.5 - $1 Million | | 132 | | 106 | | 60 |
| $0.1 - $0.5 Million | | 386 | | 287 | | 185 |
| Less than $0.1 Million (*) | | 472 | | 343 | | 235 |
| Total Clients (*) | | 1,249 | | | 921 | | | 609 |
(*) Represents customers with more than $0.01 million in revenues in the last twelve months.
Sales and Marketing
Our growth strategy is based on four pillars: (i) leveraging our broad expertise; (ii) growing within existing clients; (iii) acquiring new clients; and (iv) pursuing strategic acquisitions. Our expertise and Studio approach help us expand the portfolio and practices we offer to our clients. Our acquisitions are pursued with the aim of fulfilling strategic goals, such as growing into a new geography or the expansion of specializations.
Under our multi-pronged, integrated sales and marketing strategy, our senior management, sales executives, sales managers, account managers and engagement managers work collaboratively to target, acquire and retain new clients and expand our work for existing clients. Our sales and marketing team is currently comprised of 277 sales and marketing personnel worldwide.
Beyond leveraging our broad expertise, our sales strategy is driven by three fundamentals: retain, develop and acquire ("RDA"). The retention ("R") component is focused on maintaining our wallet share with existing accounts through flawless
execution on our engagements. The development ("D") component emphasizes developing existing client relationships by significantly expanding our wallet share and capturing business from our competitors. The acquisition ("A") component targets new client accounts. Through our RDA strategy, as well as marketing and branding events, we are able to acquire new or expand existing engagements in our large and growing addressable market.
New Clients
We seek to create relationships with strategic clients through existing client referrals or through our multi-tiered approach. Our approach begins by identifying industries and geographic locations with solid growth potential. Once potential clients are identified, we seek to engage the market-facing management personnel of those companies instead of their IT divisions, which allows us to get a better understanding of the prospect's business model before engaging with its IT personnel. The focus on an enterprise's revenue drivers allows us to highlight the value of our services in meeting our client's business needs, thereby differentiating us.
Our account sales teams are made up of sales executives and sales managers, and follow specific guidelines for managing opportunities when contacting potential new clients. Before a sales team approaches a prospective client, we gather significant intelligence and insight into the client's potential needs, creating a specific value proposition for discussion during the engagement process. Additional opportunities resulting from the planned targeted engagement are gathered and tracked. Once an appropriate opportunity has been identified and confirmed with the client, our sales team performs account and competition mapping and enlists internal industry and subject matter experts as well as pre-sales engineers from all of the participating Studios. We then generate proposals to present to and negotiate with the client. Once we have secured the engagement, our sales executives work closely with the Globant leadership team, partners and subject matter experts from our Studios to ensure that we exceed our new client's expectations.
From time to time, we use ideation sessions and discovery engagements in our pre-sales process. During the discovery engagements, we meet with clients to discuss their goals and develop creative solutions. The discovery engagement sessions help us discover our clients' main objectives, even if those objectives are not explicitly stated. These sessions are critical in helping us to offer solutions that will adapt to our clients' needs and wishes. This allows us to showcase our expertise in emerging technologies to the prospective client while also allowing us to generate a significant number of possible future client opportunities.
Existing Clients
Once we have established the client relationship, we are focused on driving future growth through increased client loyalty and retention. We leverage our historical successes with existing clients and our relationships with our clients' key decision-makers to cross-sell additional services, thereby expanding the scope of our engagements to other departments within our clients' organizations. We seek to increase our revenues from existing clients through our account managers, technical directors, program managers, leadership team, Studio partners, and subject matter experts.
Since 2016, we have been driving our growth strategy under our 50-Squared vision. We appointed our most senior teams to focus on 50 clients that are each expected to generate $50 million of revenue. Since the introduction of 50-Square, we have evolved, expanding our reach, our services and our talent throughout industries and regions across the world. Several of our top clients were nurtured within this program. Through our 100-Square vision, we strive to create long lasting relationships to generate $100 million in revenue from each of our top 100 accounts.
We undertake periodic reviews to identify existing clients that we believe are of strategic importance based on, among other things, the amount of revenue we generate from the client, as well as the growth potential and brand recognition that the client provides.
Marketing
To fully implement a digital and cognitive transformation, we also help our customers stay relevant within their industries and audiences by providing helpful information and initiatives to understand their users’ environment, competitors and behavior. With research, SME gatherings, webinars, workshops and conferences, our leaders offer valuable insights to help organizations create valuable and emotional experiences for the audience.
As of December 31, 2022, our marketing department, Stay Relevant, is based in Latin America, the United States, Europe and India. This team promotes our brand through a variety of channels, including the following:
•Converge: our series of executive events that bring together some of the best creative minds in the industry for one amazing day of igniting stories, inventive ideas, learning experiences, and "wow" technology showcases that enable attendees to re-think the new ways they do business.
•Sentinel Report: a sentinel report to provide insightful evidence of consumer behavior and market trends that ignite strategic thinking
•Trends Applied: A series of reports and LIVE conversations that action to technology trends in key industries, helping stakeholders get a competitive advantage with emergent technologies.
•TechNFest: our signature event for talent where we offer talks and demos on the latest tech trends and showcase Globant’s workplace experience.
•Reports and whitepapers: special reports that analyze trends and the impact these have on businesses.
•Success Stories: A yearly initiative where participants share experiences that bridge the gap between complex technical challenges and the brands and people behind it.
•Globant Awards: global awards with two editions - Women that Build, recognizing women who inspire, who build, who lead and help create change, and Digital Disruptors, which acknowledges all those disruptors that lead the digital and cognitive revolution.
•Webinars: explore different trends and technologies in depth showcasing views from experts in the field.
•Events: small events for specific guests or partners to large events that welcome the community.
•Podcasts: discussion of tech trends and DEI perspectives.
•Blog: explore content on the latest trends and best practices in the different industries we work with.
•Newsletter: monthly update to seek reinvention in every industry.
•Books: experts share their fresh perspectives and industry insights.
Seasonality
Our business is seasonal and as a result, our revenues and profitability fluctuate from quarter to quarter. Our revenues tend to be higher in the third and fourth quarters of each year compared to the first and second quarters of each year due to seasonal factors. During the first quarter of each year, which includes summer months in the southern hemisphere, there is a general slowdown in business activities and a reduced number of working days for our IT professionals based in the southern hemisphere, which results in fewer hours being billed on client projects and therefore, lower revenues being recognized on those projects. In addition, some of the reduction in the number of working days for our IT professionals in the first or second quarter of the year is due to the Easter holiday. Depending on whether the Easter holiday falls in March or April of a given year, the effect on our revenues and profitability can appear either in the first or second quarter of that year. Finally, we implement annual salary increases in the second and fourth quarters of each year. Our revenues are traditionally higher, and our margins tend to increase, in the third and fourth quarters of each year, when utilization of our IT professionals is at its highest levels.
Competition
The markets in which we compete are changing rapidly. We face competition from both global IT services providers as well as those based in the United States. We believe that the principal competitive factors in our business include: the ability to innovate; technical expertise and industry knowledge; end-to-end solution offerings; reputation and track record for high-quality and on-time delivery of work; effective employee recruiting; training and retention; responsiveness to clients' business needs; scale; financial stability; and price.
We face competition primarily from:
•large global consulting and outsourcing firms, such as Accenture, Thoughtworks and Epam;
•digital agencies and design firms such as Razorfish, RGA and Ideo;
•traditional technology outsourcing IT services providers, such as Cognizant Technology Solutions, GlobalLogic, Aricent, Infosys Technologies, Mindtree HCL, Tata, Wipro and DXC; and
•in-house product development departments of our clients and potential clients.
We believe that our focus on creating software that appeals and connects emotionally with millions of consumers positions us well to compete effectively in the future. However, some of our present and potential competitors may have substantially greater financial, marketing or technical resources; may be able to respond more quickly to emerging technologies or processes and changes in client demands; may be able to devote greater resources towards the development, promotion and sale of their services than we can; and may make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address the needs of our clients.
Intellectual Property
Our intellectual property rights are important to our business. We rely on a combination of intellectual property laws, trade secrets, confidentiality procedures and contractual provisions to protect the investment we make in research and development. We require our employees, independent contractors, vendors and clients to enter into written confidentiality agreements upon the commencement of their relationships with us.
We customarily enter into nondisclosure agreements with our clients with respect to the use of their software systems and platforms. Our clients usually own the intellectual property in the software solutions we deliver. Furthermore, we usually grant a perpetual, worldwide, royalty-free, nonexclusive, transferable and non-revocable license to our clients to use our preexisting intellectual property, but only to the extent necessary in order to use the software solutions we deliver.
We have developed a number of proprietary internal tools that we use to manage our projects, build applications in specific software technologies, and assess software vulnerability. These tools include Glow, Nails, and our Service Over Platforms (SoP).
Our registered intellectual property consists of the trademark "Globant" (which is registered in twelve jurisdictions, including the United States and Argentina), the trademark "StarMe Up", certain other trademarks related to our service offerings and products, three software patents granted in the United States in favor of our United States subsidiary Globant, LLC, and three software patents that are granted in the United States in favor of our Spanish subsidiary Globant España S.A. We do not believe that any individual registered intellectual property right, other than our rights in our name and logo, is material to our business.
Facilities and Infrastructure
The table below sets forth an overview of our office locations as of December 31, 2022.
| | | | | | | | | | | | | | | | | | | | |
| Country | | Number of Offices | | Type | | Square Feet |
| Argentina | | 14 | | Development and Delivery Center / Client Management Center | | 333,369 |
| Australia | | 1 | | Development & Delivery Center | | 3,519 |
| Belarus | | 1 | | Development and Delivery Center | | 28,794 |
| Brazil | | 2 | | Development and Delivery Center / Client Management Center | | 17,879 |
| Canada | | 1 | | Development and Delivery Center | | 248 |
| Chile | | 2 | | Development and Delivery Center / Client Management Center | | 16,221 |
| China | | 1 | | Client Management Center | | 559 |
| Colombia | | 7 | | Development and Delivery Center / Client Management Center | | 237,322 |
| Costa Rica | | 1 | | Development and Delivery Center | | 2,454 |
| Denmark | | 1 | | Development and Delivery Center / Client Management Center | | 6,090 |
| Ecuador | | 2 | | Development and Delivery Center | | 1,884 |
| France | | 1 | | Client Management Center | | 4,747 |
| Germany | | 1 | | Development and Delivery Center | | 452 |
| | | | | | | | | | | | | | | | | | | | |
| Hong Kong | | 1 | | Client Management Center | | 129 |
| India | | 4 | | Development and Delivery Center | | 136,960 |
| Italy | | 4 | | Development and Delivery Center / Client Management Center | | 20,777 |
| Luxembourg | | 1 | | Principal Executive Office | | 150 |
| Mexico | | 3 | | Development and Delivery Center / Client Management Center | | 120,168 |
| Peru | | 2 | | Development and Delivery Center | | 25,618 |
| Poland | | 2 | | Development and Delivery Center | | 1,206 |
| Romania | | 2 | | Development and Delivery Center | | 9,095 |
| Spain | | 8 | | Development and Delivery Center / Client Management Center | | 36,264 |
| Ukraine | | 1 | | Development and Delivery Center | | 280 |
| United Kingdom | | 2 | | Development and Delivery Center / Client Management Center | | 22,819 |
| United States | | 12 | | Development and Delivery Center / Client Management Center | | 60,181 |
| Uruguay | | 2 | | Development and Delivery Center / Client Management Center | | 55,100 |
| Total | | 79 | | | | 1,142,285 |
Regulatory Overview
Due to the industry and geographic diversity of our operations and services, our operations are subject to a variety of rules and regulations, and several Latin American countries, the United States, Europe and India federal and state agencies regulate various aspects of our business, including anti-corruption, internal and disclosure control obligations, data privacy and protection, wage and labor standards, employment and labor relations, trade protections, international trade controls, foreign exchange controls and other regulatory requirements affecting trade and investment. Some of the laws and regulations to which we are exposed, and their interpretation, are still evolving. The following summaries included below provide a high-level overview of the laws and regulations material to us and do not purport to address all laws and regulations that may be relevant to our operations. If we are not in compliance with applicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures, which could adversely affect our business, financial condition and results of operations.
Taxation
We are subject to taxes globally, including income tax, valued-added tax, turn-over tax, etc., and are subject to certain tax incentive regimes.
Tax incentives
We benefit from certain tax incentives promulgated by the Argentine, Uruguayan and Indian governments, among others. See "Business Overview — Government Support and Incentives" and "Risk Factors — Changes in the tax laws or in their interpretation or enforcement or the loss of any country-specific tax benefits could have a material adverse effect on our financial condition and results of operations".
Income tax
Argentina
Pursuant to Income Tax Law No. 20,628 (the “ITL”), in Argentina, legal entities and branches of foreign entities are subject to a tax on their worldwide income; provided that any foreign taxes paid on income earned from activities carried out abroad can be taken as a credit against the applicable Argentine tax, to the extent that the foreign tax does not exceed the Argentine tax. Income tax is payable on the net income made in a given fiscal year. Losses incurred during any fiscal year may be carried forward and offset against taxable income obtained during the following five fiscal years. Argentine companies are taxed on their corporate income at a progressive rate ranging between 25% and 35%. Subject to net income amounts, companies are required to pay a fixed amount and a progressive rate over the surplus of the minimum base rate in their category. The amounts are adjusted annually starting on January 1, 2022, based on the variation of the consumer price index ("CPI"). Argentine entities are subject to an integral inflation adjustment tax mechanism to the extent that the CPI exceeds 100% in the 36 previous months to the closing of each relevant fiscal year. For the fiscal years beginning on or after January 1, 2021, 100% of the tax inflation adjustment (negative or positive) would be allocated by fiscal year.
Colombia
In Colombia, national corporations, branches of foreign corporations and permanent establishments are taxed on global income. National corporations are corporations that have their principal domicile in Colombia are organized under Colombian law or that during the respective tax year or period have their effective place of management in Colombia (holding board meetings in Colombia is not sufficient to qualify as a national company). The standard corporate income tax rate for fiscal years starting on January 1, 2022 is 35%; provided that local companies cannot have an effective tax rate under 15%; if the effective tax rate, determined by means of Law No. 2277 of 2022, is less to 15%, the taxpayer must increase the tax to cover the minimum tax rate. A reduced corporate income tax rate of 20% applies to legal entities qualified as Industrial Users of Goods and/or Services in a free-trade zone, over the net income originated in export activities; if the net income does not come from exports, it will be taxed at the general tax rate of 35%. Commercial Users in a free-trade zone are subject to the general corporate income tax rate. A special reduced rate of 9% applies to certain activities that in the past had some tax benefits or exemption, such as certain services in new or refurbished hotels, eco-tourism activities and some leasing agreements with respect to housing, as well as for publishers of scientific and cultural content. Capital gains are subject to tax at a corporate income tax rate of 15%. It is assumed that the following items are considered capital gains: (a) gains on the transfer of fixed assets owned for more than two years and (b) gains resulting from the receipt of liquidation proceeds of corporations in excess of capital contributed if the corporation existed for at least two years.
Mexico
Corporations resident in Mexico are taxed on their worldwide income from all sources, including profits from business and property. A nonresident corporation in Mexico is subject to profits tax on income earned from carrying on business through a permanent establishment in Mexico and on Mexican-sourced income. Corporations are considered residents of Mexico if their principal place of management is located in Mexico. The corporate income tax rate is 30%. The income tax law recognizes the effects of inflation on the following items and transactions: (a) depreciation of fixed assets (b) cost on sales of fixed assets (c) sales of capital stock (shares) (d) monetary assets and liabilities and (e) tax loss carryforwards.
India
A company resident in India is subject to tax on its worldwide income, unless the income is specifically exempt. A company that does not reside in India is subject to Indian tax on Indian-sourced income and on income received in India.
Under the regular taxation regime, the standard corporate income tax rate is 30% for domestic companies. A 25% rate (plus any applicable surcharge and cess) applies for a financial year to domestic companies with total turnover or gross receipts not exceeding INR 4 billion during the specified period (generally, the financial year two years prior to the relevant financial year). A 7% surcharge applies to domestic companies with income exceeding INR 10 million and a 12% surcharge applies where income exceeds INR 100 million.
Minimum alternate tax (MAT) is imposed at a rate of 15% (plus any applicable surcharge and cess) on the adjusted book profits of corporations whose tax liability is less than 15% of their book profits.
Value-added tax
Argentina
In Argentina, the sale of goods and the provision of services, under certain circumstances, rendered outside of Argentina, which are effectively used or exploited in Argentina, and digital services rendered from abroad, are subject to value-added tax. The current value-added general tax rate is 21%. Certain sales and imports of goods, such as computers and other
hardware, are, however, subject to a lower rate of 10.5%. Services rendered in Argentina, which are effectively used or exploited abroad, qualify as “export services” and are not subject to VAT. Law No. 27,346 creates the figure of substitute taxpayer for the payment of the tax corresponding to non-Argentine residents who render services within Argentina. Substitute taxpayers will assess and pay for applicable VAT, even in the cases in which it is impossible to withhold that tax from the non-Argentine resident.
Colombia
In Colombia, value-added tax is an indirect national tax levied on (i) services rendered in Colombia and from abroad; (ii) sales and imports of physical movable goods; (iii) sales or transfers of intangible assets related to industrial property; and (iv) gambling sales and operations, except for lotteries and online gambling. As a general rule, VAT does not apply to the sale of fixed assets and export of good and services.
The general tax rate is 19%. However, some goods or services are subject to rates of 5% or 0%. VAT is not applicable when the goods/services have been expressly excluded (not taxed) or exempted (0% rate). In the case of exporters and producers of exempt goods/services, input VAT can be recovered via a tax refund.
Mexico
In Mexico value-added-tax is levied upon the supply of goods and independent services provided in Mexico, the importation of goods and services and the grant of temporary use or the enjoyment of goods within Mexican territory.
The standard tax rate is 16%, with certain activities subject to a zero rate such as exports.
India
In India, goods and services tax ("GST") is a destination-based consumption tax applicable to the supply of goods or services. GST also is a part of the aggregate customs duty imposed on imports. Exports and supplies to SEZs are zero-rated for GST purposes. Central GST ("CGST") and state GST ("SGST") are imposed simultaneously on a common tax base on all intrastate transactions. In the case of interstate supplies of goods and services, integrated GST ("IGST") applies at a rate that is an aggregate of CGST and SGST.
Goods and services are categorized under a structure with five different rates: 0%, 5%, 12%, 18%, and 28%. There is no standard rate per se, but the rate for most services is 18%.
Tax on dividends
Argentina
In Argentina, dividends resulting from profits obtained since and including fiscal year 2018 that are paid to Non-Argentine Beneficiaries or Argentine resident individuals are subject to a 7% income tax withholding on the amount of such dividends.
Colombia
In Colombia, distributions to nonresidents are subject to taxation at a rate of 20%. The dividends tax rate for resident individuals is 15%, with 1.090 Tax Units (2023: COP$46,229,080) of exempt income. No dividend tax applies to distributions to resident companies. However, a 10% income tax rate is introduced on dividends distributed between resident companies, which applies on the first distribution, with a credit for the tax passed onto the ultimate shareholder (resident individual or non-resident entity or individual). The 10% withholding is not applicable when the distribution is made between registered economic group members. The dividends tax applies to the distribution of profits generated in 2017 and onwards. In addition, if the dividend distribution is made out of profits that were not taxed at the distributing entity level, the distribution to nonresidents is subject to a 35% corporate income tax (recapture tax), which is withheld by the company who distributes the dividends. In this case, the 20% dividends tax applies on the distributed amount after it is reduced by the 35% recapture income tax. A 35% corporate income tax is imposed on dividends paid to residents (including companies and individuals) out of profits not taxed at the corporate level. If the profits subject to tax at the corporate level in a given year are higher than the commercial profits of that year, the difference can be carried back for two years or carried forward for five years to offset the profits of such periods, in order to reduce or eliminate the amount of the distribution subject to the 35% withholding tax. This carryforward or carryback should not reduce the amount of the distribution to nonresidents subject to the dividends tax of 10%.
Mexico
Resident individuals and nonresident shareholders of a Mexican corporation are subject to a 10% income tax on dividends received that are paid out of profits generated after 2013. Dividends are not subject to corporate income tax at the distributing company level if the distribution is from previously taxed earnings and if the distributing corporation has sufficient accumulation in its “net after-tax profit” ("CUFIN") account to cover the dividend. If the dividend is in excess of the CUFIN account, the dividend is also taxed at the distributing company level at a rate of 30% on a grossed-up basis.
India
Dividends paid to an Indian resident generally are subject to a withholding tax of 10%; the rate is temporarily reduced to 7.5% for dividends paid during the period from May 14, 2020 through March 31, 2021. As of April 1, 2020, dividends paid to a nonresident are generally subject to a withholding tax of 20%. The withholding tax rates on dividends paid to nonresidents are subject to any applicable surcharge and cess and may be reduced under a tax treaty.
Prior to April 1, 2020, Indian companies were required to pay a dividend distribution tax at a rate of 15% (an effective rate of approximately 20.56%, including a 12% surcharge, and a 4% cess) on dividends declared, distributed, or paid to shareholders, and the dividend income was exempt from tax in the hands of the shareholders.
Net wealth tax
The net wealth tax is payable on shares and other equity participation issued by an entity domiciled in Argentina that are owned either by individuals, regardless of residence, or by companies residing abroad. The tax is paid by the local company itself. The applicable rate is 0.50% on the company’s net worth. An Argentine company is entitled to seek reimbursement of such tax paid from the shareholders. The current Double Taxation Treaties (DDTs) signed by Argentina do not provide an exemption on this tax.
Foreign exchange controls
Pursuant to the regulations of the Argentine Central Bank, among others, (a) access to the FX Market is subject to compliance with a foreign indebtedness information regime; and (b) the prior authorization of the Argentine Central Bank is required for access to the FX Market for the purchase of foreign currency for certain purposes, including for portfolio investment by legal entities, and, with certain exemptions, for the payment of dividends and earnings, for the pre-payment of principal and interest on foreign financial indebtedness and on indebtedness for the import of goods and services, and for the payment of services and financial indebtedness with related parties.
The Argentine Central Bank also provided for the mandatory transfer into Argentina and the conversion into Argentine pesos through the FX Market of the collections of foreign currency from the export of goods and services, and from the disbursement of foreign financial loans (in order for the debtor to have access to the FX Market for the payment of principal and interests under such foreign financial loan on their scheduled maturity).
Moreover, (a) in addition to any other applicable requirements, any access to the FX Market is subject to the filing of an affidavit by the requestor (i) stating that it has not sold in Argentina securities settled against foreign currency or transferred securities out of Argentina, among others, within the immediately preceding 90 consecutive days; and (ii) committing not to make any such transactions within the immediately following 90 consecutive days; and (b) (i) access to the FX Market for making payments on, among others things, imports of goods, services, interests in connection with the import of goods and services, dividends, principal and interest on financial debt and debt securities, international portfolio investments or transactions with derivatives by legal entities, other purchases of foreign currency for specific allocation and premium, guarantees and payments on interest hedging transactions, is subject to the filing of an affidavit by the requestor (x) stating, that as of such date, all of such party’s holdings of foreign currency in Argentina is deposited with Argentine financial institutions and that it does not have foreign liquid disposable assets for an equivalent of more than $100,000; and (y) committing to transfer into Argentina and settle for Argentine pesos any foreign currency payments received outside of Argentina from the collection of loans granted to third parties after May 28, 2020, time deposits made after May 28, 2020, or the sale of any asset; and (ii) until December 31, 2022, with certain limited exceptions, access to the FX Market for the payment of the import of certain goods or the payment of principal under imports accounts payable will be subject to prior approval of the Argentine Central Bank, except where, among other things, the party files an affidavit stating that the aggregate amount of payments of imports made by such party since January 1, 2020 (including the payment requested) does not exceed $250,000.
On September 15, 2020, the Argentine Central Bank restricted the access to FX Market for the payment of principal under foreign financial debt with third parties (other than with international or multilateral credit organizations) in excess of
$2,000,000 per month in the aggregate with maturities between October 15, 2020 and December 31, 2022 to an amount equal to up to 40% of the amount originally due; and provided that the remaining unpaid principal balance must be refinanced with an average life of at least two years, with certain limited exceptions. Pursuant to Communication “A” 7218, dated February 4, 2021, the Argentine Central Bank allowed Argentine residents to access the FX Market for the payment of principal and interest under debt securities registered outside Argentina and issued since February 5, 2021, and that are partially subscribed for in foreign currency in Argentina, subject to certain requirements.
Pursuant to the Social Solidarity Law, since December 21, 2019, the Argentine congress established a new 30% tax on the purchase of foreign currency for portfolio purposes, the acquisition of goods and services with credit and debit cards, and any payments in connection with international passenger transportation. Digital services rendered from outside Argentina (such as hosting, web services, software as a service, streaming services, etc.) are subject to a reduced tax rate of 8.0%.
Pursuant to Resolution 591/2020 of the Chief Cabinet of Ministers, entities benefiting from programs granting aids in connection with the COVID-19 crisis are prohibited from, among other things, making dividend distributions, and purchasing securities with Argentine pesos for their sale for foreign currency or transferring to custody accounts outside Argentina.
Law No. 19,359, as amended and complemented, establishes penalties for the infringement of any foreign exchange regulations. Penalties include fines of up to a tenfold increase in the amount of the infringing transaction, temporary suspensions, disqualification for up to ten years preventing the infringing party from acting as importer, exporter and/or as foreign exchange institution, or even prison in event of recidivism.
For additional information regarding all current foreign exchange restrictions and exchange control regulations in Argentina, investors should consult their legal advisors and read the applicable rules mentioned herein, as well as any amendments and complementary regulations, which are available at the Argentine Central Bank's website: www.bcra.gob.ar.
Under Colombian foreign exchange regulations, payments in foreign currency related to certain foreign exchange transactions must be channeled through the commercial exchange market, by means of (i) a foreign exchange intermediary, or (ii) through compensation accounts, in both cases, declared to the Colombian Central Bank. This mechanism applies to payments in connection with, among others, imports and exports of goods, foreign loans and related financing costs, investment of foreign capital and the remittances of profits thereon, investment in foreign securities and assets and endorsements and guarantees in foreign currency. Transactions through the commercial exchange market are made at market rates freely negotiated with the authorized intermediaries.
In addition, the Colombian Central Bank may intervene in the foreign exchange market at its own discretion at any time and may, under certain circumstances, take actions that limit the availability of foreign currency to private sector companies. Notwithstanding the foregoing, the Colombian Central Bank has never taken such action since the present foreign exchange regime was implemented in 1991.
The prevailing foreign exchange laws in India, more specifically, Section 8 of the Foreign Exchange Management Act, 1999, require an Indian company to take all reasonable steps to realize and repatriate into India all foreign currency earned by the company outside India, within such time periods and in the manner specified by the Reserve Bank of India (the "RBI"). The RBI has promulgated guidelines that require Indian companies to realize and repatriate such foreign currency to India, inter alia by way of remittance into a foreign currency account such as an Exchange Earners Foreign Currency ("EEFC") account maintained with an authorized dealer in India. Remittance into an EEFC account is subject to the condition that the sum total of the accruals in the account during a calendar month should be converted into rupees on or before the last day of the succeeding calendar month, after adjusting for utilization of the balances for approved purposes or forward commitments.
Data Protection
We collect, store, process, use and transfer personal data and other sensitive information, and, therefore, we are subject to laws and regulations related to security and privacy, in addition to other numerous, and sometimes conflicting, legal requirements. We are also subject to various other laws governing the protection of privacy, health and other personally identifiable information and data privacy and cybersecurity laws in other regions. See "Risk Factors — Risks Related to Our Global Operations — Our business, results of operations and financial condition may be adversely affected by the various conflicting and/or onerous legal and regulatory obligations required in the countries where we operate" and "If we are faced with immigration or work permit restrictions in any country where we currently have personnel onsite at a client location or would like to expand our delivery footprint, then our business, results of operations and financial condition may be adversely affected".
Labor and Employment
We are subject to a variety of national and local labor laws including, employee health safety, wages and benefits laws, independent contractors regulations and outsourcing. See "Risk Factors — Risks Related to Our Global Operations — Our business, results of operations and financial condition may be adversely affected by the various conflicting and/or onerous legal and regulatory obligations required in the countries where we operate", “If we are faced with immigration or work permit restrictions in any country where we currently have personnel onsite at a client location or would like to expand our delivery footprint, then our business, results of operations and financial condition may be adversely affected” and “Risk Factors — Risks Related to Our Business and Industry — Our labor costs and the operating restrictions that apply to us could increase as a result of collective bargaining negotiations and changes in labor laws and regulations, and disputes resulting in work stoppages, strikes, or disruptions could adversely affect our business”.
C. Organizational Structure
On December 10, 2012, we incorporated our company, Globant S.A., as a société anonyme under the laws of the Grand Duchy of Luxembourg, as the holding company for our business. Prior to the incorporation in Luxembourg, our company was incorporated in Spain as a sociedad anónima, which we refer to as “Globant Spain” or “Spain Holdco”. As a result of the incorporation of our company in Luxembourg and certain related share transfers and other transactions, Globant Spain became a wholly-owned subsidiary of our company.
The following chart is a summary of our principal subsidiaries as of February 10, 2023. You may find complete information about all of our subsidiaries and their respective holdings in Exhibit 8.1.
D. Property, Plant and Equipment
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Key Information—Risk Factors" and elsewhere in this annual report.
Overview
Cybersecurity Incident
As disclosed in our Report of Foreign Private Issuer furnished to the US Securities and Exchange Commission on March 30, 2022, on March 28, 2022, we detected suspicious activity on our network later determined to be unauthorized access to and exfiltration of certain source code and project-related documentation for certain clients, as well as certain data files. As soon as such access was detected, we activated our security protocols and promptly notified affected clients. In addition, we engaged a third-party firm to conduct a forensic investigation. The forensic investigation was finalized in August 2022 and we concluded that the number of affected clients was limited. In accordance with applicable regulations, we notified relevant data privacy authorities of the incident. In addition, we have implemented a variety of measures to further enhance our cybersecurity protections. To date this incident has not had a material impact on our operations, and we are unaware of any material impact on our clients’ operations.
A. Operating Results
Factors Affecting Our Results of Operations
Over the last few years, the simultaneous digital and cognitive revolutions have transformed the technology industry, reshaped how companies connect with consumers and employees, and created opportunities for gains in efficiency. Today's technology users move quickly and demand personalized and frictionless experiences through always-available digital ecosystems. Increased demand for more intelligent and human-like technology is contributing to changes in the industry. To address user demands, companies are leveraging AI, UX, Mobile, Cloud, VR and other technologies.
We believe that the most significant factors affecting our results of operations include:
•market demand for integrated engineering, design and innovation technology services relating to emerging technologies and related market trends;
•economic conditions in the industries and countries in which our clients operate and their impact on our clients' spending on technology services;
•our ability to continue to innovate and remain at the forefront of emerging technologies and related market trends;
•expansion of our service offerings and success in cross-selling new services to our clients;
•our ability to obtain new clients, increase penetration levels with our existing clients and continue to add value for our existing clients so as to create long-term relationships;
•the availability of, and our ability to attract, retain and efficiently utilize, skilled IT professionals in Latin America, India, Europe and the United States;
•operating costs in countries where we operate;
•capital expenditures related to the opening of new delivery centers and client management locations and improvement of existing offices;
•our ability to increase our presence onsite at client locations;
•the effect of wage inflation in countries where we operate and the variability in foreign exchange rates, especially relative changes in exchange rates between the U.S. dollar and the Argentine peso, Uruguayan peso, Mexican peso, Colombian peso and Indian rupees; and
•our ability to identify, integrate and effectively manage businesses that we may acquire.
Our results of operations in any given period are directly affected by the following additional company-specific factors:
•Pricing of, and margin on, our services and revenue mix. For time-and-materials contracts, the hourly rates we charge for our Globers are a key factor impacting our gross profit margins and profitability. Hourly rates vary by complexity of the project and the mix of staffing. The margin on our services is impacted by the increase in our costs in providing those services, which is influenced by wage inflation, market conditions and other factors. As a client relationship matures and deepens, we seek to maximize our revenues and profitability by expanding the scope of services offered to that client and achieving higher profit margin assignments. During the three-year period ended December 31, 2022, we increased our revenues attributable to sales of technology solutions (primarily through our Scalable Platforms, Agile Delivery, Artificial Intelligence, Cloud Ops. and UI Engineering Studios), and our gross profit margin was 37.6%, 38.2% and 37.4% for the years ended December 31, 2022, 2021 and 2020, respectively. Adjusted gross profit margin was 39.2%, 39.5% and 39.1% for the years ended December 31, 2022, 2021 and 2020, respectively.
•Our ability to deepen and expand the portfolio of services we offer while maintaining our high standard of quality. The breadth and depth of the services we offer impact our ability to grow revenues from new and existing clients. Through
research and development, targeted hiring and strategic acquisitions, we have invested in broadening and deepening the domains of expertise of our Studios. Our future growth and success depend significantly on our ability to maintain the expertise of each of our Studios, to continue to innovate and to anticipate the needs of our clients and rapidly develop and maintain the expertise of each of our Studios, including relevant domain knowledge and technological capabilities required to meet those client needs, while maintaining our high standard of quality.
•Our ability to recruit, retain and manage our IT professionals may have an effect on our gross profit margin and our results of operations. Our IT professional headcount was 25,331 as of December 31, 2022, 22,167 as of December 31, 2021 and 15,290 as of December 31, 2020. We manage employee headcount and utilization based on ongoing assessments of our project pipeline and requirements for professional capabilities. An unanticipated termination of a significant project could cause us to experience lower employee utilization resulting from a higher than expected number of idle IT professionals. Our ability to effectively utilize our employees is typically improved by longer-term client relationships due to increased predictability of client needs over the course of the relationships.
•Investments in our delivery platform. See “Information on the Company — Business overview. — Facilities and Infrastructure.” Our integrated global delivery platform allows us to deliver our services through a blend of onsite and offsite methods. We have pursued a decentralization strategy in building our network of delivery centers, recognizing the benefits of expanding into countries in Latin America and Asia, including the ability to attract and retain highly skilled IT professionals in increasing scale. Our ability to effectively utilize our robust delivery platform could significantly affect our results of operations in the future.
Certain Income Statement Line Items
2022 Compared to 2021
Revenues
Revenues are derived primarily from providing technology services to our clients, which are medium to large-sized companies mainly based in North America, Europe, Asia and Latin America. For the year ended December 31, 2022, revenues increased by 37.3% to $1.8 billion from $1.3 billion for the year ended December 31, 2021.
We discuss below the breakdown of our revenues by contract type, client location, industry vertical and client concentration. Revenues consist of technology services revenues and reimbursable expenses, which primarily include travel and out-of-pocket costs that are billable to clients.
Revenues by Contract type
We perform our services primarily under time-and-material contracts and, to a lesser extent, fixed-price contracts. The remaining portion of our revenues in each year was derived from other types of contracts.
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | | | | | |
| | | (in thousands, except percentages) |
| By Contract | | | | | | | | |
| Time & Materials | | $ | 1,472,894 | | | 82.7 | % | | $ | 1,062,171 | | | 81.9 | % |
| Fixed Price | | 273,344 | | | 15.4 | % | | 218,846 | | | 16.9 | % |
| Subscription resales | | 33,963 | | | 1.9 | % | | 16,039 | | | 1.2 | % |
| Others | | 42 | | | — | % | | 22 | | | — | % |
| Revenues | | $ | 1,780,243 | | | 100.0 | % | | $ | 1,297,078 | | | 100.0 | % |
Revenues by Client Location
Our revenues are sourced from three main geographic markets: North America (primarily the United States), Europe (primarily Spain and the United Kingdom), Middle East & Africa, and Latin America (primarily Argentina, Brazil, Chile and Mexico). We present our revenues by client location based on the location of the specific client site that we serve, irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed. For the year ended December 31, 2022, we had 1,249 customers with more than ten thousands U.S. dollars in revenue in the last twelve months.
The following table sets forth revenues by client location by amount and as a percentage of our revenues for the years indicated:
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | | | | | |
| | | (in thousands, except percentages) |
| By Geography | | | | | | | | |
| North America | | $ | 1,135,148 | | | 63.8 | % | | $ | 831,300 | | | 64.1 | % |
| Europe, Middle East & Africa | | 186,723 | | | 10.5 | % | | 151,334 | | | 11.7 | % |
| Asia & Oceania | | 50,018 | | | 2.8 | % | | 26,129 | | | 2.0 | % |
| Latin America | | 408,354 | | | 22.9 | % | | 288,315 | | | 22.2 | % |
| Revenues | | $ | 1,780,243 | | | 100.0 | % | | $ | 1,297,078 | | | 100.0 | % |
Revenues by Industry Vertical
We are a provider of technology services to enterprises in a range of industry verticals including media and entertainment, professional services, technology and telecommunications, travel and hospitality, banks, financial services and insurance, consumer, retail and manufacturing and health care, among others. The following table sets forth our revenues by amount and as a percentage of our revenues by industry vertical for the periods indicated:
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | | | | | |
| | | (in thousands, except percentages) |
| | | | | | | | |
| By Industry Vertical | | | | | | | | |
| Media and Entertainment | | $ | 376,134 | | | 21.1 | % | | $ | 272,703 | | | 21.0 | % |
| Banks, Financial Services and Insurance | | 359,940 | | | 20.2 | % | | 308,227 | | | 23.8 | % |
| Consumer, Retail & Manufacturing | | 254,500 | | | 14.3 | % | | 197,620 | | | 15.2 | % |
| Technology & Telecommunications | | 250,299 | | | 14.1 | % | | 155,665 | | | 12.0 | % |
| Professional Services | | 235,553 | | | 13.2 | % | | 167,997 | | | 13.0 | % |
| Travel & Hospitality | | 139,170 | | | 7.8 | % | | 87,567 | | | 6.8 | % |
| Health Care | | 128,669 | | | 7.2 | % | | 96,334 | | | 7.4 | % |
| Other Verticals | | 35,978 | | | 2.1 | % | | 10,965 | | | 0.8 | % |
| Total | | $ | 1,780,243 | | | 100.0 | % | | $ | 1,297,078 | | | 100.0 | % |
The increase in revenues from clients in the media and entertainment industry vertical was primarily attributable to a higher demand for our gaming services, scalable platforms and user interface solutions.
The increase in revenues from clients in the banks, financial services and insurance industry vertical was primarily attributable to higher demand for services related to scalable platforms, user interface solutions and strategic transformation.
The increase in revenues from clients in the consumer, retail and manufacturing industry vertical was primarily attributable to higher demand for services related to scalable platforms solutions, adaptive organizations and our digital experience platforms.
The increase in revenues from clients in the technology and telecommunications industry vertical was primarily attributable to higher demand in digital content, AI services and Cloud Ops. solutions.
The increase in revenues from clients in the professional services industry vertical was primarily attributable to higher demand for services related to product acceleration practices, scalable platforms and internet of things solutions.
The increase in revenues from clients in the travel and hospitality industry vertical was primarily attributable to higher demand for services related to, and mainly focused on, scalable platforms services, Data And Artificial Intelligence, and our Digital Experience Platforms.
The increase in revenues from clients in the health care industry vertical was primarily attributable to higher demand for services related to AI services.
The increase in revenues from clients in other verticals is mainly explained by the higher demand for Adaptive Organizations Services, Consulting and Data and Artificial Intelligence.
Revenues by Client Concentration
We have increased our revenues by expanding the scope and size of our engagements, and we have grown our key client base primarily through our business development efforts and referrals from our existing clients.
The following table sets forth revenues contributed by our largest client, top five clients, top ten clients and top twenty clients by amount and as a percentage of our revenues for the years indicated:
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | | | | | |
| | | (in thousands, except percentages) |
| | | | | | | | |
| Client concentration | | | | | | | | |
| Top client | | $ | 191,191 | | | 10.7 | % | | $ | 141,100 | | | 10.9 | % |
| Top five clients | | 456,217 | | | 25.6 | % | | 345,835 | | | 26.7 | % |
| Top ten clients | | 633,150 | | | 35.6 | % | | 506,572 | | | 39.1 | % |
| Top twenty clients | | 812,419 | | | 45.6 | % | | 674,883 | | | 52.0 | % |
Our top ten customers for the year ended December 31, 2022 have been working with us for, on average, eleven years.
An increase in revenues from our top ten clients in 2022 reflects our ability to increase the scope of our engagement with our main customers. Revenues from our largest client in 2022, The Walt Disney Company, increased by $50.1 million, or 35.5%, to $191.2 million for 2022 from $141.1 million for 2021.
Our focus on delivering quality to our clients is reflected in the fact that existing clients from 2021 contributed 90.5% of our revenues in 2022. As evidence of the increase in scope of engagement within our client base, the number of clients that each accounted for over $5.0 million of our annual revenues increased (65 in 2022 and 42 in 2021) and the number of clients that each accounted for at least $1.0 million of our annual revenues increased to 259 in 2022 from 185 in 2021. The following table shows the distribution of our clients by revenues for the year presented:
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | |
| Over $5 Million | | 65 | | | 42 | |
| $1 - $5 Million | | 194 | | | 143 | |
| $0.5 - $1 Million | | 132 | | | 106 | |
| $0.1 - $0.5 Million | | 386 | | | 287 | |
| Less than $0.1 Million (*) | | 472 | | | 343 | |
| Total Clients (*) | | 1,249 | | | 921 | |
(*) Represents customers with more than $0.01 million in revenue during the last twelve months.
The volume of work we perform for specific clients is likely to vary from year to year, as we are typically not any client's exclusive external technology services provider, and a major client in one year may not contribute the same amount or percentage of our revenues in any subsequent year.
Operating Expenses
Up to 80% of the amounts paid by our Argentine subsidiaries for certain social security taxes in respect of base and incentive compensation of our IT professionals is credited back to those subsidiaries under the Knowledge based Economy Law, reducing the effective cost of social security taxes of the base and incentive compensation on which those contributions are calculated. For further discussion of the Knowledge based Economy Law, see note 3.7.1.1 to our audited consolidated financial statements for the year ended December 31, 2022.
Cost of Revenues
The principal components of our cost of revenues are salaries, professional services and travel costs related to the services provided. Included in salaries are base salary, incentive-based compensation, employee benefits costs and social security taxes. Salaries of our IT professionals are allocated to cost of revenues regardless of whether they are actually performing services during a given period.
Also included in cost of revenues is the portion of depreciation and amortization expense attributable to the portion of our property and equipment, right of use assets and intangible assets utilized in the delivery of services to our clients.
Our cost of revenues has increased in recent years in line with the growth in our revenues and reflects the expansion of our operations in Spain, Argentina, Uruguay, Colombia, Peru, Mexico, India and the United States primarily due to increases in salary costs, an increase in the number of our IT professionals and the opening of new delivery centers. We expect that as our revenues grow, our cost of revenues will increase. Our goal is to increase revenue per head and thereby increase our gross profit margin.
Cost of revenues was $1,110.8 million for 2022, representing an increase of $308.7 million, or 38.5%, from $802.1 million for 2021.
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | | | | | |
| | | (in millions, except percentages) |
| | Amount | | Variation | | Amount | | Variation |
| Main variations in cost of revenues | | | | | | | | |
| Salaries, employee benefits and social security taxes | | $ | (1,014.5) | | | 36.1 | % | | $ | (745.3) | | | 56.4 | % |
| Professional services | | $ | (37.3) | | | 55.5 | % | | $ | (24.0) | | | 263.5 | % |
The increase in salaries, employee benefits and social security taxes is primarily attributable to the net addition of 3,164 IT professionals since December 31, 2021, an increase of 14.3%, to satisfy growing demand for our services, which translated into an increase in salaries. The increase in professional services is mainly attributable to the increase in contractor services related to business growth and software subscriptions.
Cost of revenues as a percentage of revenues increased to 62.4% for 2022 from 61.8% for 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represent expenses associated with promoting and selling our services and include such items as salary of our senior management, administrative personnel and sales and marketing personnel, infrastructure costs, legal and other professional services expenses, travel costs and other taxes. Included in salaries are base salary, incentive-based compensation, employee benefits costs and social security taxes.
Also included in selling, general, and administrative expenses is the portion of depreciation and amortization expense attributable to the portion of our property and equipment, right-of-use assets and intangible assets utilized in our sales and administration functions.
Selling, general and administrative expense was $456.3 million for 2022, representing an increase of $113.3 million, or 33.0%, from $343.0 million for 2021.
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| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | | | | | |
| | | (in millions, except percentages) |
| | Amount | | Variation | | Amount | | Variation |
| Main variations in Selling, General and Administrative Expenses | | | | | | | | |
| Salaries, employee benefits and social security taxes | | $ | (173.5) | | | 24.6 | % | | $ | (139.3) | | | 61.3 | % |
| Share-based compensation expense | | (52.1) | | | 34.3 | % | | (38.8) | | | 89.3 | % |
| Professional services | | (40.5) | | | 31.1 | % | | (30.9) | | | 34.0 | % |
| Depreciation and amortization expense | | (59.2) | | | 29.5 | % | | (45.7) | | | 116.9 | % |
| Promotional and marketing expenses | | (27.0) | | | 162.1 | % | | (10.3) | | | 192.8 | % |
The increase of salaries, employee benefits, social security taxes and share based compensation was primarily attributable to the addition of sales and management executives. There was also an increase of $13.5 million in depreciation and amortization related mainly to the intangibles recognized for the business combinations made during 2022 and 2021. In addition, there was a $9.6 million increase in professional services related to consulting tax matters and legal and audit fees, also increase in subscriptions and license expenses and the impact of the acquired companies during 2022. The increase in promotional and marketing expenses is mainly explained by expenses in marketing and publicity for the sponsorship of the FIFA World Cup, and by an increase in special events mainly in the United States and United Kingdom related with stands, events promotions, sponsorship and summits.
Selling, general and administrative expenses as a percentage of revenues decreased to 25.6% for 2022 from 26.4% for 2021. Share-based compensation expense within selling, general and administrative expenses accounted for $52.1 million, or 2.9%, as a percentage of revenues for 2022, and $38.8 million, or 3.0%, as a percentage of revenues for 2021.
Our selling, general and administrative expenses have increased primarily as a result of our expanding operations and the build-out of our senior and mid-level management teams to support our growth. We expect our selling, general and administrative expenses to continue to increase in absolute terms as our business expands. However, as a result of our management and infrastructure investments, we believe our platform is capable of supporting the expansion of our business without a proportionate increase in our selling, general and administrative expenses, resulting in gains in operating leverage.
Depreciation and Amortization Expense (included in "Cost of Revenues" and "Selling, General and Administrative Expenses")
Depreciation and amortization expense consists primarily of depreciation of our property and equipment (primarily leasehold improvements, servers and other equipment), depreciation of right-of-use assets (primarily office spaces and office equipment) and amortization of our intangible assets (mainly software licenses, acquired intangible assets and internal developments). We expect that depreciation and amortization expense will continue to increase as we open more delivery centers and client management locations.
Net impairment losses on financial assets
Net impairment losses on financial assets mainly include impairment of trade receivables, which represents an allowance for expected credit losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition. During the years ended December 31, 2022 and 2021, we recorded a loss of $6.4 million and $7.6 million, respectively, related to the recognition of the allowance for expected credit losses.
The increase of the allowance for expected credit losses was mainly attributable to the impact of factors that are specific to debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
Finance Income
Finance income consists of interest gains on time deposits, financed customers and savings accounts. The increase of finance income up to $2.8 million for the year ended December 31, 2022 from $0.7 million for the year ended December 31, 2021 was primarily attributable to accrued interests from savings accounts.
Finance Expense
Finance expense includes the interests from borrowings, leases contracts, banking fees and other finance expenses. The increase of finance expense up to $16.6 million for the year ended December 31, 2022 from $12.7 million for the year ended December 31, 2021 was due to an increase in interest on lease liabilities and borrowings interests.
Other Financial Results, Net
Other financial results, net consists of foreign exchange gain or loss on monetary assets and liabilities denominated in currencies other than the U.S. dollar, gain or loss on transactions with bonds, interest rate swaps, foreign exchange forward contracts and future contracts, mutual funds and T-Bills.
Other financial results, net increased to a $0.2 million gain for the year ended December 31, 2022 from a $3.9 million loss for the year ended December 31, 2021, primarily reflecting a foreign exchange loss of $6.7 million compared to a gain of $3.9 million in 2021, a loss of $7.5 million net related to losses from financial assets measured at fair value through profit or loss compared to a loss of $8.5 million in 2021 and a gain on transactions with bonds of $13.9 million compared to a gain of $0.7 million in 2021.
Other Income and Expenses, Net
Other income and expenses, net decreased to a loss of $0.4 million for the year ended December 31, 2022 from a loss of $3.4 million for the year ended December 31, 2021. Such decrease is mainly explained by the remeasurement of contingent consideration related to the business combinations.
Income Tax Expense
Income tax expense amounted to $43.4 million for 2022, an increase of $14.9 million from a $28.5 million income tax expense for 2021. The increase in income tax expense was driven by the expansion of our business. Our effective tax rate (calculated as income tax gain or expense divided by the profit before income tax) decreased to 22.5% for 2022 from 22.8% for 2021, primarily due to changes in the geographic distribution of earnings.
Net Income for the Year
As a result of the foregoing, we had a net income of $149.5 million for 2022, compared to $96.4 million for 2021.
2021 Compared to 2020
For discussion related to our financial condition, changes in financial condition, and the results of operations for 2021 compared to 2020, refer to Part I, Item 5. Operating and Financial Review and Prospects, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2021, which was filed with the SEC on February 28, 2022.
Reconciliation of Non-IFRS Financial Data
Overview
To supplement our financial measures prepared in accordance with IFRS, we use certain non-IFRS financial measures including (i) adjusted diluted earnings per share ("EPS"), (ii) adjusted net income, (iii) adjusted gross profit, (iv) adjusted selling, general and administrative ("SG&A") expenses, and (v) adjusted profit from operations. These measures do not have any standardized meaning under IFRS, and other companies may use similarly titled non-IFRS financial measures that are calculated differently from the way we calculate such measures. Accordingly, our non-IFRS financial measures may not be comparable to similar non-IFRS measures presented by other companies. We caution investors not to place undue reliance on
such non-IFRS measures, but instead to consider them with the most directly comparable IFRS measures. Non-IFRS financial measures have limitations as analytical tools and should not be considered in isolation. They should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with IFRS.
The reconciliations of these non-IFRS measures to the most directly comparable financial measures calculated and presented in accordance with IFRS are shown in the tables below. We use these non-IFRS measures in the evaluation of our performance and our consolidated financial results. We believe these non-IFRS measures may be useful to investors in their assessment of our operating performance and the valuation of our company. In addition, these non-IFRS measures address questions we routinely receive from analysts and investors and, in order to assure that all investors have access to similar data, we have determined that it is appropriate to make this data available to all investors.
Adjusted Gross Profit and Adjusted SG&A Expenses
We utilize non-IFRS measures of adjusted gross profit and adjusted SG&A expenses as supplemental measures for period-to-period comparisons. Adjusted gross profit and adjusted SG&A expenses are most directly comparable to the IFRS measures of gross profit and selling, general and administrative expenses, respectively. Our non-IFRS measures of adjusted gross profit and adjusted SG&A expenses exclude the impact of certain items, such as depreciation and amortization expense, share-based compensation expense and, only with respect to adjusted SG&A expenses, acquisition-related charges and COVID-19 related charges.
Adjusted Profit from Operations
We utilize the non-IFRS measure of adjusted profit from operations as a supplemental measure for period-to-period comparisons. Adjusted profit from operations is most directly comparable to the IFRS measure of profit from operations. Adjusted profit from operations excludes the impact of certain items, such as share-based compensation expense, impairment of assets, net of recoveries, acquisition-related charges and COVID-19 related charges.
Adjusted Diluted EPS and Adjusted Net Income
We utilize non-IFRS measures of adjusted diluted EPS and adjusted net income for strategic decision making, forecasting future results and evaluating current performance. Adjusted diluted EPS and adjusted net income are most directly comparable to the IFRS measures of EPS and net income, respectively. Our non-IFRS measures of adjusted diluted EPS and adjusted net income exclude the impact of certain items, such as acquisition-related charges, impairment of assets, net of recoveries, share-based compensation expense, COVID-19 related charges and the tax effects of non-IFRS adjustments.
