37A Avenue J.F. Kennedy
37A Avenue J.F. Kennedy
(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.
Securities registered or to be registered
pursuant to Section 12(g) of the Act.
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act.
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: 36,103,814 common shares of which 138,152 are treasury shares held by us.
Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an
annual or transaction 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
x
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.
x
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).
x
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 the definitions
of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of
the Exchange Act.
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
which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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
x
No
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:
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" 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.
In this annual report,
all references to "U.S. dollars" and "$" are to the lawful currency of the United States, all references to
"Argentine pesos" are to the lawful currency of the Republic of Argentina, all references to "Colombian pesos"
are to the lawful currency of the Republic of Colombia, all references to "Uruguayan pesos" are to the lawful currency
of the Republic of Uruguay, all references to "Mexican pesos" are to the lawful currency of Mexico, all references to
"Rupees" or "Indian rupees" are to the lawful currency of the Republic of India, all references to "Reais"
or "Brazilian Real" are to the lawful currency of Brazil, all references to "Peruvian Sol" are to the lawful
currency of Peru, all references to "Romanian Leu" are to the lawful currency of Romania, all references to "Belarusian
ruble" are to the lawful currency of Belarus and all references to "euro" or "€" are 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. All references to the "pound," "British Sterling pound" or "£"
are to the lawful currency of the United Kingdom.
Unless otherwise specified
or the context requires otherwise in this annual report:
"GLOBANT"
and its logo are our trademarks. Solely for convenience, we refer to our trademarks in this annual 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.
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 because the U.S. dollar is our functional currency. 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.
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”), 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. Selected Financial Data
The following selected
consolidated financial and other data of Globant S.A. should be read in conjunction with, and are qualified by reference to, "Operating
and Financial Review and Prospects" and our audited consolidated financial statements and notes thereto included elsewhere
in this annual report. The selected consolidated financial data as of December 31, 2018 and 2017 and for the years ended December 31,
2018, 2017 and 2016 have been derived from the audited consolidated financial statements of Globant S.A. included elsewhere in
this annual report and should be read in conjunction with those audited consolidated financial statements and notes thereto. The
selected consolidated financial data as of and for the year ended December 31, 2016 set forth below have been derived from our
consolidated financial statements as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 filed
with the SEC on April 13, 2018 in our annual report for the year ended December 31, 2017 and which are not included in this annual
report. The selected consolidated financial data as of December 31, 2015 and 2014 set forth below have been derived from our consolidated
financial statements as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 filed with the SEC
on April 29, 2016 in our annual report for the year ended December 31, 2015 and which are not included in this annual report.
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands, except for percentages and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of profit or loss and other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(1)
|
|
$
|
522,310
|
|
|
$
|
413,439
|
|
|
$
|
322,856
|
|
|
$
|
253,796
|
|
|
$
|
199,605
|
|
Cost of revenues
(2)
|
|
|
(318,554
|
)
|
|
|
(263,171
|
)
|
|
|
(191,395
|
)
|
|
|
(160,292
|
)
|
|
|
(121,693
|
)
|
Gross profit
|
|
|
203,756
|
|
|
|
150,268
|
|
|
|
131,461
|
|
|
|
93,504
|
|
|
|
77,912
|
|
Selling, general and administrative expenses
(3)
|
|
|
(133,187
|
)
|
|
|
(110,813
|
)
|
|
|
(80,961
|
)
|
|
|
(71,389
|
)
|
|
|
(57,158
|
)
|
Net impairment losses on financial assets
(4)
|
|
|
(3,469
|
)
|
|
|
(1,581
|
)
|
|
|
(928
|
)
|
|
|
1,615
|
|
|
|
1,375
|
|
Other operating expense, net
(5)
|
|
|
(306
|
)
|
|
|
(4,708
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Profit from operations
|
|
|
66,794
|
|
|
|
33,166
|
|
|
|
49,572
|
|
|
|
23,730
|
|
|
|
22,129
|
|
Gain on transactions with bonds
(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,102
|
|
|
|
12,629
|
|
Finance income
|
|
|
11,418
|
|
|
|
7,956
|
|
|
|
16,215
|
|
|
|
27,555
|
|
|
|
10,269
|
|
Finance expense
|
|
|
(16,968
|
)
|
|
|
(11,036
|
)
|
|
|
(19,227
|
)
|
|
|
(20,952
|
)
|
|
|
(11,213
|
)
|
Finance (expense) income, net
(7)
|
|
|
(5,550
|
)
|
|
|
(3,080
|
)
|
|
|
(3,012
|
)
|
|
|
6,603
|
|
|
|
(944
|
)
|
Other income and expenses, net
(8)
|
|
|
6,220
|
|
|
|
8,458
|
|
|
|
3,629
|
|
|
|
605
|
|
|
|
380
|
|
Profit before income tax
|
|
|
67,464
|
|
|
|
38,544
|
|
|
|
50,189
|
|
|
|
50,040
|
|
|
|
34,194
|
|
Income tax
(9)
|
|
|
(15,868
|
)
|
|
|
(8,081
|
)
|
|
|
(14,327
|
)
|
|
|
(18,420
|
)
|
|
|
(8,931
|
)
|
Net income for the year
|
|
|
51,596
|
|
|
|
30,463
|
|
|
|
35,862
|
|
|
|
31,620
|
|
|
|
25,263
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.45
|
|
|
|
0.87
|
|
|
|
1.04
|
|
|
|
0.93
|
|
|
|
0.81
|
|
Diluted
|
|
|
1.41
|
|
|
|
0.84
|
|
|
|
1.01
|
|
|
|
0.90
|
|
|
|
0.79
|
|
Weighted average number of outstanding shares (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
35,746
|
|
|
|
34,919
|
|
|
|
34,402
|
|
|
|
33,960
|
|
|
|
30,926
|
|
Diluted
|
|
|
36,685
|
|
|
|
36,094
|
|
|
|
35,413
|
|
|
|
35,013
|
|
|
|
31,867
|
|
|
(1)
|
Includes transactions with related parties of $5,937, $5,590, $6,462, $6,655 and $7,681 for the
years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
|
|
(2)
|
Includes depreciation and amortization expense of $4,022, $4,339, $4,281, $4,441 and $3,813 for
the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively. Also includes share based compensation for $4,248,
$5,666, $917, $735 and $35 for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
|
|
(3)
|
Includes depreciation and amortization expense of $16,521, $11,789, $6,637, $4,860 and $4,221 for
the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively. Also includes share based compensation of $8,665,
$8,798, $2,703, $1,647 and $582 for the years ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
|
|
(4)
|
Includes impairments of tax credits of $48 and $1,586 for the years ended December 31, 2018 and
2017, respectively, and recoveries related to reversals of allowances for impairments of tax credits of $1,820 and $1,505 for the
years ended December 31, 2015 and 2014, respectively. Also includes a loss of $3,421, $928, $205 and $130 on impairment of trade
receivables for the years ended December 31, 2018, 2016, 2015 and 2014, respectively, and a gain related to the reversal of an
allowance for impairment of $5 for the year ended December 31, 2017.
|
|
(5)
|
Includes an impairment of intangibles assets of $306 and $4,708 for the years ended December 31, 2018 and 2017.
|
|
(6)
|
Includes gains on transactions with bonds of $19,102 and $12,629 acquired with funds from capitalizations
and proceeds received by our Argentine subsidiaries as payments from exports for the years ended December 31, 2015 and 2014,
respectively. For additional information about gain on transactions with bonds during the year ended December 31, 2015 and 2014,
see note Item 3.A. of our annual report for the year ended December 31, 2015.
|
|
(7)
|
Includes foreign exchange losses, net, of $7,437, $2,729, $8,620, $10,136 and $2,946 for the years
ended December 31, 2018, 2017, 2016, 2015 and 2014, respectively.
|
|
(8)
|
Includes gains of $6,700, $6,735 and $418, for the years ended December 31, 2018, 2017
and 2016, respectively, on the remeasurement of the contingent consideration of Clarice Technologies Private Ltd. (now called
Globant India Private Ltd. or "Clarice"), We Are London Limited ("WAE UK"), We Are Experience, Inc.
("WAE U.S." and together with WAE UK, "WAE"), L4 Mobile, LLC ("L4"), Ratio Cypress, LLC
("Ratio) and PointSource, LLC ("PointSource"), explained in note 28.9.1 to our audited consolidated financial
statements, and gains of $1,611, $1,727 and $2,981 related to the remeasurement at fair value of the call and put option over
our non-controlling interest in Dynaflows S.A. ("Dynaflows") explained in note 28.9.2 to our audited consolidated
financial statements, and the derecognition of the call option over non-controlling interest of, $455 explained in note 24.3
to our audited consolidated financial statements. Includes the loss of $1,038 for the year ended December 31, 2018
related to the settlement agreed with WAE former owners (note 28.9.1 to our audited consolidated financial statements). In
2016 includes a gain of $225 related to the bargain business combination of Difier S.A. explained in note 24.5 to our audited
consolidated financial statements. In 2018 includes the impairment of the investment in Collokia of $800 explained in note
10.2 to our audited consolidated financial statements. Includes a gain related to the valuation at fair value of our 22.7%
share interest held in Dynaflows of $625 for the year ended December 31, 2015. Includes a gain related to the bargain
business combination of Bluestar Energy Holdings, Inc. (now called Globant Peru S.A.C. or "Bluestar Peru") of $472
for the year ended December 31, 2014.
|
|
(9)
|
Includes deferred tax gains of $7,456, $5,972, $730 and $1,102 for the years ended December 31,
2018, 2017, 2016 and 2015, respectively, and a deferred tax charge of $370 for the year ended December 31, 2014.
|
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 as key 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.
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, and acquisition-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, expenses related
to the secondary share offering
in the United States of our common shares
held by WPP Luxembourg Gamma Three S.àr.l. ("WPP")
(see note 22 to our consolidated financial statements)
and expense related to the U.S. settlement agreement.
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of adjusted gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
203,756
|
|
|
$
|
150,268
|
|
|
$
|
131,461
|
|
|
$
|
93,504
|
|
|
$
|
77,912
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
4,022
|
|
|
|
4,339
|
|
|
|
4,281
|
|
|
|
4,441
|
|
|
|
3,813
|
|
Share-based compensation expense
|
|
|
4,248
|
|
|
|
5,666
|
|
|
|
917
|
|
|
|
735
|
|
|
|
35
|
|
Adjusted gross profit
|
|
$
|
212,026
|
|
|
$
|
160,273
|
|
|
$
|
136,659
|
|
|
$
|
98,680
|
|
|
$
|
81,760
|
|
Reconciliation of adjusted selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(133,187
|
)
|
|
$
|
(110,813
|
)
|
|
$
|
(80,961
|
)
|
|
$
|
(71,389
|
)
|
|
$
|
(57,158
|
)
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related charges, net
(1)
|
|
|
3,516
|
|
|
|
1,131
|
|
|
|
556
|
|
|
|
337
|
|
|
|
—
|
|
Depreciation and amortization expense
|
|
|
16,521
|
|
|
|
11,789
|
|
|
|
6,637
|
|
|
|
4,860
|
|
|
|
4,221
|
|
Share-based compensation expense
|
|
|
8,665
|
|
|
|
8,798
|
|
|
|
2,703
|
|
|
|
1,647
|
|
|
|
582
|
|
Adjusted selling, general and administrative expenses
|
|
$
|
(104,485
|
)
|
|
$
|
(89,095
|
)
|
|
$
|
(71,065
|
)
|
|
$
|
(64,545
|
)
|
|
$
|
(52,355
|
)
|
Reconciliation of adjusted profit from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operations
|
|
$
|
66,794
|
|
|
$
|
33,166
|
|
|
$
|
49,572
|
|
|
$
|
23,730
|
|
|
$
|
22,129
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related charges, net
(1)
|
|
|
4,273
|
|
|
|
7,523
|
|
|
|
1,478
|
|
|
|
337
|
|
|
|
—
|
|
Impairment of assets, net of recoveries
(2)
|
|
|
354
|
|
|
|
1,586
|
|
|
|
—
|
|
|
|
(1,820
|
)
|
|
|
(1,505
|
)
|
Share-based compensation expense
|
|
|
12,913
|
|
|
|
14,464
|
|
|
|
3,620
|
|
|
|
2,382
|
|
|
|
617
|
|
Adjusted profit from operations
|
|
$
|
84,334
|
|
|
$
|
56,739
|
|
|
$
|
54,670
|
|
|
$
|
24,629
|
|
|
$
|
21,241
|
|
Reconciliation of adjusted net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
$
|
51,596
|
|
|
$
|
30,463
|
|
|
$
|
35,862
|
|
|
$
|
31,620
|
|
|
$
|
25,263
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related charges, net
(1)
|
|
|
(2,177
|
)
|
|
|
(447
|
)
|
|
|
(1,556
|
)
|
|
|
337
|
|
|
|
—
|
|
Share-based compensation expense
|
|
|
12,913
|
|
|
|
14,464
|
|
|
|
3,620
|
|
|
|
2,382
|
|
|
|
617
|
|
Impairment of assets, net of recoveries
(2)
|
|
|
1,154
|
|
|
|
1,586
|
|
|
|
—
|
|
|
|
(1,820
|
)
|
|
|
(1,505
|
)
|
Expenses related to secondary share offering
(3)
|
|
|
251
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
U.S. settlement agreement, net
|
|
|
—
|
|
|
|
—
|
|
|
|
845
|
|
|
|
—
|
|
|
|
—
|
|
Adjusted net income for the year
|
|
$
|
63,737
|
|
|
$
|
46,066
|
|
|
$
|
38,771
|
|
|
$
|
32,519
|
|
|
$
|
24,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of adjusted diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
|
63,737
|
|
|
|
46,066
|
|
|
|
38,771
|
|
|
|
32,519
|
|
|
|
24,375
|
|
Diluted shares
|
|
|
36,685
|
|
|
|
36,094
|
|
|
|
35,413
|
|
|
|
35,013
|
|
|
|
31,867
|
|
Adjusted diluted EPS
|
|
|
1.74
|
|
|
|
1.28
|
|
|
|
1.09
|
|
|
|
0.93
|
|
|
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross profit
|
|
|
212,026
|
|
|
|
160,273
|
|
|
|
136,659
|
|
|
|
98,680
|
|
|
|
81,760
|
|
Adjusted gross profit margin percentage
|
|
|
40.6
|
%
|
|
|
38.8
|
%
|
|
|
42.3
|
%
|
|
|
38.9
|
%
|
|
|
41.0
|
%
|
Adjusted selling, general and administrative expenses
|
|
|
(104,485
|
)
|
|
|
(89,095
|
)
|
|
|
(71,065
|
)
|
|
|
(64,545
|
)
|
|
|
(52,355
|
)
|
Adjusted selling, general and administrative expenses margin percentage
|
|
|
20.0
|
%
|
|
|
21.5
|
%
|
|
|
22.0
|
%
|
|
|
25.4
|
%
|
|
|
26.2
|
%
|
Adjusted profit from operations
|
|
|
84,334
|
|
|
|
56,739
|
|
|
|
54,670
|
|
|
|
24,629
|
|
|
|
21,241
|
|
Adjusted profit from operations margin percentage
|
|
|
16.1
|
%
|
|
|
13.7
|
%
|
|
|
16.9
|
%
|
|
|
9.7
|
%
|
|
|
10.6
|
%
|
Adjusted net income for the year
|
|
|
63,737
|
|
|
|
46,066
|
|
|
|
38,771
|
|
|
|
32,519
|
|
|
|
24,375
|
|
Adjusted net income margin percentage for the year
|
|
|
12.2
|
%
|
|
|
11.1
|
%
|
|
|
12.0
|
%
|
|
|
12.8
|
%
|
|
|
12.2
|
%
|
(1)
Acquisition-related
charges, net, include, when applicable, amortization of purchased intangible assets included in the depreciation and amortization
expense line on our consolidated statements of operations, external deal costs, acquisition-related retention bonuses, integration
costs, changes in the fair value of contingent consideration liabilities, charges for impairment of acquired intangible assets
and other acquisition-related costs.
(2)
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.
(3) Expenses
related to secondary share offering include expenses related to the secondary offering in the United States of our common shares
held by WPP Luxembourg Gamma Three S.àr.l.
Consolidated Statements of Financial Position Data
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statements of financial position data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
77,606
|
|
|
$
|
52,525
|
|
|
$
|
50,532
|
|
|
$
|
36,720
|
|
|
$
|
34,195
|
|
Investments (current and non-current)
|
|
|
9,162
|
|
|
|
8,147
|
|
|
|
9,355
|
|
|
|
25,660
|
|
|
|
27,984
|
|
Trade receivables
|
|
|
110,898
|
|
|
|
80,078
|
|
|
|
54,170
|
|
|
|
45,952
|
|
|
|
40,056
|
|
Other receivables (current and non-current)
|
|
|
49,538
|
|
|
|
46,093
|
|
|
|
46,334
|
|
|
|
38,692
|
|
|
|
15,169
|
|
Deferred tax assets
|
|
|
16,916
|
|
|
|
13,186
|
|
|
|
7,691
|
|
|
|
7,983
|
|
|
|
4,881
|
|
Investment in associates
|
|
|
4,000
|
|
|
|
1,550
|
|
|
|
800
|
|
|
|
300
|
|
|
|
750
|
|
Other financial assets (current and non-current)
|
|
|
895
|
|
|
|
1,428
|
|
|
|
1,219
|
|
|
|
2,121
|
|
|
|
—
|
|
Property and equipment
|
|
|
51,460
|
|
|
|
43,879
|
|
|
|
35,676
|
|
|
|
25,720
|
|
|
|
19,213
|
|
Intangible assets
|
|
|
11,778
|
|
|
|
11,365
|
|
|
|
13,791
|
|
|
|
7,209
|
|
|
|
6,105
|
|
Goodwill
|
|
|
104,846
|
|
|
|
98,926
|
|
|
|
65,180
|
|
|
|
32,532
|
|
|
|
12,772
|
|
Total assets
|
|
|
437,099
|
|
|
|
357,177
|
|
|
|
284,748
|
|
|
|
222,889
|
|
|
|
161,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
17,578
|
|
|
|
11,640
|
|
|
|
5,603
|
|
|
|
4,436
|
|
|
|
5,673
|
|
Payroll and social security taxes payable
|
|
|
58,535
|
|
|
|
40,472
|
|
|
|
30,328
|
|
|
|
25,551
|
|
|
|
20,967
|
|
Borrowings (current and non-current)
|
|
|
—
|
|
|
|
6,011
|
|
|
|
217
|
|
|
|
548
|
|
|
|
1,285
|
|
Other financial liabilities (current and non-current)
|
|
|
12,765
|
|
|
|
29,238
|
|
|
|
31,826
|
|
|
|
21,285
|
|
|
|
1,308
|
|
Tax liabilities
|
|
|
7,399
|
|
|
|
5,253
|
|
|
|
6,249
|
|
|
|
10,225
|
|
|
|
3,446
|
|
Other liabilities and provisions
|
|
|
2,906
|
|
|
|
1,199
|
|
|
|
1,965
|
|
|
|
659
|
|
|
|
967
|
|
Total liabilities
|
|
|
99,183
|
|
|
|
93,813
|
|
|
|
76,188
|
|
|
|
62,704
|
|
|
|
33,646
|
|
Total equity and non-controlling interest
|
|
|
337,916
|
|
|
|
263,364
|
|
|
|
208,560
|
|
|
|
160,185
|
|
|
|
127,479
|
|
Total equity, non-controlling interest and liabilities
|
|
|
437,099
|
|
|
|
357,177
|
|
|
|
284,748
|
|
|
|
222,889
|
|
|
|
161,125
|
|
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
Risk Factors
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 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 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 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. 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 18.2%, 18.0% and 19.3% for the years ended December 31, 2018, 2017 and 2016, respectively. If our
attrition rate were to increase, 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 cannot assure you
that we will be able to recruit and train a sufficient number of qualified professionals or that we will 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 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 operation.
We perform our services
primarily under time-and-materials contracts. We charge out the services performed by our Globers under these contracts at hourly
rates that are agreed to at the time the contract is entered into. The hourly rates and other pricing terms negotiated with our
clients 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.
Our predictions are based on limited data and could turn out to be inaccurate. Typically, we do not have the ability to increase
the hourly rates established at the outset of a client project in order to pass through to our client increases in salary costs
driven by wage inflation and other marketplace factors.
Because we conduct
a substantial part of our operations through our operating subsidiaries located in Argentina, Colombia, Mexico 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. If increases in salary and other operating costs at those subsidiaries exceed our internal forecasts, the hourly
rates established under our time-and-materials contracts might not be sufficient to recover those increased operating costs, which
would make those contracts unprofitable for us, thereby adversely affecting our results of operations, financial condition and
cash flows from operations.
In addition to our
time-and-materials contracts, we undertake engagements on a fixed-price basis. Revenues from our fixed-price contracts represented
approximately 17.4%, 8.9% and 7.9% of total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. Our
pricing in a fixed-price contract depends on our assumptions and forecasts about the costs we will incur to complete the related
project, which are based on limited data and could turn out to be inaccurate. Any failure by us to accurately estimate the resources
and time required to complete a fixed-price contract on time and on budget or any unexpected increase in the cost of our Globers
assigned to the related project, office space or materials could expose us to risks associated with cost overruns and could have
an adverse effect on our business, results of operations and financial condition. In addition, any unexpected changes in economic
conditions that affect any of the foregoing assumptions and predictions could render contracts that would have been favorable to
us when signed unfavorable.
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
may not be able to achieve our anticipated growth, 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, the longer-term transition in
our delivery mix from Argentina-based staffing to increasingly decentralized staffing in Latin America, the United States and India
has also 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. 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 IT professionals and our business, results of operations and financial
condition.
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. We currently do not maintain
key man life insurance for any of our founders, members of our senior management team or 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, and 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.
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 noncompetition, 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.
Our success depends
on creating software products that emotionally connect our customers with consumers and employees, leveraging the latest technologies
and methodologies in the digital and cognitive space to drive increased revenues and effective communication with customers. 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.
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, 2018, 2017 and 2016, our largest
customers based on revenues, Walt Disney Parks and Resorts Online in 2018 and 2017, and Southwest Airlines Co. in 2016, accounted
for 11.3%, 10.2% and 9.7% of our revenues, respectively. During the years ended December 31, 2018, 2017 and 2016, our ten
largest clients accounted for 44.0%, 41.9% and 46.5% 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.
In addition, a number
of factors, including the following, other than our performance could cause the loss of or reduction in business or revenues from
a client and these factors are not predictable:
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our need to devote time and resources to training, professional development and other activities that cannot be billed to our
clients.
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the business or financial condition of that client or the economy generally;
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a change in strategic priorities by that client, resulting in a reduced level of spending on technology services;
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a demand for price reductions by that client; and
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a decision by that client to move work in-house or to one or several of our competitors.
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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.
Worsening general economic conditions
in the United States, Europe or globally could materially adversely affect our revenues, margins, results of operations and financial
condition.
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 economic environment, and tends to decline during general economic downturns. If the U.S. or European
economies weaken or slow, 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.
The current U.S. administration
has called for changes to domestic and foreign policy, including but not limited to changes to existing trade agreements, import
and export regulations, immigration, tariffs and customs duties, tax regulations, environmental regulations and other areas that
become subject to significant changes. We cannot predict the impact, if any, the policies adopted by the current U.S. administration
will have on our business. Such policies, should they be adopted, could result in general business interruptions, delays from difficulties
in obtaining import and/or export licenses for certain technology, tariffs and other barriers and restrictions, longer payment
cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws,
any of which could ultimately have a material adverse effect on our business.
The economic situation
in Europe is still recovering and economic performance remains uncertain. There is still some concern that certain European countries
may default in payments due on their national debt obligations and from related European financial restructuring efforts. If such
defaults were to occur, or if European financial restructuring efforts create their own instability, the global credit markets
may become less stable. Continued financial instability in Europe could adversely affect our European operations and, in turn,
could have a material adverse effect on us. In addition, if the U.K.'s referendum to exit from the E.U., known as Brexit, is implemented,
its effects on us will depend on the resulting agreements regarding trade and travel made between the United Kingdom and European
Union.
If we are unable to
successfully anticipate changing economic and political conditions affecting the markets in which we operate, we may be unable
to effectively plan for or respond to those changes, and our results of operations could 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.
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, could make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business,
and could 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.
We are seeking to expand our presence
in the United States, which entails significant expenses and deployment of employees on-site with our clients. If we are unable
to manage our operational expansion into the United States, it may adversely affect our business, results of operations and prospects.
A key element of our
strategy is to expand our delivery footprint, including by increasing the number of employees that are deployed onsite at our clients
or near client locations. In particular, we intend to focus our recruitment efforts on the United States. Client demands, the availability
of high-quality technical and operational personnel at attractive 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
our target markets in the United States. If we are unable to manage our expansion efforts effectively, if our expansion plans take
longer to implement than expected or if our costs for these efforts exceed our expectations, our business, results of operations
and prospects could be materially adversely affected.
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.
A substantial portion
of our clients are concentrated in the following industries: media and entertainment; banks, financial services and insurance;
travel and hospitality; and, technology and telecommunications which industries, in the aggregate, constituted 77.4%, 78.3% and
75.0% of our total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. 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, 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 that 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 in these industries, 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 have a relatively short operating
history and 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.
Our company was founded
in 2003 and, therefore, has a relatively short operating history. In addition, the technology services industry itself 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 any 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. 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.
We are investing substantial cash
in new facilities and physical infrastructure, and our profitability and cash flows could be reduced if our business does not grow
proportionately.
We have made and continue
to make significant contractual commitments related to capital expenditures on construction or expansion of our delivery centers.
We may encounter cost overruns or project delays in connection with opening new, or expanding existing, facilities. These expansions
will likely increase our fixed costs and if we are unable to grow our business and revenues proportionately, our profitability
and cash flows may be negatively affected.
If we cause disruptions in our clients'
businesses or provide inadequate service, 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 fail to consistently meet service requirements of a client, these
errors 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
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, are generally not limited under our contracts. The successful
assertion of one or more large claims against us in amounts greater than those covered by our current insurance policies could
materially adversely affect our business, financial condition and results of operations. Even if such assertions against us are
unsuccessful, we may incur reputational harm and substantial legal fees.
We may face losses or reputational
damage if our software solutions turn out to 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 in general.
Our client relationships, revenues,
results of operations and financial condition may be adversely affected if we experience disruptions in our Internet infrastructure,
telecommunications or IT systems.
Disruptions in telecommunications,
system failures, Internet infrastructure or computer virus attacks could damage our reputation and harm our ability to deliver
services to our clients, which could result in client dissatisfaction and a loss of business and related reduction of our revenues.
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 or computer virus attacks. 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 system is or becomes
vulnerable to security breaches, or if any of our employees misappropriates data, 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. We often have access to or are required
to collect and store confidential client and customer data. Internal or external attacks on our IT networks or those of our
clients 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. Additionally, our business involves the use, storage and
transmission of confidential information and data about our employees, our vendors and our clients. While we take measures to
protect the security of, and unauthorized access to, our systems, as well as the privacy of confidential information and
data, our security controls over our systems, or the security controls over the systems of our 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
disclosure of confidential information, including any personally identifiable or proprietary information. Many of our client
contracts do not limit our potential liability for breaches of confidentiality. If any person, including any of our Globers
or former Globers, penetrates our network security or misappropriates data or code that belongs to us, our clients, or our
clients' customers, we could be subject to significant liability from our clients or from our clients' customers for
breaching contractual confidentiality provisions or privacy laws.
Unauthorized disclosure
of confidential client and customer data, whether through breach of our computer systems, systems failure, loss or theft of confidential
information or intellectual property belonging to our clients or our clients' customers, or otherwise, could damage our reputation,
cause us to lose clients and revenues, and result in financial and other potential losses by us, as well as require us to expend
significant resources to protect against further breaches and to rectify problems caused by these events. Any such access, unauthorized
disclosure or other loss of information could result in legal claims or proceedings, liability under applicable laws, and regulatory
penalties and could adversely affect our business, revenues and competitive position.
Our business, results of operations
and financial condition may be adversely affected by the various conflicting and/or onerous legal and regulatory requirements imposed
on us by 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.
Since we provide services
to clients throughout the world, we are subject to numerous, and sometimes conflicting legal requirements. Compliance with complex
international and U.S. 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, whistle blowing, internal
control and disclosure rules, data protection and privacy requirements. Our failure to comply with these regulations in the conduct
of our business could result in fines, penalties, 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.
In addition, because
we operate from a number of cities in Latin America, the United States, Europe and India, we are also subject to risks relating
to compliance with a variety of national and local labor laws including, employee health safety and wages and benefits laws. 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 terminations, 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. Our failure to comply with applicable regulatory requirements could have
a material adverse effect on our business, results of operations and financial condition.
We may not be able to prevent unauthorized
use of our intellectual property and our intellectual property rights may not be adequate to protect our business, competitive
position, results of operations and financial condition.
Our success depends
in part on certain methodologies, practices, tools and technical expertise our company utilizes in designing, developing, implementing
and maintaining applications and other proprietary intellectual capital. In order to protect our rights in this intellectual capital,
we rely upon a combination of nondisclosure and other contractual arrangements as well as trade secret, patent, copyright and trademark
laws. We also generally enter into confidentiality agreements with our employees, consultants, clients and potential clients and
limit access to and distribution of our proprietary information.
We hold several trademarks
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. There can be no assurance that the laws, rules, regulations and treaties in the countries in
which we operate in effect now or in the future or the contractual and other protective measures we take are adequate to protect
us from misappropriation or unauthorized use of our intellectual capital or that such laws, rules, regulations and treaties will
not change.
We cannot assure you
that we will be able to detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights or
that any such steps will be successful. We cannot assure you that we have taken all necessary steps to enforce our intellectual
property rights in every jurisdiction in which we operate and we cannot assure you that the intellectual property laws of any jurisdiction
in which we operate are adequate to protect our interest or that any favorable judgment obtained by us with respect thereto will
be enforced in the courts. Misappropriation by third parties of, or other failure to protect, our intellectual property, including
the costs of enforcing our intellectual property rights, could have a material adverse effect on our business, competitive position,
results of operations and financial condition.
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.
Our success largely
depends on our ability to use and develop our technology, tools, code, methodologies and services without infringing the intellectual
property rights of third parties, including patents, copyrights, trade secrets and trademarks. We may be subject to litigation
involving claims of patent infringement or violation of other intellectual property rights of third parties. In such cases, litigation
may be necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary
rights. However, given that litigation could be costly an time consuming and could divert the attention of management and key personnel
from our business operations, we may elect to settle these claims from time to time.
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. These claims may require us to initiate or defend protracted and costly litigation on
behalf of our clients, regardless of the merits of these claims and are often not subject to liability limits or exclusion of consequential,
indirect or punitive damages. If any of these claims succeed, we may be forced to pay damages on behalf of our clients, redesign
or cease offering our allegedly infringing services or solutions, or obtain licenses for the intellectual property such services
or solutions allegedly infringe. If we cannot obtain all necessary licenses on commercially reasonable terms, our clients may stop
using our services or solutions.
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, an 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 challenging our exclusive rights over the use and transfer of works
those Globers or independent contractors created or requesting additional compensation for such works.
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. The developers of the technology that we have acquired or may acquire may not have appropriately
created, maintained or enforced intellectual property rights in such technology. 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 and time-consuming and could divert management's
attention from our business. A successful infringement claim against us, whether with or without merit, could, among others 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.
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.
We may not be able to recognize revenues
in the period in which our services are performed and the costs of those services are incurred, which may cause our margins to
fluctuate.
We perform our services
primarily under time-and-materials contracts and, to a lesser extent, fixed-price contracts. All revenues are recognized pursuant
to applicable accounting standards.
Unlike our time-and-materials
contracts, for which revenue is recognized as services are provided, our fixed-priced contracts require the use of certain accounting
estimates. We utilize the input and output methods, depending on the nature of the project and the agreement with the customer,
to account for these contracts. Under the input method, as labor costs represent the primary cost component under such contracts,
we estimate each of our fixed-price contract's total labor cost to date as a proportion of its total expected labor cost. Under
the output method, we recognize revenue on the basis of direct measurements of the value of the services transferred to date relative
to the remaining services promised under the contract. We monitor these factors and continuously revise and refine our estimates
during the term of our fixed-price contracts.
Uncertainty about the
project completion or receipt of payment for our services or our failure to meet all the acceptance criteria, or otherwise meet
a client's expectations, may result in us having to record the cost related to the performance of services in the period that services
were rendered, but delay the timing of revenue recognition to a future period in which all acceptance criteria have been met, which
may cause our margins to fluctuate.
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 currently 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 the current effective income tax
rate payable by us in any country in which we operate is increased or if we lose any country-specific tax benefits, then our financial
condition and results of operations may be adversely affected.
We conduct business
globally and file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate 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; changing tax laws, regulations and interpretations of such tax laws
in multiple jurisdictions; 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.
Under Argentina's Law
No. 25,922 (
Ley de Promoción de la Industria de Software
), as amended by Law No. 26,692 and Decree No. 95/2018 (the
"Software Promotion Law"), our operating subsidiaries in Argentina benefit from a 60% reduction in their corporate income
tax rate (as applied to income from promoted software activities) and a tax credit of up to 70% of amounts paid for certain social
security taxes (contributions) that may be offset against value-added tax liabilities. Law No. 26,692, the 2011 amendment to the
Software Promotion Law ("Law No. 26,692"), also allows such tax credits to be applied to reduce our Argentine subsidiaries'
corporate income tax liability by a percentage not higher than the subsidiaries' declared percentage of exports and extends the
tax benefits under the Software Promotion Law until December 31, 2019.
The Software Promotion
Law remains in effect until December 31, 2019. In March 2019, a draft bill was introduced for its treatment by the Argentine Congress
consisting of a promotional Knowledge Economy regime. The regime contains tax benefits similar to the ones provided by the
Software Promotion Law and is addressed to software companies, as well as other companies involved in biotechnology, audiovisual
production, exportable professional services, robotic automation, aerospace and satellite industry, among others. The bill has
not yet been passed.
Our subsidiary in Uruguay,
Sistemas Globales Uruguay S.A., which is situated in a tax-free zone, benefits from a 0% income tax rate and an exemption from
value-added tax. Additionally, our software development services are exempt from income tax in Uruguay. The exemption applies to
software development services as long as they are exported and utilized abroad.
In India, under the
Special Economic Zones Act of 2005, the services provided by export-oriented companies within Special Economic Zones (each, an
"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. 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, 2018.
In Belarus, a Hi-Tech
Park (the “HTP”) was established in Minsk in 2005 to promote the IT industry. The HTP has a special legal and fiscal
regime in effect until 2042.
For further discussion
of the Argentine, Uruguay, India and Belarus tax benefits, see "Business Overview — Our Delivery Model — Government
Support and Incentives". If these tax incentives in Argentina, Uruguay, India and Belarus 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".
On December 22, 2017,
the United States enacted legislation referred to as the Tax Cuts and Jobs Act ("2017 Tax Act"), which instituted fundamental
changes to the taxation of multinational corporations. As of the date of this annual report, certain provisions of the 2017 Tax
Act do not currently apply to us, including those designed to (i) tax global intangible low-tax income ("GILTI"); (ii)
establish a deduction for foreign derived intangible income ("FDII"); (iii) eliminate the intercompany payment deduction
under Base Erosion Anti-Abuse Tax provision ("BEAT"); and (iv) establish new limitations on certain executive compensation.
One or more of these provisions may apply to us in the future and any additional taxation may have an adverse impact on our results
of operations and cash flows.
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 by increasing the number of employees that are deployed onsite at our clients or
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.
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.
If our current insurance coverage
is or becomes insufficient to protect against losses incurred, our business, results of operations and financial condition may
be adversely affected.
We provide technology
services that are integral to our clients' businesses. If we were to default in the provision of any contractually agreed-upon
services, our clients could suffer significant damages and make claims upon us for those damages. Although we believe that we have
adequate processes in place to protect against defaults in the provisions of services, errors and omissions may occur. We currently
carry errors and omissions liability coverage for all of the services we provide. To the extent client damages are deemed recoverable
against us in amounts substantially in excess of our insurance coverage, or if our claims for insurance coverage are denied by
our insurance carriers for any reason including, but not limited to our failure to provide insurance carrier-required documentation
or our failure to follow insurance carrier-required claim settlement procedures, there could be a material adverse effect on our
business, results of operations and financial condition.
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, including beyond Latin America. We completed two acquisitions in 2008, one in
2011, two in 2012, one in 2013, one in 2014, two in 2015, three in 2016, two in 2017 and one in 2018. Financing of any future acquisition
could require the incurrence of indebtedness, the issuance of equity or a combination of both. 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 and amortization of acquired intangible assets. 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.
We have incurred significant share-based
compensation expense in the past, and may in the future continue to incur share-based compensation expense, which could adversely
impact our profits or the trading price of our common shares.
On July 3, 2014, our
board of directors and shareholders approved and adopted the 2014 Equity Incentive Plan, which was amended by our board of directors
to increase the number of common shares that may be issued as stock awards from 1,666,667 to up to 3,666,667 on May 9, 2016, and
from 3,666,667 to up to 5,666,667 on February 13, 2019.
From the adoption of
the plan 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 2,277,434 common shares and 770,849 restricted stock units, net of any cancelled and/or forfeited
awards. Most of the options and restricted stock units were granted with a vesting period of four years, 25% of each grant becoming
exercisable on each anniversary of the grant date. The remaining options and restricted stock units were granted with a vesting
period agreed with those employees. Share-based compensation expense for awards of equity instruments is determined based on the
fair value of the awards at the grant date. Each of our employee share options is exercisable for one of our common shares, and
each of our restricted stock units is settled, automatically upon its vesting, with one of our common shares. No amounts are paid
or payable by the recipient on receipt of an option or restricted stock unit. Neither the options nor the restricted stock units
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).
For the years ended
December 31, 2018, 2017 and 2016, we recorded $12.9, $14.5 and $3.6 million, respectively, of share-based compensation expense
related to the grant of options and restricted stock units.
The expenses associated
with share-based compensation may reduce the attractiveness of issuing equity awards under our equity incentive plan. However,
if we do not grant equity awards, or if we reduce the number of equity awards we grant, we may not be able to attract and retain
key personnel. If we grant more equity awards to attract and retain key personnel, the expenses associated with such additional
equity awards could materially adversely affect our results of operations and the trading price of our common shares.
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 noncompetition 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' customers, require us to obtain our clients' prior written consent to provide services to their
customers or restrict our ability to compete with our clients, or bid for or accept any assignment for which those clients are
bidding or negotiating. 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.
The terms of our credit facility
place restrictions on our operating and financial flexibility.
In November 2018, Globant
LLC, our U.S. subsidiary (the “Borrower”) entered into an Amended and Restated Credit Agreement (the “A&R
Credit Agreement”) with the financial institutions listed therein, as lenders, and HSBC Bank USA, N.A., as administrative
agent, issuing bank and swingline lender. The A&R Credit Agreement amends and restates the Credit Agreement dated as of August
3, 2017, which provided for a secured revolving credit facility under which the Borrower could borrow up to $40.0 million in advances.
Under the A&R Credit Agreement, the Borrower may borrow (i) up to $50.0 million in a single borrowing on or prior to May 1,
2019 under a delayed-draw term loan facility and (ii) up to $150.0 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
$100.0 million. The maturity date of each of the facilities is October 31, 2023, and interest on the loans extended thereunder
shall accrue at a rate per annum equal to LIBOR plus 1.75%. The Borrower’s obligations under the A&R Credit Agreement
are guaranteed by us and our subsidiary, Globant España S.A., and are secured by substantially all of the Borrower’s
now owned and after-acquired assets. The A&R Credit Agreement also contains certain customary negative and affirmative covenants.
. Compliance with these covenants may limit our flexibility in operating our business and our ability to take actions that might
be advantageous to us and our shareholders.
As of December 31,
2018 and as of the date of this annual report, no amounts were outstanding under this facility.
Indebtedness under our credit facility
bears interest based on LIBOR, which may be subject to regulatory guidance and/or reform that could cause interest rates under
our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences.
The U.K. Financial
Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR
rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases
to exist or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness
may be adversely affected or we may need to renegotiate the terms of our credit agreement to replace LIBOR with the new standard
that is established, if any, or to otherwise agree with the trustees or agents under such facilities or instruments on a new means
of calculating interest.
Risks Related to Operating in Latin America.
Our two largest
operations are based in Argentina and Colombia, and we have subsidiaries in other countries of Latin America, such as Chile, Uruguay,
Peru, Mexico and Brazil. There are significant risks to operating in those countries that should be carefully considered before
making an investment decision.
Latin America
Latin America has experienced adverse
economic conditions that may impact our business, financial condition and results of operations.
Our business is dependent
to a certain extent upon the economic conditions prevalent in Argentina and Colombia as well as the other Latin American countries
in which we operate. Latin American countries have historically experienced uneven periods of economic growth, as well as recession,
periods of high inflation and economic 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
mild recessions. Adverse economic conditions in any of these countries could have a material adverse effect on our business, financial
condition and results of operations.
Latin American governments have exercised
and continue to exercise significant influence over the economies of the countries where we operate, which could adversely affect
our business, financial condition, results of operations and prospects.
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. Governmental actions to control inflation and other policies and regulations have often involved,
among others, price controls, currency devaluations, capital controls and tariffs. Our business, financial condition, results of
operations and prospects may be adversely affected by:
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changes in government policies or regulations, including such factors as exchange rates and exchange control policies;
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tariff and inflation control policies;
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price control policies;
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liquidity of domestic capital and lending markets;
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tax policies, royalty and tax increases and retroactive tax claims; and
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other political, diplomatic, social and economic developments in or affecting the countries where we operate.
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Inflation, and government measures
to curb inflation in Latin America, may adversely affect the economies in the countries where we operate in Latin America, our
business and results of operations.
Some of the countries
in which we operate in Latin America have experienced, or are currently experiencing, high rates of inflation. Although inflation
rates in some of these countries (other than Argentina, as further explained in "Our results of operations may be adversely
affected by high and possibly increasing inflation in Argentina") have been relatively low in the recent past, we cannot assure
you that this trend will continue. The measures taken by the governments of these countries to control inflation have often included
maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and retarding economic
growth. Inflation, measures to combat inflation and public speculation about possible additional actions have also contributed
significantly to economic uncertainty in many of these countries and to heightened volatility in their securities markets. Periods
of higher inflation may also slow the growth rate of local economies. 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.
Our business, results of operations
and financial condition may be adversely affected by fluctuations in currency exchange rates (most notably between the U.S. dollar
and the Argentine peso).
We conduct a substantial
portion of our operations outside the United States, and our businesses may be impacted by significant fluctuations in foreign
currency exchange rates. Our consolidated financial statements and those of most of our subsidiaries are presented in U.S. dollars,
whereas some of our subsidiaries' operations are performed in local currencies. Therefore, the resulting exchange differences arising
from the translation to our presentation currency are recognized in the finance gain or expense item or as a separate component
of equity depending on the functional currency for each subsidiary. Fluctuations in exchange rates relative to the U.S. dollar
could impair the comparability of our results from period to period and could have a material adverse effect on our results of
operations and financial condition.
In addition, our results
of operations and financial condition are particularly sensitive to changes in the Argentine peso, Mexican peso and Colombian peso/U.S.
dollar exchange rates because a significant part of our operations are conducted in these countries where our costs are incurred,
for the most-part, in Argentine pesos, Mexican pesos and Colombian pesos, while the substantial portion of our revenues generated
outside of these countries are in U.S. dollars. Consequently, appreciation of the U.S. dollar relative to the Argentine peso, Mexican
peso and Colombian peso, to the extent not offset by inflation in these countries, could result in favorable variations in our
operating margins and, conversely, depreciation of the U.S. dollar relative to the Argentine peso, Mexican peso and Colombian peso
could impact our operating margins negatively.
In recent years, the
Argentine peso has suffered significant devaluations against the U.S. dollar and has continued to devaluate against the U.S. dollar.
As a result of this economic instability, Argentina's foreign debt rating has been downgraded on multiple occasions based upon
concerns regarding economic conditions and rising fears of increased inflationary pressures. This uncertainty may also adversely
impact Argentina's ability to attract capital.
The increasing level
of inflation in Argentina has generated pressure for further depreciation of the Argentine peso. After several years of relatively
moderate variations in the nominal exchange, the Argentine peso depreciated against the U.S. dollar by 31.2% in 2014, 52.1% in
2015, 21.9% in 2016, 18.4% in 2017 and 102.2% in 2018, based on the official exchange rates published by the Argentine Central
Bank. Due to several factors, including but not limited to the raising of the interest rate by the U.S. Federal Reserve, the inability
of the Argentine government to perform structural changes and reduce the fiscal deficit, the Argentine government’s increasing
need for international financing, the increase of the Argentine government’s inflation goals for 2018, a historical drought
that affected the crops production (main export of Argentina), and the Turkish crisis, during 2018 the Argentine Peso suffered
depreciation of 102.2%. This sharp depreciation again fostered inflation and created strong volatility in the U.S. dollar exchange
rate that gave rise to concerns about further depreciations of the Argentine peso, the control of the inflation levels, and the
potential for a new financial crisis.
The significant restrictions
on the purchase of foreign currency beginning in late 2011 gave rise to the development of an implied rate of exchange, as reflected
in the quotations of Argentine securities that trade in foreign markets, compared to the corresponding quotations in the local
markets in Argentine pesos. See "— Item 4.B Business Overview — Regulatory Overview — Foreign Exchange Controls
— Argentina." Almost all foreign exchange restrictions have been lifted since December 2015 and, as a result, the gap
between the official rate and the implied rate derived from securities transactions has substantially decreased compared to the
previous years. However, the implied rate of exchange may increase or decrease in the future. We cannot predict future fluctuations
in the Argentine peso/U.S. dollar exchange rate. Because a significant part of our operations are located in Argentina, large variations
in the comparative value of the Argentine peso and the U.S. dollar may adversely affect our business.
Despite the positive
effects of the depreciation of the Argentine peso on the competitiveness of certain sectors of the Argentine economy, including
our business, it has also had a negative impact on the financial condition of many Argentine businesses and individuals. The devaluation
of the Argentine peso has had a negative impact on the ability of certain Argentine businesses to honor their foreign currency-denominated
debt, and has also led to very high inflation initially and significantly reduced real wages. The devaluation has also negatively
impacted businesses whose success is dependent on domestic market demand, and adversely affected the Argentine government's ability
to honor its foreign debt obligations. If the Argentine peso is significantly devalued, the Argentine economy and our business
could be adversely affected.
A
significant appreciation of the Argentine peso against the U.S. dollar could also adversely affect the Argentine economy as
well as our business. Our results of operations are sensitive to changes in the Argentine peso/U.S. dollar exchange rate
because a significant portion of our operations are conducted in Argentina where our costs are incurred, for the most-part,
in Argentine pesos. In the short term, a significant appreciation of the Argentine peso against the U.S. dollar would
adversely affect exports and the desire of foreign companies to purchase services from Argentina. 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 with our board of directors, including the use of such instruments to
mitigate the effect of foreign exchange rate fluctuations. During the years ended December 31, 2018 and 2017, our
Argentine operating subsidiaries, Sistemas Globales S.A. and IAFH Global S.A., entered into foreign exchange contracts for
the purpose of hedging the risk of exposure to fluctuations in the Argentine peso against the U.S. dollar. If we do not hedge such
exposure or we do not do so effectively, an appreciation of the Argentine peso against the U.S. dollar may raise our costs,
which would increase the prices of our services to our customers, which, in turn, could adversely affect our business,
financial condition and results of operations.
We face the risk of political and
economic crises, instability, terrorism, civil strife, expropriation and other risks of doing business in Latin America, which
could adversely affect our business, financial condition and results of operations.
We conduct our operations
primarily in Latin America. Economic and political developments in Latin America, including future economic changes or crises (such
as inflation, currency devaluation or recession), government deadlock, political instability, terrorism, civil strife, changes
in laws and regulations, restrictions on the repatriation of dividends or profits, expropriation or nationalization of property,
restrictions on currency convertibility, volatility of the foreign exchange market and exchange controls could impact our operations
or the market value of our common shares and have a material adverse effect on our business, financial condition and results of
operations.
Argentina
Government intervention in the Argentine
economy could adversely affect the economy and our results of operations or financial condition.
During recent
years, the Argentine government has frequently intervened in the Argentine economy,
including through the implementation of expropriation policies or nationalizations.
For example, in April
2012, the Argentine government provided for the nationalization of YPF S.A., the main Argentine oil company. In February 2014,
the Argentine government and Repsol, from whom YPF was expropriated, announced that they had reached an agreement on the terms
of the compensation payable to Repsol for the expropriation of the YPF shares, which settled the claim filed by Repsol with International
Centre for Settlement of Investment Disputes (the "ICSID"). Such compensation amounted to US$5 billion, payable in the
form of Argentine sovereign bonds with various maturities.
There are other examples
of government intervention. In December 2012 and August 2013, the Argentine Congress established new regulations relating to domestic
capital markets. Such regulations generally provided for increased intervention in the capital markets by the government, authorizing,
for example, the Argentine Securities Commission (
Comisión Nacional de Valores
or "CNV") to appoint observers
with the ability to veto the decisions of the board of directors of companies admitted to the public offering regime in Argentina
under certain circumstances and suspend the board of directors for a period of up to 180 days. On May 9, 2018, however, the Argentine
Congress passed the Productive Financing Law No. 27,440, which reformed, among others, the Capital Markets Law No. 26,831 abrogating
this power granted to the CNV and generally modernizing the entire regulatory framework applicable to the Argentine capital market,
by incorporating current international practices to contribute to its development.
Expropriations and
other interventions by the Argentine government such as the one relating to YPF can have an adverse impact on the level of foreign
investment in Argentina, the access of Argentine companies to the international capital markets and Argentina's commercial and
diplomatic relations with other countries and, consequently, could adversely affect our business, financial condition and results
of operations.
The continuity of the Macri administration
and of the current economic and political environment of Argentina is uncertain.
Argentine presidential,
congressional, municipal and state government elections were held in October 2015. Presidential elections were won by the opposing
political party, led by Mauricio Macri. The president of Argentina and the Argentine Congress each have considerable power to determine
governmental policies and actions that relate to the Argentine economy and, consequently, could affect our results of operations
or financial condition. The current administration, in office since December 10, 2015, has announced and adopted several significant
economic and policy reforms, including the following:
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Foreign Exchange Reforms.
The current Argentine administration eliminated all foreign
exchange restrictions, including certain currency controls, which were imposed by the previous administration. However, due
to the foreign exchange crisis, soaring inflation and plummeting economic activity during the first half of 2018, on
November 8, 2018 the Argentine Central Bank issued
Communication “A” 6595, imposing on financial entities a minimum cash
requirement equal to 23% up to 29 days; 17% between 30 and 59 days; 11% between 60 and 89 days; 5% between 90 and 179 days;
2% between 180 and 365 days; and 0% for more than 365 days on obligations with international financial facilities. However,
Communication “A” 6595 was repealed on January 1, 2019. In addition, effective as of October 1, 2018 until the
end of 2018, the Argentine
Central Bank defined foreign
exchange intervention and non-intervention
zones for the U.S. dollar exchange rate at
34 Argentine pesos per U.S. dollar in the lower bound and 44 Argentine pesos per U.S. dollar in the upper bound. Such rates
are adjusted daily; provided that beyond the upper bound, the Argentine Central Bank may sell foreign currency for a daily
amount of up to US$50 million, and beyond the lower bound, the Argentine Central Bank may increase the monetary base backed
with the increase of the federal reserves. As of the date of this annual report, the non-intervention zones were fixed at
39.989 Argentine pesos per U.S. dollar in the lower bound and 50.456 Argentine pesos per U.S. dollar in the upper bound. See
"Item 4.B — Business overview — Regulatory Overview — Foreign Exchange Controls —
Argentina".
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Foreign Trade Reforms.
The current Argentine administration eliminated or reduced
export duties on several agricultural products and eliminated export duties on most industrial and mining products. With
respect to payments for imports of goods and services, the Macri administration announced the elimination of limitations on access to the Foreign Exchange Market for existing debts incurred in connection with imports of goods and services as of
April 22, 2016. On January 2, 2017, the federal government enacted a further reduction of the export duties rate set for
soybean and soybean products, setting a monthly 0.5% cut on the export duties rate beginning on January 2018 until December
2019. In regards to export duties, on December 4, 2018, the Argentine administration imposed duties on the
exportation of services (and not only goods) and allowed the Executive Power to impose export duties of up to 30% until
December 31, 2020, with a maximum rate of 12% for services and goods that were not subject to export duties before September
2, 2018. On January 2, 2019, a new export duty was applied on exports of services at a rate of 12% with a maximum limit of 4
Argentine pesos per U.S. dollar of the amount arising from the invoice or equivalent document.
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Financial Policy.
The current Argentine administration has settled the majority of outstanding
claims with holdout creditors and has issued sovereign bonds in the international capital markets. Although the size of the claims
involved has decreased significantly, litigation initiated by bondholders that have not accepted Argentina’s settlement offer
continues in several jurisdictions. See "—Argentina's ability to obtain financing from international markets may be
limited, which may in turn impair its ability to implement reforms and public policies and foster economic growth and could impact
the ability of Argentine companies to obtain financing outside of Argentina."
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Fiscal policy
. The current Argentine administration took steps to anchor fiscal
accounts, reduce the primary fiscal deficit, eliminate subsidies, reorganize certain expenditures and generate increased
revenue through a tax amnesty program. The fiscal deficit for 2017 was approximately 3.9% of GDP, 0.3% lower than expected.