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Reconciliation of adjusted gross profit | | | | | | |
| Gross profit | | $ | 669,395 | | | $ | 494,988 | | | $ | 304,327 | |
| Adjustments | | | | | | |
| Depreciation and amortization expense | | 23,312 | | | 14,122 | | | 9,759 | |
| Share-based compensation expense | | 4,917 | | | 3,568 | | | 4,109 | |
| Adjusted gross profit | | $ | 697,624 | | | $ | 512,678 | | | $ | 318,195 | |
| Reconciliation of adjusted selling, general and administrative expenses | | | | | | |
| Selling, general and administrative expenses | | $ | (456,324) | | | $ | (343,004) | | | $ | (217,222) | |
| Adjustments | | | | | | |
| Depreciation and amortization expense | | 62,822 | | | 48,796 | | | 22,691 | |
| Share-based compensation expense - Equity settled | | 50,296 | | | 35,831 | | | 20,519 | |
Acquisition-related charges, net (1) | | 13,612 | | | 12,860 | | | 10,096 | |
COVID-19 related charges (2) | | — | | | — | | | (613) | |
| Adjusted selling, general and administrative expenses | | $ | (329,594) | | | $ | (245,517) | | | $ | (164,529) | |
| Reconciliation of adjusted profit from operations | | | | | | |
| Profit from operations | | $ | 206,707 | | | $ | 144,433 | | | $ | 83,942 | |
| Adjustments | | | | | | |
| Share-based compensation expense - Equity settled | | 55,213 | | | 39,399 | | | 24,628 | |
| Impairment of assets | | — | | | — | | | (8) | |
Acquisition-related charges, net (1) | | 27,456 | | | 28,271 | | | 12,754 | |
COVID-19 related charges (2) | | — | | | 2,228 | | | 2,582 | |
Impairment of assets (3) | | — | | | — | | | 83 | |
| Adjusted profit from operations | | $ | 289,376 | | | $ | 214,331 | | | $ | 123,981 | |
| Reconciliation of adjusted net income for the year | | | | | | |
| Net income for the year | | $ | 148,891 | | | $ | 96,065 | | | $ | 54,217 | |
| Adjustments | | | | | | |
| Share-based compensation expense - Equity settled | | 55,213 | | | 39,399 | | | 24,628 | |
| Impairment of assets | | — | | | — | | | (8) | |
Acquisition-related charges, net (1) | | 28,765 | | | 35,465 | | | 15,796 | |
COVID-19 related charges (2) | | — | | | 2,228 | | | 2,582 | |
Impairment of assets (3) | | — | | | — | | | 83 | |
Tax effects of non-IFRS adjustments (4) | | (15,146) | | | (14,748) | | | (6,712) | |
| Adjusted net income for the year | | $ | 217,723 | | | $ | 158,409 | | | $ | 90,586 | |
| | | | | | |
| Calculation of adjusted diluted EPS | | | | | | |
| Adjusted net income | | 217,723 | | | 158,409 | | | 90,586 | |
| Diluted shares | | 42,855 | | | 42,076 | | | 39,717 | |
| Adjusted diluted EPS | | 5.08 | | | 3.76 | | | 2.28 | |
| | | | | | |
| Other data: | | | | | | |
| Adjusted gross profit | | 697,624 | | | 512,678 | | | 318,195 | |
| Adjusted gross profit margin percentage | | 39.2 | % | | 39.5 | % | | 39.1 | % |
| Adjusted selling, general and administrative expenses | | (329,594) | | | (245,517) | | | (164,529) | |
| Adjusted selling, general and administrative expenses margin percentage | | (18.5) | % | | (18.9) | % | | (20.2) | % |
| Adjusted profit from operations | | 289,376 | | | 214,331 | | | 123,981 | |
| Adjusted profit from operations margin percentage | | 16.3 | % | | 16.5 | % | | 15.2 | % |
| Adjusted net income for the year | | 217,723 | | | 158,409 | | | 90,586 | |
Adjusted net income margin percentage for the year | | 12.2 | % | | 12.2 | % | | 11.1 | % |
(1) Acquisition-related expenses include, when applicable, amortization of purchased intangible assets included in depreciation and amortization expense line on our consolidated statements of comprehensive income, external deal costs, acquisition-related retention bonuses, integration costs, changes in the fair value of contingent consideration liabilities, expenses for impairment of acquired intangible assets and other acquisition-related costs.
(2) COVID-19 related expenses include, when applicable, bad debt provision related to the effect of the COVID-19 pandemic on our clients’ businesses, donations and other expenses directly attributable to the pandemic that are both incremental to expenses incurred prior to the outbreak and not expected to recur once the crisis has subsided and operations return to normal and clearly separable from normal operations. Moreover, these expenses also include rent concessions that we were granted due to the pandemic environment.
(3) Impairment of assets, net of recoveries includes, when applicable, charges for impairment of intangible assets, charges for impairment of investments in associates and charges for impairment of tax credits, net of recoveries.
(4) Non-IFRS Adjusted net income and adjusted Diluted EPS for 2022, 2021 and 2020 reflect the tax impact of non-IFRS adjustments. Non-IFRS Adjusted net income and adjusted Diluted EPS 2020 previously presented were recast to conform to the current presentation.
B. Liquidity and Capital Resources
Capital Resources
Our primary sources of liquidity are cash flows from operating activities. For the year 2022, we derived 86.7% of our revenues from clients in North America and Latin America pursuant to contracts that are entered into by our subsidiaries located in the United States, Argentina, Chile, Mexico, and Peru.
Our primary cash needs are for capital expenditures (consisting of additions to property and equipment and to intangible assets) and working capital. We may also require cash to fund acquisitions of businesses.
Our primary working capital requirements are to finance our payroll-related liabilities during the period from delivery of our services through invoicing and collection of trade receivables from clients.
We incur capital expenditures to open new delivery centers, for improvements to existing delivery centers, for infrastructure-related investments and to acquire software licenses and internal developments.
Based on the above considerations, management is of the opinion that we have sufficient funds to meet our working capital and capital expenditure needs for at least the next twelve months from the date of this report. However, our future capital requirements may be materially different than those currently planned in our budgeting and forecasting activities and depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the acquisition of other companies, global economic conditions and the retention of customers. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our shareholders, while the incurrence of debt financing would result in debt service obligations. Such debt instruments also could introduce covenants that might restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms, or at all.
We will continue to invest in our subsidiaries. In the event of any repatriation of funds or declaration of dividends from our subsidiaries, there will be a tax effect because dividends from certain foreign subsidiaries are subject to taxes. See "Additional Information — Taxation".
The following table sets forth our historical capital expenditures for the years ended December 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2022 | | 2021 |
| | | | |
| | | (In thousands) |
| Total fixed assets acquisitions | | $ | 54,482 | | | $ | 52,961 | |
| Total intangible assets acquisitions | | 128,944 | | | 52,449 | |
| Additions related to business combinations | | (83,578) | | | (15,785) | |
| Total Capital Expenditures | | 99,848 | | | 89,625 | |
Investments
During 2021, we invested $89.6 million in capital expenditures primarily made to complete or develop our works on our delivery centers in Argentina: Buenos Aires and Tandil; Colombia: Bogota; India: Pune; Belarus: Minsk; and Spain: Madrid. Additionally, we invested $38.2 million in internal developments and acquired licenses.
During 2022, we invested $99.8 million in capital expenditures primarily made to complete or develop our works on our delivery centers in Argentina: Buenos Aires and Tandil; India: Pune; and United Kingdom: London. Additionally, we invested $46.7 million mainly in internal developments and acquired licenses.
Business Combinations
During 2021, we entered into several sales and purchase agreements to expand our service offering and capacity. Our business combinations activity resulted in cash outflows of $145 million. The fair value of the consideration recognized in our financial statements amounted to $58.2 million, based on target achievements and price adjustments. See note 26 to our audited consolidated financial statements.
During 2022, we entered into several sales and purchase agreements to expand our service offering and capacity. Our business combinations activity resulted in cash outflows of $126 million. The fair value of the consideration recognized in our financial statements amounted to $59.7 million, based on target achievements and price adjustments. See note 26 to our audited consolidated financial statements.
As of December 31, 2022, we had cash and cash equivalents and current investments of $340.9 million.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated:
| | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 |
| | (In thousands) |
| Net cash provided by operating activities | | $ | 197,524 | | | $ | 178,974 | |
| Net cash used in investing activities | | (269,304) | | | (272,880) | |
| Net cash (used in) provided by financing activities | | (65,680) | | | 243,986 | |
| Cash and cash equivalents at beginning of the year | | 427,804 | | | 278,939 | |
| Cash and cash equivalents at end of the year | | 290,344 | | | 429,019 | |
| Net (decrease) increase in Cash and cash equivalents at end of year | | (137,460) | | | 150,080 | |
Operating Activities
Net cash provided by operating activities was generated primarily by profits before taxes adjusted for non-cash items, including depreciation and amortization expense, shared-based compensation expense and the effect of working capital changes.
Net cash provided by operating activities was $197.5 million for the year ended December 31, 2022, as compared to net cash provided in operating activities of $179.0 million for the year ended December 31, 2021. This increase of $18.6 million in net cash provided by operating activities was primarily attributable to a $105.3 million increase in profit before income tax
expense adjusted for non-cash-items, a $90.4 million decrease in working capital, a $6.4 million decrease in the utilization of provision for contingencies and a $2.7 million increase in income tax payments.
Changes in working capital in the year ended December 31, 2022 consisted primarily of a $104.3 million increase in trade receivables, a $21.0 million increase in other receivables, a $9.4 million increase in other assets, a $2.7 million decrease in trade payables, a $0.3 million increase in tax liabilities, and $13.4 million increase in payroll and social security taxes payable. The $104.3 million increase in trade receivables reflects our revenue growth. The $21.0 million increase in other receivables was mainly related to the increase in prepaid expenses, and tax receivables . Payroll and social security taxes payable increased to $203.8 million as of December 31, 2022 from $184.5 million as of December 31, 2021, primarily as a result of the growth in our headcount in line with our expansion.
For discussion related to cash flows from operating activities during 2021 compared to 2020, refer to Part I, Item 5. Liquidity and Capital Resources, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2021, which was filed with the SEC on February 28, 2022.
Investing Activities
Net cash of $269.3 million was used in investing activities for the year ended December 31, 2022, as compared to $272.9 million of net cash used in investing activities during the year ended December 31, 2021. During the year ended December 31, 2022, we invested $3.9 million in mutual funds, T-bills, sovereign bonds and commercial papers, we invested $95.4 million in fixed and intangible assets, $156.9 million in acquisition-related transactions, and we made payments of $13.1 million related to future and forward contracts.
For discussion related to cash flows from investing activities during 2021 compared to 2020, refer to Part I, Item 5. Liquidity and Capital Resources, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2021, which was filed with the SEC on February 28, 2022.
Financing Activities
Net cash of $65.7 million was used in financing activities for the year ended December 31, 2022, as compared to $244.0 million of net cash provided by financing activities for the year ended December 31, 2021. During the year ended December 31, 2022, we received $3.2 million for the issuance of shares under our share-based compensation plan. Additionally, during the year ended December 31, 2022 we paid $10.8 million net of borrowings, $37.4 million of lease liabilities, $15.5 million in acquisition-related transactions, and $5.2 million of put option to acquire non-controlling interest.
For discussion related to cash flows from financing activities during 2021 compared to 2020, refer to Part I, Item 5. Liquidity and Capital Resources, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2021, which was filed with the SEC on February 28, 2022.
Future Capital Requirements
Our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors. If our cash and cash equivalents and operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we issue equity securities in order to raise additional funds, substantial dilution to existing shareholders may occur. If we raise cash through the issuance of indebtedness, we may be subject to additional contractual restrictions on our business. We cannot assure you that we would be able to raise additional funds on favorable terms or at all.
On February 6, 2020, the Borrower, entered into the Second A&R Credit Agreement (as amended in October 2021), pursuant to which the Borrower may borrow (i) up to $100 million in up to four borrowings on or prior to April 1, 2022 under a delayed-draw term loan facility and (ii) up to $250 million under a revolving credit facility. In addition, the Borrower may request increases of the maximum amount available under the revolving facility in an aggregate amount not to exceed $100 million. The maturity date of each of the facilities is February 5, 2025. Pursuant to the terms of the Second A&R Credit Agreement, interest on the loans extended thereunder shall accrue at a rate per annum equal to either (i) LIBOR plus 1.50%, or (ii) LIBOR plus 1.75%, determined based on the Borrower’s Maximum Total Leverage Ratio (as defined in the Second A&R Credit Agreement). The Borrower’s obligations under the Second A&R Credit Agreement are guaranteed by the Company and its subsidiary, Globant España S.A., and are secured by substantially all of the Borrower’s now owned and after-acquired assets. The Second A&R Credit Agreement also contains certain customary negative and affirmative covenants, which compliance may limit our flexibility in operating our business and our ability to take actions that might be advantageous to us and our shareholders.
On June 2, 2022 we entered into a Third Amended and Restated Credit Agreement with HSBC, pursuant to which the LIBOR rate was replaced by a Secured Overnight Financing Rate ("SOFR") plus 0.10%.
In response to the transition away from and discontinuation of LIBOR and other interest rate benchmarks, we have taken, and are continuing to take, necessary steps to proactively address the transition, including monitoring external developments, negotiating successor reference rates with relevant counterparties, planning for the circumstances where the transition results in a mismatch with the fallback reference rates used, and evaluating the potential impact on our financial results and condition.
Contractual Obligations
Set forth below is information concerning our fixed and determinable contractual obligations as of December 31, 2022 and the effect such obligations are expected to have on our liquidity and cash flows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period (in thousands) |
| | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| Trade payables | | $ | 85,119 | | | $ | 4,862 | | | $ | 583 | | | $ | — | | | $ | 90,564 | |
| Borrowings | | 2,997 | | | 159 | | | 159 | | | 545 | | | 3,860 | |
| Lease liabilities | | 48,230 | | | 35,464 | | | 23,823 | | | 61,950 | | | 169,467 | |
Other financial liabilities (1) | | 56,379 | | | 46,375 | | | 14,085 | | | 13,882 | | | 130,721 | |
| TOTAL | | $ | 192,725 | | | $ | 86,860 | | | $ | 38,650 | | | $ | 76,377 | | | $ | 394,612 | |
(1) The amounts disclosed in the line of other financial liabilities do not include foreign exchange forward contracts, equity forward contracts and 22,930 related to business combinations payments through subscription agreements. See note 26 to our audited consolidated financial statements.
Appropriation of Retained earnings under Subsidiaries' local Laws and restrictions on distribution of dividends by certain Subsidiaries
The ability of certain of our subsidiaries to pay dividends to us is subject to their satisfaction of requirements under local law to set aside a portion of their net income in each year to legal reserves, as well as subject to certain tax restrictions. Please refer to note 31 of our audited consolidated financial statements for further information.
Equity Compensation Arrangements
On July 3, 2014, our board of directors and shareholders approved and adopted the 2014 Equity Incentive Plan, which was amended on May 9, 2016, February 13, 2019, May 18, 2021 and June 8, 2022. Pursuant to the June 8, 2022 amendment adopted by our board of directors, we may issue stock awards up to an aggregate amount of 5,666,667 common shares under the 2014 Equity Incentive Plan.
From the date of the 2014 Equity Incentive Plan's adoption, we have granted to members of our senior management and certain other employees options to purchase common shares and restricted stock units ("RSUs"). On September 27, 2021, our compensation committee adopted and approved the granting of performance-based restricted stock units ("PRSUs"). Since that time, subject to limited exceptions, between 40% and 50% of the awards granted under the 2014 Equity Incentive Plan were in the form of PRSUs and between 50% and 60% were in the form of RSUs.
Each of our employee share options is exercisable for one of our common shares, and each of our RSUs and PRSUs will be settled, automatically upon its vesting, with one of our common shares. No amounts are paid or payable by the recipient upon receipt of an option, RSU or PRSU. Neither the options, nor the RSUs or PRSUs carry rights to dividends or voting rights. Options may be exercised at any time from the date of vesting to the date of their expiration (ten years after the grant date). Most RSUs and PRSUs under the plan were granted with a vesting period of four years, 25% becoming exercisable on or about each anniversary of the grant date. Share-based compensation expense for awards of equity instruments is determined based on the fair value of the awards as of the grant date. Fair value is calculated using the Black-Scholes option pricing model.
Under the terms of our 2014 Equity Incentive Plan, from its adoption until the date of this annual report, we have granted to members of our senior management and certain other employees 30,000 stock awards, options to purchase 2,248,122 common shares and 2,240,261 RSUs and PRSUs, net of any cancelled and/or forfeited awards.
During the twelve months ended December 31, 2022, the Company granted a total of 199,825 awards under the Company's 2014 Equity Incentive Plan, net of cancelled and forfeited awards. Most of these awards were comprised of 50% RSUs and 50% PRSUs. RSUs and PRSUs have generally been granted with a vesting period of four years, 25% becoming vested on or about each anniversary of the grant date. In addition, on August 1, 2022, the Company approved the grant of up to 600,000 additional awards under the Company's 2014 Equity Incentive Plan, 50% of which are PRSUs and 50% of which are RSUs. These additional awards will vest based on the achievement of a certain minimum average closing price of the Company's common shares on or prior to August 11, 2030. The threshold price for vesting will be $420 per share through August 10, 2025 and increase by $42 each year until August 11, 2030. These awards will vest in two equal tranches, the first occurring immediately after the date in which the vesting condition is satisfied and the second occurring on the first anniversary of such vesting event. As of December 31, 2022, the Company granted 597,521 of these awards.
There were 1,636,554, 1,223,449 and 1,521,988 stock options, RSUs and/or PRSUs outstanding as of December 31, 2022, 2021 and 2020, respectively. For 2022, 2021 and 2020, we recorded $57.1 million, $42.4 million and $24.6 million of share-based compensation expense related to these share option and restricted stock unit agreements, respectively. For further discussion of the 2014 Equity Incentive Plan, see “Compensation—2014 Equity Incentive Plan".
In addition, on December 1, 2021, our compensation committee, as administrator, approved the granting of awards in the form of stock-equivalent units ("SEUs") and performance-based stock-equivalent units ("PSEUs") to be settled in cash or common shares, or a combination thereof, under the 2014 Equity Incentive Plan. The purpose of the granting awards in the form of stock-equivalent units is to provide an incentive to attract, retain and reward talent in the IT industry and to prompt such persons to contribute to the growth and profitability of the Company. Eligible employees will receive a grant of stock-equivalent units with a unit value equal to the market value of one common share of the Company, to be settled in cash or common shares of the Company.
Under the terms of our 2014 Equity Incentive Plan, we have granted to eligible employees 57,779 SEUs and PSEUs, net of any cancelled and/or forfeited awards, all of which were outstanding as of December 31, 2022. All stock-equivalent units were granted 50% in the form of PSEUs and 50% in the form of SEUs, each with a vesting period of four years, 25% becoming exercisable on or about each anniversary of the grant date. For further discussion of the 2014 Equity Incentive Plan, see “Compensation—2014 Equity Incentive Plan".
On March 1, 2021, our board of directors adopted an Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to advance the interests of the Company and our shareholders by providing an incentive to attract, retain and reward our eligible employees and by motivating such persons to contribute to the growth and profitability of the Company. The ESPP provides such eligible employees with an opportunity to acquire a proprietary interest in the Company through the purchase of the Company’s common shares payable by means of payroll deductions. As of the date of this annual report, we have delivered 46,589 common shares under the plan. For further discussion of the ESPP, see “Employees—2021 Employee Stock Purchase Plan".
C. Research and Development, Patents and Licenses, etc.
D. Trend Information
Other than as disclosed in this report, we are not aware of any trends, uncertainties, demands, commitments, or events since December 31, 2022 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity, or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
E. Critical Accounting Estimates
See note 4 to our audited consolidated financial statements for the year ended December 31, 2022.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Directors
The table below sets forth information concerning our directors as of February 10, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Position | | Age | | Date of
Appointment | | Current Term
Expiring
at Annual Meeting of
Shareholders to Be
Held in Year |
| Martín Migoya | | Chairman of the Board and Chief Executive Officer | | 54 | | April 2, 2021 | | 2024 |
| Martín Gonzalo Umaran | | Director - Chief Corporate Development Officer & President for EMEA | | 54 | | April 3, 2020 | | 2023 |
| Guibert Andrés Englebienne | | Director - President of Globant X and Globant Ventures - President for Latin America | | 56 | | April 3, 2020 | | 2023 |
| Francisco Álvarez-Demalde | | Director | | 44 | | April 22, 2022 | | 2025 |
| Andrea Mayumi Petroni Merhy | | Director | | 47 | | April 22, 2022 | | 2025 |
| Philip A. Odeen | | Director | | 87 | | April 2, 2021 | | 2024 |
| Linda Rottenberg | | Director | | 54 | | April 3, 2020 | | 2023 |
| Richard Haythornthwaite | | Director | | 66 | | April 2, 2021 | | 2024 |
| Maria Pinelli | | Director | | 60 | | April 22, 2022 | | 2025 |
Directors may be re-elected for one or more terms of up to four-years. Directors appointed to fill vacancies remain in office until the next general meeting of shareholders.
Globant S.A. was incorporated in Luxembourg on December 10, 2012. References to the terms of service or appointment of our directors and senior management in the following biographies include their service to our predecessor companies, which were organized in Spain.
Martín Migoya
Mr. Migoya has served as Chairman of our board of directors and Chief Executive Officer since 2005. He founded our company together with Messrs. Englebienne, Nocetti and Umaran in 2003. Mr. Migoya is frequently invited to lecture at various conventions and at universities like MIT and Harvard, and has been a judge at the Endeavor Entrepreneurs panel and at La Red Innova. Mr. Migoya was selected as an Endeavor Entrepreneur in 2005 and won a Konex Award as one of the most innovative entrepreneurs of 2008. He was selected as an Argentine Creative Individual of 2009 (Círculo de Creativos de la Argentina) and received the Security Award as one of the most distinguished Argentine businessmen of 2009. He also received in 2009 the America Economía Magazine’s “Excellence Award”, which is given to entrepreneurs and executives that contribute to the growth of Latin American businesses. In 2011, Latin Trade recognized Mr. Migoya as Emerging CEO of the Year. In 2013, Mr. Migoya received the “Entrepreneur of the Year Award” from Ernst & Young. In 2019, he was named Top CEO of the Year at the 2019 CEO World Awards and CEO of the year by El Cronista Comercial (Argentina). He is a member of the Young President’s Organization and a board member of Endeavor Argentina. Mr. Migoya holds a degree in electronic engineering from Universidad Nacional de La Plata (UNLP) and a master’s degree in business administration, from the Universidad del Centro de Estudios Macroeconómicos de Argentina. He co-authored two books, "The Never Ending Digital Journey" and "Embracing the power of AI", where he shares his thoughts on how technology is changing the world and how brands need to adapt to lead this revolution. Since July 2021, Mr. Migoya is the Manager of Enigma.art LLC. We believe that Mr. Migoya is qualified to serve on our board of directors due to his intimate familiarity with our company and the perspective, experience, and operational expertise in the technology services industry that he has developed during his career and as our co-founder and Chief Executive Officer.
Martín Gonzalo Umaran
Mr. Umaran has served as a member of our board of directors since 2012 and served as Chief of Staff from 2013 to 2020. As Globant’s Chief of Staff, Mr. Umaran was responsible for coordinating our back-office activities, supporting executives in daily projects and acting as a liaison to our senior management. Since 2008, he has been responsible for our mergers and acquisitions processes and strategic initiatives. From 2005 to 2012, Mr. Umaran served as Globant’s Chief Operations Officer and Chief Corporate Business Officer, in charge of managing our delivery teams and projects. In 2022, Mr.
Umaran was appointed as Chief Corporate Development Officer, responsible to incorporate other organizations into the Company as part of its global growth strategy. He has also been named President for EMEA, working side by side with our team in the region to achieve Globant’s growth plans. Together with his three Globant co-founders, Mr. Umaran was selected as an Endeavor Entrepreneur in 2005. Mr. Umaran holds a degree in mechanical engineering from Universidad Nacional de La Plata (UNLP) and a Masters in Business Administration from IDEA. We believe that Mr. Umaran is qualified to serve on our board of directors due to his intimate familiarity with our company and his perspective, experience, and operational expertise in the technology services industry that he has developed during his career as a co-founder of our company.
Guibert Andrés Englebienne
Mr. Englebienne has served as a member of our board of directors since 2003 In 2021, Mr. Englebienne became President of Globant X and Globant Ventures to help drive the success of these initiatives. He also was appointed President for Latin America, a role to provide strategic advice to our regional leadership. Mr. Englebienne previously served as our Chief Technology Officer from 2003 to 2021. He is one of Globant’s co-founders. Prior to co-founding Globant, Mr. Englebienne worked as a scientific researcher at IBM and, later, as head of technology for CallNow.com Inc. As Globant’s Chief Technology Officer, he oversees the technological development of Globant's diverse Studios, each a deep pocket of expertise with a focus on incorporating the latest trends to bring solutions to global companies. Together with his three Globant co-founders, Mr. Englebienne was selected as an Endeavor Entrepreneur in 2005. In addition to his responsibilities at Globant, Mr. Englebienne is President of Endeavor Argentina. In 2011, he was included in Globalization Today’s “Powerful 25” list. Mr. Englebienne holds a bachelor’s degree in Computer Science and Software Engineering from the Universidad Nacional del Centro de la Provincia de Buenos Aires in Argentina. We believe that Mr. Englebienne is qualified to serve on our board of directors due to his intimate familiarity with our company and his perspective, experience, and operational expertise in the technology services industry that he has developed during his career as our co-founder and executive officer.
Francisco Álvarez-Demalde
Mr. Álvarez-Demalde has been a member of our board of directors since 2007. He is a founder and co-managing partner of Riverwood Capital, a leading growth-capital private equity firm focused on the global technology industry, and one of the largest early investors in Globant. Mr. Alvarez-Demalde has built the Riverwood franchise into a leading global technology investment firm, as an active partner to founders and management teams helping scale companies from the $10s of millions to the $100s of millions in revenues. During the past decade, Riverwood has been an active investor in more than 70 technology companies, which have grown their revenues at more than 45% per year on average during that period. Prior to establishing Riverwood, Mr. Alvarez-Demalde was an investment executive at Kohlberg Kravis Roberts & Co. (KKR), where he focused on leveraged buyouts in the technology industry and other sectors. He also previously held roles with Eton Park Capital Management and Goldman Sachs & Co. Mr. Alvarez-Demalde has invested and been actively involved in the development, operations, and growth of several successful businesses across North America, Latin America and other geographies. Mr. Alvarez-Demalde earned a Licentiate (Honors) in Economics from Universidad de San Andres, Argentina (including an exchange program at the Wharton School). He has led investments in or is a current or former Director or Advisor of several technology companies, including 99, Alog Data Centers do Brasil, Billtrust (Nasdaq: BTRS), Cloudblue, Dock, Globant (NYSE: GLOB), GOintegro, Greenhouse, Industrious, Insider, LAVCA, Mandic, MotionPoint, Navent, Nubox, Pixeon, RD Station, SecurityScorecard, Shiphero, Technisys, and VTEX (NYSE: VTEX), among others. Mr. Alvarez-Demalde is also a Global Ambassador with Endeavor and active in non-profit initiatives related to education. We believe that Mr. Álvarez-Demalde is qualified to serve on our board of directors due to his considerable business experience in the technology industry and his experience serving as a director of other companies.
Andrea Mayumi Petroni Merhy
Ms. Petroni Merhy has served as a member of our board of directors and a member of our corporate governance and nominating committee since April 2022. She is a Managing Director, Head of Business Advisory & Execution and member of the Management Committee for the Investment and Corporate Banking in Asia Pacific at JPMorgan Chase. Prior to that, Ms. Petroni Merhy held a number of leadership roles within JPMorgan Chase including Head of Finance & Business Management for the Investment and Corporate Banking and Wholesale Payments in Asia Pacific, Senior Business Manager for China, Head of Human Resources for Latin America and Head of Finance & Strategy for the Investment Banking in Latin America. From 2015 to 2021, Ms. Petroni Merhy also served as a Board Member of the JPMorgan Chase Bank (China) Company Limited, joining the Nominating and Related Party Transactions committees. Earlier in her career, Ms. Petroni Merhy was an investment banker advising clients on mergers & acquisitions, capital raising and strategic alternatives across all industries in Latin America. Ms. Petroni Merhy holds a bachelor’s degree in Business Administration from Escola de Administração de Empresas Fundação Getúlio Vargas in Brazil. We believe that Ms. Petroni Merhy is qualified to serve on our board of directors due to her extensive business experience, risk management expertise and financial understanding.
Philip A. Odeen
Mr. Odeen has served as a member of our board of directors since 2012 and chairman of Globant's Compensation Committee since 2020. Mr. Odeen has also served as a proxy director of Leonardo DRS since 2013. He was a director of Booz Allen Hamilton from 2008 to 2019. From 2009 to 2013, Mr. Odeen served as the chairman of the board of directors and lead independent director of AES Corporation, and as a director of AES Corporation from 2003 to 2013. From 2008 to 2013, Mr. Odeen served as the chairman of the board of directors of Convergys Corporation, and as a director of Convergys Corporation from 2000 to 2013. Mr. Odeen served as a director of each of QinetiQ North America, Inc. from 2006 to 2015, ASC Signal Corporation from 2009-2015, and Red Hawk from 2015-2018. From 2006 to 2007, Mr. Odeen served as chairman of the board of directors of Avaya Corporation and as a director from 2002 to 2007. He served on the board of directors of Reynolds and Reynolds Company from 2000 to 2007, and as its chairman from 2006 to 2007. Mr. Odeen was a director of Northrop Grumman from 2002 to 2008. Mr. Odeen served as chairman and Chief Executive Officer of TRW Inc., retiring from the position in December 2001. Additionally, Mr. Odeen served as Chief Executive Officer of BDM from 1992 to 1997. Prior to that he was a partner with Coopers & Lybrand from 1978 to 1992, and Vice Chairman of the Management Consulting practice from 1991 to 1992. Mr. Odeen has a Bachelor’s Degree in Government from University of South Dakota, attended University of Liverpool, England as a Fulbright Scholar, and has a Master’s Degree in Political Science from the University of Wisconsin. We believe that Mr. Odeen is qualified to serve on our board of directors due to his experience in leadership and guidance of public and private companies as a result of his varied global business, governmental and non-profit experience.
Linda Rottenberg
Ms. Rottenberg has served as a member of our board of directors since 2017 and chairman of Globant's Corporate Governance and Nominating Committee since 2020. She is the Co- Founder and Chief Executive Officer of Endeavor Global Inc., a leader of the global entrepreneurship movement, since 1997. With offices in 40 countries, 500 employees, and an unrivaled network, Endeavor Global Inc. rigorously identifies, selects, and scales the most innovative companies in emerging and underserved markets. Endeavor Entrepreneurs have collectively produced 4 million jobs and annually generates over $27 billion in revenue. Ms. Rottenberg also oversees Endeavor Catalyst Funds, a pioneering co-investment fund that is widely recognized as a premier venture investor in Latin America, the Middle East, Southeast Asia, Africa, Europe, and the United States. Since launching in 2012, Endeavor Catalyst Funds has raised over $250 million across three funds, made 160 investments across 30 countries, and realized 10 exits. Under Ms. Rottenberg's leadership, Endeavor Catalyst Fund has made investments in Latin America, including Globant S.A., Rappi (valued at more than $3.5 billion), and Creditas (valued at $1.75 billion), Europe/Middle East, including Peak Games (acquired by Zynga in $1.8 billion) and Checkout.com (valued at more than $15 billion), and Southeast Asia, including Bukalapak (valued at more than $2.5 billion) and RUMA (acquired by Go-JEK). In addition to serving as a member of our board of directors, Ms. Rottenberg currently serves as a Director and Compensation Committee Chair to OLO, the leading SaaS-based food-ordering platform, and Reinvent Technology Partners Z, a SPAC formed by LinkedIn cofounder Reid Hoffman and Zynga founder Marc Pincus (NYSE: RTPZ-U). She formerly served as a Director and member of the Compensation Committee of ZAYO Group, an $8.3 billion global bandwidth infrastructure company. She is a member of YPO, CFR, and the Yale President’s Council on International Activities. Her 2014 book, "CRAZY IS A COMPLIMENT", became an instant New York Times bestseller. Ms. Rottenberg has been named “Innovator for the 21st Century” (TIME), “America’s Best Leader” (U.S. News) and “Global Leader for Tomorrow" (World Economic Forum). She is the subject of four Harvard Business School and one Stanford GSB case studies. Other honors include: Silicon Valley Forum Visionary Award; Heinz Award; Babson College Honorary Doctorate of Humane Letters; Yale Law School Award of Merit. Ms. Rottenberg is a graduate of Harvard College and Yale Law School. We believe that Ms. Rottenberg is qualified to serve on our board of directors due to her knowledge and experience in the technology industry and experience serving as director of other companies.
Richard Haythornthwaite
Mr. Haythornthwaite has served as a member of our board of directors since February 2019. He served as the global chairman of the NYSE-listed Mastercard Inc. until December 31, 2020. Mr. Haythornthwaite is also Advisory Partner to Moelis & Co and chair of Ocado Plc; AA and Xynteo. He is a co-founder and chairman of QIO Technologies, an industrial artificial intelligence company. He is also an investor in and chairman of ARC International, the global glass tableware manufacturer. He was previously the CEO of Invensys from 2001-2005 and Blue Circle Industries from 1999-2001 having joined as Director of Asia and Europe in 1997. He spent his early career in BP from 1978-1995 before moving to Premier Oil as Commercial Director from 1995 to 1997. He has served as on the boards of Network Rail and Centrica Plc. as chairman and Cookson, Lafarge, ICI and Land Securities as non-executive director. In the UK non-for-profit sector he is the current chair of the Creative Industries Federation and former chair of the Southbank Centre and Almeida Theatre. He was educated at MIT (Sloan Fellow) and The Queen’s College, Oxford (MA Geology). We believe that Mr. Haythornthwaite is qualified to serve on our board of directors due to his extensive business experience, risk management expertise and financial understanding.
Maria Pinelli
Ms. Pinelli has served as a member of our board of directors since April 2021 and our audit committee since August 2021. She currently serves on the board of directors of Archer Aviation, Inc (NYSE: ACHR) and Clarim Acquisition Corp. (NASDAQ: CLRMU). Previously, Ms. Pinelli served as Global Vice Chair of Ernst & Young LLP (“EY”) from 2011 to 2017 and led EY’s Global Strategic Growth Business unit with a focus on serving entrepreneurs and private and public companies poised for exponential growth. Ms. Pinelli led EY’s efforts across all business sectors overseeing the Americas, Europe, Middle East, India, Africa, Asia Pacific and Japan, regions covering over 150 countries. During the same period, she also served as EY’s Global IPO Leader, helping clients prepare for the public markets including IPO readiness, SOX compliance and how to manage stakeholder expectations. Prior to leading the global business of EY, Ms. Pinelli was EY’s Director of Strategic Growth Markets for the Americas from 2006 to 2011. In this role, Ms. Pinelli led a team of over 5,000 professionals serving high growth private, pre-IPO companies, and public and private equity backed businesses. Following her role as Global Vice Chair, from 2018 to 2020, Ms. Pinelli led EY’s Consumer Products and Retail sector based in the US Southeast. Ms. Pinelli is a qualified public accountant in Canada and the United Kingdom, and prior to her career at EY, was a lead client service partner serving significant clients in the technology, consumer and retail sectors. She has been involved in multiple IPOs and M&A strategic transactions over her career. Ms. Pinelli received her Bachelor of Commerce from McMaster University and completed executive programs at Harvard Business School and the Kellogg School of Management. Ms. Pinelli has also participated as a speaker at the Most Powerful Women Summit and G20 summits, and has been featured in the Wall Street Journal, Bloomberg, CNBC and Squawk Box. In addition, she was admitted to the Committee 200 and named to the list of Power 100 Women. Ms. Pinelli has also served as Chair of the Network for Teaching Entrepreneurship and a member of the World Economic Forum Global Growth Company Advisory Committee. We believe that Ms. Pinelli is well-qualified to serve as a director and financial expert due to her previous leadership roles, international business experience, financial acumen and extensive experience in advising growth companies.
Senior Management
As of February 10, 2023, our group senior management is made up of the following members:
| | | | | |
| Name | Position |
| Martín Migoya | Chief Executive Officer |
| Martín Gonzalo Umaran | Chief Corporate Development Officer - President for EMEA |
| Guibert Andrés Englebienne | President of Globant X and Globant Ventures - President for Latin America |
| Juan Ignacio Urthiague | Chief Financial Officer |
| Patricia Pomies | Chief Operating Officer |
| Yanina Maria Conti | Chief Accounting Officer |
| Wanda Weigert | Chief Brand Officer |
| Diego Tártara | Chief Technology Officer |
| Patricio Pablo Rojo | General Counsel |
The following is the biographical information of the members of our group senior management other than Messrs. Migoya, Umaran and Englebienne, whose biographical information is set forth in “— Directors.”
Juan Ignacio Urthiague
Mr. Urthiague has been our Chief Financial Officer since October 2018 and is in charge of corporate finance, treasury, accounting and tax, financial reporting, financial services and investor relations. Mr. Urthiague joined Globant in 2011, and was a key member in the company’s global expansion and transformation into a publicly listed company on the NYSE. Prior to his return to Globant, he spent 15 months outside the company serving as Chief Financial Officer Latam for OLX and as Chief Financial Officer for avantrip.com. Prior to joining Globant in 2011, Mr. Urthiague worked as Planning Manager for Amadeus IT Group in Spain and as Senior Credit Specialist in Merrill Lynch in Ireland and also held financial roles for companies like British American Tobacco, Ternium and IBM. Mr. Urthiague has a MSc. in Finance and Capital Markets from Dublin City University and Bachelor’s degree in Business Administration from the Universidad de Buenos Aires.
Patricia Pomies
Mrs. Pomies has been our Chief Operating Officer since April 2021. In this role, she works on turning strategy into actionable goals for growth, helping to implement organization-wide goal setting, performance management, and annual
operating planning. This role consolidates a comprehensive vision in which Delivery, People, Performance and Operations come together to ensure sustainable business growth. From January 2017 to April 2021, Mrs. Pomies served as our Chief Delivery Officer where she was in charge of our overall strategy related to quality of service and delivery. At the same time, recognizing the importance of Globers’ well-being, training and skill development, Mrs. Pomies was appointed as Chief Delivery and People Officer, expanding her responsibilities to include oversight of the People department of the company. Mrs. Pomies is an advocate for increasing the number of women in management positions, recognizing the gender gap in the tech industry. In addition, she was one of the architects behind Globant’s Be Kind initiative, focusing on development areas in gender equality, technology ethics and renewable energy, among others. Mrs. Pomies first joined our company in 2012 and was previously a director of Europe, Middle East and Africa (EMEA) and on-line, insurance and travel (OIT), two of our main business units. As such, she was responsible for each unit’s business and operations, with particular focus on expanding the EU market. Mrs. Pomies was director at Educ.ar Portal from 2003 to 2013, a key initiative within Argentina’s Ministry of Education for principals, teachers, students and families to adopt information and communication technologies in education. Additionally, she was responsible for content production and tracking of “Equality Connect,” a program directly supported by the Argentinian Government to distribute more than 3.5 million netbooks within the Argentine public education system. Mrs. Pomies has been a Professor of Social Communication at Maimonides University and Assistant Professor of Communication Sciences at the University of Buenos Aires.
Yanina Maria Conti
Mrs. Conti has been our Chief Accounting Officer since 2017. From 2013 until 2017, she served as our SEC Reporting and Audit Manager. From 2004 to 2013, Mrs. Conti worked for Ernst & Young, auditing large public and private firms and gaining experience with IFRS accounting and audit procedures. As our Chief Accounting Officer, Mrs. Conti is in charge of accounting, payroll, external audit and reporting. Mrs. Conti has a degree in public accounting and in business administration from the Universidad de Buenos Aires.
Wanda Weigert
Mrs. Weigert has been our Chief Brand Officer since November 2018. From 2007 to 2018, she served as our Communications Manager and Director of Communications and Marketing. She joined Globant in 2005 and worked for two years in the Internet marketing department as a senior consultant. From 2002 to 2005, she worked at Jota Group, a publishing house where she was responsible for the development of corporate communications tools for different multinational customers. Mrs. Weigert created and supervises Globant’s communications department. As our Chief Brand Officer, she coordinates Globant’s relationships with the press throughout the globe. She is also responsible for developing both our internal and external communications strategies. Mrs. Weigert holds a bachelor’s degree in social communications from Universidad Austral and she completed her post-graduate studies in marketing at the Pontificia Universidad Católica Argentina “Santa Maria de los Buenos Aires."
Diego Tártara
Diego Tártara is our Chief Technology Officer and is in charge of overseeing our Studios and all technology offerings, including Business Hacking, and Adaptive Organizations. He has been with the Company since 2008, when he joined as a leader for a development group. Since then, he has held several management positions, including Technical Director, Studio Partner and CTO for Globant Studios. After he joined, he quickly took the Technical Director role for one of Globant’s major account, a leading gaming company. He was then appointed as Studio Partner for Gaming, a position he held for over five years. He also run the IoT studio for a year and was part of the team that started the Discover studio before being appointed as CTO. Diego has more than 15 years of experience developing small, mid and large scale software. With strong background in desktop, embedded and backend development and love for C/C++, gaming and graphics.
Patricio Pablo Rojo
Mr. Rojo has been our General Counsel since October 2021. He has the overall responsibility of supervising Globant´s Legal and Compliance department. He previously served in this role from 2013 to 2018. Prior to his return to Globant, he spent almost three years as our external counsel, assisting Globant with several transactions and critical initiatives. Prior to joining Globant in 2013, Mr. Rojo worked as a corporate and banking law associate at the law firm Marval O´Farrel & Mairal from 2002 to 2006 and from 2007 to 2013. Between 2006 and 2007, he was an International Associate at the New York office of Simpson, Thacher & Bartlett LLP. Pablo has a law degree from the Pontificia Universidad Católica Argentina "Santa María de los Buenos Aires" and has completed post-graduate studies in law and economics at Torcuato Di-Tella University.
B. Compensation
Compensation of Board of Directors and Senior Management
The total fixed and variable remuneration of our directors and senior management for the years ended December 31, 2022, 2021 and 2020 amounted to $6.8 million, $6.7 million and $6.6 million, respectively.
We adopted an equity incentive plan in connection with the completion of our initial public offering. See “Compensation — 2014 Equity Incentive Plan” below for further information. From the adoption of that plan until the date of this annual report we granted to members of our senior management and certain other employees 30,000 stock awards, options to purchase 2,248,122 common shares, 2,240,261 RSUs and PRSUs, and 57,258 SEUs and PSEUs, net of any cancelled and/or forfeited awards. See "Liquidity and Capital Resources — Equity Compensation Arrangements" above for further information. In addition, we replaced our existing variable compensation arrangements with a new short-term incentive plan providing for the payment of bonuses based on the achievement of certain financial and operating performance measures.
2014 Equity Incentive Plan
On July 3, 2014, our board of directors and shareholders approved and adopted our 2014 Equity Incentive Plan, which was amended on May 9, 2016, February 13, 2019, May 18, 2021 and June 8, 2022. Pursuant to the June 8, 2022 amendment adopted by our board of directors, we may issue stock awards up to an aggregate amount of 5,666,667 common shares under the 20214 Equity Incentive Plan. As of the date of this annual report, the number of common shares available for issuance pursuant to existing unexercised and/or unvested and future Stock Awards is 2,781,409. The following description of the plan is qualified in its entirety by the full text of the plan, which has been filed with the SEC as an exhibit to the registration statement previously filed in connection with our initial public offering and incorporated by reference herein.
Purpose. We believe that the plan will promote our long-term growth and profitability by (i) providing key people with incentives to improve shareholder value and to contribute to our growth and financial success through their future services, and (ii) enabling us to attract, retain and reward the best-available personnel.
Eligibility; Types of Awards. Selected employees, officers, directors and other individuals providing bona fide services to us or any of our affiliates, are eligible for awards under the plan. The administrator of the plan may also grant awards to individuals in connection with hiring, recruiting or otherwise before the date the individual first performs services; however, those awards will not become vested or exercisable before the date the individual first performs services. The plan provides for grants of stock options, stock appreciation rights, restricted or unrestricted stock awards, RSUs, performance awards and other stock-based awards, or any combination of the foregoing.
Common Shares Subject to the Plan. The number of common shares that we may issue with respect to awards granted under the plan will not exceed an aggregate of 5,666,667 common shares. This limit will be adjusted to reflect any stock dividends, split ups, recapitalizations, mergers, consolidations, share exchanges, and similar transactions. If any award, or portion of an award, under the plan expires or terminates unexercised, becomes unexercisable, is settled in cash without delivery of common shares, or is forfeited or otherwise terminated or cancelled as to any common shares, the common shares subject to such award will thereafter be available for further awards under the plan. Common shares used to pay the exercise price of an award or tax obligations will not be available again for other awards under the plan.
Administration. The plan is administered by our compensation committee. The administrator has the full authority and discretion to administer the plan and to take any action that is necessary or advisable in connection with the administration of the plan, including without limitation the authority and discretion to interpret and construe any provision of the plan or any agreement or other documents relating to the plan. The administrator’s determinations will be final and conclusive.
Awards. The plan provides for grants of stock options, stock appreciation rights, restricted or unrestricted stock awards, RSUs, performance awards, and other stock-based awards.
Stock Options. The plan allows the administrator to grant incentive stock options, as that term is defined in section 422 of the Internal Revenue Code, or non-statutory stock options. Only our employees or employees of our subsidiaries may receive incentive stock option awards. Options must have an exercise price that is at least equal to the fair market value of the underlying common shares on the date of grant and not lower than the par value of the underlying common shares. The option holder may pay the exercise price in cash or by check, by tendering common shares, by a combination of cash and common shares, or by any other means that the administrator approves. The options have a maximum term of ten years; however, the options will expire earlier if the optionee’s service relationship with the company terminates.
Stock Appreciation Rights. The plan allows the administrator to grant awards of stock appreciation rights which entitle the holder to receive a payment in cash, in common shares, or in a combination of both, having an aggregate value equal to the product of the excess of the fair market value on the exercise date of the underlying common shares over the base price of the common shares specified in the grant agreement, multiplied by the number of common shares specified in the award being exercised.
Stock Awards. The plan allows the administrator to grant awards denominated in common shares or other securities, stock equivalent units or RSUs, securities or debentures convertible into common shares or any combination of the foregoing, to eligible participants. Awards denominated in stock equivalent units will be credited to a bookkeeping reserve account solely for accounting purposes. The awards may be paid in cash, in common shares or in a combination of common shares or other securities and cash.
Performance Awards. The plan allows the administrator to grant performance awards including those intended to constitute “qualified performance-based compensation” within the meaning of Section 162(m) of the U.S. Internal Revenue Code. The administrator may establish performance goals relating to any of the following, as it may apply to an individual, one or more business units, divisions or subsidiaries, or on a company-wide basis, and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies: revenue; earnings before interest, taxes, depreciation and amortization (EBITDA); operating income; pre- or after-tax income; cash flow; cash flow per share; net earnings; earnings per share; price-to-earnings ratio; return on equity; return on invested capital; return on assets; growth in assets; share price performance; economic value added; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; relative performance to a group of companies comparable to the company, and strategic business criteria consisting of one or more objectives based on the company’s meeting specified goals relating to revenue, market penetration, business expansion, costs or acquisitions or divestitures. Performance targets may include minimum, maximum, intermediate and target levels of performance, with the size of the performance-based stock award or the lapse of restrictions with respect thereto based on the level attained.
A performance target may be stated as an absolute value or as a value determined relative to prior performance, one or more indexes, budget, one or more peer group companies, any other standard selected by the administrator, or any combination thereof. The administrator shall be authorized to make adjustments in the method of calculating attainment of performance measures and performance targets in recognition of: (A) extraordinary or non-recurring items; (B) changes in tax laws; (C) changes in accounting policies; (D) charges related to restructured or discontinued operations; (E) restatement of prior period financial results; and (F) any other unusual, non-recurring gain or loss that is separately identified and quantified in our financial statements. Notwithstanding the foregoing, the administrator may, in its sole discretion, modify the performance results upon which awards are based under the plan to offset any unintended results arising from events not anticipated when the performance measures and performance targets were established.
Change in Control. In the event of any transaction resulting in a “change in control” of Globant S.A. (as defined in the plan), outstanding stock options and other awards that are payable in or convertible into our common shares will terminate upon the effective time of the change in control unless provision is made in connection with the transaction for the continuation, assumption, or substitution of the awards by the surviving or successor entity or its parent. In the event of such termination, the holders of stock options and other awards under the plan will be permitted immediately before the change in control to exercise or convert all portions of such stock options or awards that are exercisable or convertible or which become exercisable or convertible upon or prior to the effective time of the change in control.
Notwithstanding the foregoing, in the event of a change in control, all awards, subject to certain exclusions, granted to senior executives will (a) become vested and payable in equal parts on each of the change in control completion date, and the 6th and 12th month anniversaries from such date, unless full payment is resolved by the administrator upon consummation of the change in control; (b) be paid and settled in cash immediately, if the senior executive is terminated without cause or resigns with good reason during the first year following the change in control completion date; and (c) become vested and settled in cash on the change in control completion date, if the executive is terminated without cause or resigned with good reason at any time from the date the Company was made aware of the potential change in control, and such change in control occurs within the 6 months following the executive's dismissal or resignation.
Amendment and Termination. No award will be granted under the plan after the close of business on the day before the tenth anniversary of the effective date of the plan. Our board of directors may amend or terminate the plan at any time. Shareholder approval is required to reprice underwater options.
Director Compensation
Only those directors who are considered to be independent directors under the corporate governance rules of the NYSE are eligible, subject to our shareholders’ approval, to receive compensation from us for their service on our board of directors. In this respect, independent members of our board of directors are eligible to receive cash and/or share based compensation for their services as directors, as well as reimbursement of reasonable and documented costs and expenses incurred by them in connection with attending any meetings of our board of directors or any committees thereof.
During 2022, we paid an aggregate cash compensation of $600,000 and we granted a total of 2,886 RSUs to certain independent members of our board of directors, all of which had been previously approved by our shareholders at our 2022 annual general meeting.
Members of our senior management who are members of our board of directors (Messrs. Migoya, Umaran and Englebienne) will not receive compensation from us for their service on our board of directors, but have received and will continue receiving cash compensation and share based compensation for their services as executive officers. See “Compensation — Compensation of Board of Directors and Senior Management.”
Benefits upon Termination of Employment
Neither we nor our subsidiaries maintain any directors’ service contracts providing for benefits upon termination of service.
In 2022 we entered into amended and restated non-competition agreements with our founders and certain of our senior executives to, among other things, include the cash equivalent to their non-cash compensation (subject to certain exclusions) in the calculation of their respective compensation. Pursuant to these agreements, these employees have agreed to non-competition and non-interference obligations until the second anniversary of the termination of their employment, and a non-disparagement obligation. In consideration of these covenants, Mr. Martín Migoya will receive a compensation equal to his cash and non-cash compensation for 36 months following the date of termination of his employment, and the other founders and certain senior executives will receive a compensation equal to his or her cash and non-cash compensation for 24 months following the date of termination of his or her employment. Cash compensation will be calculated based on the highest monthly salary during the 12-month period immediately preceding the date of termination of employment and the annual cash bonus payable at the latest target amount. Non-cash compensation will be calculated based on the total equity compensation received by the employee during the 12-month period immediately preceding the date of termination of their employment, subject to certain exclusions. This compensation will be paid in two equal installments, 50% immediately after termination of their employment, and 50% on the first anniversary therefrom. In addition, they will be entitled to receive continued health coverage and life insurance for 24 to 36 months after the termination of employment. These agreements may be terminated by us in case of termination with cause or resignation without good reason.
We also entered into similar non-competition agreements with other senior executives, whereby they agreed to a non-competition and non-interference obligation until the first anniversary of the termination of employment, and a non-disparagement obligation. In consideration of these covenants, these senior executives will receive compensation equal to full cash compensation for 12 months following the date of termination of their employment; provided that such cash compensation will be calculated based on the highest monthly salary during the 12-month period immediately preceding the date of termination of employment and one time the annual cash bonus payable to them at the latest target amount, less applicable taxes and withholdings. This compensation will be paid in four equal installments, on each of the third, sixth, ninth and twelfth anniversary of the date of termination of their employment. In addition, they will be entitled to receive continued health coverage and life insurance after the termination of their employment for a period of 12 months. These agreements may be terminated by us in case of termination with cause or resignation without good reason.
Pension, Retirement or Similar Benefits
We do not pay or set aside any amounts for pension, retirement or other similar benefits for our officers or directors.
C. Board Practices
Globant S.A. is managed by our board of directors which is vested with the broadest powers to take any actions necessary or useful to fulfill our corporate purpose with the exception of actions reserved by law or our articles of association to the general meeting of shareholders. Our articles of association provide that our board of directors must consist of at least seven members and no more than fifteen members. Our board of directors meets as often as company interests require.
A majority of the members of our board of directors present or represented at a board meeting constitutes a quorum, and resolutions are adopted by the simple majority vote of our board members present or represented. In the case of a tie, the
chairman of our board shall have the deciding vote. Our board of directors may also make decisions by means of resolutions in writing signed by all directors.
Directors are elected by the general meeting of shareholders, and appointed for a period of up to four years; provided, however, that directors are elected on a staggered basis, with one-third of the directors being elected each year; and provided, further, that such term may be exceeded by a period up to the annual general meeting held following the fourth anniversary of the appointment, and each director will hold office until his or her successor is elected. The general shareholders meeting may remove one or more directors at any time, without cause and without prior notice by a resolution passed by simple majority vote. If our board of directors has a vacancy, such vacancy may be filled on a temporary basis by a person designated by the remaining members of our board of directors until the next general meeting of shareholders, which will resolve on a permanent appointment. Any director shall be eligible for re-election indefinitely.
Within the limits provided for by law and our articles of association, our board of directors may delegate to one or more directors or to any one or more persons, who need not be shareholders, acting alone or jointly, the daily management of Globant S.A. and the authority to represent us in connection with such daily management. Our board of directors may also grant special powers to any person(s) acting alone or jointly with others as agents of Globant S.A.
Our board of directors may establish one or more committees, including without limitation, an audit committee, a corporate governance and nominating committee and a compensation committee, and for which it shall, if one or more of such committees are set up, appoint the members, determine the purpose, powers and authorities as well as the procedures and such other rules as may be applicable thereto.
No contract or other transaction between us and any other company or firm shall be affected or invalidated by the fact that any one or more of our directors or officers is interested in, or is a director, associate, officer, agent, adviser or employee of such other company or firm. Any director or officer who serves as a director, officer or employee or otherwise of any company or firm with which we shall contract or otherwise engage in business shall not, by reason of such affiliation with such other company or firm only, be prevented from considering and voting or acting upon any matters with respect to such contract or other business.
Any director having an interest in a transaction submitted for approval to our board of directors that conflicts with our interest, must inform our board of directors thereof and to cause a record of his statement to be included in the minutes of the meeting. Such director may not take part in these deliberations and may not vote on the relevant transaction. At the next general meeting, before any resolution is put to a vote, a special report shall be made on any transactions in which any of the directors may have had an interest that conflicts with our interest.
No shareholding qualification for directors is required.
Any director and other officer, past and present, is entitled to indemnification from us to the fullest extent permitted by law against liability and all expenses reasonably incurred or paid by such director in connection with any claim, action, suit or proceeding in which he is involved as a party or otherwise by virtue of his being or having been a director. We may purchase and maintain insurance for any director or other officer against any such liability.
No indemnification shall be provided against any liability to our directors or executive officers by reason of willful misconduct, bad faith, gross negligence or reckless disregard of the duties of a director or officer. No indemnification will be provided with respect to any matter as to which the director or officer shall have been finally adjudicated to have acted in bad faith and not in our interest, nor will indemnification be provided in the event of a settlement (unless approved by a court or our board of directors).
Board Committees
Our board of directors has established an audit committee, a compensation committee and a corporate governance and nominating committee. Our board of directors may from time to time establish other committees.
Audit Committee
Our audit committee oversees our corporate accounting and financial reporting process. Among other matters, our audit committee:
•is responsible for the appointment, compensation and retention of our independent auditors and reviews and evaluates the auditors’ qualifications, independence and performance;
•oversees our auditors’ audit work and reviews and pre-approves all audit and non-audit services that may be performed by them;
•reviews and approves the planned scope of our annual audit;
•monitors the rotation of partners of the independent auditors on our engagement team as required by law;
•reviews our financial statements and discusses with management and our independent auditors the results of the annual audit and the review of our quarterly financial statements;
•reviews our critical accounting policies and estimates;
•oversees the adequacy of our accounting and financial controls;
•annually reviews the audit committee charter and the committee’s performance;
•reviews and approves related-party transactions; and
•establishes and oversees procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters and oversees enforcement, compliance and remedial measures under our code of conduct.
The current members of our audit committee are Ms. Pinelli and Messrs. Odeen and Haythornthwaite, with Mr. Odeen serving as the chairman and Ms. Pinelli serving as the audit committee financial expert as currently defined under applicable SEC rules. Each of Ms. Pinelli and Messrs. Odeen and Haythornthwaite satisfies the “independence” requirements within the meaning of Section 303A of the corporate governance rules of the NYSE as well us under Rule 10A-3 under the Exchange Act.
On May 13, 2014, our board of directors adopted a written charter for our audit committee, which is available on our website at http://www.globant.com.
Compensation Committee
Our compensation committee reviews, recommends and approves policy relating to compensation and benefits of our officers and directors, administers our common shares option and benefit plans and reviews general policy relating to compensation and benefits. Duties of our compensation committee include:
•reviewing and approving corporate goals and objectives relevant to compensation of our directors, chief executive officer and other members of senior management;
•evaluating the performance of the chief executive officer and other members of senior management in light of those goals and objectives;
•based on this evaluation, determining and approving the compensation of the chief executive officer and other members of senior management;
•administering the issuance of common shares options and other awards to members of senior management and directors under our compensation plans; and
•reviewing and evaluating, at least annually, the performance of the compensation committee and its members, including compliance of the compensation committee with its charter.
The current members of our compensation committee are Messrs. Odeen, Alvarez Demalde and Haythornthwaite, with Mr. Odeen serving as chairman. Each of Messrs. Odeen, Alvarez Demalde and Haythornthwaite satisfies the “independence” requirements within the meaning of Section 303A of the corporate governance rules of the NYSE.
Effective as of July 23, 2014, our board of directors adopted a written charter for our compensation committee, which is available on our website at http://www.globant.com.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee identifies individuals qualified to become directors; recommends to our board of directors director nominees for each election of directors; develops and recommends to our board of directors criteria for selecting qualified director candidates; considers committee member qualifications, appointment and removal; recommends corporate governance guidelines applicable to us; and provides oversight in the evaluation of our board of directors and each committee.
The current members of our corporate governance and nominating committee are Mses. Rottenberg and Mayumi Petroni Merhy and Mr. Alvarez-Demalde, with Ms. Rottenberg serving as chairman. Each of Mses. Rottenberg and Mayumi Petroni Merhy and Mr. Alvarez-Demalde satisfies the “independence” requirements within the meaning of Section 303A of the corporate governance rules of the NYSE.
Effective as of July 23, 2014, our board of directors adopted a written charter for our corporate governance and nominating committee. In November 2021, our corporate governance and nominating committee approved an amendment to its charter intended to enhance our corporate governance practices, including, among others, a broader view of diversity in our board nominees selection process, an increased emphasis on attracting and/or retaining director nominees with certain specific skills and diverse experience, and the enhancement of our environmental, social and governance performance. Our corporate governance and nominating committee’s charter, as amended, is available on our website at http://www.globant.com.
D. Employees
Our Globers
People are one of our most valuable assets. Attracting and retaining the right employees is critical to the success of our business and is a key factor in our ability to meet our client’s needs and the growth of our client and revenue base.
As of December 31, 2022, 2021 and 2020, on a consolidated basis, we had 27,122, 23,526 and 16,251 employees, respectively.
As of December 31, 2022, approximately 8.5% of our Globers are covered by the following CBAs: a) in Argentina, mostly in the Cities of Rosario and Mendoza, under the Federación Argentina de Empleados de Comercio y Servicios CBA; b) in Brazil (i) mainly under the Sindicato dos Trabalhadores em Processamento de Dados e Tecnología da Informação do Estado de São Paulo CBA, and (ii) under the Sindicato das Agências de Propaganda do Estado de São Paulo CBA; c) in Mexico, Grupo Sindicalista Gral. Lazaro Cardenas de Obreros y Empleados de la Industria Comercio Maquilas y Servicios en general de la República Mexicana CBA; d) in Spain: (i) mainly under the Consultancy Services CBA, and (ii) under the Marketing Agencies CBA; e) in France, under the Syntec CBA; and f) in Italy, under the Metalurgic CBA.
The following tables show our total number of full-time employees as of December 31, 2022 broken down by functional area and geographical location:
| | | | | |
| | Number of employees |
| Technology | 23,407 | |
| Operations | 1,924 | |
| Sales and Marketing | 277 | |
| Management and administration | 1,514 | |
| Total | 27,122 | |
| | | | | |
| | Number of employees |
| Colombia | 5,838 | |
| Argentina | 5,391 | |
| India | 4,298 | |
| Mexico | 3,556 | |
| Peru | 1,409 | |
| Chile | 1,341 | |
| Brazil | 1,166 | |
| Uruguay | 1,115 | |
| Spain | 928 | |
| United States | 742 | |
| Italy | 334 | |
| United Kingdom | 222 | |
| Belarus | 196 | |
| Romania | 185 | |
| Ecuador | 127 | |
| Costa Rica | 97 | |
| Denmark | 38 | |
| Canada | 28 | |
| Australia | 27 | |
| Poland | 21 | |
| Germany | 16 | |
| France | 13 | |
| Luxembourg | 1 | |
| Other countries | 33 | |
| Total | 27,122 | |
In 2007, we started shifting from a Buenos Aires-centric delivery model to a distributed organization with locations across Latin America, Europe, Asia, and elsewhere. We believe that decentralizing our workforce and delivery centers improves our access to talent and could mitigate the impact of IT professionals’ attrition on our business. Additionally, we provide employees with more choices of where to work, which improves satisfaction and helps us retain our Globers. We continue to draw talent primarily from Latin America and Asia’s abundantly skilled talent base.
We believe our relations with our employees are good and we have not experienced any significant labor disputes or work stoppages.
Recruitment
We have a global presence with delivery centers in North America, Latin America, Europe, and Asia. Our de-centralization strategy allows us to expand and diversify our sources of talent in our development centers all over the world.
Our offices are located near regional academic and engineering hubs to facilitate our access to a growing talent base. In the case of Latin America, certain of the top universities from the region are located in cities where we have delivery centers with large operations. We work closely with those colleges, as well as non-governmental organizations, tech clusters and professional organizations to nurture the technological ecosystem and create opportunities for growth for both Globant and our current and prospective Globers, through meetups, conferences, bootcamps and recruiting events.
Attraction
We seek employees who are motivated to be part of a leading company that uses the latest technologies in the digital and cognitive field to transform organizations in every aspect.
Since our inception, we believe we have become a unique player for talent in the countries where we have operations. Our culture is the foundation that supports and facilitates our distinctive approach.
This culture can be best described as entrepreneurial, collaborative, flexible, diverse and inclusive. Diversity and Inclusion are key to our business. Technology requires us to innovate constantly, and there is no way to innovate if we do not connect different points of view. This is why we strive to find talent in diverse places and walks of life, and why we launched several initiatives to strengthen our diversity.
Globant was named a Best Company for Women, Culture, Diversity and Career Growth in 2022. Also, in 2022, Great Place to Work selected Globant as one of the best places to work in Latin America with special recognitions for Argentina, Uruguay and Colombia where we ended in the fourth, second, and third position, respectively. Also in 2022, Fast Company included Globant in its '100 Best Companies for Innovators' list.
Employee retention is one of our main priorities and a key driver of operational efficiency and productivity. We seek to retain top talent by providing the opportunity to work on cutting-edge projects for world-class clients, a flexible work environment, training and development programs, and non-traditional benefits. The total attrition rate among our Globers was 16.7%, 18.7% and 13.0% for the years ended December 31, 2022, 2021 and 2020, respectively.
Learning and Development
In 2021, we took our culture of continuous career development to the next level. Globant University became a digital ecosystem that promotes growth in the company through our Delta Formula: Explore + Educate + Expose = Movement. This is the official essence of career development and growth at Globant. We invite Globers to know about their career challenges, we offer diverse learning experiences so that each person can learn at their own pace, and we encourage continuous feedback to keep always improving. It includes three main tools: My Growth, Campus and BetterMe and a full list of programs and processes that accompany Globers on their journeys at Globant.
Explore: MyGrowth is the main place where Globers can manage and track their job position, areas of expertise and explore new knowledge based on career opportunities in a gamified way based on badges and missions. It gives Globers the possibility to understand the skills needed to master different specialties related to reinvent the industry and set up actions with their leaders to develop them.
Educate: In a complementary way, Campus is the main learning tool where Globers can find learning maps (repositories of different learning opportunities such as articles, videos, external courses and more) to learn in the flow of work. It also offers a catalogue with live sessions, self-paced training and evaluations to challenge their skills. We offer +1400 courses and +3500 learning resources created and/or selected by Globers.
Since Campus is working as a learning hub, the whole company can access the opportunities of the main programs at Globant to develop different skills (technical and soft skills) and also some corporate training and other self-paced resources to learn about internal processes. We dedicate significant resources to the development and professional growth of our employees through learning experiences.
For technical skills: Short training programs, called Academies, focused on gaining new skills (reskilling) or upgrading the ones previously acquired (upskilling); self-paced online courses on Campus, Udemy for Business and learning maps aligned to technical careers. We also develop specific technical programs Bootcamps programs focus on selecting, training and hiring talented collaborators.
For soft and communication skills Globers can take different courses and learning maps available and Campus. Towards the language program, we continued with English workshops for our Globers.
All these programs are developed and updated through our Learning Community: a group of committed, generous and technical experts. We encourage spaces to share experiences, connect with others with the same interests and provide the resources to deliver the best learning experiences at Globant.
Expose: BetterMe is the tool that accompanies our Performance Management process which main objective is to promote meaningful conversations that empower and enhance Globers' development. This Continuous Feedback and Evaluation Process, based on our Talent Manifesto is driven in a Glober centric way to impact on career decisions (such as promotions or recognitions, etc.).
As we mentioned before, we work to provide Globers with autonomy to grow by capitalizing new and different opportunities through our five professional growth dimensions:
•Geocultural diversity: We encourage our Globers to work in a location of their choosing and embrace cultural exchanges. We are present in 5 continents, with open positions and relocation opportunities. Plus, we encourage Globers to embrace cultural diversity working on projects with team members from different cities.
•Technology: Our studios consolidate expertise around a variety of emerging technologies where our Globers can develop, explore and learn.
•Industry expertise: We work with many clients across different industries, which enables our Globers to develop their careers with an industry focus within a given account or on multiple accounts of their industry of choice.
•Multiple industries: We have more than 1,000 clients spanning several different industries. Our Globers may pursue industry agnostic career paths or switch to different industries of focus.
•Specialty: Globers can navigate their career paths within our company by gaining seniority or moving internally into other roles in different areas of expertise.
To boost this Movement, we also run a Continuous Promotions program where Globers upgrade their job position (e.g. Ssr. to Sr.).
In order to share with Globers real experiences of success at career development we host local sessions of “Growth at Globant” Talks, where Globers let others know their stories.
We are working really hard looking for innovation and seeking reinvention in growth processes, career opportunities and learning programs under our great brand Globant University.
Last but not least, Leaders are a key cornerstone to boost this entire career development framework. A leader at Globant guides and promotes the growth of his team and the business by reinventing the industry and the world connecting, living and augmenting our culture.
To help them achieve this purpose, we design and develop different initiatives under our Leadership Accelerator Program (LeAP). It is based on our customized Leadership Talent Model to strengthen leadership skills in order to lead themselves, teams and business through initiatives also aligned to the delta formula applied for leaders.
Educate: Augmented Leadership, a full learning experience with simulations, tools, inspirational exercises and more to impact mindsets and practices. Also, At Campus the Leadership Journey Map was developed with plenty of new resources to explore to share tools, inspirational talks and many other training sessions to learn in a self-paced way.
Expose: Feedback for leaders, a process where each team member gives anonymous feedback to his/her leader based on talent manifesto skills.
Explore: a new Leadership Working Ecosystem is available to map the skills needed to rock as a leader and explore new and different ways to develop skills.
We also designed a new edition of the Key Talent Program to recognize and accompany our most committed and talented leaders and we continued boosting our Leadership Development Plan to enhance leadership skills with an identified room for improvement based on what their teams share in the Feedback for Leaders evaluation process.
We keep reinventing new ways and initiatives to empowering leadership stories generating sustainability of the reinvention of our industry through leaders that connect themselves, businesses, people and teams with innovation, team playing, kindness and excellence.
Compensation
We offer our Globers a compensation package consisting of base salary, Short Term Bonus, long term incentives (for certain eligible positions) and fringe benefits. The variable component of our compensation package is intended to strengthen our values and culture, foster employee improvement and development, and align with our business strategy to pay for performance and development. Based on the Glober's position, bonus payments under the short term incentive plan are contingent on the accomplishment of key metrics, such as performance results, manager feedback and Globant's results. For key employees, we offer a long term incentive program in the form of share based compensation.
We offer several benefits including subsidized company trips, extended maternity and paternity leaves, health plans for Globers (and in some countries, for the Glober's family), yoga, relaxation and massage sessions, and corporate discount programs at certain universities and gyms, among others.
2021 Employee Stock Purchase Plan
General
On March 1, 2021, our ESPP became effective. The purpose of the ESPP is to advance the interests of the Company and our shareholders by providing an incentive to attract, retain and reward our eligible employees and by motivating such persons to contribute to the growth and profitability of the Company. The Plan provides such eligible employees with an opportunity to acquire a proprietary interest in the Company through the purchase of the Company’s common shares.
The ESPP is comprised of the Section 423 ESPP and the Non-423 ESPP. The Company intends that the Section 423 ESPP qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments or replacements of such section), and the Section 423 ESPP shall be so construed. The Non-423 ESPP, which is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Code, is intended to provide eligible employees employed by non-U.S. subsidiaries with an opportunity to purchase common shares pursuant to the terms and conditions of the ESPP but not necessarily in compliance with the requirements of Section 423 of the Code.
Eligible employees will be allowed to participate in the ESPP with a limit of $25,000 investment per employee per calendar year.
Common Shares Subject to the ESPP
Subject to adjustment as provided in the ESPP, the maximum aggregate number of common shares issuable under the ESPP shall be 100,000 common shares (the “Initial Total Share Pool”), of which 30,000 common shares (the “Initial 423 Pool”) shall be the maximum aggregate number of common shares that may be issued under the Section 423 ESPP. Thereafter, such maximum number of common shares that may be issued under the ESPP shall be cumulatively increased on a pro rata basis, such that the ratio of the Initial Total Share Pool and the Initial 423 Pool remains unchanged, automatically on January 1, 2022 and on each subsequent January 1, through and including January 1, 2031, by a number of common shares (the “Annual Increase”) equal to the smallest of (a) 0.005 (0.5%) of the number of common shares issued and outstanding on the immediately preceding December 31, (b) 200,000 common shares, or (c) an amount determined by our board of directors; such that the number of common shares that may be issued in any case under the ESPP shall not exceed 2,100,000 common shares, of which 630,000 shall be the maximum aggregate number that may be issued under the Section 423 ESPP.
Common shares issued under the ESPP may consist of common shares reacquired in open market purchases. On June 13, 2022, we entered into a 10b5-1 repurchase plan with HSBC Securities (USA) Inc., acting as agent for us, for the repurchase of an aggregate of up to 50,000 common shares. The 10b5-1 repurchase plan will expire on March 8, 2023. Such repurchases would be executed by our board of directors pursuant to the authorization granted by the general meeting of shareholders of the Company on May 31, 2019, according to the conditions set forth in article 430-15 of Luxembourg law of 10 August 1915 on commercial companies, as amended (the “Companies Law”). The Company intends to renew the 10b5-1 plan in furtherance of additional future share repurchases for this purpose.
Pursuant to such authorization, our board of directors may repurchase up to a maximum number of shares representing 20% of the issued share capital for a net purchase price that is (i) no less than 50% of the lowest stock price and (ii) no more than 50% above the highest stock price, in each case being the closing price, as reported by the New York City edition of the Wall Street Journal, or, if not reported therein, any other authoritative sources to be selected by our board of directors, over the ten trading days preceding the date of the purchase (or the date of the commitment to the transaction). The authorization is valid for a period ending five years from the date of the general meeting or the date of its renewal by a subsequent general meeting of shareholders.
Eligibility
Each employee of a participating company is eligible to participate in the ESPP except (a) with respect to the Section 423 ESPP, any employee who is customarily employed by the participating company group for 20 hours or less per week or for not more than five months in any calendar year, and (b) that with respect to the Non-423 ESPP, our compensation committee may determine that only certain categories of employees of a participating company may be eligible to participate in the ESPP, excluding all other employees of such participating company. However, an employee may not be granted rights to purchase common shares either under the Section 423 ESPP or the Non-423 ESPP, if such employee immediately after the grant would own common shares or options to purchase common shares possessing 5.0% or more of the total combined voting power or value of all classes of our share capital.
Operation of the ESPP; Participant Contributions
The ESPP will typically be implemented through consecutive six-month offering periods, and permits participants to purchase common shares through payroll deductions of up to 10.0% of their eligible compensation, which includes regular base wages or salary, overtime payments, shift premiums and payments for paid time off, but exclusive of sign-on bonuses, annual or other incentive bonuses, commissions, profit-sharing distributions or other incentive-type payments, any contributions made by a participating company on the employee’s behalf to any employee benefit or welfare plan now or hereafter established (other than amounts deferred pursuant to Section 401(k) or Section 125 of the Code), payments in lieu of notice, payments pursuant to a severance agreement, termination pay, moving allowances, relocation payments, or any amounts directly or indirectly paid pursuant to the ESPP or any other share purchase, share option or other share-based compensation.
Notwithstanding the foregoing, where payroll deductions on behalf of participants who are citizens or residents of countries other than the United States (without regard to whether they are also citizens of the United States or resident aliens) are prohibited or made impracticable by applicable local law, our compensation committee may establish a separate offering (a “Non-United States Offering”) covering all eligible employees of one or more participating companies subject to such prohibition or restrictions on payroll deductions. The Non-United States Offering shall provide another method for payment of the purchase price with such terms and conditions as shall be administratively convenient and comply with applicable local law. On each purchase date of the offering period applicable to a Non-United States Offering, each participant who has not withdrawn from the ESPP and whose participation in such offering period has not otherwise terminated before such purchase date shall automatically acquire a number of whole common shares determined in accordance with the applicable provisions of the ESPP to the extent of the total amount of the participant’s ESPP account balance accumulated during the offering period in accordance with the method established by our compensation committee and not previously applied toward the purchase of common shares.
Purchase Price; Timing of Purchases
Amounts deducted and accumulated from participant compensation will be used to purchase common shares at the end of each offering period. Under the terms of the ESPP, with respect to participants in the Section 423 ESPP, the purchase price of the shares shall not be less than 90.0% of the lower of the fair market value of a common share on the first trading day of the offering period or on the purchase date. Subject to adjustment as provided by the ESPP and unless otherwise provided by our compensation committee, the purchase price for each offering period shall be 90% of the fair market value of a common share on the purchase date.
On the offering date of each offering period, each participant in such offering period will be automatically granted an option to purchase the lesser of (a) that number of whole common shares determined by dividing the Dollar Limit (as defined below) by the fair market value of a common share on such offering date or (b) the Share Limit (as defined below). Our compensation committee may, in its discretion and prior to the offering date of any offering period, (i) change the method of, or any of the foregoing factors in, determining the number of common shares subject to purchase rights to be granted on such offering date, or (ii) specify a maximum aggregate number of common shares that may be purchased by all participants in an offering or on any purchase date within an offering period. For the purposes of the ESPP, the “Dollar Limit” shall be determined by multiplying $2,083.33 by the number of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole dollar, and the “Share Limit” shall be determined by multiplying 200 shares by the number of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole share.
Notwithstanding any provision of the ESPP to the contrary, no participant (whether participating in the Section 423 ESPP or the Non-423 ESPP) shall be granted a purchase right which permits his or her right to purchase common shares under the ESPP to accrue at a rate which, when aggregated with such participant’s rights to purchase shares under all other employee stock purchase plans of a participating company intended to meet the requirements of Section 423 of the Code, exceeds $25,000 in fair market value (or such other limit, if any, as may be imposed by the Code) for each calendar year in which such purchase right is outstanding at any time. For purposes of the preceding sentence, the fair market value of common shares purchased during a given offering period shall be determined as of the offering date for such offering period.
If insufficient common shares remain available under the ESPP to permit all participants to purchase the number of common shares to which they would otherwise be entitled, our compensation committee will make a pro rata allocation of the available common shares in as uniform a manner as practicable and as the Company determines to be equitable. Any amounts withheld from participants' compensation in excess of the amounts used to purchase common shares will be refunded, without interest.
Administration, Amendment or Termination of the ESPP
In accordance with the terms of the ESPP, our compensation committee will administer the ESPP, including, but not limited to, have full authority to interpret the terms of the ESPP, have the discretion to determine from time to time which subsidiaries shall be participating companies in the ESPP, designate from time to time those participating companies whose eligible employees may participate in the Section 423 ESPP and those participating companies whose eligible employees may participate in the Non-423 ESPP, establish additional or alternative offering periods, different durations for offering periods or different commencing or ending dates for offering periods.
Further, our compensation committee, as administrator of the ESPP, may at any time amend, suspend or terminate the ESPP, except that (a) no such amendment, suspension or termination shall affect purchase previously granted under the ESPP unless expressly provided by the Compensation Committee, and (b) no such amendment, suspension or termination may adversely affect a purchase right previously granted under the ESPP without the consent of the participant, except to the extent permitted by the ESPP or as may be necessary to qualify the ESPP as an employee stock purchase ESPP pursuant to Section 423 of the Code or to comply with any applicable law, regulation or rule. In addition, to the extent required under Section 423 of the Code (or other applicable law, regulation or rule), an amendment to the ESPP must be approved by the shareholders of the Company within 12 months of the adoption of such amendment if such amendment would authorize the sale of more Common Shares than are then authorized for issuance under the ESPP or would change the definition of the corporations that may be designated by the Compensation Committee as "Participating Companies" (as defined in the ESPP). Notwithstanding the foregoing, in the event that the Compensation Committee determines that continuation of the ESPP or an offering would result in unfavorable financial accounting consequences to the Company, the Compensation Committee may, in its discretion and without the consent of any participant, including with respect to an offering period then in progress: (i) terminate the ESPP or any offering period, (ii) accelerate the purchase date of any offering period, (iii) reduce the discount or the method of determining the purchase price in any offering period (e.g., by determining the purchase price solely on the basis of the "Fair Market Value" (as defined in the ESPP) on the purchase date), (iv) reduce the maximum number of common shares that may be purchased in any offering period, or (v) take any combination of the foregoing actions.
In the event of a change in control, an acquiring or successor corporation may assume the Company’s rights and obligations under outstanding purchase rights or substitute substantially equivalent purchase rights. If the acquiring or successor corporation does not assume or substitute for outstanding purchase rights, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control.
The ESPP will continue in effect until terminated by the administrator.
On March 12, 2021, the administrator approved the participation in the Section 423 ESPP and Non-423 ESPP by several of the company's subsidiaries, pursuant to the following terms and conditions:
Eligibility. In addition to those employees excluded under the plan, trainees or college trainees and fixed-term employees will also be excluded from the plan.
Offering periods. Each offering period will have a 6 months duration; provided that in respect to Sistemas UK Limited, Sistemas Globales Uruguay S.A. and Difier S.A., their first offering period will have a 5 months duration, commencing on April 1st, 2021; and in respect of IAFH Global S.A., Sistemas Globales S.A., Globers S.A., Dynaflows S.A., Avanxo S.A., BSF S.A., Xappia S.R.L., Decision Support S.A. and Banking Solutions S.A., the offering periods will have 1 month duration, and shall reiterate every 3 months, starting on June 1st, 2021.
Purchase price. 90% of the common shares "fair market value" (as defined in the plan). The amount to be deducted from the compensation of the participant will be in rounded percentages of not less than 1% and not more than 10%, at the participant's discretion; provided that in respect of IAFH Global S.A., Sistemas Globales S.A., Globers S.A., Dynaflows S.A., Avanxo S.A., BSF S.A., Xappia S.R.L., Decision Support S.A. and Banking Solutions S.A., the amount to be deducted from the compensation of the participant will be in rounded percentages of not less than 1% and not more than 30%, at the participant's discretion.
In connection with the plan, the administrator approved the repurchase of up to 100,000 common shares. As of the date of this annual report, the administrator has repurchased 73,500 common shares, and has delivered 46,589 common shares under the plan.
2021 Stock-Equivalent Units
On December 1, 2021, the compensation committee, as administrator, approved the granting of awards in the form of stock-equivalent units to be settled in cash or common shares, or a combination thereof, under the 2014 Equity Incentive Plan for the equivalent to 26,000 common shares, subject to the following terms and conditions:
Purpose. We believe that the initiative will provide an incentive to attract, retain and reward talent in the IT industry, and would prompt the eligible employees to further contribute to the growth and profitability of the company.
Eligibility. All employees in Technology and Delivery Levels 5 and up, who (a) are regular employees on the payroll of any of the company’s subsidiaries, (b) have no awards under the 2014 Equity Incentive Plan vesting pending in 2021, and (c) have an overall positive evaluation for the 2021 calendar year.
Granting. The initiative will consist in the granting of SEUs with a unit value equivalent to the market value of one common share of the company at the closing price of the trading day prior to the date of the grant; provided that the number of SEUs to be granted to each eligible employee will be equivalent to 25% of such employee’s total 12-month salary at the time of the grant.
Settlement. The SEUs will be settled in cash or common shares of the company, at the option of the eligible employee, and shall vest during a four-year period, in four equal annual installments of 25% each, commencing on the first anniversary of the grant date, so long as the relevant eligible employee is then an employee of any of the company’s subsidiaries, out of which 60% will be tied to retention and 40% will be tied to performance based on the short-term bonus results for the year 2022. The common shares to be delivered under the SEUs may consist of treasury and/or newly-issued common shares.
On March 3, 2022, the compensation committee, as administrator, approved the granting of up to 45,000 additional stock-equivalent units awards in the form of SEUs and PSEUs, 50% of which will be in the form of PSEUs and 50% of which will be in the form of SEUs (except as otherwise committed with newly hired employees or other relevant beneficiaries). The compensation committee further approved that the maximum number of authorized stock-equivalent units may be increased to the extent that the total share-based compensation of the Company during 2022 does not exceed an amount equal to 3.2% of the Company's consolidated revenues during 2022.
From its adoption until the date of this annual report, we have granted to eligible employees 57,258 SEUs and PSEUs, net of any cancelled and/or forfeited awards, all of which were outstanding as of December 31, 2022. Of the stock-equivalent units granted, 50% were in the form of PSEUs and 50% were in the form of SEUs.
E. Share Ownership
Share Ownership
The total number of shares of the company beneficially owned by our directors and executive officers, as of the date of this annual report, was 1,143,670 (includes common shares subject to options that are currently exercisable or will be exercisable, and/or issuable upon settlement of RSUs that have vested or will vest, within 60 days of February 10, 2023), which represents 2,68 % of the total shares of the Company (including common shares subject to options that are currently exercisable within 60 days of February 10, 2023). See table in “Major Shareholders and Related Party Transactions — Major Shareholders.”
Share Options
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information regarding beneficial ownership of our common shares as of February 10, 2023 by:
•each of our directors and members of senior management individually;
•all directors and members of senior management as a group; and
•each shareholder whom we know to own beneficially more than 5% of our common shares.
As of February 10, 2023, we had 42,434,722 issued and outstanding common shares. Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof, to receive the economic benefit of ownership of the securities, or has the right to acquire such powers within 60 days. Common shares subject to options, RSUs, warrants or other convertible or exercisable securities that are currently convertible or exercisable or convertible or exercisable within 60 days of February 10, 2023 are deemed to be outstanding and beneficially owned by the person holding such securities. Common shares issuable pursuant to share options or warrants are deemed outstanding for computing the percentage ownership of the person holding such options or warrants but are not outstanding for computing the percentage of any other person. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all of our common shares. As of February 10, 2023, we had 168 holders of record in the United States with approximately 95.75% of our issued and outstanding common shares.
| | | | | | | | | | | | | | |
| | Number | | Percent |
| Directors and Senior Management | | | | |
Francisco Álvarez-Demalde (1) | | 188 | | | — | % |
Yanina Maria Conti (2) | | 1,700 | | | — | % |
Guibert Andres Englebienne (3) | | 352,075 | | | 0.83 | % |
Richard Haythornthwaite (4) | | 2,094 | | | — | % |
Martín Migoya (5) | | 300,342 | | | 0.71 | % |
Philip A. Odeen (6) | | 94 | | | — | % |
Maria Pinelli (7) | | 383 | | | — | % |
| Patricia Pomies | | 31,641 | | | 0.07 | % |
Patricio Pablo Rojo | | 1,410 | | | — | % |
Linda Rottenberg (8) | | 2,094 | | | — | % |
Martín Gonzalo Umaran (9) | | 407,161 | | | 0.96 | % |
Diego Tártara (10) | | 14,226 | | | 0.03 | % |
Juan Ignacio Urthiague (11) | | 9,930 | | | 0.02 | % |
| Andrea Mayumi Petroni Merhy | | — | | | — | % |
Wanda Weigert (12) | | 20,282 | | | 0.05 | % |
| All Directors and Senior Management as a group | | 1,143,620 | | | 2.68 | % |
| *Less than 1% | | | | |
| 5% or More Shareholders: | | | | |
BlackRock, Inc. (13) | | 2,908,590 | | | 6.85 | % |
Wasatch Advisors, LP (14) | | 2,441,952 | | | 5.75 | % |
Morgan Stanley (15) | | 2,166,419 | | | 5.11 | % |
J.P. Morgan Chase & Co. (16) | | 3,460,782 | | | 8.16 | % |
T. Rowe Price Associates, Inc. (17) | | 3,086,471 | | | 7.27 | % |
(1)Includes 94 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(2)Includes 1,000 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(3)Includes 82,500 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable, and 147,166 common shares held by a revocable trust formed under Wyoming law (the “Revocable Englebienne Trust Shares”) formed by Mr. Englebienne that was established for the benefit of Mr. Englebienne, his wife and certain charitable organizations. Subsequently, the trust transferred its Revocable Englebienne Trust Shares to a BVI company wholly owned by the trust. Angerona Trust Company LLC acts as the independent trustee of the trust. Angerona Group Administration Limited is the sole director of the BVI company and holds voting and dispositive power over the 147,166 common shares held by such company.
(4)Includes 94 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(5)Includes 30,500 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable, and 147,040 common shares held by a revocable trust formed under Wyoming law (the “Revocable Migoya Trust Shares”) formed by Mr. Migoya that was established for the benefit of Mr. Migoya, his wife and certain charitable
organizations. Subsequently, the trust transferred its Revocable Migoya Trust Shares to a BVI company wholly owned by the trust. Angerona Trust Company LLC acts as the independent trustee of the trust. Angerona Group Administration Limited is the sole director of the BVI company and holds voting and dispositive power over the 147,040 common shares held by such company.
(6)Includes 94 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(7)Includes 94 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(8)Includes 94 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(9)Includes 37,500 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable, and 259,241 common shares held by a revocable trust formed under Wyoming law (the “Revocable Umaran Trust Shares”) formed by Mr. Umaran that was established for the benefit of Mr. Umaran, his wife and certain charitable organizations. Subsequently, the trust transferred its Revocable Umaran Trust Shares to a BVI company wholly owned by the trust. Angerona Trust Company LLC acts as the independent trustee of the trust. Angerona Group Administration Limited is the sole director of the BVI company and holds voting and dispositive power over the 259,241 common shares held by such company.
(10)Includes 7,000 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(11)Includes 1,500 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(12)Includes 17,500 common shares issuable upon exercise of vested options and settlement of RSUs, as applicable.
(13)Based on a Schedule 13G/A filed with the SEC on February 1, 2023, BlackRock, Inc. beneficially owns 2,908,590 of our common shares; has sole voting power with respect to 2,777,835 shares, and sole dispositive power with respect to 2,908,590 shares. The address of BlackRock, Inc.'s principal business office is 55 East 52nd Street, New York, NY 10055.
(14)Based on a Schedule 13G/A filed with the SEC on February 8, 2023, Wasatch Advisors, LP beneficially owns 2,441,952 of our common shares; has sole and dispositive power with respect to all of such shares. The address of Wasatch Advisors, LP's principal business office is 505 Wakara Way, Salt Lake City, UT 84108.
(15)Based on a Schedule 13G/A filed with the SEC on February 9, 2023, Morgan Stanley beneficially owns 2,166,419 of our common shares; has shared voting power with respect to 2,046,318 shares and shared dispositive power with respect to 2,166,419 shares. The address of Morgan Stanley´s principal business is 1585 Broadway, New York, NY 10036.
(16)Based on a Schedule 13G filed with the SEC on January 9, 2023, J.P. Morgan Chase & Co. beneficially owns 3,460,782 of our common shares. It has sole voting power with respect to 3,038,562 shares, and shared voting power with resect to 11,090 shares. It has sole dispositive power with respect to 3,459,462 shares, and shared dispositive power with respect to 1,320 shares. The address of J.P. Morgan Chase & Co.´s principal business office is 383 Madison Avenue, New York, NY 10179.
(17)Based on a Schedule 13G filed with the SEC on February 14, 2023, of the common stock beneficially owned, T. Rowe Price Associates, Inc. reported that it has sole voting power with respect to 504,681 shares and sole dispositive power with respect to 3,086,471 shares, and T. Rowe Price New Horizons Fund, Inc. reported that it has sole voting power with respect to 2,423,727 shares. The address of T. Rowe Price Associates, Inc. and T. Rowe Price New Horizons Fund, Inc. is 100 E. Pratt Street, Baltimore, MD 21202.
B. Related Party Transactions
For a summary of our revenue and expenses and receivables and payables with related parties, please see note 24 to our audited consolidated financial statements.
Procedures for Related Party Transactions
On July 23, 2014, we adopted a written code of business conduct and ethics for our company, which was amended on January 26, 2022. Under our code of business conduct and ethics, our employees, officers and directors are discouraged from entering into any transaction that may cause a conflict of interest for us. In addition, they must report any potential conflict of interest, including related party transactions, to their managers or our corporate counsel who then will review and summarize the proposed transaction for our audit committee. Pursuant to its charter, our audit committee is required to then approve any related-party transactions, including those transactions involving our directors. In approving or rejecting such proposed transactions, the audit committee is required to consider the relevant facts and circumstances available and deemed relevant to the audit committee, including the material terms of the transactions, risks, benefits, costs, availability of other comparable services or products and, if applicable, the impact on a director’s independence. Our audit committee will approve only those transactions that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our audit committee determines in the good faith exercise of its discretion.
On November 5, 2015, we adopted a related party transactions policy, as amended by the Audit Committee. This policy indicates, based on certain specific parameters, which transactions should be submitted for approval by either our Audit Committee or our general counsel.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated statements and other financial information.
We have included the Consolidated Financial Statements as part of this annual report. See Item 18, "Financial Statements."
Legal Proceedings
We may be involved in litigation in the normal course of our business, both as a defendant and as a plaintiff. In the ordinary course of our business, we are subject to certain contingent liabilities with respect a variety of potential claims, lawsuits and other proceedings, including claims related to patent infringement, purported class actions, tax and labor lawsuits. In particular, in the software and technology industries, other companies own large numbers of patents, copyrights, trademarks and trade secrets and frequently engage in litigation based on allegations of infringement or other violations of intellectual property rights. We have received and may continue to receive assertions and claims that our services infringe on these patents or other intellectual property rights. See “Key Information - Risk Factors — Risks Related to Our Business and Industry — If we incur any liability for a violation of the intellectual property rights of others, our reputation, business, financial condition and prospects may be adversely affected.”
Since 2018, certain of our non-U.S. subsidiaries have been under examination by the U.S. Internal Revenue Service ("IRS") regarding payroll and employment taxes primarily in connection with services performed by employees of certain of our subsidiaries in the United States between 2013 and 2015. On May 1, 2018, the IRS issued 30-day letters to those subsidiaries proposing total assessments of $1.4 million plus penalties and interest for employment taxes for those years. Our subsidiaries challenged these proposed assessments with the IRS on July 16, 2018. Following discussions with the IRS, during the fourth quarter of 2021, the IRS and our subsidiaries have reached a preliminary agreement on the proposed assessments, which would amount to $1.3 million, including applicable interests and penalties. As of the date of this annual report, we are waiting for the final confirmation from the IRS on the proposed amount of the assessments to make the payment and settle this matter definitively. On March 16, 2022, the Company paid $960 in principal and is waiting for final confirmation on the amounts of the applicable interests and penalties to settle this matter definitively.
Between 2010 and 2014, certain of Grupo Assa’s Brazilian subsidiaries were subject to two examinations by the Ministry of Labor (“MTE”) and the Brazilian Internal Revenue Service (“RFB”) in relation to the potential hiring of employees as independent contractors. As a result of such examinations, Grupo Assa's Brazilian subsidiaries are subject to different administrative and judicial proceedings, seeking to collect payment of taxes and social security contributions allegedly owed by the companies, and imposing certain associated fines. Under the equity purchase agreement entered into for the acquisition of Grupo ASSA Worldwide S.A. and its affiliates (collectively, “Grupo Assa”), certain of these proceedings are subject to indemnification provisions from the sellers. As of December 31, 2022, some of the administrative proceedings are still ongoing and some have resulted in judicial proceedings.
In addition to the foregoing, as of December 31, 2022, we are a party to certain other legal proceedings, including tax and labor claims, where the risk of loss is considered possible. In the opinion of our management, the ultimate disposition of such threatened and/or pending matters, either individually or on a combined basis, is not likely to have a material effect on our financial condition, liquidity or results of operations.
Dividend Policy
We currently anticipate that we will retain all available funds for use in the operation and expansion of our business, and do not anticipate paying any dividends in the foreseeable future.
Under Luxembourg law, at least 5% of our net income per year must be allocated to the creation of a legal reserve until such reserve reaches an amount equal to 10% of our issued share capital. If the legal reserve subsequently falls below the 10% threshold, 5% of the net income must be allocated again toward the reserve until the 10% threshold is reached. If the legal
reserve exceeds 10% of our issued share capital, the legal reserve may be reduced. The legal reserve is not available for distribution.
We are a holding company and have no material assets other than direct and indirect ownership of our operating and non-operating subsidiaries. If we were to distribute a dividend at some point in the future, we would cause the operating subsidiaries to make distributions in an amount sufficient to cover any such dividends.
B. Significant Changes
As of the date of this annual report we have no significant changes to inform.
ITEM 9. THE OFFER AND LISTING
A. Offering and listing details.
Our ordinary shares began trading on the NYSE under the symbol "GLOB" in connection with our IPO on July 18, 2014.
B. Plan of Distribution
Not applicable.
C. Markets
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
A. Share capital
Not applicable.
B. Memorandum and Articles of Association
The following is a summary of some of the terms of our common shares, based on our articles of association.
The following summary is not complete and is subject to, and is qualified in its entirety by reference to, the provisions of our articles of association, as amended, which are included as Exhibit 1.1 to this Annual Report, and applicable Luxembourg law, including Luxembourg Corporate Law.
General
We are a Luxembourg joint stock company (société anonyme) and our legal name is "Globant S.A." We were incorporated on December 10, 2012. We are registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés de Luxembourg) under number B 173 727 and have our registered office at 37A Avenue J.F. Kennedy, L-1855, Luxembourg, Grand Duchy of Luxembourg.
Share Capital
As of December 31, 2022, our issued share capital was $50,921,666.40, represented by 42,434,722 common shares with a nominal value of $1.20 each, of which 165,063 were treasury shares held by us.
We had an authorized share capital, excluding the issued share capital, of $4,184,718, consisting of 3,487,265 common shares with a nominal value of $1.20 each.
Our shareholders' meeting has authorized our board of directors to issue common shares within the limits of the authorized share capital at such time and on such terms as our board of directors may decide during a period ending on the fifth anniversary of the extraordinary general meeting of shareholders held on April 22, 2022, which may be renewed. Accordingly, as of December 31, 2022, our board of directors may issue up to 3,487,265 common shares until such date.
Our authorized share capital is determined by our articles of association, as amended from time to time, and may be increased or reduced by amending the articles of association by a two-thirds majority of the vote at a quorate extraordinary general shareholders' meeting. Under Luxembourg law, our shareholders have no obligation to provide further capital to us.
Under Luxembourg law, our shareholders benefit from a pre-emptive subscription right on the issuance of common shares for cash consideration. However, our shareholders have, in accordance with Luxembourg law authorized our board of directors to waive, suppress or limit, any pre-emptive subscription rights of shareholders provided by law to the extent our board of directors deems such waiver, suppression or limitation advisable for any issue or issues of common shares within the scope of our authorized share capital. Such common shares may be issued above, at or below market value as well as above, at or below nominal value by way of incorporation of available reserves (including premium).
Form and Transfer of Common Shares
Our common shares are issued in registered form only and are freely transferable under Luxembourg law and our articles of association. Luxembourg law does not impose any limitations on the rights of Luxembourg or non-Luxembourg residents to hold or vote our common shares.
Under Luxembourg law, the ownership of registered shares is established by the entry of the name of the shareholder and the number of shares held by him or her in the shareholder register. Transfers of common shares not deposited into securities accounts are effective towards us and third parties either through the recording of a declaration of transfer into the shareholders' register, signed and dated by the transferor and the transferee or their representatives or by us, upon notification of the transfer to, or upon the acceptance of the transfer by, us. Should the transfer of common shares not be recorded accordingly, the shareholder is entitled to enforce his or her rights by initiating the relevant proceedings before the competent courts of Luxembourg.
In addition, our articles of association provide that our common shares may be held through a securities settlement system or a professional depositary of securities. The depositor of common shares held in such manner has the same rights and obligations as if such depositor held the common shares directly. Common shares held through a securities settlement system or a professional depositary of securities may be transferred from one account to another in accordance with customary procedures for the transfer of securities in book-entry form. However, we will make dividend payments (if any) and any other payments in cash, common shares or other securities (if any) only to the securities settlement system or the depositary recorded in the shareholders’ register or in accordance with their instructions.
Issuance of Common Shares
Pursuant to Luxembourg Corporate Law, the issuance of common shares requires the amendment of our articles of association by the approval of two-thirds of the votes at a quorate extraordinary general shareholders' meeting; provided, however, that the general meeting may approve an increase in the authorized share capital and authorize our board of directors to issue common shares up to the maximum amount of such authorized unissued share capital for a five year period beginning either on the date of the relevant general meeting or the date of publication in the RESA of the minutes of the relevant general meeting approving such authorization. The general meeting may amend or renew such authorized share capital and such authorization of our board of directors to issue common shares.
As of December 31, 2022, we had an authorized share capital, excluding the issued share capital, of $4,184,718 and our board of directors was authorized to issue up to 3,487,265 common shares (subject to stock splits, consolidation of common shares or like transactions) with a nominal value of $1.20 per common share.
Our articles of association provide that no fractional shares will be issued or exist.
Pre-emptive Rights
Unless limited, waived or canceled by our board of directors in the context of the authorized share capital or pursuant to a decision of an extraordinary general meeting of shareholders issued in accordance with the provisions of the articles of association relating to amendments thereof, holders of our common shares have a pro rata pre-emptive right to subscribe for any new common shares issued for cash consideration. Our articles of association provide that pre-emptive rights can be waived, suppressed or limited by our board of directors for a period ending on the fifth anniversary of the date of extraordinary general meeting of shareholders held on April 22, 2022, which period therefore ends on April 22, 2027, in the event of an increase of the issued share capital by our board of directors within the limits of the authorized share capital.
Repurchase of Common Shares
We cannot subscribe for our own common shares. We may, however, repurchase issued common shares or have another person repurchase issued common shares for our account, subject to the following conditions:
•the repurchase complies with the principle of equal treatment of all shareholders, except in the event such repurchase was the result of the unanimous decision of a general meeting at which all shareholders were present or represented (in addition, listed companies may repurchase their own shares on the stock exchange without an offer to repurchase having to be made to the shareholders);
•prior authorization by a simple majority vote at an ordinary general meeting of shareholders is granted, which authorization sets forth the terms and conditions of the proposed repurchase, including the maximum number of common shares to be repurchased, the duration of the period for which the authorization is given (which may not exceed five years) and, in the case of a repurchase for consideration, the minimum and maximum consideration per common share;
•the repurchase does not reduce our net assets (on a non-consolidated basis) to a level below the aggregate of the issued share capital and the reserves that we must maintain pursuant to Luxembourg law or our articles of association; and
•only fully paid-up common shares are repurchased.
No prior authorization by our shareholders is required for us to repurchase our own common shares if:
•we are in imminent and severe danger, in which case our board of directors must inform the general meeting of shareholders held subsequent to the repurchase of common shares of the reasons for, and aim of, such repurchase, the number and nominal value of the common shares repurchased, the fraction of the share capital such repurchased common shares represented and the consideration paid for such shares; or
•the common shares are repurchased by us or by a person acting for our account in view of a distribution of the common shares to our employees.
On May 31, 2019, the general meeting of shareholders, according to the conditions set forth in article 430-15 of Luxembourg Corporate Law, granted our board of directors the authorization to repurchase up to a maximum number of shares representing 20% of the share capital for a net purchase price being (i) no less than 50% of the lowest stock price and (ii) no more than 50% above the highest stock price, the stock price in all cases being the closing price, as reported by the New York City edition of the Wall Street Journal, or, if not reported therein, any other authoritative sources to be selected by our board of directors, within the ten trading days preceding the date of the purchase (or the date of the commitment to the transaction). The authorization is valid for a period ending five years from the date of the general meeting or the date of period´s renewal by a subsequent general meeting of shareholders. Pursuant to such authorization, our board of directors is authorized to acquire and sell our common shares under the conditions set forth in the minutes of such general meeting of shareholders. Such purchases and sales may be carried out for any purpose authorized by the general meeting of Globant S.A.
On June 13, 2022, we entered into a 10b5-1 repurchase plan with HSBC Securities (USA) Inc., acting as agent for the Company, for the repurchase of an aggregate of up to 50,000 common shares in four windows, starting on July 19th, 2022 and ending on March 7th, 2023. The repurchase plan will expire on March 8, 2023.
Capital Reduction
Our articles of association provide that our issued share capital may be reduced by a resolution adopted by a two-thirds majority of the votes at a quorate extraordinary general shareholders' meeting. If the reduction of capital results in the capital being reduced below the legally prescribed minimum, the general meeting of the shareholders must, at the same time, resolve to increase the capital up to the required level.
General Meeting of Shareholders
Any regularly constituted general meeting of our shareholders represents the entire body of shareholders.
Each of our common shares entitles the holder thereof to attend our general meeting of shareholders, either in person or by proxy, to address the general meeting of shareholders and to exercise voting rights, subject to the provisions of Luxembourg law and our articles of association. Each common share entitles the holder to one vote at a general meeting of shareholders. Our articles of association provide that our board of directors shall adopt as it deems fit all other regulations concerning the attendance to the general meeting.
A general meeting of our shareholders may, at any time, be convened by our board of directors, to be held at such place and on such date as specified in the convening notice of such meeting. Our articles of association and Luxembourg law provide that a general meeting of shareholders must be convened by our board of directors, upon request in writing indicating the agenda, addressed to our board of directors by one or more shareholders representing at least 10% of our issued share capital. In such case, a general meeting of shareholders must be convened and must be held within a period of one month from receipt of such request. One or more shareholders holding at least 5% of our issued share capital may request the addition of one or more items to the agenda of any general meeting of shareholders and propose resolutions. Such requests must be received at our registered office by registered mail at least 22 days before the date of such meeting.