Likewise, the fiscal deficit for 2018 was approximately 2.4% of GDP, 0.3% lower than expected. Reducing fiscal deficit is
one of the most important objectives for the
administration in the coming years. Due to the foreign exchange crisis in the second
half of 2018, the Argentine government implemented a series of measures aimed at reducing the fiscal deficit for the
following years, including the suspension of public infrastructure works, the depreciation of the Argentine peso, the
re-imposition of export duties, the request of a stand-by loan agreement with the International Monetary Fund
(“IMF”) and the elimination of the Supportive Federal Fund (by which the Federal Government distributed 30% of
the proceeds of the export duties on soybean and soybean products to the provinces and municipalities), among other measures.
The Argentine government targets a primary fiscal deficit of 0% of the GDP for 2019 and a
primary fiscal surplus of 1% of the GDP for 2020.
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Correction of monetary imbalances
. The Argentine administration has adopted an
inflation targeting regime in parallel with the floating exchange rate regime and set inflation targets for the years 2016,
2017, 2018 and 2019. The Argentine Central Bank has increased stabilization efforts to reduce excess monetary imbalances and
raised peso interest rates to offset inflationary pressure. However, the goals for 2016, 2017 and 2018 have not
been met, despite the increase on the inflation target ranges for 2018 (from between 8% and 12%, to 27%) and 2019 (from
between 3.5% and 6.5%, to 17%) announced by the Argentine Central Bank in June, 2018. The inflation for 2017
rose to 24.8%, and for 2018, fostered by a depreciation of 102.2% of the Argentine peso to the U.S. dollar, rose to
47.6%. The official estimation of inflation for 2019 is 29%, while private sources predict an inflation of 35% for the same
period. Since October 1, 2018, in addition to the creation of the foreign exchange intervention and non-intervention zones,
the Argentine Central Bank adopted a policy of zero currency issuance. Therefore, the Argentine Central Bank recalculated the
inflation targets for 2019 and 2020 to 27.8% and 19.6%, respectively.
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Corporate Criminal Liability Law (Ley de Responsabilidad Penal Empresaria)
. On November
8, 2017, the Argentine Congress passed Law No. 27,401 which provides for the criminal liability of corporate entities upon their
execution of certain dishonest activities, directly or indirectly, with their intervention or on their behalf, interest or benefit.
Companies found liable for committing crimes under the terms of this law may be subject to various sanctions, including, among
others, fines ranging from two to five times the ''undue'' benefit that was obtained or that could have been obtained through the
actions incurred in breach of this regulation. Additionally, Companies found liable may forfeit assets obtained through the illegal
actions. The law became effective on March 1, 2018.
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Amendment to Labor Risks Law
. On February 15, 2017, the Argentine Congress passed Law 27,348,
which amends and complements Labor Risks Law No. 24,557 (the "Labor Risks Law"), and aims to reduce litigation arising
from accidents at work. Under the new regime, prior to filing a lawsuit resulting from work-related accidents, affected workers
must go through jurisdictional medical commissions, in order to assess the impact of any accident and to assign benefits provided
for under the Labor Risks Law.
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Social Security Reform Law
. On December 28, 2017, the Argentine Congress passed Argentine
Law No. 27,426, which provides for modifications to the method of calculating social security benefits. In most cases, minimum
benefits will equal 82% of the minimum wage. The law also grants employees the option to maintain their employment status until
the age of 70, though employees may choose to retire earlier. Male employees may retire at 65 and female employees may retire at
60.
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Labor Reform Draft Bill
. The Labor Draft Bill (File No. 1381/2018), which provides a regime
of regularization of unregistered employment, is currently being discussed in two commissions of the Senate: (i) Labor and Social
Security, and (ii) Budged and Finance. This Labor Draft Bill establishes an opportunity to register employment relationships in
the private sector and to rectify the actual remuneration or hiring date of the employment, with the exception of those related
to domestic service, and is currently pending review by both chambers. The draft bill aims to improve competitiveness and efficiency
of various sectors, increase employment, attract investment and reduce labor costs.
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Tax Regime
. On December 29, 2017, the Argentine Congress passed Law No. 27,430. The
law provides for a series of tax and social security reforms intended to eliminate certain existing complexities and
inefficiencies of the Argentine tax regime, reduce tax evasion, increase the coverage of income tax as applied to
individuals and encourage investment while sustaining the
Argentine administration's medium- and long-term efforts aimed at restoring
fiscal balance. The reforms introduced with this law are part of the agenda of the Argentine administration to improve the
competitiveness of the Argentine economy (including the reduction of the fiscal deficit), to increase employment and
diminish poverty on a sustainable basis. Decree No.
279/2018, published in the Official Gazette on April 7, 2018, regulated the income
tax treatment applicable to non-Argentine residents, who receive income or obtain capital gains arising from the investment
in financial assets in Argentina. The reform did not substantially modify the tax treatment set forth in Law No. 26,893 of
gains recognized by nonresidents on the sale of shares, quotas or other equity participations in Argentine companies as well
as “other securities” of Argentine residents. However, it shifted the tax liability from nonresident purchasers
to nonresident sellers. Beginning January 1, 2018, when a nonresident seller sells shares or quotas in an Argentine company
to a nonresident buyer, the seller must pay Argentine income tax on the capital gains through its legal representative in
Argentina. In April 2018, the General Resolution No. 4,227 of the AFIP established the payment mechanism for the Argentine
income tax on capital gains. Furthermore, Decree No. 813/2018, published in the Official Gazette on September 11, 2018,
introduced several amendments to Regulatory Decree No. 692/1998, which regulates the Argentine Value Added Tax Law. The main
amendments were made in relation to: (i) substitute taxpayers for the payment of the Value Added Tax corresponding to
individuals or entities domiciled or resident abroad who render services within Argentina subject to the tax; (ii) digital
services provided by individuals or entities domiciled or resident abroad when the effective use or exploitation of such
services is carried out in Argentina; (iii) the mechanism for the refund of tax credits generated in the purchase,
construction, manufacture, processing or importation of capital assets; and (iv) the mechanism for the recovery of
accumulated tax balance by public service companies. Decree No. 1170, published in the Official Gazette on December 27,
2018, amended the regulatory decree of the Income Tax Law
in accordance with the amendments introduced by Law No. 27,430. In
addition, pursuant to the amendment to the personal assets tax law approved by Law No. 27,480, enacted on December 5, 2018,
the minimum taxable amount for fiscal year 2019 is Argentine pesos 2 million. For taxpayers domiciled in Argentina, the tax
rate would still be 0.25% if the aggregate amount of declared assets is between Argentine pesos 2 million and Argentine peso
5 million, but it would increase to 0.5% of the excess of Argentine pesos 5 million if the declared assets are of between
Argentine pesos 5 and Argentine pesos 20 million, and to 0.75% of the excess of Argentine pesos 20 million if the value of
declared assets is higher than Argentine pesos 20 million. For individuals and entities not domiciled in Argentina,
the tax rate would be maintained at 0.25%, irrespective of
the value of the taxable assets.
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Capital Markets Reform.
On May 9, 2018, the Argentine Congress passed the Productive Financing
Law No. 27,440, which reformed, among others, the Capital Markets Law No. 26,831, generally modernizing the entire regulatory framework
applicable to the Argentine capital market by incorporating current international practices to contribute to its development. The
CNV has also issued several regulations in line with such reform.
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Antitrust Law
. On May 24, 2018, the Argentine Congress passed Law No. 27,442, which introduces
several changes to the former Antitrust Law No. 25,156, as follows: (i) it envisages the creation of a National Competition
Authority, as opposed to having a “dual” authority i.e. Antitrust Commission and Secretary of Trade; (ii) in terms
of merger control, it increases the volume of business’ threshold and provides for the adoption of a suspensory regime, by
means of which the parties to a reportable transaction will not be able to close it until they receive authorization from the authority;
and (iii) in terms of anticompetitive conducts, it increases the fines for sanctions substantially and presumes that there are
certain conducts that are deemed to be absolutely restrictive to competition and, therefore, illegal per se (i.e. “hard core
cartels”). The suspensory regime shall enter into force one year from the effective creation of the National Competition
Authority and, in the meantime, the current non-suspensory regime continues to apply. This entity has not been created yet.
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Some of the measures
proposed by the current Argentine administration have generated political and social opposition. In addition, political parties
opposed to the government retained a majority of the seats in the Argentine Congress, which may in turn prevent the government
from adopting such measures as proposed.
Moreover, Argentine
presidential, congressional, municipal and state government elections will be held in October, 2019. We can offer no assurances
or predictions on the continuity of the Macri administration or that the policies that may be implemented by the Argentine government
in office will not adversely affect our business, results of operations or financial condition.
Our results of operations may be
adversely affected by high and possibly increasing inflation in Argentina.
Inflation has materially
undermined the Argentine economy and the government's ability to create conditions that would permit stable growth. High inflation
may also undermine Argentina's foreign competitiveness in international markets and adversely affect economic activity and employment,
as well as our business and results of operation. In particular, the margin on our services is impacted by the increase in our
costs in providing those services, which is influenced by wage inflation in Argentina, as well as other factors.
The
Argentine National
Institute of Statistics and Census
(
Instituto Nacional de Estadística y Censos
) (“INDEC”) implemented
certain methodological reforms and adjusted certain indexes based on these reforms. The lack of accuracy in the INDEC's indexes
could result in a further decrease in confidence in Argentina's economy, which could, in turn, have an adverse effect on our ability
to access the international credit markets at market rates to finance our operations and growth. See
"
The credibility
of several Argentine economic indexes has been called into question, which may lead to a lack of confidence in the Argentine economy
and may in turn limit our ability to access the credit and capital markets.
"
According to data published
by the INDEC, the CPI increased 21.7% in 2014 and 11.9% as of October 2015 (for the first nine months of year 2015). In November
2015, the INDEC suspended the publication of the CPI. According to the publicly available information based on data from the Province
of San Luis, the CPI grew by 31.6% in 2015 and 31.4% in 2016. According to the publicly available information based on data from
the City of Buenos Aires, the CPI grew by 29.6% in 2015 and 41.0% in 2016. After implementing certain methodological reforms and
adjusting certain macroeconomic statistics based on these reforms, in June 2016 the INDEC resumed its publication of the CPI. According
to the INDEC, Argentina's rate of inflation between May and December 2016 was 16.9%, in the year 2017 was 24.8% and in the year
2018 was 47.6% based on the CPI. The official estimation of CPI increase for 2019 is 29%, while private sources predict a CPI increase
of 35% for the same period.
Recent factors,
including but not limited to the raising of the interest rate by the U.S. Federal Reserve, the inability of the Argentine
government to perform structural changes and reduce the fiscal deficit, the Argentine government’s increasing need for
international financing, the increase of the Argentine government’s inflation goals for 2018, a historical drought that
affected crop production (main export of Argentina), and the Turkish crisis, provoked a sharp depreciation of 102.2% of the
Argentine Peso during 2018. This sharp depreciation has fostered inflation in 2018 and created strong volatility in the U.S.
dollar exchange rate that gave rise to concerns about further depreciation of the Argentine peso, the control of the
inflation levels, and the possibility of a new financial crisis. Uncertainty surrounding future inflation rates may have an
adverse impact for Argentina in the long-term credit market. In order to control the foreign exchange crisis the Argentine
government adopted a series of measures, including the execution of a financing agreement with the IMF for US$57.1 billion,
and the Argentine Central Bank defined foreign exchange intervention and non-intervention zones for the U.S. dollar exchange
rate and increased the pesos interest rates. As of the date of this annual report, these and other measures adopted by the
Argentine government and the Argentine Central Bank caused a deepening recession (the IMF projected a GDP decrease of 2.6%
for 2018 and 1.7% for 2019), increasing unemployment and medium and small companies failures, while high inflation and
foreign exchange instability continues. In addition, in October 2019, Argentina will hold presidential elections, and there
is a large amount of uncertainty and speculation on the re-election of Mauricio Macri or his potential successor that also contributes to the economic instability.
Inflation rates could
continue escalating, and there is uncertainty regarding the effects that the measures taken, or that may be taken, by the Argentine
government to control inflation could have in the medium term. If inflation remains high or continues to increase, Argentina's
economy may be negatively impacted and our results of operations could be materially affected.
The Executive Board of the International
Monetary Fund has approved a three-year Stand-By Arrangement for Argentina amounting to US$57.1 billion, following an agreement
on an economic plan to be implemented by the Argentine authorities; however, there can be no assurance that such plan will meet
its objectives in supporting the Argentine government’s economic priorities, nor are we able to predict what the future consequences
will be for the Argentine economy in general or our business in particular.
The Argentine government
requested IMF financial support in late May 2018 to help strengthen the Argentine economy in light of the recent financial market
turbulence. In early June 2018, Argentina and IMF staff reached an agreement on an economic plan that could be supported by IMF
financing in the form of a Stand-By Arrangement for $50.0 billion, and on June 20, 2018, the IMF’s Executive Board approved
such plan and the consequent three-year Stand-By Arrangement, and on June 21, 2018, the IMF made the first disbursement of US$15
billion.
On September 2018 the
Argentine government negotiated an extension to the Stand-By Arrangement from $50.0 billion to $57.1 billion.
By the end of October
2018, the IMF made the second disbursement of $5.7 billion and by the end of December made a third disbursement of $7.6 billion.
It is expected that the IMF would make additional disbursements in 2019 for US$22.8 billion.
The purpose of the
Stand-By Arrangement is to support the Argentine government’s economic priorities, which include strengthening the Argentine
economy and protecting the living standards of the Argentine people.
The Argentine government
has stated that it intends to take measures to accelerate the pace at which the federal government’s fiscal deficit is reduced.
This measure is expected to ultimately lessen the government’s financing needs and put public debt on a downward path.
In addition, the Argentine
government’s economic plan intended to put in place measures to offer opportunity and support to the less well-off members
of Argentine society. The authorities have committed to ensuring that spending on social assistance, as a share of gross domestic
product, will not decline during the next three years.
As of the date of this
annual report, we cannot guarantee that the financing package will be sufficient to enable the Argentine government to achieve
the goals of its economic plan, nor are we able to predict what the future consequences will be for the Argentine economy in general
or our business in particular.
The credibility of several Argentine
economic indexes has been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn
limit our ability to access the credit and capital markets.
Between 2007 and 2014,
the inflation index has been extensively discussed in the Argentine economy. The intervention of the former Argentine government
in the INDEC in 2007 and the change in the way the inflation index was measured have resulted in disagreements between the former
Argentine government and private consultants as to the actual annual inflation rate. The former Argentine government imposed fines
on private consultants reporting inflation rates higher than the INDEC data. As a result, private consultants typically shared
their data with Argentine lawmakers who opposed the previous government, who released such data from time to time. This resulted
in a decrease in confidence in Argentina's economy.
In February 2014, the
INDEC released a new inflation index, known as National Urban Consumer Price Index (
Índice de Precios al Consumidor Nacional
Urbano
) that measured the prices of goods across the country and replaces the previous index that only measured inflation in
the urban sprawl of the City of Buenos Aires. Pursuant to these calculations, such new consumer price index rose 21.7% in 2014
and 11.9% during the ten-month period ended October 31, 2015. Even though the new methodology brought inflation statistics closer
to those estimated by private sources, material differences between recent official inflation data and private estimates remained
during 2015.
However, during December
2015 and January 2016, the new administration declared the national statistical system and the INDEC to be in a state of administrative
emergency through December 31, 2016. Accordingly, the new head of the INDEC announced the temporary suspension of the publication
of official data of prices, poverty, unemployment and GDP until the completion of a full review of INDEC's policies. Shortly thereafter,
the new administration released an alternative CPI index based on data from the City of Buenos Aires and the Province of San Luis.
The INDEC resumed its publication of the CPI in June 2016, after implementing certain methodological reforms and adjusting certain
macroeconomic statistics on the basis of those reforms. As a consequence of these reforms, on November 9, 2016, the IMF lifted
its censure on Argentina, noting that Argentina had resumed the publication of data in a manner consistent with its obligations
under the Articles of Agreement with the IMF. Still, uncertainty remains as to whether official data and measurement procedures
sufficiently reflect inflation in the country, and what effect these reforms will have on the Argentine economy. In March 2018,
the Argentine government announced a draft bill to provide INDEC with total autonomy and to transform it into an entity that will
facilitate greater statistical independence of the main macroeconomic indicators.
As of the date of this
annual report, the impact that these measures and any future measures taken by the current administration with respect to the INDEC
will have on the Argentine economy and investors' perception of the country cannot be predicted.
Argentina's ability to obtain financing
from international markets may be limited, which may in turn impair its ability to implement reforms and public policies and foster
economic growth and could impact the ability of Argentine companies to obtain financing outside of Argentina.
Argentina's 2001 sovereign
default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited and may continue
to limit Argentina's ability to access international financing. In 2005, Argentina completed the restructuring of a substantial
portion of its indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed the restructuring
of a significant portion of the defaulted bonds that were not exchanged in the 2005 restructuring. As a result of debt exchanges
carried out in 2005 and 2010, Argentina restructured approximately 93% of its defaulted debt that was eligible for restructuring.
However, holdout bondholders that declined to participate in the restructuring, filed lawsuits against Argentina in several countries,
including the United States. Since late 2012, rulings from courts in the United States favorable to holdout bondholders aggravated
investors' concerns regarding investment in the country.
In November 2012, the
United States District Court for the Southern District of New York
in re:
"NML Capital, Ltd. v. Republic of Argentina",
ratified and amended the injunction order issued in February 2012, which held that Argentina violated the
pari passu
clause
with respect to the bondholders that had not participated in the sovereign debt restructuring in 2005 and 2010. Pursuant to such
ruling, Argentina was required to pay 100% of the amounts due to the plaintiffs, simultaneously with the payment of the amounts
due on the next maturity date of the bonds to the bondholders who participated in the debt restructuring. In June 2014, the U.S.
Supreme Court denied Argentina's petition for a writ of
certiorari
of the U.S. Second Circuit Court of Appeals' ruling affirming
the U.S. District Court's judgment. Later that month, the U.S. District Court ruled that funds deposited with the Bank of New York
Mellon, the trustee which manages bond payments for Argentina's bonds issued in the 2005 and 2010 debt restructuring, should not
be delivered to the holders of restructured debt in the absence of a prior agreement with the holdout bondholders (the plaintiffs
in this case). In June 2015, the U.S. District Court granted partial summary judgment to a group of "me-too" plaintiffs
in 36 separate lawsuits, finding that, consistent with the previous ruling of such court, Argentina violated the
pari passu
clause in the bonds issued to the "me-too" bondholders.
In February 2016, the
current Argentine administration entered into settlement agreements with certain holdout bondholders to settle these claims, which
were subject to the approval of the Argentine Congress and the lifting of the
pari passu
injunctions. In March 2016, after
the U.S. District Court agreed to vacate the
pari passu
injunctions subject to certain conditions, the Argentine Congress
ratified these settlement agreements through Law No. 27,249 and repealed the provisions of the so called Lock Law No. 26,017 and
the Sovereign Payment Law No. 26,984, which prohibited Argentina from offering holdout bondholders more favorable terms than those
offered in the 2005 and 2010 debt restructuring. The Argentine government has reached settlement agreements with holders of a significant
portion of the defaulted bonds and has repaid the majority of the holdout creditors with the proceeds of a US$16.5 billion international
offering of 3-year, 5-year, 10-year and 30-year bonds on April 22, 2016. Although the size of the claims involved has decreased
significantly, litigation initiated by bondholders that have not accepted Argentina's settlement offer continues in several jurisdictions.
Additionally, foreign
shareholders of several Argentine companies have filed claims with the ICSID alleging that the emergency measures adopted by the
Argentine government since the crisis in 2001 and 2002 differ from the just and equal treatment standards set forth in several
bilateral investment treaties to which Argentina is a party. ICSID has ruled against Argentina with respect to many of these claims.
Litigation involving
holdout creditors, claims with ICSID and other claims against the Argentine Government, resulted and may result in material judgments
against the government, lead to attachments of or injunctions relating to Argentina's assets, or could cause Argentina to default
under its other obligations, and such events may prevent Argentina from obtaining favorable terms or interest rates when accessing
international capital markets or from accessing international financing at all. Our ability to obtain U.S. dollar-denominated financing
has been adversely impacted by these factors. During 2014, 2015, 2016, 2017 and 2018, it became increasingly difficult for Argentine
companies to obtain financing in U.S. dollars, and loans in the local currency carried significantly higher interest rates. The
termination of the injunctions issued by the United States courts preventing bondholders from receiving their interest payments
on the bonds issued pursuant to the 2005 and 2010 exchange offers, and the related subsequent events, have paved the way for the
Argentine Government to regain access to the international capital markets. Nonetheless, Argentina's ability to obtain international
or multilateral private financing or direct foreign investment may be limited, which may in turn impair its ability to implement
reforms and public policies to foster economic growth. In addition, Argentina's ongoing litigation with the remaining holdout creditors
as well as ICSID and other claims against the Argentine Government, or any future defaults of its financial obligations, may prevent
us from accessing the international capital markets or cause the terms of any such transactions less favorable than those provided
to companies in other countries in the region, potentially impacting our financial condition.
In addition, other
endogenous and exogenous factors are limiting the access of emerging countries and particularly Argentina to international financing.
See "—Our business, results of operations and financial condition may be adversely affected by fluctuations in currency
exchange rates (most notably between the U.S. dollar and the Argentine peso)” and “—Our results of operations
may be adversely affected by high and possibly increasing inflation in Argentina.”
Lack of access to international
or domestic financial markets could affect the projected capital expenditures for our operations in Argentina, which, in turn,
may have an adverse effect on the results of our operations and on the market price of our common shares.
A continued decline in the global
prices of Argentina's main commodity exports could have an adverse effect on Argentina's economic growth.
High commodity prices
have contributed significantly to the increase in Argentine exports since 2002 as well as in governmental revenues from export
taxes. However, relying on the export of certain commodities, such as soy, has made the Argentine economy more vulnerable to fluctuations
in the prices of commodities. Since the beginning of 2015, international commodity prices of Argentina's primary commodity exports
have declined, which has had an adverse effect on Argentina's economic growth. If international commodity prices continue to decline,
the Argentine economy could be adversely affected. In addition, adverse weather conditions can affect the production of commodities
by the agricultural sector, which account for a significant portion of Argentina's export revenues.
These circumstances
would have a negative impact on the levels of government revenues, available foreign exchange and the government's ability to service
its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government's reaction. Either
of these results would adversely impact Argentina's economic growth and, therefore, our financial condition and results of operations.
Argentine exchange controls and restrictions
on capital inflows and outflows have limited, and may continue to limit, the availability of international credit and access to
capital markets, which could have a material adverse effect on our financial condition and business.
Since 2001, Argentina
imposed exchange controls and transfer restrictions substantially limiting the ability of enterprises to retain or obtain foreign
currency or make payments or distributions abroad. See
"Information on the Company — Business Overview —
Foreign Exchange Controls"
.
Notwithstanding the
measures adopted by the current Argentine administration since December 2015, which lifted all exchange and capital controls, the
Argentine government may impose or increase exchange controls or transfer restrictions in the future in response to capital flight
or a significant depreciation of the Argentine peso. Additional controls could have a negative effect on the ability of Argentine
entities to access the international credit or capital markets, the Argentine economy and our financial condition and business.
The Argentine government may order
salary increases to be paid to employees in the private sector, which could increase our operating costs and adversely affect our
results of operations.
In the past, the Argentine
government has passed laws, regulations and decrees requiring companies in the private sector to increase wages and provide specified
benefits to employees, and may do so again in the future. Argentine employers, both in the public and private sectors, have experienced
significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits.
Due to the high levels of inflation, employees and labor organizations are demanding significant wage increases. The Argentine
government increased the minimum salary to 3,600 Argentine pesos in January 2014, to 4,400 Argentine pesos in September 2014, to
4,716 Argentine pesos in January 2015, to 5,588 Argentine pesos in August 2015, to 6,060 Argentine pesos in January 2016, to 6,810
Argentine pesos in June 2016, to 7,560 Argentine pesos in September 2016,
to 8,860 Argentine pesos
in July 2017, to 10,700 Argentine pesos in September 2018, and to 11,300 Argentine Pesos in December 2018. The Argentine government
confirmed that the minimum salary will be increased to 12,500 Argentine pesos by June 2019. Recently, the INDEC published data
regarding the evolution of salaries in the private and public sectors, which reflects approximately 26.7% and 25.26% salary
increase in the private and public sectors, respectively, for the period from January 2017 through December 2017, and approximately
28.7% salary increase in both private and public sectors, from the period from January 2018 to November 2018.
Due to high levels
of inflation and full employment in the high tech industry, we expect to raise salaries in line with the market. During the year
ended December 31, 2018, labor unions agreed with employers´ associations on annual salary increases between 30% and 40%.
In addition, on November 12, 2018, the Argentine government issued a decree imposing the payment of an extraordinary non-remuneratory
bonus of Argentine pesos 5,000 to all workers in the private sector, payable in two installments in December 2018 and February
2019. If future salary increases in the Argentine peso exceed the pace of the devaluation of the Argentine peso, such salary increases
could have a material and adverse effect on our expenses and business, results of operations and financial condition and, thus,
on the trading prices for our common shares.
Our operating cash flows may be adversely
affected if there is a delay in obtaining reimbursement of value-added tax credits from AFIP.
During the years ended
December 31, 2018 and 2017, our Argentine operating subsidiary IAFH Global S.A. recognized an aggregate of $3.8 million in value-added
tax credits. These tax credits may be monetized by way of cash reimbursement from AFIP. Obtaining this cash reimbursement requires
submission of a written request to AFIP, which is subject to its approval. In the event that AFIP delays its approval of the request
for reimbursement of these value-added tax credits, our ability to monetize the value of those credits would be delayed, which
could adversely affect our cash flows.
Transactions with bonds acquired
as proceeds from the capitalization of our Argentine subsidiaries increase our exposure to fluctuations in the value of the Argentine
peso, which, in turn, could have an adverse effect on our operations and the market price of our common shares. The imposition
in the future of regulations on proceeds collected outside Argentina for capitalization of our Argentine subsidiaries could also
have an adverse effect on us.
During the years ended
December 31, 2015 and 2014, our Argentine subsidiaries, through cash received from capital contributions, acquired Argentine
sovereign bonds, including BODEN and Bonos Argentinos ("BONAR"), in the U.S. market denominated in U.S. dollars.
After acquiring these
bonds and after holding them for a certain period of time, our Argentine subsidiaries sold those bonds in the Argentine market.
The fair value of these bonds in the Argentine market (in Argentine pesos) during the years ended December 31, 2015 and 2014
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 our Argentine subsidiaries' functional currency,
thus, as a result, we 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 years ended
December 31, 2018, 2017 and 2016, we did not engage in the above described transactions. Although, as of the date of this
annual report, we are not obliged to settle proceeds received from capitalizations abroad through the FX Market, if in the future
we decide to make additional capital contributions to our Argentine subsidiaries and acquire bonds, we cannot assure you that the
quoted price of the BODEN and/or BONAR in Argentine pesos in the Argentine markets will be higher than the quoted price in the
U.S. debt markets in U.S. dollars converted at the official exchange rate prevailing in Argentina or that the Argentine government
will not require Argentine companies to repatriate such proceeds through the FX Market, or make any other legislative, judicial,
or administrative changes or interpretations, any of which could have a material adverse effect on our business, results of operations
and financial condition.
The imposition in the future of restrictions
on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to receive dividends and
distributions from, and the proceeds of any sale of, our assets in Argentina.
Beginning in December
2001, the Argentine government implemented a number of monetary and foreign exchange control measures that included restrictions
on the free disposition of funds deposited with banks and on the transfer of funds abroad without prior approval by the Argentine
Central Bank, which have been lifted. See
"Information on the Company — Business Overview —
Foreign Exchange Controls"
.
Although the transfer
of funds abroad by local companies in order to pay annual dividends only to foreign shareholders does not require formal approval
by the Argentine Central Bank, in the past, the decrease in availability of U.S. dollars in Argentina has led the Argentine government
to impose informal restrictions on certain local companies and individuals for purchasing foreign currency for the purpose of making
payments abroad, such as dividends, capital reductions, and payment for importation of goods and services.
Although the current
Argentine administration has lifted the foreign exchange restrictions, the imposition of future exchange controls could impair
or prevent the conversion of anticipated dividends, distributions, or the proceeds from any sale of equity holdings in Argentina,
as the case may be, from Argentine pesos into U.S. dollars and the remittance of the U.S. dollars abroad. These restrictions and
controls could interfere with the ability of our Argentine subsidiaries to make distributions in U.S. dollars to us and thus our
ability to pay dividends in the future. The domestic revenues of our Argentine subsidiaries (excluding intercompany revenues to
other Globant subsidiaries, which are eliminated in consolidation) were $23.8 million in 2018, $13.3 million in 2017 and $10.2
million in 2016, representing 4.6%, 3.2% and 3.2% of our annual consolidated revenues, respectively.
The Argentine government
could adopt restrictive measures again in the future. If that were the case, a foreign shareholder, such as ourselves, may be prevented
from converting the Argentine pesos it receives in Argentina into U.S. dollars. If the exchange rate fluctuates significantly during
a time when we cannot convert the foreign currency, we may lose some or all of the value of the dividend distribution or sale proceeds.
These restrictions
and requirements could adversely affect our financial condition and the results of our operations, or the market price of our common
shares.
The imposition or re-imposition in
the future of regulations on proceeds from the export of services collected outside of Argentina for services rendered to non-Argentine
residents or of export duties and controls could have an adverse effect on us.
In December 30, 2016,
by means of Communication "A" 6137 (later replaced by Communication "A" 6244, which became effective as of
July 1, 2017), the Argentine Central Bank eliminated the requirement to repatriate and exchange funds obtained from the exportation
of services into pesos through the FX Market. Consequently, we are not required to repatriate or exchange the foreign currency
proceeds received from services rendered to non-Argentine residents outside of Argentina (which are proceeds from our exportations
held in off-shore accounts, such as the collections of services fees in U.S. dollars). Additionally, the applicable regulations
do not prohibit or regulate the receipt of in-kind payments by an exporter.
However, in the past,
Argentine law (including Communication "A" 5264 of the Argentine Central Bank, as amended), required Argentine residents
to transfer the foreign currency proceeds received for services rendered to non-Argentine residents into a local account with a
domestic financial institution and to convert those proceeds into Argentine pesos through the FX Market.
We cannot assure you
that the Argentine government will not in the future require again Argentine residents to convert the foreign currency proceeds
received for services rendered to non-Argentine residents into Argentine pesos through the FX Market, restrict exporters from receiving
in-kind payments, require them to repatriate those payments received through the FX Market, or make any other legislative, judicial,
or administrative changes or interpretations, any of which could have a material adverse effect on our business, results of operations
and financial condition.
The imposition of duties on export services could adversely
affect our results of operations.
On December
4, 2018, Argentina approved the budget bill for year 2019 through Law 27,467, which amended the Customs Code to
allow for duties to be applied to the exportation of services (and not only goods). In addition, the executive branch was
allowed to impose export duties of up to 30% until December 31, 2020. However, in case of services and goods that were not
subject to export duties before September 2, 2018, the maximum rate is 12%. On January 2, 2019, the executive branch issued
Decree No. 1201/2018, which established an export duty on exportation of services at a rate of 12% with a maximum
limit of Argentine pesos (ARS) 4 per each U.S. dollar of the amount arising from the invoice or equivalent document.
A service is
considered “exported” when it is rendered in Argentina but it is effectively used or exploited off shore. Such
utilization or exploitation is effective upon the first utilization or act of disposal of the service by
the recipient even when, if appropriate, the latter intends such service for consumption.
If an increase
of the current rates for exportation duties was approved or additional duties were imposed on the exportation of services, the
results of our operations could be adversely affected.
Changes in Argentine tax laws may
adversely affect the results of our operations, financial condition and cash flow
s.
In 2012, the Argentine
government terminated its treaties with Spain for the avoidance of double taxation. As a result, the exemption from personal assets
tax that was available pursuant to such treaty for equity interests in local companies owned by Spanish residents no longer applies.
The new double taxation treaty with Spain, which was adopted on December 23, 2013 and applied retroactively from January 1, 2013,
does not include a similar exemption. Under the new treaty, the tax applicable on dividends distributed by our Argentine subsidiaries
to the Spain Holdco is limited to 10% of the gross amount of dividends distributed, and income tax withholding on financial interest
is limited to 12%.
Argentine companies
are required to pay the personal assets tax corresponding to Argentine resident individuals, foreign individuals and foreign entities
for holding equity interests in such companies as of December 31 of each year. The applicable tax rate is 0.25% and the tax is
levied on the equity stated in the latest financial statements. Although the new double taxation treaty with Spain does not include
an exemption on such tax, Law No. 27,260, which was enacted by the Argentine government on July 21, 2016, introduced benefits for
compliant taxpayers that include an exemption from the personal assets tax until December 31, 2018.
On December 29, 2017,
the Argentine government enacted Law No. 27,430, which reduced the corporate income tax rate to 30% for fiscal years beginning
on or after January 1, 2018 and 25% for fiscal years beginning on or after January 1, 2020. The distribution of dividends is now
subject to a 7% tax rate for the distribution of dividends related to financial results from fiscal years beginning on or after
January 1, 2018 and 13% tax rate for the distribution of dividends related to financial results from fiscal years beginning on
or after January 1, 2020.
Exposure to multiple provincial and
municipal legislation and regulations could adversely affect our business or results of operations.
Argentina is a federal
country with 23 provinces and one autonomous city (City of Buenos Aires), each of which, under the Argentine national constitution,
has full power to enact legislation concerning taxes and other matters. Likewise, within each province, municipal governments have
broad powers to regulate such matters. Due to the fact that our delivery centers are located in multiple provinces, we are also
subject to multiple provincial and municipal legislation and regulations. Although we have not experienced any material adverse
effects from this, future developments in provincial and municipal legislation concerning taxes, provincial regulations or other
matters may adversely affect our business or results of operations.
Colombia
Colombia has experienced several
periods of internal security issues that could affect the economy and impact our business, and our results from operations.
Colombia has suffered
from periods of criminal violence over the past four decades, primarily due to the activities of guerrilla groups such as the Revolutionary
Armed Forces of Colombia (
Fuerzas Armadas Revolucionarias de Colombia
) (“FARC”), paramilitary groups and drug
cartels and criminal bands known as Bacrim. In regions of the country with limited governmental presence, these groups have exerted
influence over the local population and funded their activities by protecting and rendering services to drug traffickers. In response,
the Colombian government has implemented various security measures and has strengthened its military and police forces by creating
specialized units. In 2012, the Colombian government began peace negotiations with FARC. The peace agreement between the Colombian
government and the guerrilla group, which was signed in 2016, was subject to a national referendum but was not approved by a majority
of the voters. The parties re-negotiated certain aspects of the original agreement and the new agreement was approved by Congress
in 2016.
Pursuant to the peace
agreements negotiated between FARC and the Colombian government, FARC occupies five seats in the Colombian Senate and five seats
in the Colombian House of Representatives. We cannot predict which policies will be adopted by the Colombian government and whether
the policies would have a negative impact on the Colombian economy or our business, financial condition and results of operations.
Despite efforts by
the Colombian government, drug-related crime, guerrilla paramilitary activity and criminal bands continue to exist in Colombia,
and allegations have surfaced regarding members of the Colombian congress and other government officials having ties to guerilla
and paramilitary groups. Although the Colombian government and the National Liberation Army (“ELN”) have been in talks
since February 2017 to end a five-decade war, the Colombian government has suspended the negotiations after a series of rebel attacks.
On January 17, 2019, a car with explosives burst through the gates at a police academy in Bogotá resulting in 21 people
dead and many injured. The Colombian Defense Minister confirmed that the terrorist attack was perpetrated by the ELN. Any
possible escalation in the violence associated with this terrorist attack and/or these activities may have a negative impact on
the Colombian economy. In addition, given that the peace protocols to be applied in the event of a suspension of peace negotiations
were entered into by the prior administration, the current administration has not honored these protocols, on the grounds that
these protocols are only binding to the administration that agreed to them. This situation could result in escalated violence by
the ELN and may have a negative impact on the credibility of the Colombian government which could in turn have a negative impact
on the Colombian economy and may adversely affect our business or results of operations in Colombia.
Any further downgrade in the credit
rating of Colombia could adversely affect the Colombian economy.
The outlook of Colombia’s
credit rating was changed to negative by Standard & Poor’s Financial Services LLC (“S&P”) and Fitch Ratings
(“Fitch”) in 2016 and by Moody’s Corporation (“Moody’s”) in February 2018. In December 2017,
S&P downgraded the rating of Colombia’s long-term foreign currency sovereign credit ratings on Colombia from “BBB”
to “BBB-.” Additionally, on February 22, 2018 Moody’s changed Colombia’s rating outlook from stable to
negative. Currently, Colombia’s long-term debt denominated in foreign currency is rated “Baa2” by Moody’s,
“BBB-” by S&P and “BBB” by Fitch. Any further downgrade of Colombia’s credit rating could adversely
affect the Colombian economy and our results of operations. We cannot assure as to whether there will be further deterioration
of the Colombian economy particularly due to the fiscal deficit and Colombia’s public debt. If the condition of the Colombian
economy were to deteriorate, we would likely be adversely affected.
Any additional taxes resulting from
changes to tax regulations or the interpretation thereof in could adversely affect our consolidated results.
Colombia underwent
tax reforms in 2018, 2016 and 2014. The latest tax reform
enacted by the Colombian congress in 2018 introduced substantial changes to the then-existing tax legal framework. As a result,
income tax withholding rates resulting from payments made to foreign entities were increased by 5% to a general rate of 20%, except
for foreign indebtedness exceeding one year, where the applicable income tax withholding remains at 15%. Dividends paid out of
profits that were subject to corporate income tax became subject to a withholding tax of 7.5% (resulting in an increase of 2.5%
from the current 5%) and dividends paid out of profits that were not subject to corporate income tax became subject to a withholding
tax of 33% for 2019, with a progressive reduction of the tax rate by 1% for each upcoming year, until 2020 (in which year the tax
rate is stabilized in 30%) plus the foregoing 7.5%, which applies to the balance after the withholding is applied. The tax reform
of 2018 introduced a new equity tax applicable to: (i) Colombian resident individuals (ii) non-resident individuals on their Colombian
assets, (iii) non-distributed inheritance of non-residents and (iv) foreign non-resident entities owning assets in Colombia different
from shares, account receivables and portfolio investments; whose net equity in Colombia as of January 1, 2019 is COP $5,000 million
or higher. The equity tax would be triggered in January 1, 2019, 2020, and 2021 at rate of 1%.
We cannot assure you
that Colombian tax laws will not change or may be interpreted differently by authorities, and any change could result in the imposition
of additional taxes. Additional tax regulations could negatively affect our results of operations and cash flow. In addition, national
or local taxing authorities may not interpret tax regulations in the same way that we do. Differing interpretations could result
in future tax litigation and associated costs.
The Colombian government and the
Colombian central bank exercise significant influence on the Colombian economy, which could have an impact on our business, financial
condition and results of operations.
The Colombian government
and the Colombian central bank could intervene in Colombia’s economy and make changes in monetary, fiscal and regulatory
policy, which could result in currency devaluation and the changes in international reserves.
Although the Colombian
government has not imposed foreign exchange restrictions since 1990, Colombia’s foreign currency markets have historically
been extremely 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. An intervention that precludes
us from possessing, utilizing or remitting dollars would impair our financial condition and results of operations.
The Colombian government
has considerable power to shape the Colombian economy and, consequently, affect the operations and financial performance of businesses.
The Colombian government may seek to implement new policies aimed at controlling further fluctuation of the Colombian
peso
against the U.S. dollar and fostering domestic price stability. The president of Colombia has considerable power to determine
governmental policies and actions relating to the economy and may adopt policies that are inconsistent with those of the prior
government or that negatively affect us.
If the United States imposes sanctions
on Colombia in the future, our business may be adversely affected.
Colombia is among several
nations whose eligibility to receive foreign aid from the United States is dependent on its progress in stemming the production
and transit of illegal drugs, which is subject to an annual review. Although Colombia is currently eligible for such aid, Colombia
may not remain eligible in the future. A finding by the United States that Colombia has failed demonstrably to meet its obligations
under international counter-narcotic agreements may result in the imposition of economic and trade sanctions on Colombia which
could result in adverse economic consequences in Colombia and could further heighten the political and economic risks associated
with our operations there.
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:
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the failure of financial analysts to cover our common shares or changes in financial estimates by analysts;
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actual or anticipated variations in our operating results;
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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;
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announcements by us or our competitors of significant contracts or acquisitions;
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future sales of our common shares; and
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investor perceptions of us and the industries in which we operate.
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In addition, the equity
markets in general have experienced substantial price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of particular companies affected. These broad market and industry factors may materially harm the
market price of our common shares, regardless of our operating performance. 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.
Holders of our common shares may
experience losses due to increased volatility in the U.S. capital market
s.
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.
In addition, 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 have a material adverse impact on financial markets and economic conditions in the
United States and worldwide. Any volatility in the capital markets in the United States or in other developed countries, whether
resulting from a downgrade of the sovereign credit rating of U.S. debt obligations or otherwise, may have an adverse effect on
the price of our common shares.
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."
We may need additional capital and
we may not be able to obtain it.
We believe that our
existing cash and cash equivalents and cash flows from operations, including the cash available under our revolving line of credit,
will be sufficient to meet our anticipated cash needs for at least the next 12 months. We may, however, 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:
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investors' perception of, and demand for, securities of technology services companies;
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conditions of the U.S. capital markets and other capital markets in which we may seek to raise funds;
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our future results of operations and financial condition;
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government regulation of foreign investment in the United States, Europe, and Latin America; and
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global economic, political and other conditions in jurisdictions in which we do business.
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Concentration of ownership among
our existing executive officers, directors and principal shareholders may prevent new investors from influencing significant corporate
decisions or adversely affect the trading price of our common shares.
As of March 15,
2019, our directors and executive officers, entities affiliated with them and greater than 5% shareholders, beneficially own an
aggregate of approximately 30.37% of our outstanding common shares, of which 1.40% represents common shares subject to options
that currently are exercisable or will be exercisable within 60 days of March 15, 2019 as well as common shares issuable upon settlement
of restricted stock units that have vested or will vest within 60 days of March 15, 2019. As a result, these shareholders
may exercise significant influence over matters requiring shareholder approval, including the election of directors and approval
of significant corporate transactions, and may have significant influence over our management and policies. This concentration
of influence could be disadvantageous to other shareholders with interests different from those of our officers, directors and
principal shareholders. For example, our officers, directors and principal shareholders could delay or prevent an acquisition or
merger even if the transaction would benefit other shareholders. In addition, this concentration of share ownership may adversely
affect the trading price of our common shares because investors often perceive disadvantages in owning shares in companies with
principal shareholders.
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 and in Luxembourg.
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 NYSE listing guidelines that result out of the NYSE listing, and Regulation (EU) 596/2014
of the European Parliament and of the Council of April 16, 2014 on market abuse, together with the related implementing and delegated
regulations of the European Commission and guidelines published by the European Securities and Market Authority and the Commission
de Surveillance du Secteur Financier, the Luxembourg law of January 11, 2008 on transparency requirements for issuers, as amended,
and in particular the annual financial and non-financial reporting rules that apply as a result of our shares being listed and
admitted to trading on the regulated market operated by the Lux SE. 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 external auditor's 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 procedures in order to satisfy the requirements of Section 404, which
will require management assessments and certifications of the effectiveness of our internal control over financial reporting. During
the course of our testing, we may identify deficiencies that we may not be able to remedy in time to meet our deadline for compliance
with Section 404. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting
in accordance with Section 404. In addition, our independent registered public accounting firm is required to report on the effectiveness
of our internal control over financial reporting but may not be able or willing to issue an unqualified report. If we conclude
that our internal control over financial reporting is not effective, we cannot be certain as to the timing of remediation actions
and testing or their effect on our operations because there is presently no precedent available by which to measure compliance
adequacy.
If we are unable to
conclude that we have effective internal control over financial reporting, our independent auditors are unable to provide us with
an unqualified report as required by Section 404, or we are required to restate our financial statements, 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. See "— Risks Related to Operating in Latin
America — Argentina — The imposition in the future of restrictions on transfers of foreign currency
and the repatriation of capital from Argentina may impair our ability to receive dividends and distributions from, and the proceeds
of any sale of, our assets in Argentina."
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 publication in the Luxembourg's official gazette (
Recueil Electronique des
Sociétés et Associations
) of the decision of the extraordinary general meeting of shareholders held on May 8,
2017, which publication occurred on May 19, 2017, and ends on May 19, 2022. 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):
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the judgment of the U.S. court is final and enforceable (
exécutoire
) in the United States;
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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);
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the U.S. court has applied to the dispute the substantive law that would have been applied by Luxembourg courts;
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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;
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the U.S. court has acted in accordance with its own procedural laws;
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the judgment of the U.S. court does not contravene Luxembourg international public policy; and
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the U.S. court proceedings were not of a criminal or tax nature.
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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
Globant is a Luxembourg
société anonyme
(a joint stock company). The company's legal name is "Globant S.A." We were founded
in 2003 by Martín Migoya, our Chairman and Chief Executive Officer, Guibert Englebienne, our Chief Technology Officer, Martín
Umaran, our Chief of Staff, and Nestor Nocetti, our Executive Vice President of Corporate Affairs. Our founders' vision was to
create a company, starting in Latin America that would dream and build digital journeys that matter to millions of users, while
also generating world-class career opportunities for IT professionals, not just in metropolitan areas but also in outlying cities
and countries.
Since our inception,
we have benefited from strong organic growth and have built a blue chip client base comprised of leading global companies. Over
that same period, we have expanded our network of locations from one to 40. In addition, we have garnered several awards and recognition
from organizations such as Endeavor, the IDC MarketScape, Global Services, the International Association of Outsourcing Professionals,
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 2006, we started
working with Google. We were chosen due to our cultural affinity and innovation. While our growth has primarily been organic, since
2008 we have made fifteen complementary acquisitions. 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, including beyond Latin America.
In 2008, we acquired
Accendra, a Buenos Aires-based provider of software development services, in order to deepen our relationship with Microsoft and
broaden our technology expertise to include Sharepoint and other Microsoft technologies. That same year we also acquired Openware,
a company specializing in security management based in Rosario, Argentina.
In 2011, we acquired
Nextive. The Nextive acquisition expanded our geographic presence in the United States and enhanced our U.S. engagement and delivery
management team as well as our ability to provide comprehensive solutions in mobile technologies.
In 2012, we acquired
TerraForum, an innovation consulting and software development firm in Brazil. The acquisition of TerraForum allowed us to expand
into Brazil, one of the largest economies in the world.
In August 2013, we
acquired 22.75% of Dynaflows S.A. In October 2015, we obtained the control over Dynaflows through acquiring an additional number
of shares, and in October 2018, we completed the acquisition of the company by acquiring the remaining minority stake. This acquisition
allowed us to broaden our Services over Platforms strategy.
In October 2013, we
acquired a majority stake in the Huddle Group, a company specializing in the media and entertainment industries, with operations
in Argentina, Chile and the United States. We acquired the remaining 13.75% minority stake in Huddle Investment in October 2014.
In July 2014, we closed
the initial public offering of our common shares in the United States.
In October 2014, we
acquired BlueStar Holdings. Through this acquisition, we commenced our operations in Perú.
In April 2015, we closed
a follow-on secondary offering of our common shares in the United States through which certain selling shareholders sold 3,994,390
common shares previously held by them. In July 2015, we closed another follow-on secondary offering in the United States through
which certain selling shareholders sold 4,025,000 common shares previously held by them.
In May 2015, we acquired
Clarice which allowed us to establish our presence in India.
Also, in 2015, we launched
new Studios to complement our offerings, including one focused on Cognitive Computing, and we incorporated a complementary approach
to build digital journeys fast and in an innovative manner though: our service-over-platform offering.
During 2016, we introduced
a new model that intends to reshape our go-to-market strategy to scale our company in the coming years, called 50 Squared. The
main goal of this new approach is to focus our team in the top 50 high potential accounts that have the capacity to grow exponentially
over time. To do so, we have appointed our most senior people from Sales, Technology and Operations to lead these teams and take
our company to the next level. This account focus has become the most important pillar of our go-to-market strategy and every account
within Globant now has the goal to become part of this program.
In May 2016, we acquired
We Are London Limited ("WAE UK") and We Are Experience, Inc. ("WAE US") (jointly, WAE UK and WAE US are "WAE").
The purpose of these acquisitions was related to the benefit of expected synergies, revenue growth, future market development and
the assembled workforce of WAE.
In August 2016, we applied
to the Luxembourg Stock Exchange for listing on the Official List of the Luxembourg Stock Exchange ("Lux SE") and for
the admission to trading on its regulated market of our common shares. Our shares began trading on the Lux SE on August 11, 2016.
In November 2016, we entered
into a stock purchase agreement with 3Cinteractive corp. ("3C") to purchase the 100% of the capital stock of its wholly
owned subsidiary, Difier, an Uruguayan company. At the same time, we signed a consulting services agreement to provide software
development services to 3C for a term of four years.
During the same month,
we acquired L4 Mobile, LLC. The purpose of this acquisition was related to strengthening our leading position in the digital services
space and expanding our capabilities in the United States.
In February 2017, we acquired
Ratio Cypress, LLC, a limited liability company organized and existing under the laws of the State of Washington in the United
States. Ratio offers design, development and quality assurance services necessary to build and manage robust digital products and
video streaming solutions for major media companies.
In June 2017, we acquired
PointSource, a design and development technology agency, based in Raleigh, North Carolina, and Chicago. The purpose of this
acquisition was related to the benefit of expected synergies, revenue growth and expanding our capabilities in the United States.
As part of this transaction, we acquired an option to purchase PointSource LLC, a company incorporated in Belarus. In February
2018, after exercising our option, we commenced operations in Belarus.
In June 2018, we closed
a secondary offering in the United States of 6,687,548 of our common shares held by WPP Luxembourg Gamma Three S.àr.l. ("WPP").
I
n
October, 2018, we signed an asset purchase agreement to acquire, the business of Small Footprint Inc., a corporation organized
and existing under the laws of North Carolina, United States, including the acquisition of its wholly owned subsidiary in Romania,
Small Footprint, LLC. The purpose of this acquisition was to deepen our expansion into Eastern Europe while also improving
our onsite capacity in the United States.
During 2018 we launched
new Studios to complement our offerings, including one focused on Cybersecurity and another on Over-the-Top, and we also launched
StarMeUp OS as a part of our Services-Over-Platform strategy. StarMeUp OS is an operating system made up of smart applications
built to help organizations with digital transformation from the inside out.
In February, 2019, we closed
the acquisition of Avanxo (Bermuda) Limited ("Avanxo"), a cloud consulting and implementation company headquartered in
Bermuda, with operations in Brazil, Mexico, Colombia, Peru, Argentina and the United States. We expect that this acquisition will
allow us to continue expanding our cloud implementation solutions and bringing Globant's native digital culture to corporate process
optimization. For more information, see "Financial Information — Significant changes".
Corporate Information
Our principal executive
office is located at 37A Avenue J.F. Kennedy L-1855, Luxembourg and our telephone number is + 352 20 30 15 96. We maintain a website
at
http://www.globant.com
. Our website and the information accessible through it are not incorporated into this annual report.
B. Business overview
Overview
We are a digitally native
technology services company where innovation, design and engineering meet scale. We leverage the latest technologies and methodologies
in the digital and cognitive space to help organizations transform in every aspect. We create software products that emotionally
connect our customers with millions of consumers and employees, and we work with them to improve their efficiency. Our principal
operating subsidiary is based in Buenos Aires, Argentina. For the year ended December 31, 2018, 77.9% of our revenues were
generated by clients in North America, 12.6% in Latin America, 0.6% in Asia and 8.9% in Europe, including many leading global companies.
Digital and cognitive transformations
require completely different approaches than traditional IT projects. It begins with cultural behavioral and organizational change
and then delivering the right blend of engineering, design and innovation. We differentiate ourselves from our competitors as follows:
- We are a pure play in
the digital and cognitive fields.
- We have global presence
with delivery centers in North America, Latin America, Europe and Asia.
- We offer deep knowledge
in the latest trends and technologies.
Our Globers are our most
valuable asset. As of December 31, 2018, we had 8,384 Globers and 40 locations across 32 cities in Latin America, Asia, Europe
and North America, throughout 14 countries, supported by four client management locations in the United States, and one client
management location in each of United Kingdom, Colombia, Uruguay, Argentina and Brazil. Our reputation for cutting-edge work for
global blue chip clients and our footprint across the world provide us with the ability to attract and retain well-educated and
talented professionals. We are culturally similar to our clients and we function in multiple time zones. We believe that these
characteristics have helped us build solid relationships with our clients in the United States and Europe and facilitate a high
degree of client collaboration.
Our clients include companies
such as Google, Electronic Arts, Southwest Airlines Co. and Walt Disney Parks and Resorts Online, each of which was among our top
ten clients in the year ended December 31, 2018. 95.5% of our revenues for the year ending December 31, 2018 came from existing
clients who used our services in the prior year. We believe our success in building our attractive client base in the most sophisticated
and competitive markets for IT services demonstrates the superior value proposition of our offering and the quality of our execution
as well as our culture of innovation and entrepreneurial spirit.
Our revenues increased
from $322.9 million for 2016 to $522.3 million for 2018, representing a Compound Annual Growth Rate ("CAGR") of 27.2%
over the two-year period. Our revenues for 2018 increased by 26.3% to $522.3 million, from $413.4 million for 2017. Our net income
for 2018 was $51.6 million, compared to a net income of $30.5 million for 2017. The $21.1 million increase in net income from 2017
to 2018 was primarily driven by higher gross margin due to costs efficiencies and a reduction in selling, general and administrative
expenses. In 2016, 2017 and 2018, we made several acquisitions to enhance our strategic capabilities, none of which contributed
a material amount to our revenues in the year the acquisition was made. See "Information on the Company — History
and Development of the Company."
Our Industry
We are experiencing an
amazing moment for technology. In which we have two massive and disruptive technological revolutions occurring simultaneously.
The digital and the cognitive revolutions are affecting how companies connect with consumers and employees as well as providing
opportunities to make huge gains in efficiency.
Today's users move fast
and are keen to interact with their digital ecosystem anywhere and anytime, in a painless, fast, relevant, smart and restriction-free
way. They demand personalized, seamless and frictionless experiences that will simplify their lives. We are also facing an abundance
of demand for more intelligent and human-like behavior and technology on the market. These revolutions are leveraging new technologies
that did not exist or were not mature enough until a few years ago, such as AI, UX, Mobile, Cloud and virtual reality "VR".
While the traditional IT
space grew at 3.7% during 2018, growth in the digital space is expected to be 19.7% CAGR from 2019 through 2021. We are a pure
play in the digital space.
Technologies that support
this new digital and cognitive era are also experiencing increased demand:
- Artificial Intelligence ("AI") revenue is
expected to grow at a 60% CAGR by 2025.
- The virtual digital assistant market is expected to
reach $15.8 billion worldwide by 2021.
- Mobile augmented reality ("AR") is expected
to drive a $108 billion VR/AR market by 2021.
Tech Trends
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IoT Grid:
Data from Internet of Things ("IoT") devices are expected to empower
AI with information related to variety of processes and systems in order to support data discovery. IDC expects double-digit worldwide
annual growth in IoT spending between 2017 and 2022, with a forecast of more than $1 trillion in 2022.
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AI:
AI utilizes analytical insights to automate and recommend appropriate solutions on demand.
Business strategies can be mapped with AI recommendations through elaborate business processes and along various points on the
value chain, including production, workforce management, sales, marketing and logistics. In this way, AI is designed to enable
local sales managers and production managers to run their businesses more efficiently and streamline processes. We expect that
AI will eventually learn to self-calibrate systems and processes. Gartner predicts that by 2020, customers will manage 85% of their
relationship with the enterprise without interacting with a human.
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Intelligent Automation:
Robotic Process Automation ("RPA") is emerging into Intelligent
Automation ("IA"). This form of automation is being re-trained to feature natural language recognition and processing,
react to unstructured super data sets and automate specific business processes. IA can make relevant connections and continue to
learn unsupervised, continuously adjusting to new information being provided and improve performance. While performing repetitive
tasks, IA can improvise when needed or required. Forrester has projected that the RPA market will reach $1.70 billion in revenue
in 2019.
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Blockchain:
Blockchain solutions have been embraced across various industries over the past
few years. Blockchain’s sophistication is expected to dramatically improve how organizations operate digitally, and major
players are building their future web services with blockchain. In 2019, we expect that, companies will focus on pushing forward
blockchain investments and driving returns on such investments. The global blockchain market size is expected to grow from $1.2
billion in 2018 to $23.3 billion by 2023, at a CAGR of 80.2% during that time, according to a report by Markets And Markets.
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Quantum Computing:
Quantum computing is the use of computing is the use of quantum-mechanical
phenomena such as superposition and entanglement to perform computation. A quantum computer is used to perform such computation,
which can be implemented theoretically or physically. By the end of 2025, more than $23 billion in revenue is anticipated to be
realized through the adoption of quantum computing across the globe. During this decade forecasted period, the global market for
quantum computing is expected to expand exponentially at a stellar CAGR of 30.9%, according to Persistence Market Research.
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5G:
It is critical that data transfer capabilities keep pace with computing capabilities.
5G is the latest generation of cellular mobile communications. We expect that 5G will ensure the connectivity and transfer of data
seamlessly and speedily for machine-to-machine communication (IoT grid and analytical/AI platform) and provide scaling possibilities
in the mobile network. According to a report from MarketsandMarkets, the 5G infrastructure market is expected to be worth $2.86
billion by 2020 and $33.72 billion by 2026, growing at a CAGR of 50.9%.
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Cloud Technologies:
With a surge in collected data and the need to power AI and machine
learning ("ML") processes, cloud computing is the preferred method for organizations to digitize their business completely.
Companies are leveraging cloud technologies to transform their internal IT departments and build a business-ready IT that is able
to streamline development lifecycle and reduce time to market, as well as transform organizational culture by disbanding silos.
In the future, we expect cloud computing to serve as a software building platform rather than only server provisioning. Enterprises
seeking to bring digital transformation into their internal applications without replacing them will refactor their core applications
using cloud native technologies like containers. Others will be bolder and seek core SaaS based multi-cloud technologies with new
developing tools, integration and deployment options. According to Forrester, nearly 60% of North American enterprises today rely
on public cloud platforms.
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Market Trends
Across all industries,
we have observed a trend to smarter digital systems that embrace the latest technology and optimize customer experiences as well
as their internal processes. Companies are seeking to transform their business as new users and requirements arise. At the same
time, we see that many organizations try to transform themselves internally, cemented through effective change management
.
For many companies, however,
it becomes difficult to build a digitally-native culture from scratch or change the status quo of existing IT departments. It is
hard to be successful using old practices to create innovative technology products. As Forrester points out, "Transformation
starts with developing the right set of strategy choices and the ability to help shape digital thinking and a digital culture that
supports continuous innovation. It is cemented through effective change management." Many of these companies are relying in
partners to spearhead their transformation efforts.
Our Approach
Technology is not enough
to create solutions for a true digital and cognitive transformation. At Globant, we are committed to helping our customers throughout
their Organizational Fitness Lifecycle.
In order to be sustainable
and successful, transformations need to impact every single dimension of the organization. With consumers and employees at the
center of every strategy, our services address every stage of the transformational process.
We start with
clients by providing the necessary tools and support that allow companies to jumpstart their cultural and
methodology transformations. We then accompany our clients as they define and test their new digital strategies to engage
consumers and employees. We continue scaling on the construction and evolution of these and other digital and cognitive
initiatives, followed by the two final stages in the cycle: pushing a secure product to the cloud, and making it
famous so that it reaches the proper audience. At this time the fitness cycle remains in an endless and progressive loop to
ensure organizations stay relevant.
We deliver these services
through our unique set of
Studios,
our
Service over Platforms
strategy, our own methodology called
Agile Pods
,
and our
Stay Relevant
approach.
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. Each of our Studios has
specific domain knowledge and delivers tailored solutions focused on specific technology challenges. This method of delivery is
the core of our services offering and our success. We group them in three different categories: Strategic (these studios are key
to shaping our clients' business strategy; they help ensure that organizations are relevant and sustainable); Specialty (studios
that power digital transformations and create quality digital products with innovative technologies and emerging trends); Foundation
(the engine that allows us to meet scale and provides efficiency and quality to our clients' digital transformations).
Service Over Platforms:
At Globant,
we are changing the way services are provided with our Services over Platforms strategy. This set of platforms is designed to help
deliver digital and cognitive transformations in an agile and innovative manner. These products have the flexibility to adapt to
our clients' needs as we provide microservices to complement them.
In this way,
many of our Studios create platforms to accelerate the path to our solutions. We price this service in the same way SaaS companies
do: cost per transaction, cost per user or cost per month according to each platform.
Agile Pods Methodology:
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.
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.
Stay Relevant
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 the users’ environment, competitors and behavior. With research, Subject
Matter Experts ("SME") gatherings, webinars, workshops and conferences, our thought leaders offer valuable insights to
help organizations create valuable and emotional experiences for the audience.
Culture
Our culture is the foundation
that supports and facilitates our distinctive approach. 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 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:
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Act Ethically
– In our view, the achievement of professional excellence requires high
ethical standards. We believe in doing business in an ethical manner and know our achievements go hand-in-hand with the responsibility
to improve our society.
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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.
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Constantly Innovate
– We seek to innovate in order to break paradigms.
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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.
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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.
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Have Fun
– As Globers, we believe in finding pleasure in our daily tasks, creating
a pleasant work atmosphere and building friendships among colleagues.
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Consistent with our motivational
pillars and core values, we have designed our workspaces to be enjoyable and stimulating spaces that are conducive to social and
professional interaction. Our delivery centers include, among others, brainstorming rooms, music rooms and ''chill-out'' rooms.
We also organize activities throughout the year, such as sports tournaments, outings, celebrations, and other events that help
foster our culture. We believe that our work environment fosters creativity, innovation and collaborative thinking, as well as
enables Globers to tap into their intrinsic motivation for the benefit of our company and our clients.
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
including: iFactor (our innovation program), design thinking workshops (internally and with customers), Think Big Sessions (open
technology talks) and Globant Labs (a space where our Globers can ideate and develop their own projects).
Sustainability
We believe that sustainable
development of our organization is critical in order to enhance our competitive position in empowering organizations for a digital
and cognitive revolution. In other words, we look forward to social and environmental results, in addition to financial metrics.
For this reason, besides
working internally with Globers, we focus on community involvement, interacting with society and committing ourselves to meet their
needs. Three pillars drive our commitment: education for job placement, technology for the community and entrepreneurship promotion.
Diversity & Inclusion
Diversity and Inclusion
are key to our business. Technology requires us to innovate constantly, and, in our view, there is no way to innovate if we
do not connect different points of view.
For us
Diversity
& Inclusion
includes the intersection of three of our corporate values: Constantly Innovate, Team Player, and Act
Ethically. We advocate for an inclusive and diverse culture. We pledge to provide all the necessary tools to make sure that
all Globers feel comfortable, have the possibility to fully develop their potential, and have a diverse co-creation space with
diverse points of view.
Our approach regarding
Diversity & Inclusion focuses on three pillars:
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Be empathetic
- Put aside prejudices and make an effort to understand that being
part of different teams will yield better results for everyone at the end of the day.
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Be inclusive
- Try to make the offices, and work in general, comfortable for everyone.
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Be global
- Considering we are a global company, it is important to bear in mind that
what may seem normal in one culture can offend a Glober from a different culture. We encourage our Globers to be aware of the differences
that could exist between each other and to take the time to understand the way other cultures work.
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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 dreaming big
with us. Entrepreneurship is the inner force that moves us to build digital journeys that matter to millions of users. We encourage
Globers to dream and create more meaningful and rewarding experiences for our customers. To empower that vision:
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We created the iFactor Program, which is an internal contest and a way of looking for new approaches
and original ideas to add value for us and our customers through innovation, scalability and commercial viability.
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We support startups and entrepreneurs around the world mentoring and empowering them to scale.
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In addition, during 2018,
we created Globant Ventures, which is our own accelerator for tech startups in Argentina. The objective of Globant Ventures is
to promote the emergence of new entrepreneurs involved cutting-edge areas of technology, such as Artificial Intelligence among
other emerging trends.
Career growth
Globers who are eager to
grow, learn something new, and explore different possibilities have a vast number of opportunities available to them. Knowing their
purpose, aiming for mastery and through autonomy, we empower our Globers to take ownership over their careers.
Competitive Strengths
We believe the following
strengths differentiate Globant and create the foundation for continued rapid growth in revenues and profitability:
Ability to help organizations throughout
their Organizational Fitness Lifecycles
Digital and cognitive transformations
require completely different approaches than traditional IT projects. It begins with cultural behavioral and organizational change
and then delivering the right blend of engineering, design and innovation. We differentiate ourselves from our competitors as follows:
- We are a pure play in
the digital and cognitive fields.
- We have global presence
with delivery centers in North America, Latin America, Europe and Asia.
- We offer deep knowledge
in the latest trends and technologies.
Deep domain expertise in emerging technologies
and related market trends
We have developed strong
core competencies in emerging technologies and practices such as the ones mentioned above, and we have a deep understanding of
market trends. Our areas of expertise are organized in Studios, which we believe provide us with a strong competitive advantage
and allow us to leverage prior experiences to deliver superior software solutions to clients.
Long-term relationships with blue chip clients
We have built a roster
of blue chip clients such as Google, Electronic Arts, Southwest Airlines Co. and Walt Disney Parks and Resorts Online, 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 and twelve years, respectively. 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 provides 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
As of December 31, 2018,
we provided our services through a network of 40 offices in 32 cities throughout fourteen countries. Our delivery locations are
in United States (San Francisco, New York, Seattle, Raleigh, Chicago and Dallas), Argentina (Buenos Aires, Tandil, Rosario, Tucumán,
Córdoba, Resistencia, Bahía Blanca, Mendoza, Mar del Plata and La Plata), Uruguay (Montevideo), Colombia (Bogotá
and Medellín), Brazil (São Paulo), Peru (Lima), Chile (Santiago), México (México City), India (Pune
and Bangalore), Spain (Madrid), Belarus (Minsk), Romania (Cluj) and United Kingdom (London). We also have client management locations
in the United States (San Francisco, New York, Winston-Salem and Miami), Brazil (São Paulo), Colombia (Bogotá), Uruguay
(Montevideo), Argentina (Buenos Aires) and the United Kingdom (London). The main administrative offices of our principal subsidiary
(which also include a delivery center) are located in Buenos Aires. Our principal executive office is located in Luxembourg. All
of our facilities (with the exceptions of Tucumán and Bahía Blanca) are leased. We also have two offices under construction
in Buenos Aires and La Plata.
Latin America has an abundant
talent pool of individuals skilled in IT. Over 345,000 engineering and technology students have graduated annually from 2012 –
2016 from universities in Latin America and the Caribbean region according to The Science and Technology Indicator Network (
Red
de Indicadores de Ciencia y Tecnología
), a research organization that tracks science and technology indicators in the
region. Latin America's talent pool (including Mexico, Brazil, Argentina, Colombia and Uruguay) is composed of more than 1,000,000
professionals according to Stackoverflow, SmartPlanet and NearshoreAmericas. Our highly skilled Globers come from leading universities
in the regions where our delivery centers are located. Among our surveyed Globers, approximately 95.0% have obtained a university
degree or are enrolled in a university while they are employed by our company, and many have specialized industry credentials or
licensing, including in Systems Engineering, Electronic Engineering, Computer Science, Information Systems Administration, Business
Administration and Graphic and Web Design. Our time zone and cultural similarity have helped us build solid relationships with
our clients in the United States and Europe and differentiate us on projects that require a high degree of client collaboration.
A key element of our strategy
is to expand our delivery footprint, including increasing the number of employees that are deployed onsite at our clients or near
client locations. In particular, we intend to focus our recruitment efforts on the United States. We will continue to focus on
expanding our delivery footprint both within and outside Latin America to gain access to additional pools of talent to effectively
meet the demands of our clients and to increase the number of Globers that are deployed onsite at our clients or near client locations.
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 emerging
technologies and practices and opportunities for strategic expansion.
Strategy
We seek to be a leading
provider that leverages the latest technologies and methodologies in the digital and cognitive space to help organizations transform
in every aspect. The key elements of our strategy for achieving this objective are as follows:
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. 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 innovation and
emerging technologies
We believe our Studios
have been highly effective in enabling us to deliver innovative software solutions that leverage our deep domain expertise 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, to address new competencies that help us stay at the leading-edge of emerging technologies,
and to enable us to enter new markets and capture additional business opportunities.
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. Globant offers 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 the several universities in Argentina, Colombia, Uruguay,
Mexico, Brazil and India.
Selectively pursue strategic acquisitions
Building on our track record
of successfully acquiring and integrating complementary companies, we will continue to selectively pursue strategic acquisition
opportunities that deepen our relationship with key clients, extend our technology capabilities, broaden our service offerings
and expand the geographic footprint of our delivery centers, including beyond Latin America, in order to enhance our ability to
serve our clients.
Our Services
We leverage the latest
technologies and methodologies in the digital and cognitive space to help organizations transform in every aspect. We create software
products that emotionally connect our customers with millions of consumers and employees, and we work with them to improve their
efficiency.
We deliver these services
through our unique set of
Studios,
our
Service over Platforms
strategy, our own methodology called
Agile Pods
,
and our
Stay Relevant
approach.
Studios
: Our Studios are deep
pockets of expertise designed to foster creativity and innovation by focusing on a specific domain of knowledge.
Services Over Platforms
: Our
experience building software products allows to develop a set of platforms designed to help create Digital Journeys in an agile
and innovative manner. These products have the flexibility to adapt to our clients' needs as we provide microservices to compliment
them.
Agile Pods
: Agile Pods are
cross-functional and multidisciplinary teams that bring together design and engineering in order to deliver the right products.
Agile Pods are measured according to four variables: innovation, velocity, quality, and autonomy. We encourage pods to mature over
time to become more aligned with our customers' needs.
Studios
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. Each of the our Studios has specific domain
knowledge and delivers tailored solutions focused on specific technology challenges.
Our Studios represent the
core of our service offerings and our success. We group them in three different categories:
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Strategic
: These studios are key to shaping our clients' business strategy. They help ensure
that organizations are relevant and sustainable.
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Specialty
: Studios that power digital transformations and create quality digital products
with innovative technologies and emerging trends.
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Foundation
: The engine that allows us to meet scale and provides efficiency and quality
to our clients' digital transformations.
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Our set of strategic studios includes the following:
Artificial Intelligence:
Enabling the future today
We strive to enable the
future today with state-of-the-art techniques, including deep learning, other neural networks and traditional ML approaches, coupled
with the increased capacity of machines to understand complex patterns out of data.
The portfolio of services we provide through
the Studio includes:
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Machine Learning: We build solutions powered by ML using traditional approaches (regressions, decision
trees, HMM, SVM) and new deep learning methods. Our focus still relies on a human centric design and, therefore, we apply ML to
adapt the Journey to create a seamless and emotionally-engaged experience. We utilize ML to provide an as-good-as-a-human decision
process (contextual, adaptive) to delegate low-value-added decisions or alert when a critical decision is needed.
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Pattern Recognition: We leverage the power of signal processing (video, images, audio, text or
any other type of data), to recognize and understand patterns. New opportunities are flourishing from the availability of volumes
of new data in different forms; together with computer power and new algorithms.
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Natural Language Understanding: Natural Language Understanding ("NLU") enables a computer
to understand and generate natural language (either typed or spoken). We develop software with NLU capabilities to explore new
ways of emotional engagement. We enable users to address software, through different devices, as though the user was addressing
another person. Our software applies computational techniques in order to understand the syntax and semantics of language.
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Future of Organizations:
Making organizations come
alive
The Future of Organizations
Studio focuses on helping companies with their internal digital transformation and digital corporate culture. The goal of this
Studio is to ensure our customers' success by engaging employees and considering them to be one of the most important stakeholders
of the organization.
Platforms and apps that
integrate and act as the operating system for the organization of the future. We help organizations with their digital transformation,
enabling them to manage their culture effectively, engaging their employees from day one to ensure success.
Consultancy:
Humanizing Technology
Through our Consultancy
Studio, we seek to enable our clients to move quickly and confidently from strategy to execution phases while enhancing their overall
returns.
The portfolio of services
we provide through our Consultancy Studio includes:
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Customer Insight: We use qualitative and quantitative studies into needs, wants, expectations and
ideals to predict future customer states, allowing clients to make smarter strategic decisions. Services include co-insight sessions,
lab based, ethnographic, surveys, forms, behavioral tracking and trend analysis and large scale quantitative studies.
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Behavioral Change: Understand and influence user behavior, through the science of collaboration,
research and insight to drive process-oriented human, environmental and systems change. From channel shift for transport to crime
reduction for civic services and smarter health care, our clients are changing the world for the better.
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Product Innovation: Customer-centered rapid evaluation and enhancement of new propositions and
existing products through an agile design and iteration process: heuristic evaluation, concepting and story-boarding, low and high-fidelity
prototyping, lab and guerilla testing. All run with customer and client collaboration sessions, on-site or off-site.
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Design Thinking: A way to enable stakeholders to 'think like a customer' and collaboratively develop
a shared vision of the ideal future state for the business and customer: co-discovery and co-design, empathy mapping, experience/journey
mapping, lego serious play, vision setting.
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Product Acceleration:
Delivering best-in-class
digital products
Our Product Acceleration Studio utilizes modern
product management techniques to ensure products solve the right problems, meet user expectations, and achieve business value.
The portfolio of services we provide through
our Product Acceleration Studio includes:
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Product Management Discovery: We create a bridge between initial product briefs and actionable
implementation plans. 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.
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Product Management Delivery: Fully engaged product owners who are able to create epics and stories,
collaborate with designers and engineers, help teams prioritize work, and evaluate team performance against business value in an
agile way.
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Product Coaching: Product management coaches help companies establish people-centric product development
practices, including skills training, organizational consulting and team definition.
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Process Automation:
Efficiency driven by technology
Our Process Automation Studio delivers solutions
that enable our clients to be more efficient, innovative and agile.
Companies strive to enhance
their efficiency as they grow and competition increases. Our goal is to provide solutions that improve productivity, create competitive
advantages, foster innovation and provide agility. We work to establish quick wins that are refined using an iterative approach
to deliver more value on each cycle while optimizing throughput.
The portfolio of services we provide through
our Process Automation Studio includes:
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Process Appraisal: An in-depth analysis of the processes is done so that they can be valued and
prioritized to outline the best automation strategy. In order to have quick wins that deliver actual value to the business we do
a joint work with our clients to define measurable criteria that support the decision on where to start and the set of technologies
to use and be successful.
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Automated Solutions: Process automation is not just selecting a single tool in the market and automate
a flow but rather a conscious analysis of the set of technologies to be used understanding the context on which they will run.
Our extensive knowledge of technologies allows us to define the appropriate architecture considering infrastructure and automation
needs while leveraging AI and data scraping techniques among more traditional solutions.
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Process Evolution: Monitoring and governance of automated process is key to improving efficiency.
Through the definition of the appropriate set of metrics and tools we control the operation identifying bottleneck areas and optimize
performance, as well as including new processes to automation strategy.
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Agile Delivery:
Aligning stakeholders and methodologies
to meet business goals.
Digital Transformation
programs require alignment from the strategic, tactic and support levels as a crucial factor to their success. As a backbone to
these programs, leaders are expected to steer engagement, innovation, effectiveness and commitment from the teams while achieving
predictability in terms of timeframe, budget and quality. We create sustainable operations designed to scale and guarantee the
lowest cost of ownership.
The portfolio of services
we provide through our Agile Delivery Studio includes:
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Delivery Management: We deliver high value solutions by steering teams into a continuous improvement
approach to product development. We set clear and common goals to achieve outstanding results within budgets, with scalable and
sustainable operations.
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Agile Consultancy: We educate, mentor and enable organizations to capitalize on the principles
and competencies found in paradigms such as Agile, Systems Thinking, Lean and others. We support the transition and journey until
it reaches a point of self-sustainability.
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Management Consulting: We provide consulting services related to processes, quality and performance
indicators. We provide visibility for effective decision making process and PMO Development service for our clients. Our design
process is intended to contribute to operational goals.
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The specialty studios include the following:
UX Design:
Designing relevant experiences
Our UX Design Studio focuses
on delivering quality, design, strategy, and production to address worldwide digital challenges. Our designs are based on observations
of consumer behavior and market trends. Our goal is to create concrete and relevant solutions that appeal to both users and businesses.
The portfolio of services we provide through
our UX Design Studio includes:
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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.
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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.
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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.
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Industrial Design: Modern style and design must go hand in hand with technology, particularly at
a time when consumers have high standards in terms of the quality of functional and non-functional features. Our practice is focused
on creating beautiful and natural designs that feed all the senses. For many years screens have had all the design focus, but with
the introduction of haptics and other feedback mechanisms, it's key to consider the rest of the senses in the product or experience
design.
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Mobile:
Enabling mobility
everywhere
Whether our clients need
to build a new product, mobilize an existing product or maintain an existing solution, which can be native, hybrid or built through
cross-compilers, our Mobile Studio is experienced on the latest tools and frameworks to help you reach your business goals. Leveraging
on our experience from our Agile Pods Methodology, cross-industries knowledge, and a combination of state-of-the-art and traditional
user interface tactics, we add value when creating or improving our clients' mobile strategy.
The portfolio of services
we provide through our Mobile Studio includes:
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Consultancy: We help organizations move towards the next maturity stage regarding mobility. Based
on our experience working with over 100 organizations, from startups to fortune-500 companies, we built our consultancy framework
to assess organization’s maturity and provide solutions to deliver high quality mobile products.
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Fast Prototyping: Our Fast Prototyping Framework can build a working prototype to validate our
clients' business ideas or jumpstart their projects to a scalable solution. We utilize proven base tech stalk and platforms to
minimizing coding.
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App Evolution: We help clients to take control of their legacy projects by incorporating the latest
trends and technologies, whether they need to switch vendors, update their codebase, migrate between hybrid and native, or rebuild
from scratch their existing product. Our sustain framework will detect potential issues on their apps regarding new OS versions
or required updates on frameworks they might be using.
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Platform Integration: Most mobile apps require a connection to a backend. While most boutiques
fail at integrations, our Studios Model and extensive experience implementing most API Management Systems, Custom or Out-Of-The-Box
Microservices Solutions.
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Enhanced Experiences: We take the best of the available technical features to deliver rich and
emotional moments using Augmented Reality, Biometric sign-in, Force Touch, Apple/Google Pay, Animations, Coregraphics, Geofencing
Services, Rich Notifications or any specific technology which is only achievable by building a native custom experience.
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Hardware Integration: Helping extend client product’s reach outside the main mobile device,
we develop integrations with Chromecast, beacons, POS, Printers, Custom Hardware and create standalone experiences for Smart Watches,
Apple TV and Android TV/Chromecast.
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Complex Engineering: Our team of performance experts develop low level integration with frameworks
like NDK or by using C++ to improve performance on critical transactional applications and develop scalable architectures that
will help our clients build the core of your suit of mobile products.
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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:
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Game Engineering: We streamline the development process creating feature-rich products around the
core intellectual property of our clients. We co-develop AAA games working directly for world-class video game developers.
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Game Experience: Our Gaming Studio is capable of creating all components of a gamified experience.
For example, we can create a complete video-game or apply gamification techniques to a current product, combining game design with
user experience to provide experiences across multiple platforms. We seek to engage users and achieve business goals through fun
and play.
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Digital Platform Services: We create and expand centralized platforms for cross-platform development.
A digital platform consists of a coherent technical offer to access a universe of distant, interactive or non-interactive services
which can be broadcasted or supplied on-line.
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Virtual & Augmented Reality: Virtual reality extends beyond gaming and entertainment. In the
near future, we expect it to become omnipresent and a critical component of IT. Augmented reality allows a user to expand his or
her mind beyond reality, displaying information in the user's field of view where the real and virtual worlds are tightly coupled.
Our Gaming Studio provides ideation sessions, customer engagements, market reach and content creation to bring the next generation
of technology to our clients' businesses.
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Graphics Engineering: We provide services to develop products and tools to bring artists' designs
to life. This includes animation, lighting, shading, visualization tools and rendering.
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3D & 2D Art: We focus on creating high-end game art for AAA productions. We monitor the latest
technical and artistic pipelines as well as the latest art techniques in order to stay relevant to current industry standards.
We provide character and environment art, from the conception stage to the final game ready asset.
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e-Sports: We provide an interactive and engaging experience for target audiences. Whether it's
virtual reality, second screen or main screen, we combine our engineering, product design and community management solutions to
help our clients increase spectators and connect observers and players.
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BigData:
Turning data into
insights
In our Big Data Studio,
our mission is to empower our clients with a competitive advantage by unlocking the true value of data to create meaningful, actionable
and timely business insights.
We break down internal
data silos that have different data structures, velocities and volumes, and enrich that data with external sources, creating a
scalable Enterprise Data Platform, democratizing the data and fostering organizational changes towards a data-driven culture. Our
Data Engineers combine data, business processes, and state-of-the-art IT tools and algorithms that enable businesses to engage
in a deeper, interactive and more meaningful conversation with their data, using visual discovery techniques to reveal hidden patterns
and trends and obtain relevant and useful business insights for decision-making purposes.
The portfolio of services
we provide through our Big Data Studio includes:
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Data Architecture: With the widespread usage of devices and the viralization of social networks,
massive volumes of digital data are available. Companies want to extract valuable conclusions about their businesses by cross-referencing
data with traditional and innovative unstructured sources. We offer business-aware real-time analytics and enterprise information
management services, which include traditional data warehousing using relational database management systems and next-generation
non-relational and distributed database management technology.
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Data Science: We utilize mathematical and statistical tools of data science to help our clients
"fill the gap" between what they know from their data, and what they would like to know if additional data were available.
This includes predictions, optimizations and classifications.
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Distributed Platforms: We partner with our clients in successfully executing highly complex strategic
software projects, optimizing their architecture design and identifying potential bottlenecks early in the process. We give special
attention to factors such as adaptability when user base increases or information volume grows, maintainability along time, providing
dynamically scalable software architectures, enforcing data security from the ground up, and ensuring transactions are processed
within required timeframes to avoid revenue loss.
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Data Integration: Creating a scalable Enterprise Data Refinery that can pull and consolidate massive
amounts of data from heterogeneous systems is not an easy task. We provide development services over multiple tools, languages
and platforms in order to create data pipelines and workflows with high standards of availability, performance and security that
will pull, cleanse, enrich and consolidate your company's data.
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Data Visualization: Well-designed data visualization and dashboards extend beyond current status
and indicators, and synthesize complex sets of data into key views, charts and graphs, revealing results in ways that common tools
and spreadsheets cannot. The functionality to drill data down and to integrate the view with statistics and business intelligence
tools, further the end users' ability to glean insights from masses of numbers. We enable users to engage in an interactive and
more relevant conversation with their data, allowing users to explore the unknown, navigate the data and discover hidden patterns
and trends on their own.
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Blockchain: With Blockchain technologies, we focus on helping our customers resolve trust related
problems and inefficiencies. We provide research and development services over multiple blockchains (Ethereum, Bitcoin, Hyperledger,
etc.) and also over several decentralized storage systems. We are focused on understanding the customer's business and finding
how a blockchain can be leveraged to solve a problem.
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Media OTT:
Every pixel, every screen
Our Media OTT Studio design,
build and launch premium video experiences across every mobile device, OTT box, Smart TV, and Game Console for our media clients.
We understand and provide
services that support the entire streaming supply chain; from ingest and transcode through to user experience and playout. We do
it across all consumer devices and we help drive user engagement and monetization on each.
The portfolio of services we provide through
the Studio includes:
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Bespoke Development: Our professional services team creates streaming experiences that showcase
client’s content and drive business value across any screen.
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Streaming Strategy: Winning in digital media begins with a deep understanding of industry dynamics,
identifying how trends disrupt the competitive landscape, and establishing methods to enable and encourage ongoing innovation.
Our team of strategists, engineers, delivery managers and designers help media companies turn their content offerings into successful
digital businesses.
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Multi-Screen Design: We closely watch every trend and track the evolving capabilities across all
platforms. This ensures we can apply our design philosophies to create compelling experiences that showcase the content and drive
the business value for our clients.
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Signal (Platform): Signal enables media companies to reach and engage customers across every screen.
It allows them to manage and monetize Live and VOD content. Publishers can quickly launch these best-in-class experiences and dynamically
update content and styles through the Signal Portal. Signal simplifies the OTT workflow and allows companies to focus on their
content and business vision. Our cutting edge modularized technology allows our clients to choose between a full service or select
items to fit the right need.
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Internet of Things:
Connecting the physical world
Our Internet of Things
Studio offers technology solutions for the current device ecosystem and additional applications for the internet of things.
We help our customers develop
their new product ideas and gather information about behavior, activities and sensor-collected data, and then process all the information
to develop new services.
The portfolio of services
we provide through the Studio includes:
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IOT Experiences: Our experience in development and open source tools position us with the experience
needed to handle new digital connected journeys based on current technology. Our engineers are ready to integrate the next generation
of devices.
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Platforms: Our platforms provide interaction and feedback to and from devices and highly scalable
platforms and real time analysis to respond to different scenarios. All of the data produced by wearables and IoT enabled devices
can be collected, stored and processed on the appropriate data platform. This enables our customers to extract valuable knowledge
and insights by applying the right Big Data strategy and enabling intelligent interactions.
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Hardware integration: We assist customers with the connection between sensors and backend services
through devices or hardware. Our team can handle different approaches ranging from custom made hardware to integration with third
party providers.
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IoT Consultancy: We help our clients by researching, consulting and advising based in our core
expertise in product engineering and digital transformation.
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Digital Content:
Managing
scalable content
Our Digital Content Studio
focuses on developing digital online strategies through the creation of original and customized products and solutions.
We want to empower our
clients' businesses by taking care of the complete life-cycle of a digital strategy, from development of user-friendly and appealing
content management systems, to the complete go-to-market digital promotion. We also want to work with our clients to develop digital
marketing campaigns, learning solutions, content strategies and engaging audiovisual content that supports their goals.
The portfolio of services
we provide through the Studio includes:
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Content Management Systems: We help our clients deliver an excellent digital experience through
the use of platforms. We understand that our clients' content must reach to the right people on the right devices at the right
times.
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E-Learning: Through our expertise in innovation, state-of-the-art technology and educational content
production we deliver engaging experiences to enhance the process of learning.
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Digital Marketing: We provide services to develop digital online strategies focusing on empowering
our clients' businesses by creating and implementing original and customized online marketing solutions.
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Video Content Production: We are able to bring ideas to life by creating amazing videos for business
and brands, combining agility and quality to help our clients achieve their goals.
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Lastly, our foundation studios include:
Cloud Ops:
Delivering products
faster
Our Cloud Ops Studio combines
some of the leading cloud technologies, continuous integration and continuous delivery practices with our capabilities to facilitate
new and more efficient ways of doing business.
Cloud and Dev Ops are independent
but mutually reinforcing strategies for delivering business value. Cloud and Dev Ops evolved in response to three fundamental transformations.
First, we are transitioning from a product economy to a service economy. Second, the business environment demands that companies
shift their focus from stability and efficiency to agility and innovation. They need to increase delivery frequency and continue
their service evolution. Third, the digital dimension is filling the physical dimension.
The portfolio of services
we provide through our Cloud Ops Studio includes:
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Cloud: From roadmap definition to managed services, we can support our clients' cloud journey.
Working with cloud platforms since 2009, we developed the expertise and framework to deliver consultancy services for cloud adoption
strategy, application transformation, disaster recovery definition and ongoing support. Our main goal is enabling IT agility with
pragmatism that is fully aligned with each client's core business leveraging Amazon Web Services, Microsoft Azure, Google Compute
Platform and OpenStack (including, IaaS, Containers, Serverless technologies among others).
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Devops: We utilize Dev Ops in our clients' development cycles to enable continuous integration
and continuous deployment of their products, allowing production updates several times a day rather than once every few months.
This practice also allows improvements in the overall product cycle as it accelerates acceptance testing, and enables business
owners to see what the teams are producing in real time, delivering new products and features with a faster time to market.
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Cloud Native Patrol: Our Cloud Native Patrol assists our clients to accelerate and support complex
cloud native projects. The cloud ecosystem is becoming very complex, and cloud providers continue to innovate by adding new tools
while enriching existing ones. The same is happening with the whole cloud native landscape (orchestration, service discovery, containers,
automation, configuration management, observability, PaaS). Cloud Native Patrol addresses the challenges of supporting the complete
ecosystem.
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Quality Engineering:
Enabling
quality everywhere
The success of our clients'
businesses is directly tied to the quality of complex and highly integrated software. Our clients' software drives opportunities,
but it also exposes them to new risks. We believe that only a high quality product has a chance of succeeding in today's market.
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 the onshore, nearshore and offshore teams to their maximum potential.
The portfolio of services we provide through our Quality
Engineering Studio includes:
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Functional Testing: We offer comprehensive quality assurance services to ensure that the final
system/service delivered to our clients meets and exceeds their business requirements. Our quality control analysts are involved
in the software development process from the start of each project, helping clients identify the needs of their audience and prepare
for accurate targeting suitability of the products we will be creating together.
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Load & Performance Testing: Measuring and assessing the performance of widely used global sites
and applications is a technically challenging and multidisciplinary effort. A comprehensive test strategy needs to consider a broad,
real life scenario and needs to analyze each product as it will ultimately run. Validations include responsiveness, throughput,
scalability, reliability and resource usage. Our practice includes stress testing, load testing and performance testing.
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Mobile Testing: Supporting multiple devices and platforms, and planning for production monitoring
approaches, is necessary to achieve end-to-end quality. We utilize compatibility testing, responsive design testing, test automation
and acceptance testing among other practices.
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Test Automation: We have deep expertise in providing test automation services and developing test
automation solutions and frameworks. We believe test automation is a key testing practice to increase test efficiency, reduce time
to market and limit human error inherent with manual testing. Test automation is preparing to efficiently handle future requests
through smoke testing, regression testing, integration testing, services testing and other automated processes.
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A11Y: Todays digital solutions need to provide equal access and equal opportunity to people with
disabilities though compliance with accessibility standards. We help our customers to improve the quality of their digital products
(web and mobile solutions) removing barriers that prevent interactions, ensuring accessibility WCAG 2.0 AA Compliance, Section
508 and ADA.
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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 and delivering the same experience in a frictionless way. Those interfaces are aware of users, from context to context,
device to device and act proactively to make the experience simpler, leaner, faster and suggesting new behaviors based on interactions.
We deliver leading digital products for users, makings use of tools, frameworks and components, providing a single architecture
and codebase with the right functionality in any platform.
The portfolio of services
we provide through the Studio is focused on the integrated delivery of:
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Large Scale Web Applications: Omni-channel solutions are needed to power digital transformations.
This is done by building responsive and scalable web applications following different approaches, from single page applications
to server side rendered applications with a loosely coupled, modular, component based architecture, mobile-first and SEO friendly
techniques among other best practices.
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Hybrid & Cross-Compiled Development: We create downloadable applications using cutting-edge
technologies with access to hardware features that run in multiple native platforms using a combination of JavaScript frameworks.
This allow companies to face omni-channel challenges by using hybrid strategies giving support to mobile devices, kiosks, POS,
and others, through a single codebase.
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Accessibility: Accessibility considerations need to be built into the everyday practices across
the full web product life-cycle from conception and specification through development and delivery. We have the required expertise
to develop an accessibility compliant application according to applicable regulations.
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Scalable Platforms:
Supporting reliable products
Scalable Platforms have
become extremely important in today's digitally connected environment. We provide the architectural base to accelerate omni-channel
strategies, improve internal processes and build consistent cross-channel customer experiences to support reliable products.
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
the Studio is focused on the integrated delivery of:
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API Management: In a world where multiple channels are facing different solutions in terms of communications,
APIs are powering digital transformations and orchestrating across these channels in terms of technologies and industries. We help
enterprises embrace an API-centric approach to grow their digital businesses and seamless experiences.
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Microservices: We evolve monolithic architectures to a new architectural style that structures
an application as a collection of loosely coupled services, organized around business capabilities. The microservices architecture
enables the continuous delivery/deployment of large, complex applications. It also empowers organizations to evolve its technology
stack fostering an evolutionary model to be ready for new innovative challenges in the future.
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Complex Architecture Modeling: To manage these complex product intricacies in an agile manner,
we apply our extensive experience working with best practices, methodologies and techniques, such as domain driven design, hexagonal,
onion, reactive architectures and continuous delivery to handle business complexity.
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Future Commerce: Nowadays, the customer journey has several new engagement touch points across
marketing, sales, and services. Traditional retailers struggle to keep up with them, as times move fast, and there is also a strong
need to keep processes efficient and coordinated. This can be achieved with the correct understanding of the business and the implementation
of the right technology.
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Cybersecurity:
Making customer platforms safe and
secure
Our Cybersecurity Studio
supports the entire range of services from product conceptualization through execution to ensure that all customer platforms are
safe and secure.
As data privacy and security
become increasingly top of mind, cyber attacks can increase risk in business for today’s organizations if they don’t
have strategies for staying ahead.
The portfolio of services
we provide through the Studio includes:
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Product Security & Compliance: With this service, a security expert assesses customers security
needs. This expert collaborates with our digital solutions team to ensure needs are met beginning from the functional and design
phase of project development, without compromising user experience. Ultimately, this service is designed to ensure that digital
experiences will be secure.
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Vulnerability Management: We monitor published security vulnerabilities that could affect our customers’
digital platforms. The team will notify customers of the risk and then assesses what to do to contain and fix them.
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Application Monitoring: We monitor traffic on users’ digital platforms 24/7 and stay on alert
for security attacks. The team handles events with strict predefined protocols to contain and mitigate potential incidents.
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Continuous Evolution:
Making evolution happen
The Continuous Evolution
Studio focuses on evolving existing applications and helping our clients to improve the value of their software over time by aligning
business needs with a mix of traditional techniques and new market trends.
Every piece of software
built meets a business need for which it was intended, but those needs are not static. Software evolution is a key to improving
value over time, and having the right partner will pave the way to achieving success. As new trends and technologies arise, customer
behavior changes and market needs must quickly adapt. We retrofit innovation into existing products in order to create continuous
engagement among users. We provide a new experience with multidisciplinary teams specialized in software evolution and world-class
operations designed to support any kind of application after implementation is complete. Our teams ensure quality and efficiency
while bringing innovation, optimization, performance improvement, and constant evolution to their products.
The portfolio of services we provide through
the Studio includes:
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ADM2 (ADM Square): The standard ADM process in an organization is key to deal with the changes
today’s world is demanding. We enable company transformations starting from productive software. This progressive strategy
spans four maturity phases while encompassing the cultural shift a company experiments until the changes have been fully embraced
in its DNA.
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Software Archaeology: Taking over of a product that has had a long life cycle can be challenging
without access to the appropriate documentation or team members. Software Archaeology is our way to take control of any software
solution, in any condition, at any moment, without a long, hard or expensive process. By completing a systematic study of remaining
material evidence, such as code, tests and documentation recovered, we can gain a clear understanding of the software, as well
as the context with which it operates. This enables us to outline a proper plan and roadmap for the team that will work on it.
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IT Service Management: Our experience with Information Technology Infrastructure Library ("ITIL")
helps us cover a full cycle of continuous improvement by carrying out an assessment of the organization, and subsequently delivering
recommendations for implementation, as well as solutions that enable supporting areas to satisfy the company's demand. Managing
an internal service desk might not be optimal for most companies, we provide a single point of contact service composed by multidisciplinary
teams with specialized processes based on ITIL best practices and focused on ensuring the continuity of the ongoing operation.
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Software Evolution: Our takeover framework provides a robust set of tools and processes that our
teams use in order to gain ownership of the product they will be working on. Through a detailed assessment, we are able to understand
the current situation and define a roadmap to achieve a controlled execution phase. Then, we introduce new market trends, technologies
and innovative solutions to existing products.
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Our Studio model allows
us to optimize our expertise in emerging technologies and related market trends for our clients across a variety of industries.
Services over Platforms
At Globant, we are evolving
at the way services are provided with our Services over Platforms strategy. This set of platforms is designed to help deliver digital
and cognitive transformations in an agile and innovative manner. These products have the flexibility to adapt to our clients’
needs as we provide microservices to complement them.
In this way, many of our
Studios create platforms to accelerate the path to our solutions. Among these platforms we can mention, StarMeUp OS from our FOO
Studio. Signal, our platform to accelerate the distribution of content from our OTT Studio. Globant Minds, our AI platform from
the AI Studio, and Acamica our online education platform to accelerate the cultural transformation.
StarMeUp OS
StarMeUp OS is an operating
system made up of smart applications that assist organizations with their digital transformations. The goal of this operating system
is to help employees overcome inherently human limitations and create a space where they can have more meaningful interactions,
generating a richer experience and empowering employees to make even more significant contributions. StarMeUp OS is comprised of
five solutions:
StarMeUp
: A peer-to-peer recognition
platform that strengthens the corporate culture and reinforces organizational values, while providing valuable insights in real
time, such as identifying positive influencers and a better view into organizational network dynamics.
BetterMe
: Employees can share
real-time feedback with anyone else in the organization. It provides an ongoing view of performance and continual opportunities
for improvement.
BeThere
: By sharing photos
of significant moments and events, employees can stay connected and informed in an engaging way, no matter where they are in the
world.
TakePart
: More actively include
employees in the organizational transformation by creating a space for them to suggest, and vote, on new ideas, that lead to more
dynamic organizational changes.
BriefMe
: A platform ideal
for communications teams to get the most critical information to employees at the right time through strategically located screens.
Signal
It enables media companies
to reach and engage customers across every screen. It allows them to manage and monetize Live and VOD content.
Globant Minds
We’ve developed a
new operating system for delivering cognitive transformations. With Globant Minds, we have a developed a system that leverages
existing AI algorithms and RPA solutions and selects the optimal algorithm for various situations. For instance, if we need image
recognition, instead of training a single platform, Globant Minds will review the available solutions and select the best result
option. In this way, we add value to our customers by keeping our platform up to date with new algorithms and AI systems.
ACAMICA
In 2016, we invested in
ACAMICA, an e-learning platform for global companies to run online and personalized academies and private training modules, with
an emphasis on user experience and social interactions.
Agile Pods Methodology
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.
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
As of December 31, 2018,
we provided our services through a network of 40 delivery centers in 32 cities throughout fourteen countries. Our delivery locations
are in United States (San Francisco, New York, Seattle, Raleigh, Chicago and Dallas), Argentina (Buenos Aires, Tandil, Rosario,
Tucumán, Córdoba, Resistencia, Bahía Blanca, Mendoza, Mar del Plata and La Plata), Uruguay (Montevideo), Colombia
(Bogotá and Medellín), Brazil (São Paulo), Peru (Lima), Chile (Santiago), México (México City),
India (Pune and Bangalore), Spain (Madrid), Belarus (Minsk), Romania (Cluj) and United Kingdom (London). We also have client management
locations in the United States (San Francisco, New York, Winston-Salem and Miami), Brazil (São Paulo), Colombia (Bogotá),
Uruguay (Montevideo), Argentina (Buenos Aires) and the United Kingdom (London). The main administrative offices of our principal
subsidiary (which also include a delivery center) are located in Buenos Aires. Our principal executive office is located in Luxembourg.
All of our facilities (with the exceptions of Tucumán and Bahía Blanca) are leased. We also have two offices under
construction in Buenos Aires and La Plata. 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.
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 abundant 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 the United States, Central and Eastern Europe and China. The region's professionals possess a breadth
of skills that is optimally suited for providing technology services at competitive rates. Moreover, Argentina and Brazil have
been in the top ten of the Gunn Report's Global Index of Creative Excellence in Advertising for the last 17 years. 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
Software companies with
operations in Argentina whose activities are the creation, design, development, production, implementation or adjustment (upgrade)
of developed software systems and their associated documents (in accordance with Section 4 of the Software Promotion Law No. 25,922)
may participate in the benefits contemplated by this regime provided they meet at least two of the following requirements: (i)
proves expenses in software research and development activities; (ii) prove existence of a known quality standard applicable to
the products or software processes, or the performance of activities in order to obtain such known standard recognition; or (iii)
export of software (as defined in Section 5 of the Software Promotion Law). The Law was originally enacted in 2004 and extended
in 2011 for another five years until 2019, and established a number of incentives to promote Argentine enterprises engaged in the
design, development and production of software. These incentives include:
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Fiscal stability throughout the period that the promotion regime is in force. In accordance with
Section 7 of the Software Promotion Law, fiscal stability means the right to maintain the aggregate federal tax rate in effect
at the time of the beneficiary's registration in the National Registry of Software Producers through December 31, 2019. Such stability
does not comprise import or export duties nor export refunds (Section 7 of Regulatory Decree No. 1315/2013). The aggregate federal
tax burden included under the fiscal stability benefit is that burden existing on the date of the beneficiary's registration before
the applicable registry, in accordance with laws and regulations in force by that time;
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a 60% reduction in the total amount of corporate income tax as applied to income from the promoted
activities This benefit will be applicable both to Argentine-source and non-Argentine-source income, in the terms set forth by
the application authority, but it would not be applicable to foreign source income obtained by permanent establishments held abroad
by Argentine residents (Section 13 of Regulatory Decree No. 1315/2013);
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conversion of up to 70% of certain monthly social security tax (contribution) payments into a tax
credit (Section 8 of the Software Promotion Law) during the first year following the beneficiary's registration in the National
Registry of Software Producers. After the first year, such percentage will be determined annually by the competent authorities
for each beneficiary, depending on the beneficiary's degree of compliance with the regime's requirements (Section 9 of Regulatory
Decree No. 1315/2013). This tax credit may not be transferred to third parties. The tax credit can be used to offset the beneficiary's
income tax liability only up to certain percentage, determined by the ratio of annual software and computer services exports and
the aggregate annual sales resulting from promoted activities declared by the beneficiary (Section 8 of the Software Promotion
Law);
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an exclusion from any restriction on import payments related to hardware and IT components and
non-applicability of any value-added tax withholding or collection regimes (Section 8 of the Software Promotion Law).
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in March 2019, a draft bill was introduced for review by the Argentine Congress
consisting of a promotional Knowledge Economy regime. The regime contains tax benefits similar to the
ones provided by the Software Promotion Law and is addressed
to software companies as well as other companies involved in biotechnology,
audiovisual production, exportable professional services, robotic automation, aerospace and satellite industry, among
others industries. The bill has not been passed yet.
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Argentine Ministry of Economy
approved our subsidiaries as beneficiaries of the Software Promotion Law as following: (i) on October 10, 2006: IAFH Global S.A.
and (ii) on April 13, 2007: Sistemas Globales S.A.. As a result, these subsidiaries have enjoyed fiscal stability in their federal
tax burden as in effect at the time they were notified of their inclusion in the promotion regime.
The Software Promotion
Law was modified during 2011 through Law No. 26,692. Even though all benefits awarded under the Software Promotion Law as originally
enacted in 2004 remained in effect, pursuant to Section 10 of the Software Promotion Law (as amended by Law No. 26,692), IAFH Global
S.A. and Sistemas Globales were obliged to reapply for registration in the National Registry of Software Producers by July 8, 2014
in order to obtain the benefits established in the Software Promotion Law as described above.
Regulatory Decree No. 1315/2013
introduced additional implementing rules, including, among other matters, further clarifications to qualify for the promotion regime
and specific requirements to be met in order to remain registered in the National Registry of Software Producers during the years
after such registration has taken place. These requirements include, among others, minimum annual revenue, minimum percentage of
employees involved in the promoted activities, minimum aggregate amount spent in salaries paid to employees involved in the promoted
activities, minimum research and development expenses and the filing of evidence of software-related services exports. In addition,
Regulatory Decree No. 1315/2013 states that the 60% reduction in corporate income tax provided under the Software Promotion Law
shall only become effective as of the beginning of the fiscal year after the date on which the applicant is accepted for registration
in the National Registry of Software Producers. The implementing regulation also provides that upon the formal approval of an applicant's
registration in the National Registry of Software Producers, any promotional benefits previously granted to such person under the
Software Promotion Law as originally enacted in 2004 shall be extinguished. Finally, Regulatory Decree No. 1315/2013 delegates
authority to the Secretary of Industry and AFIP to adopt "complementary and clarifying" regulations in furtherance of
the implementation of the Software Promotion Law.
On March 11, 2014, AFIP
issued General Resolution No. 3,597, which provides that, as a further prerequisite to participation in the Software Promotion
Law, exporters of software and related services must register in a newly established Special Registry of Exporters of Services
(
Registro Especial de Exportadores de Servicios
).
According to the abovementioned
regulations, on March 14 and May 28, 2014, our Argentine subsidiaries IAFH Global S.A. and Sistemas Globales S.A., respectively,
were accepted for registration in the Special Registry of Exporters of Services.
On June 25, 2014, our Argentine
subsidiaries IAFH Global S.A. and Sistemas Globales S.A. applied for registration in the National Registry of Software Producers.
The Secretary and Subsecretary of Industry issued rulings approving registration in the National Registry of Software Producers
of certain of our subsidiaries as follows: (i) Sistemas Globales S.A. on March 18, 2016 and (ii) IAFH Global S.A. on April 13,
2015. In each case, the ruling made the effective date of registration retroactive to September 18, 2014 and provided that the
benefits enjoyed under the Software Promotion Law as originally enacted were not extinguished until the ruling goes into effect
(which have occurred upon its date of publication in the Argentine government's official gazette on before mentioned dates).
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 are the
following:
• Almost full tax exemption
(Corporate Income Tax "IRAE", Net Wealth Tax-IP, Value Added Tax – VAT and several withholding taxes) and customs
duties exemption;
• 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 services rendered to
third countries from the Free Trade Zone to also be rendered to corporate income taxpayers inside 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.
A
dditionally,
according to the provisions set forth in Decree No. 150/007, income from software production and related services is IRAE exempt,
provided they are completely used abroad. Said exemption includes development, implementation at client’s site, version upgrading
and correction, customization, quality testing and certification, software maintenance, training and advising. Related services
refer to hosting, call center, outsourcing, marketing and other services, whenever software is the main purpose, even when said
software has not been developed by the service provider.
In this context, services
provided by our subsidiary in Uruguay, Difier, are exempt from income tax.
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, 2018. 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 21.34%, including surcharges,
as its tax liability under the general tax provisions may be lower compared to the MAT liability.
Belarus
The HTP was established
in Minsk in 2005 to promote the IT industry in Belarus. The HTP is located east of Minsk and has a special legal regime in effect
until 2020.
A legal entity and an
individual entrepreneur receive HTP resident status if their activities include: analysis and design of information systems and
software; data processing based on client or proprietary software, fundamental and applied research, experimental R&D in the
field of natural and technical sciences (R&D involving HTP activity) and utilization of R&D results, among others.
HTP residents pay 1% of
their revenue to the HTP Administration and enjoy the following benefits:
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Exemption from Corporate Income tax and Value Added Tax on the sale of goods, work or services
or from the transfer of property rights in Belarus.
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Exemption from land tax and real estate tax on properties that are in the HTP.
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Payments by HTP residents to foreign companies in the form of dividends, royalty and interest are
subject to withholding tax at a rate of 5%.
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Dividend payments are not subject to an offshore duty;
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On December 21, 2017, the President of the
Republic of Belarus published the Decree No. 8, which extends the duration of the HTP’s tax incentives and the special legal
regime until January 1, 2049.
Our subsidiary located in Belarus is a HTP
resident and currently benefits from the tax holidays and will continue with exemption as long as the regime remains in effect.
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.
Agile Development Methodologies
See "— Item 4.B — Business
Overview — Our Services — Agile Pods Methodologies."