Our articles of association provide that if our common shares are listed on a stock exchange, all shareholders recorded in any register of our shareholders are entitled to be admitted and vote at the general meeting of shareholders based on the number of shares they hold on a date and time preceding the general meeting of shareholders as may be established on the record date for admission to the general meeting of shareholders (the "Record Date"), which the board of directors will determine in the convening notice. Furthermore, any shareholder, holder or depositary, as the case may be, who wishes to attend the general meeting must inform us thereof no later than on the third business day preceding the date of such general meeting, or by any other date which the board of directors may determine and specify the convening notice, in a manner to be determined by our board of directors in the notice convening the general meeting of the shareholders. In the case of common shares held through the operator of a securities settlement system or with a depositary, or sub-depositary designated by such depositary, a shareholder wishing to attend a general meeting of shareholders should receive from such operator or depositary a certificate certifying the number of common shares recorded in the relevant account on the Record Date. The certificate should be submitted to us at our registered office no later than three business days prior to the date of such general meeting. In the event that the shareholder votes by means of a proxy, the proxy must be deposited at our registered office or with any of our agents, duly authorized to receive such proxies. Our board of directors may set a shorter period for the submission of the certificate or the proxy in which case this will be specified in the convening notice.
The convening of, and attendance to, our general meetings is subject to the provisions of the Luxembourg Corporate Law.
General meetings of shareholders will be convened in accordance with the provisions of our articles of association and the Luxembourg Corporate Law and the requirement of any stock exchange on which our shares are listed. The Luxembourg Corporate Law provides -inter alia- that convening notices for every general meeting will contain the agenda and must take the form of announcements filed with the register of commerce and companies, published on the RESA, and published in a Luxembourg newspaper at least 15 days before the meeting. As all our common shares are in registered form, we may decide to send the convening notice only by registered mail to the registered address of each shareholder no less than eight days before the meeting. In that case, the legal requirements regarding the publication of the convening notice in the RESA and in a Luxembourg newspaper do not apply.
In the event (i) an extraordinary general meeting of shareholders is convened to vote on an extraordinary resolution (See below under "Voting Rights" for additional information), (ii) such meeting is not quorate and/or (iii) a second meeting is convened, the second meeting will be convened as specified above.
Pursuant to our articles of association, if all shareholders are present or represented at a general meeting of shareholders and state that they have been informed of the agenda of the meeting, the general meeting of shareholders may be held without prior notice.
Our annual general meeting is held on the date set forth in the corresponding convening notice within six months of the end of each financial year at our registered office or such other place as specified in such convening notice.
Voting Rights
Each share entitles the holder thereof to one vote at a general meeting of shareholders.
Luxembourg law distinguishes between ordinary resolutions and extraordinary resolutions.
Ordinary Resolutions. Pursuant to our articles of association and the Luxembourg Corporate Law, ordinary resolutions shall be adopted by a simple majority of votes validly cast on such resolution at a general meeting. Abstentions and nil votes will not be taken into account.
Extraordinary Resolutions. Extraordinary resolutions are required for any of the following matters, among others: (a) an increase or decrease of the authorized share capital or issued share capital, (b) a limitation or exclusion of preemptive rights, (c) an approval of a merger (fusion) or de-merger (scission), (d) a dissolution, (e) an amendment to our articles of association and (f) a change of nationality. Pursuant to Luxembourg law and our articles of association, for any extraordinary resolutions to be considered at a general meeting, the quorum must be at least 50% of our issued share capital. Any extraordinary resolution will be adopted at a quorate general meeting upon a two-thirds majority of the votes validly cast on such resolution. In case such quorum is not reached, a second meeting may be convened by our board of directors in which no quorum is required, and which must still approve the amendment with two-thirds of the votes validly cast. Abstentions and nil votes will not be taken into account.
Appointment and Removal of Directors. Members of our board of directors are elected by ordinary resolution at a general meeting of shareholders. Under our articles of association, all directors are elected for a period of up to four years, provided, however, that our directors will be elected on a staggered basis. Any director may be removed with or without cause and with or without prior notice by a simple majority vote at any general meeting of shareholders. The articles of association provide that, in case of a vacancy, our board of directors may fill such vacancy on a temporary basis by a person appointed by the remaining members of our board of directors until the next general meeting of shareholders, which will resolve on a permanent appointment. The directors will be eligible for re-election indefinitely.
Neither Luxembourg law nor our articles of association contain any restrictions as to the voting of our common shares by non-Luxembourg residents.
Amendment to Articles of Association
Shareholder Approval Requirements. Luxembourg law requires that an amendment to our articles of association be made by extraordinary resolution. The agenda of the general meeting of shareholders must include the proposed amendments to the articles of association.
Pursuant to Luxembourg Corporate Law and our articles of association, for an extraordinary resolution to be considered at a general meeting, the quorum must be at least 50% of our issued share capital. Any extraordinary resolution will be adopted at a quorate general meeting (unless otherwise required by law) upon a two-thirds majority of the votes validly cast on such resolution. If the quorum of 50% is not reached at this meeting, a second general meeting may be convened, in which no quorum is required, and may approve the resolution at a majority of two-third of votes validly cast.
Formalities. Any resolutions to amend the articles of association or to approve a merger, de-merger, change of nationality, dissolution or change of nationality must be made before a Luxembourg notary and such amendments must be published in accordance with Luxembourg law.
Merger and Division
A merger by absorption whereby one Luxembourg company, after its dissolution without liquidation, transfers to another company all of its assets and liabilities in exchange for the issuance of common shares in the acquiring company to the shareholders of the company being acquired, or a merger effected by transfer of assets to a newly incorporated company, must, in principle, be approved at a general meeting of shareholders by an extraordinary resolution of the Luxembourg company, and the general meeting of shareholders must be held before a Luxembourg notary. Further conditions and formalities under Luxembourg law are to be complied with in this respect.
Liquidation
In the event of our liquidation, dissolution or winding-up, the assets remaining after allowing for the payment of all liabilities will be paid out to the shareholders pro rata according to their respective shareholdings. Generally, the decisions to
liquidate, dissolve or wind-up require the passing of an extraordinary resolution at a general meeting of our shareholders, and such meeting must be held before a Luxembourg notary.
Mandatory Bid, Squeeze-Out and Sell-Out Rights
Mandatory Bid. In accordance with the provisions of article 8 of our articles of association any person (the "Bidder") wishing to acquire by any means (including, but not limited to, the conversion of any financial instrument convertible into common shares), directly or indirectly, common shares of our Company (which, when aggregated with his/her/its existing common share holdings, together with any shares held by a person controlling the Bidder, controlled by the Bidder and/or under common control with the Bidder, represent at least thirty-three point thirty-three percent (33.33%) of the share capital of the Company (the "Threshold"), will have the duty to propose an unconditional takeover bid to acquire the entirety of the then-outstanding common shares together with any financial instrument convertible into common shares (the "Takeover Bid").
The consideration for each common share and financial instrument convertible into common shares payable to each holder thereof will be the same as, payable in cash only, and not lower than the highest of the following prices:
(a) the highest price per common shares and financial instrument convertible into common shares paid by the Bidder, or on behalf thereof, in relation to any acquisition of common shares and the financial instruments convertible into common shares within the twelve months period immediately preceding the takeover notice, adjusted as a consequence of any division of shares, stock dividend, subdivision or reclassification affecting or related to common shares and/or the financial instruments convertible into common shares; or
(b) the highest closing sale price, during the sixty-day period immediately preceding the takeover notice, of a common share of our Company as quoted by the New York Stock Exchange, in each case as adjusted as a consequence of any division of shares, stock dividend, subdivision or reclassification affecting or related to common shares and financial instrument convertible into common shares.
Squeeze-out right and sell out right. As a result of our common shares having been listed and admitted to trading on the regulated market of the Luxembourg Stock Exchange ("LuxSE") until July 31, 2019, we remain subject to the provisions of the Luxembourg law of July 21, 2012 on mandatory squeeze-out and sell-out of securities of companies admitted or having been admitted to trading on a regulated market or which have been subject to a public offer (the "Luxembourg Mandatory Squeeze-Out and Sell-Out Law"), which shall continue to be applicable to the Company until July 31, 2024; provided that, no new listing on a regulated market (within the meaning of Directive 2014/65/EU) will occur until the aforementioned date. The Luxembourg Mandatory Squeeze-Out and Sell-Out Law provides that, subject to the conditions set forth therein being met, if any individual or legal entity, acting alone or in concert with another, holds a number of shares or other voting securities representing at least 95% of our voting share capital and 95% of our voting rights: (i) such holder may require the holders of the remaining shares or other voting securities to sell those remaining securities (the "Mandatory Squeeze-Out"); and (ii) the holders of the remaining shares or securities may require such holder to purchase those remaining shares or other voting securities (the "Mandatory Sell-Out"). The Mandatory Squeeze-Out and the Mandatory Sell-Out must be exercised at a fair price according to objective and adequate methods applying to asset disposals. The procedures applicable to the Mandatory Squeeze-Out and the Mandatory Sell-Out are subject to further conditions and must be carried out under the supervision of the Commission de Surveillance du Secteur Financier (the "CSSF").
No Appraisal Rights
Neither Luxembourg law nor our articles of association provide for any appraisal rights of dissenting shareholders.
Distributions
Subject to Luxembourg law, if and when a dividend is declared by the general meeting of shareholders or an interim dividend is declared by our board of directors, each common share is entitled to participate equally in such distribution of funds legally available for such purposes. Pursuant to our articles of association, our board of directors may pay interim dividends, subject to Luxembourg law.
Declared and unpaid distributions held by us for the account of the shareholders will not bear interest. Under Luxembourg law, claims for unpaid distributions will lapse in our favor five years after the date such distribution became due and payable.
Any amount payable with respect to dividends and other distributions declared and payable may be freely transferred out of Luxembourg, except that any specific transfer may be prohibited or limited by anti-money laundering regulations, freezing orders or similar restrictive measures.
Annual Accounts
Under Luxembourg law, our board of directors must prepare annual accounts and consolidated accounts. Except for certain cases as provided for by Luxembourg law, our board of directors must also annually prepare management reports on the annual accounts and consolidated accounts. The annual accounts, the consolidated accounts, management reports and auditor's reports must be available for inspection by shareholders at our registered office and on our website for an uninterrupted period beginning at least eight calendar days prior to the date of the annual ordinary general meeting of shareholders.
The annual accounts and consolidated accounts are audited by an approved statutory auditor (réviseur d'entreprises agréé).
The annual accounts and the consolidated accounts, will be filed with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés of Luxembourg).
Information Rights
Luxembourg law gives shareholders limited rights to inspect certain corporate records prior to the date of the annual ordinary general meeting of shareholders, including the annual accounts with the list of directors and auditors, the consolidated accounts, the notes to the annual accounts and the consolidated accounts, a list of shareholders whose common shares are not fully paid up, the management reports, the auditor's report and, in case of amendments to the articles of association, the text of the proposed amendments and the draft of the resulting consolidated articles of association.
In addition, any registered shareholder is entitled to receive, upon request, a copy of the annual accounts, the consolidated accounts, the auditor's reports and the management reports free of charge prior to the date of the annual ordinary general meeting of shareholders.
Board of Directors
Globant S.A. is managed by our board of directors which is vested with the broadest powers to take any actions necessary or useful to fulfill our corporate purpose with the exception of actions reserved by law or our articles of association to the general meeting of shareholders. Our articles of association provide that our board of directors must consist of at least seven members and no more than fifteen members. Our board of directors meets as often as company interests require.
A majority of the members of our board of directors present or represented at a board meeting constitutes a quorum, and resolutions are adopted by the simple majority vote of our board members present or represented. In the case of a tie, the chairman of our board shall have the deciding vote. Our board of directors may also make decisions by means of resolutions in writing signed by all directors.
Directors are elected by the general meeting of shareholders, and appointed for a period of up to four years; provided, however, that directors are elected on a staggered basis, with one-third of the directors being elected each year; and provided, further, that such term may be exceeded by a period up to the annual general meeting held following the fourth anniversary of the appointment, and each director will hold office until his or her successor is elected. The general shareholders' meeting may remove one or more directors at any time, without cause and without prior notice by a resolution passed by simple majority vote. If our board of directors has a vacancy, such vacancy may be filled on a temporary basis by a person designated by the remaining members of our board of directors until the next general meeting of shareholders, which will resolve on a permanent appointment. Any director shall be eligible for re-election indefinitely.
Within the limits provided for by applicable law and our articles of association, our board of directors may delegate to one or more directors or to any one or more persons, who need not be shareholders, acting alone or jointly, the daily management of Globant S.A. and the authority to represent us in connection with such daily management. Our board of directors may also grant special powers to any person(s) acting alone or jointly with others as agent of Globant S.A.
Our board of directors may establish one or more committees, including without limitation, an audit committee, a nominating and corporate governance committee, and a compensation committee, and for which it will, if one or more of such committees are set up, appoint members, determine the purpose, powers and authorities as well as the procedures and such
other rules as may be applicable thereto. Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee.
No contract or other transaction between us and any other company or firm will be affected or invalidated by the fact that any one or more of our directors or officers is interested in, or is a director, associate, officer, agent, adviser or employee of such other company or firm. Any director or officer who serves as a director, officer or employee or otherwise of any company or firm with which we may contract or otherwise engage in business will not, by reason of such affiliation with such other company or firm only, be prevented from considering and voting or acting upon any matters with respect to such contract or other business.
Any director who has, directly or indirectly, a conflicting interest in a transaction submitted for approval to our board of directors that conflicts with our interest, must inform our board of directors thereof and cause a record of his or her statement to be included in the minutes of the meeting. Such director may not take part in these deliberations and may not vote on the relevant transaction. At the next general meeting, before any resolution is put to a vote, a special report is to be made on any transactions in which any of the directors may have had an interest that conflicts with our interest.
No shareholding qualification for directors is required.
Any director and other officer, past and present, is entitled to indemnification from us to the fullest extent permitted by law against liability and all expenses reasonably incurred or paid by such director in connection with any claim, action, suit or proceeding in which he or she is involved as a party or otherwise by virtue of his/her being or having been a director. We may purchase and maintain insurance for any director or other officer against any such liability.
No indemnification will be provided against any liability to our directors or executive officers by reason of willful misconduct, bad faith, gross negligence or reckless disregard of the duties of a director or officer. No indemnification will be provided with respect to any matter as to which the director or officer may have been finally adjudicated to have acted in bad faith and not in our interest, and no indemnification will be provided in the event of a settlement (unless approved by a court or our board of directors).
Registrars and Registers for Our Common Shares
All of our common shares are in registered form only.
We keep a register of common shares at our registered office in Luxembourg. This register is available for inspection by any shareholder. In addition, we may appoint registrars in different jurisdictions who will each maintain a separate register for the registered common shares entered therein. It is possible for our shareholders to elect the entry of their common shares in one of these registers and the transfer thereof at any time from one register to any other, including to the register kept at our registered office. However, our board of directors may restrict such transfers for common shares that are registered, listed, quoted, dealt in or have been placed in certain jurisdictions in compliance with the requirements applicable therein.
Our articles of association provide that the ownership of registered common shares is established by inscription in the relevant register. We may consider the person in whose name the registered common shares are registered in the relevant register as the owner of such registered common shares.
Transfer Agent and Registrar
The transfer agent and registrar for our common shares is American Stock Transfer & Trust Company, LLC, with an address at 6201 15th Avenue Brooklyn, New York, NY 11219.
Our common shares are listed on the NYSE under the symbol "GLOB".
C. Material Contracts
On June 2, 2022, Globant, LLC, our U.S. subsidiary, entered into a Third Amended and Restated Credit Agreement, by and among certain financial institutions listed therein, as lenders, and HSBC Bank USA, N.A., as administrative agent, issuing bank and swingline lender (the “Third A&R Credit Agreement”). The Third A&R Credit Agreement amends and restates that certain Second Amendment and Restated Credit Agreement, dated as of February 6, 2020, as amended by that certain Amendment No.1, dated as of October 1, 2021. The Third A&R Credit Agreement increases the term loan commitment to $100 million and the revolving commitment to $250 million. The amended and restated credit facility has: (i) converted the facility from LIBOR to Term SOFR as the basis for calculating the interest rates; (ii) extended the term loan and the revolving
loan maturity date to February 5, 2025; and (iii) changed certain provisions (sanctions requirements, bail-in provisions) to reflect regulatory updates since the prior agreement.
On June 4, 2020, we entered into an underwriting agreement with J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC, as representatives of the underwriters named therein, relating to the offer and sale of an aggregate of 2,300,000 of our common shares, including 300,000 common shares issued as a result of the underwriters' exercise in full of their over-allotment option, at a public offering price of $135.00 per common share.
On May 25, 2021, we entered into an underwriting agreement with Goldman Sachs & Co. LLC and Citigroup Global Markets Inc., as representatives of the underwriters named therein, relating to the offer and sale of an aggregate of 1,380,000 of our common shares, including 180,000 common shares issued as a result of the underwriters' exercise in full of their overallotment option, at a public offering price of $214.00 per common share.
D. Exchange Controls
E. Taxation
The following is a summary of the material Luxembourg and U.S. federal income tax consequences to U.S. Holders (as defined below) of the ownership and disposition of our common shares. This summary is based upon Luxembourg tax laws and U.S. federal income tax laws (including the Code, final, temporary and proposed Treasury regulations, rulings, judicial decisions and administrative pronouncements), all currently in effect as of the date hereof and all of which are subject to change or changes in wording or administrative or judicial interpretation occurring after the date hereof, possibly with retroactive effect.
As used herein, the term "U.S. Holder" means a beneficial owner of one or more of our common shares:
(a)that is for U.S. federal income tax purposes one of the following:
(i)an individual citizen or resident of the United States,
(ii)a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any State thereof or the District of Columbia, or
(iii)an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source;
(b)who holds the common shares as capital assets for U.S. federal income tax purposes;
(c)who owns, directly, indirectly or by attribution, less than 10% of our share capital or voting shares; and
(d)whose holding is not effectively connected with a permanent establishment in Luxembourg.
This summary does not address all of the tax considerations that may apply to holders that are subject to special tax rules, such as U.S. expatriates, insurance companies, tax-exempt organizations, certain financial institutions, persons subject to the alternative minimum tax, dealers and certain traders in securities, persons holding common shares as part of a straddle, hedging, conversion or other integrated transaction, persons who acquired their common shares pursuant to the exercise of employee shares options or otherwise as compensation, partnerships or other entities classified as partnerships for U.S. federal income tax purposes or persons whose functional currency is not the U.S. dollar. Such holders may be subject to U.S. federal income tax consequences different from those set forth below. In addition, this summary does not address all of the Luxembourg tax considerations that may apply to holders that are subject to special tax rules.
If a partnership holds common shares, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partnership, or partner in a partnership, that holds common shares is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the common shares.
Potential investors in our common shares should consult their own tax advisors concerning the specific Luxembourg and U.S. federal, state and local tax consequences of the ownership and disposition of our common shares in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.
Luxembourg Tax Considerations
Introduction
The following is an overview of certain material Luxembourg tax consequences of purchasing, owning and disposing of the common shares issued by us. It does not purport to be a complete analysis of all possible tax situations that may be relevant to a decision to purchase, own or deposit our common shares. It is included herein solely for preliminary information purposes and is not intended to be, nor should it construed to be, legal or tax advice. Prospective purchasers of our common shares should consult their own tax advisers as to the applicable tax consequences of the ownership of our common shares, based on their particular circumstances. The following description of Luxembourg tax law is based upon the Luxembourg law and regulations as in effect and as interpreted by the Luxembourg tax authorities as of the date of this annual report and is subject to any amendments in law (or in interpretation) later introduced, whether or not on a retroactive basis. Please be aware that the residence concept used under the respective headings below applies for Luxembourg tax assessment purposes only. Any reference in this section to a tax, duty, levy impost or other charge or withholding of a similar nature refers to Luxembourg tax laws and/or concepts only. Also, please note that a reference to Luxembourg income tax encompasses corporate income tax (impôt sur le revenu des collectivités), municipal business tax (impôt commercial communal), a solidarity surcharge (contribution au fonds pour l'emploi) and personal income tax (impôt sur le revenu) generally. Corporate taxpayers may further be subject to net worth tax (impôt sur la fortune), as well as other duties, levies or taxes. Corporate income tax, municipal business tax, net worth tax, as well as the solidarity surcharge invariably applies to most corporate taxpayers resident of Luxembourg for tax purposes. Individual taxpayers are generally subject to personal income tax and to the solidarity surcharge. Under certain circumstances, where an individual taxpayer acts in the course of the management of a professional or business undertaking, municipal business tax may apply as well.
Taxation of the company
Income tax
As the company is a fully-taxable Luxembourg company, its net taxable profit is as a rule subject to corporate income tax ("CIT") and municipal business tax ("MBT") at ordinary rates in Luxembourg.
The taxable profit as determined for CIT purposes is applicable, with minor adjustments, for MBT purposes. CIT is levied at an effective maximum rate of 18,19% as from 2019 (inclusive of the 7% surcharge for the employment fund). MBT is levied at a variable rate according to the municipality in which the company is located (6.75% in the City of Luxembourg). The maximum aggregate CIT and MBT rate consequently amounts to 24,94% as from 2019 for companies located in the City of Luxembourg.
Dividends and other payments derived from shares by the company are subject to income taxes, unless the conditions of the participation exemption regime, as described below, are satisfied.
A tax credit is generally granted for withholding taxes levied at source within the limit of the tax payable in Luxembourg on such income, whereby any excess withholding tax is not refundable.
Under the participation exemption regime (subject to the relevant anti-abuse rules), dividends derived from shares may be exempt from income tax if (i) the distributing company is a qualified subsidiary ("Qualified Subsidiary") and (ii) at the time the dividend is put at the company's disposal, the company has held or commits itself to hold for an uninterrupted period of at least 12 months shares representing a direct participation in the share capital of the Qualified Subsidiary (i) of at least 10% or (ii) of an acquisition price of at least €1.2 million. A Qualified Subsidiary means (a) a Luxembourg resident fully-taxable company limited by share capital (société de capitaux), (b) a company covered by Article 2 of the Council Directive 2011/96/EU of November 30, 2011 as amended (the "EU Parent-Subsidiary Directive") or (c) a non-resident company limited by share capital (société de capitaux) liable to a tax corresponding to Luxembourg CIT.
Liquidation proceeds are assimilated to a received dividend and may be exempt under the same conditions. If the conditions of the participation exemption regime are not met, dividends derived by the company from Qualified Subsidiaries may be exempt for 50 % of their gross amount if they are received from (i) a Luxembourg resident fully-taxable company limited by share capital, or (ii) a company limited by share capital resident in a State with which the Grand Duchy of Luxembourg has concluded a double tax treaty and liable to a tax corresponding to Luxembourg CIT, or (iii) a company resident in a EU Member State and covered by Article 2 of the EU Parent-Subsidiary Directive.
Capital gains realized by the company on shares are subject to CIT and MBT at ordinary rates, unless the conditions of the participation exemption regime, as described below, are satisfied. Under the participation exemption regime, capital gains realized on shares of a Qualified Subsidiary may be exempt from CIT and MBT at the level of the company if at the time the capital gain is realized, the company has held or commits itself to hold for an uninterrupted period of at least 12 months shares representing a direct participation in the share capital of the Qualified Subsidiary (i) of at least 10% or (ii) of an acquisition
price of at least €6 million. Taxable gains are defined as being the difference between the price for which shares have been disposed of and the lower of their cost or book value.
Withholding tax
Dividends paid by us to the holders of our common shares are as a rule subject to a 15% withholding tax in Luxembourg, unless a reduced withholding tax rate applies pursuant to an applicable double tax treaty or an exemption pursuant to the application of the participation exemption, and, to the extent withholding tax applies, we are responsible for withholding amounts corresponding to such taxation at its source.
If the company and a U.S. relevant holder are eligible for the benefits of the tax treaty concluded between the United State and Luxembourg (the "Treaty"), the rate of withholding on distributions is 15%, or 5% if the beneficial owner is a U.S. relevant holder and a qualified resident company as defined in Article 24 of the Treaty that owns at least 10% of the company's voting stock.
A withholding tax exemption may apply under the participation exemption if cumulatively (i) the holder of our shares is an eligible parent (an "Eligible Parent") and (ii) at the time the income is made available, the holder of our shares has held or commits itself to hold for an uninterrupted period of at least 12 months a direct participation of at least 10% of our share capital or a direct participation of an acquisition price of at least €1.2 million (or an equivalent amount in another currency). Holding a participation through an entity treated as tax transparent from a Luxembourg income tax perspective is deemed to be a direct participation in proportion to the net assets held in this entity. An Eligible Parent includes (a) a company covered by Article 2 of the EU Parent-Subsidiary Directive or a Luxembourg permanent establishment thereof, (b) a company resident in a State having a double tax treaty with Luxembourg and subject to a tax corresponding to Luxembourg CIT or a Luxembourg permanent establishment thereof, (c) a company limited by share capital (société de capitaux) or a cooperative society (société coopérative) resident in the European Economic Area other than an EU Member State and liable to a tax corresponding to Luxembourg CIT or a Luxembourg permanent establishment thereof or (d) a Swiss company limited by share capital (société de capitaux) which is effectively subject to corporate income tax in Switzerland without benefiting from an exemption.
No withholding tax is levied on capital gains and liquidation proceeds.
Net wealth tax
The company is as a rule subject to Luxembourg net wealth tax ("NWT") on its net assets as determined for net wealth tax purposes. NWT is levied at the rate of 0.5% on net assets not exceeding EUR 500 million and at the rate of 0.05% on the portion of the net assets exceeding EUR 500 million. Net worth is referred to as the unitary value (valeur unitaire), as determined at January 1 of each year. The unitary value is in principle calculated as the difference between (i) assets estimated at their fair market value (valeur estimée de réalisation), and (ii) liabilities vis-à-vis third parties.
Under the participation exemption regime, a qualified shareholding held by the company in a Qualified Subsidiary is exempt for net wealth tax purposes.
A minimum net wealth tax ("MNWT") is levied on companies having their statutory seat or central administration in Luxembourg. For entities for which the sum of fixed financial assets, receivables against related companies, transferable securities and cash at bank exceeds 90% of their total balance sheet and EUR 350,000, the MNWT is set at EUR 4,815. For all other companies having their statutory seat or central administration in Luxembourg which do not fall within the scope of the EUR 4,815 MNWT, the MNWT ranges from EUR 535 to EUR 32,100, depending on the company's total balance sheet.
Other taxes
The issuance of our common shares and any other amendment of our articles of association are currently subject to a €75 fixed registration duty. The disposal of our common shares is not subject to a Luxembourg registration tax or stamp duty, unless recorded in a Luxembourg notarial deed or otherwise registered in Luxembourg.
Taxation of the holders of commons shares
Luxembourg tax residency of the holders of our common shares
A holder of our common shares will not become resident, nor be deemed to be resident, in Luxembourg by reason only of the holding and/or disposing of our common shares or the execution, performance or enforcement of his/her rights thereunder.
Income tax
Luxembourg resident holders
Luxembourg individual residents
Dividends and other payments derived from our common shares by resident individual holders of our common shares, who act in the course of the management of either their private wealth or their professional or business activity, are subject to income tax at the ordinary progressive rates. A tax credit may be granted, under certain circumstances, for Luxembourg withholding tax levied. 50% of the gross amount of dividends received from the company by resident individual holders of our common shares are exempt from income tax.
Capital gains realized on the disposal of our common shares by resident individual holders of our common shares, who act in the course of the management of their private wealth, are not subject to income tax, unless said capital gains qualify either as speculative gains or as gains on a substantial participation. Capital gains are deemed to be speculative and are subject to income tax at ordinary rates if our common shares are disposed of within six months after their acquisition or if their disposal precedes their acquisition. Speculative gains are subject to income tax as miscellaneous income at ordinary rates. A participation is deemed to be substantial where a resident individual holder of our common shares holds or has held, either alone or together with his spouse or partner and / or minor children, directly or indirectly at any time within the five years preceding the disposal, more than 10% of the share capital of the company whose common shares are being disposed of. A holder of our common shares is also deemed to alienate a substantial participation if he acquired free of charge, within the five years preceding the transfer, a participation that was constituting a substantial participation in the hands of the alienator (or the alienators in case of successive transfers free of charge within the same five-year period). Capital gains realized on a substantial participation more than six months after the acquisition thereof are taxed according to the half-global rate method, (i.e. the average rate applicable to the total income is calculated according to progressive income tax rates and half of the average rate is applied to the capital gains realized on the substantial participation). A disposal may include a sale, an exchange, a contribution or any other kind of alienation of the participation.
Capital gains realized on the disposal of our common shares by resident individual holders of our common shares, who act in the course of their professional or business activity, are subject to income tax at ordinary rates. Taxable gains are determined as being the difference between the price for which our common shares have been disposed of and the lower of their cost or book value.
Luxembourg fully-taxable corporate residents
Dividends and other payments derived from our common shares by Luxembourg-resident, fully-taxable companies are subject to CIT and MBT, unless the conditions of the participation exemption regime, as described below, are satisfied. A tax credit may, under certain circumstances, be granted for any Luxembourg withholding tax levied. If the conditions of the participation exemption regime are not met, 50% of the gross amount of dividends received by Luxembourg-resident, fully-taxable companies from our common shares are exempt from CIT and MBT.
Under the participation exemption regime, dividends derived from our common shares may be exempt from CIT and MBT at the level of the holder of our common shares if cumulatively (i) the holder of our common shares is a Luxembourg-resident, fully-taxable company and (ii) at the time the dividend is put at the holder of our common shares' disposal, the holder of our common shares has held or commits itself to hold for an uninterrupted period of at least 12 months a qualified shareholding ("Qualified Shareholding"). A Qualified Shareholding means common shares representing a direct participation of at least 10% in the share capital of the company or a direct participation in the company of an acquisition price of at least €1.2 million (or an equivalent amount in another currency). Liquidation proceeds are assimilated to a received dividend and may be exempt under the same conditions. Common shares held through a tax-transparent entity are considered as being a direct participation proportionally to the percentage held in the net assets of the transparent entity.
Capital gains realized by a Luxembourg-resident, fully-taxable company on our common shares are subject to CIT and MBT at ordinary rates, unless the conditions of the participation exemption regime, as described below, are satisfied. Under the participation exemption regime, capital gains realized on our common shares may be exempt from income tax at the level of the holder of our common shares if cumulatively (i) the holder of our common shares is a Luxembourg fully-taxable corporate resident and (ii) at the time the capital gain is realized, the holder of our common shares has held or commits itself to hold for an uninterrupted period of at least 12 months our common shares representing a direct participation in the share capital of the company of at least 10% or a direct participation in the company of an acquisition price of at least €6 million (or an equivalent amount in another currency). Taxable gains are determined as being the difference between the price for which our common shares have been disposed of and the lower of their cost or book value.
Luxembourg residents benefiting from a special tax regime
Holders of our common shares who are either (i) an undertaking for collective investment governed by the amended law of December 17, 2010, (ii) a specialized investment fund governed by the amended law of February 13, 2007, (iii) a family wealth management company governed by the amended law of May 11, 2007 and (iv) a reserved alternative investment fund treated as a specialized investment fund for Luxembourg tax purposes governed by the amended law of July 23, 2016, are exempt from income tax in Luxembourg. Dividends derived from and capital gains realized on our common shares are thus not subject to income tax in their hands.
Luxembourg non-resident holders
Non-resident holders of our common shares who have neither a permanent establishment nor a permanent representative in Luxembourg to which or whom our common shares are attributable, are not liable to any Luxembourg income tax on income and gains derived from our common shares except capital gains realized on (i) a substantial participation before the acquisition or within the first six months of the acquisition thereof, or (ii) a substantial participation more than six months after the acquisition thereof by a holder of our common shares who has been a former Luxembourg resident for more than fifteen years and has become a non-resident, at the time of transfer, less than five years ago. A participation is deemed to be substantial where a shareholder holds or has held, either alone or, in case of an individual shareholder, together with his/her spouse or partner and/or minor children, directly or indirectly at any time within the five years preceding the disposal, more than 10% of the share capital of the company whose common shares are being disposed of. A shareholder is also deemed to alienate a substantial participation if he acquired free of charge, within the five years preceding the transfer, a participation that was constituting a substantial participation in the hands of the alienator (or the alienators in case of successive transfers free of charge within the same five-year period).
If the company and a U.S. relevant holder are eligible for the benefits of the Treaty, such U.S. relevant holder generally should not be subject to Luxembourg tax on the gain from the disposal of such common shares unless such gain is attributable to a permanent establishment or a permanent representative of such U.S. relevant holder in Luxembourg.
Non-resident holders of our common shares which have a permanent establishment or a permanent representative in Luxembourg to which or whom our common shares are attributable, must include any income received, as well as any gain realized, on the sale, disposal or redemption of our common shares, in their taxable income for Luxembourg tax assessment purposes, unless the conditions of the participation exemption regime, as described below, are satisfied. If the conditions of the participation exemption regime are not fulfilled, 50% of the gross amount of dividends received by a Luxembourg permanent establishment or permanent representative may be, however, exempt from income tax. Taxable gains are determined as being the difference between the price for which the common shares have been disposed of and the lower of their cost or book value.
Under the participation exemption regime, dividends derived from our common shares may be exempt from income tax if cumulatively (i) our common shares are attributable to a qualified permanent establishment ("Qualified Permanent Establishment") and (ii) at the time the dividend is put at the disposal of the Qualified Permanent Establishment, it has held or commits itself to hold a Qualified Shareholding for an uninterrupted period of at least 12 months. A Qualified Permanent Establishment means (a) a Luxembourg permanent establishment of a company covered by Article 2 of the EU Parent-Subsidiary Directive, (b) a Luxembourg permanent establishment of a company limited by share capital (société de capitaux) resident in a State having a tax treaty with Luxembourg, and (c) a Luxembourg permanent establishment of a company limited by share capital (société de capitaux) or a cooperative society (société coopérative) resident in the European Economic Area other than a EU Member State. Liquidation proceeds are assimilated to a received dividend and may be exempt under the same conditions. Common shares held through a tax transparent entity are considered as being a direct participation proportionally to the percentage held in the net assets of the transparent entity.
Under the participation exemption regime, capital gains realized on our common shares may be exempt from income tax if (i) our common shares are attributable to a Qualified Permanent Establishment and (ii) at the time the capital gain is realized, the Qualified Permanent Establishment has held or commits itself to hold, for an uninterrupted period of at least 12 months, our common shares representing a direct participation in the share capital of the company of at least 10% or a direct participation in the company of an acquisition price of at least €6 million (or an equivalent amount in another currency). Taxable gains are determined as being the difference between the price for which our common shares have been disposed of and the lower of their cost or book value.
Net Wealth Tax
Luxembourg resident holders of our common shares, as well as non-resident holders of our common shares who have a permanent establishment or a permanent representative in Luxembourg to which or whom our common shares are
attributable, are subject to Luxembourg net wealth tax on our common shares, except if the holder is (i) a resident or non-resident individual taxpayer, (ii) a securitization company governed by the amended law of March 22, 2004 on securitization, (iii) a company governed by the amended law of June 15, 2004 on venture capital vehicles, (iv) a professional pension institution governed by the amended law of July 13, 2005, (v) a specialized investment fund governed by the amended law of February 13, 2007, (vi) a family wealth management company governed by the amended law of May 11, 2007, (vii) an undertaking for collective investment governed by the amended law of December 17, 2010 or (viii) a reserved alternative investment fund governed by the amended law of July 23, 2016. However, (i) a securitization company governed by the amended law of March 22, 2004 on securitization, (ii) a company governed by the amended law of June 15, 2004 on venture capital vehicles, (iii) a professional pension institution governed by the amended law of July 13, 2005 and (iv) a reserved alternative investment fund treated as a venture capital vehicle for Luxembourg tax purposes and governed by the amended law of July 23, 2016, remain subject to MNWT.
Under the participation exemption, a Qualified Shareholding held in the company by an Eligible Parent or attributable to a Qualified Permanent Establishment may be exempt. The net wealth tax exemption for a Qualified Shareholding does not require the completion of the 12-month holding period.
Other Taxes
Under Luxembourg tax law, where an individual holder of our common shares is a resident of Luxembourg for tax purposes at the time of his or her death, our common shares are included in his or her taxable basis for inheritance tax purposes. On the contrary, no inheritance tax is levied on the transfer of our common shares upon the death of an individual holder in cases where the deceased was not a resident of Luxembourg for inheritance purposes.
Gift tax may be due on a gift or donation of our common shares, if the gift is recorded in a Luxembourg notarial deed or otherwise registered in Luxembourg.
U.S. Federal Income Tax Considerations
Taxation of dividends
Distributions received by a U.S. Holder on common shares, including the amount of any Luxembourg taxes withheld, other than certain pro rata distributions of common shares to all shareholders, will constitute foreign source dividend income to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that such distributions (including any Luxembourg taxes withheld) will be reported to U.S. Holders as dividends. Although it is our intention, if we pay any dividends, to pay such dividends in U.S. dollars, if dividends are paid in euros, the amount of the dividend a U.S. Holder will be required to include in income will equal the U.S. dollar value of the euro, calculated by reference to the exchange rate in effect on the date the payment is received by the U.S. Holder, regardless of whether the payment is converted into U.S. dollars on the date of receipt. If the dividend is converted to U.S. dollars on the date of receipt, a U.S. holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of its receipt. If a U.S. Holder realizes gain or loss on a sale or other disposition of euro, it will be U.S. source ordinary income or loss. U.S. Holders that are corporations generally will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us, except that certain holders of our common shares that are corporations and that directly, indirectly or constructively own 10% or more of our voting power or value may be entitled to a 100% dividends received deduction under certain circumstances. The rules with respect to the dividends received deduction are complex and involve the application of rules that depend on a U.S. Holder’s particular circumstances and on whether we are a PFIC, a “controlled foreign corporation” or both, among other things. You should consult your own tax advisor to determine the effect of the dividends received deduction on your ownership of our common stock. Subject to applicable limitations, dividends received by certain non-corporate U.S. Holders of common shares generally will be taxable at the reduced rate that otherwise applies to long-term capital gains. Non-corporate U.S. Holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at this favorable rate. Certain pro rata distributions of ordinary shares to all shareholders are not generally subject to U.S. federal income tax.
Instead of claiming a credit, a U.S. Holder may elect to deduct foreign taxes (including any Luxembourg taxes) in computing its taxable income, subject to generally applicable limitations. An election to deduct foreign taxes (instead of claiming foreign tax credits) applies to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States. The limitations on foreign taxes eligible for credit are calculated separately with respect to specific classes of income. The rules governing foreign tax credits are complex. Therefore, U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits in their particular circumstances.
Taxation upon sale or other taxable disposition of common shares
A U.S. Holder will recognize U.S. source capital gain or loss on the sale or other disposition of common shares, which will be long-term capital gain or loss if the U.S. Holder has held such common shares for more than one year. The amount of the U.S. Holder's gain or loss will be equal to the difference between such U.S. Holder's tax basis in the common shares sold or otherwise disposed of and the amount realized on the sale or other disposition.
Controlled Foreign Corporation
The Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") eliminated the prohibition on “downward attribution” from non-U.S. persons to U.S. persons under Section 958(b)(4) of the Code for purposes of determining constructive stock ownership under the controlled foreign corporation (“CFC”) rules. As a result, our U.S. subsidiary will be deemed to own all of the stock of our non-U.S. subsidiaries held by the Company for CFC purposes. To the extent a non-U.S. subsidiary is treated as a CFC for any taxable year, each U.S. person treated as a “10% U.S. Shareholder” with respect to such CFC that held our common shares directly or indirectly through non-U.S. entities (including the Company) as of the last day in such taxable year that the subsidiary was a CFC would generally be required to include in gross income as ordinary income its pro rata share of certain income of the CFC, regardless of whether that income was actually distributed to such U.S. person. For tax years beginning on or after January 1, 2018, a “10% U.S. Shareholder” of a non-U.S. corporation includes any U.S. person that owns (or is treated as owning) stock of the non-U.S. corporation possessing 10% or more of the total voting power or total value of such non-U.S. corporation’s stock. The legislative history under the 2017 Tax Act indicates that this change was not intended to cause our non-U.S. subsidiaries to be treated as CFCs with respect to a 10% U.S. Shareholder that is not related to our U.S. subsidiary. However, it is not clear whether the IRS or a court would interpret the change made by the 2017 Tax Act in a manner consistent with such indicated intent. Treasury and the IRS, in issued guidance, however, have declined to provide relief to unrelated “10% U.S. Shareholders” of foreign-controlled CFCs.
Thus, investors are strongly urged to consult their own tax advisors to determine whether their ownership of our common shares will cause them to become a 10% U.S. Shareholder and the impact of such a classification.
Passive foreign investment company rules
We believe that we will not be a PFIC for U.S. federal income tax purposes for this current taxable year and do not expect to become one in the foreseeable future. However, because PFIC status depends upon the composition of our income and assets and the market value of the assets (including, among others, less than 25% owned equity investments) from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year. Because we have valued our goodwill based on the market value of our equity, a decrease in the price of common shares may also result in us becoming a PFIC. The composition of our income and our assets will also be affected by how, and how quickly, we spend our cash. Under circumstances where the cash is not deployed for active purposes, our risk of becoming a PFIC may increase. If we were treated as a PFIC for any taxable year during which a U.S. Holder held common shares, certain adverse tax consequences could apply to the U.S. Holder.
If we were treated as a PFIC for any taxable year during which a U.S. Holder held common shares, gain recognized by a U.S. Holder on a sale or other disposition of common shares would be allocated ratably over the U.S. Holder's holding period for the common shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, and an interest charge would be imposed on the resulting tax liability. The same treatment would apply to any distribution in respect of common shares to the extent it exceeds 125% of the average of the annual distributions on common shares received by the U.S. Holder during the preceding three years or the U.S. Holder's holding period, whichever is shorter. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the common shares.
In addition, if we were treated as a PFIC in a taxable year in which we pay a dividend or in the prior taxable year, the reduced rate discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.
Information reporting and backup withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding unless the U.S. Holder is a corporation or other exempt recipient or, in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a
payment to a U.S. Holder will be allowed as a credit against the U.S. Holder's U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display
As a foreign private issuer, we are subject to periodic reporting and other informational requirements of the Exchange Act as applicable. Accordingly, we are required to file reports, including this annual report on Form 20-F, and other information with the SEC. However, we have a four-month period to file our annual report with the SEC rather than the three-month period that United States domestic issuers are afforded, and we are not required to disclose certain detailed information regarding executive compensation that is required from United States domestic issuers. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently as companies that are not foreign private issuers whose securities are registered under the Exchange Act. Also, as a foreign private issuer, we are exempt from the rules of the Exchange Act that requires the furnishing of proxy statements to shareholders, and our senior management, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5. Since many of the disclosure obligations required of us as a foreign private issuer are different than those required by other United States domestic reporting companies, our shareholders, potential shareholders and the investing public in general should not expect to receive information about us in the same amount, and at the same time, as information is received from, or provided by, other United States domestic reporting companies. We are liable for violations of the rules and regulations of the SEC which do apply to us as a foreign private issuer.
Our SEC filings are available to you on the SEC's website at http://www.sec.gov.
I. Subsidiaries Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to a variety of risks in the ordinary course of our business, including, but not limited to, credit risk, liquidity risk and interest rate risk. We regularly assess each of these risks to minimize any adverse effects on our business as a result of those factors. For discussion and sensitivity analyses of our exposure to these risks, see note 29 to our audited consolidated financial statements for the year ended December 31, 2022.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
PART II.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES.
a) Disclosure Controls and Procedures
As of December 31, 2022, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, conducted an evaluation pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, of the effectiveness of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that Company's disclosure controls and procedures were effective as of December 31, 2022.
b) Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer that: (i) pertains to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (ii) provides reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and (iii) provides reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedure may deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria established in "Internal Control — Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). As a result of this assessment, our management has determined that our internal control over financial reporting was effective as of December 31, 2022.
Our management has excluded Genexus S.A., Advanced Research & Technology, S.A. de C.V., Artech Informática do Brasil Ltda, Newtech Informática Ltda., Sysdata SPA, Nescara Ltda., KTBO S.A., KTBO Brasil Comunicacoes Digitais Ltda, KTBO Chile SpA, KTBO Colombia S.A.S., KTBO S.A. de C.V.,Contenidos Digitales KTBO, S.C., KTBO S.A.C., eWave Holdings Pty Ltd, Vertic A/S, Adbid Latinoamerica S.A.S., Adbid Latam MX S.A. de C.V., Procesalab S.A.S, and Sports Reinvention Entertainment Group, S.L. (see note 26 to our audited consolidated financial statements), from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in purchase business combinations during 2022. In aggregate, the entities incorporated as business combinations constitute 4.6% of our consolidated assets and 2.0% of consolidated revenues as of and for the year ended December 31, 2022.
c) Attestation Report of the Registered Public Accounting Firm
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Price Waterhouse & Co. S.R.L., an independent registered public accounting firm, as stated in their report which appears herein.
d) Changes in internal control over financial reporting
There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(d), under the Securities Exchange Act of 1934, as amended, that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [Reserved]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
ITEM 16B. CODE OF ETHICS.
Effective as of July 23, 2014, we adopted a code of business conduct and ethics which sets the guidelines and principles necessary for promoting and assuring good behavior within the organization. On January 26, 2022, our board of directors approved and adopted the 2022 Code of Ethics, which became effective on March 1, 2022. The new code introduces new important topics, including, among others, anti-money laundering provisions, protection of Globant's image and proper use of social media, third party's audits and government investigations and matters of integration and diversity. A copy of that code is available on our website at investors.globant.com/code-of-ethics. Any amendments to such code will be disclosed on our website.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table provides information on the aggregate fees for the services provided by our auditor, Price Waterhouse & Co. S.R.L. for the years 2022 and 2021, classified by type of service rendered for the periods indicated, in thousands of dollars:
| | | | | | | | | | | | | | |
| | | 2022 | | 2021 |
| | | | |
| | | ($ in thousands) |
Audit Fees (1) | | $ | 1,569 | | | $ | 1,519 | |
Audit Related Fees (2) | | 53 | | | 159 | |
Tax Fees (3) | | — | | | — | |
All Other Fees (4) | | — | | | — | |
| Total | | 1,622 | | | 1,678 | |
(1)"Audit Fees" includes fees for professional services rendered by the principal accountant in connection with the audit of the annual financial statements, certain procedures regarding our quarterly financial results, revisions of purchase price allocations related to acquisitions and services in connection with statutory and regulatory filings.
(2)“Audit Related Fees” includes fees for professional services rendered by the principal accountant and not included under the prior category. These services include, among others, and fees relating to the issuance of comfort letters and other procedures in connection with our offering of securities.
(3)“Tax Fees” includes fees for professional services rendered by the principal accountant for tax compliance, advice and planning.
(4)“All Other Fees” includes fees for products and services provided by the principal accountant, other than Audit Fees and Audit-Related Fees.
Audit Committee Approval Policies and Procedure
In accordance with the audit committee's charter, all fees and retention terms relating to audit and non-audit services performed by our independent auditors must be pre-approved by the audit committee. The audit committee makes annual recommendations to the general meeting of shareholders of the company regarding the appointment, replacement, base compensation, evaluation and oversight of the work of the independent auditors to be retained to audit the annual financial statements of the company and review the quarterly financial statements of the company.
The audit committee oversees the relationship with the independent auditors, including discussing with the auditors the planning and staffing of the audit and the nature and rigor of the audit process, receiving and reviewing audit reports, reviewing with the auditors any problems or difficulties the auditors may have encountered in carrying out their responsibilities and any board of directors’ letters provided by the auditors and the company’s response to such letters, and providing the auditors full access to the audit committee and the board of directors to report on all appropriate matters.
The audit committee provides oversight of the company’s auditing, accounting and financial reporting principles, policies, controls, procedures and practices, and reviews significant changes to the foregoing as suggested by the independent auditors, internal auditors or the board of directors.
The audit committee approved all of the services described above and determined that the provision of such services is compatible with maintaining the independence of Price Waterhouse & Co. S.R.L.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE.
Corporate Governance Practices
Our corporate governance practices are governed by Luxembourg law (particularly the law of August 10th, 1915 on commercial companies as amended) and our articles of association.
As a Luxembourg company listed on the NYSE, we are not required to comply with all the corporate governance listing standards of the NYSE for U.S. listed companies. However, we believe that our corporate governance practices meet, in all material respects, the corporate governance standards that are generally required by the NYSE for U.S. listed companies. Below is a summary of the significant ways that our corporate governance practices differ from the corporate governance standards required for listed U.S. companies by the NYSE (although that our corporate governance practices may differ in non-material ways from the standards required by the NYSE that are not detailed in this document).
Majority of Independent Directors
Under NYSE standards, U.S. listed companies must have a majority of independent directors. There is no legal requirement under Luxembourg law to have a majority of independent directors on the board of directors.
Non-management Directors’ Meetings
Under NYSE standards, non-management directors must meet at regularly scheduled executive meetings without management present and, if such group includes directors who are not independent, a separate independent directors meeting should be held at least once per year. Luxembourg law does not require holding such meetings. For additional information, see “Directors, Senior Management and Employees - Directors and Senior Management.”
Audit Committee
Under NYSE standards, listed U.S. companies are required to have an audit committee composed of independent directors that satisfies the requirements of Rule 10A-3 promulgated under the Exchange Act of 1934. Luxembourg law also
provides for an audit committee and related rules. Our articles of association provide that the board of directors must set up an audit committee. The board of directors has set up an Audit Committee and has appointed Messrs. Odeen, Haythornthwaite and Ms. Pinelli, with Mr. Odeen serving as the chairman of our audit committee and Ms. Pinelli serving as the audit committee financial expert as currently defined under applicable SEC rules. Each of Messrs. Odeen, Haythornthwaite and Ms. Pinelli satisfies the “independence” requirements within the meaning of Section 303A of the corporate governance rules of the NYSE as well as under Rule 10A-3 under the Exchange Act. For additional information, see “Directors, Senior Management and Employees — Board Practices”.
Under NYSE standards, all audit committee members of listed U.S. companies are required to be financially literate or must acquire such financial knowledge within a reasonable period and at least one of its members must have experience in accounting or financial administration. In addition, if a member of the audit committee is a member of the audit committee of more than three public companies simultaneously, and the listed company does not limit the number of audit committees in which its members may serve, then the board must determine whether the simultaneous service would prevent such member from effectively serving in the listed company’s audit committee in each case, and must publicly disclose its decision. Under Luxembourg law, at least one member of the audit committee must be financially literate and the committee members as a whole must have competence relevant to the sector in which the company is operating.
Standards for Evaluating Director Independence
Under NYSE standards, the board is required, on a case by case basis, to express an opinion with regard to the independence or lack of independence of each individual director. Neither Luxembourg law nor our articles of association require the board to express such an opinion.
Audit Committee Responsibilities
The NYSE requires certain matters to be set forth in the audit committee charter of U.S. listed companies. Our audit committee charter provides for many of the responsibilities that are expected from such bodies under the NYSE standard; however, the charter does not contain all such responsibilities, including provisions related to setting hiring policies for employees or former employees of independent auditors.
Corporate Governance and Nominating Committee
The NYSE requires that a listed U.S. company has a corporate governance and nominating committee of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee.
The board of directors has set up corporate governance and nominating committee and has appointed Mr. Álvarez-Demalde and Mses. Mayumi Petroni Merhy and Rottenberg, with Ms. Rottenberg serving as chairman of our corporate governance and nominating committee. Each of Mr. Álvarez-Demalde and Mses. Mayumi Petroni Merhy and Rottenberg satisfies the “independence” requirements within the meaning of Section 303A of the corporate governance rules of the NYSE. For additional information, see “Directors, Senior Management and Employees — Board Practices”.
Compensation Committee
The NYSE requires that a listed U.S. company have a compensation committee of independent directors and a committee charter specifying the purpose, duties and evaluation procedures of the committee.
The current members of our compensation committee are Messrs. Odeen, Álvarez-Demalde and Haythornthwaite, with Mr. Odeen serving as chairman. Each of Messrs. Odeen, Álvarez-Demalde and Haythornthwaite satisfies the “independence” requirements within the meaning of Section 303A of the corporate governance rules of the NYSE. For additional information, see “Directors, Senior Management and Employees—Board Practices”.
Shareholder Voting on Equity Compensation Plans
Under NYSE standards, shareholders of U.S. listed companies must be given the opportunity to vote on equity compensation plans and material revisions thereto, except for employment inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and certain specific types of plans. Neither Luxembourg corporate law nor our articles of incorporation require shareholder approval of equity based compensation plans. Luxembourg law only requires approval of the board of directors for the adoption of equity based compensation plans.