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:
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Assuring that quality objectives of the organization are fulfilled;
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Defining standard processes, assets and guidelines to be followed by our project teams from the
earliest stages of the project life cycle;
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Continuously evaluating the status of processes in order to identify process improvements or define new processes if needed;
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Objectively verifying adherence of services and activities to organizational processes, standards and requirements;
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Providing support and training regarding the quality management system to all employees to achieve
a culture that embraces quality standards;
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Informing related groups and individuals about tasks and results related to quality control improvement;
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Raising issues not resolvable within the project to upper management for resolution; and
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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.
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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 and Latin America operating in a broad range of industries
including Media and Entertainment, Professional Services, Technology and Telecommunications, Travel and Hospitality, 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 to define
the scope, timing, pricing terms and performance criteria of each individual engagement under the MSA. We generate 45% of our revenue
from long-term contracts with terms greater than 24 months.
During 2018, 2017 and 2016,
our ten largest clients based on revenues accounted for 44.0%, 41.9% and 46.5% of our revenues, respectively. Our top client for
the years ended December 31, 2018, 2017 and 2016, Walt Disney Parks and Resorts Online in 2018 and 2017, and Southwest Airlines
Co. in 2016, accounted for 11.3%, 10.2% and 9.7% of our revenues, respectively.
The following table sets
forth the amount and percentage of our revenues for the years presented by client location:
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Year ended December 31,
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2018
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2017
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2016
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(in thousands, except percentages)
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By Geography
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North America
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$
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407,090
|
|
|
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77.9
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%
|
|
$
|
325,614
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|
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78.8
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%
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|
$
|
260,923
|
|
|
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80.8
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%
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Europe
|
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46,240
|
|
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|
8.9
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%
|
|
|
38,484
|
|
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|
9.3
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%
|
|
|
29,306
|
|
|
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9.1
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%
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Asia
|
|
|
3,067
|
|
|
|
0.6
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%
|
|
|
700
|
|
|
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0.2
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%
|
|
|
1,265
|
|
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0.4
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%
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Latin America and other
|
|
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65,913
|
|
|
|
12.6
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%
|
|
|
48,641
|
|
|
|
11.8
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%
|
|
|
31,362
|
|
|
|
9.7
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%
|
Revenues
|
|
$
|
522,310
|
|
|
|
100.0
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%
|
|
$
|
413,439
|
|
|
|
100.0
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%
|
|
$
|
322,856
|
|
|
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100.0
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%
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The following table shows
the distribution of our clients by revenues for the years presented:
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Year ended December 31,
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2018
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2017
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2016
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|
|
|
|
|
|
|
|
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Over $5 Million
|
|
|
21
|
|
|
|
18
|
|
|
|
11
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$1 - $5 Million
|
|
|
69
|
|
|
|
64
|
|
|
|
49
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|
$0.5 - $1 Million
|
|
|
39
|
|
|
|
45
|
|
|
|
41
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|
$0.1 - $0.5 Million
|
|
|
86
|
|
|
|
82
|
|
|
|
88
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|
Less than $0.1 Million
|
|
|
158
|
|
|
|
147
|
|
|
|
151
|
|
Total Clients
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|
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373
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|
|
|
356
|
|
|
|
340
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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 (e.g., Nextive, TerraForum, BlueStar Peru, Clarice, Small Footprint) or the expansion of specializations
(e.g. Accendra, Openware, Huddle, Dynaflows, WAE, L4, Difier, Ratio, PointSource).
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, currently comprised of 60 sales personnel and 22 marketing personnel, has broad geographic coverage with commercial
offices located in Buenos Aires, Bogotá, Montevideo, São Paulo, London, Madrid, Boston, New York, Miami and San Francisco.
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 introduced
a new model that intends to reshape our go-to-market strategy to scale our company in the coming years, called 50 Squared. The
main goal of this approach is to focus our team on the top 50 high potential accounts that have the capacity to grow exponentially
over time. To do so, we have appointed our most senior people from Sales, Technology and Operations to lead these teams. This account
focus has become the most important pillar of our go-to-market strategy and every account within Globant now has the goal to become
part of this program.
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 - Stay Relevant
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 thought leaders offer valuable insights to help organizations create valuable and emotional
experiences for the audience.
As of December 31,
2018, our marketing department, Stay Relevant, is based in Argentina, Europe, India and the United States. This team promotes our
brand through a variety of channels, including the following:
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Blog:
The blog http://stayrelevant.globant.com/is a great way to explore content on the
latest trends and best practices in the different industries we work with.
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Sentinel Report:
the goal of the sentinel report is to provide insightful evidence of consumer
behavior and market trends that ignite strategic thinking.
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Webinars:
Our webinars explore different trends and technologies in depth showcasing views from experts in the field.
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CONVERGE:
Our series of 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 showcase
that enable attendees to re-think the new ways they do business. They exist in full day format, such as CONVERGE New York, CONVERGE
Buenos Aires, and CONVERGE Medellin and in short format, such as CONVERGEx London and CONVERGEx Madrid.
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Videos and other communications channels:
We develop different types of communication pieces
to convey trends and other information that support our views of the future.
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Events:
We host events catered to many audiences, from small events for specific guests
or partners to large events that welcome the community in full. Each event looks to bring exciting speakers and networking possibilities.
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Books:
Our experts have written the following books, “Embracing the Power of AI.
A gentle CXO Guide” will help you demystify deep learning, machine learning, and artificial intelligence―and
embrace the augmented intelligence revolution ahead. “The Never Ending Digital Journey”provides readers with the
concepts and steps needed to create successful user experiences. The authors look ahead and explore digital scenarios of the
future.
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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:
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large global consulting and outsourcing firms, such as Accenture, Sapient, Thoughtworks and Epam;
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digital agencies and design firms such as Sapient, Razorfish, RGA and Ideo;
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traditional technology outsourcing IT services providers, such as Cognizant Technology Solutions,
EPAM Systems, GlobalLogic, Aricent, Infosys Technologies, Mindtree HCL, Tata, Wipro and Luxoft; and
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in-house product development departments of our clients and potential clients.
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We believe that our focus
on creating software that appeals and connect 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), certain other trademarks related to our service offerings and products, and three software patents granted in the
United States in favor of our United States subsidiary Globant, LLC. 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
As of December 31,
2018, we provided our services through a network of 40 offices in 32 cities throughout fourteen countries. Our delivery locations
are in United States (San Francisco, New York, Seattle, Raleigh, Chicago and Dallas), Argentina (Buenos Aires, Tandil, Rosario,
Tucumán, Córdoba, Resistencia, Bahía Blanca, Mendoza, Mar del Plata and La Plata), Uruguay (Montevideo), Colombia
(Bogotá and Medellín), Brazil (São Paulo), Peru (Lima), Chile (Santiago), México (México City),
India (Pune and Bangalore), Spain (Madrid), Belarus (Minsk), Romania (Cluj) and United Kingdom (London). We also have client management
locations in the United States (San Francisco, New York, Winston-Salem and Miami), Brazil (São Paulo), Colombia (Bogotá),
Uruguay (Montevideo), Argentina (Buenos Aires) and the United Kingdom (London). The main administrative offices of our principal
subsidiary (which also include a delivery center) are located in Buenos Aires. Our principal executive office is located in Luxembourg.
All of our facilities (with the exceptions of Tucumán and Bahía Blanca) are leased. We also have two offices under
construction in Buenos Aires and La Plata.
The table below breaks
down our locations by country and city and provides the aggregate square footage of our locations in each city as of December 31,
2018.
Country
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City
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Number of
Offices
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Square Feet
|
Argentina
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Bahía Blanca
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1
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6,986
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Argentina
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Buenos Aires
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3
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111,191
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Argentina
|
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Córdoba
|
|
2
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37,200
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|
Argentina
|
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La Plata
|
|
1
|
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17,222
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|
Argentina
|
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Mar del Plata
|
|
1
|
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20,451
|
|
Argentina
|
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Mendoza
|
|
1
|
|
3,229
|
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Argentina
|
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Resistencia
|
|
1
|
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9,688
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|
Argentina
|
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Rosario
|
|
2
|
|
20,678
|
|
Argentina
|
|
Tandil
|
|
2
|
|
11,765
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|
Argentina
|
|
Tucumán
|
|
1
|
|
21,689
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|
Brazil
|
|
Sao Paulo
|
|
1
|
|
7,804
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|
Chile
|
|
Santiago
|
|
1
|
|
8,245
|
|
Colombia
|
|
Bogotá
|
|
2
|
|
85,810
|
|
Colombia
|
|
Medellín
|
|
2
|
|
70,590
|
|
India
|
|
Bangalore
|
|
1
|
|
4,273
|
|
India
|
|
Pune
|
|
1
|
|
129,877
|
|
UK
|
|
London
|
|
1
|
|
2,756
|
|
Mexico
|
|
Mexico City
|
|
2
|
|
66,974
|
|
Peru
|
|
Lima
|
|
1
|
|
7,535
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|
Spain
|
|
Madrid
|
|
1
|
|
6,986
|
|
United States
|
|
New York
|
|
1
|
|
7,707
|
|
United States
|
|
San Francisco
|
|
1
|
|
4,844
|
|
United States
|
|
Seattle
|
|
1
|
|
25,489
|
|
United States
|
|
Miami
|
|
1
|
|
151
|
|
United States
|
|
Dallas
|
|
1
|
|
6,771
|
|
United States
|
|
Chicago
|
|
1
|
|
2,691
|
|
United States
|
|
Raleigh
|
|
1
|
|
27,480
|
|
United States
|
|
Winton-Salem
|
|
1
|
|
3,531
|
|
Luxembourg
|
|
Luxembourg
|
|
1
|
|
150
|
|
Uruguay
|
|
Montevideo
|
|
1
|
|
26,974
|
|
Belarus
|
|
Minsk
|
|
1
|
|
6,254
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|
Romania
|
|
Cluj
|
|
1
|
|
8,396
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|
Total
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|
40
|
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771,387
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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 America countries, the United States, Europe and India federal and state agencies regulate various aspects of our business.
See "Risk Factors — Risks Relating to Our Business and Industry — Our business results of
operations and financial condition may be adversely affected by the various conflicting and/or onerous legal and regulatory requirements
imposed on us by the countries where we operate". 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."
We benefit from certain
tax incentives promulgated by the Argentine, Uruguayan, Indian and Belarus governments. See "— Our Delivery Model — Government
Support and Incentives."
Argentine Taxation
The following is a summary
of the material Argentine tax considerations relating to our operations in Argentina and it is based upon laws, regulations, decrees,
rulings, income tax conventions (treaties), administrative practice and judicial decisions in effect as of the date of this annual
report. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming. Any such changes or interpretations
could affect the tax consequences to us, possibly on a retroactive basis, and could alter or modify the statements and conclusions
set forth herein. This summary does not purport to be a legal opinion or to address all tax aspects that may be relevant to our
operations in Argentina.
Software Promotion Law
The Software Promotion
Law (No. 25,922) sets forth a promotional regime for the software industry that remains in effect until December 31, 2019. On May
2018, a bill to extend the promotional regime until year 2030 was introduced for its treatment by the Argentine Congress. However,
such bill has not been passed yet.
Argentine Ministry of Economy
approved our subsidiaries as beneficiaries of the Software Promotion Law as following: (i) on October 10, 2006: IAFH Global S.A.
and (ii) on April 13, 2007: Sistemas Globales S.A. For further discussion of the Software Promotion Law, see "Business Overview
— Our Delivery Model — Government Support and Incentives".
Knowledge Economy Law
In March 2019, a
draft bill of a promotional Knowledge Economy regime was submitted for review by the Argentine Congress, which contains tax
benefits similar to the ones provided by the Software Promotion Law. This new regime is more comprehensive than the Software
Promotional Law, since it is addressed to software companies as well as other companies involved in biotechnology,
audiovisual production, exportable professional services, robotic automation, aerospace and satellite industry, among others.
The bill sets forth that the promotional regime will become effective as of January 1, 2020 until December 31, 2029.
In order to
be allowed to enjoy the benefits derived from the regime, the beneficiaries must comply with certain requirements and
conditions described in the bill. The tax benefits granted under this bill include: (a) fiscal stability
(“estabilidad fiscal”) on federal taxes for the term of the regime; (b) reduction of social security
contributions; (c) granting of a one-time transferable tax credit equivalent to 1.6 times the amount to be paid for social
security contributions, which may be used to cancel Income Tax and Value Added Tax and their advance payments; (d) a reduced
tax rate of 15% for income tax; and (d) the exclusion from certain domestic withholding regimes
related to Value Added Tax. The bill has not been passed yet.
Income Tax
The Argentine Income Tax
Law No. 20,628, as amended ("
ITL
"), establishes a federal tax on the worldwide income of Argentine resident individuals,
legal entities incorporated in Argentina and Argentine branches of foreign entities. On the income earned by Argentine residents
from activities abroad, any payment of foreign taxes can be taken as a credit against payment of the applicable Argentine tax.
However, the credit may only be applied 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 set off against
taxable income obtained during the following five fiscal years
Non-Argentine residents
and legal entities without a permanent establishment in Argentina (“
Foreign Beneficiaries
”) are taxed only on
income from Argentine sources. Based on the ITL, income will be considered as sourced in Argentina when it is made from assets
located, placed or used in Argentina, or from the performance of any act or activity in Argentina that produces an economic benefit,
or from events occurring in Argentina
On December 29, 2017, the
Argentine government enacted Law No. 27,430 (the Tax Reform Law” or “TRL”), a comprehensive tax reform that became
effective on January 1, 2018. Specifically, Law No. 27,430 introduced amendments to income tax (both at corporate and individual
levels), value added tax ("VAT"), tax procedural law, criminal tax law, social security contributions, excise tax, tax
on fuels and tax on the transfer of real estate.
Until the enactment of
the TRL, the ITL set forth that Argentine resident companies and branches of non-Argentine entities were taxed at corporate level
on their worldwide income at a rate of 35% on net profits and dividends distributions were made -in principle- on a tax-free basis.
The TRL sets forth the progressive reduction of the tax rate of 35% to a 30% applicable to the fiscal periods starting on January
1st, 2018 until December 31st, 2019; and to a 25% applicable to the fiscal periods starting on January 1st, 2020 onwards; but establishes
that dividends or other profits distributed to Argentine resident individuals and Foreign Beneficiaries would be subject to taxation.
Therefore, as of January 1, 2018, income tax on Argentine resident companies and branches of non-Argentine entities applies in
two stages: (i) a first stage charged on the corporate level (at a tax rate of 30% or 25%, depending on the fiscal period involved,
as explained above); and (ii) a second stage charged on the shareholder or owner level -when being an Argentine resident individual
or a Foreign Beneficiary- (at a tax rate of 7% or 13%, according to the fiscal period from which the distributed profit derived).
Argentine resident individuals
are taxed on a sliding scale from 5% to 35%, depending on their net income during the fiscal year. However, income from the transfer
of shares, representative securities and deposit certificates shares and any type of corporate participations, including mutual
funds shares and rights over trusts and similar contracts, digital currencies, securities, bonds and other securities, is subject
to tax at a rate of 15% on the net income. Same tax rate (15%) applies on the income derived from the sale of real estate or transfer
of property rights. Finally, interests, other returns or income derived from the disposal of government securities, corporate notes,
debt securities, shares in mutual funds, and digital currencies are subject to tax a rate of 5% or 15% depending on the type of
security.
Argentine resident individuals’
profit derived from the purchase, exchange, or disposal of shares, securities, deposit certificates shares or corporate participations
is exempted of income tax provided that such operations are carried out through stock exchanges or markets authorized by the Argentine
Securities Commission (“CNV”, after is acronym in Spanish).
Foreign Beneficiaries are
subject to withholding tax on any income or gain deemed by the ITL to be from an Argentine source. To determine the effective withholding
rate, a 35% rate is applied to a presumed net income provided by the ITL that varies depending on the type of income. For certain
types of income, the ITL allows the Foreign Beneficiaries to opt to apply a 35% rate to the real gain obtained in the transaction.
However, income derived
from the sale, exchange or other disposition of shares, securities, deposit certificates shares and any type of corporate participations
of an Argentine company obtained by Foreign Beneficiaries is subject to income tax, at the following tax rates: (i) if the seller
is located in a so called “cooperative jurisdiction”, 15% on the net gain or 13.5% on the gross amount of the transaction,
at the option of the seller; or (ii) if the seller is located in a non-cooperative jurisdiction, 35% on the net gain or 31.5% on
the gross amount of the transaction, at the option of the seller. Moreover, interests, other returns or any income derived from
the disposal of government securities, corporate notes, debt securities, shares in mutual funds, and digital currencies are subject
to tax a rate of 5% or 15% depending on the type of security and as long as the seller is located in a cooperative jurisdiction.
The ITL (as amended by
the TRL) provides an exemption to any income obtained by Foreign Beneficiaries, to the extent that they do not reside in and the
funds do not arise from non-cooperative jurisdictions, on: (i) any income derived from the sale of shares provided that such operations
are carried out through stock exchanges or markets authorized by the CNV; (ii) interests, returns and any income derived from the
sale of public bonds (i.e., Government bonds), negotiable obligations (corporate debt bonds) and share certificates issued abroad
that represent shares issued by Argentine companies (i.e., ADRs)
Finally, the ITL establishes
an income tax on the indirect transfer of assets located in Argentina. In particular, the tax will be triggered on the sale or
transfer by nonresidents of shares by foreign beneficiaries or other participations in foreign entities when the following two
conditions are met: (i) at least 30% of the value of the foreign entity is derived from assets located in Argentina (at the moment
of the sale or during the 12 prior months); and (ii) the participation being transferred represents (at the moment of the sale
or during the 12 prior months) at least 10% of the equity of the foreign entity.
The applicable rate will
generally be 15% (calculated on the actual net gain or a presumed net gain equal to 90% of the sale price) of the proportional
value that corresponds to the Argentine assets. Additional guidance about the calculation mechanisms has not been issued.
The tax on indirect transfers
will only apply to participations in Foreign Beneficiaries acquired after the entry into force of the TRL. Moreover, it will not
apply if the taxpayer proves that the transfer took place within the same economic group, in accordance with requirements established
in the ITL Regulatory Decree
As explained above, payments
from Argentina to Foreign Beneficiaries representing an Argentine source of income (i.e., royalties, interest, etc.) are generally
subject to income tax withholding levied at different rates depending on the type of income. For example, cross-border royalty
payments are subject to withholding at an effective rate of 21%, 28% or 31.5% depending on whether the involved technology is available
in Argentina and the relevant agreement is registered before Instituto Nacional de Propiedad Intelectual (“INPI” after
its Spanish acronym), the Argentine organism in charge of registration any intellectual property. Payments related to software
licenses are in general subject to a 31.5% tax withholding rate. In addition, interest payments are generally subject to withholding
at a rate of 15.05%if the lender is a banking or financial institution which it is under the supervision of the relevant Argentine
Central Bank or equivalent authority and is located in a jurisdiction which is not considered a nil or low-tax jurisdiction or
in a jurisdiction that is party to an exchange of information treaty with Argentina and, as a result of the application of its
internal regulations, cannot refuse to disclose information to the Argentine Tax Authority on the basis of bank or stock secrecy
rules, and 35% in all other cases
A Convention for the Avoidance
of Double Taxation (“
DTT
”) signed between Argentina and the receiving country may provide certain reductions
in the domestic rates applicable to Foreign Beneficiaries obtaining Argentine-source income (such as interest, dividends, royalties,
capital gains, etc.). The following jurisdictions have DTTs currently in force with Argentina: Australia, Belgium, Bolivia, Brazil,
Canada, Chile, Denmark, Finland, France, Germany, Italy, Mexico, Norway, Russia, Spain, Sweden, Switzerland, The Netherlands and
the United Kingdom. Moreover, on year 2018 the Executive Power of Argentina signed DTTs with Qatar, Turkey and China, but they
are pending of approval by the Argentine Congress. Please note there is no DTT currently in force with the United States of America.
Tax on Presumed Minimum Income
This tax applies to assets
of Argentine companies. The tax is only applicable if the total value of the assets is above 200,000 Argentine pesos at the end
of the company's fiscal year, and is levied at a rate of 1% on the total value of such assets. The amount of the tax paid on presumed
minimum income is allowed as a credit toward income tax. Furthermore, to the extent that this tax cannot be credited against normal
corporate income tax, it may be carried forward as a credit for the following ten years. Shares and other capital participations
in the stock capital of entities subject to the minimum presumed income tax are exempted from the tax on presumed income.
Law No 27,260, published
in the Argentine government's official gazette on July 22, 2016, eliminates the Minimum Assumed Income Tax for fiscal years beginning
on January 1, 2019.
Value-Added Tax
The value-added tax applies
to the sale of goods, the provision of services and importation of goods. Under certain circumstances, services rendered outside
of Argentina, which are effectively used or exploited in Argentina, are deemed to be rendered in Argentina and, therefore, subject
to value-added tax. The current value-added tax general rate is 21%. Certain sales and imports of goods, such as computers and
other hardware, are, however, subject to value-added tax at a lower tax rate of 10.5%. The sale of the shares held in Argentine
or foreign companies is not subject to value-added tax.
Services rendered in Argentina,
which are effectively used or exploited abroad, qualify as “export services” and are not subject to VAT. The effective
utilization or exploitation is verified with the immediate utilization or the first act of disposal of the service by the recipient
even when, if appropriate, the latter intends such service for consume.
Law No. 27,346 published
in the Argentine government's official gazette on December 27, 2016, modifies the value-added tax law and creates the figure of
substitute taxpayer for the payment of the tax corresponding to foreign residents who render services in Argentina.
Substitute taxpayers will
assess and pay for value-added tax corresponding to the act, even in the cases in which it is impossible to withhold that tax from
the foreign resident. Also, the tax paid will be considered as a tax credit if in favor of the substitute taxpayer.
Tax on Debits and Credits in Bank Accounts
This tax applies to debits
and credits from and to Argentine bank accounts and to other transactions that, due to their special nature and characteristics,
are similar or could be used in lieu of a bank account. There are certain limited exceptions to the application of this tax. The
general tax rate is 0.6% applicable on each debit and/or credit; however there are increased rates of 1.2% and reduced rates of
0.075%. According to Decree 409/2018, the owners of bank accounts on which the tax is levied at the 0.6% or 1.2% rate may compute
33% of the amounts paid under this tax as a payment on account of the income tax, tax on presumed minimum income and/or the special
contribution on cooperative capital. The amount not computed cannot be subject, under any circumstances, to compensation with other
taxes borne by the taxpayer or requests for reimbursement or transfer in favor of third parties, and may be transferred, until
exhaustion, to other fiscal periods of the aforementioned taxes.
Personal Assets Tax
Personal Assets Tax Law,
as amended, states that all individuals domiciled in Argentina are subject to a tax on their worldwide assets; while, individuals
not domiciled in Argentina are only liable for this tax on their assets in Argentina. Shares, other equity participations and securities
are only deemed to be located in Argentina when issued by an entity domiciled in Argentina. The tax on shares and other equity
participations in local companies is paid by the local company itself. The applicable rate is 0.25% on the company’s net
worth. Pursuant to the Personal Assets Tax Law, an Argentine company is entitled to seek reimbursement of such tax paid from the
shareholders, including by withholding and/or foreclosing on the shares, or by withholding dividends. The current DDTs signed by
Argentina do not provide an exemption on this tax.
Law No. 27,260 introduced
benefits for compliant taxpayers that include the exemption of personal assets tax until 2019. Our Argentine subsidiaries IAFH
Global S.A., Sistemas Globales S.A., Dynaflows S.A. and Globers Travel S.A., applied to and were accepted by the AFIP to be eligible
of the exemption of personal assets tax in December, 2016 and January, 2017.
Tax on Dividends
Law No. 27,430 introduced
the following changes to the taxation of distribution of dividends from Argentine companies, for fiscal years beginning on or after
January 1, 2018:
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•
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Dividends from profits obtained before fiscal year 2018 are not subject to any income tax withholding
except for the ''Equalization Tax''.
The Equalization Tax is applicable when the dividends distributed
are higher than the ''net accumulated taxable income'' of the immediate previous fiscal period from when the distribution is made.
The Law repeals the Equalization Tax for distributions made with income accrued from January 1, 2018.
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Dividends from profits obtained during fiscal years 2018 and 2019 on Argentine shares paid to Argentine
resident individuals and/or non-residents, or Foreign Beneficiaries, are subject to a 7% income tax withholding on the amount of
such dividends, or the Dividend Tax.
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|
•
|
The Tax Rate on dividends from profits obtained during fiscal year 2020 and onward increased to 13%.
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Duty on exported services
On December 4, 2018, Argentina
approved the budget bill for 2019 by Law 27,467. The Law amends the Customs Code to allow for duties to be applied to the exportation
of services (and not only goods). In addition, the Executive Power was allowed to impose export duties of up to 30% until December
31, 2020. However, in the cases of services and goods that were not subject to export duties before September 2, 2018, the maximum
rate is 12%.
On January 2, 2019, the
Argentine Executive Power issued Decree No. 1201/2018 establishes an export duty on exports of services at a rate of 12% with a
maximum limit of Argentine pesos 4 per U.S. dollar of the amount arising from the invoice or equivalent document.
A service is considered
“exported” when it is rendered from Argentina but it is effectively used or exploited off shore. The effective utilization
or exploitation is verified with the immediate utilization or the first act of disposal of the service by the recipient even when,
if appropriate, the latter intends such service for consume.
Turnover Tax
Turnover tax is a local
tax levied on gross income. Each of the provinces and the City of Buenos Aires apply different tax rates. The tax is levied on
the amount of gross income resulting from business activities carried on within the respective provincial jurisdictions. The provinces
have signed an agreement to avoid the double taxation of activities performed in more than one province (
Convenio Multilateral
del 18 de agosto de 1977
). Under this agreement, gross income is allocated between the different provinces applying a formula
based on income obtained and expenses incurred in each province. In the Province of Buenos Aires, we have received an exemption
from the payment of the turnover tax for the period from 2011 through April 13, 2017 for Sistemas Globales S.A. and through December
31, 2019 for IAFH Global S.A.. Sistemas Globales S.A. is renewing the exemption.
Provincial Tax Advance Payment Regimes
Applicable to Local Bank Accounts
Certain provincial tax
authorities have established advance payment regimes regarding the turnover tax that are, in general, applicable to credits generated
in bank accounts opened with financial institutions governed by the Argentine Financial Institutions Law. These regimes apply to
local tax payers which are included in a list distributed —usually on a monthly basis— by the provincial
tax authorities to the financial institutions aforementioned.
Tax rates applicable depend
on the regulations issued by each provincial tax authority, in a range that, currently, could amount up to 5%. For tax payers subject
to these advance payment regimes, any payment applicable qualifies as an advance payment of the turnover tax.
Stamp Tax
Stamp tax is a local tax
that is levied based on the formal execution of public or private instruments. Documents subject to stamp tax include, among others,
all types of contracts, notarial deeds and promissory notes. Each province and the City of Buenos Aires has its own stamp tax legislation.
Stamp tax rates vary according to the jurisdiction and agreement involved. In general, stamp tax rates vary from 1% to 4% and are
applied based on the economic value of the instrument. In the Province of Buenos Aires, we have received an exemption from the
stamp tax for one of our subsidiaries, IAFH Global S.A., since 2011.
Free Good Transmission Tax
The Province of Buenos
Aires established this tax in 2009. According to Law 14,200, all debts accrued up to December 31, 2010 have been exempted from
this tax. This tax is levied on any wealth increases resulting from free good or asset transmission (i.e. a donation, inheritance,
etc.), provided the beneficiary (individual or company) is domiciled in the Province of Buenos Aires or the goods or assets are
located in the Province of Buenos Aires. Moreover, according to this tax, shares and other securities representing capital stock,
an equity interest or the equivalent which, at the time of transmission, are located in another jurisdiction (i.e., not in the
Province of Buenos Aires) or were issued by entities or companies domiciled in another jurisdiction, are deemed to be situated
in the Province of Buenos Aires in proportion to the assets that such entities or companies have in the Province of Buenos Aires.
This tax will only be applicable if the benefit obtained by the individual or the company exceeds 269,000 Argentine pesos. In the
case of parents, children and spouses, the threshold amount is increased up to 1,120,000 Argentine pesos. The tax rates are progressive
and vary from 1,60% to 8,78%. The Province of Entre Ríos has enacted a tax that is similar to Law 14,200 described above.
The tax may become applicable
in the event that our Argentine subsidiaries IAFH Global S.A. and Sistemas Globales S.A., receive any free transmission of goods
or assets located within the Province of Buenos Aires or the Province of Entre Ríos. If either of the subsidiaries changes
its domicile to the Province of Buenos Aires or to the Province of Entre Ríos, the tax will be levied upon any free transmission
of goods or assets received by that subsidiary, wherever the goods or assets are located.
Municipal Taxes
Municipalities may establish
certain municipal taxes, provided they are not analogous with the national taxes, and they match an effective and individualized
service provisioned by the local government. It should be noted that in many cases, the taxable income considered for the municipal
tax will be the same as that for the turnover tax, though limited to the amount that belongs to the province where the municipality
is located as per the agreement to avoid double taxation (
Convenio Multilateral del 18 de agosto de 1977
).
Incoming Funds from Nil or No Tax Jurisdictions
According to the
legal presumption under Article 18.1 of Law No. 11,683 and its amendments, incoming funds from jurisdictions with low or no
taxation are deemed an unjustified increase in net worth for the Argentine party, regardless of the nature of the operation
involved. Unjustified increases in net worth are subject to the following taxes:
(a) income tax at a 35%
rate on 110% of the amount of the transfer; and
(b) value added tax at
a 21% rate on 110% of the amount of the transfer.
The Argentine tax resident
may rebut such legal presumption by proving before the Argentine Tax Authority that the funds arise from activities effectively
performed by the Argentine taxpayer or a third party in such jurisdictions, or that such funds have been previously declared.
The Amendment Law modified
the definition of Low or No Tax Jurisdiction to mean any country, jurisdiction dominium, territory, associated state or special
tax regime in which the maximum corporate income tax rate is lower than 60% of the income tax rate established in section 69 a)
of the ITL. Therefore, to avoid being regarded as a low tax jurisdiction, the maximum corporate income tax rate of a given jurisdiction
must be equal or higher than 15%. For purposes of determining whether a jurisdiction is a low-tax or no-tax jurisdiction, the regulatory
Decree 1170/2018 clarifies that the total tax rate imposed in that jurisdiction must be taken into account, regardless of which
government unit (e.g., federal, state, municipal or city) imposes the tax. The decree also provides that a “preferential
tax regime” is one that deviates from the general corporate tax system in the subject jurisdiction and results in a lower
effective tax rate.
As of the date of this
annual report, there no transactions executed that would qualify under this legal presumption.
Colombian Taxation
The following is a summary
of the material Colombian tax considerations relating to our operations in Colombia and it is based upon laws, regulations, decrees,
rulings, income tax conventions (treaties), administrative practice and judicial decisions in effect as of the date of this annual
report. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming. Any such changes or interpretations
could affect the tax consequences to us, possibly on a retroactive basis, and could alter or modify the statements and conclusions
set forth herein. This summary does not purport to be a legal opinion or to address all tax aspects that may be relevant to our
operations in Colombia.
Corporate income tax.
National corporations are
taxed on worldwide income and capital gains. National corporations are corporations that have their principal domicile in Colombia
or 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 enough to qualify as a national company). Foreign companies that obtain
more than 80% of their income (other than passive income) in the jurisdiction of incorporation are not considered to have their
effective place of management in Colombia. These companies are known as “80% Foreign Income Companies.”
On December 28, 2018, Colombia
enacted Law No. 1943, which includes several important tax reforms.
Up to December 31, 2018
branches of foreign corporations and permanent establishment are taxed on Colombian Source income and capital gains. According
with the Law No. 1943, branches and PE tax base is expanded to include worldwide income.
The standard corporate
income tax rate is 33%. In addition, an income tax surtax applies to taxable income in excess of COP800 million. The income tax
surtax rate for 2018 is 4% and will not apply as of 2019. The Law No 1943 introduced a reduction of the tax rate of 31% in year
2020, 31% in year 2021 and 30% from year 2022 and onwards.
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. No surtax
applies to these taxpayers. 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 rate of 10%. 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.
Taxation on dividends
On December 28, 2016, the
Colombian Congress enacted the Law No. 1819 introducing the taxation for distributions of dividends. Distribution to nonresidents
are subject to dividends tax at a rate of 5%. The dividends tax rate for resident individuals is 0%, 5% or 10%, depending on the
amount of the distribution. No dividend tax applies to distributions to resident companies. 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 entity level, the distribution to nonresidents is subject to a 35% withholding tax (recapture tax). In this case, the 5%
dividends tax applies to the distributed amount after it is reduced by the 35% tax. A 20% withholding tax is imposed on dividends
paid to residents (including companies and individuals) out of profits not taxed at the corporate level if the taxpayer is required
to file an income tax return. 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 (or the 20%
withholding tax on payments to residents). This carryforward or carryback should not reduce the amount of the distribution to nonresidents
subject to the dividends tax of 5% (or the 5% or 10% dividends tax applicable for distributions to resident individuals).
Under Law No. 1943, a 7.5%
tax rate is introduced on dividends distributed between resident companies, which applies on the first distribution, with a credit
for the tax passed on to the ultimate shareholder (resident individual or non-resident entity or individual) and an exemption from
the tax for distributions between registered economic group members.
Presumptive income.
Under the Colombian tax
law, the tax base for corporate income tax purposes is the higher of actual taxable income or minimum presumptive income, which
is equal to 3.5% of the net equity as of December 31 of the preceding tax year. Under Law No. 1943, the presumptive income tax
rate is reduced from 3.5% to 1.5% for years 2019 and 2020 and is abolished from year 2021.
Tax on indirect transfer of shares.
Law No. 1943 introduced
a new tax calculated over the profits derived from the indirect transfer of shares in Colombian entities and rights or assets located
in Colombia through the transfer of shares, participations or rights of foreign entities are taxed in Colombia as if the underlying
Colombian asset had been directly transferred. Where the seller fails to report the deemed income arising on the indirect transfer
as net income or capital gains on the income tax return the “subordinate” Colombian company is jointly and severally
liable for the tax payable, as well as any associated interest and penalties. The purchaser also is jointly and severally liable
if it becomes aware that the transaction constitutes an abuse for tax purposes. These provisions do not apply where the underlying
Colombian assets (i) are shares that are listed on a stock exchange or that are not more than 20% owned by a single beneficial
owner or (ii) represent less than 20% of both the book value and the commercial value of the total assets held by the foreign entity
being transferred.
Equity tax
The Tax Reform (Law No
1943) establishes a new equity tax on Colombian resident individuals’ worldwide net worth that will apply for years 2019,
2020, and 2021. Nonresident individuals will be taxed only on their Colombian assets. Nonresident entities will have to pay this
tax on their assets owned in Colombia, such as real estate, yachts, artwork, boats, planes, and rights over mines or oil wells.
In calculating this tax,
nonresident entities should not consider shares in Colombian companies, accounts receivable from Colombian debtors, certain portfolio
investments and financial lease agreements. For this tax to apply, the net equity of the taxpayer must be at least COP 5.000 million
as of January 1, 2019.
The equity tax rate is
1%.
Foreign Exchange Controls
The following is a summary
of the material foreign exchange control considerations relating to our operations in Argentina, Colombia and India, and it is
based upon laws, regulations, decrees, rulings, administrative practice and judicial decisions in effect as of the date of this
annual report. Legislative, judicial or administrative changes or interpretations may, however, be forthcoming. Any such changes
or interpretations could affect us and could alter or modify the statements and conclusions set forth herein. This summary does
not purport to be a legal opinion or to address all foreign exchange controls aspects that may be relevant to our operations in
such jurisdictions.
Argentina
On January 6, 2002, the
Argentine Congress enacted Law No. 25,561 (as amended and supplemented, the "Argentine Public Emergency Law"), formally
ending the regime of the Convertibility Law, abandoning over ten years of U.S. dollar-peso parity. With the enactment of the Argentine
Public Emergency Law, Argentina declared a state of public emergency in terms of social, economic, administrative, financial and
exchange rate conditions, and the Argentine executive branch was vested with the power to establish a system to determine the exchange
rate between the peso and foreign currencies and to enact foreign exchange regulations. In February 2002, the Argentine executive
branch issued Decree No. 260/2002 which established (i) a single free foreign exchange market FX Market in which all foreign exchange
transactions were to be settled, and (ii) that foreign exchange transactions are to be consummated at an exchange rate that is
freely settled, subject to the requirements and regulations imposed by the Argentine Central Bank. Even when the Argentine peso
was allowed to float freely against other currencies, the Argentine Central Bank has the power to intervene in the exchange rate
market by buying and selling foreign currency for its own account, a practice in which it engaged in, and in which it may continue
to engage in, on a regular basis.
In June 2005, through the
issuance of Decree No. 616/2005, the Argentine government established a number of foreign exchange restrictions and regulations
on inflows and outflows of funds to be settled through the local FX Market. With the tightening of exchange controls beginning
in late 2011, in particular with the introduction of measures that allowed limited access to foreign currency by private companies
and individuals (such as requiring an authorization of tax authorities to access the foreign currency exchange market), the implied
exchange rate, as reflected in the quotations for Argentine securities in foreign markets, compared to the corresponding quotations
in the local market, increased significantly over the official exchange rate. Within such measures, the Argentine government restricted
certain local companies from obtaining access to the FX Market for the purpose of making payments abroad, such as dividends (including
capital reductions) and payment for importation of services and goods. In particular, during the last few years, the Argentine
Central Bank exercised a
de facto
prior approval power for certain foreign exchange transactions otherwise authorized to
be carried out under the applicable regulations by means of regulating the amount of foreign currency available to financial institutions
to conduct such transactions.
Most foreign exchange restrictions
including those relating to the transfer of funds into and out of Argentina, were lifted by the Macri administration by December
2015, reestablishing Argentine residents' rights to purchase and remit foreign currency outside of Argentina. with no maximum amount
and without specific allocation or prior approval. Notwithstanding the foregoing, it is possible that a restrictive foreign exchange
controls policy could be adopted in the future as a result of changes in the economic-political situation of the country, bank
runs, monetary pressures, or even from national or international authorities.
In December 2015, the Argentine
Ministry of Treasury issued Resolution No. 3/2015 which amended the requirement to maintain a registered, non-transferable and
non-interest bearing deposit by reducing the amount of the deposit from 30% to 0%. Consequently, such deposit is no longer applicable
to, among other transactions, foreign financial debts and inflows of funds of non-residents. In addition, the minimum period for
the proceeds received from any new financial indebtedness incurred by residents and granted by foreign creditors or portfolio investments
of non-residents was reduced from 365 calendar days to 120 calendar days. Resolution No. 1-E/2017, dated January 5, 2017, subsequently
eliminated the minimum waiting period entirely. The Argentine Ministry of Treasury is entitled to modify the percentage of and
period that funds must be kept in Argentina when a change in the macroeconomic situation so requires. Furthermore, through Resolution
No. 47-E/2017, issued on January 19, 2017, the Argentine Trade Secretariat further amended Resolution No. 269/2001, relaxing and
extending the terms set forth therein to exporters in the Republic of Argentina.
In addition, on December
17, 2015, the Argentine Central Bank issued Communication "A" 5850 which introduced substantial changes to the existing
foreign exchange controls regime. Also, Communication "A" 5861 abrogated certain Communications clarifying the scope
of the limitations for payment of services provided and/or accrued up to December 16, 2015 inclusive.
Later on, by means of Communication
A 5899 dated February 4, 2016 the Argentine Central Bank introduced several changes to the existing foreign exchange regulatory
framework, which is in line with to the new foreign exchange controls policy implemented as from December 17, 2015.
Furthermore, Resolution
No. 30/2016 of the Secretariat of Commerce, dated March 11, 2016, amended Resolution No. 269/2001 as amended, eased and extended
the terms imposed to certain exporting companies of different industries.
Through Communication A
5910 dated February 26, 2016, the Argentine Central Bank introduced further amendments to the foreign exchange rules applicable
to indebtedness of Argentine residents in foreign currency. On March 31, the Argentine Central Bank issued the Communication A
5937, in force as from April 1, providing certain amendments to the rules relating to import transactions and repatriations of
funds by non-Argentine residents, and on July 1 and 11, 2016, the Argentine Central Bank issued Communication A 6003 and A 6011,
respectively, through which foreign exchange access and settlement regulations have been simplified.
On August 8, 2016, the
Argentine Central Bank issued Communication "A" 6037, which repealed most of the restrictions to purchase currency and
those relating to the inflow and outflow of funds into and from Argentina (except for the obligation of Argentine exporters of
goods and services to repatriate to the FX Market foreign currency proceeds from exportation transactions, such as receivables
relating to the exportation of goods, which shall also be settled through the FX Market).
The Argentine Central Bank
modified the current foreign exchange regime through Communication A 6137 issued on December 30, 2016. Likewise, in line with Resolution
No. 1-E/2017, through Communication A 6150 issued on January 13, 2017, the Argentine Central Bank ordered the abrogation of the
requirement of compliance with the minimum mandatory waiting period for the payment of foreign debts and repatriation of portfolio
investment made by non-residents, and the minimum term of financial indebtedness to foreign countries. Through Communication A
6163 issued on January 20, 2017, the Argentine Central Bank ordered further relaxed access to the FX Market by authorizing the
access of residents for, among others, the inflow and payments related to transactions with non-residents.
Furthermore, on May 19,
2017, the Argentine Central Bank issued Communication ''A'' 6244, which entered into effect on July 1, 2017 and pursuant to which
new regulations regarding access to the foreign exchange market were established, essentially abrogating all prior regulations
on the matter.
On November 1, 2017, the
Argentine executive branch issued Decree No. 893/2017 (complemented by Communication ''A'' 6363 of the Argentine Central Bank dated
November 10, 2017) pursuant to which foreign exchange restrictions related to exports of goods and services that continued to be
in place were eliminated, including the obligation of Argentine residents to transfer to Argentina and sell in the FX Market the
proceeds of their exports of goods within the applicable deadline.
Communication "A"
6312 was subsequently amended Communication "A" 6639, which is currently in force and provides that:
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The principle of a free foreign exchange market (
Mercado Libre de Cambios
) is established.
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The obligation to carry out any exchange operation through an authorized entity is maintained.
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Although, access to the FX Market is made at the exchange rate determined by the market, the Argentine
Central Bank has the power to intervene by buying and selling foreign currency for its own account, a practice in which it engages
on a regular basis.
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The obligation of Argentine residents (other than individuals) to comply with the ''Survey of foreign
assets and liabilities'' (Communication ''A'' 6401) is maintained and in force, even if there had been no inflow of funds to the
FX Market and/or no future access to it for the operations to be declared.
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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 Ministry of Treasury's website:
www.economia.gob.ar
, or the Argentine Central Bank's website:
www.bcra.gob.ar
.
Colombia
Under Colombian foreign
exchange regulations, payments in foreign currency related to certain foreign exchange transactions must be conducted through the
commercial exchange market, by means of an authorized financial intermediary, and declaring the payment 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.
India
The prevailing foreign
exchange laws in India require Indian residents to repatriate all foreign currency earnings to India to control the exchange of
foreign currency. More specifically, Section 8 of the Foreign Exchange Management Act, 1999, requires 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 back to India, including 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.
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 March 15, 2019. You may find complete information about all of our subsidiaries and
their respective holdings in Exhibit 8.1.
Seasonality
See “Operating and
Financial Review and Prospects — Operating Results — Factors Affecting Our Results of Operations.”
D. Property, Plant and Equipment
See “—Business
Overview.”
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
See "Information on
the Company — History and Development of the Company" and "Information on the Company — Business
Overview — Overview".
A. Operating Results
Factors Affecting Our Results of Operations
In the last few years,
the technology industry has undergone a significant transformation due to two massive and disruptive technology revolutions happening
at the same time. The digital and the cognitive revolutions are affecting how companies connect with consumers and employees as
well as providing opportunities to make huge gains in efficiency. Today's users move fast and are keen to interact with their digital
ecosystem anywhere and anytime, in a painless, fast, relevant, smart and restriction-free way. They demand personalized, seamless
and frictionless experiences that will simplify their lives. We are also facing an abundance of demand for more intelligent and
human-like behavior and technology on the market. These revolutions are leveraging new technologies that didn’t exist or
weren’t mature enough until a few years ago, such as AI, UX, Mobile, Cloud and VR.
We believe that the most
significant factors affecting our results of operations include:
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market demand for integrated engineering, design and innovation technology services relating to
emerging technologies and related market trends;
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economic conditions in the industries and countries in which our clients operate and their impact
on our clients' spending on technology services;
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our ability to continue to innovate and remain at the forefront of emerging technologies and related market trends;
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expansion of our service offerings and success in cross-selling new services to our clients;
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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;
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the availability of, and our ability to attract, retain and efficiently utilize, skilled IT professionals
in Latin America, India, Europe and the United States;
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operating costs in countries where we operate;
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capital expenditures related to the opening of new delivery centers and client management locations
and improvement of existing offices;
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our ability to increase our presence onsite at client locations;
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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
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our ability to identify, integrate and effectively manage businesses that we may acquire.
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Our results of operations
in any given period are directly affected by the following additional company-specific factors:
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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 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 winning higher profit margin assignments.
During the three-year period ended December 31, 2018, we increased our revenues attributable to sales of technology solutions
(primarily through our primarily through our Mobile, Process Automation, UX Design and Gaming Studios), however, our gross profit
margin oscillate in 39.0%, 36.3% and 40.7% for the years ended December 31, 2018, 2017 and 2016, and our adjusted gross profit
margin oscillate in 40.6%, 38.8% and 42.3% for the years ended December 31, 2018, 2017 and 2016, respectively, since it was
affected by foreign exchange headwinds combined with some wage inflation in certain of the countries in which we operate.
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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 impacts 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 and 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.
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Recruitment, retention and management of IT professionals. 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 7,821 as of December 31, 2018, 6,279 as of December 31, 2017 and 5,219 as of December 31, 2016. 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.
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Evolution of client base.
In recent years, as we have expanded significantly in the technology services industry; we have diversified our client base and
reduced client concentration. Revenues attributable to our top ten clients increased by 15.4% from 2016 to 2017 and 32.5% from
2017 to 2018. Over the same period, we have increased our revenues from existing clients by expanding the scope and size of our
engagements. The number of clients that each accounted for over $5.0 million of our annual revenues amounted to 21 2018, 18 in
2017 and 11 2016, and the number of clients that each accounted for at least $1.0 million of our annual revenues increased to
90
in 2018, from 82 in 2017 and 60 in 2016.
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Investments in our delivery platform. We have grown our network of locations to 40 as of December 31,
2018, located in 32 cities throughout fourteen countries (United States (San Francisco, New York, Seattle, Raleigh, Chicago and
Dallas), Argentina (Buenos Aires, Tandil, Rosario, Tucumán, Córdoba, Resistencia, Bahía Blanca, Mendoza, Mar
del Plata and La Plata), Uruguay (Montevideo), Colombia (Bogotá and Medellín), Brazil (São Paulo), Peru (Lima),
Chile (Santiago), México (México City), India (Pune and Bangalore), Spain (Madrid), Belarus (Minsk), Romania (Cluj)
and United Kingdom (London)). We also have client management locations in the United States (San Francisco, New York, Winston-Salem
and Miami), Brazil (São Paulo), Colombia (Bogotá), Uruguay (Montevideo), Argentina (Buenos Aires) and the United
Kingdom (London) that are close to the main offices of key clients. 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 other cities in Argentina and other countries in Latin America,
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.
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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 Argentina, Uruguay, Brazil, Peru, Chile and Colombia, 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 due to the Easter holiday 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.
|
|
•
|
Net effect of inflation in Argentina and variability in the U.S. dollar and Argentine peso exchange
rate. Because a substantial portion of our operations is conducted from Argentina, our results of operations are subject to the
net effect of inflation in Argentina and the variability in exchange rate between the U.S. dollar and the Argentine peso. The impact
of inflation on our salary costs, or wage inflation, and thus on our statement of profit or loss and other comprehensive income
varies depending on the fluctuation in exchange rates between the Argentine peso and the U.S. dollar. In an environment where the
Argentine peso is weakening against the U.S. dollar, our functional currency in which a substantial portion of our revenues are
denominated, the impact of wage inflation on our results of operations will decrease, whereas in an environment where the Argentine
peso is strengthening against the U.S. dollar, the impact of wage inflation will increase. During the year ended December 31,
2018, the Argentine peso experienced a 102.2% devaluation from 18.60 Argentine pesos per U.S. dollar to 37.60 Argentine pesos per
U.S. dollar and INDEC reported in 2018 an inflation rate of 47.6%. The combination of this devaluation and the inflation rate is
not expected to have a significant impact on our revenues because a substantial portion of our sales are denominated in U.S. dollars.
The devaluation, net of the impact of the inflation rate in the same period, has resulted in an increase in our operating costs,
as a substantial portion of our operating costs are primarily denominated in Argentine pesos. See "Quantitative and Qualitative
Disclosures about Market Risk — Foreign Exchange Risk" and "Quantitative and Qualitative Disclosures about Market
Risk — Wage Inflation Risk."
|
Our results of operations are expected
to benefit from government policies and regulations designed to foster the software industry in Argentina, primarily under the
Software Promotion Law. For further discussion of the Software Promotion Law, see "Business Overview — Our
Delivery Model — Government Support and Incentives."
Certain Income Statement Line Items
Revenues
Revenues are derived primarily
from providing technology services to our clients, which are medium- to large-sized companies based in the United States, Europe
and Latin America. For the year ended December 31, 2018, revenues increased by 26.3% to $522.3 million from $413.4 million
for the year ended December 31, 2017. For the year ended December 31, 2017, revenues increased by 28.1% to $413.4 million
from $322.9 million for the year ended December 31, 2016. Between 2016 and 2018, we experienced rapid growth in demand for
our services and significantly expanded our business.
We perform our services
primarily under time-and-material contracts and, to a lesser extent, fixed-price contracts. Revenues from our time-and-material
contracts represented 82.6%, 91.1% and 92.1% of total revenues for the years ended December 31, 2018, 2017 and 2016, respectively.
Revenues from our fixed-price contracts represented 17.4%, 8.9% and 7.9% of total revenues for the years ended December 31,
2018, 2017 and 2016, respectively. The remaining portion of our revenues in each year was derived from other types of contracts.
We discuss below the breakdown
of our revenues by client location, industry vertical and client concentration. Revenues consist of technology services revenues
net of reimbursable expenses, which primarily include travel and out-of-pocket costs that are billable to clients.
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)
and Latin America (primarily Argentina, Chile, Mexico and Colombia). 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, 2018, we had 373 clients.
The following table sets
forth revenues by client location by amount and as a percentage of our revenues for the years indicated:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except percentages)
|
|
By Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
407,090
|
|
|
|
77.9
|
%
|
|
$
|
325,614
|
|
|
|
78.8
|
%
|
|
$
|
260,923
|
|
|
|
80.8
|
%
|
Europe
|
|
|
46,240
|
|
|
|
8.9
|
%
|
|
|
38,484
|
|
|
|
9.3
|
%
|
|
|
29,306
|
|
|
|
9.1
|
%
|
Asia
|
|
|
3,067
|
|
|
|
0.6
|
%
|
|
|
700
|
|
|
|
0.2
|
%
|
|
|
1,265
|
|
|
|
0.4
|
%
|
Latin America and other
|
|
|
65,913
|
|
|
|
12.6
|
%
|
|
|
48,641
|
|
|
|
11.8
|
%
|
|
|
31,362
|
|
|
|
9.7
|
%
|
Revenues
|
|
$
|
522,310
|
|
|
|
100.0
|
%
|
|
$
|
413,439
|
|
|
|
100.0
|
%
|
|
$
|
322,856
|
|
|
|
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 and consumer, retail and manufacturing, among
others. The following table sets forth our revenues by industry vertical by amount and as a percentage of our revenues for the
periods indicated:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except percentages)
|
|
By Industry Vertical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media and Entertainment
|
|
$
|
133,093
|
|
|
|
25.5
|
%
|
|
$
|
99,640
|
|
|
|
24.1
|
%
|
|
$
|
67,912
|
|
|
|
21.0
|
%
|
Travel & Hospitality
|
|
|
89,212
|
|
|
|
17.1
|
%
|
|
|
68,400
|
|
|
|
16.5
|
%
|
|
|
63,414
|
|
|
|
19.6
|
%
|
Banks, Financial Services and Insurance
|
|
|
114,439
|
|
|
|
21.9
|
%
|
|
|
94,994
|
|
|
|
23.0
|
%
|
|
|
59,786
|
|
|
|
18.5
|
%
|
Technology & Telecommunications
|
|
|
67,310
|
|
|
|
12.9
|
%
|
|
|
60,648
|
|
|
|
14.7
|
%
|
|
|
51,378
|
|
|
|
15.9
|
%
|
Professional Services
|
|
|
52,318
|
|
|
|
10.0
|
%
|
|
|
40,660
|
|
|
|
9.8
|
%
|
|
|
42,286
|
|
|
|
13.1
|
%
|
Consumer, Retail & Manufacturing
|
|
|
54,087
|
|
|
|
10.4
|
%
|
|
|
36,025
|
|
|
|
8.7
|
%
|
|
|
28,710
|
|
|
|
8.9
|
%
|
Other Verticals
|
|
|
11,851
|
|
|
|
2.3
|
%
|
|
|
13,072
|
|
|
|
3.2
|
%
|
|
|
9,370
|
|
|
|
3.0
|
%
|
Total
|
|
$
|
522,310
|
|
|
|
100.0
|
%
|
|
$
|
413,439
|
|
|
|
100.0
|
%
|
|
$
|
322,856
|
|
|
|
100.0
|
%
|
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:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except percentages)
|
|
Client concentration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Top client
|
|
$
|
58,786
|
|
|
|
11.3
|
%
|
|
$
|
42,049
|
|
|
|
10.2
|
%
|
|
$
|
31,249
|
|
|
|
9.7
|
%
|
Top five clients
|
|
|
167,341
|
|
|
|
32.0
|
%
|
|
|
119,431
|
|
|
|
28.9
|
%
|
|
|
108,831
|
|
|
|
33.7
|
%
|
Top ten clients
|
|
|
229,646
|
|
|
|
44.0
|
%
|
|
|
173,333
|
|
|
|
41.9
|
%
|
|
|
150,217
|
|
|
|
46.5
|
%
|
Top twenty clients
|
|
|
301,774
|
|
|
|
57.8
|
%
|
|
|
228,922
|
|
|
|
55.4
|
%
|
|
|
193,057
|
|
|
|
59.8
|
%
|
Our top ten customers for
the year ended December 31, 2018 have been working with us for, on average, eight years.
Our focus on
delivering quality to our clients is reflected in the fact that existing clients from 2017 and 2016 contributed 95.5% and
76.9% of our revenues in 2018, respectively. Our existing clients from 2016 contributed 88.3% of our revenues in 2017. 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 (21 in 2018, 18 in 2017 and 11in 2016) and the number of clients that each
accounted for at least $1.0 million of our annual revenues increased to 90 in 2018, 82 in 2017 and 60 in 2016. The following
table shows the distribution of our clients by revenues for the year presented:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Over $5 Million
|
|
|
21
|
|
|
|
18
|
|
|
|
11
|
|
$1 - $5 Million
|
|
|
69
|
|
|
|
64
|
|
|
|
49
|
|
$0.5 - $1 Million
|
|
|
39
|
|
|
|
45
|
|
|
|
41
|
|
$0.1 - $0.5 Million
|
|
|
86
|
|
|
|
82
|
|
|
|
88
|
|
Less than $0.1 Million
|
|
|
158
|
|
|
|
147
|
|
|
|
151
|
|
Total Clients
|
|
|
373
|
|
|
|
356
|
|
|
|
340
|
|
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
Cost of Revenues
The principal components
of our cost of revenues are salaries and non-reimbursable travel costs related to the provision of services. 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. Up to 70%
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 Software Promotion Law, reducing the effective cost of
social security taxes from approximately 19.0% to approximately 10.0% of the base and incentive compensation on which those contributions
are calculated. For further discussion of the Software Promotion Law, see "— Income Tax Expense" below and
note 3.7.1.1 to our audited consolidated financial statements for the year ended December 31, 2018.
Also included in cost of
revenues is the portion of depreciation and amortization expense attributable to the portion of our property and equipment 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 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.
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. The credit of up to 70% for certain social security taxes paid by our Argentine subsidiaries that is provided under
the Software Promotion Law as described under "— Cost of Revenues" above also extends to payments of such
social security taxes in respect of salaries of personnel included in our selling, general and administrative expenses, reducing
the effective cost of social security taxes as described above.
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 and intangible assets utilized in our sales and administration functions.
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)
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 includes impairment of trade receivables and impairment of tax credits, net of recoveries. Impairment of trade
receivables represents an allowance for bad debts for expected credit losses resulting from substantial doubt about the recoverability
of such credits. 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, 2018 and 2016, we recorded a loss of $3.4 and $0.9, respectively,
related to the recognition of the allowance for bad debts. For the year ended December 31, 2017, we recorded a gain of $0.01
related to a recovery of the allowance for bad debts.
Impairment of tax credits
represents an allowance for impairment of VAT credits for estimated losses resulting from substantial doubt about the recoverability
of such credits. This allowance was determined by estimating future uses of this VAT credit. During the years ended December 31,
2018 and 2017 we recorded a loss of $0.05 and $1.6, respectively, related to the recognition of the allowance for impairment of
VAT credits after considering new facts and circumstances that occurred during those periods. In 2016, no impairment losses were
recorded.
Other operating (expenses) income, net
Other operating (expenses)
income, net includes an impairment of intangible assets. For the years ended December 31, 2018 and 2017, we recorded a loss
of $0.3 million and $4.7 million, respectively, related to the remeasurement of our internal developments and intangible assets
acquired in business combinations, based on our evaluation of projected lower future cash flows from the related customer relationships.
In 2016, no impairment losses were recorded.
Finance Income
Finance income consists
of foreign exchange gain on monetary assets, liabilities denominated in currencies other than the U.S. dollar and interest gains
on time deposits, short-term securities issued by the Argentine Central Bank (
Letras del Banco Central
), foreign exchange
forward contracts and future contracts, and mutual funds.
Finance Expense
Finance expense consists
of foreign exchange loss on monetary assets, liabilities denominated in currencies other than the U.S. dollar and interest expense
on borrowings, loss arising for foreign exchange forward contracts and future contracts, and other investments, foreign exchange
loss, other interest and other finance expenses.
Income Tax Expense
As a global company, we
are required to provide for corporate income taxes in each of the jurisdictions in which we operate. We have secured special tax
benefits in Argentina, Uruguay, India and Belarus, as described below. As a result, our income tax expense is low in comparison
to profit before income tax expense due to the benefit related to profit before income tax expense earned in those lower tax jurisdictions.
Changes in the geographic mix, income tax regulations or estimated level of annual pre-tax income can also affect our overall effective
income tax rate.
Under the Software Promotion
Law, Argentine companies that are engaged in the design, development and production of software benefit from a 60% reduction in
the corporate income tax rate and a tax credit of up to 70% of amounts paid for certain social security taxes that can be applied
to offset certain national tax liabilities. For further discussion of the Software Promotion Law, see "Business Overview
— Our Delivery Model — Government Support and Incentives".
On March 26, 2015, the
Secretary and Subsecretary of Industry issued rulings approving the registration in the National Registry of Software Producers
of Sistemas Globales S.A. and IAFH Global S.A. The ruling made the effective date of registration retroactive to September 18,
2014 and provided that the benefits enjoyed under the Software Promotion Law as originally enacted were not extinguished until
the ruling goes into effect (which have occurred upon its date of publication in the Argentine government's official gazette on
before mentioned dates).
On December 29, 2017, the
Argentine government enacted Law No. 27.430, a comprehensive tax reform that became effective on January 1, 2018. Specifically,
Law No. 27.430 introduced amendments to income tax (both at corporate and individual levels), value added tax ("VAT"),
tax procedural law, criminal tax law, social security contributions, excise tax, tax on fuels and tax on the transfer of real estate.
The law decreases the corporate
income tax rate from 35% to 30% for fiscal years starting January 1, 2018 to December 31, 2019, and to 25% for fiscal years starting
January 1, 2020 and onwards.
The operations of the Argentine
subsidiaries are our most significant source of profit before income tax. For further information of the taxation in Argentina,
see "Business Overview — Regulatory Overview — Argentine Taxation ".
Our subsidiary in Uruguay,
which is domiciled in a tax-free zone, benefits from a 0% income tax rate and an exemption from value-added tax. The subsidiary
located outside the tax-free zone has an exemption from income tax and value-added tax applicable to the exports of software development
services. For further discussion of the Uruguayan Incentives, see "Business Overview — Our Delivery Model — Government
Support and Incentives"
Until December 31,
2017, our subsidiary in Colombia was subject to federal corporate income tax of 34% and a surcharge of 6% calculated on net income
before income tax. For fiscal year 2018, the income tax rate was 33% and surcharge rate was 4%. On December 28, 2018, Colombia’s
2019 finance bill was enacted as Law 1.943. The Law gradually reduce the corporate tax rates and eliminate the surcharge from January
1, 2019 and onwards.
For the taxable years
beginning before January 1, 2018, our U.S. subsidiary, Globant LLC, is subject to U.S. federal income tax at the rate of 34%. On
December 22, 2017, the United States enacted legislation referred to as the Tax Cuts and Jobs Act ("2017 Tax Act"), which
instituted fundamental changes to the taxation of multinational corporations. The 2017 Tax Act includes significant changes to
the U.S. corporate income tax system, including a federal corporate rate reduction from 35% to 21%, limitations on the deductibility
of interest expense and executive compensation, changes regarding net operating loss carryforwards, and the transition of U.S.
international taxation from a worldwide tax system to a territorial tax system. Furthermore, as part of the transition to the new
tax system, a one-time transition tax was imposed on a U.S. shareholder's historical undistributed earnings of foreign affiliates.
For certain eligible pass-through entities, the 2017 Tax Act provides for a qualified business income deduction. The 2017 Tax Act
introduces various changes to the Internal Revenue Code.
The 2017 Tax Act also
introduces base erosion provisions for U.S corporations that are part of a multinational group. For fiscal years beginning after
December 31, 2017, a U.S. corporation is potentially subject to tax under the BEAT, if the controlled group of which it is a part
has sufficient gross receipts and derives a sufficient level of "base erosion tax benefits.".
On December 13, 2018,
the Internal Revenue Service (“IRS”) published a proposed regulation that provide guidance regarding the BEAT application.
Currently, the Treasury and the IRS are receiving public comments. The document will be official once it is published in the Federal
Register.
As of the date of this
annual report, certain provisions of the 2017 Tax Act do not currently apply to us, including those designed to (i) tax GILTI;
(ii) establish a deduction for FDII; (iii) eliminate the intercompany payment deduction under BEAT; and (iv) establish new limitations
on certain executive compensation. One or more of these provisions may apply to us in the future.
Our subsidiaries in
England are subject to corporate income tax at the rate of 19%, which will be reduced to 17% starting from April 1, 2020.
On September 29,
2014, Law No. 20,780 was published in the Chilean government's official gazette. This law introduced significant changes to
the Chilean taxation system and strengthened the powers of the Chilean tax authority to control and prevent tax avoidance.
Effective January 1, 2017, Law No. 20,780 created two different corporate tax regimes: the Attributed Income Regime
(
Sistema de Renta Atribuida
) and the Semi-Integrated Regime (
Sistema Parcialmente Integrado
). Under
the Attributed Income Regime, shareholders are taxed on an accrual basis, with a rate of 25% imposed at the operating entity
level, plus an additional withholding income tax of 35% for nonresident shareholders. Under this regime, profits are
attributed to the shareholders, irrespective of whether a distribution is actually made. Under the Semi-Integrated Regime,
shareholders are taxed on a cash basis (when profits are distributed), at a rate of 25.5% for 2017 and 27% for 2018, imposed
at the operating entity level, plus an additional withholding income tax of 35% when profits are actually distributed. Under
this regime, the corporate rate is creditable against the 35% withholding income tax, but 35% of such credit is required to
be paid to the Chilean Treasury, so, in practice, only 65% of the corporate rate is creditable. However, investors from
countries with which Chile has signed the Double Tax Treaty as of January 1, 2017 would be entitled to use the 100% of the
foreign tax credit, even if at that time the agreement was not yet in force. Under such circumstances, the full tax credit
would be applicable until December 31, 2019 if at that time the relevant tax treaty had not yet entered into force. The
Semi-Integrated Regime applies to Sistemas Globales Chile. Due to its shareholders being domiciled in Spain, 100% of the
income tax will be creditable by them. Sistemas Globales Chile was subject to a corporate income tax rate of 24% during
the year ended December 31, 2016. Beginning on January 1, 2017, the corporate income tax rate applicable to Sistemas Globales
Chile was 25.5% and for 2018 the rate is 27%.
Our subsidiary Globant
Brasil Consultoría Ltda. (formerly Terraforum Consultoría Ltda.), applies 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 240,000 Reais for the years 2017 and onwards.
On December 31, 2014,
Peru enacted Law No 30,296, which made several changes to the Peruvian tax regime. Among other changes, the law decreases corporate
income tax rates, effective January 1, 2015, as follows: fiscal year 2015 and 2016, 28%, fiscal year 2017 and 2018, 27%, fiscal
year 2019, 26%. The Peruvian Congress on October 6, 2016, issued Law No. 30.506, which provides the Peruvian government the power
to legislate regarding matters affecting economic growth, formal compliance, and national security for a 90-day period. Pursuant
to the power granted, the Peruvian government issued Legislative Decree No. 1261 on December 10, 2016, which increases the corporate
income tax rate, effective January 1, 2017, for fiscal year 2017 onward to 29.5%.
Our subsidiary in Mexico
is subject to corporate income tax at the rate of 30%.
Our 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. The services provided by our Pune
development center 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 center commenced the provision of services - August 2017- 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.
Our subsidiary located in Belarus is resident
of the High Technology Park (“HTP”). HTP residents are exempted from corporate tax and VAT.
Our subsidiary in Rumania
is subject to income tax at the rate of 16%.
The subsidiary located
in Canada is subject to federal income tax at the rate of 15%. The rate is increased by the state income tax rate which is 11%
in the case of the state of British Columbia where the subsidiary is incorporated.
The corporate tax
rate in France for most companies is 33.33%. The Finance Bill for 2017 contains provisions for the progressive reduction of
the corporate income tax rate from the 33.33% rate to 28% over the period 2017 to 2020. Also, there is a reduced tax rate of
15% for companies whose turnover does not exceed EUR 7,63 million, but only for the first EUR 38,120 of taxable income. In
2019 the reduced rate will be applicable to small and medium-size enterprises. To qualified as a small and medium-size
enterprise, a company must employ less than 250 employees and have an annual turnover not exceeding EUR 50 millions.
According to the Finance
Bill, our subsidiary located in France is subject to tax at a rate of 28% during 2018. The rate applies for the first EUR 500.000.
Results of Operations
The following table
sets forth a summary of our consolidated results of operations by amount and as a percentage of our revenues for the periods indicated.
This information should be read together with our audited consolidated financial statements and related notes included elsewhere
in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for
any future period.
|
|
Year
ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except percentages)
|
|
Consolidated Statements of profit or loss and
other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(1)
|
|
$
|
522,310
|
|
|
|
100.0
|
%
|
|
$
|
413,439
|
|
|
|
100.0
|
%
|
|
$
|
322,856
|
|
|
|
100.0
|
%
|
Cost of revenues
(2)
|
|
|
(318,554
|
)
|
|
|
(61.0
|
)%
|
|
|
(263,171
|
)
|
|
|
(63.7
|
)%
|
|
|
(191,395
|
)
|
|
|
(59.3
|
)%
|
Gross profit
|
|
|
203,756
|
|
|
|
39.0
|
%
|
|
|
150,268
|
|
|
|
36.3
|
%
|
|
|
131,461
|
|
|
|
40.7
|
%
|
Selling, general and
administrative expenses
(3)
|
|
|
(133,187
|
)
|
|
|
(25.5
|
)%
|
|
|
(110,813
|
)
|
|
|
(26.8
|
)%
|
|
|
(80,961
|
)
|
|
|
(25.1
|
)%
|
Net impairment losses
on financial assets
(4)
|
|
|
(3,469
|
)
|
|
|
(0.7
|
)%
|
|
|
(1,581
|
)
|
|
|
(0.4
|
)%
|
|
|
(928
|
)
|
|
|
(0.3
|
)%
|
Other
operating expense, net
(5)
|
|
|
(306
|
)
|
|
|
(0.1
|
)%
|
|
|
(4,708
|
)
|
|
|
(1.1
|
)%
|
|
|
—
|
|
|
|
—
|
%
|
Profit from operations
|
|
|
66,794
|
|
|
|
12.8
|
%
|
|
|
33,166
|
|
|
|
8.0
|
%
|
|
|
49,572
|
|
|
|
15.4
|
%
|
Finance income
|
|
|
11,418
|
|
|
|
2.2
|
%
|
|
|
7,956
|
|
|
|
1.9
|
%
|
|
|
16,215
|
|
|
|
5.0
|
%
|
Finance expense
|
|
|
(16,968
|
)
|
|
|
(3.2
|
)%
|
|
|
(11,036
|
)
|
|
|
(2.7
|
)%
|
|
|
(19,227
|
)
|
|
|
(6.0
|
)%
|
Finance
(expense) income, net
(6)
|
|
|
(5,550
|
)
|
|
|
(1.1
|
)%
|
|
|
(3,080
|
)
|
|
|
(0.7
|
)%
|
|
|
(3,012
|
)
|
|
|
(0.9
|
)%
|
Other
income and expenses, net
(7)
|
|
|
6,220
|
|
|
|
1.2
|
%
|
|
|
8,458
|
|
|
|
2.0
|
%
|
|
|
3,629
|
|
|
|
1.1
|
%
|
Profit before income tax
|
|
|
67,464
|
|
|
|
12.9
|
%
|
|
|
38,544
|
|
|
|
9.3
|
%
|
|
|
50,189
|
|
|
|
15.5
|
%
|
Income
tax
(8)
|
|
|
(15,868
|
)
|
|
|
(3.0
|
)%
|
|
|
(8,081
|
)
|
|
|
(2.0
|
)%
|
|
|
(14,327
|
)
|
|
|
(4.4
|
)%
|
Net income for the year
|
|
$
|
51,596
|
|
|
|
9.9
|
%
|
|
$
|
30,463
|
|
|
|
7.4
|
%
|
|
$
|
35,862
|
|
|
|
11.1
|
%
|
|
(1)
|
Includes transactions with related parties of $5,937, $5,590 and $6,462 for the years ended December 31,
2018, 2017 and 2016, respectively.
|
|
(2)
|
Includes depreciation and amortization expense of $4,022, $4,339 and $4,281 for the years ended
December 31, 2018, 2017 and 2016, respectively. Also includes share based compensation for $4,248, $5,666 and $917 for the
years ended December 31, 2018, 2017 and 2016, respectively.
|
|
(3)
|
Includes depreciation and amortization expense of $16,521, $11,789 and $6,637 for the years ended
December 31, 2018, 2017 and 2016, respectively. Also includes share based compensation of $8,665, $8,798 and $2,703 for the
years ended December 31, 2018, 2017 and 2016, respectively.
|
|
(4)
|
Includes a loss of $3,421, a gain of $5 and a loss of $928 on impairment of trade receivables for
the years ended December 2018, 2017 and 2016, respectively (see note 11). Includes an impairment of tax credits of $48 and $1,586
for the years ended December 31, 2018 and 2017, respectively.
|
|
(5)
|
Includes an impairment of intangibles assets of $306 and $4,708 for the years ended December 31,
2018 and 2017, respectively.
|
|
(6)
|
Includes foreign exchange loss, net, of $7,437, $2,729 and $8,620 for the years ended December 31,
2018, 2017 and 2016, respectively.
|
|
(7)
|
Includes as of December 31, 2018, 2017 and 2016 a gain of $6,700, $6,735 and $418, respectively,
on remeasurement of the contingent consideration of PointSource, Clarice, L4, WAE and Ratio, a gain of $1,611, $1,727 and $2,981,
respectively, related to the remeasurement at fair value of the call and put option over non-controlling interest in Dynaflows,
and a loss for the derecognition of the call option over non-controlling interest in Dynaflows of $455. For the year ended December
31, 2018 includes a loss of $1,038 related to the settlement agreed with WAE former owners and $800 for the impairment of the investment
in Collokia. For the year ended December 31, 2016 includes a gain of $225 related to the bargain business combination of Difier
S.A.
|
|
(8)
|
Includes deferred tax gains of $7,456, $5,972 and $730 for the years ended December 31, 2018,
2017 and 2016, respectively.
|
2018 Compared to
2017
Revenues
Revenues were $522.3
million for 2018, representing an increase of $108.9 million, or 26.3%, from $413.4 million for 2017.
Revenues from North
America increased by $81.5 million, or 25.0%, to $407.1 million for 2018 from $325.6 million for 2017. Revenues from Latin America
and other countries increased by $17.3 million, or 35.6%, to $65.9 million for 2018 from $48.6 million for 2017. Revenues from
Europe increased by $7.7 million, or 20.0%, to $46.2 million for 2018 from $38.5 million for 2017. Revenues from Asia increased
by $2.4 million, or 342.9%, to $3.1 million for 2018 from $0.7 million for 2017.
Revenues from technology
and telecommunications clients increased by $6.7 million, or 11.1%, to $67.3 million for 2018 from $60.6 million for 2017. The
increase in revenues from clients in this industry vertical was primarily attributable to higher demand in digital content, consumer
experience services and the cross-selling capabilities of our Studios. Revenues from media and entertainment clients increased
by $33.5 million, or 33.6%, to $133.1 million for 2018 from $99.6 million for 2017. The increase in revenues from clients in this
industry vertical was primarily attributable to a higher demand for our digital content solutions, mobile applications, and consumer
experience practices. Revenues from professional services clients increased by $11.6 million, or 28.5%, to $52.3 million for 2018
from $40.7 million for 2017. The increase in revenues from clients in this industry vertical was primarily attributable to higher
demand for services related to process automation, digital content and consumer experience solutions. Revenues from consumer, retail
and manufacturing clients increased by $18.1 million, or 50.3%, to $54.1 million for 2018 from $36.0 million for 2017. The increase
in revenues from clients in this industry vertical was primarily attributable to higher demand for services related to scalable
platforms solutions, consulting practices, and big data, supported by the cross-selling capabilities of our Studios. Revenues from
banks, financial services and insurance clients increased by $19.4 million, or 20.4%, to $114.4 million for 2018 from $95.0 million
for 2017. The increase in revenues from clients in this industry vertical was primarily attributable to higher demand for services
related to scalable platforms, cloud and mobile. Revenues from travel and hospitality clients increased by $20.8 million, or 30.4%,
to $89.2 million for 2018 from $68.4 million for 2017. This increase is primarily attributable to large increase in demand for
consumer experience and automated testing services. Revenues from clients in other verticals decreased by $1.2 million, or 9.2%,
to $11.9 million for 2018 from $13.1 million for 2017.
Revenues from our top
ten clients in 2018 increased by $56.3 million, or 32.5%, to $229.6 million for 2017 from $173.3 million for 2017, reflecting our
ability to increase the scope of our engagement with our main customers. Revenues from our largest client for 2018, Walt Disney
Parks and Resorts Online, increased by $16.8 million, or 40.0%, to $58.8 million for 2018 from $42.0 million for 2017.
Cost of Revenues
Cost of revenues
was $318.6 million for 2018, representing an increase of $55.4 million, or 21.0%, from $263.2 million for 2017. The increase
was primarily attributable to the net addition of 1,542 IT professionals since December 31, 2017, an increase of 24.6%,
to satisfy growing demand for our services, which translated into an increase in salaries. Cost of revenues as a percentage
of revenues decreased to 61.0% for 2018 from 63.7% for 2017. The decrease was primarily attributable to cost efficiencies,
lower salaries in terms of U.S. dollars derived from the devaluation of the Argentine peso and, to a lesser extent, of the
Colombian peso in 2018.
Salaries, employee
benefits, social security taxes and share based compensation, the main component of cost of revenues, increased by $52.7 million,
or 21.5% to $297.4 million for 2018 from $244.7 million for 2017. Salaries, employee benefits and social security taxes include
a $4.2 million share-based compensation expense in 2018 and $5.7 million share-based compensation expense in 2017.
Depreciation and amortization
expense was $4.0 million and $4.3 million for 2018 and 2017.
Travel and housing
was $6.6 million for 2018 and 2017.
Selling, General and Administrative
Expenses
Selling, general and
administrative expense was $133.2 million for 2018, representing an increase of $22.4 million, or 20.2%, from $110.8 million for
2017. The increase was primarily attributable to $5.7 million increase in salaries, employee benefits, social security taxes and
share based compensation related to the addition of a number of senior sales executives in our main market, the United States;
a $4.7 million increase in depreciation and amortization expense; and $3.3 million increase in office expenses, rental expenses
related to the opening of our new delivery centers. In addition, there was a $3.9 million increase in professional fees including
audit and other professional services. Selling, general and administrative expenses as a percentage of revenues decreased to 25.5%
for 2018 from 26.8% for 2017. Share-based compensation expense within selling, general and administrative expenses accounted for
$8.7 million, or 1.7%, as a percentage of revenues for 2018, and $8.8 million, or 2.1%, as a percentage of revenues for 2017.
Impairment on financial assets
During the year ended
December 31, 2018 and 2017, we recorded a loss for impairment of financial assets of $3.5 and $1.6. The increase was primarily
attributable to the recognition of an impairment of $3.4 resulting from substantial doubt about the recoverability of the some
trade receivables. For 2017 the loss of $1.6 was due to the recognition of an impairment of tax credits.
Other operating expenses, net
Other operating expenses
was $0.3 million for 2018. The loss was due to the recognition of an impairment of intangibles assets.
Finance Income
Finance income for
2018 was $11.4 million compared to $8.0 million for 2017, mainly resulting from foreign exchange gains of $6.9 million as compared
to $6.3 million in 2017, and gains from short-term investments, primarily related to gains from financial assets measured at fair
value through profit and loss, of $4.1 million as compared to $1.2 million in 2017.
Finance Expense
Finance expense increased
to $17.0 million for 2018 from $11.0 million for 2017, primarily reflecting a foreign exchange loss of $14.3 million mainly related
to the impact of the weakening of some Latin American currencies against the U.S. dollar on our monetary assets, denominated in
such currencies, a loss of $1.1 million primarily related to gains from financial assets measured at fair value through profit
and loss, and interest expense of $0.7 million. Other financial expenses totaled $0.9 million.
Other Income and Expenses, Net
Other income and expenses,
net decreased to a gain of $6.2 million for 2018 from a gain of $8.5 million for 2017. Our 2018 and 2017 results includes a gain
of $6.7 on the remeasurement of contingent consideration related to the acquisition of Clarice, WAE, L4 Ratio and PointSource and
WAE, a gain of $1.6 million and $1.7 million for 2018 and 2017 related to the remeasurement at fair value of the call and put option
over our non-controlling interest in Dynaflows, and a loss of $0.8 and $0.5 related to the impairment of the Collokia investment
and to derecognition of the call option of Dynaflows, respectively, for the year ended December 31, 2018.
Income Tax
Income tax expense
amounted to $15.9 million for 2018, an increase of $7.8 million from a $8.1 million income tax expense for 2017. The increase in
income tax expense was driven mainly by the increase in our profit from operations and the devaluation of the Argentine peso that
generated taxable finance gains in our Argentinian subsidiaries. Our effective tax rate (calculated as income tax gain or expense
divided by the profit before income tax) increased to 23.5% for 2018 from 21.0% for 2017, principally explained by the impact of
the weakness of some Latin American currencies against U.S. Dollars.
Net Income for the Year
As a result of the
foregoing, we had a net income of $51.6 million for 2018, compared to $30.5 million for 2017.
2017 Compared
to 2016
Revenues
Revenues were $413.4
million for 2017, representing an increase of $90.5 million, or 28.1%, from $322.9 million for 2016.
Revenues from North
America increased by $64.7 million, or 24.8%, to $325.6 million for 2017 from $260.9 million for 2016. Revenues from Latin America
and other countries increased by $17.2 million, or 54.8%, to $48.6 million for 2017 from $31.4 million for 2016. Revenues from
Europe increased by $9.2 million, or 31.4%, to $38.5 million for 2017 from $29.3 million for 2016. Revenues from Asia decreased
by $0.6 million, or 46.2%, to $0.7 million for 2017 from $1.3 million for 2016.
Revenues from technology
and telecommunications clients increased by $9.2 million, or 17.9%, to $60.6 million for 2017 from $51.4 for 2016. The increase
in revenues from clients in this industry vertical was primarily attributable to higher demand in gaming, consumer experience services
and the cross-selling capabilities of our Studios. Revenues from media and entertainment clients increased by $31.7 million, or
46.7%, to $99.6 million for 2017 from $67.9 million for 2016. The increase in revenues from clients in this industry vertical was
primarily attributable to a higher demand for our gaming solutions, mobile applications, and consumer experience practices. Revenues
from professional services clients decreased by $1.6 million, or 3.8%, to $40.7 million for 2017 from $42.3 million for 2016. The
decrease in revenues from clients in this industry vertical was primarily attributable to lower in demand for services related
to enterprise consumerization, digital content and consumer experience solutions. Revenues from consumer, retail and manufacturing
clients increased by $7.3 million, or 25.4%, to $36.0 million for 2017 from $28.7 million for 2016. The increase in revenues from
clients in this industry vertical was primarily attributable to higher demand for services related to mobile applications, testing
services, user experience and social practices, supported by the cross-selling capabilities of our Studios. Revenues from banks,
financial services and insurance clients increased by $35.2 million, or 58.9%, to $95.0 million for 2017 from $59.8 million for
2016. The increase in revenues from clients in this industry vertical was primarily attributable to higher demand for services
related to high performance, analytics, cloud and mobile. Revenues from travel and hospitality clients increased by $5.0 million,
or 7.9% to $68.4 million for 2017 from $63.4 million for 2016. This increase is primarily attributable to large increase in demand
for consumer experience and automated testing services. Revenues from clients in other verticals increased by $3.7 million, or
39.4%, to $13.1 million for 2017 from $9.4 million for 2016.
Revenues from our top
ten clients in 2017 increased by $23.1 million, or 15.4%, to $173.3 million from revenues of $150.2 million in 2016, reflecting
our ability to increase the scope of our engagement with our main customers. Revenues from our largest client for 2017, Walt Disney
Parks and Resorts Online, increased by $11.0 million, or 35.5%, to $42.0 million for 2017 from $31.0 million for 2016. Revenues
from our largest client for 2016, Southwest Airlines Co., decreased by $4.3 million, or 13.8%, to $26.9 million from $31.2 million
for 2016.
Cost of Revenues
Cost of revenues was
$263.2 million for 2017, representing an increase of $71.8 million, or 37.5%, from $191.4 million for 2016. The increase was primarily
attributable to the net addition of 1,060 IT professionals since December 31, 2016, an increase of 20.3%, to satisfy growing
demand for our services, which translated into an increase in salaries. Cost of revenues as a percentage of revenues increased
to 63.7% for 2017 from 59.3% for 2016. The increase was primarily attributable to the higher variation in exchange rate lag with
respect to actual salary increases in nominal Argentine pesos, and to an expansion of our delivery footprint in United States during
2017.
Salaries, employee
benefits, social security taxes and share based compensation, the main component of cost of revenues, increased by $67.5 million,
or 38.1% to $244.7 million for 2017 from $177.2 million for 2016. Salaries, employee benefits and social security taxes include
a $5.7 million share-based compensation expense in 2017 and $0.9 million share-based compensation expense in 2016.
Depreciation and amortization
expense included in the cost of revenues was $4.3 million for 2017 and 2016.
Travel and housing
was $6.6 million for 2017 and 2016.
Selling, General and Administrative
Expenses
Selling, general and
administrative expense was $110.8 million for 2017, representing an increase of $29.8 million, or 36.8%, from $81.0 million for
2016. The increase was primarily attributable to a $18.3 million increase in salaries, employee benefits, social security taxes
and share based compensation related to the addition of a number of senior sales executives in our main market, the United States;
a $5.2 million increase in depreciation and amortization expense; a $3.3 million increase in office and rental expenses related
to the opening of the new delivery centers. In addition, there was a $2.3 million increase in professional fees including audit
and other professional services. Selling, general and administrative expenses as a percentage of revenues increased to 26.8% for
2017 from 25.1% for 2016. Share-based compensation expense within selling, general and administrative expenses accounted for $8.8
million, or 2.1%, as a percentage of revenues for 2017, and $2.7 million, or 0.8%, as a percentage of revenues for 2016.
Impairment on financial assets
During the year ended
December 31, 2017 and 2016, we recorded a loss for impairment of financial assets of $1.6 million and $0.9 million, respectively.
In 2017 the loss was due to the recognition of an impairment of tax credits of $1.6. For 2017 the loss of $0.9 was due to the recognition
of an impairment of trade receivables.
Other operating expenses, net
Other operating expenses
was $4.7 million for 2017. The loss was due to the recognition of an impairment of intangibles assets.
Finance Income
Finance income for
2017 was $8.0 million compared to $16.2 million for 2016, resulting primarily from foreign exchange gains of $6.3 million as compared
to $6.2 million in 2016 and gains from short-term investments of $1.2 million as compared to $9.9 million in 2016.
Finance Expense
Finance expense decreased
to $11.0 million for 2017 from $19.2 million for 2016, primarily reflecting a foreign exchange loss of $9.0 million mainly related
to the impact of the weakening of some Latin American currencies against the U.S. dollar on our monetary assets denominated in
such currencies, a loss of $0.6 million arising from held-for-trading investments and interest expense of $0.9 million. Other financial
expenses totaled $0.5 million.
Other Income, Net
Other income and expenses,
net increased to a gain of $8.5 million for 2017 from a gain of $3.6 million for 2016. Our 2017 gain includes a gain of $6.7 million
on the remeasurement of contingent consideration related to the acquisition of Clarice, L4 and WAE, and a gain of $1.6 million
related to the remeasurement at the fair value of the call and put option over our non-controlling interest in Dynaflows).
Income Tax
Income tax expense
amounted to $8.1 million for 2017, a decrease of $6.2 million from a $14.3 million income tax expense for 2016. The decrease in
income tax expense was attributable to lower gain related to Argentine forward contracts and the reduced impact of the devaluation
of the Argentine peso. Our effective tax rate (calculated as income tax gain or expense divided by the profit before income tax)
decreased to 21.0% for 2017 from 28.5% for 2016, principally driven by a more balanced distribution of gains and costs across the
company as a result of improvements in our transfer pricing model.
Net Income for the Year
As a result of the
foregoing, we had a net income of $30.5 million for 2017, compared to $35.9 million for 2016.
B. Liquidity and Capital Resources
Liquidity and Capital Resources
Capital Resources
Our primary sources
of liquidity are cash flows from operating activities. For the year 2018, we derived 86.8% of our revenues from clients in North
America and Europe pursuant to contracts that are entered into by our subsidiaries located in the United States, Spain and the
United Kingdom.
Our primary cash needs
are for capital expenditures (consisting of additions to property and equipment and to intangible assets) and working capital.
From time to time we 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.
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 "Information on the Company
— Business Overview — Regulatory Overview — Argentine Taxation — Tax on Dividends" and " "Information
on the Company — Business Overview — Regulatory Overview — Argentine Taxation — Income Tax".
The following table
sets forth our historical capital expenditures for the years ended December 31, 2018, 2017 and 2016:
|
|
Year ended December 31,
|
|
|
|
2018(***)
|
|
|
2017(**)
|
|
|
2016(*)
|
|
|
|
(In thousands)
|
|
Capital expenditures
|
|
$
|
28,506
|
|
|
$
|
26,314
|
|
|
$
|
21,856
|
|
|
*
|
Excludes impact of WAE, Difier and L4 acquisitions for
the year ended December 31, 2016.
|
|
**
|
Excludes impact of Ratio and PointSource acquisitions for
the year ended December 31, 2017.
|
|
***
|
Excludes impact of Small Footprint acquisition for the year
ended December 31, 2018.
|
Investments
During 2016, we invested
$21.9 million in capital expenditures, primarily to establish our delivery centers in Mexico City, Mexico, Pune, India and Bogota,
Colombia, and invested $5.9 million in internal developments and acquired licenses.
During 2017, we
invested $26.3 million in capital expenditures, primarily to establish our delivery centers in La Plata and Tandil,
Argentina, Madrid, Spain, Bogotá and Medellín, Colombia and New York, U.S., and invested $8.8 million in
internal developments and acquired licenses.
During 2018, we invested
$28.5 million in capital expenditures, primarily to complete our works on our delivery centers in La Plata, Argentina and Medellín
and Bogotá, Colombia, and to establish our delivery centers in Mexico City, Mexico, Bangalore, India, and Seattle, U.S.,
and invested $9.6 million in internal developments and acquired licenses.
Acquisitions
On May 23, 2016 we
acquired WAE, a service design consultancy, specializing in three distinct but complementary service offerings (Research, Strategy
and Creative) for an aggregate purchase price of $19.9 million, of which $11.4 million is payable on a deferred basis and subject
to reduction upon the occurrence of certain targets.
On November 14, 2016,
we entered into a stock purchase agreement with 3C to purchase 100% of the capital stock of Difier for an aggregate purchase price
of $0.025 million.
On November 14, 2016,
we acquired 100% of shares of L4. L4 offers the digital product consulting, design, development and quality assurance services
necessary to build and manage robust digital products. The aggregate purchase price amounted to $20.4 million, of which $9.4 million
is payable on a deferred basis and subject to reduction upon the occurrence of certain targets.
On February 28, 2017,
we acquired 100% of shares of Ratio Cypress, LLC. Ratio offers design, development and quality assurance services necessary to
build and manage robust digital products and video streaming solutions for major media companies. The aggregate purchase price
amounted to $9.5 million, of which $3.7 million is payable on a deferred basis and subject to reduction upon the occurrence of
certain targets.
On June 1, 2017, we
acquired 100% of shares of PointSource. PointSource offers digital solutions to its customers which include design, digital
strategy, development and marketing services. The aggregate purchase price amounted to $28.6 million, of which $13.1 million is
payable on a deferred basis and subject to reduction upon the occurrence of certain targets..
O
n
October 15, 2018, we signed an asset purchase ("APA") agreement to acquire, the business of Small Footprint Inc., a corporation
organized and existing under the laws of North Carolina, United States, including the acquisition of its wholly owned subsidiary
in Romania, Small Footprint, LLC. Small Footprint, U.S. and Romania, are engaged in the business of providing outsourced service
of consulting, designing, developing and implementing custom software applications, digital product, websites, technologies and
strategies for the purpose of digital transformation. The aggregate purchase price under the APA amounted to $7.4 million.
As of December 31,
2018, we had cash and cash equivalents and investments of $86.2 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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
67,197
|
|
|
|
42,989
|
|
|
|
31,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(46,117
|
)
|
|
|
(57,534
|
)
|
|
|
(27,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,094
|
|
|
|
16,598
|
|
|
|
7,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(93
|
)
|
|
|
(60
|
)
|
|
|
2,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the year
|
|
|
52,525
|
|
|
|
50,532
|
|
|
|
36,720
|
|
Cash and cash equivalents at end of the year
|
|
|
77,606
|
|
|
|
52,525
|
|
|
|
50,532
|
|
Net increase in Cash and cash equivalents at end of year
|
|
|
25,081
|
|
|
|
1,993
|
|
|
|
13,812
|
|
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 $67.2 million for the year ended December 31, 2018 as compared to net cash provided in operating
activities of $43.0 million for the year ended December 31, 2017. This increase of $24.2 million in net cash provided by operating
activities was primarily attributable to a $33.6 million increase in profit before income tax expense adjusted for non-cash-items,
a $7.3 million decrease in working capital and a $2.1 million increase in income tax payments, net of reimbursements.
Changes in working
capital in the year ended December 31, 2018 consisted primarily of a $36.4 million increase in trade receivables, a $10.6
million increase in other receivables, a $2.5 million increase in trade payables, and decrease in utilization of provision for
contingencies of $1.1 million, a $0.9 million decrease in tax liabilities, and $21.9 million increase in payroll and social security
taxes payable. The $36.4 million increase in trade receivables reflects our revenue growth. The $10.6 million increase in other
receivables was mainly related to the increase in prepaid expenses and advances to suppliers. Payroll and social security taxes
payable increased to $58.5 million as of December 31, 2018 from $40.5 million as of December 31, 2017, primarily as a
result of the growth in our headcount in line with our expansion.
Net cash provided by
operating activities was $43.0 million for the year ended December 31, 2017, as compared to net cash provided by operating
activities of $31.5 million for the year ended December 31, 2016. This increase of $11.5 million in net cash provided by operating
activities was primarily attributable to a $5.7 million increase in profit before income tax expenses adjusted for non-cash items,
a $8.5 million increase in working capital and a $2.7 million increase in income tax payments, net of reimbursements.
Changes in working
capital in the year ended December 31, 2017 consisted primarily of a $25.6 million increase in trade receivables, a $1.2 million
decrease in other receivables, a $4.3 million increase in trade payables, and increase in utilization of provision for contingencies
of $0.9 million, a $0.7 million decrease in tax liabilities, and $7.6 million increase in payroll and social security taxes payable.
The $25.6 million increase in trade receivables reflects our revenue growth. The $1.2 million decrease in other receivables was
mainly related to the decrease in Software Promotion Regime credit. Payroll and social security taxes payable increased to $40.5
million as of December 31, 2017 from $30.3 million as of December 31, 2016, primarily as a result of the growth in our
headcount in line with our expansion.
Investing Activities
Net cash of $46.1 million
was used in investing activities for the year ended December 31, 2018 as compared to $57.5 million of net cash used in investing
activities during the year ended December 31, 2017. During the year ended December 31, 2018, we invested in mutual funds
and sovereign bonds, which generated an outflow of $1.0 million, we invested $28.7 million in fixed and intangible assets and $18.4
million in acquisition-related transactions, and we obtained proceeds of $2.4 million from forward contracts.
Net cash of $57.5 million
was used in investing activities for the year ended December 31, 2017, as compared to $28.0 million of net cash used in investing
activities during the year ended December 31, 2016. During the year ended December 31, 2017, we invested in mutual funds
and sovereign bonds, which generated a cash flow of $1.7 million, we invested $27.5 million in fixed and intangible assets and
$31.1 million in acquisition-related transactions, and we lost proceeds of $0.6 million from forward contracts.
Financing Activities
Net cash of $4.1 million
was provided by financing activities for the year ended December 31, 2018, as compared to $16.6 million of net cash provided
by financing activities for the year ended December 31, 2017. During the year ended December 31, 2018, we received $7.0
million for the issuance of shares under our share-based compensation plan, $3.2 million proceeds from subscription agreements
and paid borrowing for $6.0 million.
Net cash of $16.6 million
was provided by financing activities for the year ended December 31, 2017 as compared to $7.7 million of net cash provided
by financing activities for the year ended December 31, 2016. During the year ended December 31, 2017, we received $5.3
million for the issuance of shares under our share-based compensation plan, $5.7 proceeds from subscription agreement and proceeds
from borrowing for $5.8 million.
Future Capital Requirements
We believe that our
existing cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs for at
least the next 12 months. In addition, as of December 31, 2018, IAFH Global S.A. had recognized an aggregate of $3.8 million
in value-added tax credits. We expect to monetize the value of those value-added tax credits by way of cash reimbursement from
AFIP during 2019.
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.
In November 2018, Globant
LLC, our U.S. subsidiary (the “Borrower”) entered into an Amended and Restated Credit Agreement (the “A&R
Credit Agreement”) with the financial institutions listed therein, as lenders, and HSBC Bank USA, N.A., as administrative
agent, issuing bank and swingline lender. The A&R Credit Agreement amends and restates the Credit Agreement dated as of August
3, 2017, which provided for a secured revolving credit facility under which the Borrower could borrow up to $40.0 million in advances.
Under the A&R Credit Agreement, the Borrower may borrow (i) up to $50.0 million in a single borrowing on or prior to May 1,
2019 under a delayed-draw term loan facility and (ii) up to $150.0 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
$100.0 million. The maturity date of each of the facilities is October 31, 2023, and interest on the loans extended thereunder
shall accrue at a rate per annum equal to LIBOR plus 1.75%. The Borrower’s obligations under the A&R Credit Agreement
are guaranteed by us and our subsidiary, Globant España S.A., and are secured by substantially all of the Borrower’s
now owned and after-acquired assets. The A&R Credit Agreement also contains certain customary negative and affirmative covenants.
. Compliance with these covenants may limit our flexibility in operating our business and our ability to take actions that might
be advantageous to us and our shareholders.
As of December 31,
2018 and as of the date of this annual report, no amounts were outstanding under this facility.
Restrictions on Distribution of Dividends
by Certain Subsidiaries
The ability of certain
of our subsidiaries to pay dividends to us is subject to their having satisfied requirements under local law to set aside a portion
of their net income in each year to legal reserves, as described below.
In accordance with
Argentine and Uruguayan companies law, our subsidiaries incorporated in Argentina and in Uruguay must set aside at least 5% of
their net income (determined on the basis of their statutory accounts) in each year to legal reserves, until such reserves equal
20% of their respective issued share capital. As of December 31, 2018, required legal reserves at our Argentine subsidiaries
amounted to $0.8 million and had been set aside as of that date. As of that date, our Uruguayan subsidiary had set aside a legal
reserve of $0.04 million, which was fully constituted.
On December 29, 2017,
Argentine Law No. 27,430 amending the income tax law was enacted. According to the amendments, for fiscal years beginning on or
after January 1, 2018 the distribution of dividends is now subject to a 7% withholding for 2018 and 2019 and 13% withholding for
2020 onwards. The Equalization Tax, which levied distributions made out of previously untaxed income, was eliminated.
On December 23, 2013,
the Argentine government adopted a new double taxation treaty with Spain, which applied retroactively from January 1, 2013. According
this treaty, the tax applicable on dividends distributed by our Argentine Subsidiaries to the Spain Holdco, is limited to10% on
the gross amount of dividends distributed.
Brazilian law
does not require limited liability companies to allocate profits for the creation of a legal reserve. The Company’s
Brazilian subsidiary did not have a legal reserve as of December 31, 2018.
In accordance with
Colombian companies law, our Colombian subsidiary must set aside at least 10% of its net income (determined on the basis of its
statutory accounts) in each year to legal reserves, until such reserves equal 50% of its issued share capital. As of December 31,
2018, its legal reserves amounted to $0.0004 million and were fully set aside.
Colombia Law No 1,819,
published on December 29, 2016, introduced a withholding tax of 5% on dividend distributions to non-resident. This new fiscal obligation
is not applicable to our shareholder due to the tax treaty agreement between Colombia and Spain, entered in force on October 28,
2008.
In accordance with
Spanish companies law, our Spanish subsidiaries, must set aside at least 10% of its net income (determined on the basis of its
statutory accounts) in each year to legal reserves, until such reserves equal 20% of its issued share capital. As of December 31,
2018, the legal reserve amounted to $7.9 million for all Spanish subsidiaries.
In accordance with
Mexican law, our Mexican subsidiary must set aside at least 5% of its net income for each year to a legal reserve, until such reserve
equals 20% of its issued share capital. As of December 31, 2018, the legal reserve amounted to $0.07 million for our Mexican
subsidiary.
Under Luxembourg law,
at least 5% of our net profit per year must be allocated to the creation of a legal reserve until such reserve has reached an amount
equal to 10% of our issued share capital. If the legal reserve subsequently falls below the 10% threshold, at least 5% of net profit
must be allocated toward the reserve. If the legal reserve exceeds 10% of our issued share capital, the legal reserve may be reduced
in proportion so that it does not exceed 10% of our issued share capital. The legal reserve is not available for distribution.
As of December 31, 2018, the legal reserve amounted to $0.437 million. Dividends paid 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.
In accordance with
Peruvian law, our Peruvian subsidiary must set aside at least 10% of its net income for each year to a legal reserve, until such
reserve equals 20% of its issued share capital. As of December 31, 2018, no reserves had been set aside.
In accordance with
Chilean law, our Chilean subsidiary is not obliged to appropriate any fixed amount of profit to a legal reserve. As of December 31,
2018, there is no legal reserve constituted.
In accordance with
Indian law, our Indian subsidiary must set off all losses incurred by it (including carried over losses from the previous financial
year) and make a provision for depreciation (including depreciation for the previous year if it was not already provided for) against
the profits earned by it prior to declaring any dividends. Since the declaration of dividends under Indian law is discretionary,
our Indian subsidiary is not required to allocate a specific portion of its annual profits to a designated legal reserve for purposes
of declaring dividends. As of December 31, 2018, the legal reserve amounted to $0.02 million for our Indian subsidiary.
According to French
law, a minimum of 5% of our profit of the year must be allocated to a reserve account named "legal reserve", until such
reserve amounts 10% of the share capital of our French subsidiary. As of December 31, 2018, there was no legal reserve constituted.
In accordance
with the law of Belarus, our Belorussian subsidiary must allocate an amount of up to 25% of its annual payroll to a reserve
fund for salaries. The source for creating this fund is the profit remaining at the disposal of the company after paying
taxes and other obligatory payments. As of December 31, 2018, there was no legal reserve constituted.
According to the Romanian Companies
Law, our Romanian subsidiary must allocate each year at least 5% of its profit to a reserve fund, until the value of
the fund is at least 20% of the Romanian company's share capital. As of December 31, 2018, the reserve fund at our Romanian
subsidiary was of Romanian Leu ("RON") $0.056 million.
In Canada, there is
no requirement for our Canadian subsidiary to allocate profits for the creation of a legal reserve. As of December 31, 2018,
there was no legal reserve constituted.
In addition, with respect
to our Argentine subsidiaries, although the transfer of funds abroad by local companies in order to pay annual dividends to foreign
shareholders does not require formal approval by the Argentine Central Bank, in the past, the decrease in availability of U.S.
Dollars in Argentina had led the Argentine government to impose informal restrictions on local companies and individuals for purchasing
foreign currency for the purpose of making payments abroad, such as dividends. Even when the current Argentine administration has
lifted most of the foreign exchange restrictions providing greater flexibility and access to the foreign exchange market, the imposition
of future exchange restrictions could impair or prevent the conversion of anticipated dividends or distributions payable to us
by those subsidiaries from Argentine pesos into U.S. dollars. For further information on these exchange controls, see "Risk
Factors — Risks Related to Operating in Latin America — Argentina — The imposition
in the future of restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability
to receive dividends and distributions from, and the proceeds of any sale of, our assets in Argentina." and "Information
on the Company — Business Overview — Regulatory Overview — Foreign Exchange Controls."
Equity Compensation Arrangements
On July 3, 2014, our
board of directors and shareholders approved and adopted the 2014 Equity Incentive Plan, which was amended by our board of directors
to increase the number of common shares that may be issued as stock awards from 1,666,667 to 3,666,667 on May 9, 2016, and from
3,666,667 to 5,666,667 on February 13, 2019.
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 2,277,434 common shares and 770,849 restricted
stock units. Most of the options and the restricted stock units under the plan were granted with a vesting period of four years,
25% of the options becoming exercisable on 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 at the grant date. Each of our employee share options is exercisable
for one of our common shares, and each of our restricted stock units will be settled, automatically upon its vesting, with one
of our common shares. No amounts are paid or payable by the recipient on receipt of an option or a restricted stock units. Neither
the options nor the restricted stock units 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).
Share-based compensation
expense for awards of equity instruments to employees is determined based on the grant-date fair value of the awards. Fair value
is calculated using the Black-Scholes option pricing model.
There were 2,658,595
outstanding stock options as of December 31, 2016, 2,320,710 outstanding stock options and restricted stock units as of December 31,
2017 and 2,322,305 outstanding stock options and restricted stock units as of December 31, 2018. For 2018, 2017 and 2016,
we recorded $12.9 million, $14.5 million and $3.6 million of share-based compensation expense related to these share option and
restricted stock unit agreements, respectively.
Critical Accounting Policies and Estimates
We prepare our consolidated
financial statements in accordance with IFRS, which require us to make judgments, estimates and assumptions about (i) the reported
amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the end of each reporting period and
(iii) the reported amounts of revenues and expenses during each reporting period. We evaluate these estimates and assumptions based
on historical experience, knowledge and assessment of current business and other conditions, and expectations regarding the future
based on available information and reasonable assumptions, which together form a basis for making judgments about matters not readily
apparent from other sources.
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. Since the use of estimates is an integral component of the financial reporting process, actual results
could differ from those estimates.
Some of our accounting
policies require higher degrees of judgment than others in their application. When reviewing our consolidated financial statements,
you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the
application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We consider
the policies discussed below to be critical to an understanding of our consolidated financial statements as their application places
significant demands on the judgment of our management.
An accounting policy
is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly
uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the
accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements.
We believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions
used in the preparation of our consolidated financial statements. You should read the following descriptions of critical accounting
policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this
annual report.
Revenue Recognition
In accounting for fixed-price
contracts we apply the input or output methods depending on the nature of the project and the agreement with the customer, recognizing
revenue on the basis of our 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.
This method is followed
where reasonably dependable estimates of revenues and costs can be made. Fixed-price contracts generally correspond for services
over a period of 12 months or less. Some fixed-price contracts are recurring contracts that establish a fixed amount per month
and do not require 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 income and other comprehensive income. Contract losses for the periods
presented in these consolidated financial statements were immaterial.
Goodwill impairment analysis
Goodwill is measured
as the excess of the cost of an acquisition over the sum of the amounts assigned to tangible and intangible assets acquired less
liabilities assumed. The determination of the fair value of tangible and intangible assets involves certain judgments and estimates.
These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the
appropriate weighted average cost of capital.
We evaluate goodwill
for impairment at least annually, or more frequently when there is an indication that the unit may be impaired. When determining
the fair value of our cash generating unit, we utilize the income approach using discounted cash flow. The income approach considers
various assumptions including increase in headcount, headcount utilization rate, income from each country and revenue per employee,
income tax rates and discount rates. The assumptions we considered as of December 31, 2018 are the following: projected cash flows
for the following five years, the average growth rate considered was 20.0% and the rate used to discount cash flows was 16.94%.
The long-term rate used to extrapolate cash flows beyond the projected period was 3%.
Any adverse changes
in key assumptions about the businesses and its prospects or an adverse change in market conditions may cause a change in the estimation
of fair value and could result in an impairment charge. Based upon our evaluation of goodwill, no impairments were recognized during
2018, 2017 and 2016.
Income Taxes
Determining the consolidated
provision for income tax expense, deferred income tax assets and liabilities, requires significant judgment. The provision for
income taxes includes federal, state, local and foreign taxes. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences in each of the jurisdictions where we operate 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 our management. In evaluating our ability to utilize deferred
tax assets, we consider 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. Our 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 our estimates and assumptions could require that we reduce the carrying amount of its net deferred tax assets.
Impairment
of financial assets
We measure expected
credit losses ("ECLs") 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,
2018, 2017 and 2016, we recorded an impairment of trade receivables for an amount of $3.4 million, a recovery of $0.005 million
and an impairment of $0.9 million, respectively, using a provision matrix based on our 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,
2018 and 2017, we recorded an impairment of tax credits for an amount of $0.048 million and $1.6 million, respectively, based on
assumptions about expected credit losses. We use judgment in making these assumptions based on existing regulatory conditions as
well as forward looking estimates. The tax credits included in the allowance for impairment are mainly related to Argentine taxation.