Code of Business Conduct and Ethics
Under NYSE standards, listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Effective as of July 23, 2014 we adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. On January 26, 2022, our board of directors approved and adopted the 2022 Code of Ethics, which became effective on March 1, 2022. The new code introduces new important topics, including, but not limited to, anti-money laundering provisions, protection of Globant's image and proper use of social media, third party's audits and government investigations and matters of integration and diversity. A copy of that code, as amended, is available on our website at www.globant.com.
Chief Executive Officer Certification
A chief executive officer of a U.S. company listed on NYSE must annually certify that he or she is not aware of any violation by the company of NYSE corporate governance standards. In accordance with NYSE rules applicable to foreign private issuers, our chief executive officer is not required to provide NYSE with this annual compliance certification. However, in accordance with NYSE rules applicable to all listed companies, our chief executive officer must promptly notify NYSE in writing after any of our executive officers becomes aware of any noncompliance with any applicable provision of NYSE's corporate governance standards. In addition, we must annually submit an executed written affirmation and an interim written affirmation each time a change occurs to the board or the audit committee.
ITEM 16H. MINE SAFETY DISCLOSURE.
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III.
ITEM 17. FINANCIAL STATEMENTS.
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS.
Our Consolidated Financial Statements are included at the end of this annual report.
ITEM 19. EXHIBITS.
The following exhibits are filed or incorporated by reference as part of this annual report:
| | | | | | | | |
Exhibit
No. | | Description |
| 1.1 | | |
| 2.1 | | |
| 4.1 | | |
| 4.2 | | |
| 4.3 | | |
| 4.4 | | |
| 4.5 | | |
| 4.6 | | |
| 4.7 | | |
| 4.8 | | |
| 4.9 | | |
| 4.10 | | Equityholders Additional Agreement, dated May 7, 2012, by and among Paldwick S.A., Martín Migoya, Martín Gonzalo Umaran, Néstor Augusto Nocetti, Guibert Andrés Englebienne, Riverwood Capital LLC, RW Holdings S.à.r.l., ITO Holdings S.à.r.l., Endeavor Global, Inc. and IT Outsourcing S.L.; incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form F-1 (SEC File No. 333-190841), filed with the SEC on May 28, 2014. |
| 4.11 | | Third Amended and Restated Credit Agreement, dated June 2, 2022, by and among Globant, LLC, as borrower, HSBC Bank USA, N.A., Citibank, N.A., PCN Bank, National Association (f/k/a BBVA USA), BNP Paribas, Truist Bank, US Bank National Association, Silicon Valley Bank, JPMorgan Chase Bank, N.A., and Bank of America, N.A., as lenders, and HSBC Bank USA, N.A., as administrative agent, issuing bank and swingline lender. |
| 4.12 | | |
| 4.13 | | Guaranty, dated August 3, 2017, made by Globant, S.A. (Spain) in favor of HSBC Bank USA, N.A., as administrative agent, Guaranty, dated August 3, 2017, made by Globant, S.A. (Spain) in favor of HSBC Bank USA, N.A., as administrative agent, incorporated by reference to Exhibit 4.9 to the Registrant's Annual Report on Form 20-F (SEC File No. 001-36535), filed with the SEC on April 13, 2018. by reference to Exhibit 4.9 to the Registrant's Annual Report on Form 20-F (SEC File No. 001-36535), filed with the SEC on April 13, 2018. |
| | | | | | | | |
| 4.14 | | Security Agreement, dated August 3, 2017, by and between Globant, LLC, as grantor, and HSBC Bank USA, N.A., as administrative agent, incorporated by reference to Exhibit 4.10 to the Registrant's Annual Report on Form 20-F (SEC File No. 001-36535), filed with the SEC on April 13, 2018. |
| 4.15* | | |
| 4.16* | | |
| 4.17 | | |
| 4.18 | | |
| 8.1 | | |
| 12.1 | | |
| 12.2 | | |
| 13.1 | | |
| 13.2 | | |
| 15.1 | | |
| 101.INS | | XBRL Instance Document |
| 101.SCH | | XBRL Taxonomy Extension Schema Document |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
* Portions of this document (indicated by “[***]”) have been omitted because they are both not material and are the type that Globant S.A. treats as private and confidential.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: February 28, 2023
| | | | | | | | |
| | GLOBANT S.A. |
| | By: | /s/ Juan Ignacio Urthiague |
| | |
| | Name: | Juan Ignacio Urthiague |
| | Title: | Chief Financial Officer |
GLOBANT S.A.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
| Consolidated Financial Statements as of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022 | |
| |
| |
| |
| |
| |
| |
| |
| | | | | | | | |
| | Globant S.A. |
| | |
| | Consolidated Financial Statements as of December 31, 2022 and December 31, 2021 and for each of the three years in the period ended December 31, 2022 |
| | |
Page 1 of 3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Globant S.A.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Globant S.A. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Genexus S.A., Advanced Research & Technology, S.A. de C.V., Artech Informática do Brasil Ltda, Newtech Informática Ltda., Sysdata SPA, Nescara Ltda., KTBO S.A., KTBO Brasil Comunicacoes Digitais Ltda,
KTBO Chile SpA, KTBO Colombia S.A.S., KTBO S.A. de C.V.,Contenidos Digitales KTBO, S.C., KTBO S.A.C., eWave Holdings Pty Ltd, Vertic A/S, Adbid Latinoamerica S.A.S., Adbid Latam MX S.A. de C.V., Procesalab S.A.S, and Sports Reinvention Entertainment Group, S.L. from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in purchase business combinations during 2022. We have also excluded Genexus S.A., Advanced Research & Technology, S.A. de C.V., Artech Informática do Brasil Ltda, Newtech Informática Ltda., Sysdata SPA, Nescara Ltda., KTBO S.A., KTBO Brasil Comunicacoes Digitais Ltda, KTBO Chile SpA, KTBO Colombia S.A.S., KTBO S.A. de C.V.,Contenidos Digitales KTBO, S.C., KTBO S.A.C., eWave Holdings Pty Ltd, Vertic A/S, Adbid Latinoamerica S.A.S., Adbid Latam MX S.A. de C.V., Procesalab S.A.S, and Sports Reinvention Entertainment Group, S.L. from our audit of internal control over financial reporting. Genexus S.A., Advanced Research & Technology, S.A. de C.V., Artech Informática do Brasil Ltda, Newtech Informática Ltda., Sysdata SPA, Nescara Ltda., KTBO S.A., KTBO Brasil Comunicacoes Digitais Ltda, KTBO Chile SpA, KTBO Colombia S.A.S., KTBO S.A. de C.V.,Contenidos Digitales KTBO, S.C., KTBO S.A.C., eWave Holdings Pty Ltd, Vertic A/S, Adbid Latinoamerica S.A.S., Adbid Latam MX S.A. de C.V., Procesalab S.A.S, and Sports Reinvention Entertainment Group, S.L. are consolidated subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 4.6% and 2.0% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Business Combinations – Valuation of Identifiable Intangible Assets
As described in Notes 4 and 26 to the consolidated financial statements, the Company completed eight (8) business combinations (the “acquisitions”) for aggregate consideration of $272 million during the year ended December 31, 2022, which resulted in the recognition of $82 million of identifiable intangible assets. Management applied significant judgment in estimating the fair value of the identifiable intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, customer attrition rates and discount rates.
The principal considerations for our determination that performing procedures relating to business combinations – valuation of identifiable intangible assets is a critical audit matter are (i) a high degree of auditor judgment and subjectivity in performing procedures relating to the estimated fair value of identifiable intangible assets acquired due to the significant judgment by management when developing the estimate; (ii) the significant audit effort in evaluating the significant assumptions related to the revenue growth rates, customer attrition rates and discount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of identifiable intangible assets and controls over the development of significant assumptions related to revenue growth rates, customer attrition rates and discount rates. These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair value of identifiable intangible assets. Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of significant assumptions related to revenue growth rates, customer attrition rates and discount rates used to estimate the fair value of identifiable intangible assets. Evaluating the reasonableness of the revenue growth rates and customer attrition rates involved considering the past performance of the acquired businesses, as well as available economic and industry data. The discount rates were evaluated by considering the cost of capital of comparable businesses, other industry factors and the implied rate of return on the overall transactions. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation methods.
/s/ PRICE WATERHOUSE & CO. S.R.L.
/s/ Reinaldo Sergio Cravero (Partner)
Autonomous City of Buenos Aires, Argentina
February 28, 2023
We have served as the Company’s auditor since 2020.
GLOBANT S.A.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | For the year ended December 31, |
| | | Notes | | 2022 | | 2021 | | 2020 |
| | | | | | | | |
| Revenues | | 5 | | 1,780,243 | | | 1,297,078 | | | 814,139 | |
| Cost of revenues | | 6.1 | | (1,110,848) | | | (802,090) | | | (509,812) | |
| Gross profit | | | | 669,395 | | | 494,988 | | | 304,327 | |
| | | | | | | | |
| Selling, general and administrative expenses | | 6.2 | | (456,324) | | | (343,004) | | | (217,222) | |
| Net impairment losses on financial assets | | | | (6,364) | | | (7,551) | | | (3,080) | |
| Other operating income and expenses, net | | | | — | | | — | | | (83) | |
| Profit from operations | | | | 206,707 | | | 144,433 | | | 83,942 | |
| | | | | | | | |
| Finance income | | 7 | | 2,832 | | | 652 | | | 1,920 | |
| Finance expense | | 7 | | (16,552) | | | (12,708) | | | (10,430) | |
| Other financial results, net | | 7 | | 173 | | | (3,923) | | | 3,601 | |
| Financial results, net | | | | (13,547) | | | (15,979) | | | (4,909) | |
| | | | | | | | |
| Share of results of investment in associates | | 12.2 | | 119 | | | (233) | | | (622) | |
| | | | | | | | |
| Other income and expenses, net | | 8 | | (395) | | | (3,369) | | | (1,887) | |
| Profit before income tax | | | | 192,884 | | | 124,852 | | | 76,524 | |
| | | | | | | | |
| Income tax | | 9.1 | | (43,405) | | | (28,497) | | | (22,307) | |
| Net income for the year | | | | 149,479 | | | 96,355 | | | 54,217 | |
| | | | | | | | |
| Other comprehensive income (loss) net of income tax effects | | | | | | | | |
| Items that may be reclassified subsequently to profit and loss: | | | | | | | | |
| - Exchange differences on translating foreign operations | | | | (21,770) | | | (3,733) | | | (398) | |
| - Net change in fair value on financial assets measured at FVOCI | | | | (107) | | | 1 | | | — | |
| - Gains and losses on cash flow hedges | | | | (3,171) | | | 11 | | | 281 | |
| Total comprehensive income for the year | | | | 124,431 | | | 92,634 | | | 54,100 | |
| | | | | | | | |
| Net income attributable to: | | | | | | | | |
| Owners of the Company | | | | 148,891 | | | 96,065 | | | 54,217 | |
| Non-controlling interest | | | | 588 | | | 290 | | | — | |
| Net income for the year | | | | 149,479 | | | 96,355 | | | 54,217 | |
| | | | | | | | |
| Total comprehensive income for the year attributable to: | | | | | | | | |
| Owners of the Company | | | | 123,044 | | | 92,344 | | | 54,100 | |
| Non-controlling interest | | | | 1,387 | | | 290 | | | — | |
| Total comprehensive income for the year | | | | 124,431 | | | 92,634 | | | 54,100 | |
GLOBANT S.A.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | For the year ended December 31, |
| | | Notes | | 2022 | | 2021 | | 2020 |
| | | | | | | | |
| Earnings per share | | | | | | | | |
| Basic | | 10 | | 3.55 | | | 2.35 | | | 1.41 | |
| Diluted | | 10 | | 3.47 | | | 2.28 | | | 1.37 | |
| Weighted average of outstanding shares (in thousands) | | | | | | | | |
| Basic | | 10 | | 41,929 | | | 40,940 | | | 38,515 | |
| Diluted | | 10 | | 42,855 | | | 42,076 | | | 39,717 | |
The accompanying notes 1 to 35 are an integral part of these consolidated financial statements
GLOBANT S.A.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2022 AND 2021
(in thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | |
| | | | | As of December 31, |
| | | Notes | | 2022 | | 2021 |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | 11 | | 292,457 | | | 427,804 | |
| Investments | | 12.1 | | 48,408 | | | 32,581 | |
| Trade receivables | | 13 | | 425,422 | | | 300,109 | |
| Other assets | | 17 | | 15,197 | | | 7,855 | |
| Other receivables | | 14 | | 70,212 | | | 49,194 | |
| Other financial assets | | 18 | | 6,529 | | | 2,057 | |
| Total current assets | | | | 858,225 | | | 819,600 | |
| | | | | | |
| Non-current assets | | | | | | |
| Investments | | 12.1 | | 1,513 | | | 1,027 | |
| Other assets | | 17 | | 10,657 | | | 8,583 | |
| Other receivables | | 14 | | 16,316 | | | 24,263 | |
| Deferred tax assets | | 9.2 | | 46,574 | | | 58,404 | |
| Investment in associates | | 12.2 | | 1,337 | | | — | |
| Other financial assets | | 18 | | 34,978 | | | 25,233 | |
| Property and equipment | | 15 | | 161,733 | | | 133,373 | |
| Intangible assets | | 16 | | 181,612 | | | 102,016 | |
| Right-of-use asset | | 28 | | 147,311 | | | 144,581 | |
| Goodwill | | 26.4 | | 739,204 | | | 567,451 | |
| Total non-current assets | | | | 1,341,235 | | | 1,064,931 | |
| TOTAL ASSETS | | | | 2,199,460 | | | 1,884,531 | |
| | | | | | |
| LIABILITIES | | | | | | |
| Current liabilities | | | | | | |
| Trade payables | | 19 | | 88,648 | | | 63,210 | |
| Payroll and social security taxes payable | | 20 | | 203,819 | | | 184,464 | |
| Borrowings | | 21 | | 2,838 | | | 10,305 | |
| Other financial liabilities | | 18 | | 59,316 | | | 63,059 | |
| Lease liabilities | | 28 | | 37,681 | | | 25,917 | |
| Tax liabilities | | 22 | | 23,454 | | | 18,071 | |
| Income tax payable | | | | 11,276 | | | 20,318 | |
| Other liabilities | | | | 808 | | | 955 | |
| Total current liabilities | | | | 427,840 | | | 386,299 | |
| | | | | | |
| Non-current liabilities | | | | | | |
| Trade payables | | 19 | | 5,445 | | | 6,387 | |
| Borrowings | | 21 | | 861 | | | 1,935 | |
| Other financial liabilities | | 18 | | 82,222 | | | 61,226 | |
| Lease liabilities | | 28 | | 97,457 | | | 108,568 | |
| Deferred tax liabilities | | 9.2 | | 11,291 | | | 1,289 | |
| Income tax payable | | | | — | | | 877 | |
| Payroll and social security taxes payable | | 20 | | 4,316 | | | — | |
| Contingent liabilities | | 23 | | 13,615 | | | 9,637 | |
| Total non-current liabilities | | | | 215,207 | | | 189,919 | |
| TOTAL LIABILITIES | | | | 643,047 | | | 576,218 | |
| | | | | | |
| Capital and reserves | | | | | | |
| Issued capital | | | | 50,724 | | | 50,080 | |
| Additional paid-in capital | | | | 950,520 | | | 872,030 | |
| Other reserves | | | | (32,242) | | | (6,395) | |
| Retained earnings | | | | 538,551 | | | 389,660 | |
| Total equity attributable to owners of the Company | | | | 1,507,553 | | | 1,305,375 | |
| Non-controlling interests | | | | 48,860 | | | 2,938 | |
| Total equity | | | | 1,556,413 | | | 1,308,313 | |
| TOTAL EQUITY AND LIABILITIES | | | | 2,199,460 | | | 1,884,531 | |
The accompanying notes 1 to 35 are an integral part of these consolidated financial statements
GLOBANT S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars except number of shares issued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of Shares Issued (1) | | Issued
capital | | Additional
paid-in
capital | | Retained
earnings | | Foreign
currency
translation reserve | | Investment
revaluation
reserve | | Attributable
to owners of
the Parent | | Total |
| Balance at January 1, 2020 | | 36,963,619 | | | 44,356 | | | 157,537 | | | 239,378 | | | (2,497) | | | (60) | | | 438,714 | | | 438,714 | |
| Issuance of shares under share-based compensation plan (see note 30.1) | | 394,319 | | | 473 | | | 18,357 | | | — | | | — | | | — | | | 18,830 | | | 18,830 | |
| Issuance of shares under subscription agreement (see note 30.1) | | 226,850 | | | 272 | | | 46,026 | | | — | | | — | | | — | | | 46,298 | | | 46,298 | |
| Common shares issued pursuant to the June 2020 public offering (see note 30.2) | | 2,300,000 | | | 2,760 | | | 298,120 | | | — | | | — | | | — | | | 300,880 | | | 300,880 | |
| Share-based compensation plan (see note 25) | | — | | | — | | | 21,117 | | | — | | | — | | | — | | | 21,117 | | | 21,117 | |
| Other comprehensive income (loss) for the year | | — | | | — | | | — | | | — | | | (398) | | | 281 | | | (117) | | | (117) | |
| Net income for the year | | — | | | — | | | — | | | 54,217 | | | — | | | — | | | 54,217 | | | 54,217 | |
| Balance at December 31, 2020 | | 39,884,788 | | | 47,861 | | | 541,157 | | | 293,595 | | | (2,895) | | | 221 | | | 879,939 | | | 879,939 | |
GLOBANT S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars except number of shares issued)
GLOBANT S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars except number of shares issued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of Shares Issued (1) | | Issued
capital | | Additional
paid-in
capital | | Retained
earnings | | Foreign
currency
translation reserve | | Investment
revaluation
reserve and cash flow hedge reserve | | Attributable to owners of the Parent | | Non-controlling interests | | Total |
| Issuance of shares under share-based compensation plan (see note 30.1) | | 449,078 | | | 539 | | | 27,065 | | | — | | | — | | | — | | | 27,604 | | | — | | | 27,604 | |
| Issuance of shares under ESPP plan (note 17.3) | | 7,453 | | | 9 | | | 2,331 | | | — | | | — | | | — | | | 2,340 | | | — | | | 2,340 | |
| Issuance of shares under subscription agreement (see note 30.1) | | 38,879 | | | 47 | | | 9,074 | | | — | | | — | | | — | | | 9,121 | | | — | | | 9,121 | |
| Equity settled deferred consideration ( note 26) | | — | | | — | | | 2,152 | | | — | | | — | | | — | | | 2,152 | | | — | | | 2,152 | |
| Common shares issued pursuant to the May 2021 public offering (see note 30.2) | | 1,380,000 | | | 1,656 | | | 284,551 | | | — | | | — | | | — | | | 286,207 | | | — | | | 286,207 | |
| Share-based compensation plan (see note 25) | | — | | | — | | | 29,209 | | | — | | | — | | | — | | | 29,209 | | | — | | | 29,209 | |
| Repurchase of shares (note 25.4) | | (27,000) | | | (32) | | | (7,224) | | | — | | | — | | | — | | | (7,256) | | | — | | | (7,256) | |
| Non-controlling interest arising on a business combination (note 26) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,648 | | | 2,648 | |
| Put option over non-controlling interest (note 3.13.3) | | — | | | — | | | (16,285) | | | — | | | — | | | — | | | (16,285) | | | — | | | (16,285) | |
| Other comprehensive income (loss) for the year | | — | | | — | | | — | | | — | | | (3,733) | | | 12 | | | (3,721) | | | — | | | (3,721) | |
| Net income for the year | | — | | | — | | | — | | | 96,065 | | | — | | | — | | | 96,065 | | | 290 | | | 96,355 | |
| Balance at December 31, 2021 | | 41,733,198 | | | 50,080 | | | 872,030 | | | 389,660 | | | (6,628) | | | 233 | | | 1,305,375 | | | 2,938 | | | 1,308,313 | |
GLOBANT S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of
Shares
Issued (1) | | Issued
capital | | Additional
paid-in
capital | | Retained
earnings | | Foreign
currency
translation
reserve | | Investment
revaluation
reserve and cash flow hedge reserve | | Attributable to owners of the Parent | | Non-controlling interest | | Total |
| Balance at January 1, 2022 | | 41,733,198 | | | 50,080 | | | 872,030 | | | 389,660 | | | (6,628) | | | 233 | | | 1,305,375 | | | 2,938 | | | 1,308,313 | |
| Issuance of shares under share-based compensation plan (see note 30.1) | | 360,680 | | | 433 | | | 35,641 | | | — | | | — | | | — | | | 36,074 | | | — | | | 36,074 | |
| Issuance of shares under ESPP plan (note 25.4) | | 39,136 | | | 47 | | | 8,934 | | | — | | | — | | | — | | | 8,981 | | | — | | | 8,981 | |
| Issuance of shares under subscription agreement (see note 30.1) | | 183,145 | | | 220 | | | 35,636 | | | — | | | — | | | — | | | 35,856 | | | — | | | 35,856 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Share-based compensation plan (see note 25) | | — | | | — | | | 6,605 | | | — | | | — | | | — | | | 6,605 | | | — | | | 6,605 | |
| Repurchase of shares (note 25.4) | | (46,500) | | | (56) | | | (9,260) | | | — | | | — | | | — | | | (9,316) | | | — | | | (9,316) | |
| | | | | | | | | | | | | | | | | | |
| Put option over non-controlling interest (note 3.13.3) | | — | | | — | | | 934 | | | — | | | — | | | — | | | 934 | | | (934) | | | — | |
| Non-controlling interest arising on a business combination (note 26) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 45,469 | | | 45,469 | |
| Other comprehensive income (loss) for the year | | — | | | — | | | — | | | — | | | (21,770) | | | (3,278) | | | (25,847) | | | 799 | | | (25,048) | |
| Net income for the year | | — | | | — | | | — | | | 148,891 | | | — | | | — | | | 148,891 | | | 588 | | | 149,479 | |
| Balance at December 31, 2022 | | 42,269,659 | | | 50,724 | | | 950,520 | | | 538,551 | | | (28,398) | | | (3,045) | | | 1,507,553 | | | 48,860 | | | 1,556,413 | |
(1) All shares are issued, authorized and fully paid. Each share is issued at a nominal value of $1.20 per share and entitles to one vote.
The accompanying notes 1 to 35 are an integral part of these consolidated financial statements
GLOBANT S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
(in thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Cash flows from operating activities | | | | | | |
| Net income for the year | | 149,479 | | | 96,355 | | | 54,217 | |
| Adjustments to reconcile net income for the year to net cash flows from operating activities: | | | | | | |
| Share-based compensation expense | | 60,251 | | | 37,031 | | | 22,423 | |
| Current income tax (note 9.1) | | 44,756 | | | 53,319 | | | 27,834 | |
| Deferred income tax (note 9.1) | | (1,351) | | | (24,822) | | | (5,527) | |
| Depreciation of property and equipment (note 15) | | 25,324 | | | 19,799 | | | 16,037 | |
| Depreciation of right-of-use assets (note 28) | | 35,244 | | | 23,833 | | | 17,638 | |
| Amortization of intangible assets (note 16) | | 47,365 | | | 36,654 | | | 14,805 | |
| Impairment of intangible assets (note 16) | | 1,017 | | | 80 | | | 83 | |
| Leases discount | | — | | | — | | | (512) | |
| Net impairment losses on financial assets | | 6,364 | | | 7,551 | | | 3,080 | |
| Remeasurement at fair value of investment in associates | | — | | | (1,538) | | | — | |
| Gain from sale of financial instrument (note 3.12.9) | | — | | | — | | | (800) | |
| Allowance for claims and lawsuits (note 23) | | 1,871 | | | 5,769 | | | 1,598 | |
| (Gain) Loss on remeasurement of contingent consideration and call/put option over non-controlling interest (note 29.9.1) | | (1,147) | | | 4,694 | | | 2,431 | |
| Gain on transactions with bonds (note 3.18) | | (13,883) | | | (708) | | | (9,580) | |
| Accrued interest | | 11,203 | | | 9,828 | | | 6,955 | |
| Interest received | | 2,686 | | | 585 | | | 1,872 | |
| Net loss arising on financial assets measured at FVPL | | 7,537 | | | 8,537 | | | 3,423 | |
| Net (gain) loss arising on financial assets measured at FVOCI | | (165) | | | 130 | | | 287 | |
| Net gain arising on financial assets measured at amortized cost (note 7) | | — | | | — | | | (395) | |
| Exchange differences | | 4,648 | | | (5,708) | | | 3,631 | |
| Share of results of investment in associates | | (119) | | | 233 | | | 622 | |
| Payments related to forward and future contracts | | (6,242) | | | (1,692) | | | (3,104) | |
| Proceeds related to forward and future contracts | | 3,918 | | | 1,368 | | | 3,039 | |
| Payments of remeasured earn-outs related to acquisition of business | | (4,467) | | | — | | | (5,218) | |
| Gain arising from lease disposals | | — | | | (643) | | | (180) | |
| Loss arising from property and equipment and intangibles derecognition | | 1,632 | | | — | | | — | |
| Changes in working capital: | | | | | | |
| Net increase in trade receivables | | (104,315) | | | (93,019) | | | (33,926) | |
| Net increase in other receivables | | (21,021) | | | (21,149) | | | (10,887) | |
| Net (increase) decrease in other assets | | (9,416) | | | (1,338) | | | 6,135 | |
| Net (decrease) increase in trade payables | | (2,651) | | | 10,870 | | | (2,770) | |
| Net increase in payroll and social security taxes payable | | 13,398 | | | 66,670 | | | 11,488 | |
| Net increase in tax liabilities | | 264 | | | 4,595 | | | 363 | |
| Utilization of provision for contingent liabilities (note 23) | | (1,750) | | | (8,113) | | | (615) | |
| Income tax paid | | (52,906) | | | (50,197) | | | (24,575) | |
| | | | | | |
| Net cash provided by operating activities | | 197,524 | | | 178,974 | | | 99,872 | |
| | | | | | |
| Cash flows from investing activities | | | | | | |
Acquisition of property and equipment (2) | | (47,063) | | | (42,766) | | | (29,294) | |
| Proceeds from disposals of property and equipment and intangibles | | — | | | 1,249 | | | 951 | |
Acquisition of intangible assets (3) | | (48,367) | | | (34,868) | | | (24,168) | |
| Acquisition of investment in sovereign bonds | | (24,883) | | | (5,990) | | | (16,700) | |
| Proceeds from investment in sovereign bonds | | 38,766 | | | 6,698 | | | 26,280 | |
| Payments related to forward and future contracts | | (25,561) | | | (13,534) | | | (7,673) | |
| Proceeds related to forward and future contracts | | 12,511 | | | 3,923 | | | 4,839 | |
| Acquisition of investments measured at FVPL | | (414,950) | | | (238,991) | | | (436,660) | |
| Proceeds from investments measured at FVPL | | 393,059 | | | 230,236 | | | 443,005 | |
| Acquisition of investments measured at FVOCI | | (264,992) | | | (49,965) | | | (2,994) | |
| Proceeds from investments measured at FVOCI | | 269,102 | | | 44,976 | | | 3,316 | |
| Proceeds from investments measured at amortized cost | | — | | | — | | | 625 | |
| | | | | | |
| | | | | | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | |
| | | | | | |
| | For the year ended December 31, |
| | 2022 | | 2021 | | 2020 |
| | | | | | |
| Acquisition of investments measured at amortized cost | | — | | | — | | | (615) | |
| | | | | | |
| Payments to acquire equity instruments | | (5,148) | | | (5,762) | | | (9,167) | |
| Payments to acquire investments in associates | | (500) | | | (1,389) | | | — | |
| Acquisition of investment in convertible notes (note 29) | | (2,667) | | | (2,772) | | | (701) | |
Acquisition of business, net of cash (note 26) (1) | | (126,370) | | | (144,503) | | | (69,060) | |
| Payments of earn-outs related to acquisition of business | | (22,241) | | | (19,422) | | | (5,999) | |
| Net cash used in investing activities | | (269,304) | | | (272,880) | | | (124,015) | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | |
| Proceeds from the issuance of common shares pursuant to May 2021 and June 2020 Public Offering, net of costs | | — | | | 286,207 | | | 300,880 | |
| Proceeds from the issuance of shares under the share-based compensation plan (note 30.1) | | 3,508 | | | 6,612 | | | 5,825 | |
| Proceeds from the issuance of shares under the ESPP plan | | 8,981 | | | 2,340 | | | — | |
| Repurchase of shares | | (9,316) | | | (7,256) | | | — | |
| Payment of call/put-option over non-controlling interest | | (5,166) | | | — | | | — | |
| Cash paid for the settlements of the derivative financial instruments used to hedge interest rate risk | | — | | | — | | | (127) | |
| Proceeds from subscription agreements (note 30.1) | | — | | | — | | | 1,203 | |
| Proceeds from borrowings (note 21) | | — | | | 13,500 | | | 155,108 | |
| Repayment of borrowings (note 21) | | (8,269) | | | (29,384) | | | (194,332) | |
| Payments of principal portion of lease liabilities (note 28) | | (30,564) | | | (21,786) | | | (23,237) | |
| Payments of lease liabilities interest (note 28) | | (6,822) | | | (5,415) | | | (1,904) | |
| Interest paid (note 21) | | (2,491) | | | (832) | | | (1,870) | |
| Payments of installments related to acquisition of business | | (15,541) | | | — | | | — | |
| Net cash (used in) provided by financing activities | | (65,680) | | | 243,986 | | | 241,546 | |
| | | | | | |
| (Decrease) increase in cash and cash equivalents | | (137,460) | | | 150,080 | | | 217,403 | |
| | | | | | |
| Cash and cash equivalents at beginning of the year | | 427,804 | | | 278,939 | | | 62,721 | |
| Effect of exchange rate changes on cash and cash equivalents | | 2,113 | | | (1,215) | | | (1,185) | |
| Cash and cash equivalents at end of the year | | 292,457 | | | 427,804 | | | 278,939 | |
(1) Cash paid for assets acquired and liabilities assumed in the acquisition of subsidiaries net of cash acquired (note 26):
| | | | | | | | | | | | | | | | | | | | |
| Supplemental information | | | | | | |
| Cash paid | | 172,445 | | | 161,107 | | | 84,643 | |
| Less: cash and cash equivalents acquired | | (46,075) | | | (16,604) | | | (15,583) | |
| Total consideration paid net of cash and cash equivalents acquired | | 126,370 | | | 144,503 | | | 69,060 | |
As of December 31, 2022, the Company issued 135,096 common shares for a total amount of 25,531, according to the subscription agreement included in the stock purchase agreement, these were non-cash transactions. As of December 31, 2021, the Company issued 27,962, common shares for a total amount of 6,621, according to the subscription agreement included in the stock purchase.
(2)In 2022, 2021 and 2020, there were 16,225, 10,129 and 1,515 of acquisition of property and equipment financed with trade payables, respectively. In 2022, 2021 and 2020, the Company paid 10,129, 1,515 and 2,179 related to property and equipment acquired in 2021, 2020 and 2019, respectively.
(3)In 2022, 2021 and 2020 there were 1,984, 3,662 and 285 of acquisition of intangibles financed with trade payables, respectively. In 2022, and 2021, the Company paid 3,662 and 285 related to intangibles acquired in 2021 and 2020, respectively, in 2019 there were no acquisition of intangibles financed with trade payables.
The accompanying notes 1 to 35 are an integral part of these consolidated financial statements
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION
Globant S.A. is a digitally native company organized in the Grand Duchy of Luxembourg, primarily engaged in helping organizations to reinvent themselves and unleash their potential (hereinafter the “Company” or “Globant” or “Globant Group”). Globant is the place where innovation, design and engineering meet scale.
The Company's principal operating subsidiaries and countries of incorporation as of December 31, 2022 were the following:
| | | | | |
| Country | Company |
| Argentina | Sistemas Globales S.A. |
| Argentina | Decision Support S.A. |
| Argentina | IAFH Global S.A. |
| Brazil | Globant Brasil Consultoria LTDA |
| Chile | Sistemas Globales Chile Asesorías Limitada |
| Colombia | Sistemas Colombia S.A.S. |
| India | Globant India Private Limited |
| Mexico | IAFH Globant IT Mexico S. de R.L. de C.V. |
| Peru | Globant Peru S.A.C |
| Spain | Software Product Creation, S.L. |
| United Kingdom | Globant UK Limited |
| United States of America | Globant LLC |
| United States of America | Grupo Assa Corp |
| United States of America | Globant IT Services |
| Uruguay | Sistemas Globales Uruguay S.A. |
The Company also has centers of software engineering talent and educational excellence, primarily across Latin America.
Most of the revenues are generated through subsidiaries located in the U.S. The Company's workforce is mainly located in Latin America and to a lesser extent in India, Europe and the U.S.
The Company's registered office address is 37A Avenue J.F. Kennedy L-1855, Luxembourg.
NOTE 2 – BASIS OF PREPARATION OF THESE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements are presented in thousands of United States dollars ("U.S. dollars") and have been prepared under the historical cost convention except as disclosed in the accounting policies below.
2.1 – Application of new and revised International Financial Reporting Standards
•Adoption of new and revised standards
The Company has adopted all of the new and revised standards and interpretations issued by the IASB that are relevant to its operations and that are mandatorily effective at December 31, 2022. The impact of the new and revised standards and interpretations mentioned on these consolidated financial statements is described as follows.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company has adopted the following standards and interpretation that became applicable for annual periods commencing on or after January 1, 2022:
| | | | | |
| Amendments to IFRS 3 | Reference to the Conceptual Framework |
| Amendments to IAS 16 | Property, Plant and Equipment — Proceeds before Intended Use |
| Amendments to IAS 37 | Onerous Contracts — Cost of Fulfilling a Contract |
| Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41 | Annual Improvements to IFRS Standards 2018-2020 |
Those amendments did not have any material impact on the Company's accounting policies and did not require retrospective adjustments.
•New accounting pronouncements
The Company has not applied the following new and revised IFRSs that have been issued but are not yet mandatorily effective:
| | | | | |
| Amendments to IFRS 16 | Lease Liability in a Sale and Leaseback 1 |
| Amendments to IAS 1 | Non-current Liabilities with Covenants 1 |
1 Effective for annual reporting periods beginning on or after January 1, 2024. Earlier application is permitted.
• On September 22, 2022, IASB issued 'Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)' specifying the requirements that a seller-lessee uses in measuring the lease liability arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any amount of the gain or loss that relates to the right of use it retains.
The management of the Company does not anticipate that the application of this amendment will have a material impact on the Company's consolidated financial statements. This amendment is effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The Company has not opted for early application.
• On October 31, 2022, IASB issued 'Non-current Liabilities with Covenants (Amendments to IAS 1)' to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability.
The management of the Company does not anticipate that the application of this amendment will have a material impact on the Company's consolidated financial statements. This amendment is effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The Company has not opted for early application.
The following standards and interpretation will become applicable for annual periods commencing on or after January 1, 2023:
| | | | | |
| Amendments to IAS 8 | Definition of Accounting Estimates |
| Amendments to IAS 1 and IFRS Practice Statement 2 | Disclosure of Accounting Policies |
| Amendments to IAS 12 | Deferred Tax related to Assets and Liabilities arising from a Single Transaction |
• On February 12, 2021, IASB issued 'Definition of Accounting Estimates (Amendments to IAS 8)' providing a new definition of accounting estimates to help entities to distinguish between accounting policies and accounting estimates.
The management of the Company does not anticipate that the application of this amendment will have a material impact on the Company's consolidated financial statements. This amendment is effective for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The Company has not opted for early application.
• On February 12, 2021, the IASB issued 'Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)' to help preparers in deciding which accounting policies to disclose in their financial statements.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The management of the Company does not anticipate that the application of this amendment will have a material impact on the Company's consolidated financial statements. This amendment is effective for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The Company has not opted for early application.
• On May 7, 2021, the International Accounting Standards Board (the “IASB”) issued 'Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)' clarifying that the initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition.
The management of the Company does not anticipate that the application of this amendment will have a material impact on the Company's consolidated financial statements. This amendment is effective for annual periods beginning on or after January 1, 2023. Earlier application is permitted. The Company has not opted for early application.
2.2 – Basis of consolidation
These consolidated financial statements include the consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries. Control is achieved where the company has the power over the investee; exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the returns. All intercompany transactions and balances between the Company and its subsidiaries have been eliminated in the consolidation process.
Non-controlling interest in the equity of consolidated subsidiaries is identified separately. Non-controlling interest consists of the amount of that interest at the date of the original business combination and the non-controlling share of changes in equity since the date of the consolidation.
Acquired companies are accounted for under the acquisition method whereby they are included in the consolidated financial statements from their acquisition date.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 – Acquisitions
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred to the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related charges are recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:
•deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and
•liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquired business, and the fair value of the acquirer's previously held equity interest in the acquired business (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquired business and the fair value of the acquirer's previously held equity interest in the acquired business (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the acquired business identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 3 and IFRS 13, as appropriate, with the corresponding gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Company's previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
Arrangements that include remuneration of former owners of the acquiree for future services are excluded of the acquisitions and will be recognized as expense during the required service period.
3.2 – Goodwill
Goodwill arising in a business combination is carried at cost as established at the acquisition date of the business less accumulated impairment losses, if any. For the purpose of impairment testing, goodwill is allocated to a unique cash generating unit (CGU).
Goodwill is not amortized and is reviewed for impairment at least annually or more frequently when there is an indication that the business may be impaired. If the recoverable amount of the business is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the business and then to the other assets of the business pro-rata on the basis of the carrying amount of each asset in the business. Any impairment loss for goodwill is recognized directly in profit or loss in the consolidated statement of comprehensive income. An impairment loss recognized for goodwill is not reversed in a subsequent period.
The Company has not recognized any impairment loss in the years ended December 31, 2022, 2021 and 2020.
3.3 – Revenue recognition
The Company generates revenue primarily from the provision of software development, testing, infrastructure management, application maintenance, outsourcing services, consultancy and Services over Platforms (SoP). SoP is a new concept for the services industry that aims to deliver digital journeys in more rapid manner providing specific platforms as a starting point and then customizing them to the specific need of the customers. Revenue is measured at the fair value of the consideration received or receivable.
The Company’s services are performed under both time-and-material and fixed-price contracts. For revenues generated under time-and-material contracts, revenues are recognized as a single performance obligation satisfied over time, using an input method based on hours incurred. The majority of such revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly to the client.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company recognizes revenues from fixed-price contracts applying the input or output methods depending on the nature of the project and the agreement with the customer, recognizing revenue on the basis of the Company’s efforts to the satisfaction of the performance obligation relative to the total expected inputs to the satisfaction of the performance obligation, or recognizing revenue on the basis of direct measurements of the value to the customer of the services transferred to date relative to the remaining services promised under the contract, respectively. Each method is applied according to the characteristics of each contract and client. The inputs and outputs are selected based on how faithfully they depict the Company's performance towards complete satisfaction of the performance obligation.
These methods are followed where reasonably dependable estimates of revenues and costs can be made. Fixed-price projects generally correspond to short-term contracts. Some fixed-price contracts are recurring contracts that establish a fixed amount per month and do not require the Company to apply significant judgment in accounting for those types of contracts. In consequence, the use of estimates is only applicable for those contracts that are on-going at the year end and that are not recurring.
Reviews to these estimates may result in increases or decreases to revenues and income and are reflected in the consolidated financial statements in the periods in which they are first identified. If the estimates indicate that a contract loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated costs of the contract exceed the estimated total revenues that will be generated by the contract and are included in cost of revenues in the consolidated statement of comprehensive income. Contract losses for the periods presented in these consolidated financial statements were immaterial.
The Company provides hosted access to software applications for a subscription-based fee. The revenue from these subscriptions contracts is recognized at a point in time, given that the performance obligation is satisfied when the contract is signed by the customer and the Company. In some cases, as subscriptions resales, the Company acts as an agent because the performance obligation is to arrange for the service to be provided to the customer by another party (the owner of the software applications). Consequently, the revenue is measured as the amount of the commission, which is the net amount of consideration that the Company retains after paying the other party the consideration received in exchange for the services to be provided by that party.
3.4 – Leases
The Company recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (leases with a lease term of 12 months or less) and leases of low value assets (assets with a value of 5 or less when new). For these leases, the Company recognizes the lease payments as an operating expense on a straight line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
•fixed payments, less any lease incentives receivable;
•variable lease payments that are based on an index or a rate;
•payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right–of–use asset) whenever:
1.the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
2.the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
3.a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The Company made adjustments related to leases that are subject to changes in the consumer price index. As of December 31, 2022 and 2021, such adjustments amounted to 1,762 and 1,113 respectively.
Right-of-use asset are measured at cost comprising the following:
•the amount of the initial measurement of lease liability;
•any lease payments made at or before the commencement date less any lease incentives received;
•any initial direct costs and restoration costs.
Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses.
Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37. The costs are included in the related right–of-use asset.
The right-of-use assets are presented as a separate line in the consolidated statement of financial position.
The Company applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in note 3.10.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are assets with a value of 5 or less when new.
In determining the lease term, management considers all fact and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options and periods after termination options are only included in the lease term if the lease is reasonably certain to be extended or not terminated. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.
3.5 – Foreign currencies
The functional currency of the Company and most of its subsidiaries is the U.S. dollar, except for some subsidiaries where their functional currency is their respective local currency considering it is the primary economic environment in which the subsidiary operates.
In preparing these consolidated financial statements, transactions in currencies other than the functional currency (“foreign currencies”) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are kept at the original translated cost. Exchange differences are recognized in profit and loss in the period in which they arise.
In the case of the subsidiaries with a functional currency other than the U.S. dollar, assets and liabilities are translated at current exchange closing rates at the date of that balance sheet, while income and expense are translated at the date of the transaction rate. The resulting foreign currency translation adjustment is recorded as a separate component of accumulated other comprehensive income (loss) in equity.
Accounting standards are applied on the assumption that the value of money (the unit of measurement) is constant over time. However, when the rate of inflation is no longer negligible, a number of issues arise impacting the true and fair nature of the accounts of entities that prepare their financial statements on a historical cost basis. To address such issues, entities apply IAS 29 Financial Reporting in Hyperinflationary Economies from the beginning of the period in which the existence of hyperinflation is identified. Based on the statistics published on July 17, 2018, Argentina's economy started to be considered
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
hyperinflationary. As of December 31, 2022 and 2021, the 3-year cumulative rate of inflation for consumer prices in Argentina is 300% and 216%, respectively. As of December 31, 2022 and 2021, the Company assessed that the effects of inflation are not material to the financial statements, since the most significant Argentine subsidiaries have the U.S. dollars as their functional currency, except for Globers S.A.
3.6 – Borrowing costs
The Company does not have borrowings attributable to the construction or production of assets. All borrowing costs are recognized in profit and loss under finance loss.
3.7 – Taxation
3.7.1 – Income taxes – current and deferred
Income tax expense represents the estimated sum of income tax payable and deferred tax.
3.7.1.1 – Current income tax
The current income tax payable is the sum of the income tax determined in each taxable jurisdiction, in accordance with their respective income tax regimes.
Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because taxable profit excludes items of income or expense that are taxable or deductible in future years and it further excludes items that are never taxable or deductible. The Company's liability for current income tax is calculated using tax rates that have been enacted or substantively enacted as of the date of issuance. The current income tax charge is calculated on the basis of the tax laws in force in the countries in which the consolidated entities operate.
Globant S.A, is subject to a corporate income tax rate of 17% on taxable income exceeding EUR 200, leading to an overall tax rate of 24.9% in Luxembourg (taking into account the solidarity surtax of 7% on the CIT rate, and including the 6.8% municipal business tax rate applicable).
The holding company located in Spain elected to be included in the Spanish special tax regime for entities having substantially all of their operations outside of Spain, known as “Empresas Tenedoras de Valores en el Exterior” (“ETVE”). Globant España S.A was registered in 2008. Under the ETVE regime, dividends distributed from its foreign subsidiaries as well as any gain resulting from disposal are subject to 95% of tax exemption effective from January 1st, 2020. In order to be entitled to the benefit, among other requirements, the main activity of the entities must be the administration and management of equity instruments from non-Spanish entities and such entities must be subject to a tax regime similar to that applicable in Spain for non-ETVEs companies. As of December 31, 2021 and 2022 the Spanish Holding company did not receive dividends distributions. If this tax exemption would not apply partially, the applicable tax rate should be 25%. The Company´s Spanish subsidiaries are subject to a 25% corporate income tax rate.
Starting fiscal year 2021, Argentina has progressive system of corporate income tax rates ranging from 25% to 35% .
On May 22, 2019, the Argentine Congress enacted Law No. 27,506 ("Ley de Economía del Conocimiento"), which provides a promotional regime for the Knowledge Economy, which was modified by means of Law No. 27,570, published on October 26, 2020 ("Knowledge based Economy Law"). The Knowledge based Economy Law is valid from January 1, 2020 - for the legal entities adhered to the Software Promotion Law- and from the publication of the Law No. 27,570 for other entities, and in both cases until December 31, 2029, and aims to promote economic activities that apply knowledge and digitization of information, supported by advances in science and technology, to obtain goods and services and improve processes.
The entities IAFH Global S.A, Sistemas Globales S.A, BSF S.A, Decision Support S.A and Atix S.A. were beneficiaries of the Software Promotion Law and expressed the willingness to continue in the regime under the Knowledge based Economy Law, accordingly. Once the formalities established for this purpose are fulfilled, the entities will be incorporated in the National Registry of Beneficiaries, and will enjoy the benefits of the Knowledge Economy Law retroactively from January 1st, 2020.
The beneficiaries of the regime will enjoy the following benefits:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
– Stability in the enjoyment of benefits.
– Beneficiaries who carry exports within the promoted activity, are not subject to any withholding and/or collection VAT regimes.
– A reduced corporate income tax rate applied to the promoted activities. The reduction is applied on the general tax rate as follows: (i) 60% for micro and small enterprises, (ii) 40% for medium-sized enterprises, and (iii) 20% for large enterprises.
– In addition, beneficiaries will be allowed to deduct as an expense, the withholding tax paid of foreign taxes, if the taxed income constitutes an Argentine source of income.
– A non-transferable tax credit of up to 70% of amounts paid for certain social security taxes (contributions) for the employees associated with the promoted activities. The credit may be offset against value-added tax liabilities within 24 months of its issuance (which can be extended for an additional 12 months with justified cause). Beneficiaries that carry out exports are authorized to use the credit against income tax liabilities in the percentage of exports reported at the time of registration. The credit will be increased to 80% to newly-onboarded employees that are: (a) women, (b) transsexual and transgender persons, (c) professionals with graduate studies in engineering, exact or natural sciences, (d) individuals with disabilities, (e) individuals who reside in unfavorable areas and/or provinces with lower relative development, (f) individuals who, before being employed, were beneficiaries of welfare programs, among other groups of interest to be added by the enforcement authority.
- The beneficiaries that export at least 70% of its annual sales originated in the promoted activities, will be allowed to transfer for one time the credit, up to an amount equivalent to the percentage of exports for each period
– A 0% rate of export duties applicable to the export of services promoted by the Law.
The entities Atix Labs S.RL., Decision Support S.A, BSF S.A , IAFH Global S.A and Sistemas Globales S.A., were approved as beneficiaries of the Knowledge Economic Law by the Subsecretary of Knowledge Economy and incorporated into the National Registry on July 8, 2021, September 24, 2021, October 15, 2021, December 14, 2021 and February 8, 2022.
Decision Support S.A is considered as a medium- size enterprise with a reduction of 40% on the income tax rate while BSF S.A and Atix Labs S.R.L are considered a micro and small enterprise with a 60% of reduction. Sistemas Globales S.A. and IAFH Global S.A are considered as a large enterprise. For this company the benefit is a reduction of 20%.
On June 16, 2021, the Argentine Government enacted an income tax reform (Law No. 27,630), which increases the corporate income tax rate for tax years commencing on or after January 1, 2021. The law replaced the previous 30% tax rate with a progressive tax scale that applies as follows: a) for accumulated net taxable income up to 5,000,000 Argentine Pesos: 25% tax rate on net taxable income, b) for accumulated net taxable income from 5,000,000 Argentine Pesos to 50,000,000 Argentine: a tax payment of 1,250,000 Argentine Pesos plus a 30% tax rate on accumulated net taxable income on any amount exceeding 5,000,000 Argentine Pesos, c) for accumulated net taxable income exceeding 50,000,000 Argentine Pesos: a tax payment of 14,750,000 Argentine Pesos plus a 35% tax rate on accumulated net taxable income on any amount exceeding 50,000,000 Argentine Pesos. Apart from that, the Law permanently extends the 7% withholding tax for dividend distributions.
The Company’s Argentine subsidiaries, Globers S.A., Dynaflows S.A. and KTBO S.A. are subject to a corporate income tax rate under a progressive tax scale as they are not included within the Software Promotion Regime nor Knowledge Economy Regime.
The Company’s Uruguayan subsidiary Sistemas Globales Uruguay S.A. is domiciled in a tax free zone and has an indefinite tax relief of 100% of the income tax rate and an exemption from VAT. The net income arising under Sistemas Globales Uruguay S.A. for years ended in December 2022, 2021 and 2020 were 49,806, 18,835 and 29,818, respectively. The Company’s Uruguayan subsidiary Difier S.A., Genexus S.A and Kurfur S.A are located outside tax-free zone and according to Article 161 bis of Decree No. 150/007 the software development services performed are exempt from income tax.
The Colombian subsidiaries are subject to federal corporate income tax at the rate of 35%. Until December 31, 2021 the federal corporate income tax rate was 31%.
On September 14 2021, the Colombian Government enacted the “Ley de Inversión Social” (Law No. 2,155), which introduces a tax reform. Among other things, the law increases the corporate income tax rate to 35% for tax years commencing on or after January 1, 2022. This rate applies to Colombian entities, permanent establishments in Colombia and foreign taxpayers with Colombian-source income that must file income tax returns in Colombia.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company’s U.S. subsidiaries are subject to U.S. federal income tax at the rate of 21%.
The Company’s Chilean subsidiary Sistemas Globales Chile Ases. Ltda. is subject to corporate income tax at the rate of 27%.
The Company’s Brazilian subsidiaries apply the taxable income method called “Lucro real”. Under this method, taxable income is based upon a percentage of profit accrued by the Company, adjusted according to the add-backs and exclusions provided in the relevant tax law. The rate applicable to the taxable income derived from the subsidiary’s activity is 24% plus 10% if the net income before income tax is higher than 240 Brazilian real for the years 2017 and onwards.
The Company’s Mexican subsidiaries are subject to corporate income tax at the rate of 30%.
The Company's Indian subsidiary Globant India Private Limited is primarily export-oriented and is eligible for certain income tax holiday benefits granted by the government of India for export activities conducted within Special Economic Zones, or SEZs. Starting August 3, 2017, one of the development center located in Pune is eligible for a deduction of 100% of the profits or gains derived from the export of services for the first five years, and 50% of such profits or gains for the five years thereafter. Certain tax benefits are also available for a further five years subject to the center meeting defined conditions. Indian profits ineligible for SEZ benefits are subject to corporate income tax at the rate of 34.61%. In addition, all Indian profits, including those generated within SEZs, are subject to the Minimum Alternative Tax (MAT), at the current rate of approximately 21.34%, including surcharges.
On February 1, 2018, the Finance Minister presented the Union Budget 2018-19. A reduction in the corporate tax rate was proposed for companies with an annual turnover of up to Rupees (Rs) 2,5 billion. In such case, the tax rate is 25% plus surcharge. Globant India Private Limited is eligible for the lower corporate tax rate.
The Indian Government introduced in September, 2019, a slew of measures through the Taxation Laws (Amendment) Ordinance, to make certain amendments in the Income-tax Act 1961 and the Finance (No.2) Act 2019.
Under the new measures, any domestic company will be able to choose to be taxed at the rate of 22% if, among other things, reject the SEZ tax holidays. Thus, the effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Domestic companies are required to exercise the option to claim the lower tax rate from AY 2020-21 onwards in the prescribed form and manner, once the option is made it cannot be withdrawn for any subsequent year. Also, such companies shall not be required to pay Minimum Alternate Tax (‘MAT’).
The Company's subsidiary located in Belarus is resident of the High Technology Park (“HTP”). HTP residents are exempted from corporate income tax and VAT.