We 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 us, through a special VAT recovery
regime. However, according to VAT recovery rules, there are certain limitations on the amount that may be reimbursed and we considered
any VAT credit that cannot be reimbursed to be an impairment.
Share-based compensation plan
Under our share-based
compensation plan for employees is measured based on fair value of our shares at the grant date and recognized as compensation
expense on a straight-line basis over the vesting period, based on our estimate of equity instruments that will potentially vest,
with a corresponding impact reflected in additional paid-in capital.
Determining the fair
value of the share-based awards at the grant date requires judgments. We 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 our shares, expected volatility, expected term, risk-free interest rate and dividend yield.
Fair value of the
shares
: For our 2014 Equity Incentive Plan, the fair value of the shares is based on the quoted market price of our shares
at the grant date. For 2012 Equity Incentive Plan, as our shares were not publicly traded the fair value was determined using the
market approach technique based on the value per share of private placements. We had gone in the past through a series of private
placements in which new shares have been issued. We understood that the price paid for those new shares was a fair value of those
shares at the time of the placement. In January 2012, Globant España S.A. had a capital contribution from a new shareholder,
which included cash plus share options granted to the new shareholder, therefore, we considered that amount to reflect the fair
value of their shares. The fair value of the shares related to this private placement resulted from the following formula: cash
minus fair value of share options granted to new shareholder divided by number of newly issued shares. The fair value of the share
options granted to the new shareholder was determined using the same variables and methodologies as the share options granted to
the employees. After our reorganization in December 2012, shares of Globant S.A (Luxembourg) were sold by existing shareholders
in a private placement to WPP. The fair value of the shares related to this private placement results from the total amount paid
by WPP to the existing shareholders.
Expected volatility:
Since January 1, 2018, the expected volatility of our shares is calculated by using the average share price volatility of our shares
since January 1, 2016 to the date of grant. Before 2018, as we did not have sufficient trading history for the purpose of valuing
our share options, the expected volatility of our shares was estimated by using the average historic price volatility of the NASDAQ
100 Telecommunication Index.
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:
We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently,
we used an expected dividend yield of zero.
Call option over non-controlling
interest
As of December 31,
2017, we held a call option to acquire 33.27% of the remaining interest in Dynaflows S.A., which could be exercised from October
22, 2020 until October 21, 2021. We calculated the fair value of this option using the Black-Scholes option model. The Black-Scholes
model requires the input of highly subjective assumptions, including the expected volatility, maturity, risk-free interest rate,
value of the underlying asset and dividend yield.
Expected volatility
:
We have considered annualized volatility as multiples of EBITDA and revenue of publicly traded companies in the technology business
in the U.S., Europe and Asia since 2008.
Maturity
: The
combination between the call and put options (explained in note 24.3 to the Consolidated Financial Statements included in this
annual report) implied that, assuming no liquidity restrictions at the moment that the option was exercisable and considering that
both parties wanted to maximize their benefits, we would acquire the minority shareholders shares at the date that this option
was exercisable. Therefore, we have assumed that the maturity date of call option is October 22, 2020.
Risk free rate
:
The risk-free rate for periods within the contractual life of the option was based on the Argentinean bonds ("BONAR")
with a quote in the U.S. market with maturities similar to the expected term of the option.
Value of the underlying
assets
: We considered a multiple of EBITDA and revenue resulting from the implied multiple in Dynaflows adjusted by the lack
of control.
Dividend yield:
We did not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of
zero.
As of December 31,
2018, we derecognized the call option (see note 24.3 to the Consolidated Financial Statements included in this annual report).
Recoverability of internally generated
intangible assets
During the year, we
considered the recoverability of the internally generated intangible asset that is included in our consolidated financial statements
as of December 31, 2018 and 2017 with a carrying amount of $7,855 and $6,395, respectively.
We conducted a detailed
recoverability analysis, considering both revenue from customers in the case of assets sold to third parties and internal usage
for those assets that are used internally. As a result of this analysis, we recognized an impairment of $308 as of December 31,
2018. In 2017 and 2016, no impairment losses were recorded.
Fair value measurement and valuation
processes
Certain assets and
liabilities are measured at fair value for financial reporting purposes.
In estimating the fair
value of an asset or a liability, we use market-observable data to the extent it is available. Where Level 1 inputs are not available,
we estimate 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. If necessary we engage third party valuation specialists to perform the valuation. Information
about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in
note 28.8 to the Consolidated Financial Statements included in this annual report.
Useful lives of property, equipment
and intangible assets
We review the estimated
useful lives of property, equipment and intangible assets at the end of each reporting period. We determined that the useful lives
of the assets included as property, equipment and intangible assets are in accordance with their expected lives.
Provision for contingencies
Provisions are recognized
when we have a present obligation (legal or constructive) as a result of a past event, it is probable that we 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 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.
Recoverability of intangible assets
acquired in business combinations, other than goodwill
We evaluate intangible
assets acquired in business combinations for impairment at least annually or more frequently when there is an indication that the
asset may be impaired. 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). The recoverable amount is the higher of fair value less costs of disposal and value in
use. The determination of the fair value of intangible assets acquired in business combinations involves certain judgments and
estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future
and the appropriate weighted average cost of capital. When determining the fair value, we utilize the income approach using discounted
cash flow.
A total amount of $4.7
million of impairment loss related to the intangible assets acquired in business combinations was recognized as of December 31,
2017 and is included as other operating expenses. The impairment was recognized as a result of our evaluation of such intangible
assets, upon which we projected lower future cash flows from the related customer relationships. In 2018 and 2016 no impairment
losses were recorded.
Application of New and Revised International Financial Reporting
Standards
|
•
|
Adoption of new and revised standards
|
We adopted all of the
new and revised standards and interpretations issued by the IASB that are relevant to our operations and that are mandatorily effective
at December 31, 2018. The impact of the new and revised standards and interpretations mentioned on our consolidated financial
statements is described as follows.
We initially adopted
IFRS 9
Financial Instruments
and IFRS 15
Revenue from Contracts with Customers
from January 1, 2018. The impact of
the adoption of other standards and interpretations issued by the IASB that are mandatorily effective at December 31, 2018
is not material and consequently is not described.
IFRS 9
Financial Instruments
IFRS 9 sets out requirements
for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This
standard replaces IAS 39
Financial instruments: Recognition and Measurement
. IFRS 9 largely retains the existing requirements
in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories
for financial assets of held to maturity, loans and receivables and available for sale. The adoption of IFRS 9 has not had a significant
effect on the our accounting policies related to financial liabilities. The impact of IFRS 9 on the classification and measurement
of financial assets is set out below.
Under IFRS 9, on initial
recognition, a financial asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive Income ("FVOCI");
or Fair Value through Profit or Loss ("FVTPL"). The classification of financial assets under IFRS 9 is generally based
on the business model in which a financial asset is managed and its contractual cash flow characteristics.
A financial asset is
measured at amortized cost if both of the following conditions are met and is not designated as at FVTPL:
1) it is held within
a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
2) its contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A financial asset is
measured at FVOCI if both of the following conditions are met and is not designated as at FVTPL:
1) it is held within
a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
2) its contractual
terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All financial assets
not classified as measured at amortized cost or FVOCI as described above, are measured at FVTPL.
The following table
explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of our
financial asset as at January 1, 2018.
|
Original classification
under IAS 39
|
|
New classification
under IFRS 9
|
Cash and cash equivalents
|
Loans and receivables
|
|
Amortised cost
|
Trade receivables
|
Loans and receivables
|
|
Amortised cost
|
Other receivables
|
Loans and receivables
|
|
Amortised cost
|
Investments
|
|
|
|
Mutual funds
|
Held for trading
|
|
FVTPL
|
LEBACs
(1)
|
Available for sale
|
|
FVOCI
|
Other financial assets
|
|
|
|
Foreign exchange forwards and future contracts
|
Held for trading
|
|
FVTPL
|
Financial assets related to business combinations
|
FVTPL
|
|
FVTPL
|
Convertible notes
|
Loans and receivables
|
|
Amortised cost
|
Call option on minority interest
|
FVTPL
|
|
FVTPL
|
|
(1)
|
LEBACs were initially classified as held-to-maturity investments (HTM). Under IAS 39, HTM were
measured at amortised cost using the effective interest method, less any impairment. However, during December, 2015, we sold some
of those LEBACs and consequently, changed the classification of the remaining LEBACs to Available-for-sale investments, since it
was not permitted to classify investments as held-to-maturity in accordance with IAS 39. Changes in the carrying amount of AFS
financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method
were recognized in profit or loss. Other changes in the carrying amount of AFS financial assets were recognized in other comprehensive
income. Consequently, under IFRS 9 LEBACs continue to be measured on the same basis than it was under IAS 39.
|
All financial assets
and financial liabilities continue to be measured on the same basis as is previously adopted under IAS 39.
Additionally, IFRS
9 replaces the 'incurred loss' model in IAS 39, with an 'expected credit loss' model. The new impairment model applies to financial
assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments.
Under IFRS 9, credit losses are recognized earlier than under IAS 39. Our financial assets that are subject to IFRS 9's new expected
credit loss model are: cash and cash equivalents, trade receivables, other receivables, convertible notes and other financial assets
related to business combinations. However, the change in the impairment methodology under IFRS 9 did not have a material impact
on our consolidated financial statements. Impairment losses related to trade and other receivables are presented separately in
the statement of profit or loss. As a result, as of December 31, 2017 and 2016, we reclassified an impairment gain that amounted
to $0.005 million and a loss of $0.9 million, respectively, recognized under IAS 39, from Selling, general and administrative expenses
and an impairment loss of $1.6 million as of December 31, 2017 from Impairment of tax credits, to Net impairment (losses)
gain on financial assets in the statement of profit or loss and other comprehensive income.
IFRS 15
Revenue from Contracts with
Customers
IFRS 15 establishes
a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18
Revenue,
IAS
11
Construction Contracts
and related interpretations. We adopted IFRS 15 using the cumulative effect method (without practical
expedients) with the effect of initially applying this standard recognized at the date of initial application, however, as per
the management of our assessment, no effect had to be recognized at January 1, 2018. The details of the new significant accounting
policies and the nature of the changes to previous accounting policies in relation to our services are set out below.
Under IFRS 15, an entity
recognizes revenue when or as performance obligation is satisfied, i.e. when control of the goods or services underlying the particular
performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific
scenarios. Furthermore, extensive disclosures are required by IFRS 15.
Our services are mainly
performed under both time-and-material and fixed-price contracts. For revenues generated under time-and-material contracts, revenues
are recognized as services are performed with the corresponding cost of providing those services reflected as cost of revenues
when incurred. The majority of such revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly
to the client. Our performance obligations are the hours performed. We assessed that these performance obligations are satisfied
over time and that the method currently used to measure the progress towards complete satisfaction of these performance obligations
continue to be appropriate under IFRS 15.
We recognize revenues
from fixed-price contracts in the accounting periods in which services are rendered. We assessed that these performance obligations
are satisfied over time, 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 our 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. Accordingly, the methods used to measure the
progress towards complete satisfaction of these performance obligations are appropriate under IFRS 15.
|
•
|
New accounting pronouncements
|
We have not applied
the following new and revised IFRSs that have been issued but are not yet mandatorily effective:
IFRS 16
|
Leases
1
|
IFRIC 23
|
Uncertainty over Income Tax Treatments
3
|
Amendments to IFRS 10 and IAS 28
|
Sale or Contribution of Assets between an Investor and its
|
|
Associate or Joint Venture
2
|
Amendment to IAS 28
|
Long-term Interests in Associates and Joint Ventures
3
|
Amendment to IFRS 9
|
Prepayment Features with Negative Compensation
3
|
Amendments to IFRS 3 and 11 and IAS 12 and 23
|
Annual improvements 2015-2017 Cycle
4
|
Amendments to IAS 19
|
Plan Amendment, Curtailment or Settlement
3
|
Amendments to References to the Conceptual Framework in IFRS Standards
4
|
Amendment to IFRS 3
|
Definition of a business
5
|
Amendment to IAS 1 and IAS 8
|
Definition of material
6
|
1
Effective for annual periods beginning
on or after January 1, 2019. Early adoption is permitted if IFRS 15 has also been applied.
2
Effective date deferred indefinitely.
3
Effective for annual periods beginning
on or after January 1, 2019. Early adoption is permitted.
4
Effective for annual periods beginning
on or after January 1, 2019.
5
Effective for business combinations
for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January
1, 2020 and to asset acquisitions that occur on or after the beginning of that period. Earlier application is permitted.
6
Effective for annual reporting periods
beginning on or after January 1, 2020. Earlier application is permitted.
|
•
|
On January 13, 2016, the IASB issued the IFRS 16 which specifies how an IFRS reporter will recognize,
measure, present and disclose leases. The standard provides a single lessee accounting model, with the distinction between operating
and finance leases removed, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months
or less or the underlying asset has a low value to be accounted for by simply recognizing an expense, typically straight line,
over the lease term. Lessors continue to classify leases as operating or finance, with IFRS 16's approach to lessor accounting
substantially unchanged from its predecessor, IAS 17. IFRS 16 supersedes IAS 17 and related interpretations. Furthermore, extensive
disclosures are required by IFRS 16. As of December 31, 2018, we have non–cancellable operating lease commitments of $55.2
million for office space and office equipment. IAS 17 does not require the recognition of any right-of-use or liability for future
payments for these leases; instead, certain information is disclosed as operating lease commitment in note 27 to our consolidated
financial statements. If these arrangements meet the definition of a lease under IFRS 16, we will recognize a right–of–use
asset and a liability in respect of them unless they qualify of a low value or short–term leases upon the application of
IFRS 16. In contrast, for finance leases where we are a lessee, we recognize an asset and a related finance lease liability for
the lease arrangement. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier application
being permitted if IFRS 15 has also been applied. We have not opted for early application.
|
The most significant impact is
that we recognize new assets and liabilities for its operating leases of offices and delivery and development centers.
We applied the practical expedient
to grandfather the definition of a lease on transition. This means that it applied IFRS 16 to all contracts entered into before
January 1, 2019 and identified as leases under IAS 17 and IFRIC 4.
The lessee applies the election
consistently to all of its leases.
We applied IFRS 16
initially on January 1, 2019. We have elected the practical expedient to not restate comparative information, and recognized
the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings at January
1, 2019. Based on a preliminary assessment, we expects to recognize a right-of-use asset of $46.9 million, the corresponding
liability of $48.5 million and an adjustment to retained earnings of $1.7 million as of January 1, 2019, related to lease
arrangements other than short-term leases and leases of low-value assets.
|
•
|
On June 7, 2017, the IASB published IFRIC 23 "Uncertainty
over Income Tax Treatments", which was developed by the IFRS Interpretations Committee to clarify the accounting for uncertainties
in income taxes. The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The interpretation
specifically considers:
|
|
◦
|
Whether tax treatments should be considered collectively.
|
|
◦
|
Assumptions for taxation authorities' examinations.
|
|
◦
|
The determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
|
|
◦
|
The effect of changes in facts and circumstances.
|
The interpretation is effective
for annual periods beginning on or after January 1, 2019. Early adoption is permitted. We have not opted for early application.
The application of this interpretation did not have a material impact on our Financial Statements.
|
•
|
On September 11, 2014, the IASB issued amendments to IFRS
10 and IAS 28. These amendments clarify the treatment of the sale or contribution of assets from an investor to its associate
or joint venture, as follows:
|
|
◦
|
require full recognition in the investor's financial
statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3
Business Combinations);
|
|
◦
|
require the partial recognition of gains and losses
where the assets do not constitute a business, i.e. a gain or loss is recognized only to the extent of the unrelated investors'
interests in that associate or joint venture.
|
These requirements apply regardless
of the legal form of the transaction, e.g. whether the sale or contribution of assets occurs by an investor transferring shares
in any subsidiary that holds the assets (resulting in loss of control of the subsidiary), or by the direct sale of the assets themselves.
On December 17, 2015 the IASB issued an amendment that defers the effective date of the September 2014 amendments to these
standards indefinitely until the research project on the equity method has been concluded. Earlier application of the September
2014 amendments continues to be permitted.
|
•
|
On October 12, 2017 the IASB published the amendment to
IAS 28 "Long-term Interests in Associates and Joint Ventures". This amendment clarifies that an entity applies IFRS
9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment
in the associate or joint venture but to which the equity method is not applied.
|
The amendments are to be applied
retrospectively but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after
they first apply IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4
Insurance Contracts, to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible
without the use of hind sight.
The amendments are effective for
periods beginning on or after 1 January 2019. Earlier application is permitted. We have not opted for early application. The application
of this amendment did not have a material impact on our Financial Statements.
|
•
|
On October 12, 2017 the IASB published the amendment to
IFRS 9 "Prepayment Features with Negative Compensation". This amendment modifies the existing requirements in IFRS 9
regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value
through other comprehensive income) even in the case of negative compensation payments. Under the amendments, the sign of the
prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also
be made in favor of the contracting party effecting the early repayment. The calculation of this compensation payment must be
the same for both the case of an early repayment penalty and the case of an early repayment gain.
|
The final amendments also contain
(in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability
measured at amortised cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity
recognizes any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or
loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary
if in the past the effective interest rate was adjusted and not the amortised cost amount.
The amendments are
effective for periods beginning on or after January 1, 2019. Earlier application is permitted. We have not opted for early
application. The application of this amendment did not have a material impact on our Financial Statements.
|
•
|
On December 12, 2017, the IASB issued amendments to the
following standards as result of the IASB's annual improvements 2015-2017 project:
|
|
◦
|
IFRS 3 (Business combinations): clarifies that when
an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business.
|
|
◦
|
IFRS 11 (Joint arrangements): clarifies that when an entity obtains joint control of a business
that is a joint operation, the entity does not remeasure previously held interests in that business.
|
|
◦
|
IAS 12 (Income tax): clarifies that all income tax consequences of dividends (i.e. distribution
of profits) should be recognized in profit or loss, regardless of how the tax arises.
|
|
◦
|
IAS 23 (Borrowing costs): clarifies that if any specific borrowing remains outstanding after the
related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when
calculating the capitalization rate on general borrowings.
|
Our management
does not anticipate that the application of these amendments will have a material impact on the consolidated financial statements.
The amendments are all effective for annual periods beginning on or after January 1, 2019.
|
•
|
On February 7, 2018, the IASB published the following amendments
to IAS 19 "Plan Amendment, Curtailment or Settlement":
|
|
◦
|
If a plan amendment, curtailment or settlement occurs,
it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using
the assumptions used for the remeasurement.
|
|
◦
|
In addition, amendments have been included to clarify the effect of a plan amendment, curtailment
or settlement on the requirements regarding the asset ceiling.
|
The amendments are effective for
periods beginning on or after January 1, 2019. We have not opted for earlier application. The application of this amendment did
not have a material impact on our Financial Statements
|
•
|
On March 29, 2018, the IASB issued the Amendments to References
to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS
8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however update those pronouncements
with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements
are only updated to indicate which version of the framework they are referencing to (the IASC framework adopted by the IASB in
2001, the IASB framework of 2010, or the new revised framework of 2018) or to indicate that definitions in the standard have not
been updated with the new definitions developed in the revised Conceptual Framework. Our management does not anticipate that
the application of these amendments will have a material impact on our consolidated financial statements. The amendments are effective
for annual periods beginning on or after January 1, 2020.
|
|
•
|
On October 22, 2018, the IASB has issued 'Definition of
a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has acquired
a business or a group of assets.
|
The amendments in Definition
of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative
examples of IFRS 3 only. They:
|
◦
|
clarify that to be considered a business, an acquired set of activities and assets must include,
at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs;
|
|
◦
|
narrow the definitions of a business and of outputs by focusing on goods and services provided
to customers and by removing the reference to an ability to reduce costs;
|
|
◦
|
add guidance and illustrative examples to help entities assess whether a substantive process has been acquired;
|
|
◦
|
remove the assessment of whether market participants are capable of replacing any missing inputs
or processes and continuing to produce outputs;
|
|
◦
|
and add an optional concentration test that permits a simplified assessment of whether an
acquired set of activities and assets is not a business.
|
Our management does not anticipate
that the application of this amendment will have a material impact on our consolidated financial statements. This amendment is
effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period
beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period. Earlier application
is permitted. We have not opted for early application.
|
•
|
On October 31, 2018, the IASB has issued 'Definition of
Material (Amendments to IAS 1 and IAS 8)' to clarify the definition of ‘material’ and to align the definition used
in the Conceptual Framework and the standards themselves.
|
The changes in Definition
of Material (Amendments to IAS 1 and IAS 8) all relate to a revised definition of 'material' which is quoted as follows from
the final amendments: "Information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which
provide financial information about a specific reporting entity". Three new aspects of the new definition should especially
be noted:
|
◦
|
Obscuring. The existing definition only focused on
omitting or misstating information, however, the Board concluded that obscuring material information with information that can
be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS
1.30A).
|
|
◦
|
Could reasonably be expected to influence. The existing definition referred to 'could influence'
which the Board felt might be understood as requiring too much information as almost anything ‘could’ influence the
decisions of some users even if the possibility is remote.
|
|
◦
|
Primary users. The existing definition referred only to 'users' which again the Board feared
might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information
to disclose.
|
Our management does not anticipate
that the application of these amendments will have a material impact on our consolidated financial statements. These amendments
are effective for annual reporting periods beginning on or after January 1, 2020. Earlier application is permitted. We have not
opted for early application.
C. Research and Development, Patents and Licenses, etc.
See “Business
Overview — Intellectual Property.”
D. Trend Information
See "— Operating
Results — Factors Affecting Our Results of Operations."
E. Off-Balance Sheet Arrangements
As of and for the three
years ended December 31, 2018, we were not party to any off-balance sheet arrangements.
F. Tabular Disclosure of Contractual Obligations
Set forth below is
information concerning our fixed and determinable contractual obligations as of December 31, 2018 and the effect such obligations
are expected to have on our liquidity and cash flows.
|
|
Payments due by period (in thousands)
|
|
|
|
Total
|
|
|
Less than 1
year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
Operating lease obligations
|
|
$
|
55,222
|
|
|
$
|
16,051
|
|
|
$
|
22,453
|
|
|
$
|
6,500
|
|
|
$
|
10,218
|
|
Other financial liabilities
(1)
|
|
|
12,765
|
|
|
|
9,347
|
|
|
|
3,418
|
|
|
|
—
|
|
|
|
—
|
|
Purchase Obligations
(2)
|
|
|
4,386
|
|
|
|
4,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
72,373
|
|
|
$
|
29,784
|
|
|
$
|
25,871
|
|
|
$
|
6,500
|
|
|
$
|
10,218
|
|
|
(1)
|
Relates to Clarice, Ratio, PointSource and Small Footprint
acquisitions. See note 24 to our audited consolidated financial statements.
|
|
(2)
|
Relates to Purchase Agreement with IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”). See note 21 to our
consolidated financial statements.
|
G. Safe harbor
This annual report
contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act and as defined in the Private Securities Litigation Reform Act of 1995. See “Cautionary Statements Regarding Forward-Looking
Statements.”
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Directors
The table below sets
forth information concerning our directors as of March 15, 2019.
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
|
|
51
|
|
June 20, 2018
|
|
2021
|
Martín Gonzalo Umaran
|
|
Director and Chief of Staff
|
|
50
|
|
May 8, 2017
|
|
2020
|
Guibert Andrés Englebienne
|
|
Director and Chief Technology Officer
|
|
52
|
|
May 8, 2017
|
|
2020
|
Francisco Álvarez-Demalde
|
|
Director
|
|
40
|
|
May 4, 2015
|
|
2019
|
Mario Eduardo Vázquez
|
|
Director
|
|
83
|
|
May 6, 2016
|
|
2019
|
Philip A. Odeen
|
|
Director
|
|
83
|
|
June 20, 2018
|
|
2021
|
Marcos Galperin
|
|
Director
|
|
47
|
|
May 6, 2016
|
|
2019
|
Linda Rottenberg
|
|
Director
|
|
50
|
|
May 8, 2017
|
|
2020
|
Richard Haythornthwaite (*)
|
|
Director
|
|
62
|
|
Feb 13, 2019
|
|
2019
|
(*) Mr. Haythornthwaite
was appointed by the board of directors to fill the vacancy on the board of directors created by David J. Moore’s resignation
on July 24, 2018. Mr. Haythornthwaite will stand for election by the shareholders at the next annual meeting of the company.
Directors may be re-elected
for one or more further four-year terms. 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. Prior to co-founding Globant, he worked as a trainee
and technology project coordinator at Repsol-YPF, a consultant at Origin BV Holland and a business development director at Tallion.
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. 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
. 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 as well as Chief of Staff since 2013. As Globant’s Chief of Staff, Mr. Umaran
is responsible for coordinating our back office activities, supporting executives in daily projects and acting as a liaison to
our senior management. He is also responsible for our mergers and acquisitions process and for strategic initiatives. From 2005
to 2012, he served as Globant’s Chief Operations Officer and Chief Corporate Business Officer, in charge of managing our
delivery teams and projects. 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). 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 and as Chief Technology Officer since 2003. 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, Mr. Englebienne is the head of our Technology department and our Premier League,
an elite team of Globers whose mission is to foster innovation by cross-pollinating their deep knowledge of emerging technologies
and related market trends across our Studios and among our Globers. 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 a co-founder of our company.
Francisco Álvarez-Demalde
Mr. Álvarez-Demalde
has been a member of the board since 2007. He is a founder and general 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. From 2005 to 2007, he
was an investment executive at Kohlberg Kravis Roberts & Co., where he focused on leveraged buyouts in the technology industry
and other sectors. Mr. Álvarez-Demalde was also an investment professional at Eton Park Capital Management and with Goldman
Sachs & Co. Mr. Álvarez-Demalde is a former and current director of several technology companies, including Alog Data
Centers do Brasil, CloudBlue Technologies, Inc., LAVCA, Navent, Netshoes, among several others. Mr. Álvarez-Demalde earned
a bachelor’s degree in economics from
Universidad de San Andrés
, Argentina, which included an exchange program
at the Wharton School at the University of Pennsylvania. 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.
Mario Eduardo Vázquez
Mr. Vázquez
has served as a member of our board of directors and chairman of Globant’s audit committee since June 2012. From 2003 to
2006, he served as the Chief Executive Officer of
Grupo Telefónica
in Argentina. Mr. Vázquez worked in auditing
for Arthur Andersen for 33 years until his retirement in 1993, including 23 years as a partner and general director in many of
Globant’s markets, including Argentina, Chile, Uruguay, and Paraguay. As former partner and general director of Arthur Andersen,
Mr. Vázquez has significant experience with U.S. GAAP accounting and in assessing internal control over financial reporting.
Mr. Vázquez currently serves on the board of directors of MercadoLibre, Inc and is currently a member of the Audit Committee
of both MercadoLibre, Inc and Despegar S.A. Also, Mr. Vazquez currently serves as member of the compensation committee of MercadoLibre,
Inc where Mr. Galperin serves as chief executive officer. Mr. Vázquez served as a member of the board of directors of YPF,
S.A. and as the president of the Audit Committee of YPF, S.A, until April 2012. He has also served as a member of the board of
directors of Telefónica Argentina S.A., Telefónica Holding Argentina S.A., Telefónica Spain S.A., Banco Santander
Rio S.A., Banco Supervielle Societe General S.A., and CMF Banco S.A., and as alternate member of the board of directors of Telefónica
de Chile S.A. Mr. Vázquez received a degree in public accounting from the
Universidad de Buenos Aires
. We believe
that Mr. Vázquez is qualified to serve on our board of directors due to his financial expertise and his experience serving
as a director of other companies.
Philip A. Odeen
Mr. Odeen has served
as a member of our board of directors since 2012. Mr. Odeen has also served as a director and proxy director of DRS Technologies,
Inc. since 2013. 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 has served
as a director of QinetiQ North America, Inc. since 2006, Booz Allen Hamilton, Inc. since 2008 and ASC Signal Corporation since
2009. From 2006 to 2007, Mr. Odeen served as chairman of the board of directors of Avaya Corporation. 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 2003 to 2008. Mr. Odeen retired as chairman and chief executive officer of TRW Inc. in December 2002. We
believe that Mr. Odeen is qualified to serve on our board 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 and charitable organizational experience.
Marcos Galperin
Mr. Galperin has served
as a member of our board of directors since July 2014. He is a co-founder of MercadoLibre, Inc. and has served as its chairman,
president and chief executive officer since October 1999. Mr. Galperin is a board member of Endeavor Global, Inc., a non-profit
organization that is leading the global movement to catalyze long term economic growth by selecting, mentoring and accelerating
the best high impact entrepreneurs around the world. He is also a board member of the Stanford Graduate School of Business. Mr.
Galperin received a master’s degree in business administration from Stanford University and graduated with honors from the
Wharton School of the University of Pennsylvania. We believe that Mr. Galperin is qualified to serve on our board of directors
due to his comprehensive knowledge and experience in the technology industry and experience serving as a director of other companies.
Linda Rottenberg
Ms. Rottenberg has
served as a member of our board of directors since 2017. She is the Co-Founder and Chief Executive Officer of Endeavor, a leader
of the global high impact entrepreneurship movement, operating in 34 markets around the world. She also oversees Endeavor Catalyst
Funds, which currently has over $115 million of assets under management, and coinvest in Endeavor Entrepreneurs to raise outside
capital. Ms. Rottenberg serves as board director of a leading bandwidth infrastructure company (NYSE: ZAYO), and an online ordering
platform (OLO). In her board capacity, she has served on two public company audit committees through SOX compliance and has helped
companies achieve global expansion while maintaining an entrepreneurial culture. A graduate of Harvard College, and Yale Law School,
Ms. Rottenberg has been named among TIME’s “Innovators for the 21st century’ and U.S. News and World Report’s
“America’s Best Leaders”. In 2018, she received the Heinz Award in Technology, the Economy and Employment. 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 is the global chairman of the NYSE-listed Mastercard Inc
and an Advisory Partner to Moelis & Co. 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 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.
Senior Management
As of March 15,
2019, our group senior management is made up of the following members:
Name
|
|
Position
|
Martín Migoya
|
|
Chief Executive Officer
|
Martín Gonzalo Umaran
|
|
Chief of Staff
|
Guibert Andrés Englebienne
|
|
Chief Technology Officer
|
Nestor Augusto Nocetti
|
|
Executive Vice President, Corporate Affairs
|
Juan Ignacio Urthiague
|
|
Chief Financial Officer
|
Yanina Maria Conti
|
|
Chief Accounting Officer
|
Guillermo Willi
|
|
Chief People Officer
|
Gustavo Barreiro
|
|
Chief Information Officer
|
Sol Mariel Noello
|
|
General Counsel
|
Wanda Weigert
|
|
Chief Brand Officer
|
Patricia Pomies
|
|
Chief Delivery Officer
|
The business address
of our group senior management is c/o
Sistemas Globales
S.A., Ing. Butty 240, 9th floor, Laminar Plaza Tower, C1101 AFB,
Capital Federal, Argentina.
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.”
Nestor Augusto Nocetti
Mr. Nocetti, a co-founder
of our company, has been our Executive Vice President, Corporate Affairs since July 2012. Mr. Nocetti manages our external affairs,
including our relationships with government agencies, union, industry representatives and the media. Prior to that, he served as
our Vice President, Innovation Labs. Together with Messrs. Migoya, Englebienne, and Umaran, Mr. Nocetti was selected as an Endeavor
Entrepreneur in 2005. He holds a degree in electronic engineering from
Universidad Nacional de La Plata
(UNLP) and a certificate
in business management from the Business School (IAE) of
Universidad Austral
.
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 at Merrill Lynch in Ireland. He 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 a Bachelor’s degree in Business Administration from the
Universidad de 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, tax, external audit and reporting.
Mrs. Conti has a degree in public accounting and in business administration from the
Universidad de Buenos Aires
.
Guillermo Willi
Mr. Willi has been
our Chief People Officer since September 2011. From 2009 to 2011, he served as the Human Resources Director for Microsoft Argentina
and Uruguay, where he was in charge of leading Microsoft’s human resources policies, developing internal talent and maintaining
diversity and inclusion. Between 2007 and 2009, he was the Human Resources Director for
Pampa Energia
, and from 2002 to
2007 he served as the Human Resources Director for EDS Argentina and Chile. As Globant’s Chief People Officer, he is responsible
for overseeing the strategy for talent management and development, along with the creation of organizational capabilities and culture.
Mr. Willi has a bachelor’s degree in political science from the
Universidad de Buenos Aires
and has completed post-graduate
studies in management and human resources at Cornell University.
Gustavo Barreiro
Mr. Barreiro has been
our Chief Information Officer since July 2012. From 2010 to July 2012, Mr. Barreiro served as our Executive Vice President, Delivery,
managing our delivery partners, staffing, recruiting, project managers, and site managers. As Globant's Chief Information Officer,
Mr. Barreiro is responsible for our infrastructure team (IT operations and information security), enterprise applications, and
IT services. He holds a bachelor's degree in industrial engineering from the
Universidad de Buenos Aires
and a master's
degree in business administration from the
Instituto para el Desarollo Empresario Argentino
(IDEA).
Sol Mariel Noello
Mrs. Noello has
been our General Counsel since December 2018. She first joined Globant as Legal Counsel in 2011 and has been in charge of
supervising the functions of Globant´s Legal department since February 2015, in the roles of Leader and of Manager of
Globant´s Legal department. In such roles Mrs. Noello contributed to the growth of the area and the development of an
internal legal support system, including the implementation of processes and controls related to the legal function within
the company. Before joining Globant, Mrs. Noello worked at Tata Consultancy Services from 2009 to 2011 as
Legal Officer in the company´s regional legal department for LATAM. Mrs. Noello holds a law degree
from
Universidad de Belgrano
in Argentina and has completed a number of post-graduate courses in corporate
law at
Universidad Argentina de la Empresa
.
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."
Patricia Pomies
Mrs. Pomies has been
our Chief Delivery Officer since January 2017. In this role, Mrs. Pomies is in charge of our overall strategy related to quality
of service and delivery. 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 President of Argentina 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.
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, 2018, 2017 and 2016 amounted
to $5.1 million, $4.5 million and $4.4 million, respectively.
We adopted an equity
incentive plan in connection with the completion of our initial public offering. See “— 2014 Equity Incentive Plan”.
From the adoption of this 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 2,277,434 common shares and 770,849 restricted stock units. 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 by our board of directors
to increase the number of common shares that may be issued as stock awards from 1,666,667 to up to 3,666,667 on May 9, 2016, and
from 3,666,667 to 5,666,667 on February 13, 2019. 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, restricted stock units, 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, restricted stock
units, 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 restricted
stock units, 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, the vesting schedule of all of the outstanding stock options granted to certain senior executives will be accelerated
in the event of a transaction resulting in a change in control if (i) no provision is made in connection with the transaction for
the continuation or assumption of the relevant executive’s outstanding options by, or for the substitution of the equivalent
awards of, the surviving or successor entity or a parent thereof, or (ii) the relevant executive is dismissed without cause within
a two-year period following the change in control.
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
Independent members
of our board of directors receive cash compensation for their services as directors and 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.
Members of our senior management who are members of our board of directors (Messrs. Migoya, Umaran and Englebienne) have received
and will continue receiving cash compensation and share based compensation for their services as executive officers. See “—
Compensation of Board of Directors and Senior Management.”
In 2018, we paid an
aggregate of $430,000 in director fees to certain members of our board of directors who are considered independent.
Members of our senior
management who are members of our board of directors will not receive compensation from us for their service on our board of directors.
Accordingly, Messrs. Migoya, Umaran and Englebienne will not receive compensation from us for their service on our board of directors.
Only those directors who are considered independent directors under the corporate governance rules of the NYSE will be eligible,
subject to our shareholders’ approval, to receive compensation from us for their service on our board of directors. Ms. Rottenberg
and Messrs. Galperin, Odeen, Álvarez-Demalde, Haythornthwaite and Vázquez as well as other independent directors
will be paid annually a cash amount ranging between $75,000 and $100,000.
In 2018, we granted
restricted stock units to Linda Rottenberg, Martin Migoya, Martín Umaran and Guibert Englebienne in the amounts of 2,174,
35,000, 15,000 and 12,000, respectively, all of which are subject to ratification by our shareholders at the annual general meeting.
Benefits upon Termination of Employment
Neither we nor our
subsidiaries maintain any directors’ service contracts providing for benefits upon termination of service. On December 27,
2012, we entered into noncompetition agreements with our founders. Under such agreements, the founders agreed that during their
employment with our company, and for a period of two years from the termination of such employment, they will not directly or indirectly
perform any kind of activity or provide any service in other companies that provide the same kinds of services as those provided
by us. In consideration of these noncompetition covenants, the founders will receive compensation equal to 24 times the highest
monthly compensation paid to them during the 12-month period immediately preceding the date of termination of their employment.
This compensation will be paid in two equal installments.
In 2016, our compensation
committee approved an amendment to Martín Migoya’s noncompetition agreement to increase his compensation to 36 times
the highest monthly compensation paid to him during the 12-month period immediately preceding the date of termination of his employment.
In addition, our compensation committee approved an amendment each founder’s noncompetition agreement so that the compensation
calculation will include the proportional amount of any variable annual cash compensation payable to each founder, at target amounts,
and that each founder will be entitled to receive continued health coverage and life insurance after the termination of their employment
and for a period of 36 months in the case of Martín Migoya and of 24 months in the case of Messrs Umaran, Englebienne and
Nocetti.
In addition, our compensation
committee approved the execution of a noncompetition agreement with Mr. Marsicovetere, our former Chief Operating Officer, Mr.
Scannapieco and Ms. Pomies, under substantially similar terms and conditions to those applicable to those of Messrs. Umaran, Englebienne
and Nocetti.
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 agent 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 us or our shareholders 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:
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•
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is responsible for the appointment, compensation and retention of our independent auditors and
reviews and evaluates the auditors’ qualifications, independence and performance;
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•
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oversees our auditors’ audit work and reviews and pre-approves all audit and non-audit services
that may be performed by them;
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•
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reviews and approves the planned scope of our annual audit;
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•
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monitors the rotation of partners of the independent auditors on our engagement team as required by law;
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•
|
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;
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•
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reviews our critical accounting policies and estimates;
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•
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oversees the adequacy of our accounting and financial controls;
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•
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annually reviews the audit committee charter and the committee’s performance;
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•
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reviews and approves related-party transactions; and
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•
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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.
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The current members
of our audit committee are Messrs. Rottenberg, Odeen and Vázquez, with Mr. Vázquez serving as the chairman of our
audit committee and our audit committee financial expert as currently defined under applicable SEC rules. Each of Messrs. Vázquez,
Rottenberg and Odeen 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:
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•
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reviewing and approving corporate goals and objectives relevant to compensation of our directors,
chief executive officer and other members of senior management;
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•
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evaluating the performance of the chief executive officer and other members of senior management
in light of those goals and objectives;
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•
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based on this evaluation, determining and approving the compensation of the chief executive officer
and other members of senior management;
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|
•
|
administering the issuance of common shares options and other awards to members of senior management
and directors under our compensation plans; and
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|
•
|
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 Mr. Vázquez, Odeen and Galperin, with Mr. Vázquez serving as chairman. Each of
Messrs. Vázquez, Odeen and Galperin 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 Messrs. Galperin, Odeen and Vázquez, with Mr. Vázquez serving
as chairman. Each of Messrs. Galperin, Vázquez and Odeen 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, which is available
on our website at
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,
2018, 2017 and 2016, on a consolidated basis, we had 8,384, 6,753 and 5,631 employees, respectively.
As of
December 31, 2018, we had 38 Globers, principally at our delivery center in Rosario, Argentina, who are covered by a
collective bargaining agreement with the trade union Federación Argentina de Empleados de Comercio y Servicios
(“FAECYS”), which is renewed on an annual basis. In addition, the Globers from our Brazilian payroll are
affiliated to the trade union SINDPD-SP, the Globers from our Spanish payroll are affiliated with the trade unions UGT y CCOO
- Oficinas y Despachos de la Comunidad de Madrid, ad the Globers from our French payroll are affiliated to the trade union
Federation Syntec.
The following tables
show our total number of full-time employees as of December 31, 2018 broken down by functional area and geographical location:
|
|
Number of
employees
|
|
Technology
|
|
|
7,314
|
|
Operations
|
|
|
507
|
|
Sales and Marketing
|
|
|
85
|
|
Management and administration
|
|
|
478
|
|
Total
|
|
|
8,384
|
|
|
|
Number of
employees
|
|
Argentina
|
|
|
2,857
|
|
Brazil
|
|
|
22
|
|
Colombia
|
|
|
2,095
|
|
Chile
|
|
|
219
|
|
United Kingdom
|
|
|
35
|
|
Uruguay
|
|
|
412
|
|
United States
|
|
|
585
|
|
Mexico
|
|
|
861
|
|
Peru
|
|
|
100
|
|
India
|
|
|
972
|
|
Spain
|
|
|
75
|
|
Belarus
|
|
|
70
|
|
Romania
|
|
|
81
|
|
Total
|
|
|
8,384
|
|
In 2007, we commenced
shifting from a Buenos Aires-centric delivery model to a distributed organization with locations across Argentina, Latin America,
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 abundant 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 and Retention
We have a global
presence with delivery centers in North America, Latin America, Europe, and Asia. Our de-centralization strategy allow 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.
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.
Of our employee base,
approximately 72% of our Globers have obtained a university degree and 23% are undergoing university-level studies while they are
employed by our company. Approximately 3.2% have obtained a postgraduate level degree, and many have specialized industry credentials
or licensing, including in systems engineering, electronic engineering, computer science, information systems administration, business
administration and graphic and web design.
Since our inception,
we believe we have become a unique player for IT university graduates in the countries where we have operations. Our culture is
the foundation that supports and facilitates our distinctive approach. Globant was named a Best Company for Culture and Diversity
in 2018 and listed as one of the top 25 best companies for diversity in 2017 by Comparably.com.
This culture can be
best described as entrepreneurial, flexible, sustainable and team-oriented. 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. We believe that
a person who thinks and lives differently is not a threat or a problem, but on the contrary, offers everyone an opportunity to
learn, grow, and co-create. 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.
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 18.2%, 18.0% and 19.3% for the years
ended December 31, 2018, 2017 and 2016, respectively.
Training and Development
We dedicate significant
resources to the development and professional growth of our employees through learning experiences, career plans, mentoring, talent
assessment, succession planning and performance management.
In 2015, Globant Academy
was launched. Globant Academy is a continuous training program in which all of our training efforts are consolidated and formalized
within four distinct schools (Technology, Leadership, Corporate and Languages).
The Technology School
was created to promote science, technology, engineering, software development and design. The Leadership School is for self-development,
which facilitates training on social skills in order to become a successful leader. The Corporate School was created to educate
our employees about agile methodologies, our internal processes and procedures. The Language School is to support learning and
practicing the most popular languages in the industry.
Depending on the requirements
of the particular program, we employ various training methodologies such as e-learning, virtual learning, face-to-face and blended
learning.
We also use specific
programs to recruit, train and develop our employees. Bootcamps is a program to select, train and hire talented employees. U-Grow
is a program to educate university students about technologies, processes and methodologies while they intern with us. This program
also serves as a recruitment source of junior-level employees. Acamica is an e-learning platform to provide technical training
through in-person courses and videos.
One of our main focuses
is to provide transparency and enable our employees to enhance their profession development within our organization. As part of
our efforts to accomplish these objectives, we host an ongoing program, called “Keep your Career Moving".
For our leaders, we
offer a Leadership Community, in which leaders can find relevant information for their roles and obtain training through various
offerings, including specific onboardings, knowledge sharing sessions and various resource materials. During 2018 we launched “LeAP”
(Leadership Accelerator Program), which aims to help foster our Leaders’ development and strengthen their management skills
by giving them all the essential tools to leap ahead in their careers.
Through our Learning
Community, we give our trainers and our learning content developers a space to share experiences, connect with others with the
same interests and provide the resources to have the best learning experiences at Globant.
Compensation
We offer our Globers
a compensation package consisting of base salary, short term incentives, long term incentives (for certain eligible positions)
and fringe benefits. The variable component of our compensation package is intended to strengthen the 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.
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 1,700,088
(includes common shares subject to options that are currently exercisable or will be exercisable within 60 days of March 15, 2019
as well as common shares issuable upon settlement of restricted stock units that have vested or will vest within 60 days of March 15,
2019), which represents 4.61% of the total shares of the company. See table in “Major Shareholders and Related Party Transactions — Major
Shareholders.”
Share Options
See “— Compensation
— Compensation of Board of Directors and Senior Management — 2014 Equity Incentive Plan.”
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 March 15, 2019, by:
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•
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each of our directors and members of senior management individually;
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•
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all directors and members of senior management as a group; and
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•
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each shareholder whom we know to own beneficially more than 5% of our common shares.
|
As of March 15,
2019, we had 36,392,510 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, restricted stock units, warrants or other convertible or exercisable securities that are currently
convertible or exercisable or convertible or exercisable within 60 days of March 15, 2019 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 March 15, 2019, we had 132 holders of record in the United States with approximately 89.80% of our issued and
outstanding common shares.
|
|
Number
|
|
|
Percent
|
|
Directors and Senior Management
|
|
|
|
|
|
|
|
|
Francisco Álvarez-Demalde (1)
|
|
|
13,500
|
|
|
|
*
|
|
Gustavo Barreiro (2)
|
|
|
55,003
|
|
|
|
*
|
|
Yanina Maria Conti (3)
|
|
|
667
|
|
|
|
*
|
|
Guibert Andres Englebienne (4)
|
|
|
370,764
|
|
|
|
1.02
|
%
|
Marcos Galperin (5)
|
|
|
22,170
|
|
|
|
*
|
|
Richard Haythornthwaite
|
|
|
-
|
|
|
|
*
|
|
Martín Migoya (6)
|
|
|
342,759
|
|
|
|
*
|
|
Nestor Augusto Nocetti (7)
|
|
|
349,565
|
|
|
|
*
|
|
Sol Mariel Noello (8)
|
|
|
5,250
|
|
|
|
*
|
|
Philip A. Odeen (9)
|
|
|
22,170
|
|
|
|
*
|
|
Patricia Pomies (10)
|
|
|
16,750
|
|
|
|
*
|
|
Linda Rottenberg (11)
|
|
|
2,174
|
|
|
|
*
|
|
Martín Gonzalo Umaran (12)
|
|
|
414,190
|
|
|
|
1.14
|
%
|
Juan Ignacio Urthiague
|
|
|
-
|
|
|
|
*
|
|
Mario Vazquez (13)
|
|
|
22,170
|
|
|
|
*
|
|
Wanda Weigert (14)
|
|
|
16,500
|
|
|
|
*
|
|
Guillermo Willi (15)
|
|
|
46,456
|
|
|
|
*
|
|
All Directors and Senior Management as a group
|
|
|
1,700,088
|
|
|
|
4.66
|
%
|
*Less than 1%
|
|
|
|
|
|
|
|
|
5% or More Shareholders:
|
|
|
|
|
|
|
|
|
Morgan Stanley Investment Management Inc. (16)
|
|
|
3,096,363
|
|
|
|
8.51
|
%
|
Wellington Management Group LLP (17)
|
|
|
2,267,536
|
|
|
|
6.23
|
%
|
Wasatch Advisors, Inc. (18)
|
|
|
2,002,342
|
|
|
|
5.50
|
%
|
GIC Asset Management Pte. LTD (19)
|
|
|
1,988,214
|
|
|
|
5.46
|
%
|
|
(1)
|
Includes 13,500 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(2)
|
Includes 19,500 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(3)
|
Includes 667 common shares issuable upon exercise of vested
options and settlement of restricted stock units, as applicable.
|
|
(4)
|
Includes 93,000 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable, and 177,166 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 Uruguayan 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 Uruguayan company and holds voting and
dispositive power over the 177,166 common shares held by such company.
|
|
(5)
|
Includes 22,170 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(6)
|
Includes 156,500 common shares issuable upon exercise of vested options and settlement of
restricted stock units, 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
Uruguayan 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 Uruguayan company and holds voting and
dispositive power over the 147,040 common shares held by such company.
|
|
(7)
|
Includes 12,500 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable, and 252,770 common shares held by a revocable trust formed
under Wyoming law (the “Revocable Nocetti Trust Shares”) formed by Mr. Nocetti that was established for the benefit
of Mr. Nocetti, his wife and certain charitable organizations. Subsequently, the trust transferred its Revocable Nocetti Trust
Shares to a Uruguayan 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 Uruguayan company and holds voting and dispositive
power over the 252,770 common shares held by such company.
|
|
(8)
|
Includes 5,250 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(9)
|
includes 22,170 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(10)
|
Includes 16,750 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(11)
|
Includes 2,174 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
|
|
(12)
|
Includes 80,000 common shares issuable upon exercise of
vested options and settlement of restricted stock units, 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 Uruguayan 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 Uruguayan company and holds voting and dispositive power
over the 259,241 common shares held by such company.
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(13)
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Includes 22,170 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
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(14)
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Includes 16,500 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
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(15)
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Includes 32,791 common shares issuable upon exercise of
vested options and settlement of restricted stock units, as applicable.
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(16)
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Based on a Schedule 13G filed jointly by Morgan Stanley
and Morgan Stanley Investment Management Inc. (“MSIM”) with the SEC on February 12, 2019. Each of Morgan Stanley and
MSIM beneficially own 3,096,363 of our common shares, have shared voting power with respect to 1,467,412 shares and shared dispositive
power with respect to all 3,096,363 shares. The securities are being reported upon by Morgan Stanley and MSIM, in their capacity
as an investment adviser in accordance with Rule 240.13d-1(b)(1)(ii)(E) and a parent holding company under Rule 240.13d-1(b)(1)(ii)(G)
of the Exchange Act. The securities being reported on by Morgan Stanley as a parent holding company are owned, or may be deemed
to be beneficially owned, by MSIM, a wholly-owned subsidiary of Morgan Stanley.
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(17)
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Based on a Schedule 13G filed jointly by Wellington Management
Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LL and Wellington Management Company LLP (the
“Reporting Entities”) with the SEC on February 14, 2019. The Reporting Entities in their capacity as an investment
adviser in accordance with Rule 240.13d-1(b)(1)(ii)(E) of the Exchange Act and as a parent holding company or control person in
accordance with Rule 240.13d-1(b)(1)(ii)(G), beneficially own 2,267,536 of our common shares, and have shared voting power with
respect to 1,980,848 shares and shared dispositive power with respect to all 2,267,536 shares.
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(18)
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Based on a Schedule 13G filed with the SEC on February
14, 2019. Wasatch Advisors, Inc beneficially owns 2,002,342 of our common shares and has sole and dispositive power with respect
to all of such shares.
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(19)
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Based on a Schedule 13G/A filed with the SEC on January
21, 2019. GIC Private Limited beneficially owns 1,988,214 of our common shares and has sole and dispositive power with respect
to 1,527,218 of such shares and shared voting and dispositive power with respect to 460,996 of such shares.
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B. Related Party Transactions
Registration Rights Agreement
On July 23, 2014, we
entered into a registration rights agreement with Messrs. Migoya, Umaran, Englebienne and Nocetti (collectively, the "Founders"),
Kajur International S.A. ("Kajur"), Mifery S.A. ("Mifery"), Gudmy S.A. ("Gudmy"), Noltur S.A. ("Noltur"),
Etmyl S.A. ("Etmyl"), Ewerzy S.A. ("Ewerzy"), Fudmy Corporation S.A. ("Fudmy"), Gylcer International
S.A. (together with Kajur, Mifery, Gudmy, Noltur, Etmyl, Ewerzy and Fudmy, the "Uruguayan Entities"), Paldwick S.A.,
Riverwood Capital LLC, Riverwood Capital Partners (Parallel-B) L.P., Riverwood Capital Partners L.P. and Riverwood Capital Partners
(Parallel-A) (collectively, the "Riverwood Entities") and the FTV Partnerships and WPP (collectively, the "Registration
Rights Holders") and Endeavor Global, Inc. and Endeavor Catalyst Inc. The registration rights agreement replaced the registration
rights granted under the Shareholders Agreement and WPP's joinder agreement. Under the registration rights agreement, we are responsible,
subject to certain exceptions, for the expenses of any offering of our common shares held by the Registration Rights Holders other
than underwriting fees, discounts and selling commissions. Additionally, under the registration rights agreement we may not grant
superior registration rights to any other person without the consent of the Registration Rights Holders. The registration rights
agreement contains customary indemnification provisions.
Demand Registration Rights
Under the registration
rights agreement each of (i) the Riverwood Entities (acting as a group), (ii) the FTV Partnerships (acting as a group), (iii) WPP
and (iv) the Founders and the Uruguayan Entities (acting as a group) and any two of (i) the Riverwood Entities, (ii) the FTV Partnerships,
(iii) WPP and (iv) the Founders and the Uruguayan Entities (acting as a group) may require us to effect a registration under the
Securities Act for the sale of their common shares of our company. We are therefore obliged to effect up to five such demand registrations
in total with respect to the common shares owned by such shareholders. However, we are not obliged to effect any such registration
when (1) the request for registration does not cover that number of common shares with an anticipated gross offering price of at
least $10.0 million, or (2) the amount of common shares to be sold in such registration represents more than 15% of our share capital.
If we have been advised by legal counsel that such registration would require a special audit or the disclosure of a material impending
transaction or other matter and our board of directors determines reasonably and in good faith that such disclosure would have
a material adverse effect on us, we have the right to defer such registration, not more than once in any 12-month period, for a
period of up to 90 days. We will not be required to effect a demand registration if we intend to effect a primary registration
of our securities within 60 days of receiving notice of a demand registration, provided that we file such intended registration
statement within the 60-day period. Additionally, we will not be required to effect a demand registration during the period beginning
with the date of filing of, and ending 120 days following the completion of, a primary registered offering of our securities, except
if any of the Registration Rights Holders had requested “piggyback” registration rights in connection with such offering.
In any such demand registration, the managing underwriter will be selected by the majority of the shareholders exercising the demand.
In February 2015, we
received a demand request from the Riverwood Entities and the FTV Partnerships. I
n April 2015 we closed
a secondary public offering of our common shares through which they and certain selling shareholders sold 3,994,390 common shares.
Subsequently, in June 2015
, we received a second demand request from Riverwood Entities. I
n
July 2015, we closed the second secondary public offering of our common shares
through
which they and certain other selling shareholders sold 4,025,000 common shares.
In
May 2018, we received a demand request from WPP and, in June 2018, we closed a secondary public offering through which WPP sold
6,687,548 common shares.
Shelf Registration Rights
We will use commercially
reasonable efforts to remain qualified to register securities pursuant to Form F-3, and each Registration Rights Holder
may make one written request that we register the offer and sale of their common shares on a shelf registration statement on Form
F-3 if we are eligible to file a registration statement on Form F-3 so long as the request covers at least that number of common
shares with an anticipated aggregate offering sale of at least $5,000,000.
Piggyback Registration Rights
If we propose to register
for sale to the public any of our securities, in connection with the public offering of such securities, the Registration Rights
Holders will be entitled to certain “piggyback” registration rights in connection with such public offering, allowing
them to include their common shares in such registration, subject to certain limitations. As a result, whenever we propose to file
a registration statement under the Securities Act, other than with respect to (1) a registration related to a company equity incentive
plan and (2) a registration related to the exchange of securities in certain corporate reorganizations or certain other transactions
or in other instances where a form is not available for registering securities for sale to the public, the Registration Rights
Holders will be entitled to written notice of the registration and will have the right, subject to limitations that the underwriters
may impose on the number of common shares included in the registration, to include their common shares in the registration.
Termination
As to each party to
the Registration Rights Agreement, the rights of such party thereunder terminate upon the earlier to occur of the fifth anniversary
of the date of the agreement or the date upon which the percentage of our total outstanding common shares held by such party ceases
to be at least one percent.
Tag-Along Agreement
On July 23, 2014,
the Founders, the Uruguayan Entities, Paldwick S.A., the Riverwood Entities, the FTV Partnerships, Endeavor Global, Inc. and
Endeavor Catalyst Inc. (collectively, the “Selling Shareholders”) entered into a tag-along agreement. Under the
Tag-Along Agreement, if, during the four years immediately following the date our registration statement filed with the SEC
was declared effective, any of the Selling Shareholders proposes to make a transfer of our shares to any other Selling
Shareholder or WPP, each of (i) the Founders and the Uruguayan Entities (individually and/or acting as a group, (ii) the RW
Entities (individually and/or acting as a group), (iii) the FTV Partnerships (individually and/or acting as a group), and (v)
Endeavor, shall have the right to participate in such sale with respect to any shares held by them on a pro rata basis, and
on the same terms and conditions and the same total consideration, as those offered to the corresponding Selling Shareholder
in the applicable transfer.
Other Related-Party Transactions
For a summary
of our revenue and expenses and receivables and payables with related parties, please see note 22 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 is publicly available on our website at
www.globant.com
.
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. 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 and other claims. 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 “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.”
In such cases litigation may be necessary to determine the scope, enforceability and validity of third-party proprietary rights
or to establish our proprietary rights. However, given that litigation could be costly and time-consuming and could divert the
attention of management and key personnel from our business operations, we may elect to settle these claims from time to time.
We accrue liabilities when it is probable that future costs will be incurred and such cost can be reasonably estimated.
On February 10,
2012, FAECYS filed a lawsuit against our
Argentine subsidiary, Sistemas Globales S.A., in which FAECYS demanded the application of its collective labor agreement to
the employees of that subsidiary. According to FAECYS's claim, Sistemas Globales should have withheld and transferred to
FAECYS an amount of 0.5% of the gross monthly salaries of Sistemas Globales' employees.
On April 16,
2018, the lower court dismissed the complaint filed by FAECYS, and such decision was subsequently confirmed by the court of
appeals. The judgment is now final and is not subject to further appeals.
Certain of our non-
U.S. subsidiaries are currently under examination by the 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 $1.4 million plus penalties
and interest for employment taxes for those years. Our subsidiaries filed protests of these proposed assessments with the IRS which
have been sent to the Office of Appeals within the IRS for further examination. At this stage, the management cannot make any predictions
about the final outcome of this matter or the timing thereof.
In addition to the
foregoing, as of December 31, 2018, 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 has reached an amount
equal to 10% of our issued share capital. If the legal reserve subsequently falls below the 10% threshold, 5% of net income again
must be allocated toward the reserve until such reserve returns to the 10% threshold. 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
Acquisition of Avanxo
On January 17, 2019,
we entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of Avanxo (Bermuda) Limited
(“Avanxo”), pursuant to which we agreed to purchase all of Avanxo’s share capital (the "Acquisition")
subject to the terms and conditions set forth in the Purchase Agreement. Avanxo is a cloud consulting and implementation company
headquartered in Bermuda, with operations in Brazil, Mexico, Colombia, Peru, Argentina and the United States. The transaction closed
in February 1, 2019.
Under the terms of
the Purchase Agreement, the total consideration payable by us to Avanxo’s shareholders, assuming a debt-free and cash-free
balance sheet, is $48.6 million (the "Purchase Price") subject to a working capital adjustment, reduction for uncollected
accounts receivables and the amounts of the Earn-Out Payments (as defined below) that become due and payable.
Of the Purchase Price,
we paid $40.9 million on the closing of the Acquisition, of which $40.1 million was paid in cash and $0.8 million in Globant common
shares.
The remaining amount
of the Purchase Price, $7.6 million, will be payable in two installments, at the end of each of the years ending December 31, 2019
and 2020, and is subject to upwards or downwards adjustment based on Avanxo’s achievement of specified revenue, gross margin
and operating margin targets for each of the years ending December 31, 2019 and 2020 (the “Earn Out Payments”).
At our sole option,
we will be entitled to pay up to 25% of each Earn Out Payment through the issuance and delivery of our common shares. The number
of our common shares that may be issued and delivered to Avanxo´s selling shareholders will be determined based on the volume
weighted average trading price for the 60 calendar day period prior to the payment date of the relevant Earn Our Payment. Common
shares issued pursuant to the exercise by us of this option will be subject to a 12-month lock-up period. These common shares are
expected to be issued in reliance on the exemption from registration provided by Regulation S under the Securities Act of 1933,
as amended.
Convertible Loan Agreement with
Wolox
On January 4, 2019
("Issuance Date"), we entered into a convertible note purchase agreement with Wolox, LLC for an aggregate principal amount
of $1.8 million (the "Principal Amount"). Interest on the Principal Amount is computed at an annual rate equal to Libor
plus 2%. The Principal Amount will be due and payable to us in a term of 18 month from the Issuance Date, at which time we will
hold an option to convert any portion of the outstanding Principal Amount into fully paid and nonassessable membership interest
of Wolox, LLC.
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.
Our ordinary shares
began trading on the Lux SE under the International Securities Identification Number (ISIN) code "LU0974299876" on August
11, 2016.
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares began trading on (i)
the NYSE under the symbol "GLOB" in connection with our IPO on July 18, 2014, and (ii) on the Lux SE under the ISIN code
"LU0974299876"on August 11, 2016. See "The Offer and Listing - Offering and Listing Details."
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 were included as an exhibit to our report on Form 6-K filed with the SEC on June 1, 2016, 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 Luxembour
g) 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,
2018, our issued share capital was $43,324,576.80, represented by 36,103,814 common shares with a nominal value of $1.20 each,
of which 138,152 were treasury shares held by us.
We had an authorized
share capital, excluding the issued share capital, of $7,555,227.60 consisting of 6,296,023 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 date of publication in
Recueil Electronique des Sociétés et Associations
("RESA") of the minutes of the extraordinary general
meeting of shareholders held on May 8, 2017, which publication occurred on May 19, 2017, and which period ends on May 19, 2022
and may be renewed. Accordingly, our board of directors may issue up to 6,296,023 common shares until such date. We currently intend
to seek renewals and/or extensions as required from time to time.
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 approval of the requisite two-thirds majority of the votes 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 inscription 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 its
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 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, 2018
we had an authorized share capital, excluding the issued share capital, of $7,555,227.60 and our board of directors was authorized
to issue up to 6,296,023 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 shall be issued or exist.
Pre-emptive Rights
Unless limited, waived
or cancelled 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 pursuant to 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 publication in the RESA of the minutes of the extraordinary general meeting of shareholders
held on May 8, 2017, which publication occurred on May 19, 2017 and which period ends on May 19, 2022, 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:
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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);
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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;
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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
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only fully paid-up common shares are repurchased.
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No prior authorization
by our shareholders is required for us to repurchase our own common shares if:
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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
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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.
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On June 18, 2014, the general
meeting of shareholders according to the conditions set forth in article 49-2 of Luxembourg Corporate Law granted our board of
directors the authorization to repurchase up to a maximum number of shares representing 20% of the issued share capital immediately
after the closing of our initial public offering 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, 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. 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.
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 and rules 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 the record date for admission to the general meeting of shareholders (the
"Record Date"), which the board of directors may determine as specified in the convening notice, subject to the law of
May 24, 2011 on the exercise of certain rights of shareholders of listed companies (the “Shareholder Rights Law”).
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 fourteenth day preceding the date of such general meeting, or by any other date which the board of
directors may determine and as specified in 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 at the same time 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 Shareholders Rights Law.
General meetings of
shareholders shall be convened in accordance with the provisions of our articles of association and Luxembourg corporate
law, the Shareholders Rights Law and the requirement of any stock exchange on which our shares are listed. The
Shareholders Rights Law provides -
inter alia-
that convening notices for any general meeting shall contain the agenda
of the meeting and shall take the form of announcements published in the RESA, in a Luxembourg newspaper and in the media, in
a manner which ensures effective dissemination of information to the public throughout the European Economic Area
("EEA") and which ensures a prompt access to such information on a non-discriminatory basis. Notices by mail shall
also be sent at least 30 days before the meeting to registered shareholders, provided that no proof of compliance with this
requirement is necessary. Where all the common shares are in registered form, the convening notices may be made only by
registered letters.
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 (iii) a second meeting is convened, the second meeting will be convened
by means of announcements published in the RESA, in a Luxembourg newspaper and in the media, in a manner which ensures effective
dissemination of information to the public throughout the EEA and which ensures prompt access to such information on a non-discriminatory
basis, at least 17 days prior to the meeting if the agenda has not been modified or at least 30 days if the agenda has
been modified.
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.
Extraordinary resolutions
relate to proposed amendments to the articles of association and certain other limited matters. All other resolutions are ordinary
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) approval
of a merger (
fusion
) or de-merger (
scission
), (d) 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 generally be at least 50% of our issued share capital. Any extraordinary
resolution shall generally 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 generally 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
shall 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 designated 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 shall 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 generally be made by extraordinary resolution.
The agenda of the general meeting of shareholders must indicate 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 generally be at least 50% of our issued share capital. Any extraordinary resolution shall be adopted at a quorate general
meeting (save as 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 taken 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 Takeover, Squeeze-Out and Sell-Out
Rights under the Luxembourg Takeover Law
Mandatory bid.
The
Luxembourg law of May 19, 2006 implementing Directive 2004/25/EC of the European Parliament and the Council of April 21, 2004 on
takeover bids (the "Takeover Law"), provides that, if a person acting alone or in concert acquires securities of our
Company which, when added to any existing holdings of our securities, give such person voting rights representing at least one-third
of all of the voting rights attached to the issued shares of our Company, this person is required to make an offer for the remaining
shares of our Company. In a mandatory bid situation, a "fair price" is in principle considered to be the highest price
paid by the offeror or a person acting in concert with the offeror for the securities during the 12-month period preceding the
mandatory bid.
Squeeze-out right
.
The Takeover Law provides that, when an offer (mandatory or voluntary) is made to all of the holders of voting securities of our
Company and after such offer the offeror holds at least 95% of the securities carrying voting rights and 95% of the voting rights,
the offeror may require the holders of the remaining securities to sell those securities (of the same class) to the offeror. The
price offered for such securities must be a fair price. The price offered in a voluntary offer would be considered a fair price
in the squeeze-out proceedings if the offeror acquired at least 90% of our shares carrying voting rights that were the subject
of the offer. The price paid in a mandatory offer is deemed a fair price. The consideration paid in the squeeze-out proceedings
must take the same form as the consideration offered in the offer or consist solely of cash. Moreover, an all-cash option must
be offered to the remaining shareholders. Finally, the right to initiate squeeze-out proceedings must be exercised within three
months following the expiration of the offer.
Sell-out right.
The Takeover Law provides that, when an offer (mandatory or voluntary) is made to all of the holders of voting securities and if
after such offer the offeror holds securities carrying more than 90% of the voting rights, the remaining security holders may require
that the offeror purchase the remaining securities of the same class. The price offered in a voluntary offer would be considered
"fair" in the sell-out proceedings if the offeror acquired at least 90% of our shares carrying voting rights and which
were the subject of the offer. The price paid in a mandatory offer is deemed a fair price. The consideration paid in the sell-out
proceedings must take the same form as the consideration offered in the offer or consist solely of cash. Moreover, an all-cash
option must be offered to our remaining shareholders. Finally, the right to initiate sell-out proceedings must be exercised within
three months following the expiration of the offer.
We also fall under the
scope of the Luxembourg law of July 21, 2012 on the 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"). 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").
Disclosure of transactions
by persons discharging managerial responsibilities.
Pursuant to Regulation (EU) No 596/2014 of the European Parliament and
of the Council of April 16, 2014 on market abuse and related regulations (collectively referred to as the "Market Abuse Regulation"),
persons discharging managerial responsibilities as well as persons closely associated with them, must notify the CSSF and us of
every transaction conducted on their own account (a concept that must be interpreted within the meaning of the Market Abuse Regulation)
relating to our common shares or to derivatives or other financial instruments, the value of which depends on or has an effect
on the price or value of our common shares. The obligation applies to any subsequent transaction once a total amount of EUR 5,000
has been reached within a calendar year, calculated by adding without netting all relevant transactions relating to the securities.
The notification must be made promptly and no later than three business days after the date of the transaction. We must ensure
that any information related to relevant transactions which we receive is made public promptly and no later than three business
days after the transaction, in the manner reserved for regulated information (See "Publication of regulated information").
For the purpose of the
Market Abuse Regulation, a "person discharging managerial responsibilities" means a person who is (a) a member of the
administrative, management or supervisory body of that entity; or (b) a senior executive who is not a member of the bodies referred
to in clause (a), who has regular access to inside information relating directly or indirectly to that entity and power to take
managerial decisions affecting the future developments and business prospects of that entity.
"Persons discharging
senior managerial responsibilities" within our Company are the members of our board of directors and the members of our senior
management identified in this annual report.
Publication of regulated
information.
Pursuant to directive 2004/109/EC of the European Parliament and of the Council of December 15, 2004 on the harmonization
of transparency requirements in relation to information about issuers whose securities are admitted on trading on a regulated market
(the "Transparency Directive"), issuers that fall within the scope of that directive are required to provide ongoing
and periodic information which the directive defines as "regulated information". As regards that regulated information,
the Transparency Directive imposes three obligations on issuers:
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publish the regulated information;
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make this information available to an Officially Appointed Mechanism ("OAM") for the
central storage of regulated information; and
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file the regulated information with the competent authority of the relevant home Member State within the EEA.
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In accordance with article
20 of the Luxembourg law of January 11, 2008 implementing the Transparency Directive (the "Luxembourg Transparency Law"),
issuers are required to disclose regulated information in a manner ensuring fast access to such information on a non-discriminatory
basis. Thus, they shall use such media as may reasonably be relied upon for the effective dissemination of information to the public
in all EEA Member States.
We are required to file
the aforementioned information with the CSSF and to make this information available to the OAM in Luxembourg.
All news and press releases
issued by us are available on our website at
www.globant.com
in the "Investors" section.
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 shall 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 30 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) and disseminated as regulated information.
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.
Under the Shareholder
Rights Law, every shareholder has the right to ask questions related to items on the agenda of the general meeting. We shall
answer the questions put to us by shareholders, subject to the measures which we may take to ensure the identification of
shareholders, the good order of general meetings and their preparation, and the protection of confidentiality and our
business interests. We may provide one overall answer to questions having the same content. Where the relevant information is
available on its Internet site in a question and answer format, we shall be deemed to have answered to the
questions asked by referring to our site.
Disclosure of Significant Ownership of Our Common Shares
Holders of common shares,
including depositary receipts representing common shares admitted to trading on a regulated market and for which Luxembourg is
the home Member State within the meaning of the Luxembourg Transparency Law and to which voting rights are attached (the "Securities")
and derivatives or other financial instruments linked to the Securities may be subject to notification obligations pursuant to
the Luxembourg Transparency Law and the Grand ducal regulation of January 11, 2008 on transparency requirements for issuers, as
amended. The following description summarizes these obligations. Our shareholders are advised to consult with their own legal advisers
to determine whether the notification obligations apply to them.
The Luxembourg Transparency
Law provides that, subject to limited exceptions, if a person acquires or disposes of our Securities, and following such acquisition
or disposal, the proportion of voting rights held by such person reaches, exceeds or falls below one of the thresholds of 5%, 10%,
15%, 20%, 25%, 33 1/3%, 50% or 66 2/3% (each a "Relevant Threshold") of our total voting rights existing when the situation
giving rise to a declaration occurs, such person must simultaneously notify us and the CSSF of proportion of voting rights held
by it after to such event. The voting rights shall be calculated on the basis of all of the common shares, including depositary
receipts representing common shares, to which voting rights are attached even if the exercise thereof is suspended. Moreover, this
information shall be given in respect of all of the common shares, including depositary receipts representing common shares, which
are in the same class and to which voting rights are attached. A person must also notify us and the CSSF of the proportion of his
or her voting rights if that proportion reaches, exceeds or falls below any Relevant Threshold as a result of events changing the
breakdown of voting rights and on the basis of the information disclosed by us.
The same notification requirements
apply to a natural person or legal entity to the extent such person or entity is entitled to acquire, dispose of, or exercise voting
rights in any of the following cases or a combination of them:
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a.
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voting rights held by a third party with whom that person or entity has concluded an agreement,
which obliges them to adopt, by concerted exercise of the voting rights they hold, a lasting common policy towards the management
of the issuer;
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b.
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voting rights held by a third party under an agreement concluded with that person or entity providing
for the temporary transfer for consideration of the voting rights in question;
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c.
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voting rights attaching to Securities which are lodged as collateral with that person or entity,
provided the person or entity controls the voting rights and declares his intention of exercising them;
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d.
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voting rights attaching to Securities in which that person or entity has the life interest;
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e.
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voting rights which are held, or may be exercised within the meaning of clauses (a) to (d), by
an undertaking controlled by that person or entity;
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f.
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voting rights attaching to Securities deposited with that person or entity which the person or
entity can exercise at his discretion in the absence of specific instructions from the Securities holders;
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g.
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voting rights held by a third party in its own name on behalf of that person or entity;
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h.
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voting rights which that person or entity may exercise as a proxy where the person or entity can
exercise the voting rights at his discretion in the absence of specific instructions from the Securities holders.
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The above notification
requirements also apply to a natural person or legal entity that holds, directly or indirectly, financial instruments linked to
our common shares.
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 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. Our board of directors
has established an audit committee pursuant to the Luxembourg law of 23 July 2016 concerning the audit profession, as well
as a compensation committee, and a nominating and corporate governance committee.
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 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 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
or she 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 us or our shareholders 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).
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" and on the LuxSE and admitted to trade on the regulated market of the LuxSE under
the International Securities Identification Number LU0974299876.
C. Material Contracts
In November 2018, Globant
LLC, our U.S. subsidiary (the “Borrower”) entered into an Amended and Restated Credit Agreement (the “A&R
Credit Agreement”) with the financial institutions listed therein, as lenders, and HSBC Bank USA, N.A., as administrative
agent, issuing bank and swingline lender. The A&R Credit Agreement amends and restates the Credit Agreement dated as of August
3, 2017, which provided for a secured revolving credit facility under which the Borrower could borrow up to $40.0 million in advances.
Under the A&R Credit Agreement, the Borrower may borrow (i) up to $50.0 million in a single borrowing on or prior to May 1,
2019 under a delayed-draw term loan facility and (ii) up to $150.0 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
$100.0 million. The maturity date of each of the facilities is October 31, 2023, and interest on the loans extended thereunder
shall accrue at a rate per annum equal to LIBOR plus 1.75%. The Borrower’s obligations under the A&R Credit Agreement
are guaranteed by us and our subsidiary, Globant España S.A., and are secured by substantially all of the Borrower’s
now owned and after-acquired assets. The A&R Credit Agreement also contains certain customary negative and affirmative covenants.
. Compliance with these covenants may limit our flexibility in operating our business and our ability to take actions that might
be advantageous to us and our shareholders
.
On January 17, 2019, we
entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of Avanxo (Bermuda) Limited
(“Avanxo”), pursuant to which we agreed to purchase all of Avanxo’s share capital (the "Acquisition")
subject to the terms and conditions set forth in the Purchase Agreement. Avanxo is a cloud consulting and implementation company
headquartered in Bermuda, with operations in Brazil, Mexico, Colombia, Peru, Argentina and the United States. The transaction closed
in February 1, 2019. For more information, see "Financial Information - Significant Changes".
Aside from the
A&R Credit Agreement and the Purchase Agreement mentioned above, we have not entered into any other material contract
during the preceding two years which were outside the ordinary course of business. During the preceding two years and up to
the date of this annual report, we have issued shares under certain subscription agreements we entered into and
some of these shares are subject to transferability restrictions as of the date of this annual report, as set forth below:
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In June 2018 we issued 9,120 common shares in favor of the sellers of Clarice (the
"Clarice Subscribers") pursuant to the terms
of certain subscription agreements entered into by us and
the Clarice Subscribers in
May 2015. As of the date of this annual report, such common shares are subject to certain transfer restrictions under the
terms of the relevant subscription agreements, whereby the Clarice Subscribers have agreed, among others terms, during a
one-year period from the date of issuance of the common shares, not to offer, pledge, sell, announce the intention to sell,
contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, the common shares subscribed for under
the subscription agreements, provided, however, that the foregoing restrictions are subject to a range of exceptions.
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In July 2018 we issued 18,692 common shares in favor of the sellers of WAE (the "WAE Subscribers")
pursuant to the terms of certain subscription agreements entered into by us and the WAE Subscribers in May 2016. As of the date
of this annual report, such common shares are subject to certain transfer restrictions under the terms of the relevant subscription
agreements, whereby the WAE Subscribers have agreed, among other terms, during a one-year period from the date of issuance of the
common shares, not to offer, pledge, sell, announce the intention to sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly
or indirectly, the common shares subscribed for under the subscription agreements, provided, however, that the foregoing restrictions
are subject to a range of exceptions.
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In October 2018 we issued 16,315 common shares in favor of the sellers of Small Footprint Inc.
(the “Small Footprint Subscribers”) pursuant to the terms of certain subscription agreements entered into by us and
the Small Footprint Subscribers during that same month. As of the date of this annual report such common shares are subject to
certain transfer restrictions under the terms of the relevant subscription agreements, whereby the Small Footprint Subscribers
have agreed, among other terms, during a one-year period from the date of issuance of the common shares, not to offer, pledge,
sell, announce the intention to sell, contract to sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, the common
shares subscribed for under the subscription agreements, provided, however, that the foregoing restrictions are subject to a range
of exceptions.
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In February 2019 we issued 3,542 common shares in favor of the sellers of PointSource (the “PointSource
Subscribers”) pursuant to the terms of certain subscription agreements entered into by us and the PointSource Subscribers
in June 2017. As of the date of this annual report such common shares are subject to certain transfer restrictions under the terms
of the relevant subscription agreements, whereby the PointSource Subscribers have agreed, among other terms, during a one-year
period from the date of issuance of the common shares, not to offer, pledge, sell, announce the intention to sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, the common shares subscribed for under the subscription agreements,
provided, however, that the foregoing restrictions are subject to a range of exceptions.
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In February 2019 we issued 14,778 common shares in favor of certain sellers of Avanxo (the
“Avanxo Subscribers”) pursuant to the terms of certain subscription agreements entered into by us and the Avanxo Subscribers
during that same month. As of the date of this annual report such common shares are subject to certain transfer restrictions under
the terms of the relevant subscription agreements, whereby the Avanxo Subscribers have agreed, among other terms, during a one-year
period from the date of issuance of the common shares, not to offer, pledge, sell, announce the intention to sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, the common shares subscribed for under the subscription agreements,
provided, however, that the foregoing restrictions are subject to a range of exceptions.
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D. Exchange Controls
See "Information on
the Company — Business Overview — Regulatory Overview — Foreign 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 U.S. Internal
Revenue Code of 1986, as amended (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.
To the extent that the following discussion relates to matters of Luxembourg tax law, it represents the opinion of Arendt &
Medernach, Luxembourg, our Luxembourg counsel, and to the extent that the discussion relates to matters of U.S. federal income
tax law, it represents the opinion of DLA Piper LLP (U.S.), our U.S. counsel.
As used herein, the term
"U.S. Holder" means a beneficial owner of one or more of our common shares:
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(a)
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that is for U.S. federal income tax purposes one of the following:
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(i)
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an individual citizen or resident of the United States,
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(ii)
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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 or any political subdivision thereof, or
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(iii)
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source;
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(b)
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who holds the common shares as capital assets for U.S. federal income tax purposes;
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(c)
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who owns, directly, indirectly or by attribution, less than 10% of our share capital or voting shares; and
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(d)
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whose holding is not effectively connected with a permanent establishment in Luxembourg.
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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,
as described above, the 2017 Tax Act includes substantial changes to the U.S. federal income taxation of individuals and businesses
which are effective from January 1, 2018. Although the new law substantially decreased corporate tax rates, all of the consequences
of the new law, including the unintended consequences, if any, are not yet known. For the avoidance of doubt, this discussion does
not cover any implications of Code section 965 (Treatment of deferred foreign income upon transition to participation exemption
system of taxation) or Code section 245A (Deduction for foreign source-portion of dividends received by domestic corporations from
specified 10% owned foreign corporations). 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, 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 19.26%
as from 2018 (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 26.01% as from 2018 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 of (ii) 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 of (ii) 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 U.S. relevant holder is a qualified resident company as defined in
Article 24 of the Treaty that owns at least 10% of our 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 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 realised 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 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 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 law of July 23, 2016, remain subject to minimum net wealth tax.
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 U.S. Holders 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 (defined below), 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 is 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 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.
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 passive foreign investment company ("PFIC") for U.S. federal income tax purposes for this current taxable year
and does 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 a 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 are allowed
four months to file our annual report with the SEC instead of approximately three, 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 prescribing 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.
You may review and copy
the registration statement, reports and other information we file at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, DC 20549. You may also request copies of these documents upon payment of a duplicating fee by writing to the SEC.
For further information
on the Public Reference Room, please call the SEC at 1-800-SEC-0330. Our SEC filings, including the registration statement, are
also available to you on the SEC’s website at
http://www.sec.gov
. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC. The information on that website is not
part of this annual report.
I. Subsidiaries Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Our market risk exposure
results primarily from concentration of credit risk, fluctuations in interest rates and foreign currency rates and inflation. We
do not engage in trading of derivative instruments for speculative purposes.
Concentration of Credit and Other Risk
Financial instruments that
potentially subject us to significant concentrations of credit risk consist primarily of cash and bank balances, short-term investments
and trade receivables. These financial instruments approximate fair value due to short-term maturities. We maintain our cash and
bank balances and short-term investments with high credit quality financial institutions. Our investment portfolio is primarily
comprised of time deposits and corporate and treasury bonds. We believe that our credit policies reflect normal industry terms
and business risk. We do not anticipate non-performance by the counterparties and, accordingly, do not require collateral.
Trade receivables are generally
dispersed across our clients in proportion to the revenues we generate from them. For the years ended December 31, 2018, 2017
and 2016, our top five clients accounted for 32.0%, 28.9% and 33.7%, respectively, of our net revenues. Our top client for the
years ended December 31, 2018, 2017 and 2016, accounted for 11.3%, 10.2% and 9.7%, respectively. Our top client for 2018 and
2017 was Walt Disney Parks and Resorts Online; and Southwest Airlines Co. was our top client for 2016. As of December 31,
2018 and 2017, accounts receivable from Walt Disney Parks and Resorts Online represented 8.26% and 10.1% of our total accounts receivable,
respectively; whereas accounts receivable from Southwest Airlines Co. in 2016, represented 9.9% of our total accounts receivable.
Credit losses and write-offs
of trade receivable balances have historically not been material to our consolidated financial statements.
Interest Rate Risk
Our exposure to market
risk for changes in interest rates relates primarily to our cash and bank balances and our credit facilities. Our credit line in
the United States bear interest at fixed rate of 1.75% and at variable rates from 1.78% at 2.8%, respectively. We do not use derivative
financial instruments to hedge our risk of interest rate volatility.
Based on our debt position
as of December 31, 2018, if we needed to refinance our existing debt, a 1% increase in interest rates would not materially
impact us.
We have not been exposed
to material risks due to changes in market interest rates. However, our future financial costs related to borrowings may increase
and our financial income may decrease due to changes in market interest rates.
Foreign Exchange Risk
Our exchange rate risk
arises in the ordinary course of our business primarily from our foreign currency expenses and, to a lesser extent, revenues. We
are also exposed to exchange rate risk on the portion of our cash and bank balances, investments and trade receivables that is
denominated in currencies other than the U.S. dollar and on other receivables, such as Argentine tax credits.
Our consolidated financial
statements are prepared in U.S. dollars. Because the majority of our operations are conducted in Latin America and Asia, we incur
the majority of our operating expenses and capital expenditures in non-U.S. dollar currencies, primarily the Argentine peso, Uruguayan
peso, Colombian peso, Mexican peso, Indian rupees and Brazilian real. 85.6% of our revenues for the year ended December 31,
2018 was generated in U.S. dollars, with the balance being generated primarily in Euros and, to a lesser extent, other currencies
(including the Argentine peso, the Colombian peso and the Mexican peso). The following table shows the breakdown of our revenues
by the currencies in which they were generated during the years ended December 31, 2018, 2017 and 2016, respectively.
|
|
Year ended December 31,
|
|
|
|
(in thousands)
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
By Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USD
|
|
$
|
447,314
|
|
|
|
85.6
|
%
|
|
$
|
354,824
|
|
|
|
85.8
|
%
|
|
$
|
290,636
|
|
|
|
90.0
|
%
|
EUR
|
|
|
30,087
|
|
|
|
5.8
|
%
|
|
|
23,518
|
|
|
|
5.7
|
%
|
|
|
12,060
|
|
|
|
3.7
|
%
|
GBP
|
|
|
6,550
|
|
|
|
1.3
|
%
|
|
|
4,107
|
|
|
|
1.0
|
%
|
|
|
4,988
|
|
|
|
1.5
|
%
|
ARS
|
|
|
20,651
|
|
|
|
4.0
|
%
|
|
|
12,856
|
|
|
|
3.1
|
%
|
|
|
9,948
|
|
|
|
3.1
|
%
|
MXN
|
|
|
11,711
|
|
|
|
2.2
|
%
|
|
|
6,942
|
|
|
|
1.7
|
%
|
|
|
—
|
|
|
|
—
|
%
|
Others
|
|
|
5,997
|
|
|
|
1.1
|
%
|
|
|
11,192
|
|
|
|
2.7
|
%
|
|
|
5,224
|
|
|
|
1.6
|
%
|
Revenues
|
|
$
|
522,310
|
|
|
|
100.0
|
%
|
|
$
|
413,439
|
|
|
|
100.0
|
%
|
|
$
|
322,856
|
|
|
|
100.0
|
%
|
A small percentage of our
trade receivables is generated from net revenues earned in non-U.S. dollar currencies (primarily Euros, British pounds sterling,
the Argentine peso, the Mexican peso, the Uruguayan peso and the Colombian peso).
Our results of operations
can be affected if the Argentine peso, Colombian peso, Uruguayan peso, Mexican peso, Euros or British pound appreciate or depreciate
against the U.S. dollar.
The following tables illustrate
our 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, 2018 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
|
|
|
10,147
|
|
|
|
30
|
%
|
|
|
(3,462
|
)
|
|
|
10
|
%
|
|
|
(587
|
)
|
|
|
Colombian pesos
|
|
|
(7,148
|
)
|
|
|
10
|
%
|
|
|
630
|
|
|
|
10
|
%
|
|
|
(738
|
)
|
|
|
Indian rupees
|
|
|
492
|
|
|
|
10
|
%
|
|
|
(47
|
)
|
|
|
10
|
%
|
|
|
46
|
|
|
|
Total
|
|
|
3,491
|
|
|
|
|
|
|
|
(2,879
|
)
|
|
|
|
|
|
|
(1,279
|
)
|
The following sensitivity
analysis includes costs incurred in foreign currencies during the year ended December 31, 2018 and adjusts their translation for
the year ended December 31, 2018 for changes in U.S. dollars against the relevant foreign currencies.
|
|
|
|
|
|
|
Gain/(loss)
|
|
Account
|
|
Currency
|
|
Amount
|
|
|
% Increase
|
|
|
Amount
|
|
|
% Decrease
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
Argentine pesos
|
|
|
(127,599
|
)
|
|
|
30
|
%
|
|
|
29,446
|
|
|
|
10
|
%
|
|
|
(12,760
|
)
|
|
|
Colombian pesos
|
|
|
(69,944
|
)
|
|
|
10
|
%
|
|
|
6,359
|
|
|
|
10
|
%
|
|
|
(6,994
|
)
|
|
|
Indian rupees
|
|
|
(20,533
|
)
|
|
|
10
|
%
|
|
|
1,867
|
|
|
|
10
|
%
|
|
|
(2,053
|
)
|
|
|
Total
|
|
|
(218,076
|
)
|
|
|
|
|
|
|
37,672
|
|
|
|
|
|
|
|
(21,807
|
)
|
The estimated effect in
net income for the year ended December 31, 2018 due to a 30% increase in the U.S. dollar against the Argentine peso is a gain
of $26.0 million and such effect due to a 10% decrease in the U.S. dollar against the Argentine peso is a loss of $13.3 million.
Depreciation of the Argentine Peso
During 2018, the Argentine
peso experienced a 102.2% devaluation from 18.60 Argentine peso per U.S. dollar to 37.60 Argentine peso per U.S. dollar. As explained
in note 28.9.4 to our audited consolidated financial statements, the Argentine's subsidiaries 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 costs
and expenses.
During 2017 and 2016, the
Argentine peso experienced a 17% and a 14% devaluation, respectively, from 15.84 and 13.910 Argentine peso per U.S. dollar to 18.60
and 15.84 Argentine peso per U.S. dollar, respectively.
We periodically evaluate
the need for hedging strategies with our board of directors, including the use of such instruments to mitigate the effect of foreign
exchange rate fluctuations. During the year ended December 31, 2018, our principal Argentine operating subsidiaries, Sistemas
Globales S.A. and IAFH Global S.A., entered into foreign exchange forward contracts to reduce their risk of exposure to fluctuations
in foreign currency. As of December 31, 2018 and 2017, the foreign exchange forward contracts were recognized, according to
IFRS 9. We may in the future, as circumstances warrant, decide to enter into derivative transactions to reduce our exposure to
appreciation or depreciation in the value of certain foreign currencies.
Wage Inflation Risk
Argentina has experienced
significant levels of inflation in recent years. In November 2015, the INDEC suspended the publication of the CPI. According to
the most recent publicly available information based on data from the Province of San Luis, the CPI grew by 31.4% in 2016. According
to the most recent publicly available information based on data from the City of Buenos Aires, the CPI grew by 41.0% in 2016. After
implementing certain methodological reforms and adjusting certain macroeconomic statistics based of these reforms, in June 2016
the INDEC resumed its publication of the CPI. According to the INDEC, Argentina's rate of inflation for May, June, July, August,
September, October, November and December 2016 was 4.2%, 3.2%, 2.2%, 0.2%, 1.3%, 2.6%, 1.8% and 1.4%, respectively, 24.8% in 2017
and 47.6% in 2018, based on the CPI. See "Key Information — Risk Factors — Risks Related to
Operating in Latin America — Argentina — Our results of operations may be adversely affected by
high and possibly increasing inflation in Argentina." and "Key Information — Risk Factors — Risks
Related to Operating in Latin America — Argentina — The credibility of several Argentine economic
indexes has been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our
ability to access the credit and capital markets." The impact of inflation on our salary costs, or wage inflation, and thus
on our statement of profit or loss and other comprehensive income varies depending on the fluctuation in exchange rates between
the Argentine peso and the U.S. dollar. In an environment where the Argentine peso is weakening against the U.S. dollar, the impact
of wage inflation will be partially offset, whereas in an environment where the Argentine peso is strengthening against the U.S.
dollar, the impact of wage inflation will be increased. As of December 31, 2018, approximately 34.1% of our employees were based
in Argentina, where wages can be influenced by current inflation rates. Assuming a constant exchange rate and no ability to increase
prices, for every 10.0% increase in wage inflation in Argentina we would experience an estimated decrease of approximately $6.8
million in net income for the year.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(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 company organized in the
Grand Duchy of Luxembourg, primarily engaged in building digital journeys that matter to millions of users through its subsidiaries
(hereinafter the “Company” or “Globant Lux” or “Globant Group”). The Company specializes in
providing innovative software solutions services by leveraging emerging technologies and trends.
The Company's principal operating subsidiaries
and countries of incorporation as of December 31, 2018 were the following: Sistemas UK Limited and We are London Limited in
the United Kingdom, Globant LLC in the United States of America (the “U.S.”), Sistemas Globales S.A., IAFH Global S.A.
and Dynaflows S.A. in Argentina, Sistemas Colombia S.A.S. in Colombia, Global Systems Outsourcing S.R.L. de C.V. in Mexico, Sistemas
Globales Uruguay S.A. and Difier S.A. in Uruguay, Globant Brasil Consultoria Ltda. in Brazil; Sistemas Globales Chile Asesorías
Limitada in Chile, Globant Peru S.A.C. in Peru, Globant India Private Limited in India, Globant Bel LLC in Belarus, Small Footprint
S.R.L. in Romania and Software Product Creation S.L. in Spain.
The Globant Group provides services from development
and delivery centers located in United States (San Francisco, New York, Seattle, Raleigh, Chicago and Dallas), Argentina (Buenos
Aires, Tandil, Rosario, Tucumán, Córdoba, Resistencia, Bahía Blanca, Mendoza, Mar del Plata and La Plata),
Uruguay (Montevideo), Colombia (Bogotá and Medellín), Brazil (São Paulo), Peru (Lima), Chile (Santiago), México
(México City), India (Pune and Bangalore), Spain (Madrid), Belarus (Minsk), Romania (Cluj) and United Kingdom (London) and
it also has client management centers in United States (San Francisco, New York, Winston-Salem and Miami), Brazil (São Paulo),
Colombia (Bogotá), Uruguay (Montevideo), Argentina (Buenos Aires) and the United Kingdom (London). The Company also has
centers of software engineering talent and educational excellence, primarily across Latin America.
Substantially all revenues are generated in
the U.S. and United Kingdom through subsidiaries located in those countries. The Company´s workforce is mainly located in
Latin America and to a lesser extent in India and 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, 2018. 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, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(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 initially adopted IFRS 9
Financial
Instruments
and IFRS 15
Revenue from Contracts with Customers
from January 1, 2018. The impact of the adoption of other
standards and interpretations issued by the IASB that are mandatorily effective at December 31, 2018 is not material and consequently
is not described.
IFRS 9
Financial Instruments
IFRS 9 sets out requirements for recognizing
and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces
IAS 39
Financial instruments: Recognition and Measurement
. IFRS 9 largely retains the existing requirements in IAS 39 for
the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial
assets of held to maturity, loans and receivables and available for sale. The adoption of IFRS 9 has not had a significant effect
on the Company's accounting policies related to financial liabilities. The impact of IFRS 9 on the classification and measurement
of financial assets is set out below.
Under IFRS 9, on initial recognition, a financial
asset is classified as measured at: amortised cost; Fair Value through Other Comprehensive Income (FVOCI); or Fair Value through
Profit or Loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a
financial asset is managed and its contractual cash flow characteristics.
A financial asset is measured at amortised
cost if both of the following conditions are met and is not designated as at FVTPL:
1) it is held within a business model whose
objective is to hold financial assets in order to collect contractual cash flows; and
2) its contractual terms give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A financial asset is measured at FVOCI if both
of the following conditions are met and is not designated as at FVTPL:
1) it is held within a business model whose
objective is achieved by both collecting contractual cash flows and selling financial assets; and
2) its contractual terms give rise on specified
dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
All financial assets not classified as measured
at amortised cost or FVOCI as described above, are measured at FVTPL.
The following table explains the original measurement
categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company's financial asset as at January
1, 2018.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S. dollars, except where
expressly indicated that amounts are stated in thousands of other currencies)
|
|
Original classification
under IAS 39
|
|
New classification
under IFRS 9
|
Cash and cash equivalents
|
|
Loans and receivables
|
|
Amortised cost
|
Trade receivables
|
|
Loans and receivables
|
|
Amortised cost
|
Other receivables
|
|
Loans and receivables
|
|
Amortised cost
|
Investments
|
|
|
|
|
Mutual funds
|
|
Held for trading
|
|
FVTPL
|
LEBACs
(1)
|
|
Available for sale
|
|
FVOCI
|
Other financial assets
|
|
|
|
|
Foreign exchange forwards and future contracts
|
|
Held for trading
|
|
FVTPL
|
Financial assets related to business combinations
|
|
FVTPL
|
|
FVTPL
|
Convertible notes
|
|
Loans and receivables
|
|
Amortised cost
|
Call option on minority interest
|
|
FVTPL
|
|
FVTPL
|
|
(1)
|
LEBACs were initially classified as held-to-maturity
investments (HTM). Under IAS 39, HTM were measured at amortised cost using the effective interest method, less any impairment.
However, during December, 2015, the Company sold some of those LEBACs and consequently, changed the classification of the remaining
LEBACs to Available-for-sale investments, since it was not permitted to classify investments as held-to-maturity in accordance
with IAS 39. Changes in the carrying amount of AFS financial assets relating to changes in foreign currency rates, interest income
calculated using the effective interest method were recognised in profit or loss. Other changes in the carrying amount of AFS
financial assets were recognized in other comprehensive income. Consequently, under IFRS 9 LEBACs continue to be measured on the
same basis than it was under IAS 39.
|
All financial assets and financial liabilities
continue to be measured on the same basis as is previously adopted under IAS 39.
Additionally, IFRS 9 replaces the 'incurred
loss' model in IAS 39, with an 'expected credit loss' model. The new impairment model applies to financial assets measured at amortised
cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses
are recognised earlier than under IAS 39. The Company's financial assets that are subject to IFRS 9's new expected credit loss
model are: cash and cash equivalents, trade receivables, other receivables, convertible notes and other financial assets related
to business combinations. However, the change in the impairment methodology under IFRS 9 did not have a material impact on the
Company's consolidated financial statements. Impairment losses related to trade and other receivables are presented separately
in the statement of profit or loss. As a result, for the years ended December 31, 2017 and 2016, the Company reclassified
an impairment gain that amounted to 5 and a loss of 928, respectively, recognised under IAS 39, from Selling, general and administrative
expenses and an impairment loss of 1,586 as of December 31, 2017 from Impairment of tax credits, to Net impairment (losses)
gain on financial assets in the statement of profit or loss and other comprehensive income.
IFRS 15
Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework
for determining whether, how much and when revenue is recognised. It replaced IAS 18
Revenue,
IAS 11
Construction Contracts
and related interpretations. The Company has adopted IFRS 15 using the cumulative effect method (without practical expedients)
with the effect of initially applying this standard recognised at the date of initial application, however, as per the management
of the Company's assessment, no effect had to be recognised at January 1, 2018. The details of the new significant accounting policies
and the nature of the changes to previous accounting policies in relation to the Company's services are set out below.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S. dollars, except where
expressly indicated that amounts are stated in thousands of other currencies)
Under IFRS 15, an entity recognises revenue
when or as performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance
obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.
Furthermore, extensive disclosures are required by IFRS 15.
The Company’s services are mainly performed
under both time-and-material and fixed-price contracts. For revenues generated under time-and-material contracts, revenues are
recognised as services are performed with the corresponding cost of providing those services reflected as cost of revenues when
incurred. The majority of such revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly
to the client. The Company's performance obligations are the hours performed. The Company has assessed that these performance obligations
are satisfied over time and that the method currently used to measure the progress towards complete satisfaction of these performance
obligations continue to be appropriate under IFRS 15.
The Company recognises revenues from fixed-price
contracts in the accounting periods in which services are rendered as described in note 3.3. The Company has assessed that these
performance obligations are satisfied over time, 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.
Accordingly, the methods used to measure the progress towards complete satisfaction of these performance obligations are appropriate
under IFRS 15.
|
•
|
New accounting pronouncements
|
The Company has not applied the following new
and revised IFRSs that have been issued but are not yet mandatorily effective:
IFRS 16
|
Leases
1
|
I
FRIC 23
|
Uncertainty over Income Tax Treatments
3
|
Amendments to IFRS 10 and IAS 28
|
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
2
|
Amendment to IAS 28
|
Long-term Interests in Associates and Joint Ventures
3
|
Amendment to IFRS 9
|
Prepayment Features with Negative Compensation
3
|
Amendments to IFRS 3 and 11 and IAS 12 and 23
|
Annual improvements 2015-2017 Cycle
4
|
Amendments to IAS 19
|
Plan Amendment, Curtailment or Settlement
3
|
Amendments to References to the Conceptual Framework in IFRS Standards
4
|
Amendment to IFRS 3
|
Definition of a business
5
|
Amendment to IAS 1 and IAS 8
|
Definition of material
6
|
1
Effective for annual periods beginning on
or after January 1, 2019. Early adoption is permitted if IFRS 15 has also been applied.
2
Effective date deferred indefinitely.
3
Effective for annual periods beginning on
or after January 1, 2019. Early adoption is permitted.
4
Effective for annual periods beginning on
or after January 1, 2019.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S. dollars, except where
expressly indicated that amounts are stated in thousands of other currencies)
5
Effective for business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020
and to asset acquisitions that occur on or after the beginning of that period. Earlier application is permitted.
6
Effective
for annual reporting periods beginning on or after January 1, 2020. Earlier application is permitted.
|
•
|
On January 13, 2016, the IASB issued the IFRS 16 which
specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting
model, with the distinction between operating and finance leases removed, requiring lessees to recognize assets and liabilities
for all leases unless the lease term is 12 months or less or the underlying asset has a low value to be accounted for by simply
recognizing an expense, typically straight line, over the lease term. Lessors continue to classify leases as operating or finance,
with IFRS 16's approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 supersedes IAS 17 and
related interpretations. Furthermore, extensive disclosures are required by IFRS 16. As of December 31, 2018, the Company has
non–cancellable operating lease commitments of $55,222 for office space and office equipment. IAS 17 does not require the
recognition of any right-of-use or liability for future payments for these leases; instead, certain information is disclosed as
operating lease commitment in note 27. If these arrangements meet the definition of a lease under IFRS 16, the Company will recognize
a right–of–use asset and a liability in respect of them unless they qualify of a low value or short–term leases
upon the application of IFRS 16. In contrast, for finance leases where the Company is a lessee, the Company recognizes an asset
and a related finance lease liability for the lease arrangement. The standard is effective for annual periods beginning on or
after January 1, 2019, with earlier application being permitted if IFRS 15 has also been applied. The Company has not opted for
early application.
|
The most significant impact is that
the Company recognizes new assets and liabilities for its operating leases of offices and delivery and development centers.
The Company will apply the practical
expedient to grandfather the definition of a lease on transition. This means that it applied IFRS 16 to all contracts entered into
before January 1, 2019 and identified as leases under IAS 17 and IFRIC 4.
The lessee applies the election consistently
to all of its leases.
The Company will apply IFRS 16 initially
on January 1, 2019. The Company has elected the practical expedient to not restate comparative information, and will recognise
the cumulative effect of initially applying the Standard as an adjustment to the opening balance of retained earnings at January
1, 2019. Based on a preliminary assessment, the Company expects to recognise a right-of-use asset of 46,865, the corresponding
liability of 48,547 and an adjustment to retained earnings of 1,682 at January 1, 2019, related to lease arrangements other than
short-term leases and leases of low-value assets.
|
•
|
On June 7, 2017, the IASB published IFRIC 23 "Uncertainty
over Income Tax Treatments", which was developed by the IFRS Interpretations Committee to clarify the accounting for uncertainties
in income taxes. The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. The interpretation
specifically considers:
|
|
◦
|
Whether tax treatments should be considered collectively.
|
|
◦
|
Assumptions for taxation authorities' examinations.
|
|
◦
|
The determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
|
|
◦
|
The effect of changes in facts and circumstances.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S. dollars, except where
expressly indicated that amounts are stated in thousands of other currencies)
The interpretation is effective for
annual periods beginning on or after January 1, 2019. Early adoption is permitted. The Company has not opted for early application.
The application of this interpretation did not have a material impact on the Company's Financial Statements.
|
•
|
On September 11, 2014, the IASB issued amendments to
IFRS 10 and IAS 28. These amendments clarify the treatment of the sale or contribution of assets from an investor to its associate
or joint venture, as follows:
|
|
◦
|
require full recognition in the investor's financial
statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3
Business Combinations);
|
|
◦
|
require the partial recognition of gains and losses where the assets do not constitute a business,
i.e. a gain or loss is recognised only to the extent of the unrelated investors' interests in that associate or joint venture.
|
These requirements apply regardless
of the legal form of the transaction, e.g. whether the sale or contribution of assets occurs by an investor transferring shares
in any subsidiary that holds the assets (resulting in loss of control of the subsidiary), or by the direct sale of the assets themselves.
On December 17, 2015 the IASB issued an amendment that defers the effective date of the September 2014 amendments to these
standards indefinitely until the research project on the equity method has been concluded. Earlier application of the September
2014 amendments continues to be permitted.
|
•
|
On October 12, 2017 the IASB published the amendment
to IAS 28 "Long-term Interests in Associates and Joint Ventures". This amendment clarifies that an entity applies IFRS
9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment
in the associate or joint venture but to which the equity method is not applied.
|
The amendments are to be applied retrospectively
but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after they first apply
IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4 Insurance Contracts,
to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible without the use of
hind sight.
The amendments are effective for periods
beginning on or after 1 January 2019. Earlier application is permitted. The Company has not opted for early application. The application
of this amendment did not have a material impact on the Company's Financial Statements.
|
•
|
On October 12, 2017 the IASB published the amendment
to IFRS 9 "Prepayment Features with Negative Compensation". This amendment modifies the existing requirements in IFRS
9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value
through other comprehensive income) even in the case of negative compensation payments. Under the amendments, the sign of the
prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also
be made in favor of the contracting party effecting the early repayment. The calculation of this compensation payment must be
the same for both the case of an early repayment penalty and the case of an early repayment gain.
|
The final amendments also contain
(in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability
measured at amortised cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity
recognises any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or
loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary
if in the past the effective interest rate was adjusted and not the amortised cost amount.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The amendments are effective
for periods beginning on or after January 1, 2019. Earlier application is permitted. The Company has not opted for early
application. The application of this amendment did not have a material impact on the Company's Financial Statements.
|
•
|
On December 12, 2017, the IASB issued amendments to the
following standards as result of the IASB's annual improvements 2015-2017 project:
|
|
◦
|
IFRS 3 (Business combinations): clarifies that when an
entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business.
|
|
◦
|
IFRS 11 (Joint arrangements): clarifies that when an entity obtains joint control of a business
that is a joint operation, the entity does not remeasure previously held interests in that business.
|
|
◦
|
IAS 12 (Income tax): clarifies that all income tax consequences of dividends (i.e. distribution
of profits) should be recognised in profit or loss, regardless of how the tax arises.
|
|
◦
|
IAS 23 (Borrowing costs): clarifies that if any specific borrowing remains outstanding after the
related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when
calculating the capitalisation rate on general borrowings.
|
The management of the Company do not
anticipate that the application of these amendments will have a material impact on the Group's consolidated financial statements.
The amendments are all effective for annual periods beginning on or after January 1, 2019.
|
•
|
On February 7, 2018, the IASB published the following
amendments to IAS 19 "Plan Amendment, Curtailment or Settlement":
|
|
◦
|
If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service
cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement.
|
|
◦
|
In addition, amendments have been included to clarify the effect of a plan amendment, curtailment
or settlement on the requirements regarding the asset ceiling.
|
The amendments are effective for periods
beginning on or after January 1, 2019. The Company has not opted for earlier application. The application of this amendment did
not have a material impact on the Company's Financial Statements
|
•
|
On March 29, 2018, the IASB issued the Amendments to
References to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14,
IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however update those
pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework.