On December 21, 2017 the President of the Republic of Belarus published Decree N° 8 that extends the duration of the HTP’s tax incentives and the special legal regime until January 1, 2049. The Company will be benefited by the exemption as long as the regime is valid.
3.7.1.2 – Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets including tax loss carry forwards are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the entities are able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. The Company has not recorded any current or deferred income tax in other comprehensive income or equity in any each of the years presented, except for deferred income tax arising from the share-based compensation plan, for the deferred income tax arising from hedge instruments and for the translation of deferred tax assets and liabilities arising from subsidiaries with functional currencies other than U.S. dollar.
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Under IFRS, deferred income tax assets (liabilities) are classified as non-current assets (liabilities).
3.7.1.3 – Uncertain tax treatments
The Company determines the accounting for tax position when there is uncertainty over income tax treatments as follows. First, the Company determines whether uncertain tax positions are assessed separately or as a group; and then, the Company assesses whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings. If yes, the Company determines its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. If not, the Company reflects the effect of uncertainty in determining its accounting tax position using either the most likely amount or the expected value method. The Company discloses in note to the consolidated financial statements certain matters related to the interpretation of income tax laws for which there is a possibility that a loss may have been incurred.
As of December 31, 2022 and 2021, there are certain matters related to the interpretation of income tax laws for which there is a possibility that a loss may have been incurred (assessed as not probable), as of the date of the financial statements in accordance with IFRIC 23 in an amount of 5,119 and 4,937, related to assessments for the fiscal years 2016 to 2022 and 2015 to 2021, respectively. No formal claim has been made for fiscal years within the statute of limitation by Tax authorities in any of the mentioned matters, however those years are still subject to audit and claims may be asserted in the future.
3.8 – Property and equipment
Fixed assets are valued at acquisition cost, net of the related accumulated depreciation and accumulated impairment losses, if any.
Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Lands and properties under construction are carried at cost, less any recognized impairment loss. Properties under construction are classified to the appropriate categories of property and equipment when completed and ready for intended use. Depreciation
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Land is not depreciated.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. As of December 31, 2022, the Company has derecognized property and equipment for an amount of 101.
The value of fixed assets, taken as a whole, does not exceed their recoverable value.
3.9 – Intangible assets
Intangible assets include licenses, customer relationships, customer contracts, non-compete agreements, platforms and cryptocurrencies. The accounting policies for the recognition and measurement of these intangible assets are described below.
3.9.1 – Intangible assets acquired separately
Intangible assets with finite useful life that are acquired separately (licenses) are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over the intangible assets estimated useful lives. The estimated useful lives and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimates being accounted for on a prospective basis.
3.9.1.1 - Cryptocurrencies
The Company accounts for its crypto assets as indefinite-lived intangible assets in accordance with IAS 38 "Intangible Assets". Bitcoin, Ethereum and Stable Coin are cryptocurrencies that are considered to be an indefinite lived intangible asset because they lack physical form and there is no limit to its useful life, they are not subject to amortization but they are tested for impairment.
The Company's crypto assets are initially recorded at cost. Subsequently, they are measured at cost, net of any impairment losses incurred since acquisition. The Company performs monthly analysis to identify possible impairment. If the carrying value of the crypto asset exceeds the fair value based on the quoted price in the active exchange market, the Company will recognize an impairment loss equal to the difference between the fair value and the book value in the consolidated statement of comprehensive income. Gains, if any, will not be recognized until realized upon sale in the consolidated statement of comprehensive income. Further details are disclosed in note 16. As of December 31, 2022 and 2021, the Company has recognized a loss of 1,017 and 80 as impairment, respectively.
3.9.2 – Intangible assets acquired in a business combination
Intangible assets acquired in a business combination (customer relationships, customer contracts, non-compete agreements, software and platforms) are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses if any, on the same basis as intangible assets acquired separately.
3.9.3 – Internally-generated intangible assets
Intangible assets arising from development are recognized if, and only if, all the following have been demonstrated:
- the technical feasibility of completing the intangible asset so that it will be available for use or sale;
- the intention to complete the intangible asset and use or sell it;
- the ability to use or sell the intangible asset;
- how the intangible asset will generate probable future economic benefits;
- the ability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
- the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated assets is the sum of expenditure incurred (including employee costs and an appropriate proportion of overheads) from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Capitalized intangible assets are amortized from the point at which the asset is ready for use. Subsequent to initial recognition, intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Costs associated with maintaining software programs are recognized as an expense as incurred.
3.9.4 – Derecognition of intangible assets
An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in profit or loss when the asset is derecognized. As of December 31, 2022 and 2021, the Company has derecognized intangible assets for an amount of 1,531 and 412, respectively.
3.10 – Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit or the business, as the case may be.
The recoverable amount of an asset is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive income for the year.
As of December 31, 2020 the Company recorded an impairment loss of 83. As of December 31, 2022 and 2021 the Company did not recognize impairments related to internally-generated intangible assets.
3.11 – Contingent liabilities
The Company has existing or potential claims, lawsuits and other proceedings. Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation, and the advice of the Company’s legal advisers.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. The amount of the recognized receivable does not exceed the amount of the provision recorded.
3.12 – Financial assets
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
On initial recognition, a financial asset is classified as measured at: (i) amortized cost (ii) fair value through other comprehensive income (FVOCI) or (iii) fair value through profit or loss (FVTPL). The classification of financial assets is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
3.12.1 – Amortized cost and effective interest method
A financial asset is measured at amortized cost if both of the following conditions are met, and if it is not designated as at FVPL:
- It is held within a business model whose objective is to hold financial assets to collect contractual cash flow;
- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The effective interest method is a method of calculating the amortized cost of an instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
3.12.2 – Financial assets measured at FVOCI
A financial asset is measured at FVOCI if both of the following conditions are met, and if it is not designated as at FVPL:
- It is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets
- Its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
The change in fair value of financial assets measured at FVOCI is accumulated in the investment revaluation reserve until they are derecognized. When a financial asset measured at FVOCI is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment.
3.12.3 – Financial assets measured at FVPL
All financial assets not classified as measured at amortized cost or FVOCI as described above, are measured at FVPL.
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘Other financial results, net’ line.
3.12.4 - Derivative financial instruments
The Company enters into foreign exchange forward contracts and swaps. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. Derivatives are not offset in the financial statements unless the Company has both a legally enforceable right and intention to offset. The impact of the futures and forward contracts on the Company’s financial position is disclosed in note 29. A derivative is presented as a non–current asset or a non–current liability if the remaining maturity of the instrument is more than 12 months and it is not due to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
The Company designates certain derivatives as hedging instruments in respect of foreign currency risk in cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk, which is when the hedging relationships meet all of the following hedge effectiveness requirements:
- there is an economic relationship between the hedged item and the hedging instrument;
- the effect of credit risk does not dominate the value changes that result from that economic relationship; and
- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, the Company adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.
The Company designates the full change in the fair value of a forward contract (i.e. including the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts.
Movements in the hedging reserve in equity are detailed in note 30.3.
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the ‘Other financial results, net’ line item. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item.
The Company discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation is accounted for prospectively. Any gain or loss recognized in other comprehensive income and accumulated in cash flow hedge reserve at that time remains in equity and is reclassified to profit or loss when the forecast transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in cash flow hedge reserve is reclassified immediately to profit or loss.
3.12.5 - Investment in associates
An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate.
3.12.6 – Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses on financial assets, other than those at FVTPL. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.
The Company always recognizes lifetime expected credit losses ("ECL") for trade receivables, using a simplified approach. The expected credit losses on these financial assets are estimated using a provision matrix based on the Company’s historical credit loss experience, adjusted for factors that are specific to debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
For all other financial instruments, the Company recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Company measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.
A significant increase in credit risk is presumed if a debtor is more than 30 days past due in making a contractual payment, unless the Company has reasonable and supportable information that demonstrates otherwise.
Definition of default
A default on a financial asset is when the counterparty fails to make contractual payments within 90 days of when they fall due, unless an entity has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events:
a. significant financial difficulty of the issuer or the borrower;
b. a breach of contract, such as a default or past due event;
c. the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
d. it is becoming probable that the borrower will enter bankruptcy or other financial reorganization;
e. the disappearance of an active market for that financial asset because of financial difficulties; or
f. the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
It may not be possible to identify a single discrete event-instead, the combined effect of several events may have caused financial assets to become credit-impaired.
Write-off policy
Financial assets' carrying amounts are reduced through the use of an allowance account on a case-by-case basis. When a financial asset is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit and loss.
Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default and the exposure at default. The assessment of the probability of default and loss given default is based on historical data, adjusted by forward-looking information as described above. The exposure of default is represented by the asset's gross carrying amount at the reporting date.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. Financial assets other than trade receivables, have been grouped at the lowest levels for which there are separately identifiable cash flows.
No significant changes to estimation techniques or assumptions were made during the reporting period.
3.12.7 – Derecognition of financial assets
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.
As of December 31, 2022 and 2021 the Company incurred in a collection in advance benefit that some clients offer with JP Morgan for a total amount of 2,594 and 1,568, respectively. The Company considers that it has substantially transferred the risks and rewards intrinsic to these receivables to the bank and therefore they were derecognized.
3.12.8 – Convertible Notes
The Company recognizes convertible notes measured at their fair value using the market approach which consist in using price and relevant information generated by market transactions involving identical or comparable assets, liabilities or group of assets and liabilities, such as a business.
As of December 31, 2022 and 2021, the fair value of the loan agreement amounted to 2,491 and 1,267 disclosed as other financial assets current, respectively, and 4,193 and 2,608 disclosed as other financial assets non-current, respectively.
3.12.8.1 Convertible notes - Globant España
As of December 31, 2022, Globant España S.A, maintains 12 note purchase agreements with Linked Ai, Polemix Inc, MessageLOUD, Inc., LookApp S.A.S, UALI Holding Limited, B2CHAT S.A.S, Avancargo Corp, Poderio S.A.S, Vozy, Inc and Drixit Technologies Inc. (the "startups"), pursuant to which Globant España S.A. provided financing facility for a total amount of 5,780. Interest on the entire outstanding principal balance is computed at annual rates ranging from 2% to 8%. Globant España S.A. has the right to convert all or any portion of the outstanding principal into equity interests of the startups.
3.12.8.2 Convertible notes - Sistemas Globales
As of December 31, 2022, Sistemas Globales S.A. maintains, since its merger with Globant Ventures SAS, 5 note purchase agreements with Interactive Mobile Media S.A. (CamonApp), AvanCargo Corp., TheEye S.A.S., Robin and Woolabs S.A. (the "startups"), pursuant to which Sistemas Globales S.A. provided financing facility for a total amount of 904. Interest on the entire outstanding principal balance is computed at annual rates ranging from 5% to 12%. Sistemas Globales S.A. has the right to convert all or any portion of the outstanding principal into equity interests of the startups.
3.12.9 – Equity Instruments
The Company recognizes equity instruments measured at their fair value using the market approach which consist in using price and relevant information generated by market transactions involving identical or comparable assets, liabilities or group of assets and liabilities, such as a business.
As of December 31, 2022 and 2021, the fair value of equity instruments amounted to 27,521 and 22,088 disclosed as other financial assets non-current.
3.13 – Financial liabilities and equity instruments issued by the Company
3.13.1 – Classification as debt or equity
Debt and equity instruments issued by the Company and its subsidiaries are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
3.13.2 – Equity instruments
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.
Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
3.13.3 – Financial liabilities
Financial liabilities, including trade payables, other liabilities and borrowings, are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Put option over non-controlling interest in subsidiary
On July 8, 2021 the Company entered into a put and call option agreement with the non-controlling shareholders over the remaining twenty percent (20%) over Walmeric Soluciones, S.L., which can be exercised by the non-controlling shareholders from March 1, 2022 till March 1, 2024. The Company did not recognized the call option since it was immaterial.
The amount that may become payable under the option on exercise is initially recognized at the present value of the redemption amount within other financial liabilities with a corresponding charge directly to equity. The charge to equity is recognized separately as written put options over non-controlling interests.
The liability is subsequently accreted through finance charges up to the redemption amount that is payable at the date at which the option first becomes exercisable. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity.
During 2022 the sellers of Walmeric exercised their put option for the 6% over the non-controlling interest for a total consideration of 5,166.
As of December 31, 2022, the Company has recognized as current and non-current other financial liabilities the written put option for an amount 3,871 and 5,515, respectively, equal to the present value of the redemption amount. As of December 31, 2021, the Company has recognized as non-current other financial liabilities the written put option for an amount 15,423, equal to the present value of the redemption amount. Changes in the measurement of the gross obligation will be recognized in the statement of comprehensive income.
3.13.4 – Derecognition of financial liabilities
The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
3.14 – Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents include cash on hand and in banks and short-term highly liquid investments (original maturity of less than 90 days). In the consolidated statements of financial position, bank overdrafts are included in borrowings within current liabilities.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Cash and cash equivalents as shown in the statement of cash flows only includes cash and bank balances and time deposits as disclosed in note 11.
3.15 – Reimbursable expenses
Out-of-pocket and travel expenses are recognized as expense in the statements of comprehensive income in the year they are incurred. Reimbursable expenses are billed to customers and presented within the line item "Revenues" in the statements of comprehensive income for the year.
3.16 - Share-based and cash-settle compensation plan
The Company has a share-based and cash-settle compensation plan for executives and employees of the Company and its subsidiaries. Equity-settled share-based and cash-settle payments to employees are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based and cash-settle transactions are set forth in note 25.
The fair value determined at the grant date of the equity-settled share-based payments is recognized to spread the fair value of each award over the vesting period on a straight-line basis, based on the Company’s estimate of equity instruments that will potentially vest, with a corresponding increase in equity. Cash-settle are recorded as liabilities and adjusted to fair value at the end of each reporting period.
3.17 – Components of other comprehensive income
Components of other comprehensive income are items of income and expense that are not recognized in profit or loss as required or permitted by other IFRSs. The Company included gains and losses arising from translating the financial statements of a foreign operation, the gains and losses related to the valuation of the financial assets measured at fair value through other comprehensive income and the effective portion of changes in the fair value of derivatives hedging instruments that are designated and qualify as cash flow hedges.
3.18 – Gain on transactions with bonds
During the year ended December 31, 2022, 2021 and 2020, the Company's Argentine subsidiaries, through cash received from intercompany loans and repayments of intercompany loans, acquired Argentine sovereign bonds in the U.S. market denominated in U.S. dollars.
After acquiring these bonds, the Company's Argentine subsidiaries sold those bonds in the Argentine market. The fair value of these bonds in the Argentine market (in Argentine pesos) during the year ended December 31, 2022 and 2021 was higher than its quoted price in the U.S. market (in U.S dollars) converted at the official exchange rate prevailing in Argentina, which is the rate used to convert these transactions in foreign currency into the Company's Argentine subsidiaries' functional currency, thus, as a result, the Company recognized a gain when remeasuring the fair value of the bonds in Argentine pesos into U.S. dollars at the official exchange rate prevailing in Argentina.
During the year ended December 31, 2022, 2021 and 2020, the Company recorded a gain amounting to 13,883, 708 and 9,580, respectively, due to the above mentioned transactions that were disclosed under the caption "Other financial results, net" in the consolidated statements of comprehensive income.
NOTE 4 – CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Company's accounting policies, which are described in note 3, the Company's management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.
The critical accounting estimates concerning the future and other key sources of estimation uncertainty at the end of the reporting year that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next year are the following:
1.Income taxes
Determining the consolidated provision for income tax expenses, deferred income tax assets and liabilities requires judgment. The provision for income taxes is calculated over the net income of the company and is inclusive of federal, local and state taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences in each of the jurisdictions where the Company operates of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be reversed. Changes to enacted tax rates would result in either increases or decreases in the provision for income taxes in the period of changes.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of the deferred tax assets to be utilized. This assessment requires judgments, estimates and assumptions by management. In evaluating the Company's ability to utilize its deferred tax assets, the Company considers all available positive and negative evidence, including the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are recoverable. The Company's judgments regarding future taxable income are based on expectations of market conditions and other facts and circumstances. Any adverse change to the underlying facts or the Company's estimates and assumptions could require that the Company reduces the carrying amount of its net deferred tax assets.
The Company evaluates the uncertain tax treatment, such determination requires the use of significant judgment in evaluating the tax treatments and assessing the timing and amounts of deductible and taxable items, see note 3.7.1.3.
2.Impairment of trade receivables
The Company measures ECL using reasonable and supportable forward looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive.
Probability of default constitutes a key input in measuring ECL. Probability of default is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.
As of December 31, 2022 and 2021, the Company recorded an impairment for an amount of 6,364 and 5,323, respectively, and a recovery for an amount of 107 as of December 31, 2020, using a provision matrix based on the Company’s historical credit loss experience, adjusted for factors that are specific to debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. As of December 31, 2021 and 2020, the Company has recognized and additional impact related to COVID-19 pandemic, see note 32.
3.Fair value measurement and valuation processes
Certain assets and liabilities of the Company are measured at fair value for financial reporting purposes.
In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company estimates the fair value of an asset or a liability by
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
converting future amounts (e.g. cash flows or income and expenses) to a single current (i.e. discounted) amount. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in note 29.8.
4.Contingent Liabilities
Provisions are recognized according to the following conditions: (i) the Company has a present obligation (legal or constructive) as a result of a past event; (ii) it is probable that the Company will be required to settle the obligation; and (iii) a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
5.Purchase price allocation
The acquisition method of accounting is use to account for all acquisitions. Under this method, assets acquired and liabilities assumed of the Company are measured at fair value for financial reporting purposes. In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company estimates the fair value of an asset or a liability by converting future amounts (e.g. cash flows or income and expenses) to a single current (i.e. discounted) amount. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in note 29.8.
Management applied significant judgement in estimating the fair value of the identifiable intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, customer attrition rates and discount rates.
NOTE 5 – REVENUE
The following tables present the Company’s revenues disaggregated by type of contracts, by revenue source regarding the industry vertical of the client and by currency. The Company provides technology services to enterprises in a range of industry verticals such as banks, financial services and insurance, media and entertainment, professional services, consumer, retail and manufacturing, technology and telecommunications, travel and hospitality and health care. The Company understands that disaggregating revenues into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenues may be affected by economic factors. However, this information is not considered by the chief operating decision-maker to allocate resources and in assessing financial performance of the Company. As noted in the business segment reporting information in note 27, the Company operates in a single operating and reportable segment.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| By Industry vertical | | 2022 | | 2021 | | 2020 |
| Media and Entertainment | | 376,134 | | | 272,703 | | | 187,071 | |
| Banks, Financial Services and Insurance | | 359,940 | | | 308,227 | | | 193,364 | |
| Consumer, Retail & Manufacturing | | 254,500 | | | 197,620 | | | 105,876 | |
| Technology & Telecommunications | | 250,299 | | | 155,665 | | | 96,643 | |
| Professional Services | | 235,553 | | | 167,997 | | | 103,133 | |
| Travel & Hospitality | | 139,170 | | | 87,567 | | | 67,634 | |
| Health Care | | 128,669 | | | 96,334 | | | 53,781 | |
| Other Verticals | | 35,978 | | | 10,965 | | | 6,637 | |
| TOTAL | | 1,780,243 | | | 1,297,078 | | | 814,139 | |
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
By Currency(*) | | 2022 | | 2021 | | 2020 |
| United States dollar (USD) | | 1,415,226 | | | 977,349 | | | 699,769 | |
| European euro (EUR) | | 116,469 | | | 111,177 | | | 35,454 | |
| Mexican peso (MXN) | | 57,526 | | | 40,064 | | | 21,624 | |
| Argentine peso (ARS) | | 57,329 | | | 47,039 | | | 33,594 | |
| Chilean peso (CLP) | | 42,568 | | | 57,610 | | | 3,237 | |
| Pound sterling (GBP) | | 31,445 | | | 20,565 | | | 1,331 | |
| Brazilian real (BRL) | | 30,886 | | | 23,850 | | | 10,795 | |
| Peruvian Sol (PEN) | | 13,435 | | | 9,058 | | | 8 | |
| Colombian peso (COP) | | 12,971 | | | 9,803 | | | 7,791 | |
| Others | | 2,388 | | | 563 | | | 536 | |
| TOTAL | | 1,780,243 | | | 1,297,078 | | | 814,139 | |
(*) Billing currency.
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| By Contract Type | | 2022 | | 2021 | | 2020 |
| Time and material contracts | | 1,472,894 | | | 1,062,171 | | | 698,943 | |
| Fixed-price contracts | | 273,344 | | | 218,846 | | | 107,033 | |
| Subscription | | 33,963 | | | 16,039 | | | 8,156 | |
| Others | | 42 | | | 22 | | | 7 | |
| TOTAL | | 1,780,243 | | | 1,297,078 | | | 814,139 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 6 – COST OF REVENUES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
6.1 - Cost of revenues
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Salaries, employee benefits and social security taxes | | (1,014,469) | | | (745,307) | | | (476,480) | |
| Professional services | | (37,293) | | | (23,989) | | | (6,599) | |
| Depreciation and amortization expense | | (13,510) | | | (10,730) | | | (9,759) | |
| Travel and housing | | (11,057) | | | (4,950) | | | (6,881) | |
| Depreciation expense of right-of-use assets | | (9,802) | | | (3,392) | | | — | |
| Office expenses | | (8,817) | | | (6,607) | | | (3,050) | |
| Promotional and marketing expenses | | (4,111) | | | (687) | | | (498) | |
| Shared-based compensation expense | | (4,917) | | | (3,568) | | | (4,109) | |
| Recruiting, training and other employee expenses | | (3,150) | | | (2,860) | | | (2,436) | |
| Share-based compensation expense - Cash settled | | (3,722) | | | — | | | — | |
| | | | | | |
| TOTAL | | (1,110,848) | | | (802,090) | | | (509,812) | |
6.2 - Selling, general and administrative expenses
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Salaries, employee benefits and social security taxes | | (173,472) | | | (139,307) | | | (86,390) | |
| Depreciation and amortization expense | | (59,179) | | | (45,723) | | | (21,083) | |
| Share-based compensation expense | | (52,144) | | | (38,849) | | | (20,519) | |
| Professional services | | (40,546) | | | (30,947) | | | (23,093) | |
| Depreciation expense of right-of-use assets | | (25,442) | | | (20,441) | | | (17,638) | |
| Office expenses | | (24,992) | | | (18,298) | | | (13,515) | |
| Promotional and marketing expenses | | (26,976) | | | (10,299) | | | (3,517) | |
| Taxes | | (17,609) | | | (13,260) | | | (16,596) | |
| Travel and housing | | (17,159) | | | (5,414) | | | (3,878) | |
| Recruiting, training and other employee expenses | | (10,346) | | | (11,575) | | | (4,389) | |
| Rental expenses | | (7,448) | | | (6,045) | | | (5,762) | |
| Legal claims | | (241) | | | (2,846) | | | (842) | |
| Share-based compensation expense - Cash settled | | (770) | | | — | | | — | |
| TOTAL | | (456,324) | | | (343,004) | | | (217,222) | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 7 – FINANCE INCOME / EXPENSE/ OTHER FINANCIAL RESULTS
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Finance income | | | | | | |
| Interest gain | | 2,832 | | | 652 | | | 1,920 | |
| Total | | 2,832 | | 652 | | 1,920 |
| | | | | | |
| Finance expense | | | | | | |
| Interest expense on borrowings | | (2,491) | | | (915) | | | (2,426) | |
| Interest expense on lease liabilities | | (6,822) | | | (5,415) | | | (4,944) | |
| Other interest | | (4,722) | | | (4,150) | | | (1,505) | |
| Other | | (2,517) | | | (2,228) | | | (1,555) | |
| Total | | (16,552) | | | (12,708) | | | (10,430) | |
| | | | | | |
| Other financial results, net | | | | | | |
| Net loss arising from financial assets measured at fair value through PL | | (7,537) | | | (8,537) | | | (3,423) | |
| Net gain (loss) arising from financial assets measured at fair value through OCI | | 500 | | | 6 | | | (16) | |
| Gain arising from financial assets measured at amortized cost | | — | | | — | | | 395 | |
| Foreign exchange (loss) gain, net | | (6,673) | | | 3,900 | | | (2,935) | |
| Gain on transaction with bonds | | 13,883 | | | 708 | | | 9,580 | |
| Total | | 173 | | | (3,923) | | | 3,601 | |
NOTE 8 – OTHER INCOME AND EXPENSES, NET
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Other Expense | | | | | | |
| | | | | | |
| Remeasurement of contingent consideration (note 29.9.1) | | — | | | (4,694) | | | (2,431) | |
| Impairment of cryptocurrencies (note 16) | | (1,017) | | | (80) | | | — | |
| Fixed and intangibles assets derecognition and disposals | | (1,632) | | | (579) | | | (680) | |
| Other | | (293) | | | (182) | | | (84) | |
| Subtotal | | (2,942) | | | (5,535) | | | (3,195) | |
| | | | | | |
| Other Income | | | | | | |
| Remeasurement of call/put option over non-controlling interest | | 180 | | | — | | | — | |
| Remeasurement at FV of investment in associates (note 12.2) | | — | | | 1,538 | | | — | |
| Remeasurement of contingent consideration (note 29.9.1) | | 967 | | | — | | | — | |
| Gain from sale of financial instrument | | — | | | — | | | 800 | |
| Other | | 1,400 | | | 628 | | | 508 | |
| Subtotal | | 2,547 | | | 2,166 | | | 1,308 | |
| Total | | (395) | | | (3,369) | | | (1,887) | |
NOTE 9 – INCOME TAXES
9.1 – INCOME TAX RECOGNIZED IN PROFIT AND LOSS
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Tax expense: | | | | | | |
| Current tax expense | | (44,756) | | | (53,319) | | | (27,834) | |
| Deferred tax gain | | 1,351 | | | 24,822 | | | 5,527 | |
| TOTAL INCOME TAX EXPENSE | | (43,405) | | | (28,497) | | | (22,307) | |
Most of the revenues are generated through subsidiaries located in the U.S. The Company's workforce is mainly located in Latin America and to a lesser extent in India, Europe and the U.S.
The following table provides a reconciliation of the statutory tax rate to the effective tax rate:
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Profit before income tax | | 192,884 | | | 124,852 | | | 76,524 | |
| | | | | | |
| Tax calculated at the tax rate in each country | | (33,108) | | | (27,757) | | | (13,253) | |
Argentine Knowledge Economy Law (note 3.7.1.1) (*) | | 1,358 | | | 1,157 | | | 637 | |
| Non-deductible expenses / non-taxable gains | | 61 | | | 2,122 | | | 1,180 | |
| Tax loss carry forward not recognized | | (3,096) | | | (2,873) | | | (3,686) | |
| Foreign withholding tax | | (2,683) | | | — | | | — | |
| Exchange difference | | (5,937) | | | (1,146) | | | (7,185) | |
| | | | | | |
| | | | | | |
| INCOME TAX EXPENSE RECOGNIZED IN PROFIT AND LOSS | | (43,405) | | | (28,497) | | | (22,307) | |
(*) During 2020 the enforced regime was the Argentine Software Promotion Law, which was replaced by the Argentine Knowledge Economy Law.
9.2 – DEFERRED TAX ASSETS AND LIABILITIES
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| Share-based compensation plan | | 13,048 | | | 30,788 | |
| Provision for vacation and bonus | | 27,747 | | | 24,621 | |
| Intercompany trade payables | | 17,323 | | | 18,613 | |
| Property, equipment and intangibles | | (24,429) | | | (20,512) | |
| Goodwill | | (6,100) | | | (3,681) | |
| Allowance for doubtful accounts | | 1,937 | | | 1,604 | |
| Contingencies | | 242 | | | 356 | |
| Inflation adjustment | | 721 | | | 2,357 | |
| Others | | 2,148 | | | 1,506 | |
Loss carryforward (1) | | 5,635 | | | 2,867 | |
| Other Assets | | (2,989) | | | (1,404) | |
| | | | |
| TOTAL DEFERRED TAX | | 35,283 | | | 57,115 | |
(1)As of December 31, 2022 and 2021, the detail of the loss carryforward is as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Company | | Loss carryforward | | Expiration date | | Loss carryforward | | Expiration date |
| | | | | | | | |
| Dynaflows S.A. | | — | | | 2022 | | 2 | | | 2022 |
| Dynaflows S.A. | | — | | | 2023 | | 38 | | | 2023 |
| Dynaflows S.A. | | — | | | 2024 | | 100 | | | 2024 |
| Dynaflows S.A. | | — | | | 2025 | | 29 | | | 2025 |
| Dynaflows S.A. | | — | | | 2026 | | 12 | | | 2026 |
| IAFH Global S.A | | 74 | | | 2024 | | 367 | | | 2024 |
| IAFH Global S.A | | 528 | | | 2025 | | 683 | | | 2025 |
| IAFH Global S.A | | — | | | 2026 | | 20 | | | 2026 |
| IAFH Global S.A | | 3,192 | | | 2027 | | — | | | — | |
Globant Brasil Consultoría Ltda. (2) | | — | | | does not expire | | 358 | | | does not expire |
| | | | | | | | |
| Globant UK Limited | | — | | | does not expire | | 48 | | | does not expire |
| Decision Support, S.A | | 549 | | | 2026 | | 282 | | | 2026 |
| Decision Support, S.A | | 173 | | | 2027 | | — | | | — | |
| Sistemas Globales S.A. | | — | | | 2022 | | 3 | | | 2022 |
| Sistemas Globales, S.A | | — | | | 2023 | | 4 | | | 2023 |
| Sistemas Globales, S.A | | — | | | 2024 | | 29 | | | 2024 |
| Sistemas Globales, S.A | | — | | | 2025 | | 38 | | | 2025 |
| Sistemas Globales, S.A | | — | | | 2026 | | 449 | | | 2026 |
| Augmented Coding US, LLC | | 106 | | | does not expire | | 31 | | | does not expire |
| Augmented Coding Spain, S.A | | 379 | | | does not expire | | 189 | | | does not expire |
| Atix Labs, SRL | | 57 | | | 2026 | | 34 | | | 2026 |
| Atix Labs, SRL | | 192 | | | 2027 | | — | | | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| BSF S.A. | | — | | 2026 | | 151 | | 2026 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Globant Colombia S.A.S. | | 385 | | | does not expire | | — | | | — | |
| | 5,635 | | | | | 2,867 | | | |
(2)The amount of the carryforward that can be utilized for Globant Brasil Consultoría Ltda. is limited to 30% of taxable income in each carryforward year.
As of December 31, 2022 and 2021, no deferred tax liability has been recognized on investments in subsidiaries. The Company has concluded it has the ability and intention to control the timing of any distribution from its subsidiaries and it is probable that will be no reversal in the foreseeable future in a way that would result in a charge to taxable profit.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The roll forward of the deferred tax assets/(liabilities) presented in the consolidated financial position is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Opening | | Recognized in | | Recognized | | Acquisitions/ | | Additions from | | Closing |
| | balance | | profit or loss (*) | | directly in equity | | disposals | | acquisitions | | balance |
| | | | | | | | | | | | |
| Deferred tax assets/(liabilities) in relation to: | | | | | | | | | | | | |
| Share-based compensation plan | | 30,788 | | | 20 | | | (17,760) | | | — | | | — | | | 13,048 | |
| Provision for vacation and bonus | | 24,621 | | | 3,205 | | | (79) | | | — | | | — | | | 27,747 | |
| Intercompany trade payables | | 18,613 | | | (1,290) | | | — | | | — | | | — | | | 17,323 | |
| Property, equipment and intangibles | | (20,512) | | | (3,170) | | | — | | | — | | | (747) | | | (24,429) | |
| Goodwill | | (3,681) | | | (2,419) | | | — | | | — | | | — | | | (6,100) | |
| Allowance for doubtful accounts | | 1,604 | | | 333 | | | — | | | — | | | — | | | 1,937 | |
| Contingencies | | 356 | | | (114) | | | — | | | — | | | — | | | 242 | |
| Inflation adjustments | | 2,357 | | | (1,636) | | | — | | | — | | | — | | | 721 | |
| Other assets | | (1,404) | | | (1,585) | | | — | | | — | | | — | | | (2,989) | |
| Others | | 1,506 | | | 1,277 | | | — | | | — | | | (635) | | | 2,148 | |
| Subtotal | | 54,248 | | | (5,379) | | | (17,839) | | | — | | | (1,382) | | | 29,648 | |
| Loss carryforward | | 2,867 | | | 3,747 | | | — | | | (979) | | | — | | | 5,635 | |
| TOTAL | | 57,115 | | | (1,632) | | | (17,839) | | | (979) | | | (1,382) | | | 35,283 | |
(*) Includes foreign exchange loss of 2,983.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | Opening | | Recognized in | | Recognized | | Acquisitions/ | | Additions from | | Closing |
| | balance | | profit or loss (*) | | directly in equity | | disposals | | acquisitions | | balance |
| | | | | | | | | | | | |
| Deferred tax assets/(liabilities) in relation to: | | | | | | | | | | | | |
| Share-based compensation plan | | 19,466 | | | 462 | | | 10,860 | | | — | | | — | | | 30,788 | |
| Provision for vacation and bonus | | 10,370 | | | 13,085 | | | — | | | — | | | 1,166 | | | 24,621 | |
| Intercompany trade payables | | 10,247 | | | 8,366 | | | — | | | — | | | — | | | 18,613 | |
| Property, equipment and intangibles | | (18,275) | | | 1,271 | | | — | | | — | | | (3,508) | | | (20,512) | |
| Goodwill | | (2,799) | | | (882) | | | — | | | — | | | — | | | (3,681) | |
| Allowance for doubtful accounts | | 727 | | | 877 | | | — | | | — | | | — | | | 1,604 | |
| Contingencies | | 992 | | | (636) | | | — | | | — | | | — | | | 356 | |
| Inflation adjustments | | 3,080 | | | (723) | | | — | | | — | | | — | | | 2,357 | |
| Other assets | | (1,122) | | | (282) | | | — | | | — | | | — | | | (1,404) | |
| Others | | 2,160 | | | (654) | | | — | | | — | | | — | | | 1,506 | |
| Subtotal | | 24,846 | | | 20,884 | | | 10,860 | | | — | | | (2,342) | | | 54,248 | |
| Loss carryforward | | 2,963 | | | 217 | | | — | | | (313) | | | — | | | 2,867 | |
| TOTAL | | 27,809 | | | 21,101 | | | 10,860 | | | (313) | | | (2,342) | | | 57,115 | |
(*) Includes foreign exchange loss of 421.
NOTE 10 – EARNINGS PER SHARE
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The earnings and weighted average number of shares used in the calculation of basic and diluted earnings per share are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Net income for the year attributable to owners of the Company | | 148,891 | | | 96,065 | | | 54,217 | |
| Weighted average number of shares (in thousands) for the purpose of basic earnings per share | | 41,929 | | | 40,940 | | | 38,515 | |
| Weighted average number of shares (in thousands) for the purpose of diluted earnings per share | | 42,855 | | | 42,076 | | | 39,717 | |
| BASIC EARNINGS PER SHARE | | $3.55 | | | $2.35 | | | $1.41 | |
| DILUTED EARNINGS PER SHARE | | $3.47 | | | $2.28 | | | $1.37 | |
The following potential ordinary shares are anti-dilutive and are therefore excluded from the weight average number of ordinary shares for the purpose of diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Shares not-deemed to be issued in respect of employee options | | 25 | | | 30 | | | 19 | |
NOTE 11 – CASH AND CASH EQUIVALENTS
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | 2022 | | 2021 |
| | | | |
| Cash and bank balances | | 228,632 | | | 425,823 | |
| Time deposits | | 63,825 | | | 1,981 | |
| TOTAL | | 292,457 | | | 427,804 | |
NOTE 12 – INVESTMENTS
12.1 – Investments
| | | | | | | | | | | | | | |
| | | As of December 31, |
| Current | | 2022 | | 2021 |
| | | | |
Mutual funds (1) | | 47,009 | | | 27,585 | |
Bills issued by the Treasury Department of the U.S. ("T-Bills") (2) | | 1,399 | | | — | |
Commercial Papers (2) | | — | | | 4,996 | |
| TOTAL | | 48,408 | | | 32,581 | |
(1)Measured at fair value through profit or loss.
(2)Measured at fair value through other comprehensive income.
| | | | | | | | | | | | | | |
| | | As of December 31, |
| Non current | | 2022 | | 2021 |
| | | | |
Contribution to funds (3) | | 1,513 | | | 1,027 | |
| TOTAL | | 1,513 | | | 1,027 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
(3)On November 30, 2020, the Company signed a contribution agreement with Vistra ITCL and Pentathlon Ventures LLP, through which the Company committed to invest an aggregate amount approximately 2,000, as of December 31, 2022 and 2021, the Company has paid 1,513 and 1,027, respectively.
12.2 – Investments in associates
Because Energy Corp investment
During 2022 the Company paid an aggregate consideration of 500 in exchange for a 20% equity interest in Because Energy Corp. and accounted for this investment using the equity method considering that the Company has significant influence over the operating and governance decisions of Because Energy Corp., given that the Company participates and has influence in the board of director, the approval of budget and business plan, among other decisions.
As of December 31, 2022, the Company has a 20% of interest in Because Energy Corp.
For the year ended December 31, 2022, the Company share on the profit or loss for the investment in Because Energy Corp. was a loss of 5.
Genexus Japan investment
Through the acquisition of Genexus on April 20, 2022, described in note 26, the Company acquired a 28% interest in Genexus Japan.
As of December 31, 2022, the Company had a 28% of interest in Genexus Japan and accounted for this investment using the equity method considering that the Company has significant influence over the operating and governance decisions of Genexus Japan, as the participation in the board of director, the approval of budget and business plan, among other decisions.
For the year ended December 31, 2022, the Company share on the profit or loss for the investment in Genexus Japan was a loss of 114.
Acamica investment
As of December 31, 2020, the Company had a 47.5% of participation in Acámica Tecnologías S.L. The investment is accounted using the equity method considering that the Company has significant influence over the operating and governance decisions of Acamica Tecnologías S.L., as the interest in the board of director, the approval of budget and business plan, among other decisions.
On April 22, 2021, the Company signed a subscription agreement alongside Fitory S.A., Wayra Argentina S.A., Stultum Pecunian Ventures LLC, Eun Young Hwang and Digital House Group Ltd ("Digital House"), pursuant to which the investors agree to sell their participation in Acamica to Digital House in exchange for the allotment and issuance of shares. However prior to the closing, on April 29, 2021, the Company made an additional contribution to Acamica for an amount of 1,095, increasing its participation to 51.9% obtaining temporary control of Acamica. On June 29, 2021, the subscription agreement was closed.
For the years ended December 31, 2021 and 2020, the Company share on the profit or loss for the investment in Acamica a loss of 233 and 622, respectively.
NOTE 13 – TRADE RECEIVABLES
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| | | | |
| Current | | | | |
Accounts receivable (1) | | 362,495 | | | 274,907 | |
| Unbilled revenue | | 70,141 | | | 31,379 | |
| Subtotal | | 432,636 | | | 306,286 | |
| Less: Allowance for expected credit losses | | (7,214) | | | (6,177) | |
| TOTAL | | 425,422 | | | 300,109 | |
| | | | |
| | | | |
| | | | |
| | | | |
(1)As of December 31, 2022 and 2021, the Company has 14 and 0 as outstanding balances with related parties (see note 24.1).
Allowance for expected credit losses
The following tables detail the risk profile of trade receivables based on the Company's provision matrix as of December 31, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | Trade receivables - days past due |
| | < 30 | | 31 - 60 | | 61 - 90 | | 91-120 | | 121-180 | | 181 - 365 | | > 365 | | Risk clients | | Total |
| Expected credit loss rate | | 0.49% | | 1.47% | | 3.31% | | 8.90% | | 31.18% | | 82.05% | | 100.00% | | 100.00% | | |
| Estimated total gross carrying amount at default | | 65,306 | | | 18,367 | | | 9,335 | | | 4,326 | | | 5,301 | | | 1,359 | | | 859 | | | 2,303 | | | 107,156 | |
| Lifetime ECL | | 320 | | | 270 | | | 309 | | | 385 | | | 1,653 | | | 1,115 | | | 859 | | | 2,303 | | | 7,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | Trade receivables - days past due |
| | < 30 | | 31 - 60 | | 61 - 90 | | 91-120 | | 121-180 | | 181 - 365 | | > 365 | | Risk clients | | Total |
| Expected credit loss rate | | 0.59% | | 1.20% | | 2.66% | | 8.20% | | 31.50% | | 67.63% | | 100.00% | | 100.00% | | |
| Estimated total gross carrying amount at default | | 24,028 | | | 12,458 | | | 5,168 | | | 1,695 | | | 2,642 | | | 920 | | | 702 | | | 3,452 | | | 51,065 | |
| Lifetime ECL | | 142 | | | 150 | | | 138 | | | 139 | | | 832 | | | 622 | | | 702 | | | 3,452 | | | 6,177 | |
The movements in the allowance are calculated based on lifetime expected credit loss model for 2022 and 2021.
The following table shows the movement in ECL that has been recognized for trade receivables in accordance with the simplified approach:
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Balance at beginning of year | | (6,177) | | | (5,755) | | | (3,676) | |
| Additions related to Travel and Hospitality clients (note 32) | | — | | | (2,228) | | | (3,194) | |
| (Additions) Recoveries, net (note 4.2) | | (6,364) | | | (5,323) | | | 107 | |
| Write-off of receivables | | 5,327 | | | 7,129 | | | 980 | |
| Translation | | — | | | — | | | 28 | |
| Balance at end of year | | (7,214) | | | (6,177) | | | (5,755) | |
The average credit period on sales is 73 days. No interest is charged on trade receivables, except for certain customers to which financing facilities have been given with the corresponding financing charge. The Company always measures the loss allowance for trade receivables at an amount equal to lifetime ECL. The expected credit losses on trade receivables are estimated using the provision matrix by reference to past default experience of the debtor and an analysis of the debtor's current
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
financial position, adjusted for factors that are specific to the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as well as the forecast direction of conditions at the reporting date. As of December 31, 2020 the expected credit losses increased considerably due to the outbreak of Coronavirus ("COVID-19") at the beginning of the fiscal year, see note 32.
NOTE 14 – OTHER RECEIVABLES
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| Other receivables | | | | |
| Current | | | | |
| Tax credit - VAT | | 2,270 | | | 2,904 | |
| | | | |
| Income tax credits | | 16,985 | | | 12,213 | |
| Tax credit - Knowledge Law (note 3.7.1.1) | | 22,564 | | | 18,645 | |
| Other tax credits | | 2,159 | | | 1,920 | |
| Guarantee deposits | | 61 | | | 455 | |
| Advances to suppliers | | 3,082 | | | 2,750 | |
| Prepaid expenses | | 18,543 | | | 10,029 | |
| Loans granted to employees | | 126 | | | 105 | |
| Other | | 4,422 | | | 173 | |
| TOTAL | | 70,212 | | | 49,194 | |
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | 2022 | | 2021 |
| Non-current | | | | |
| Tax credit - VAT | | 1,622 | | | 1,193 | |
| Income tax credits | | 6,006 | | | 10,671 | |
| Tax credit - Software Promotion Regime (note 3.7.1.1) | | — | | | 8 | |
| Tax credit - Knowledge Law (note 3.7.1.1) | | — | | | 5,951 | |
| Other tax credits | | 359 | | | 100 | |
| Guarantee deposits | | 5,942 | | | 4,390 | |
| Loans granted to employees | | — | | | 101 | |
| Prepaid expenses | | 816 | | | 1,172 | |
| Other | | 1,571 | | | 677 | |
| | | | |
| | | | |
| TOTAL | | 16,316 | | | 24,263 | |
As of December 31, 2021 and 2020, the Company recorded a recovery for an amount of 269 and 7, respectively, based on assumptions about expected credit losses. The Company uses judgment in making these assumptions based on existing regulatory conditions as well as forward looking estimates, which are described as follows. The tax credits included in the allowance for impairment are mainly related to Argentine taxation. The Company estimated the future VAT credit and VAT debit that comes from domestic purchases and sales, respectively. Since exports are zero-rated, any excess portion of the credit not used against any VAT debit is reimbursable to the Company, through a special VAT recovery regime. However, according to VAT recovery rules, there are certain limitations on the amount that may be reimbursed and the Company considered any VAT credit that cannot be reimbursed to be an impairment.
Roll forward of the allowance for impairment of tax credits
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Balance at beginning of year | | — | | | 269 | | | 378 | |
| (Recovery) additions (note 4.4) | | — | | | (269) | | | (7) | |
| Foreign exchange | | — | | | — | | | (102) | |
| Balance at end of year | | — | | | — | | | 269 | |
NOTE 15 – PROPERTY AND EQUIPMENT
The Company reviews the estimated useful lives of property and equipment at the end of each reporting period. The Company determined that the useful lives of the assets included as property and equipment are in accordance with their expected lives.
Property and equipment as of December 31, 2022 included the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Computer equipment and software | | Furniture and office supplies | | Office fixtures | | Vehicles | | Buildings | | Lands | | Properties under construction | | Total |
| Useful life (years) | | 3 | | 5 | | 3 - 5 | | 5 | | 50 | | | | | | |
| Cost | | | | | | | | | | | | | | | | |
| Values at beginning of year | | 66,602 | | | 14,207 | | | 68,302 | | | 240 | | | 13,971 | | | 2,354 | | | 62,614 | | | 228,290 | |
| Additions related to business combinations (note 26.2) | | 650 | | | 147 | | | 398 | | | 128 | | | — | | | — | | | — | | | 1,323 | |
| Additions | | 26,542 | | | 2,599 | | | 1,269 | | | — | | | — | | | — | | | 22,749 | | | 53,159 | |
| Derecognition | | (776) | | | (458) | | | (296) | | | — | | | — | | | — | | | — | | | (1,530) | |
| Transfers | | 1 | | | (9) | | | 8,667 | | | — | | | 17,534 | | | — | | | (26,193) | | | — | |
| Translation | | (182) | | | (7) | | | (130) | | | (92) | | | — | | | — | | | 4 | | | (407) | |
| Values at end of year | | 92,837 | | | 16,479 | | | 78,210 | | | 276 | | | 31,505 | | | 2,354 | | | 59,174 | | | 280,835 | |
| | | | | | | | | | | | | | | | |
| Depreciation | | | | | | | | | | | | | | | | |
| Accumulated at beginning of year | | 42,024 | | | 8,475 | | | 42,915 | | | 11 | | | 1,492 | | | — | | | — | | | 94,917 | |
| Additions | | 13,899 | | | 2,896 | | | 8,110 | | | 82 | | | 337 | | | — | | | — | | | 25,324 | |
| Derecognition | | (746) | | | (397) | | | (286) | | | — | | | — | | | — | | | — | | | (1,429) | |
| Translation | | 184 | | | 9 | | | 77 | | | 20 | | | — | | | — | | | — | | | 290 | |
| Accumulated at end of year | | 55,361 | | | 10,983 | | | 50,816 | | | 113 | | | 1,829 | | | — | | | — | | | 119,102 | |
| Carrying amount | | 37,476 | | | 5,496 | | | 27,394 | | | 163 | | | 29,676 | | | 2,354 | | | 59,174 | | | 161,733 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Property and equipment as of December 31, 2021 included the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Computer equipment and software | | Furniture and office supplies | | Office fixtures | | Vehicles | | Buildings | | Lands | | Properties under construction | | Total |
| Useful life (years) | | 3 | | 5 | | 3 - 5 | | 5 | | 50 | | | | | | |
| Cost | | | | | | | | | | | | | | | | |
| Values at beginning of year | | 50,332 | | | 10,084 | | | 51,568 | | | 79 | | | 13,907 | | | 2,354 | | | 49,803 | | | 178,127 | |
| Additions related to business combinations (note 26.2) | | 71 | | | 781 | | | 456 | | | 273 | | | — | | | — | | | — | | | 1,581 | |
| Additions | | 17,644 | | | 3,709 | | | 1,372 | | | — | | | 64 | | | — | | | 28,591 | | | 51,380 | |
| Disposals | | (1,462) | | | (418) | | | (506) | | | (138) | | | — | | | — | | | (322) | | | (2,846) | |
| Transfers | | — | | | — | | | 15,454 | | | — | | | — | | | — | | | (15,454) | | | — | |
| Translation | | 17 | | | 51 | | | (42) | | | 26 | | | — | | | — | | | (4) | | | 48 | |
| Values at end of year | | 66,602 | | | 14,207 | | | 68,302 | | | 240 | | | 13,971 | | | 2,354 | | | 62,614 | | | 228,290 | |
| | | | | | | | | | | | | | | | |
| Depreciation | | | | | | | | | | | | | | | | |
| Accumulated at beginning of year | | 32,647 | | | 6,651 | | | 36,601 | | | 17 | | | 1,184 | | | — | | | — | | | 77,100 | |
| Additions | | 10,571 | | | 2,073 | | | 6,811 | | | 36 | | | 308 | | | — | | | — | | | 19,799 | |
| Disposals | | (1,216) | | | (279) | | | (460) | | | (54) | | | — | | | — | | | — | | | (2,009) | |
| Translation | | 22 | | | 30 | | | (37) | | | 12 | | | — | | | — | | | — | | | 27 | |
| Accumulated at end of year | | 42,024 | | | 8,475 | | | 42,915 | | | 11 | | | 1,492 | | | — | | | — | | | 94,917 | |
| Carrying amount | | 24,578 | | | 5,732 | | | 25,387 | | | 229 | | | 12,479 | | | 2,354 | | | 62,614 | | | 133,373 | |
NOTE 16 – INTANGIBLE ASSETS
The Company reviews the estimated useful lives of intangible assets at the end of each reporting period. The Company determined that the useful lives of the assets included as intangible assets are in accordance with their expected lives.
If any impairment indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of fair value less costs of disposal and value in use. The discount rate use is the appropriate weighted average cost of capital.
During the year, the Company considered the recoverability of its internally generated intangible asset which are included in the consolidated financial statements as of December 31, 2022 and 2021 with a carrying amount of 43,170 and 32,227, respectively.
As of December 31, 2022 and 2021 no impairment were recognized.
As of December 31, 2020, the Company has recognized an impairment of 83. The impairment was recognized as a result of the Company's evaluation of such internal developments, upon which the Company projected lower future cash flows from the related intangible assets.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Intangible assets as of December 31, 2022 included the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Licenses and internal developments | | Customer relationships and contracts | | Platforms | | Non-compete agreements | | Cryptocurrencies(*) | | Total |
| Useful life (years) | | 5 | | 1 - 9 | | 4 - 8 | | 3 | | | | |
| Cost | | | | | | | | | | | | |
| Values at beginning of year | | 99,036 | | | 85,807 | | | — | | | 1,990 | | | 1,216 | | | 188,049 | |
| Additions related to business combinations (note 26.2) | | 6,730 | | | 41,802 | | | 33,370 | | | 353 | | | — | | | 82,255 | |
| Additions from separate acquisitions | | 8,844 | | | — | | | — | | | 131 | | | 843 | | | 9,818 | |
| Additions from internal development | | 36,871 | | | — | | | — | | | — | | | — | | | 36,871 | |
| Derecognition | | (6,170) | | | — | | | — | | | — | | | (12) | | | (6,182) | |
| | | | | | | | | | | | |
| Translation | | (10) | | | (986) | | | — | | | (60) | | | — | | | (1,056) | |
| Values at end of year | | 145,301 | | | 126,623 | | | 33,370 | | | 2,414 | | | 2,047 | | | 309,755 | |
| | | | | | | | | | | | |
| Amortization and impairment | | | | | | | | | | | | |
| Accumulated at beginning of year | | 56,460 | | | 28,552 | | | — | | | 941 | | | 80 | | | 86,033 | |
| Additions | | 33,521 | | | 12,945 | | | 419 | | | 480 | | | — | | | 47,365 | |
| Impairment loss recognized in profit or loss | | — | | | — | | | — | | | — | | | 1,017 | | | 1,017 | |
| Derecognition | | (4,651) | | | — | | | — | | | — | | | — | | | (4,651) | |
| Translation | | (52) | | | (1,505) | | | — | | | (64) | | | — | | | (1,621) | |
| Accumulated at end of year | | 85,278 | | | 39,992 | | | 419 | | | 1,357 | | | 1,097 | | | 128,143 | |
| Carrying amount | | 60,023 | | | 86,631 | | | 32,951 | | | 1,057 | | | 950 | | | 181,612 | |
(*) As of December 31, 2022, the Company´s crypto assets are comprised by Bitcoin, Ethereum and Stable Coin.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Intangible assets as of December 31, 2021 included the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Licenses and internal developments | | Customer relationships and contracts | | Non-compete agreements | | Cryptocurrencies (*) | | Total |
| Useful life (years) | | 5 | | 1 - 9 | | 3 | | | | |
| Cost | | | | | | | | | | |
| Values at beginning of year | | 72,538 | | | 74,792 | | | 834 | | | — | | | 148,164 | |
| Additions related to business combinations (note 26.2) | | 2,031 | | | 11,017 | | | 1,156 | | | — | | | 14,204 | |
| Additions from separate acquisitions | | 7,316 | | | — | | | — | | | 1,216 | | | 8,532 | |
| Additions from internal development | | 29,713 | | | — | | | — | | | — | | | 29,713 | |
| Disposals | | (12,565) | | | — | | | — | | | — | | | (12,565) | |
| Translation | | 3 | | | (2) | | | — | | | — | | | 1 | |
| Values at end of year | | 99,036 | | | 85,807 | | | 1,990 | | | 1,216 | | | 188,049 | |
| | | | | | | | | | |
| Amortization and impairment | | | | | | | | | | |
| Accumulated at beginning of year | | 47,360 | | | 13,459 | | | 624 | | | — | | | 61,443 | |
| Additions | | 21,244 | | | 15,093 | | | 317 | | | — | | | 36,654 | |
| Impairment loss recognized in profit or loss | | — | | | — | | | — | | | 80 | | | 80 | |
| Disposals | | (12,153) | | | — | | | — | | | — | | | (12,153) | |
| Translation | | 9 | | | — | | | — | | | — | | | 9 | |
| Accumulated at end of year | | 56,460 | | | 28,552 | | | 941 | | | 80 | | | 86,033 | |
| Carrying amount | | 42,576 | | | 57,255 | | | 1,049 | | | 1,136 | | | 102,016 | |
(*) As of December 31, 2021, the Company´s crypto assets are comprised by Bitcoin and Ethereum.
NOTE 17 – OTHER ASSETS
The Company bills customers and receives invoices from suppliers based on a billing schedule established in the subscription resales contracts. Therefore, the outstanding balance of other assets includes the right to consideration related to subscriptions that have not yet been invoiced by the Company, and trade payables includes the expenses accrual for the cost that have not yet been invoiced by the suppliers.
The outstanding balance of other assets as of December 31, 2022 and 2021 is as follows:
| | | | | | | | | | | | | | |
| | As of December 31, |
| | 2022 | | 2021 |
| Other assets | | | | |
| Current | | | | |
| Unbilled Subscriptions | | 15,197 | | | 7,855 | |
| Non-current | | | | |
| Unbilled Subscriptions | | 10,657 | | | 8,583 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 18 – OTHER FINANCIAL ASSETS AND LIABILITIES
| | | | | | | | | | | | | | |
| | As of December 31, |
| | 2022 | | 2021 |
| Other financial assets | | | | |
| Current | | | | |
| Convertible notes | | 2,491 | | 1,267 |
| Equity instruments | | 371 | | | — | |
| Foreign exchange forward contracts | | 3,509 | | 758 |
| Interest rate SWAP | | 155 | | | — | |
| | | | |
| | | | |
| Others | | 3 | | | 32 | |
| TOTAL | | 6,529 | | 2,057 |
| | | | |
| Non-current | | | | |
| Convertible notes | | 4,193 | | 2,608 |
| Equity instruments | | 27,521 | | 22,088 | |
| Interest rate SWAP | | 3,261 | | 534 | |
| | | | |
| | | | |
| Others | | 3 | | | 3 | |
| TOTAL | | 34,978 | | 25,233 |
| | | | |
| Other financial liabilities | | | | |
| Current | | | | |
| Other financial liabilities related to business combinations (note 26) | | 50,889 | | 61,561 |
| Put option on minority interest of Walmeric | | 3,871 | | | — | |
| Foreign exchange forward contracts | | 3,575 | | 1,498 | |
| Equity forward contract | | 981 | | | — | |
| TOTAL | | 59,316 | | 63,059 |
| | | | |
| Non-current | | | | |
Other financial liabilities related to business combinations (note 26) (1) | | 73,802 | | 45,803 |
| Put option on minority interest of Walmeric | | 5,515 | | | 15,423 | |
| Equity forward contract | | 2,905 | | | — | |
| | | | |
| TOTAL | | 82,222 | | 61,226 |
(1) As part of the acquisition of Grupo ASSA, the sellers agreed to indemnify the Company for the outcome of certain contingencies. As a result, the Company has recognized an indemnification asset for a total amount of 6,071 and 2,883, as of December 31, 2022 and 2021, respectively. The consideration for this acquisition includes 9,398 and 16,748 (9,539 and 17,000 measured at present value, respectively) as of December 31, 2022 and 2021, which is subject to adjustments, deductions and withholdings related to the indemnified contingencies. Consequently, the Company has off-set the indemnification asset against the amount payable to the sellers.
18.1 Equity Instruments
Digital House investment
On December 31, 2020, Globant España S.A. entered into a share purchase agreement along side other two partners to acquire between the three of them 614,251 shares of Digital House Group Ltd, which 204,750 correspond to Globant España S.A, such amount was acquired for 9,167. On April 22, 2021, the Company entered into a subscription agreement pursuant to which the investors sell their participation in Acamica in exchange for an increase in Digital House's investment for 5,848. On September
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
30, 2021, the Company paid an additional 862. On July 7, 2022, the Company paid an additional 4,148, increasing it's investment to 17.2%. As of December 31, 2022 and 2021, the Company has a 17.2% and 15.8% equity interest on Digital House, respectively and the amount disclosed is 22,875 and 15,877 as other financial assets non-current, respectively.
As of December 31, 2022, the Company recognized a gain of 2,850 included in the line item "Net change in fair value on financial assets measured at FVOCI".
ELSA investment
On January 15, 2021, Globant España, signed a stock purchase agreement and acquired 4% of ELSA, Corp., for 2,700.
As of December 31, 2022, the Company recognized a loss of 2,047 included in the line item "Net change in fair value on financial assets measured at FVOCI".
V.U investment
On April, 23, 2021, Globant España, signed a stock purchase agreement and acquired 3% of VU Inc., for 2,200.
Singularity investment
On July 8, 2019 ("issuance date"), Globant España S.A. and Singularity Education Group, agreed into a note purchase agreement whereby Globant España S.A. provides financing facility for 1,250. Interest on the entire outstanding principal balance is computed at an annual rate of 5%. Singularity Education Group shall repay the loan in full within 1 year from the effective date. Globant España S.A has the right to convert any portion of the outstanding principal into Conversion Shares of Singularity Education Group.
On August 27, 2020 Globant España S.A decided to convert all the outstanding principal into shares as mentioned in the previous note purchase agreement, Singularity Education Group issued through purchase conversion 10,655,788 shares at $0.1231 per share for a total amount of 1,311, such amount is disclosed as other financial asset non-current.
As of December 31, 2022, the Company recognized a loss of 555 included in the line item "Other comprehensive income".
Queiban investment
On September 12, 2022, Globant España S.A. signed a stock purchase agreement and acquired 3.77% of Queiban S.A. for 1,000.
Latam Airlines investment
In connection with Latam Airlines Group S.A.'s Chapter 11 reorganization plan filed before the United States Bankruptcy Court for the Southern District of New York, the Company received convertible bonds which, on December 23, 2022, were converted into less than 1% of shares of Latam Airlines Group S.A. for 371.
NOTE 19 – TRADE PAYABLES
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | 2022 | | 2021 |
| Current | | | | |
Suppliers (1) | | 35,005 | | | 22,166 | |
| Advanced payments from customers | | 3,529 | | | 7,954 | |
| Expenses accrual | | 50,114 | | | 33,090 | |
| TOTAL | | 88,648 | | | 63,210 | |
(1)As of December 31, 2022 and 2021, the Company has 574 and 0 as outstanding balances with related parties (see note 24.1).
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | |
| | As of December 31, |
| | 2022 | | 2021 |
| Non current | | | | |
| Expenses accrual | | 5,445 | | | 6,387 | |
| TOTAL | | 5,445 | | | 6,387 | |
NOTE 20 – PAYROLL AND SOCIAL SECURITY TAXES PAYABLE
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| Current | | | | |
| Salaries | | 15,592 | | | 12,815 | |
| Social security tax | | 37,716 | | | 25,412 | |
| Provision for vacation, bonus and others | | 148,874 | | | 146,000 | |
| Directors fees | | 187 | | | 214 | |
| Cash-settled scheme | | 1,343 | | | — | |
| Other | | 107 | | | 23 | |
| TOTAL | | 203,819 | | | 184,464 | |
| | | | | | | | | | | | | | |
| | As of December 31, |
| | 2022 | | 2021 |
| Non current | | | | |
| Provision for vacation, bonus and others | | 2,776 | | | — | |
| Cash-settled scheme | | 1,540 | | | — | |
| TOTAL | | 4,316 | | | — | |
NOTE 21 – BORROWINGS
The principal balances of outstanding borrowings under lines of credit with banks and financial institutions were as follows:
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| Centro para el Desarrollo Tecnológico Industrial (Spain) | | 894 | | | 1,484 | |
| Banco Santander (Spain) | | — | | | 850 | |
| Banco Supervielle (Argentina) | | — | | | 71 | |
| Banco Santander (Argentina) | | — | | | 9,835 | |
| | | | |
| Banco Desio (Italia) | | 15 | | | — | |
| BBVA (Mexico) | | 760 | | | — | |
| Liga Nacional de Fútbol Profesional (Spain) | | 1,938 | | | — | |
| Others | | 92 | | | — | |
| TOTAL | | 3,699 | | | 12,240 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Such balances were included as current and non-current borrowings in the consolidated statement of financial position as follows:
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| | | | |
| Current | | | | |
| Bank loans | | 812 | | | 10,156 | |
| Other loans | | 2,026 | | | 149 | |
| Sub-Total | | 2,838 | | | 10,305 | |
| Non-current | | | | |
| Bank loans | | 55 | | | 600 | |
| Other loans | | 806 | | | 1,335 | |
| Sub-Total | | 861 | | | 1,935 | |
| TOTAL | | 3,699 | | | 12,240 | |
On November 1, 2018, Globant, LLC, the Company's U.S. subsidiary, entered into an Amended and Restated ("A&R") Credit Agreement by and among certain financial institutions, as lenders, and HSBC Bank USA, National Association, as administrative agent, issuing bank and swingline lender. The A&R Credit Agreement amended and restated the Credit Agreement dated as of August 3, 2017. Under the A&R Credit Agreement, Globant, LLC could have borrowed (i) up to 50,000 in a single borrowing on or prior to May 1, 2019 under a delayed-draw term loan facility and (ii) up to 150,000 under a revolving credit facility. In addition, Globant, LLC could have requested increases of the maximum amount available under the revolving facility in an aggregate amount not to exceed 100,000. The maturity date of the facilities was October 31, 2023. Pursuant to the terms of the A&R Credit Agreement, interest on loans extended thereunder shall accrue at a rate per annum equal to London Interbank Offered Rate ("LIBOR") plus 1.75%. Globant, LLC’s obligations under the A&R Credit Agreement were guaranteed by the Company and its subsidiary Globant España S.A., and are secured by substantially all of Globant, LLC’s now owned and after-acquired assets. The A&R Credit Agreement contained certain customary negative and affirmative covenants.
On February 6, 2020, Globant, LLC, our US subsidiary (the "Borrower"), entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”), by and among certain financial institutions listed therein, as lenders, and HSBC Bank USA, National Association, as administrative agent, issuing bank and swingline lender. Under the Second A&R Credit Agreement, which amends and restates the existing A&R Credit Agreement dated as of November 1, 2018, the Borrower may borrow (i) up to $100 million in up to four borrowings on or prior to August 6, 2021 under a delayed-draw term loan facility and (ii) up to $250 million under a revolving credit facility. In addition, the Borrower may request increases of the maximum amount available under the revolving facility in an aggregate amount not to exceed $100 million. The maturity date of each of the facilities is February 5, 2025. Pursuant to the terms of the Second A&R Credit Agreement, interest on the loans extended thereunder shall accrue at a rate per annum equal to either (i) LIBOR plus 1.50%, or (ii) LIBOR plus 1.75%, determined based on the Borrower’s Maximum Total Leverage Ratio (as defined in the Second A&R Credit Agreement). The Borrower’s obligations under the Second A&R Credit Agreement are guaranteed by the Company and its subsidiary Globant España S.A., and are secured by substantially all of the Borrower’s now owned and after-acquired assets. The Seconds A&R Credit Agreement principally contains the following covenants: delivery of certain financial information; payment of obligations, including tax liabilities; use of proceeds only for transaction costs payments, for lawful general corporate purposes and working capital; Globant, LLC's Fixed Charge Coverage Ratio shall not be less than 1.25 to 1.00; Globant, LLC's Maximum Total Leverage Ratio shall not exceed 3.00 to 1.00; Globant, LLC or any of its subsidiaries shall not incur in any indebtedness, except for the ones detailed in the agreement; Globant, LLC or any of its subsidiaries shall not assume any Lien; advances to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed 50 outstanding at any time; restricted payments not to exceed 10,000 per year; Globant, LLC shall not maintain intercompany payables owed to any of its Argentina Affiliates except to the extent (i) such payables are originated in transactions made in the ordinary course of business and (ii) the aggregate amount of such payables do not exceed an amount equal to five times the average monthly amount of such Affiliates’ billings for the immediately preceding 12 month period; Globant, LLC's capital expenditures limited to 10% the Company's consolidated net revenue per year and Globant, LLC's annual revenue is to remain at no less than 60% of the Company's consolidated annual revenue; among others.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
On June 2, 2022 the Company signed an amendment and restated the credit agreement with HSBC, pursuant to which the LIBOR rate was replaced by a Secured Overnight Financing Rate ("SOFR") plus 0.10%.
Movements in borrowings are analyzed as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Balance at the beginning of year | | 12,240 | | | 25,968 | | | 51,386 | |
Borrowings related to business combination (note 26.2) (1) (4) | | 3,010 | | | 2,538 | | | 13,969 | |
Proceeds from new borrowings (2) (5) | | — | | | 13,500 | | | 155,108 | |
Payment of borrowings (3) (5) | | (10,760) | | | (30,216) | | | (196,202) | |
Accrued interest (4) | | 2,491 | | | 915 | | | 2,299 | |
Foreign exchange (4) | | (3,127) | | | (375) | | | (592) | |
Translation (4) | | (155) | | | (90) | | | — | |
| TOTAL | | 3,699 | | | 12,240 | | | 25,968 | |
(1) As of December 31, 2022, these borrowings do not have any covenants.
(2) On October 23, 2021, Sistemas Globales, S.A borrowed 10,061 from Banco Santander and will mature in October 2022. On March 23, 2020, March 24, 2020, and April 1, 2020, Globant, LLC borrowed 64,000, 11,000 and 75,000, respectively, under the Amended and Restated Credit Agreement for the year ended December 31, 2020. This loan will mature on February 5, 2025
(3) During the year ended December 31, 2022, the main payments were 9,030 by Sistemas Globales, S.A to Banco Santander related to the principal amount and interests, and Hybrido Worldwide S.L. paid 808 related to the remaining principal amount and interests of the Banco Santander loan between January 3rd and May 23. During the year ended December 31, 2021, the main payments were 25,000 by Globant LLC related to the principal amount of the Amended and Restated Credit Agreement. During the year ended December 31, 2020, the main payments were 523 paid on March 26, 2020 by Avanxo Colombia related to the principal amount of the borrowing with Banco Santander and 126,927 paid by Globant, LLC related to the principal amount and interest of the A&R Credit Agreement. During August and September, 2020, the Company proceed to pay 12,636 of the borrowings related to Grupo Assa acquisition. On October 31, 2020 and December 31,2020 Globant, LLC paid 20,188 and 30,080, respectively, related to the A&R Credit Agreement.
(4) Non-cash transactions.
(5) Cash transactions.
NOTE 22 – TAX LIABILITIES
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| | | | |
| Current | | | | |
| Periodic payment plan | | 16 | | | 379 | |
| VAT payable | | 16,213 | | | 9,927 | |
| Wage withholding taxes | | 2,504 | | | 3,354 | |
| Personal properties tax accrual | | 1,177 | | | 1,139 | |
| Taxes payable related to LEC | | 730 | | | 1,385 | |
| Sales taxes payable | | 560 | | | 100 | |
| Other | | 2,254 | | | 1,787 | |
| TOTAL | | 23,454 | | | 18,071 | |
NOTE 23 – CONTINGENT LIABILITIES
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. The Company records a provision for labor, regulatory and commercial claims where the risk of loss is considered probable. The final resolution of these potential claims is not likely to have a material effect on the results of operations, cash flow or the financial position of the Company.
Breakdown of reserves for lawsuits claims and other disputed matters include the following:
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| | | | |
| Reserve for labor claims | | 185 | | | 5 | |
| Reserve for regulatory claims | | 13,430 | | | 9,632 | |
| TOTAL | | 13,615 | | | 9,637 | |
Roll forward is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| Reserve for labor claims | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Balance at beginning of year | | 5 | | | 53 | | | 91 | |
| Additions | | 370 | | | 8 | | | 72 | |
| Recovery | | (1) | | | (10) | | | (50) | |
| Utilization of provision for contingencies | | (89) | | | (38) | | | — | |
| Foreign exchange | | (100) | | | (8) | | | (60) | |
| Balance at end of year | | 185 | | | 5 | | | 53 | |
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| Reserve for regulatory claims | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Balance at beginning of year | | 9,632 | | | 10,130 | | | 1,511 | |
Additions (3) | | 4,260 | | | 863 | | | 176 | |
| Additions related to business combinations | | 569 | | | — | | | 9,124 | |
| Recovery | | (270) | | | (258) | | | — | |
Utilization of provision for contingencies (4) | | (961) | | | (509) | | | (615) | |
| Foreign exchange | | 200 | | | (594) | | | (66) | |
| Balance at end of year | | 13,430 | | | 9,632 | | | 10,130 | |
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| Reserve for commercial claims | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Balance at beginning of year | | — | | | 2,400 | | | 1,000 | |
Additions (1) | | 700 | | | 5,166 | | | 1,400 | |
Utilization of provision for contingencies (2) | | (700) | | | (7,566) | | | — | |
| Balance at end of year | | — | | | — | | | 2,400 | |
(1) On August 8, 2019, Certified Collectibles Group, LLC (“CCG”) and its affiliates filed a complaint in the U.S. District Court for the Middle District of Florida, Tampa Division, (Civil Action No. 19-CV-1962) against Globant S.A. and Globant, LLC, arising from a dispute relating to a service contract. After several discussions, on July 30, 2021, the parties filed a notice of settlement with the court. The claim was settled in 7,250 (of which 2,700 were covered by insurance reimbursement accounted for in Other Receivables line).
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
(2) On September 15, 2021, the Company made the first of two installment payments related to the settlement with Certified Collectibles Group, LLC. On November 30, 2021 the second installment was paid leaving the liability fully settled.
(3) Between 2010 and 2014, certain of Grupo Assa’s Brazilian subsidiaries were subject to two examinations by the Ministry of Labor (“MTE”) and the Brazilian Internal Revenue Service (“RFB”) in relation to the potential hiring of employees as independent contractors. As a result of such examinations, Grupo Assa’s Brazilian subsidiaries are subject to different administrative and judicial proceedings, seeking to collect payment of taxes and social security contributions allegedly owed by the companies, and impose certain associated fines. As of December 31, 2022, some of these administrative proceedings are still ongoing while others have resulted in judicial proceedings. The recognized liability as of December 31, 2022 and 2021 was 10,858 and 7,670 ,respectively. Under the Equity Purchase Agreement entered into for the acquisition of Grupo ASSA Worldwide S.A. and its affiliates (collectively, “Grupo Assa”), certain of the above mentioned proceedings are subject to indemnification provisions from the sellers for the total amount of 6,071 and 2,883 as of December 31, 2022 and 2021, respectively, accounted for in Other Financial Liabilities line, net. The effect of the increase of this regulatory claim was fully settled by the indemnification provision
(4) Since 2018, certain of our non-U.S. subsidiaries have been under examination by the U.S. Internal Revenue Service ("IRS") regarding payroll and employment taxes primarily in connection with services performed by employees of certain of our subsidiaries in the United States from 2013 to 2015. On May 1, 2018, the IRS issued 30-day letters to those subsidiaries proposing total assessments of 1,400 plus penalties and interest for employment taxes for those years. Our subsidiaries filed protests of these proposed assessments with the IRS on July 16, 2018. Following discussions with the IRS, during the fourth quarter of 2021, the IRS and our subsidiaries have reached a preliminary agreement on the proposed assessments which would amount to 1,300 including applicable interests and penalties. The Company reached a preliminary agreement with the IRS on the proposed assessments. The Company paid 961 on March 16, 2022 in principal, and is waiting for final confirmation on the amounts of the applicable interests and penalties to settle this matter definitely.
NOTE 24 – RELATED PARTIES BALANCES AND TRANSACTIONS
24.1 – Related parties
The Company provides software and consultancy services to certain related parties. Outstanding receivable balances as of December 31, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | |
| | As of December 31, |
| Trade receivables | | 2022 | | 2021 |
| Enigma.art LLC | | 14 | | | — | |
| | | | |
| Total | | 14 | | | — | |
| | | | | | | | | | | |
| As of December 31, |
| Trade payables | 2022 | | 2021 |
| | | |
| Falcon Uru LLC | (574) | | | — | |
| Total | (574) | | | — | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
During the year ended December 31, 2022, 2021 and 2020, the Company recognized the Company recognized the following transactions:
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Revenue | | | | | | |
| Enigma.art LLC | | 915 | | | — | | | — | |
| Studio Eter LLC | | 190 | | | — | | | — | |
| Total | | 1,105 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Costs of revenues and Selling, general and administrative expenses | | | | | | |
| Enigma.art LLC | | (75) | | | — | | | — | |
| Falcon Uru LLC | | (780) | | | — | | | — | |
| Total | | (855) | | | — | | — | | — | |
24.2 – Compensation of key management personnel
The remuneration of directors and other members of key management personnel during each of the three years are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| | | | | | |
| Salaries and bonuses | | 6,768 | | 6,709 | | 6,643 |
| Total | | 6,768 | | 6,709 | | 6,643 |
The remuneration of directors and key executives is determined by the Board of Directors based on the performance of individuals and market trends.
During 2020, the Company granted 88,350, 895, 740 and 52,660 restricted stock units at a grant price of $130.99, $140.00, $170.00 and $189.53, respectively.
During 2021, the Company granted 55,500, 5,000, 1,564, 540, 702 and 468 restricted stock units at grant prices of $298.47, $297.49, $267.19, $232.11, $213.57 and $328.96, respectively.
During 2022, the Company granted 292, 2,220, 300, 78,317 and 324,380 restricted stock units at a grant price of $226, $210, $167, $219 and $138, respectively.
NOTE 25 – EMPLOYEE BENEFITS
25.1 – Share-based compensation plan
In July 2014, the Company adopted a new Equity Incentive Program, the 2014 Plan, which was amended on May 9, 2016, February 13, 2019, May 18, 2021 and June 8, 2022.
Pursuant to this plan, on July 18, 2014, the first trading day of the Company common shares on the NYSE, the Company made the annual grants for 2014 Plan to certain of the executive officers and other employees. The grants included share options with a vesting period of 4 years, becoming exercisable a 25% of the options on each anniversary of the grant date through the fourth anniversary of the grant. Share-based compensation expense for awards of equity instruments is determined based on the fair value of the awards at the grant date.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Each employee share option converts into one ordinary share of the Company on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry (ten years after the effective date).
Share-based compensation expense for awards of equity instruments to employees and non-employee directors is determined based on the grant-date fair value of the awards. Fair value is calculated using Black & Scholes model.
In addition, on December 1, 2021, our compensation committee, as administrator, approved the granting of awards in the form of Stock-Equivalent Units to be settled in cash or common shares ("SEUs Plan"), or a combination thereof, under the 2014 Equity Incentive Plan. The purpose of the SEUs Plan is to provide an incentive to attract, retain and reward talent in the IT industry and to prompt such persons to contribute to the growth and profitability of the Company. The SEUs Plan provides all eligible employees the opportunity of receiving a grant of SEUs with a unit value equal to the market value of one common share of the Company. The SEUs will be settled in cash or common shares of the Company, at the option of the eligible employee, and shall vest during a four years period, in four equal annual installments of 25% each, commencing on the first anniversary of the grant date, 60% of the shares will be tied to retention and 40% will be tied to performance (PSEUs). As of December 31, 2022 the Company have granted 57,779 SEUs and PSEUs, net of any cancelled and/or forfeited awards, all of which were outstanding as of December 31, 2022. Of the stock-equivalent units granted, 50% were in the form of PSEUs and 50% were in the form of SEUs.
During the years 2022 and 2021, as part of the 2014 Equity Incentive Plan, the Company granted awards to certain employees in the form of Restricted Stock Units ("RSUs"), having a par value of $1.20 each, with a specific period of vesting. Each RSU is equivalent in value to one share of the company´s common stock and represents the Company´s commitment to issue one share of the Company's common stock at a future date, subject to the term of the RSU agreement.
Until the RSUs vest, they are an unfunded promise to issue shares of stock to the recipient at some point in the future. The RSUs carry neither rights to dividends nor voting rights. RSU's vesting is subject to the condition that the employee must remain in such condition as of the vesting date.
The Company may determine a percentage of RSU, as part of the full year compensation package payment.
These RSUs agreements have been recorded as Equity Settled transactions in accordance to IFRS 2, and they were measured at fair value of shares at the grant date.
The following shows the evolution of the share options for the years ended at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2022 | | As of December 31, 2021 |
| | | Number of options | | Weighted average exercise price | | Number of options | | Weighted average exercise price |
| | | | | | | | |
| Balance at the beginning of year | | 643,957 | | | 31.79 | | | 857,643 | | | 31.57 | |
| Forfeited during the year | | (2,750) | | | 22.20 | | | — | | | — | |
| Exercised during the year | | (94,380) | | | 37.17 | | | (213,686) | | | 30.93 | |
| Balance at end of year | | 546,827 | | | 30.91 | | | 643,957 | | | 31.79 | |
The following shows the evolution of the RSUs for the years ended at December 31, 2022 and 2021:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2022 | | As of December 31, 2021 |
| | | Number of RSU | | Weighted average grant price | | Number of RSU | | Weighted average grant price |
| | | | | | | | |
| Balance at the beginning of year | | 579,492 | | | 164.73 | | | 664,345 | | | 101.25 | |
| RSU granted during the year | | 801,041 | | | 159.12 | | | 168,669 | | | 276.51 | |
| Forfeited during the year | | (24,506) | | | 178.34 | | | (18,130) | | | 111.37 | |
| Issued during the year | | (266,300) | | | 122.29 | | | (235,392) | | | 89.18 | |
| Balance at end of year | | 1,089,727 | | | 166.04 | | | 579,492 | | | 164.73 | |
The following shows the evolution of the SEUs for the years ended at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | As of December 31, 2021 |
| | Number of SEU | Weighted Average Fair Value | | Number of SEU | | Weighted Average Fair Value |
| | | | | | | |
| Balance at the beginning of year | | — | | — | | | — | | | — | |
| SEU granted during the year | | 61,072 | | 168.16 | | | — | | | — | |
| Forfeited during the year | | (3,293) | | 168.16 | | | — | | | — | |
| Balance at end of year | | 57,779 | | 168.16 | | | — | | | — | |
| | | | | | | |
The following tables summarizes the RSU at the end of the year:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant date | | Grant price ($) | | Number of Restricted Stock Units | | Fair value at grant date ($) | | Expense as of December 31, 2022 ($) (*) |
| | | | | | | | |
| 2018 | | from 36.30 to 42.00 | | — | | | — | | | 973 | |
| | | | | | | | |
| 2019 | | from 46.00 to 55.07 | | 60,849 | | | 5,316 | | | 1,598 | |
| | | | | | | | |
| 2020 | | from 52.10 to 103.75 | | 119,505 | | | 17,901 | | | 8,766 | |
| | | | | | | | |
| 2021 | | from 104.25 to 189.53 | | 117,334 | | | 32,540 | | | 18,828 | |
| | | | | | | | |
| 2022 | | from 184.00 to 328.96 | | 784,296 | | | 122,546 | | | 17,303 | |
| | | | | | | | |
| Subtotal | | | | 1,081,984 | | | 178,303 | | | 47,468 | |
| | | | | | | | |
| Non employees RSU | | | | | | |
| | | | | | | | |
| 2020 | | from 104.25 to 189.53 | | — | | | — | | | (251) | |
| | | | | | | | |
| 2021 | | from 184.00 to 328.96 | | — | | | — | | | 343 | |
| | | | | | | | |
| 2022 | | from 138.00 to 268.31 | | 7,743 | | | 1,414 | | | 460 | |
| | | | | | | | |
| Subtotal | | | | 7,743 | | | 1,414 | | | 552 | |
| Total | | | | 1,089,727 | | | 179,717 | | | 48,020 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The following tables summarizes the share options at the end of the year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant date | | Exercise price ($) | | Number of stock options | | Number of stock options vested as of December 31, 2022 | | Fair value at grant date ($) | | Fair value vested ($) | | Expense as of December 31, 2022 ($) (*) |
| | | | | | | | | | | | |
| 2014 | | 10.00 | | 67,238 | | | 67,238 | | | 226 | | | 226 | | | — | |
| | | | | | | | | | | | |
| 2015 | | from 28.31 to 34.20 | | 126,622 | | | 126,622 | | | 882 | | | 882 | | | — | |
| | | | | | | | | | | | |
| 2016 | | from 29.01 to 39.37 | | 248,467 | | | 248,467 | | | 1,941 | | | 1,941 | | | — | |
| | | | | | | | | | | | |
| 2017 | | from 36.30 to 38.16 | | 7,500 | | | 7,500 | | | 64 | | | 64 | | | — | |
| | | | | | | | | | | | |
| 2018 | | from 44.97 to 55.07 | | 95,000 | | | 95,000 | | | 1,921 | | | 1,921 | | | 479 | |
| | | | | | | | | | | | |
| 2019 | | 52.10 | | 2,000 | | | 1,000 | | | 45 | | | 22 | | | 33 | |
| | | | | | | | | | | | |
| Subtotal | | | | 546,827 | | | 545,827 | | | 5,079 | | | 5,056 | | | 512 | |
| | | | | | | | | | | | |
| Non employees stock options | | | | | | | | | | |
| | | | | | | | | | | | |
| — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| Subtotal | | | | — | | | — | | | — | | | — | | | — | |
| Total | | | | 546,827 | | | 545,827 | | | 5,079 | | | 5,056 | | | 512 | |
(*) Includes social security taxes.
Deferred income tax asset arising from the recognition of the share-based compensation plan amounted to 13,048 and 30,788 for the years ended December 31, 2022 and 2021, respectively.
The following tables summarizes the SEU at the end of the year:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant date | | Grant price ($) | | Number of Restricted Phantom Stock Units | | Fair value at grant date ($) | | Expense as of December 31, 2022 ($) (*) |
| | | | | | | | |
| 2022 | | 268.05 | | 32,371 | | | 8,696 | | | 2,894 | |
| | | | | | | | |
| 2022 | | 210.07 | | 2,918 | | | 615 | | | 237 | |
| | | | | | | | |
| 2022 | | 181.2 | | 16,984 | | | 3,073 | | | 1,221 | |
| | | | | | | | |
| 2022 | | 169.78 | | 5,506 | | | 936 | | | 141 | |
| | | | | | | | |
| Total | | | | 57,779 | | | 13,320 | | | 4,493 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
25.2 - Share options exercised and RSU vested during the year:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2022 | | As of December 31, 2021 |
| | | Number of options exercised | | Exercise price | | Number of options exercised | | Exercise
price |
| | | | | | | | |
| Granted in 2014 | | 1,825 | | | 10.00 | | | 33,687 | | | 10.00 | |
| Granted in 2015 | | 8,385 | | | 28.31 | | | 37,409 | | | 28.31 | |
| Granted in 2015 | | — | | | 34.20 | | | 4,000 | | | 34.20 | |
| | | | | | | | |
| Granted in 2016 | | — | | | 29.01 | | | 30,000 | | | 29.01 | |
| Granted in 2016 | | 33,920 | | | 32.36 | | | 52,840 | | | 32.36 | |
| Granted in 2016 | | 27,000 | | | 39.37 | | | — | | | 39.37 | |
| Granted in 2017 | | — | | | 38.16 | | | 10,000 | | | 38.16 | |
| | | | | | | | |
| Granted in 2018 | | — | | | 44.97 | | | 5,000 | | | 44.97 | |
| Granted in 2018 | | 20,750 | | | 46.00 | | | 38,250 | | | 46.00 | |
| Granted in 2018 | | — | | | 50.92 | | | 1,500 | | | 50.92 | |
| | | | | | | | |
| Granted in 2018 | | 2,500 | | | 55.07 | | | — | | | 55.07 | |
| Granted in 2019 | | — | | | 52.10 | | | 1,000 | | | 52.10 | |
| Balance at end of the year | | 94,380 | | | | | 213,686 | | | |
The average market price of the share amounted to 209.95 and 251.18 for years 2022 and 2021, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The following tables summarizes the RSU vested during the years 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| | Number of RSUs vested | | Grant price | | Number of RSUs vested | | Grant price |
| | |
| Granted in 2017 | | — | | | 36.30 | | | 500 | | | 36.30 | |
| | | | | | | | |
| Granted in 2017 | | — | | | 42.00 | | | 1,625 | | | 42.00 | |
| Granted in 2018 | | 78,192 | | | 46.00 | | | 89,617 | | | 46.00 | |
| Granted in 2018 | | 1,000 | | | 55.07 | | | 1,000 | | | 55.07 | |
| Granted in 2018 | | 1,000 | | | 52.74 | | | 1,000 | | | 52.74 | |
| Granted in 2018 | | 2,500 | | | 50.92 | | | 2,500 | | | 50.92 | |
| Granted in 2019 | | 600 | | | 52.10 | | | 600 | | | 52.10 | |
| Granted in 2019 | | 61,992 | | | 87.44 | | | 66,318 | | | 87.44 | |
| Granted in 2019 | | 1,000 | | | 94.93 | | | 1,000 | | | 94.93 | |
| Granted in 2019 | | 750 | | | 103.75 | | | 750 | | | 103.75 | |
| Granted in 2020 | | 3,125 | | | 137.57 | | | 3,125 | | | 137.57 | |
| | | | | | | | |
| Granted in 2020 | | — | | | 104.25 | | | 2,336 | | | 104.25 | |
| Granted in 2020 | | 38,809 | | | 130.99 | | | 41,046 | | | 130.99 | |
| Granted in 2020 | | — | | | 140.00 | | | 895 | | | 140.00 | |
| Granted in 2020 | | — | | | 170.00 | | | 740 | | | 170.00 | |
| Granted in 2020 | | 15,504 | | | 180.60 | | | — | | | 180.60 | |
| Granted in 2020 | | 250 | | | 184.72 | | | 1,500 | | | 184.72 | |
| Granted in 2020 | | 15,998 | | | 189.53 | | | 18,408 | | | 189.53 | |
| Granted in 2021 | | 1,077 | | | 184.00 | | | — | | | 184.00 | |
| Granted in 2021 | | 2,607 | | | 213.57 | | | 57 | | | 213.57 | |
| Granted in 2021 | | 5,315 | | | 232.11 | | | 2,375 | | | 232.11 | |
| Granted in 2021 | | 323 | | | 288.64 | | | — | | | 288.64 | |
| Granted in 2021 | | 16,375 | | | 298.47 | | | — | | | 298.47 | |
| Granted in 2021 | | 468 | | | 328.96 | | | — | | | 328.96 | |
| Granted in 2021 | | 1,500 | | | 297.49 | | | — | | | 297.49 | |
| Granted in 2021 | | 12,608 | | | 267.19 | | | — | | | 267.19 | |
| Granted in 2022 | | 2,585 | | | 219.34 | | | — | | | 219.34 | |
| Granted in 2022 | | 196 | | | 225.30 | | | — | | | 225.30 | |
| Granted in 2022 | | 1,662 | | | 226.30 | | | — | | | 226.30 |
| Granted in 2022 | | 655 | | | 167.46 | | — | | | 167.46 |
| Granted in 2022 | | 189 | | | 268.31 | | — | | | 268.31 |
| Granted in 2022 | | 20 | | | 218.57 | | — | | | 218.57 |
| Balance at end of the year | | 266,300 | | | | | 235,392 | | | |
25.3 - Fair value of share-based compensation granted
Determining the fair value of the stock-based awards at the grant date requires judgment. The Company calculated the fair value of each option award on the grant date using the Black-Scholes option pricing model. The Black-Scholes model requires the input of highly subjective assumptions, including the fair value of the Company's shares, expected volatility, expected term, risk-free interest rate and dividend yield.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company estimated the following assumptions for the calculation of the fair value of the share options:
| | | | | | | | |
| Assumptions | | Granted in
2019 for 2014 plan |
| Stock price | | 52.10 |
| Expected option life | | 6 years |
| Volatility | | 40% |
| Risk-free interest rate | | 3.10% |
There were no granted stock options as of December 31, 2022 and 2021.
The Company's grants under its share-based compensation plan with employees are measured based on fair value of the Company's shares at the grant date and recognized as compensation expense on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
The Company calculated the fair value of each option award on the grant date using the Black-Scholes option pricing model. The Black-Scholes model requires the input of highly subjective assumptions, including the fair value of the Company's shares, expected volatility, expected term, risk-free interest rate and dividend yield.
Fair value of the shares: For 2014 Equity Incentive Plan, the fair value of the shares is based on the quote market price of the Company's shares at the grant date.
Expected volatility:The expected volatility of the Company's shares is calculated by using the average share price volatility of the Company since January 1, 2016 to the date of grant.
Expected term: The expected life of options represents the period of time the granted options are expected to be outstanding.
Risk free rate: The risk-free rate for periods within the contractual life of the option is based on the U.S. Federal Treasury yield curve with maturities similar to the expected term of the options.
Dividend yield: The Company has never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero.
25.4 - Equity-settled share-based payments under 2014 Equity Incentive Plan and 2021 Employee Share Purchase Plan
During the twelve months ended December 31, 2022, the Company granted a total of 199,825 awards under the Company's 2014 Equity Incentive Plan, net of cancelled and forfeited awards. Most of these awards were comprised of 50% RSUs and 50% PRSUs. RSUs and PRSUs have generally been granted with a vesting period of four years, 25% becoming vested on or about each anniversary of the grant date. In addition, on August 1, 2022, the Company approved the grant of up to 600,000 additional awards under the Company's 2014 Equity Incentive Plan, 50% of which are PRSUs and 50% of which are RSUs. These additional awards will vest based on the achievement of a certain minimum average closing price of the Company's common shares on or prior to August 11, 2030. The threshold price for vesting will be $420 per share through August 10, 2025 and increase by $42 each year until August 11, 2030. These awards will vest in two equal tranches occurring the first one immediately after the date in which the vesting condition is satisfied and the second occurring on the first anniversary of such vesting event. As of December 31, 2022, the Company granted 597,521 of these awards.
In March 2021, the Company adopted the Globant S.A. 2021 Employee Share Purchase Plan (the "ESPP") which provides eligible employees with an opportunity to acquire a proprietary interest in the Company through the purchase of the Company's common shares.
The ESPP permits participants to purchase Common Shares through payroll deductions defined by the employee up to a maximum percentage set in each country of their eligible compensation. The ESPP will typically be implemented through consecutive six-month offering periods. Amounts deducted and accumulated from participant compensation will be used to purchase Common Shares at the end of each offering period. Under the terms of the ESPP, the purchase price of the shares shall not be less than 90.0% of the lower of the fair market value of a Common Share on the first trading day of the offering period or
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
on the purchase date. Subject to adjustment as provided by the ESPP and unless otherwise provided by the Compensation Committee, the purchase price for each offering period shall be 90% of the fair market value of a Common Share on the purchase date.
During the twelve months ended December 31, 2022, and the year ended December 31, 2021, in connection with the ESPP Plan, the Company has repurchased 46,500 and 27,000, respectively, and 39,136 and 7,453 have been delivered.
Fair value of share-based compensation granted in 2022
Share-based compensation expense for awards of equity instruments to employees and non-employee directors is determined based on the grant-date fair value of the awards. Fair value is calculated using the American Binomial model.
The American Binomial model requires the input of highly subjective assumptions, including the fair value of the Company's shares, expected volatility, expected term and risk-free interest rate.
| | | | | | |
| Assumptions | Granted in 2022 for 2014 Plan | |
| Stock price | 206.23 | |
| Expected life | 7 years | |
| Volatility | 42.78% | |
| Risk-free interest rate | 2.63% | |
The Company estimated the following assumptions for the calculation of the fair value of the awards:
Fair value of the shares: For the 2014 Equity Incentive Plan, the fair value of the shares is based on the quoted market price of the Company's shares at the grant date.
Expected volatility: The expected volatility of the Company's shares is calculated by using the average share price volatility of the Company since July 1, 2014 to the date of grant, excluding COVID-19 pandemic period from March 2020 to May 2020.
Expected term: The expected life of awards represents the period of time the granted awards are expected to be outstanding.
Risk free rate: The risk-free rate for periods within the contractual life of the award is based on the U.S. Federal Treasury yield curve with maturities similar to the expected term of the awards.
25.5 Cash-settled share-based payments under 2014 Equity Incentive Plan
On December 1, 2021, our Compensation Committee approved the granting of awards in the form of Stock-Equivalent Units to be settled in cash or common shares ("SEUs Plan"), or a combination thereof, under the 2014 Equity Incentive Plan. The purpose of the SEUs Plan is to provide an incentive to attract, retain and reward talent in the IT industry and to prompt such persons to contribute to the growth and profitability of the Company. The SEUs Plan provides all eligible employees the opportunity of receiving a grant of SEUs with a unit value equal to the market value of one common share of the Company, to be settled in cash or common shares of the Company.
As of December 31, 2022, the Company has granted 61,072 stock equivalent units. As of December 31, 2021 no award was granted.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 26 – BUSINESS COMBINATIONS
26.1 Business combinations 2022
During 2022 the Company made some individually immaterial acquisitions which were completed primarily to expand our services and solutions offerings.
On April 20, 2022, the Company, through its subsidiaries Globant España S.A. and Software Product Creation S.L, entered into an Equity Purchase Agreement (the "Purchase Agreement") with the equity holders of Genexus S.A. an Uruguayan corporation and its subsidiaries Genexus International Corp an American corporation and Kurfur S.A. an Uruguayan corporation, Advanced Research & Technology, S.A. de C.V., a Mexican corporation, Artech Informática do Brasil Ltda and Newtech Informática Ltda., both Brazilian corporations, all together "Genexus", pursuant to which the Company purchased all of the outstanding interest in Genexus. Genexus is a company specialized in low-code tool enriched with artificial intelligence, to create, develop and maintain end-to-end solutions ready to run on all sorts of devices. The Share Purchase Agreement was signed on April 20, 2022 and the closing date was on May 31, 2022.
On July 29, 2022, the Company, through its subsidiary Globant España S.A. entered into an Equity Purchase Agreement with the equity holders of Sysdata SPA. ("Sysdata"), an Italian joint stock company pursuant to which the Company purchased all of the outstanding interest in Sysdata. Sysdata's business consists in provision of advisory services and end-to-end digital transformation process. The Equity Purchase Agreement was signed on July 29, 2022 and the closing date was on September 23, 2022.
On November 4, 2022, the Company, through its subsidiary Globant Brasil Consultoria Ltda. entered into an Equity Purchase Agreement with the equity holders of Nescara Ltda. ("Nescara"), a Brazilian limited liability company pursuant to which the Company purchased all of the outstanding interest. The transaction was simultaneously signed and closed. Nescara's business consists in strategic consulting, implementation, development and support services provider across major Salesforce cloud solutions.
On November 7, 2022, the Company, through its subsidiaries Globant España S.A. and Software Product Creation S.L. entered into an Equity Purchase Agreement with the equity holders of KTBO S.A., an Argentine company, KTBO Brasil Comunicacoes Digitais Ltda, a Brazilian company, KTBO Chile SpA, a Chilean company, KTBO Colombia S.A.S., a Colombian company, KTBO S.A. de C.V. and Contenidos Digitales KTBO, S.C., Mexican companies, and KTBO S.A.C., a Peruvian company, all together "KTBO", pursuant to which the Company purchased all of the outstanding interest. The transaction was simultaneously signed and closed. KTBO's business consists of the provision of services related to Strategy & Research, Business Intelligence, Creativity, Content & Community Mgmt, Business Management, Multimedia Design, Production, Media Buying, Innovation & Development, Growth & UX, Influencer Marketing.
On November 16, 2022, the Company, through its subsidiary IAFH Investment España S.L. entered into a Share and Option Purchase Agreement with the equity holders of eWave Holdings Pty Ltd, an Australian company, and its subsidiaries Nasko Trading Pty Ltd., an Australian company, eWave Limited, a Hongkones company, CommerceLab Pte Ltd., a Belarusian company, eWave Ukraine, an Ukrainian company, Zhonshang Yi Wei Technologies Limited, a Chinese company, eWave Bulgaria, a Bulgarian company, eWave Contracting Services (HK) Limited, a Hongkones company, all together "eWave", pursuant to which the Company purchased all of the outstanding interest. The transaction was simultaneously signed and closed. eWave's business is a Global, Enterprise-Class digital commerce experience enablement consultancy.
On November 21, 2022, the Company, through its subsidiary Globant España S.A. entered into a Share Purchase Agreement with the equity holders of Vertic A/S, Danish company, and its subsidiaries VHCG ApS, a Danish company, and Vertic Portals Inc., an American company, all together "Vertic", pursuant to which the Company purchased all of the outstanding interest. The transaction was simultaneously signed and closed. Vertic's business consists of digital consultancy. The agency creates digital experiences based on technology, design and data.
On December 21, 2022, the Company, through its subsidiary Globant España S.A. entered into an Equity Purchase Agreement with the equity holders of Adbid Latinoamerica S.A.S, a Colombian company, Adbid Latam MX S.A. de C.V., a Mexican company, and Procesalab S.A.S., a Colombian company, all together "Adbid", pursuant to which the Company purchased all of the outstanding interest. The transaction was simultaneously signed and closed. Adbid's business consists of performance digital agencies, focused on performance marketing strategy, operates advertising investment among others in Google, YouTube,
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Amazon, and other social media platforms, e-commerce advertising and web analytics in connection with the foregoing and as data and dashboarding services.
On September 28, 2022, the Company, through its subsidiary Software Product Creation, S.L. entered into a Participation Agreement with La Liga Group International, S.L. (“LGI”), the equity holders of Sports Reinvention Entertainment Group, S.L. (“LaLiga Tech”), a Spanish company which was constituted in December 2022, pursuant to which the Company owned an outstanding interest equal to 51%. The purpose of this Agreement is to create, through La Liga Tech, a new business to reinvent the sports and entertainment industries through technology, and expand digital solutions offered by leveraging Web 3.0, Metaverse, Gaming, and many other rising technologies. The Agreement was signed on September 28, 2022 and the closing date was on December 23, 2022.
The table below gives additional details related to these acquisitions:
| | | | | | | | |
| | Fair value of the consideration transferred at the acquisition date |
Down payment (1) | | 197,976 | |
| Working capital adjustment | | 53 | |
Installment Payments (2) | | 35,808 | |
Contingent consideration (3) | | 38,011 | |
| Total consideration | | 271,848 | |
(1) Payment in cash 172,445 and 25,531 in G-shares.
(2) Contains 11,620 of liability, current and non-current, payable in a variable number of shares.
(3) As of December 31, 2022 included 2,923 and 35,088 as Other financial liabilities current and non-current, respectively.
For contingent considerations, an estimate of the range of outcomes and the significant inputs related are disclosed in note 29.9.1
Acquisition related expenses were not material and were recognized directly as expensed.
As of the date of issuance of these consolidated financial statements, due to recent acquisition of La Liga Tech, eWave and Abdid, the accounting for those acquisitions is incomplete; hence, pursuant the guidance in IFRS 3, the Company has included preliminary amounts and disclosures as it relates to:
• Fair value of the total consideration transferred since the Company has not completed the fair value analysis of the consideration transferred as of the date of issuance of these financial statements.
• The amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed, the total amount of goodwill (including a qualitative description of the factors that make up the goodwill recognized and the amount of goodwill that will be deducted for tax purposes) and other intangibles, as applicable.
• The gross contractual amounts of the acquired receivables, and the best estimate at the acquisition date of the contractual cash flows not expected to be collected. For each contingent liability to be recognized, if any, an estimate of its financial effect, an indication of the uncertainties relating to the amount or timing of any outflow and the possibility of any reimbursement, and the reasons why the liability cannot be measured reliably, if applicable.
• The amount of revenues and profit or loss of the acquired subsidiaries since the acquisition date, and the amount of revenues and profit or loss of the combined entity as if the acquisition has been made at the beginning of the reporting period, since the acquired subsidiaries did not have available financial information prepared under IFRS at the acquisition date. The preparation of this information under IFRS has not been completed as of the date of issuance of these financial statements.
• The amount of the non–controlling interest in the acquired companies recognized at the acquisition date.
The preliminary fair value of the consideration transferred for the Acquisition at the acquisition date was calculated as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
26.2 - Purchase Price Allocation
As of December 31, 2022, the fair values of the assets acquired, liabilities assumed and goodwill amounted to 185,959, 56,930 and 188,288, respectively, from which certain acquisitions are determined on preliminary basis and amounted to 120,670, 21,471 and 70,311, respectively, determined at the date of acquisition in the business combinations.
As of December 31, 2021, the fair values of the assets acquired, liabilities assumed and goodwill amounted to 52,870, 20,476 and 174,005, respectively, from which certain business combinations are determined on preliminary basis and amounted to 11,205, 4,709 and 66,905, respectively, determined at the date of acquisition in the business combinations.
| | | | | | | | | | | | | | | |
| | | As of December 31, |
| | 2022 | | 2021 | |
| | | | | |
| Current assets | | | | | |
| Cash and cash equivalents | | 46,075 | | | 16,604 | | |
| Investments | | 1,152 | | | 113 | | |
| Trade receivables | | 34,151 | | | 17,719 | | |
| Other receivables | | 8,022 | | | 1,117 | | |
| | | | | |
| Other assets | | 3 | | | — | | |
| | | | | |
| Non current assets | | | | | |
| Other receivables | | 372 | | | 608 | | |
| Other financial assets | | — | | | 2 | | |
| Property and equipment | | 1,323 | | | 1,581 | | |
Intangibles (1) | | 82,255 | | | 14,204 | | |
| Right-of-use asset | | 3,624 | | | — | | |
| Deferred tax | | 8,265 | | | 922 | | |
| Investment in associates | | 717 | | | — | | |
Goodwill (2) | | 188,288 | | | 174,005 | | |
| | | | | |
| Current liabilities | | | | | |
| Trade and other payables | | (22,468) | | | (7,724) | | |
| Lease liabilities | | (716) | | | — | | |
| Tax liabilities | | (6,101) | | | (2,112) | | |
| Payroll and social security | | (10,772) | | | (4,425) | | |
| Other liabilities | | (571) | | | (413) | | |
| Borrowings | | (2,958) | | | (201) | | |
| | | | | |
| | | | | |
| Non current liabilities | | | | | |
| Deferred tax liabilities | | (9,647) | | | (3,264) | | |
| Lease liabilities | | (3,076) | | | — | | |
| Borrowings | | (52) | | | (2,337) | | |
| Contingencies | | (569) | | | — | | |
| | | | | |
Non-controlling interest (3) | | (45,469) | | | (2,648) | | |
| | | | | |
| Total consideration | | 271,848 | | | 203,751 | | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
(1) As of December 31, 2022 and 2021, the amount of 34,250 and 11,701, respectively, have been allocated to customer relationships and contracts, and 33,370 and 2,402 as platforms and licenses, respectively.
(2) Goodwill has arisen because the consideration paid for these acquisitions included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of acquired companies. Only the customer contracts and relationships, internally used software, platforms and non-compete agreements are recognized as intangible. The other benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. As of December 31, 2022 and 2021, 188,288 and 174,005, are not deductible for tax purposes, respectively.
(3)Non-controlling interest in acquired companies are measured at the non-controlling interests’ proportionate share of the acquiree’s identifiable net assets at its fair values.
The fair values of the receivables acquired do not differ from their gross contractual amount.
26.3 Impact of acquisitions on the results of the Company
The net income for the year ended December 31, 2022 includes a gain of 3,147 attributable to the business generated by the companies acquired in 2022. Revenue for the year ended December 31, 2022 includes 35,226 related to the business of those companies.
Had the businesses combinations made in 2022 been performed on January 1, 2022, the consolidated revenue of the Company would have been 1,855,572 and the net income for the year ended December 31, 2022, would have been 154,821.
26.4 Goodwill
Goodwill is measured as the excess of the cost of an acquisition over the sum of the amounts assigned to net assets acquired less liabilities assumed.
The Company evaluates goodwill for impairment at least annually or more frequently when there is an indication that the cash generating unit ("CGU") may be impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use.
The Company first determines the value of the unit using the market approach. For the purposes of the calculation, the Company considers the value of the shares in the market.
In addition, the Company measures the CGU based on value-in-use calculations, which requires the use of various assumptions including revenue growth, gross margin, terminal growth rate and discount rates. The assumptions considered by the Company as of December 31, 2022 and 2021, were the following: projected cash flows for the following five years for both years, the average growth rate considered was 26.1% and 27.0%, respectively, and the rate used to discount cash flows was 11.2% and 9.6%, respectively. The long-term rate used to extrapolate cash flows beyond the projected period as of December 31, 2022 and 2021, was 4%. The recoverable amount is the higher of an asset's fair value less cost of disposals and value in use.
Very material adverse changes in key assumptions about the businesses and their prospects or an adverse change in market conditions may cause a change in the estimation of recoverable value and could result in an impairment charge. Based upon the Company's evaluation of goodwill, no impairment were recognized during 2022, 2021 and 2020.
A reconciliation of the goodwill from opening to closing balances is as follows:
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| Cost | | | | |
| Balance at beginning of year | | 567,451 | | | 392,760 | |
| Additions related to new acquisitions (note 26.2) | | 188,288 | | | 174,005 | |
| Translation | | (17,322) | | | (73) | |
| Measurement period adjustment | | 787 | | | 759 | |
| Balance at end of year | | 739,204 | | | 567,451 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 27 – SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding on how to allocate resources and in assessing performance. The Company’s CODM is considered to be the Company’s chief executive officer (“CEO”). The CEO reviews operating profit presented on an entity level basis for purposes of making operating decisions and assessing financial performance. Therefore, the Company has determined that it operates in a single operating and reportable segment.
The Company provides services related to application development, testing, infrastructure management and application maintenance.
The following table summarizes revenues by geography, based on the customers' location:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | |
| | | For the year ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| North America | | | | | | |
| United States of America | | 1,095,895 | | | 803,934 | | | 558,528 | |
| Canada | | 38,895 | | | 26,970 | | | 15,622 | |
| Puerto Rico | | 358 | | | 396 | | | 125 | |
| Subtotal North America | | 1,135,148 | | | 831,300 | | | 574,275 | |
| Europe, Middle East & Africa | | | | | | |
| Spain | | 86,410 | | | 94,459 | | | 32,977 | |
| United Kingdom | | 45,017 | | | 27,156 | | | 17,100 | |
| Italy | | 9,320 | | | 507 | | | 21 | |
| Switzerland | | 8,859 | | | 5,710 | | | 1,785 | |
| France | | 6,593 | | | 2,600 | | | 1,224 | |
| Germany | | 5,840 | | | 1,424 | | | 939 | |
| Belgium | | 5,577 | | | 8,705 | | | 2,924 | |
| Netherlands | | 4,975 | | | 3,604 | | | 1,461 | |
| Saudi Arabia | | 4,187 | | | — | | | — | |
| Luxembourg | | 3,676 | | | 4,777 | | | 1,292 | |
| Denmark | | 2,246 | | | 411 | | | 395 | |
| Ireland | | 1,104 | | | 1,435 | | | 907 | |
| Others | | 2,919 | | | 546 | | | 763 | |
| Subtotal Europe, Middle East & Africa | | 186,723 | | | 151,334 | | | 61,788 | |
| Asia & Oceania | | | | | | |
| India | | 21,191 | | | 10,442 | | | 2,670 | |
| Japan | | 11,739 | | | 8,514 | | | 5,338 | |
| United Arab Emirates | | 8,938 | | | 401 | | | 248 | |
| Australia | | 3,010 | | | 5,223 | | | 287 | |
| Singapore | | 2,600 | | | 906 | | | 93 | |
| Others | | 2,540 | | | 643 | | | — | |
| Subtotal Asia & Oceania | | 50,018 | | | 26,129 | | | 8,636 | |
| Latin America | | | | | | |
| Argentina | | 120,578 | | | 87,756 | | | 53,667 | |
| Chile | | 115,494 | | | 86,809 | | | 50,707 | |
| Mexico | | 75,442 | | | 53,455 | | | 25,928 | |
| Brazil | | 31,060 | | | 20,821 | | | 11,976 | |
| Peru | | 25,131 | | | 15,695 | | | 11,648 | |
| Colombia | | 19,206 | | | 14,357 | | | 13,302 | |
| Dominican Republic | | 5,706 | | | 3,788 | | | 869 | |
| Ecuador | | 5,175 | | | 1,061 | | | 26 | |
| Paraguay | | 3,088 | | | 2,823 | | | 231 | |
| Uruguay | | 2,993 | | | 755 | | | 144 | |
| Panama | | 2,698 | | | 744 | | | 737 | |
| Others | | 1,783 | | | 251 | | | 205 | |
| Subtotal Latin America | | 408,354 | | | 288,315 | | | 169,440 | |
| TOTAL | | 1,780,243 | | | 1,297,078 | | | 814,139 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
One largest customer accounted for 10.7%, 10.9% and 11.0% of revenues for the years ended December 31, 2022, 2021 and 2020.
The following table summarizes non-current assets other than deferred taxes as stated in IFRS 8, paragraph 33.b, by jurisdiction:
| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2022 | | 2021 |
| | | | |
| Spain | | 590,646 | | | 540,237 | |
| Argentina | | 156,594 | | | 165,163 | |
| United States of America | | 83,666 | | | 66,701 | |
| Colombia | | 64,666 | | | 50,785 | |
| Mexico | | 51,965 | | | 30,445 | |
| United Kingdom | | 51,746 | | | 52,185 | |
| Uruguay | | 47,903 | | | 15,546 | |
| Denmark | | 32,469 | | | — | |
| Brazil | | 28,649 | | | 3,783 | |
| Italy | | 27,844 | | | — | |
| India | | 26,814 | | | 21,521 | |
| Australia | | 24,779 | | | — | |
| Hong Kong | | 15,577 | | | — | |
| Chile | | 13,395 | | | 6,660 | |
| Peru | | 8,393 | | | 6,883 | |
| Belarus | | 5,461 | | | 6,157 | |
| Luxembourg | | 4,226 | | | 4,226 | |
| Romania | | 1,492 | | | 640 | |
| Germany | | 1,112 | | | 23 | |
| Costa Rica | | 821 | | | — | |
| Ecuador | | 690 | | | 30 | |
| Other countries | | 276 | | | 65 | |
| TOTAL | | 1,239,184 | | | 971,050 | |
NOTE 28 – LEASES
The Company is obligated under various leases for office spaces and office equipment.
Movements in right-of-use assets and lease liabilities as of December 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Right-of-use assets | | Office spaces | | Office equipments | | Computers | | Total |
| | | | | | | | |
| January 1, 2022 | | 104,565 | | | 22,104 | | | 17,912 | | | 144,581 | |
| Additions | | 22,403 | | | 320 | | | 11,809 | | | 34,532 | |
| Additions from business combinations (note 26.2) | | 3,624 | | | — | | | — | | | 3,624 | |
| | | | | | | | |
| Depreciation (note 6) | | (21,800) | | | (3,181) | | | (10,263) | | | (35,244) | |
| Foreign currency translation | | (182) | | | — | | | — | | | (182) | |
| December 31, 2022 | | 108,610 | | | 19,243 | | | 19,458 | | | 147,311 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Right-of-use assets | | Office spaces | | Office equipments | | Computers | | Total |
| | | | | | | | |
| January 1, 2021 | | 76,374 | | | 9,486 | | | 4,150 | | | 90,010 | |
| Additions | | 46,237 | | | 14,972 | | | 17,873 | | | 79,082 | |
| Disposals | | (575) | | | — | | | — | | | (575) | |
| Depreciation (note 6) | | (17,368) | | | (2,354) | | | (4,111) | | | (23,833) | |
| Translation | | (103) | | | — | | | — | | | (103) | |
| December 31, 2021 | | 104,565 | | | 22,104 | | 17,912 | | 144,581 |
| | | | | | | | | | | | | | |
| Lease liabilities | | | | |
| | | | |
| | As of December 31, |
| | 2022 | | 2021 |
| Balance at beginning of year | | 134,485 | | | 87,598 | |
Additions (1) | | 36,090 | | | 74,011 | |
| Additions from business combinations (note 26.2) | | 3,792 | | | — | |
Foreign exchange difference (1) | | (7,976) | | | (4,031) | |
Foreign currency translation (2) | | (689) | | | (89) | |
Interest expense (1) | | 6,822 | | | 5,415 | |
Payments (2) | | (37,386) | | | (27,201) | |
| Disposals | | — | | | (1,218) | |
| Balance at end of year | | 135,138 | | | 134,485 | |
(1) Non-cash transactions.
(2) Cash transactions.
The Company has some lease contracts that have not yet commenced as of December 31, 2022 and 2021. The future lease payments for these lease contracts are disclosed as follows:
| | | | | |
| As of December 31, 2022 |
| Year | Amount |
| 2023 | 207 | |
| 2024 | 311 | |
| 2025 | 311 | |
| 2026 | 311 | |
| 2027 | 311 | |
| 2028 | 104 | |
| | | | | |
| As of December 31, 2021 |
| Year | Amount |
| 2022 | 141 | |
The outstanding balance of the lease liabilities as of December 31, 2022 and 2021 is as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | |
| As of December 31, |
| Lease liabilities | 2022 | | 2021 |
| | | |
| Current | 37,681 | | | 25,917 | |
| Non-current | 97,457 | | | 108,568 | |
| TOTAL | 135,138 | | | 134,485 | |
The maturity analysis of lease liabilities is presented in note 29.5.
The expense related to short-term and low-value leases was not material.
NOTE 29 – FINANCIAL INSTRUMENTS
29.1 - Categories of financial instruments
| | | | | | | | | | | | | | |
| | As of December 31, 2022 |
| | FVTPL | FVTOCI | Amortized cost |
| Financial assets | | | | |
| Cash and cash equivalents | | — | | — | | 292,457 | |
| Investments | | | | |
| Mutual funds | | 47,009 | | — | | — | |
| | | | |
| Contribution to funds | | — | | — | | 1,513 | |
| Bills issued by the Treasury Department of the U.S. ("T-Bills") | | — | | 1,399 | | — | |
| Trade receivables | | — | | — | | 425,422 | |
| Other assets | | — | | — | | 25,854 | |
| Other receivables | | — | | — | | 12,122 | |
| Other financial assets | | | | |
| Convertible notes | | 6,684 | | — | | — | |
| Foreign exchange forward contracts | | 552 | | 2,957 | | — | |
| Equity instruments | | — | | 27,892 | | — | |
| Interest rate SWAP | | 3,416 | | — | | — | |
| | | | |
| Others | | — | | — | | 6 | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | |
| | As of December 31, 2022 |
| | FVTPL | FVTOCI | Amortized cost |
| Financial liabilities | | | | |
| Trade payables | | — | | — | | 90,564 | |
| Borrowings | | — | | — | | 3,699 | |
| Other financial liabilities | | | | |
| Foreign exchange forward contracts | | 2,004 | | 1,571 | | — | |
| Other financial liabilities related to business combinations | | 59,686 | | — | | 65,005 | |
| Put option on minority interest of Walmeric | | — | | — | | 9,386 | |
| Equity forward contract | | — | | 3,886 | | — | |
| Lease liabilities | | — | | — | | 135,138 | |
| Other liabilities | | — | | — | | 808 | |
| | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| | FVTPL | FVTOCI | Amortized cost |
| Financial assets | | | | |
| Cash and cash equivalents | | — | | — | | 427,804 | |
| Investments | | | | |
| Mutual funds | | 27,585 | | — | | — | |
| Commercial Papers | | — | | 4,996 | | — | |
| Contribution to funds | | — | | — | | 1,027 | |
| Trade receivables | | — | | — | | 300,109 | |
| Other assets | | — | | — | | 16,438 | |
| Other receivables | | — | | — | | 5,901 | |
| Other financial assets | | | | |
| Convertible notes | | 3,875 | | — | | — | |
| Foreign exchange forward contracts | | 608 | | 150 | | — | |
| | | | |
| Equity instruments | | — | | 22,088 | | — | |
| Interest rate SWAP | | 534 | | — | | — | |
| Others | | — | | — | | 35 | |
| | | | |
| Financial liabilities | | | | |
| Trade payables | | — | | — | | 61,643 | |
| Borrowings | | — | | — | | 12,240 | |
| Other financial liabilities | | | | |
| Foreign exchange forward contracts | | 1,392 | | 106 | | — | |
| Other financial liabilities related to business combinations | | 58,180 | | — | | 49,184 | |
| Put option on minority interest of Walmeric | | — | | | 15,423 | |
| Lease liabilities | | — | | — | | 134,485 | |
| Other liabilities | | — | | — | | 955 | |
29.2 - Market risk
The Company is exposed to a variety of risks: market risk, including the effects of changes in foreign currency exchange rates and interest rates, and liquidity risk.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The Company does not use derivative instruments to hedge its exposure to risks, apart from those mentioned in note 29.10 and 29.11.
29.3 - Foreign currency risk management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise.
Except for the subsidiaries that have its local currency as functional currency, the functional currency of the Company and its subsidiaries is the U.S. dollar. In 2022, 79.50% of the Company's revenues are denominated in U.S. dollars. Because the majority of its personnel are located in Latin America, the Company incurs the majority of its operating expenses and capital expenditures in non-U.S. dollar currencies, primarily the Colombian peso, Mexican peso, Chilean peso, Peruvian sol, Uruguayan peso and Brazilian real. Operating expenses are also significantly incurred in Indian Rupee, Great Britain Pound and European Union Euros.
Foreign exchange sensitivity analysis
The Company is mainly exposed to Argentine pesos, Colombian pesos, Indian rupees, European Union euros, Mexican pesos, Pounds sterling and Uruguayan pesos.
The following tables illustrate the Company's sensitivity to increases and decreases in the U.S. dollar against the relevant foreign currency. The following sensitivity analysis includes outstanding foreign currency denominated monetary items at December 31, 2022 and adjusts their translation at the year-end for changes in U.S. dollars against the relevant foreign currency.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Gain/(loss) |
| Account | | Currency | | Amount | | % Increase | | Amount | | % Decrease | | Amount |
| | | | | | | | | | | | |
| Net balances | | Argentine pesos | | 6,201 | | | 30 | % | | (1,431) | | | 10 | % | | 689 | |
| | Colombian pesos | | (51,826) | | | 10 | % | | 4,711 | | | 10 | % | | (5,758) | |
| | Indian Rupees | | (19,868) | | | 10 | % | | 1,806 | | | 10 | % | | (2,208) | |
| | European Union euros | | 3,901 | | | 10 | % | | (355) | | | 10 | % | | 433 | |
| | Mexican pesos | | (16,437) | | | 10 | % | | 1,494 | | | 10 | % | | (1,826) | |
| | Pound sterling | | (17,488) | | | 10 | % | | 1,590 | | | 10 | % | | (1,943) | |
| | Uruguayan pesos | | (10,109) | | | 10 | % | | 919 | | | 10 | % | | (1,123) | |
| | Chilean pesos | | 21,700 | | | 10 | % | | (1,973) | | | 10 | % | | 2,411 | |
| | | Total | | (83,926) | | | | | 6,761 | | | | | (9,325) | |
As explained in note 29.10, the subsidiaries in Argentina, Colombia, United States, India, Mexico, Chile and Uruguay entered into foreign exchange forward and future contracts in order to mitigate the risk of fluctuations in the foreign exchange rate and reduce the impact in the financial statements.
The effect in equity of the U.S. dollar fluctuation against the relevant foreign currency as of December 31, 2021, is not material.
Depreciation of the Argentine Peso
During 2022, the Argentine peso experienced a 72.5% devaluation from 102.62 Argentine peso per U.S dollar to 177.06 Argentine peso per U.S dollar.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
During 2021, the Argentine peso experienced a 22.1% devaluation from 84.05 Argentine peso per U.S dollar to 102.62 Argentine peso per U.S dollar.
29.4 - Interest rate risk management
The Company's exposure to market risk for changes in interest rates relates primarily to its cash and bank balances and its credit facilities. The Company's credit line in the U.S. bear interest at a fixed rate between 1.5% or 1.75% depending on the amount borrowed, as of December 31, 2022 the Company does not maintain debt related to the Amended and Restated Credit Agreement During the beginning of 2021 the Company chose to discontinue the hedge accounting of the remaining interest rate swap acquired during 2020, since the hedged future cash flows were no longer expected to occur. As of December 31, 2022, 2021 and 2020, the Company has recognized a loss of 255, a gain of 132 and a loss of 132 included in the line item "Other comprehensive income", respectively, and a net gain of 3,701, a net gain of 837 and a net loss of 127 through results of profit and loss, respectively. As of December 31, 2020 the Company recognize a loss of 605 through results of profit and loss as consequence of the discontinuation of the hedge accounting for three of the four swaps. Hedges of interest rate risk on recognized liabilities are accounted for as cash flow hedge.
Interest rate swap assets and liabilities are presented in the line item "Other financial assets" and "Other financial liabilities" within the statements of financial position, respectively.
Interest rate swap contracts outstanding as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| | | Floating rate | Fixed rate | Fair value |
| Maturity Date | | Notional | receivable | payable | assets / (liabilities) |
| | | | | |
| Instruments for which hedge accounting has been discontinued | | | | | |
| Current | | | | | |
| March 31, 2023 | | 15,000 | 1month LIBOR | 0.511 | % | 155 | |
| Fair value as of December 31, 2022 | | | | | 155 | |
| | | | | |
| Non-current | | | | | |
| March 11, 2024 | | 15,000 | 1month LIBOR | 0.647 | % | 771 | |
| March 12, 2024 | | 20,000 | 1month LIBOR | 0.566 | % | 1,045 | |
| April 30, 2024 | | 25,000 | 1month LIBOR | 0.355 | % | 1,445 | |
| Fair value as of December 31, 2022 | | | | | 3,261 | |
| | | | | |
| Instruments for which hedge accounting has been discontinued | | | | | |
| March 11, 2024 | | 15,000 | 1month LIBOR | 0.647 | % | 70 | |
| March 31, 2023 | | 15,000 | 1month LIBOR | 0.511 | % | 10 | |
| March 12, 2024 | | 20,000 | 1month LIBOR | 0.566 | % | 132 | |
| April 30, 2024 | | 25,000 | 1month LIBOR | 0.355 | % | 322 | |
| Fair value as of December 31, 2021 | | | | | 534 | |
29.5 – Liquidity risk management
The Company's primary sources of liquidity are cash flows from operating activities and borrowings under credit facilities. See note 21.
Management monitors rolling forecasts of the Company's liquidity position on the basis of expected cash flow.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The table below analyzes financial liabilities into relevant maturity groups based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected Maturity Date |
| | | 2023 | | 2024 | | 2025 | | Thereafter | | Total |
| | | | | | | | | | |
| Trade payables | | 85,119 | | 4,862 | | 583 | | — | | 90,564 |
| Borrowings | | 2,997 | | 159 | | 159 | | 545 | | 3,860 |
| Lease liabilities | | 48,230 | | 35,464 | | 23,823 | | 61,950 | | 169,467 |
Other financial liabilities(*) | | 56,379 | | 46,375 | | 14,085 | | 13,882 | | 130,721 |
| TOTAL | | 192,725 | | 86,860 | | 38,650 | | 76,377 | | 394,612 |
(*) The amounts disclosed in the line of other financial liabilities do not include foreign exchange forward contracts, equity forward contracts and 22,930 related to business combinations payments through subscription agreements.
29.6 - Concentration of credit risk
The Company derives revenues from clients in the U.S. (approximately 62%) and clients related from diverse industries. For the years ended December 31, 2022, 2021 and 2020, the Company's top five clients accounted for 25.6%, 26.7% and 30.6% of its revenues, respectively. One single customer accounted for 10.7%, 10.9% and 11.0% of revenues for the years ended December 31, 2022, 2021 and 2020. Credit risk from trade receivables is considered to be low because the Company minimize the risk by setting credit limits for its customers, which are mainly large and renowned companies. Cash and cash equivalents and derivative financial instruments are considered to have low credit risk because these assets are held with widely renowned financial institutions (see note 13) .
29.7 - Fair value of financial instruments that are not measured at fair value
Except as detailed in the following table, the carrying amounts of financial assets and liabilities included in the consolidated statement of financial position as of December 31, 2022 and 2021, are a reasonable approximation of fair value due to the short time of realization.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2022 | | As of December 31, 2021 |
| | Carrying amount | | Fair value | | Carrying amount | | Fair value |
| Non-current assets | | | | | | | | |
| Other receivables | | | | | | | | |
| Guarantee deposits | | 5,942 | | | 5,686 | | | 4,390 | | | 4,177 | |
| Other assets | | 10,657 | | | 9,780 | | | 8,583 | | | 7,810 | |
| Non-current liabilities | | | | | | | | |
| Trade payables | | 5,445 | | | 5,053 | | | 6,387 | | | 5,899 | |
| Borrowings | | 861 | | | 645 | | | 1,935 | | | 1,847 | |
29.8 - Fair value measurements recognized in the consolidated statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into a three-level fair value hierarchy as mandated by IFRS 13, as follows:
Level 1 fair value measurements are those derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
Level 3 fair value measurements are those derived from unobservable inputs for the assets or liabilities.
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2022 |
| | | Level 1 | Level 2 | Level 3 | | Total |
| Financial assets | | | | | | |
Mutual funds (1) | | — | | 47,009 | | — | | | 47,009 | |
| | | | | | |
| Bills issued by the Treasury Department of the U.S. ("T-Bills") | | 1,399 | | — | | — | | | 1,399 | |
| Foreign exchange forward contracts | | — | | 3,509 | | — | | | 3,509 | |
| Convertibles notes | | — | | — | | 6,684 | | | 6,684 | |
| Equity instrument | | — | | — | | 27,892 | | | 27,892 | |
| Interest rate SWAP | | — | | 3,416 | | — | | | 3,416 | |
| | | | | | |
| | | | | | |
| Financial liabilities | | | | | | |
| Contingent consideration | | — | | — | | 59,686 | | | 59,686 | |
| Foreign exchange forward contracts | | — | | 3,575 | | — | | | 3,575 | |
| Equity forward contract | | — | | 3,886 | | — | | | 3,886 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, 2021 |
| | | Level 1 | Level 2 | Level 3 | | Total |
| Financial assets | | | | | | |
Mutual funds (1) | | — | | 27,585 | | — | | | 27,585 | |
| Commercial Papers | | 4,996 | | — | | — | | | 4,996 | |
| Foreign exchange forward contracts | | — | | 758 | | — | | | 758 | |
| Convertibles notes | | — | | — | | 3,875 | | | 3,875 | |
| Equity instrument | | — | | — | | 22,088 | | | 22,088 | |
| Interest rate SWAP | | — | | 534 | | — | | | 534 | |
| | | | | | |
| Financial liabilities | | | | | | |
| Contingent consideration | | — | | — | | 58,180 | | | 58,180 | |
| Foreign exchange forward contracts | | — | | 1,498 | | — | | | 1,498 | |
(1) Mutual funds are measured at fair value through profit or loss, based on the changes of the fund's net asset value.
There were no transfers of financial assets and liabilities between Level 1, Level 2 and Level 3 during the period.
The Company has applied the market approach technique in order to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities.
When the inputs required by the market approach are not available, the Company applies the income approach technique. The income approach technique estimates the fair value of an asset or a liability by converting future amounts (e.g. cash flows or income and expenses) to a single current (i.e. discounted) amount. When the income approach is used, the fair value measurement reflects current market expectations about those future amounts.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
29.9 Level 3
29.9.1 Contingent consideration
As described in note 26.1, certain acquisitions included contingent consideration agreements which are payable on a deferred basis and which will be subject to the occurrence of certain events relating to the acquired company's financial performance like revenue, gross margin and operating margin.
The actual amounts to be paid under the contingent consideration arrangements may be increased proportionally to the target's achievements and are not subject to any maximum amount.
The fair values of the contingent consideration arrangements are estimated by using a probabilistic framework such as Montecarlo simulation where each iteration was discounted to present value using a discount rate. In other cases the contingent consideration was estimated by discounting to present value using a risk-adjusted discount rate.
The Company also performed an estimation of the potential minimum amount of all future payments that could be required to be made under the agreements.
As of December 31, 2022 the nominal value, minimum amount and fair value amounted to 74,024, 66,702, and 59,686, respectively.
As of December 31, 2021 the nominal value, minimum amount and fair value amounted to 60,233, 60,233, and 58,180, respectively.
During 2022 the Company paid the aggregate consideration of 26,708 related to the target achievements during the year 2021. The Company also paid a remaining consideration of 2,251 through the subscription of 8,761 shares related to the target achievements during the year 2021.
As of December 31, 2022, 2021, and 2020 the results from remeasurement of the contingent considerations were decrease of 967 increase of 4,322, and increase of 2,431, respectively. During 2022 it mainly includes a gain of 8,010 related to Bluecap and Navint acquisition, and a loss of 6,926 related to Atix, Habitant and Cloudshift acquisition.
The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Fair Value at December 31, 2022 | | Unobservable inputs | | Range of inputs | | Relationship of unobservable inputs to Fair Value |
| Contingent consideration | | 59,686 | | Risk adjusted discount rate | | Between 3.84% and 15.00% | | An increase in the discount rates by 1% would decrease the fair value by $980 and a decrease in the discount rates by 1% would increase the fair value by $655 |
| | | | | | | | |
| Contingent consideration | | 59,686 | | Expected revenues | | Between 2,382 and 28,039 | | An increase in the expected revenues by 10% would increase the fair value by $1,421 and a decrease in the expected revenues by 10% would decrease the fair value by $776 |
| | | | | | | | |
| Contingent consideration | | 59,686 | | Expected operating margin | | Between 31.50% and 54.89% | | An increase in the expected operating margin by 10% would increase the fair value by $307 and a decrease in the expected operating margin by 10% would decrease the fair value by $1,843 |
29.9.2 Convertible notes
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
As described in note 3.12.8, the Company entered into several convertible notes that include the right to convert the outstanding amount into equity shares of the invested companies. The fair value of such convertible notes was estimated using unobservable inputs. The amounts of gains and losses for the period related to changes in the fair value of the convertible notes were not material.
29.9.3. Reconciliation of recurring fair value measurements categorized within Level 3
The following table shows the reconciliation of recurring fair value measurements categorized within Level 3 of the fair value hierarchy: | | | | | | | | | | | | | | |
| | Financial Assets | Financial liabilities |
| | Convertible notes | Equity instrument | Contingent consideration |
| December 31, 2020 | | 1,036 | | 10,478 | | 43,724 | |
Fair value remeasurement (1) | | — | | — | | 4,322 | |
Acquisition of business (1) | | — | | — | | 29,665 | |
Acquisition of investment (3) | | — | | 11,610 | | — | |
| | | | |
| | | | |
Payments (2) | | 2,772 | | — | | (17,902) | |
Interests (1) | | 67 | | — | | 1,285 | |
Foreign exchange difference (1) | | — | | — | | (2,714) | |
Others (1) | | — | | — | | (200) | |
| December 31, 2021 | | 3,875 | | 22,088 | | 58,180 | |
| | | | | | | | | | | | | | |
| | Financial Assets | Financial liabilities |
| | Convertible notes | Equity instrument | Contingent consideration |
| December 31, 2021 | | 3,875 | | 22,088 | | 58,180 | |
Fair value remeasurement (1) | | — | | 285 | | (967) | |
Acquisition of business (1) | | — | | — | | 38,011 | |
Acquisition of investment (3) | | 2,667 | | 5,519 | | — | |
| | | | |
| | | | |
Payments (2) | | — | | — | | (28,717) | |
Interests (1) | | 146 | | — | | 1,484 | |
Reclassifications (1) | | — | | — | | (5,060) | |
Foreign exchange difference (1) | | (4) | | — | | (1,528) | |
Translation (1) | | — | | — | | (890) | |
Others (1) | | — | | — | | (827) | |
| December 31, 2022 | | 6,684 | | 27,892 | | 59,686 | |
(1) Non-cash transactions.
(2) Cash transactions included in investing activities, except for remeasurement of contingent considerations which are in operating activities, in the Consolidated Statement of Cash Flows. Non-cash transactions related to payments in the Company's common shares for 2,251.
(3) As of December 31, 2022 5,148 were Cash transactions included in investing activities in the consolidated statement of cash flows. As of December 31, 2021, 5,762 were Cash transactions included in investing activities in the consolidated statement of cash flow, 5,848 were Non-cash transactions related to the exchange of Acamica's investment with Digital House investment.
29.10 Foreign exchange futures and forward contracts
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
During the years ended December 31, 2021 and 2020, the Argentine subsidiaries, Sistemas Globales S.A. and IAFH Global S.A. acquired foreign exchange futures contracts through SBS Sociedad de Bolsa S.A. (SBS) in U.S. dollars, with the purpose of hedging the possible decrease of assets' value held in Argentine Pesos due to the risk of exposure to fluctuations in foreign currency. The foreign exchange futures contracts were recognized, according to IFRS 9, as financial assets at fair value through profit or loss. For the year ended December 31, 2022, there were no future contracts transactions and for the years ended 2021 and 2020 the Company recognized a loss 355 and a gain of 144, respectively.
During 2022 and 2021, certain subsidiaries from Argentina, Uruguay, Chile, Colombia and Mexico acquired foreign exchange forward contracts with certain banks in U.S. dollars, with the purpose of hedging the possible decrease of assets' value held in the local currencies from each country, due to the risk of exposure to fluctuations in those foreign currencies and a subsidiary in the United States of America has also acquired foreign exchange forward contracts with certain banks, with the purpose of hedging the exposure in currencies different than U.S dollar. Those contracts were recognized, according to IFRS 9, as financial assets at fair value through profit or loss. For the years ended December 31, 2022 and 2021, the Company recognized a net loss of 13,727 and 10,673, respectively. As of December 31, 2022 and 2021, the foreign exchange forward contracts that were recognized as financial assets and liabilities at fair value through profit or loss were as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | |
| | Currency | Foreign currency | Notional foreign | Fair value assets / |
| Settlement date | | from contracts | rate from contracts | currency rate | (liabilities) |
| January 31, 2023 | | Argentinian Peso | 191.95 | 192.57 | | 17 | |
| January 31, 2023 | | Mexican Peso | 19.87 | 19.59 | | 71 | |
| January 31, 2023 | | Colombian Peso | 4,847.49 | 4,834.53 | | 21 | |
| January 31, 2023 | | Colombian Peso | 4,858.43 | 4,834.53 | | 38 | |
| January 31, 2023 | | Colombian Peso | 4,856.25 | 4,834.53 | | 35 | |
| February 28, 2023 | | Indian Rupee | 83.05 | 82.98 | | 7 | |
| February 28, 2023 | | Pound Sterling | 1.21 | 1.21 | | 33 | |
| February 28, 2023 | | Chilean Peso | 856.55 | 861.90 | | 76 | |
| April 28, 2023 | | Danish Krone | 6.93 | 6.89 | | 58 | |
| April 28, 2023 | | Australian Dollar | 0.67 | 0.68 | | 196 | |
| Fair value as of December 31, 2022 | | | | | 552 |
| | | | | |
| January 31, 2022 | | Mexican Peso | 21.96 | 20.65 | | 255 | |
| February 28, 2022 | | Indian Rupee | 75.53 | 75.52 | | 76 | |
| February 28, 2022 | | Colombian peso | 4,037.00 | 4,005.31 | | 119 | |
| March 31, 2022 | | Colombian peso | 4,053.1 | | 4,021.61 | | 119 | |
| March 31, 2022 | | Colombian peso | 4,040.5 | | 4,021.55 | | 39 | |
| Fair value as of December 31, 2021 | | | | | 608 |
| | | | | | | | | | | | | | | | | |
| | Currency | Foreign currency | Notional foreign | Fair value assets / |
| Settlement date | | from contracts | rate from contracts | currency rate | (liabilities) |
| January 31, 2023 | | Chilean Peso | 920.50 | 858.02 | (557) | |
| January 31, 2023 | | Chilean Peso | 919.60 | 858.02 | (550) | |
| January 31, 2023 | | Chilean Peso | 920.20 | 858.02 | (555) | |
| January 31, 2023 | | Colombian Peso | 4,774.65 | 4,831.78 | (111) | |
| January 31, 2023 | | Indian Rupee | 81.92 | 82.85 | (111) | |
| February 28, 2023 | | Colombian Peso | 4,810.50 | 4,860.91 | (97) | |
| February 28, 2023 | | Mexican Peso | 19.63 | 19.69 | (23) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Fair value as of December 31, 2022 | | | | | (2,004) |
| | | | | |
| January 31, 2022 | | Pound Sterling | 0.73 | 0.74 | (156) | |
| January 31, 2022 | | Colombian Peso | 3,902.25 | | 3,993.60 | | (138) | |
| January 31, 2022 | | European Union Euro | 0.86 | | 0.88 | | (410) | |
| January 31, 2022 | | Uruguayan Peso | 44.36 | | 44.93 | | (64) | |
| January 31, 2022 | | Argentinian Peso | 106.98 | | 106.92 | | (3) | |
| January 31, 2022 | | Argentinian Peso | 108.7 | | 106.92 | | (87) | |
| January 31, 2022 | | Argentinian Peso | 110.85 | | 106.92 | | (134) | |
| January 31, 2022 | | Argentinian Peso | 107.16 | | 106.92 | | (12) | |
| February 25, 2022 | | Argentinian Peso | 115.35 | | 111.35 | | (136) | |
| February 28, 2022 | | European Union Euro | 0.86 | | 0.88 | | (212) | |
| February 28, 2022 | | Chilean Peso | 855.45 | | 850.55 | | (40) | |
| Fair value as of December 31, 2021 | | | | | (1,392) |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The most frequently applied valuation techniques include forward pricing models. The models incorporate various inputs including: foreign exchange spot, interest rates curves of the respective currencies and the term of the contract.
29.11 Hedge accounting
During 2021, certain subsidiaries from Argentina, Uruguay, Chile, Colombia, Mexico and India entered into foreign exchange forward and future contracts to manage the foreign currency risk associated with the salaries payable in the local currency of each country. During 2022 the subsidiaries Chile, Colombia, India, Brazil, Peru and the United States of America entered into foreign exchange forward contracts to manage the foreign currency risk associated with the salaries payable in the local currency of each country The Company designated those derivatives as hedging instruments in respect of foreign currency risk in cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.
The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges are recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the ‘finance income’ or ‘finance expense’ line items. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item (i.e. Salaries, employee benefits and social security taxes).
As of December 31, 2022, 2021 and 2020, the Company has recognized a net loss of 2,332, 136 and 272, respectively, included in Salaries, employee benefits and social security taxes and a net gain of 1,305, loss of 131 and a net gain of 165, respectively, included in other comprehensive income.
During 2020, Globant, LLC entered into four interest rate swap transactions with the purpose of hedging the exposure to variable interest rate related to the Amended and Restated Credit Agreement with certain financial institutions. By the end of that year the Company chose to discontinue three of the four interest rate swap transaction. During the year ended December 31, 2021, the Company chose to discontinue the remaining interest rate swap since the hedged future cash flows were no longer expected to occur. As of December 31, 2022 and 2021, the Company recognized a loss of 255 and a gain of 132, respectively, included in the line item "Other comprehensive income". The Company designated those derivatives as hedging instruments in respect of interest rate risk in cash flow hedges. Hedges of interest rate risk on recognized liabilities are accounted for as cash flow hedges.
Foreign currency forward contract and interest rate swap assets and liabilities are presented in the line ‘Other financial assets’ and ‘Other financial liabilities’ within the statement of financial position.
The following table detail the foreign currency forward contracts outstanding as of December 31, 2022:
Hedging instruments - Outstanding contracts
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | |
| | Currency | Foreign currency | Notional foreign | Fair value assets / |
| Settlement date | | from contracts | rate from contracts | currency rate | (liabilities) |
| | | | | |
| January 31, 2023 | | Brazilian Real | 5.36 | 5.25 | 55 | |
| January 31, 2023 | | Chilean Peso | 995.20 | 858.02 | 789 | |
| March 31, 2023 | | Chilean Peso | 994.25 | 866.45 | 685 | |
| April 28, 2023 | | Colombian Peso | 5161.25 | 4919.18 | 283 | |
| April 28, 2023 | | Colombian Peso | 5160.00 | 4918.15 | 388 | |
| February 28, 2023 | | Chilean Peso | 992.20 | 861.47 | 708 | |
| January 31, 2023 | | Indian Rupee | 83.66 | 83.15 | 42 | |
| February 23, 2023 | | Indian Rupee | 83.15 | 82.98 | 6 | |
| February 23, 2023 | | Indian Rupee | 83.01 | | 82.98 | | 1 |
| Fair value as of December 31, 2022 | | | | | 2,957 | |
| | | | | |
| January 25, 2022 | | Indian Rupee | 75.50 | 74.50 | | 9 | |
| January 27, 2022 | | Indian Rupee | 74.68 | 74.55 | 2 | |
| January 27, 2022 | | Indian Rupee | 74.67 | 74.55 | 2 | |
| January 27, 2022 | | Indian Rupee | 74.68 | 74.55 | 1 | |
| February 23, 2022 | | Indian Rupee | 75.67 | 74.74 | 9 | |
| February 24, 2022 | | Indian Rupee | 75.76 | 74.78 | 14 | |
| February 24, 2022 | | Indian Rupee | 75.76 | 74.78 | 20 | |
| February 24, 2022 | | Indian Rupee | 75.76 | 74.78 | 5 | |
| March 31, 2022 | | Colombian Peso | 4,064.86 | | 4,021.21 | | 88 | |
| Fair value as of December 31, 2021 | | | | | 150 | |
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| | Currency | Foreign currency | Notional foreign | Fair value assets / |
| Settlement date | | from contracts | rate from contracts | currency rate | (liabilities) |
| | | | | |
| January 31, 2023 | | Colombian Peso | 4,667.50 | 4,834.53 | (486) | |
| January 31, 2023 | | Indian Rupee | 82.54 | 82.85 | (26) | |
| February 23, 2023 | | Indian Rupee | 82.03 | 82.98 | (11) | |
| February 28, 2023 | | Colombian Peso | 4,659.50 | 4,860.91 | (580) | |
| March 30, 2023 | | Colombian Peso | 4,729.00 | 4,888.69 | (452) | |
| April 26, 2023 | | Indian Rupee | 83.04 | 83.30 | (9) | |
| April 26, 2023 | | Indian Rupee | 83.01 | 83.30 | (7) | |
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| Fair value as of December 31, 2022 | | | | | (1,571) | |
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | | | | |
| | Currency | Foreign currency | Notional foreign | Fair value assets / |
| Settlement date | | from contracts | rate from contracts | currency rate | (liabilities) |
| | | | | |
| January 31, 2022 | | Colombian Peso | 3,967.65 | 3,993.75 | (52) | |
| February 28, 2022 | | Colombian Peso | 3,978.05 | 4,004.91 | (54) | |
| Fair value as of December 31, 2021 | | | | | (106) | |
During the year ended December 31, 2022, Globant LLC entered into equity forward contracts to manage the risk associated with the volatility of the Company's market share price use to determine the cash-settled shared based plan. The Company designated those derivatives as hedging instruments in respect of market share price risk in cash flow hedges. Hedges of cash-settled share base payment risk on firm commitments are accounted for as cash flow hedges.
Since the Company separates the forward element and the spot element of the forward contract and designates as the hedging instrument only the change in the value of the spot element of the forward contract, the effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception of the hedge, except for the portion that affects comprehensive income for the granted shares in which the rendering of services over time lapse has already occur to the date of report. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss, and is included in the "other financial results, net" line item. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognized hedged item (i.e., Sharebased compensation expense).
As of December 31, 2022, the Company recognized a loss of 1,341 included in the line item "Share-based compensation expense - Cash settle", a loss of 2,528 included in the line item "Gains and losses on cash flow hedges", from other comprehensive income, and 17 included in the line item "Net gain arising from financial assets measured at fair value through OCI".
| | | | | | | | | | | | | | |
| | Currency | Forward | Fair value assets / |
| Settlement date | | from contracts | Price | (liabilities) |
| June 1, 2023 | | US dollars | 278.24 | (910) | |
| June 1, 2023 | | US dollars | 188.83 | (71) | |
| June 3, 2024 | | US dollars | 289.9 | (886) | |
| June 3, 2024 | | US dollars | 198.85 | (70) | |
| June 2, 2025 | | US dollars | 302.36 | (890) | |
| June 2, 2025 | | US dollars | 208.72 | (75) | |
| June 1, 2026 | | US dollars | 315.09 | (901) | |
| June 1, 2026 | | US dollars | 219.34 | (83) | |
| Fair value as of December 31, 2022 | | | | (3,886) | |
NOTE 30 — CAPITAL AND RESERVES
30.1 Issuance of common shares
During the year ended December 31, 2022, 94,380 common shares were issued after vested options arising from the 2012 and 2014 share-based compensation plan were exercised by some employees. Options were exercised at an average price of 37.17 per share amounting to a total of 3,508.
During the year ended December 31, 2022, 801,041 Restricted Stock Units (RSU) were granted to certain employees and directors of the Company and 266,300 RSU's were vested at an average price of 122.29 per share amounting to a total of 32,566 (non-cash transactions).
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
During the year ended December 31, 2022 the Company’s common shares issues in connection with subscriptions agreements related to acquisitions were as follows:
| | | | | | | | | | | | | | |
| Date | Acquired company | Common shares | | Amount |
| December 21, 2022 | Adbid | 10,728 | | | 1,821 | |
| November 18, 2022 | Vertic | 41,252 | | | 7,312 | |
| November 16, 2022 | eWave | 32,524 | | | 5,859 | |
| November 7, 2022 | KTBO | 9,624 | | | 1,540 | |
| September 23, 2022 | Sysdata | 19,640 | | | 4,052 | |
| September 16, 2022 | Grupo Assa | 34,754 | | | 7,224 | |
| August 5, 2022 | Atix | 4,534 | | | 850 | |
| June 7, 2022 | Genexus | 21,328 | | | 4,947 | |
| April 29, 2022 | Cloudshift | 8,761 | | | 2,251 | |
| TOTAL | | 183,145 | | | 35,856 | |
During the year ended December 31, 2021, 213,686 common shares were issued after vested options arising from the 2012 and 2014 share-based compensation plan were exercised by certain employees. Options were exercised at an average price of 30.93 per share amounting to a total of 6,612.
During the year ended December 31, 2021, 168,669 RSUs were granted to certain employees and directors of the Company and 235,392 RSUs were vested at an average price of 89.18 per share amounting to a total of 20,992 (non-cash transaction).
During the year ended December 31, 2021 the Company’s common shares issues in connection with subscriptions agreements related to acquisitions were as follows:
| | | | | | | | | | | | | | |
| Date | Acquired company | Common shares | | Amount |
| November 30, 2021 | Navint | 7,032 | | | 2,100 | |
| November 17, 2021 | Xappia | 2,502 | | | 750 | |
| July 8, 2021 | Walmeric | 10,842 | | | 2,372 | |
| May 11, 2021 | Hybrido (*) | 10,088 | | | 2,149 | |
| March 15, 2021 | Xappia | 8,415 | | | 1,750 | |
| TOTAL | | 38,879 | | | 9,121 | |
(*) As part of the subscription agreement the Company recognized 2,152 as equity settled agreement, related to common shares that the Company will issue in the future.
During the year ended December 31, 2020, 175,272 common shares were issued after vested options arising from the 2012 and 2014 share-based compensation plan were exercised by some employees. Options were exercised at an average price of 33.24 per share amounting to a total of 5,825.
During the year ended December 31, 2020, 309,384 (RSU) were granted to certain employees and directors of the Company and, 219,047 RSUs were vested at an average price of 59.37 per share amounting to a total of 13,055 (non-cash transaction).
During the year ended December 31, 2020 the Company’s common shares issues in connection with subscriptions agreements related to acquisitions were as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
| | | | | | | | | | | | | | |
| Date | Acquired company | Common shares | | Amount |
| December 18, 2020 | Bluecap | 189,287 | | | 40,354 | |
| November 10, 2020 | Giant Monkey Robot | 5,551 | | | 1,060 | |
| August 3, 2020 | Grupo Assa | 20,918 | | | 3,681 | |
| May 7, 2020 | Avanxo | 2,730 | | | 294 | |
| April 20, 2020 | Avanxo | 6,346 | | | 684 | |
| March 10, 2020 | Ratio | 2,018 | | | 225 | |
| TOTAL | | 226,850 | | | 46,298 | |
30.2 Public offerings and agreements
On June 9 2020, 2,300,000 common shares were issued and sold at a price of 135 for a net proceeds of 300,880, which were listed on the New York Stock Exchange. Costs associated with the proceed consisted of agents commissions, legal and professional fees and listing fees.
On May 28 2021, 1,380,000 common shares were issued and sold at a price of 214 for a net proceeds of 286,207, which were listed on the New York Stock Exchange. Cost associated with the proceed consisted of agents commissions, legal and professional fees and listing fees.
As of December 31, 2022, 40,813,484 common shares of the Company's share capital are registered with the SEC and quoted in the New York Stock Exchange.
30.3 Cash flow hedge reserve
The movements in the cash flow hedge reserve were as follows:
| | | | | | | | | | | |
| Foreign |
| currency risk |
| 2022 | | 2021 |
| | | |
| Balance at beginning of the year | 11 | | | 281 | |
| Loss arising on changes in fair value of hedging instruments during the period | (2,682) | | | (578) | |
| Loss reclassified to profit or loss – hedged item has affected profit or loss | (500) | | | 308 | |
| Balance at end of the year | (3,171) | | | 11 | |
NOTE 31 — APPROPRIATION OF RETAINED EARNINGS UNDER PRINCIPAL OPERATING SUBSIDIARIES´ LOCAL LAWS AND RESTRICTIONS ON DISTRIBUTION OF DIVIDENDS
In accordance with Argentine, Uruguayan and Mexican Law, the Argentine, Uruguayan and Mexican subsidiaries of the Company must appropriate at least 5% of net income of the year to a legal reserve, until such reserve equals 20% of their respective share capital amounts.
On June 16, 2021, Argentine Law No. 27,630 was enacted and, among other matters, set a 7% withholding tax for dividend distribution from a 13% previously established by Law No 27.430 for 2020 onwards.
As of December 31, 2022, the legal reserve amounted to 369 for the Company´s Argentine subsidiaries, Sistemas Globales S.A, IAFH Global S.A, and Decision Support S.A, which were all fully constituted.
As of December 31, 2022, the legal reserves amounted to 20 for the Company's Uruguayan subsidiary, Sistemas Globales Uruguay S.A., which was fully constituted.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021 and for the three years in the period ended December 31, 2022
(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
As of December 31, 2022, the legal reserve amounted to 1,004 for the Company's Mexican subsidiary, IAFH Globant México IT S. de R.L. de C.V., which was partially constituted.
In Colombia, Sistemas Colombia S.A.S.'s bylaws determine the subsidiary must allocate at least 10% of the net income of the year to a legal reserve until such reserve equals 50% of its share capital.
As of December 31, 2022, Sistemas Colombia S.A.S.´s legal reserve amounted to 755, and has been fully constituted.
Pursuant to Peruvian law, the Peruvian subsidiaries of the Company must reserve at least 10% of its net income of the year to a legal reserve, until such reserve equals 20% of its respective amount of capital stock. As of December 31, 2022, the legal reserve amounted to 399 for Globant Peru S.A.C. which was partially constituted.
Pursuant to Spanish law, the Spanish subsidiaries of the Company must allocate 10% of its standalone profit to a legal reserve until such reserve equals to 20% of their respective share capital amount.
As of December 31, 2022, the legal reserve amounted to 455 for the Company's Spanish subsidiary, Software Product Creation S.L., which was partially constituted.
There is no requirement to allocate profits for the creation of a legal reserve in the following countries: Brazil, Chile, India and United States of America.
NOTE 32 – COVID-19 IMPACT ON THE FINANCIAL STATEMENTS
On March 11, 2020, the World Health Organization declared a pandemic of the outbreak of Coronavirus ("COVID-19"), due to its rapid spread throughout the world, having affected, at that time, more than 110 countries. As of December 31, 2020, tens of countries had declared state of national health emergency, which measures had caused a substantial disruption in the global economy. It is difficult to estimate the full extent and duration of the impacts of the pandemic on businesses and economies. However, by the end of the year most countries have resume progressively with all economic activities.
On March 27, 2020, the International Accounting Standards Board (the "IASB") published a document for educational purposes, to help support the consistent application of accounting standards during a period of enhanced economic uncertainty arising from the COVID-19 pandemic. In that publication, the IASB indicated that they had engaged closely with the regulators to encourage entities to consider that guidance. The financial reporting issues, reminders and considerations highlighted in this publication are the following: going concern, financial instruments, asset impairment, governments grants, income taxes, liabilities from insurance contracts, leases, insurance recoveries, onerous contract provisions, fair value measurement, revenue recognition, events after the reporting period, other financial statements disclosure requirements and other accounting estimates.
On May 28, 2020, the "IASB" published 'Covid-19-Related Rent Concessions (Amendment to IFRS 16)' amending the standard to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. As a practical expedient, a lessee may elect not to assess whether a rent concession related to COVID-19 is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the rent concession the same way it would account for the change applying this Standard if the change were not a lease modification. The Company determined to apply the practical expedient to all the lease contracts of office spaces and has recognized as of December 31, 2020 a discount for 512 included in rental expenses.
The Company has determined, after analyzing the possible impact of the economic situation in the financial statements, that an assessment of the treatment of expected credit losses ("ECLs") was necessary, since IFRS 9 should not be applied mechanically and prior assumptions may no longer hold true in the current environment.
At the beginning of the year 2020, for the purpose of measuring ECLs and for determining whether significant increase in credit risk had occurred, the Company grouped financial instruments on the basis of shared credit risk characteristics, and, specifically, grouped our trade receivables considering the industry verticals.
Considering that the tourism sector was one of the hardest-hit by the outbreak of COVID-19, with impacts on both travel supply and demand, in 2020 the Company had to adjust the estimations of ECLs for trade receivables from customers within the
“Travel & Hospitality” as well as for the rest of our customers, since at the time of our review, there were some indications of change in payment terms and, to a lesser extent, the probability of non-payment due to the effects of COVID-19 pandemic.
The Company assessed whether the impact of COVID-19 has led to any other non-financial asset impairment, including goodwill, and concluded, that there is no indication that the cash-generating unit may be impaired. Based on the sensitivity analysis performed, there were no significant changes in any of the used key assumptions that would have resulted in an impairment charge.
NOTE 33 – OTHER EVENTS
33.1 Cybersecurity Event
On March 28th, 2022, the Company detected an unauthorized access to certain source code and project-related documentation for certain clients, as well as certain data files. As soon as such access was detected, the Company activated its security protocols and began conducting an exhaustive investigation. As of the date of issuance of these consolidated financial statements, although no formal claims relating to the incident have been received, it is not possible for us to determine at this point the potential economic impact, if any, of this incident on the Company.
NOTE 34 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events until February 15, 2023, date of approval of these consolidated financial statements, to assess the need for potential adjustments or disclosures in these consolidated financial statements in accordance with IAS 10 "Events after the reporting period". The Company doesn't have any subsequent events to report.
NOTE 35 – APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements were approved by the Board of Directors on February 15, 2023.
Martín Migoya
President