Some pronouncements are only updated to indicate which version of the framework they are referencing to (the IASC framework adopted
by the IASB in 2001, the IASB framework of 2010, or the new revised framework of 2018) or to indicate that definitions in the
standard have not been updated with the new definitions developed in the revised Conceptual Framework. The management of
the Company does not anticipate that the application of these amendments will have a material impact on the Company's consolidated
financial statements. The amendments are effective for annual periods beginning on or after January 1, 2020.
|
|
•
|
On October 22, 2018, the IASB has issued 'Definition
of a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has
acquired a business or a group of assets.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The amendments in Definition
of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative
examples of IFRS 3 only. They:
|
◦
|
clarify that to be considered a business, an acquired set of activities and assets must include,
at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs;
|
|
◦
|
narrow the definitions of a business and of outputs by
focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs;
|
|
◦
|
add guidance and illustrative examples to help entities assess whether a substantive process has been acquired;
|
|
◦
|
remove the assessment of whether market participants are capable of replacing any missing inputs
or processes and continuing to produce outputs;
|
|
◦
|
and add an optional concentration test that permits a simplified assessment of whether an
acquired set of activities and assets is not a business.
|
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 business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning
of that period. Earlier application is permitted. The Company has not opted for early application.
|
•
|
On October 31, 2018, the IASB has issued 'Definition of
Material (Amendments to IAS 1 and IAS 8)' to clarify the definition of ‘material’ and to align the definition used
in the Conceptual Framework and the standards themselves.
|
The changes in Definition
of Material (Amendments to IAS 1 and IAS 8) all relate to a revised definition of 'material' which is quoted as follows from
the final amendments: "Information is material if omitting, misstating or obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which
provide financial information about a specific reporting entity". Three new aspects of the new definition should especially
be noted:
|
◦
|
Obscuring. The existing definition only focused on
omitting or misstating information, however, the Board concluded that obscuring material information with information that can
be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS
1.30A).
|
|
◦
|
Could reasonably be expected to influence. The existing definition referred to 'could influence'
which the Board felt might be understood as requiring too much information as almost anything ‘could’ influence the
decisions of some users even if the possibility is remote.
|
|
◦
|
Primary users. The existing definition referred only to 'users' which again the Board feared
might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information
to disclose.
|
The management of the Company
does not anticipate that the application of these amendments will have a material impact on the Company's consolidated financial
statements. These amendments are effective for annual reporting periods beginning on or after January 1, 2020. 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Non-controlling interest in the equity
of consolidated subsidiaries is identified separately from the Company's net liabilities therein. 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. Losses applicable to non-controlling shareholders in excess of the non-controlling interest
in the subsidiary's equity are allocated against the interest of the Company, except to the extent that the non-controlling interest
has a binding obligation and is able to make an additional investment to cover the losses.
Acquired companies are accounted for under
the acquisition method whereby they are included in the consolidated financial statements from their acquisition date.
Detailed below are the subsidiaries of
the Company whose financial statement line items have been included in these consolidated financial statements.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
|
|
Country
|
|
|
|
Percentage
ownership
|
|
|
|
of
|
|
Main
|
|
As
of December 31,
|
|
Company
|
|
incorporation
|
|
Activity
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Sistemas UK Limited
|
|
United Kingdom
|
|
Customer referral services and software development
support
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globant LLC
|
|
United States of America
|
|
Customer referral services and software development support
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Sistemas Colombia S.A.S.
|
|
Colombia
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Global Systems Outsourcing S.R.L. de C.V.
|
|
Mexico
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Software Product Creation S.L.
|
|
Spain
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globant España S.A. (sociedad unipersonal)
|
|
Spain
|
|
Investing activities
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Sistemas Globales Uruguay S.A.
|
|
Uruguay
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Sistemas Globales S.A.
|
|
Argentina
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
IAFH Global S.A.
|
|
Argentina
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Sistemas Globales Chile Ases. Ltda.
|
|
Chile
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globers S.A.
|
|
Argentina
|
|
Travel organization services
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globant Brasil Consultoria Ltda.
|
|
Brazil
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Huddle Investment LLP
(2)
|
|
United Kingdom
|
|
Investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
100.00
|
%
|
Huddle Group S.A.
(3)
|
|
Argentina
|
|
Software development and consultancy
|
|
|
-
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globant Peru S.A.C.
|
|
Peru
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globant India Private Limited
|
|
India
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Dynaflows S.A.
(4)
|
|
Argentina
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
66.73
|
%
|
|
|
66.73
|
%
|
We Are London Limited
|
|
United Kingdom
|
|
Service design consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
L4 Mobile LLC
(1)
|
|
United States of America
|
|
Software development and consultancy
|
|
|
-
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Difier S.A.
|
|
Uruguay
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Globant Bel LLC
(5)
|
|
Belarus
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Globant Canada Corp.
(6)
|
|
Canada
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
-
|
|
Globant France S.A.S.
(7)
|
|
France
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
-
|
|
|
|
-
|
|
Small Footprint S.R.L.
(8)
|
|
Romania
|
|
Software development and consultancy
|
|
|
100.00
|
%
|
|
|
-
|
|
|
|
-
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
|
|
Country
|
|
|
|
Percentage
ownership
|
|
|
|
of
|
|
Main
|
|
As
of December 31,
|
|
Company
|
|
incorporation
|
|
Activity
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Globant Ventures
S.A.S.
(9)
|
|
Argentina
|
|
Holding and investment activities
|
|
|
100.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
L4 Mobile LLC was acquired on November 14, 2016 (see note
24.6) and was merged into Globant, LLC on January 21, 2018.
|
|
(2)
|
Huddle Investment LLP was dissolved on June 30, 2017.
|
|
(3)
|
On December 31, 2017, Huddle Group S.A. was merged into
Sistemas Globales S.A. (currently under registration).
|
|
(4)
|
On October 26, 2018, the sellers exercised the put option
on the non-controlling interest of Dynaflows (see note 24.3).
|
|
(5)
|
Globant Bel LLC (previously known as PointSource LLC) was
acquired on May 11, 2018. Globant Bel LLC's financial statements were included in the consolidated financial statements as of
December 31, 2017, as explained in note 24.8.
|
|
(6)
|
Globant Canada Corp. was incorporated on March 27, 2017.
|
|
(7)
|
Globant France S.A.S. was incorporated on October 1, 2018.
|
|
(8)
|
Small Footprint S.R.L. was acquired on October 15, 2018
(note 24.9).
|
|
(9)
|
Globant Ventures S.A.S. was incorporated on November 20,
2018 (currently under registration).
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 – Business combinations
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:
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•
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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
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•
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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.
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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, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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 business combinations and will be recognized in 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 amortised 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 income and other 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, 2018, 2017 and 2016.
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 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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 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 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.
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.
3.4 – Leasing
Leases are classified as finance leases
whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are
classified as operating leases.
Finance leases which transfer to the Company
substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the
lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments
are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are recognized in finance costs in the consolidated statement of profit or
loss and other comprehensive income. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the
estimated useful life of the asset and the lease term.
Operating lease payments are recognized
as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the
time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are
recognized as an expense in the period in which they are incurred.
In the event that lease incentives are
received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is
recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative
of the time pattern in which economic benefits from the leased asset are consumed. The Company did not receive any lease incentives
in any of the years presented.
There are no situations in which the Company
qualifies as a lessor.
3.5 – Foreign currencies
Except in the case of Globant Brasil Consultoría
Ltda. (formerly TerraForum Consultoria Ltda.), Globers S.A. and We are London Limited, the Company and the other subsidiaries’
functional currency is the U.S. dollar. In preparing these consolidated financial statements, transactions in currencies other
than the U.S. dollar (“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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
In the case of Globant Brasil Consultoría
Ltda., Globers S.A. and We are London Limited, the functional currencies are the Brazilian Real, the Argentine Peso and the Great
Britain Pound, respectively. Assets and liabilities are translated at current exchange rates, 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 should 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, the 3-year cumulative rate of inflation for consumer prices and wholesale prices in Argentina reached a level
of about 123% and 119%, respectively. On that basis, Argentina was considered an hyperinflationary economy since July 1, 2018.
However, the Company has evaluated this situation and concluded that it has not significant impact on their financial statements
considering that the most significant Argentine subsidiaries have the U.S. dollars as their functional currency, except for Globers
S.A. as explained above.
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 profit or loss and other 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 balance sheet dates. 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, the Luxembourg company, is
subject to a corporate income tax rate of 15% if taxable income is lower than EUR 25, or to a corporate income tax rate of 19%
if taxable income exceeds EUR 30. If taxable income is between EUR 25 and EUR 30, the Luxembourg company is subject to corporate
income tax computed as follows: EUR 3.75 plus 39% of the tax base above EUR 25. The corporate income tax is increased by a contribution
of 7% to the unemployment fund. A municipal business tax also may be imposed at rates ranging from 6% to 12% depending on where
the undertaking is located. Thus, Luxembourg’s effective corporate income tax rate for 2018 is 27.08%. For the year 2019,
businesses with taxable income lower than EUR 25 will be subject to corporate income tax at a rate of 15% . Businesses with taxable
income between EUR 25 and EUR 30 will be subject to corporate income tax computed as follows: EUR 3.75 plus 33% of the tax base
above EUR 25 The corporate tax rate will be 18% for companies with taxable income in excess of EUR 30.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
In 2008, Globant España S.A. 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”), on which dividends distributed from
its foreign subsidiaries as well as any gain resulting from disposal are tax free. In order to be entitled to the tax exemption,
among other requirements, the main activity of Globant España S.A. 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.
During 2018, the Company’s Uruguayan and Argentinian subsidiaries distributed dividends to Globant España S.A. for
a total amount of 27,462. During 2016, the Company's Uruguayan, Colombian and Argentinian subsidiaries distributed dividends to
Globant España S.A. for a total amount of 85,064. The subsidiaries did not distribute dividends during 2017. If this tax
exemption would not applied, the applicable tax rate should be 25%. The Company´s Spanish subsidiary Software Product Creation
S.L. is subject to a 25% corporate income tax rate.
From a taxable income perspective, the
Argentine subsidiaries represent the Company’s most significant operations. Argentine companies are subject to a 30% corporate
income tax rate. In May 2008, IAFH Global S.A. and Sistemas Globales S.A. were notified by the Argentine Government through the
Ministry of Economy and Public Finance that they had been included within the promotional regime for the software industry established
under Law No. 25,922 (the “Software Promotion Regime”).
Under Argentina’s Software Promotion
Law No. 25,922 (Ley de Promoción de la Industria de Software), as amended by Law No. 26,692 and Decree No. 95/2018 (the
"Software Promotion Law"), the Company's operating subsidiaries in Argentina benefit from a 60% reduction in their corporate
income tax rate (as applied to income from promoted software activities) and a tax credit of up to 70% of amounts paid for certain
social security taxes (contributions) that may be offset against value-added tax liabilities. Law No. 26,692, the 2011 amendment
to the Software Promotion Law (“Law No. 26,692”), also allows such tax credits to be applied to reduce the Company's
Argentine subsidiaries’ corporate income tax liability by a percentage not higher than the subsidiaries’ declared percentage
of exports and extends the tax benefits under the Software Promotion Law until December 31, 2019.
The Software Promotion Law remains in effect
until December 31, 2019. On March 2019, a draft bill was introduced for its treatment by the Argentine Congress consisting of a
promotional regime for Knowledge Economy. The regime contains tax benefits similar to the ones provided by the Software Promotion
Law and is addressed to software companies as well as other companies involved in biotechnology, audiovisual production, exportable
professional services, robotic automation, aerospace and satellite industry, among others. Such bill has not yet been passed.
On December 29, 2017, Argentina enacted
a comprehensive tax reform (Law No. 27,430) through publication in the Official Gazette. The Law is effective from January 1, 2018.
Specifically, introduces amendments to income tax (both at corporate and individual levels), value added tax (VAT), tax procedural
law, criminal tax law, social security contributions, excise tax, tax on fuels, and tax on the transfer of real estate.
At a corporate level, the law decreases
the corporate income tax rate from 35% to 30% for fiscal years starting January 1, 2018 to December 31, 2019, and to 25% for fiscal
years starting January 1, 2020 and onwards. The Law also establishes dividend withholding tax rates of 7% for profits accrued during
fiscal years starting January 1, 2018 to December 31, 2019, and 13% for profits accrued in fiscal years starting January 1, 2020
and onwards. The new withholding rates apply to distributions made to shareholders qualifying as resident individuals or nonresidents.
Even though the combined effective rate
for shareholders on distributed income (corporate income tax rates plus dividend withholding rates on the after tax profit) will
be close to the prior 35% rate, this change is aimed at promoting the reinvestment of profits. Additionally, the Law repeals the
“equalization tax” (i.e., 35% withholding applicable to dividends distributed in excess of the accumulated taxable
income) for income accrued from January 1, 2018.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Regarding the rest of the Company’s
Argentine subsidiaries, Globers Travel, Dynaflows, and Globant Ventures SAS as they are not in included within the Software Promotion
Regime, are subject to a corporate income tax rate of 30% and will be applying the reduced tax rate incorporated by the Law No.
27,430 during next fiscal years.
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. Aggregate income tax relief arising under Sistemas Globales Uruguay S.A. for years ended December 31,
2018, 2017 and 2016 were 11,095, 2,488, 1,231, respectively. The Company’s Uruguayan subsidiary Difier S.A. is located outside
tax-free zone and according to Article 163 bis of Decree No. 150/007 the software development services performed are exempt from
income tax and value-added tax applicable as long as they are exported and utilized abroad. Difier S.A is 100% export-oriented.
The Colombian subsidiary, Sistemas Colombia
S.A.S. is subject to federal corporate income tax at the rate of 33% and a surcharge at the rate of 4% calculated on net income
before income tax. Until December 31, 2017, the Company's Colombian subsidiary Sistemas Colombia S.A.S. was subject to federal
corporate income tax at the rate of 34% and a surcharge at the rate of 6% calculated on net income before income tax. The Law 1.943
gradually reduce the corporate tax rates and eliminate the surcharge from January 1, 2019 and onwards.
The Company’s U.S. subsidiary Globant
LLC is subject to U.S. federal income tax at the rate of 21%. Fiscal years beginning before January 1, 2018 were subject to corporate
tax at the rate of 35%.
On December 22, 2017, the United Stated
enacted the Tax Cuts and Jobs Act (“Tax Act”) that instituted fundamental changes to the taxation of multinational
corporations. The Tax Act includes significant changes to the U.S. corporate income tax system, including a federal corporate rate
reduction from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, changes regarding net
operating loss carryforwards, and the transition of U.S. international taxation from a worldwide tax system to a territorial tax
system. Furthermore, as part of the transition to the new tax system, a one-time transition tax is imposed on a U.S. shareholder's
historical undistributed earnings of foreign affiliates. For certain eligible pass-through entities, the Tax Act provides for a
qualified business income deduction. The Tax Act introduces various changes to the Internal Revenue Code.
The reform also introduces base erosion
provisions for U.S corporations that are part of multinational group. For fiscal years beginning after December 31, 2017, a U.S
corporation is potentially subject to tax under the Base Erosion Anti-Abuse Tax provision (“BEAT”), if the controlled
group of which it is a part has sufficient gross receipts and derives a sufficient level of “base erosion tax benefits”.
On December 13, 2018, the Internal Revenue
Service (“IRS”) published a proposed regulation that provide guidance regarding the BEAT application. Currently, the
Treasury and the IRS are receiving public comments. The document will be official once it is published in the Federal Register.
The Company’s English subsidiaries
Sistemas UK Limited and We are London Limited are subject to corporate income tax at the rate of 18%. The rate is reduced to 17%
as from April 1, 2019. For the years 2017 and 2016, the corporate income tax rates were 19% and 20%, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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 Chilean subsidiary
Sistemas Globales Chile Ases. Ltda. is subject to corporate income tax at the rate of 27%. For the years 2017 and 2016, the corporate
income tax rates were 25.5% and 27.0%, respectively.
The Company’s Brazilian subsidiary
Globant Brasil Consultoría Ltda., applies 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 240,000 reais for the years 2017 and onwards.
The Company’s Peruvian subsidiary,
Globant Peru S.A.C. is subject to corporate income tax at the rate of 29.5%. For the years 2017 and 2016, the corporate income
tax rates were 29.5% and 25.25%, respectively.
The Company’s Mexican subsidiary,
Global Systems Outsourcing S.R.L. de C.V., is 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. The services provided by our Pune development
center 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 center commenced the provision of services, which occurred on August 3, 2017, 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 Company's subsidiary located in Belarus
is resident of the High Technology Park (“HTP”). HTP residents are exempted from corporate tax and VAT.
On December 21, 2017 the President of the
Republic of Belarus published the 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.
The Company's subsidiary located in Romania
is subject to income tax at the rate of 16%.
The Company´s subsidiary located
in Canada is subject to federal income tax at the rate of 15%. The rate is increased by the state income tax rate which is 11%
in the case of the state of British Columbia where the subsidiary is incorporated.
The corporate tax rate in France for most
companies is 33.33%. The Finance Bill for 2017 contains provisions for the progressive reduction of the corporate income tax rate
from the33.33% rate to 28% over the period 2017 to 2020. Also, there is a reduced tax rate of 15% for companies whose turnover
does not exceed EUR 7,63 million, but only for the first EUR 38,120 of taxable income. In 2019 the reduced rate will be applicable
to small and medium-size enterprises. To qualified as a small and medium-size enterprise, a company must employ less than 250 employees
and have an annual turnover not exceeding EUR 50 millions.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
According to the Finance Bill, the Company´s
subsidiary located in France is subject to tax at a rate of 28% during 2018. The rate applies for the first EUR 500.000.
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 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. In addition, deferred tax liabilities are not recognized if the temporary difference
arises from the initial recognition of goodwill.
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 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 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).
The Company does not have unrecognized
tax benefits or reserve for uncertain tax treatments that require disclosure in its consolidated financial statements.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
3.7.2. – Other taxes
On December 4, 2018, Argentina approved
the budget bill for 2019 by the Law 27,467. The Law amends the Customs Code to allow for duties to be applied to the exportation
of services. The Executive Power will be allowed to impose export duties of up to 30% on services until December 31, 2020. However,
the maximum rate is 12% for goods that were not subject to export duties before September 2, 2018 (i.e., the date Argentina imposed
new export duties on goods through a decree).
On January 2, 2019, the Argentine Executive
Power issued Decree No. 1201/2018 establishes an export duty on exports of services at a rate of 12% with a maximum limit of Argentine
pesos (ARS) 4 per each U.S. dollar of the amount arising from the invoice or equivalent document.
According to the Law and the Decree, a
service is considered exported when it was rendered from Argentina, and whose effective use or exploitation.
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 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.
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 and non-compete agreements. 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
3.9.2 – Intangible assets acquired
in a business combination
Intangible assets acquired in a business
combination (trademarks, customer relationships and non-compete agreements) 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,
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
- 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 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.
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.
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. No intangible asset has been derecognized in the last three years.
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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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 profit or loss and other comprehensive income for the year.
As of December 31, 2018 and 2017 the
Company recorded an impairment loss of 306 related to internally-generated intangible assets and 4,708 related to the intangible
assets acquired in business combinations. In 2016 no impairment losses were recorded.
3.11 – Provisions for contingencies
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 advisors.
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
On initial recognition, a financial asset
is classified as measured at: (i) amortised 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 – Amortised cost and effective interest method
A financial asset is measured at amortised
cost if both of the following conditions are met, and 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 amortised 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
3.12.2 – Financial assets measured
at FVOCI
A financial asset is measured at FVOCI
if both of the following conditions are met, and is not designated as at FVPL:
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-
|
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 derecognised. When a financial asset measured
at FVOCI is derecognised, the cumulative gain or loss previously recognised 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 amortised 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 ‘Finance income’
line.
3.12.4 - Derivative financial instruments
The Company enters into foreign exchange
forward contracts. 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.
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 – Other Financial Assets
Call option over non-controlling
interest in subsidiary
On October 22, 2015, the Company was granted
with a call option to acquire the remaining 33.27% interest in Dynaflows S.A, which can be exercised from October 22, 2020 till
October 21, 2021. At the same moment, the Company has also agreed on a put option with the non-controlling shareholders which gives
them the right to sell its remaining 33.27% interest on October 22, 2018 or October 22, 2020. As of December 31, 2018, the
sellers exercised the put option, as explained in note 24.3, and the Company derecognized the call option. As of December 31,
2017, the Company accounted for the call option at its fair value of 455, in a similar way to a call option over an entity’s
own equity shares and the initial fair value of the option was recognized in equity.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Clarice Subscription agreement
On May 14, 2015, the Company signed a subscription
agreement as described in note 24.2. According to this agreement, the Company will receive a fix amount of money in exchange of
a variable number of shares of the Company. According to IAS 32:11, a financial asset has been recognized in order to reflect the
contractual right to receive cash. As of December 31, 2018 and 2017, the Company has recorded 400 and 800 as current financial
assets, respectively.
3.12.7 – Impairment of financial
assets
The Company recognises 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 recognises 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.
For all other financial instruments, the
Company recognises 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.
Significant increase in credit risk
since initial recognition
In assessing whether the credit risk on
a financial instrument has increased significantly since initial recognition, the Company compares the risk of a default occurring
on the financial instrument at the reporting date with such risk at the date of initial recognition. In making this assessment,
the Company considers both quantitative and qualitative information that is reasonable and supportable, including forward-looking
information that is available without undue cost or effort. In particular, the following information is taken into account when
assessing whether credit risk has increased significantly since initial recognition:
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•
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external credit rating (as far as available)
|
|
•
|
significant deterioration in external market indicators
of credit risk for a particular financial instrument
|
|
•
|
actual or expected significant adverse changes in
business, financial or economic conditions that are expected to cause a significant decrease in the debtor's ability to meet its
debt obligations
|
|
•
|
actual or expected significant changes in the operating
results of the debtor
|
|
•
|
significant increases in credit risk on other financial
instruments of the same debtor
|
|
•
|
actual or expected significant adverse changes in
the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor's ability
to meet its debt obligations.
|
Regardless of the analysis above, 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Despite the foregoing, the Company assumes
that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument
is determined to have low credit risk at the reporting date. A financial asset is determined to have low credit risk if the financial
instrument has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near
term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability
of the borrower to fulfill its contractual cash flow obligations. The Company considers a financial asset to have low credit
risk when the asset has external credit rating of 'investment grade' in accordance with the globally understood definition, or
if an external rating is not available, if the counterparty has a strong financial position and there is no past due amounts. All
of the Company's current and non current investments are considered to have low credit risk.
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 reorganisation;
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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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.
3.12.8 – Derecognition of financial
assets
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 collateralised borrowing for the proceeds received.
On derecognition of a financial asset in
its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable
and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized
in profit or loss.
On derecognition of a financial asset other
than in its entirety (e.g. when the Company retains an option to repurchase part of a transferred asset), the Company allocates
the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and
the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference
between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the
part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income
is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated
between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values
of those parts.
3.13 – Financial liabilities and equity instruments
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
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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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 amortised 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 amortised 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.
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.
Cash and cash equivalents as shown in the
statement of cash flows only includes cash and bank balances and time deposits.
3.15 – Reimbursable expenses
Out-of-pocket and travel expenses are recognized
as expense in the statements of income for the year. Reimbursable expenses are billed to customers and recorded net of the related
expense.
3.16 - Share-based compensation plan
The Company has a share-based compensation
plan for executives and employees of the Company and its subsidiaries. Equity-settled share-based 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 transactions are set forth in note 23.
The fair value determined at the grant
date of the equity-settled share-based payments is recognised 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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 and the income related to the
valuation of the financial assets measured at fair value through other 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.
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:
In accounting for fixed-price
contracts the Company applies 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.
These methods are followed where
reasonably dependable estimates of revenues and costs can be made. Fixed-price contracts generally correspond for services over
a period of 12 months or less. 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 income and other comprehensive income. Contract losses for the periods
presented in these consolidated financial statements were immaterial.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
|
2.
|
Goodwill impairment analysis
|
Goodwill is measured as the excess
of the cost of an acquisition over the sum of the amounts assigned to tangible and intangible assets acquired less liabilities
assumed. The determination of the fair value of the tangible and intangible assets involves certain judgments and estimates. These
judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate
weighted average cost of capital.
The Company evaluates goodwill
for impairment at least annually or more frequently when there is an indication that the unit may be impaired. When determining
the fair value of the Company's cash generating unit, the Company utilizes the income approach using discounted cash flow. The
income approach considers various assumptions including increase in headcount, headcount utilization rate, income from each country
and revenue per employee, income tax rates and discount rates. The assumptions considered by the Company as of December 31, 2018
are the following: projected cash flows for the following five years, the average growth rate considered was 20.0% and the rate
used to discount cash flows was 16.94%. The long-term rate used to extrapolate cash flows beyond the projected period was 3%.
Any 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 fair
value and could result in an impairment charge. Based upon the Company's evaluation of goodwill, no impairments were recognized
during 2018, 2017 and 2016.
Determining the consolidated
provision for income tax expenses, deferred income tax assets and liabilities requires significant 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.
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4.
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Impairment of financial assets
|
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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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, 2018, 2017
and 2016, the Company recorded an impairment of trade receivables for an amount of 3,421, a recovery of 5 and an impairment of
928, respectively, 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, 2018
and 2017, the Company recorded an impairment of tax credits for an amount of 48 and 1,586, 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.
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5.
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Share-based compensation plan
|
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.
Determining the fair value of
the share-based awards at the grant date requires judgments. 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. For 2012 Equity Incentive Plan, as the Company's shares were not publicly traded the fair value was determined using
the market approach technique based on the value per share of private placements. The Company had gone in the past through a series
of private placements in which new shares have been issued. The Company understood that the price paid for those new shares was
a fair value of those shares at the time of the placement. In January 2012, Globant España S.A. had a capital contribution
from a new shareholder, which included cash plus share options granted to the new shareholder, therefore, the Company considered
that amount to reflect the fair value of their shares. The fair value of the shares related to this private placement resulted
from the following formula: cash minus fair value of share options granted to new shareholder divided by number of newly issued
shares. The fair value of the share options granted to the new shareholder was determined using the same variables and methodologies
as the share options granted to the employees. After the reorganization in December 2012, shares of Globant S.A (Luxembourg) were
sold by existing shareholders in a private placement to WPP. The fair value of the shares related to this private placement results
from the total amount paid by WPP to the existing shareholders.
Expected volatility:
Since
January 1, 2018 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. Before 2018, as the Company did not have sufficient trading history for the
purpose of valuing the share options, the expected volatility of their shares was estimated by using the average historic price
volatility of the NASDAQ 100 Telecommunication Index.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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.
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6.
|
Call option over non-controlling interest
|
As of December 31, 2017,
the Company held a call option to acquire the 33.27% of the remaining interest in Dynaflows S.A., which could be exercised from
October 22, 2020 until October 21, 2021. The Company calculated the fair value of this option using the Black-Scholes option model.
The Black-Scholes model requires the input of highly subjective assumptions, including the expected volatility, maturity, risk-free
interest rate, value of the underlying asset and dividend yield.
Expected volatility:
The
Company has considered annualized volatility as multiples of EBITDA and Revenue of publicly traded companies in the technology
business in the U.S., Europe and Asia since 2008.
Maturity:
The combination
between the call and put options (explained in note 24.3) implied that, assuming no liquidity restrictions as part of the Company
at the moment that the option was exercisable and considering that both parties wanted to maximize their benefits, the Company
would acquire the minority shareholders shares at the date that this option was exercisable. Therefore, the Company has assumed
that the maturity date of call option is October 22, 2020.
Risk free rate:
The risk-free
rate for periods within the contractual life of the option was based on the Argentinean bonds (BONAR) with a quote in the U.S. market
with maturities similar to the expected term of the option.
Value of the underlying assets:
The Company considered a multiple of EBITDA and Revenue resulting from the implied multiple in Dynaflows adjusted by the lack of
control.
Dividend yield:
The Company
did not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield
of zero.
As of December 31, 2018,
the Company derecognized the call option (see note 24.3).
|
7.
|
Recoverability of internally generated intangible
assets
|
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, 2018 and 2017 with a carrying amount of 7,855 and 6,395, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
A detailed recoverability analysis
has been carried out by the Company, considering both, revenue from customers in case of the assets sold to third parties and internal
usage for those assets that are used internally, and, as a result, the Company has recognized an impairment of 306 as of December 31,
2018. In 2017 and 2016 no impairment losses were recorded.
|
8.
|
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 converting future amounts (e.g. cash flows or income
and expenses) to a single current (i.e. discounted) amount. If necessary the Company engages third party qualified valuers to perform
the valuation. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities
are disclosed in note 28.8.
|
9.
|
Useful lives of property, equipment and intangible
assets
|
The Company reviews the estimated
useful lives of property, equipment and intangible assets at the end of each reporting period. The Company determined that the
useful lives of the assets included as property, equipment and intangible assets are in accordance with their expected lives.
|
10.
|
Provision for contingencies
|
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 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.
|
11.
|
Recoverability of intangible assets acquired in business
combinations, other than goodwill
|
The Company evaluates intangible
assets acquired in business combinations for impairment at least annually or more frequently when there is an indication that the
asset may be impaired. 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). The recoverable amount is the higher of fair value less costs of disposal and value in
use. The determination of the fair value of intangible assets acquired in business combinations involves certain judgments and
estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future
and the appropriate weighted average cost of capital. When determining the fair value, we utilize the income approach using discounted
cash flow.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
A total amount of 4,708 of impairment
loss related to the intangible assets acquired in business combinations was recognized as of December 31, 2017 and is included
as other operating expenses. The impairment was recognized as a result of the Company's evaluation of such intangible assets, upon
which the Company projected lower future cash flows from the related customer relationships. In 2018 and 2016 no impairment losses
were recorded.
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 including media and entertainment, travel
and hospitality, professional services, technology and telecommunications, banks, financial services and insurance and consumer,
retail and manufacturing, among others. 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 25, the Company operates in a single
operating and reportable segment.
|
|
For the year ended December 31,
|
|
By Industry vertical
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Media and Entertainment
|
|
|
133,093
|
|
|
|
99,640
|
|
|
|
67,912
|
|
Travel & Hospitality
|
|
|
89,212
|
|
|
|
68,400
|
|
|
|
63,414
|
|
Banks, Financial Services and Insurance
|
|
|
114,439
|
|
|
|
94,994
|
|
|
|
59,786
|
|
Technology & Telecommunications
|
|
|
67,310
|
|
|
|
60,648
|
|
|
|
51,378
|
|
Professional Services
|
|
|
52,318
|
|
|
|
40,660
|
|
|
|
42,286
|
|
Consumer, Retail & Manufacturing
|
|
|
54,087
|
|
|
|
36,025
|
|
|
|
28,710
|
|
Other Verticals
|
|
|
11,851
|
|
|
|
13,072
|
|
|
|
9,370
|
|
TOTAL
|
|
|
522,310
|
|
|
|
413,439
|
|
|
|
322,856
|
|
|
|
For the year ended December 31,
|
|
By Currency
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
United States dollar (USD)
|
|
|
447,314
|
|
|
|
354,824
|
|
|
|
290,636
|
|
European euro (EUR)
|
|
|
30,087
|
|
|
|
23,518
|
|
|
|
12,060
|
|
Pound sterling (GBP)
|
|
|
6,550
|
|
|
|
4,107
|
|
|
|
4,988
|
|
Argentine peso (ARS)
|
|
|
20,651
|
|
|
|
12,856
|
|
|
|
9,948
|
|
Mexican peso (MXN)
|
|
|
11,711
|
|
|
|
6,942
|
|
|
|
—
|
|
Others
|
|
|
5,997
|
|
|
|
11,192
|
|
|
|
5,224
|
|
TOTAL
|
|
|
522,310
|
|
|
|
413,439
|
|
|
|
322,856
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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 Contract Type
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Time and material contracts
|
|
|
431,295
|
|
|
|
376,718
|
|
|
|
297,476
|
|
Fixed-price contracts
|
|
|
90,980
|
|
|
|
36,687
|
|
|
|
25,349
|
|
Others
|
|
|
35
|
|
|
|
34
|
|
|
|
31
|
|
TOTAL
|
|
|
522,310
|
|
|
|
413,439
|
|
|
|
322,856
|
|
NOTE 6 – COST OF REVENUES AND
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
6.1 - Cost of revenues
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Salaries, employee benefits and social security taxes
|
|
|
(293,171
|
)
|
|
|
(239,013
|
)
|
|
|
(176,320
|
)
|
Shared-based compensation expense
|
|
|
(4,248
|
)
|
|
|
(5,666
|
)
|
|
|
(917
|
)
|
Depreciation and amortization expense
|
|
|
(4,022
|
)
|
|
|
(4,339
|
)
|
|
|
(4,281
|
)
|
Travel and housing
|
|
|
(6,623
|
)
|
|
|
(6,631
|
)
|
|
|
(6,586
|
)
|
Office expenses
|
|
|
(2,082
|
)
|
|
|
(1,692
|
)
|
|
|
(1,084
|
)
|
Professional services
|
|
|
(5,248
|
)
|
|
|
(5,005
|
)
|
|
|
(1,754
|
)
|
Promotional and marketing expenses
|
|
|
(1,575
|
)
|
|
|
(244
|
)
|
|
|
(170
|
)
|
Recruiting, training and other employee expenses
|
|
|
(1,382
|
)
|
|
|
(415
|
)
|
|
|
(216
|
)
|
Taxes
|
|
|
(203
|
)
|
|
|
(166
|
)
|
|
|
(67
|
)
|
TOTAL
|
|
|
(318,554
|
)
|
|
|
(263,171
|
)
|
|
|
(191,395
|
)
|
6.2 - Selling, general and administrative expenses
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Salaries, employee benefits and social security taxes
|
|
|
(47,805
|
)
|
|
|
(41,956
|
)
|
|
|
(29,842
|
)
|
Shared-based compensation expense
|
|
|
(8,665
|
)
|
|
|
(8,798
|
)
|
|
|
(2,703
|
)
|
Rental expenses
|
|
|
(17,185
|
)
|
|
|
(13,739
|
)
|
|
|
(12,032
|
)
|
Office expenses
|
|
|
(11,602
|
)
|
|
|
(11,800
|
)
|
|
|
(10,200
|
)
|
Professional services
|
|
|
(13,754
|
)
|
|
|
(9,885
|
)
|
|
|
(7,599
|
)
|
Travel and housing
|
|
|
(6,259
|
)
|
|
|
(4,460
|
)
|
|
|
(5,054
|
)
|
Taxes
|
|
|
(6,126
|
)
|
|
|
(6,140
|
)
|
|
|
(5,010
|
)
|
Depreciation and amortization expense
|
|
|
(16,521
|
)
|
|
|
(11,789
|
)
|
|
|
(6,637
|
)
|
Recruiting, training and other employee expenses
|
|
|
(1,507
|
)
|
|
|
(941
|
)
|
|
|
(761
|
)
|
Promotional and marketing expenses
|
|
|
(3,763
|
)
|
|
|
(1,305
|
)
|
|
|
(1,123
|
)
|
TOTAL
|
|
|
(133,187
|
)
|
|
|
(110,813
|
)
|
|
|
(80,961
|
)
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest gain
|
|
|
407
|
|
|
|
479
|
|
|
|
60
|
|
Gain arising from financial assets measured at fair value through PL
|
|
|
3,869
|
|
|
|
923
|
|
|
|
3,619
|
|
Gain arising from financial assets measured at fair value through OCI
(*)
|
|
|
258
|
|
|
|
240
|
|
|
|
6,325
|
|
Foreign exchange gain
|
|
|
6,884
|
|
|
|
6,314
|
|
|
|
6,211
|
|
Subtotal
|
|
|
11,418
|
|
|
|
7,956
|
|
|
|
16,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on borrowings
|
|
|
(152
|
)
|
|
|
(95
|
)
|
|
|
(41
|
)
|
Loss arising from financial assets measured at fair value through PL
|
|
|
(1,106
|
)
|
|
|
(620
|
)
|
|
|
(2,966
|
)
|
Foreign exchange loss
|
|
|
(14,321
|
)
|
|
|
(9,043
|
)
|
|
|
(14,831
|
)
|
Other interest
|
|
|
(525
|
)
|
|
|
(788
|
)
|
|
|
(776
|
)
|
Other
|
|
|
(864
|
)
|
|
|
(490
|
)
|
|
|
(613
|
)
|
Subtotal
|
|
|
(16,968
|
)
|
|
|
(11,036
|
)
|
|
|
(19,227
|
)
|
TOTAL
|
|
|
(5,550
|
)
|
|
|
(3,080
|
)
|
|
|
(3,012
|
)
|
(*) As of December 31, 2018 and 2017 includes 12 and 27,
respectively, related to the gain recognized as Other comprehensive income as of December 31, 2017 and 2016, respectively.
NOTE 8 – INCOME TAXES
8.1 – INCOME TAX RECOGNIZED IN PROFIT AND LOSS
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
|
(23,324
|
)
|
|
|
(14,053
|
)
|
|
|
(15,057
|
)
|
Deferred tax gain
(1)
|
|
|
7,456
|
|
|
|
5,972
|
|
|
|
730
|
|
TOTAL INCOME TAX EXPENSE
|
|
|
(15,868
|
)
|
|
|
(8,081
|
)
|
|
|
(14,327
|
)
|
|
(1)
|
As of December 31, 2017, includes 1,004 of deferred
tax gain related to changes in tax rates.
|
Substantially all revenues are generated
in the U.S. and United Kingdom through subsidiaries located in those countries. The Company´s workforce is mainly located
in Latin America and to a lesser extent in India and U.S.
The following table provides a reconciliation
of the statutory tax rate to the effective tax rate. As the operations of the Argentine subsidiaries are the most significant source
of net taxable income of the Company, the following reconciliation has been prepared using the Argentine tax rate:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Profit before income tax
|
|
|
67,464
|
|
|
|
38,544
|
|
|
|
50,189
|
|
Tax rate (note 3.7.1.1)
|
|
|
30
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Income tax expense
|
|
|
(20,239
|
)
|
|
|
(13,490
|
)
|
|
|
(17,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentine Software Promotion Regime (note 3.7.1.1)
|
|
|
6,844
|
|
|
|
3,541
|
|
|
|
7,189
|
|
Effect of different tax rates of subsidiaries operating in countries other than Argentina
|
|
|
4,352
|
|
|
|
2,019
|
|
|
|
1,069
|
|
Non-deductible expenses
|
|
|
1,130
|
|
|
|
1,187
|
|
|
|
2,301
|
|
Tax loss carry forward not recognized
|
|
|
(1,462
|
)
|
|
|
(374
|
)
|
|
|
(878
|
)
|
Exchange difference
|
|
|
(8,777
|
)
|
|
|
(860
|
)
|
|
|
(6,593
|
)
|
Other
|
|
|
2,284
|
|
|
|
(104
|
)
|
|
|
151
|
|
INCOME TAX EXPENSE RECOGNIZED IN PROFIT AND LOSS
|
|
|
(15,868
|
)
|
|
|
(8,081
|
)
|
|
|
(14,327
|
)
|
8.2 – DEFERRED TAX ASSETS
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Share-based compensation plan
|
|
|
4,731
|
|
|
|
5,772
|
|
Provision for vacation and bonus
|
|
|
6,624
|
|
|
|
1,309
|
|
Intercompany trade payables
|
|
|
2,207
|
|
|
|
3,126
|
|
Property and equipment
|
|
|
716
|
|
|
|
756
|
|
Goodwill
|
|
|
(1,005
|
)
|
|
|
(479
|
)
|
Contingencies
|
|
|
546
|
|
|
|
—
|
|
Others
|
|
|
1,236
|
|
|
|
297
|
|
Loss carryforward
(1)
|
|
|
1,861
|
|
|
|
2,405
|
|
TOTAL DEFERRED TAX ASSETS
|
|
|
16,916
|
|
|
|
13,186
|
|
|
(1)
|
As of December 31, 2018 and 2017, the detail of the
loss carryforward is as follows:
|
|
|
2018
|
|
2017
|
Company
|
|
Loss
carryforward
|
|
|
Expiration date
|
|
Loss
carryforward
|
|
|
Expiration date
|
Globant S.A.
|
|
|
547
|
|
|
does not expire
|
|
|
737
|
|
|
does not expire
|
Dynaflows S.A.
|
|
|
96
|
|
|
2020
|
|
|
80
|
|
|
2020
|
Globant Brasil Consultoría Ltda.
(2)
|
|
|
887
|
|
|
does not expire
|
|
|
1,219
|
|
|
does not expire
|
We Are London Limited
|
|
|
116
|
|
|
does not expire
|
|
|
253
|
|
|
does not expire
|
Sistemas UK Limited
|
|
|
215
|
|
|
does not expire
|
|
|
116
|
|
|
does not expire
|
|
|
|
1,861
|
|
|
|
|
|
2,405
|
|
|
|
|
(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.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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, 2018, no deferred
tax liability has been recognised 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.
The roll forward of the deferred tax assets/(liabilities) presented
in the consolidated financial position is as follows:
2018
|
|
Opening
balance
|
|
|
Recognised in
profit or loss
(*)
|
|
|
Recognised in
other
comprehensive
|
|
|
Recognised
directly in
equity
|
|
|
Acquisitions/
disposals
|
|
|
Closing
balance
|
|
Deferred tax assets/(liabilities) in relation to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation plan
|
|
|
5,772
|
|
|
|
915
|
|
|
|
—
|
|
|
|
2,367
|
|
|
|
(4,323
|
)
|
|
|
4,731
|
|
Provision for vacation and bonus
|
|
|
1,309
|
|
|
|
5,315
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,624
|
|
Intercompany trade payables
|
|
|
3,126
|
|
|
|
(919
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,207
|
|
Property and equipment
|
|
|
756
|
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
716
|
|
Goodwill
|
|
|
(479
|
)
|
|
|
(526
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,005
|
)
|
Contingencies
|
|
|
—
|
|
|
|
546
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
546
|
|
Others
|
|
|
297
|
|
|
|
939
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,236
|
|
Subtotal
|
|
|
10,781
|
|
|
|
6,230
|
|
|
|
—
|
|
|
|
2,367
|
|
|
|
(4,323
|
)
|
|
|
15,055
|
|
Loss carryforward
|
|
|
2,405
|
|
|
|
321
|
|
|
|
(165
|
)
|
|
|
—
|
|
|
|
(700
|
)
|
|
|
1,861
|
|
TOTAL
|
|
|
13,186
|
|
|
|
6,551
|
|
|
|
(165
|
)
|
|
|
2,367
|
|
|
|
(5,023
|
)
|
|
|
16,916
|
|
|
(*)
|
Includes foreign exchange loss of 905.
|
2017
|
|
Opening
balance
|
|
|
Recognised
in
profit or loss
|
|
|
Recognised in
other
comprehensive
|
|
|
Recognised
directly in
equity
|
|
|
Acquisitions/
disposals
|
|
|
Closing
balance
|
|
Deferred tax assets/(liabilities) in relation to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation plan
|
|
|
4,919
|
|
|
|
1,026
|
|
|
|
—
|
|
|
|
1,400
|
|
|
|
(1,573
|
)
|
|
|
5,772
|
|
Provision for vacation and bonus
|
|
|
1,339
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,309
|
|
Intercompany trade payables
|
|
|
—
|
|
|
|
3,126
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,126
|
|
Property and equipment
|
|
|
(298
|
)
|
|
|
1,054
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
756
|
|
Goodwill
|
|
|
(169
|
)
|
|
|
(310
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(479
|
)
|
Contingencies
|
|
|
31
|
|
|
|
(31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Others
|
|
|
130
|
|
|
|
167
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
297
|
|
Subtotal
|
|
|
5,952
|
|
|
|
5,002
|
|
|
|
—
|
|
|
|
1,400
|
|
|
|
(1,573
|
)
|
|
|
10,781
|
|
Loss carryforward
|
|
|
1,739
|
|
|
|
970
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(304
|
)
|
|
|
2,405
|
|
TOTAL
|
|
|
7,691
|
|
|
|
5,972
|
|
|
|
—
|
|
|
|
1,400
|
|
|
|
(1,877
|
)
|
|
|
13,186
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 9 – EARNINGS PER SHARE
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year attributable to owners of the Company
|
|
|
51,677
|
|
|
|
30,539
|
|
|
|
35,876
|
|
Weighted average number of shares (in thousands) for the purpose of basic earnings per share
|
|
|
35,746
|
|
|
|
34,919
|
|
|
|
34,402
|
|
Weighted average number of shares (in thousands) for the purpose of diluted earnings per share
|
|
|
36,685
|
|
|
|
36,094
|
|
|
|
35,413
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
1.45
|
|
|
$
|
0.87
|
|
|
$
|
1.04
|
|
DILUTED EARNINGS PER SHARE
|
|
$
|
1.41
|
|
|
$
|
0.84
|
|
|
$
|
1.01
|
|
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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Shares deemed to be issued in respect of employee options
|
|
|
205,940
|
|
|
|
603,159
|
|
|
|
1,021,250
|
|
NOTE 10 – INVESTMENTS
10.1 – Investments
|
|
As of December 31,
|
|
Current
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Mutual funds
(1)
|
|
|
4,050
|
|
|
|
7,620
|
|
Bills issued by the Argentine Central Bank ("LEBACs")
(2)
|
|
|
—
|
|
|
|
527
|
|
Bills issued by the Treasury of the Argentine Republic ("LETEs")
(2)
|
|
|
1,015
|
|
|
|
—
|
|
Bills issued by the Treasury Department of the U.S. ("T-Bills")
(2)
|
|
|
3,493
|
|
|
|
—
|
|
Capitalizable bills issued by the Treasury of the Argentine Republic ("LECAPs")
(2)
|
|
|
77
|
|
|
|
—
|
|
TOTAL
|
|
|
8,635
|
|
|
|
8,147
|
|
|
(1)
|
Measured at fair value through profit or loss.
|
|
(2)
|
Measured at fair value through other comprehensive income.
|
|
|
As of December 31,
|
|
Non current
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Contribution to risk funds
(3)
|
|
|
527
|
|
|
|
—
|
|
TOTAL
|
|
|
527
|
|
|
|
—
|
|
|
(3)
|
On December 27, 2018, the Company signed an agreement pursuant
to which the Company made a contribution to the risk fund of a Mutual Guarantee Company. Such contribution accrues an interest
which is collectible on a quarterly basis. As of December 31, 2018, the Company has recorded 527 as a non current investment,
measured at amortised cost.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
10.2 – Investments in associates
CHVG investment
As of December 31, 2018 and 2017,
the Company owns the 40% of total shares of CHVG S.A. ("CHVG") and accounted for this investment using the equity method.
On January 15, 2019, the Company sold the shares of CHVG S.A for a total amount of 10 (ARS 390).
Collokia investment
As of December 31, 2017, the Company
has a 19.5% of participation in Collokia LLC for an amount of 800.
On February 25, 2016, the Company signed
a subscription agreement with Collokia LLC, through which Collokia LLC agreed to increase its capital by issuing 55,645 preferred
units, from which the Company acquired 20,998 at the price of $23.81 per share for a total amount of 500. After this subscription,
the Company has a 19.5% of participation in Collokia LLC for a total amount of 800 and accounted for this investment using the
equity method considering that the Company has significant influence over the operating and governance decisions of Collokia LLC,
as the participation in the board of director, the approval of budget and business plan, among other decisions.
As of December 31, 2018, indications that the investment
in Collokia may not be recovered arose and the Company performed an impairment test. As a consequence, an impairment loss 800 was
recognized and is included in Other income, net.
Acamica investment
On January 26, 2016, the Company
signed a subscription agreement with Ignacio Moreno, Tomás Escobar, Gonzalo Orsi and Juan Badino (jointly "the Founders");
Fitory S.A., a company organized under the laws of Uruguay; Wayra Argentina S.A., a corporation organized under the laws of Argentina;
Stultum Pecuniam Ventures LLC, a limited liability company organized under the laws of the state of Washington, United States;
Ms. Eun Young Hwang ("Rebecca"); Acamica S.A., a company organized under the laws of Argentina ("Acamica Argentina")
and Acamica Inc, a corporation organized under the laws of the state of Delaware, United States ("Acamica U.S." and together
with Acamica Argentina, the "Acamica Group Companies") whereas the Founders own 100% of the capital share of Acamica
Group Companies and formed a new company organized under the laws of Spain ("Holdco") which owned 100% of the capital
shares of Acamica U.S. and 97% of the capital shares of Acamica Argentina.
On January 3, 2017, pursuant to the terms
of the subscription agreement the Company made a capital contribution of 750 to the Acamica Tecnologías S.L. (previously
referred as Holdco) in exchange for a 20% ownership stake in the entity. On May 17, 2018, the Company signed a new share purchase
and subscription agreement with Fitory S.A., Stultum Pecunian Ventures, LLC, Wayra Argentina S.A., Eun Young Hwang and Acámica
Tecnologías S.A. Pursuant to such agreement, the Company purchased additional shares for an amount of 3,250. As of December 31,
2018, the Company has 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 participation in the board of director, the approval of budget and business plan, among other decisions.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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 share on the profit or loss
or other comprehensive income of all the above-mentioned investments for the years ended December 31, 2018, 2017 and 2016
were not significant individually nor in the aggregate, except for the impairment recognized in Collokia in 2018.
NOTE 11 – TRADE RECEIVABLES
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Accounts receivable
(1)
|
|
|
101,754
|
|
|
|
71,846
|
|
Unbilled revenue
|
|
|
13,101
|
|
|
|
8,841
|
|
Subtotal
|
|
|
114,855
|
|
|
|
80,687
|
|
Less: Allowance for doubtful accounts
|
|
|
(3,957
|
)
|
|
|
(609
|
)
|
TOTAL
|
|
|
110,898
|
|
|
|
80,078
|
|
|
(1)
|
Includes amounts due from related parties of 993 and 463 as of December 31, 2018 and 2017 (see note 22.1).
|
Allowance for doubtful accounts
The following tables detail the risk profile of trade receivables
based on the Company's provision matrix as of December 31, 2018 and 2017.
December 31, 2018
|
|
Trade receivables - days past due
|
|
|
|
< 30
|
|
|
31 - 60
|
|
|
61 - 90
|
|
|
91-120
|
|
|
> 120
|
|
|
Total
|
|
Expected credit loss rate
|
|
|
0.06
|
%
|
|
|
1.90
|
%
|
|
|
4.40
|
%
|
|
|
11.90
|
%
|
|
|
85.90
|
%
|
|
|
|
|
Estimated total gross carrying amount at default
|
|
|
17,815
|
|
|
|
6,843
|
|
|
|
2,814
|
|
|
|
2,778
|
|
|
|
3,801
|
|
|
|
34,051
|
|
Lifetime ECL
|
|
|
107
|
|
|
|
130
|
|
|
|
124
|
|
|
|
331
|
|
|
|
3,265
|
|
|
|
3,957
|
|
December 31, 2017
|
|
Trade receivables - days past due
|
|
|
|
|
|
|
< 30
|
|
|
31 - 60
|
|
|
61 - 90
|
|
|
91-120
|
|
|
> 120
|
|
|
Total
|
|
Expected credit loss rate
|
|
|
0.19
|
%
|
|
|
0.84
|
%
|
|
|
2.74
|
%
|
|
|
8.58
|
%
|
|
|
100.00
|
%
|
|
|
|
|
Estimated total gross carrying amount at default
|
|
|
18,513
|
|
|
|
4,140
|
|
|
|
878
|
|
|
|
902
|
|
|
|
438
|
|
|
|
24,871
|
|
Lifetime ECL
|
|
|
35
|
|
|
|
35
|
|
|
|
24
|
|
|
|
77
|
|
|
|
438
|
|
|
|
609
|
|
The movements in the allowance are calculated based on lifetime
expected credit loss model for 2018 and incurred loss model for 2017 and 2016.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The following table shows the movement in ECL that has been
recognised for trade receivables in accordance with the simplified approach:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(609
|
)
|
|
|
(617
|
)
|
|
|
(438
|
)
|
Additions, net of recoveries
|
|
|
(3,421
|
)
|
|
|
5
|
|
|
|
(928
|
)
|
Write-off of receivables
|
|
|
73
|
|
|
|
3
|
|
|
|
749
|
|
Balance at end of year
|
|
|
(3,957
|
)
|
|
|
(609
|
)
|
|
|
(617
|
)
|
The average credit period on sales is 65
days. No interest is charged on trade receivables. 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 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.
NOTE 12 – OTHER RECEIVABLES
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Other receivables
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Tax credit - VAT
|
|
|
5,202
|
|
|
|
3,984
|
|
Tax credit - Software Promotion Regime (note 3.7.1.1)
|
|
|
3,555
|
|
|
|
4,813
|
|
Income tax credits
|
|
|
1,410
|
|
|
|
2,869
|
|
Other tax credits
|
|
|
276
|
|
|
|
153
|
|
Advances to suppliers
|
|
|
611
|
|
|
|
155
|
|
Prepaid expenses
|
|
|
3,982
|
|
|
|
1,931
|
|
Loans granted to employees
|
|
|
49
|
|
|
|
186
|
|
Other
|
|
|
256
|
|
|
|
266
|
|
TOTAL
|
|
|
15,341
|
|
|
|
14,357
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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,
|
|
|
|
2018
|
|
|
2017
|
|
Non-current
|
|
|
|
|
|
|
Advances to suppliers (note 21)
|
|
|
28,799
|
|
|
|
25,498
|
|
Tax credit - VAT
|
|
|
1,031
|
|
|
|
3,325
|
|
Income tax credits
|
|
|
1,259
|
|
|
|
2,129
|
|
Tax credit - Software Promotion Regime (note 3.7.1.1)
|
|
|
749
|
|
|
|
132
|
|
Other tax credits
|
|
|
170
|
|
|
|
105
|
|
Guarantee deposits
|
|
|
1,681
|
|
|
|
1,347
|
|
Loans granted to employees
|
|
|
208
|
|
|
|
—
|
|
Prepaid expenses
|
|
|
475
|
|
|
|
—
|
|
Other
|
|
|
500
|
|
|
|
500
|
|
Subtotal
|
|
|
34,872
|
|
|
|
33,036
|
|
Allowance for impairment of tax credits
|
|
|
(675
|
)
|
|
|
(1,300
|
)
|
TOTAL
|
|
|
34,197
|
|
|
|
31,736
|
|
Roll forward of the allowance for impairment of tax credits
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,300
|
|
|
|
—
|
|
Additions (note 4.4)
|
|
|
48
|
|
|
|
1,586
|
|
Foreign exchange
|
|
|
(673
|
)
|
|
|
(286
|
)
|
Balance at end of year
|
|
|
675
|
|
|
|
1,300
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 13 – PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 2018 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
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at beginning of year
|
|
|
23,381
|
|
|
|
5,810
|
|
|
|
33,275
|
|
|
|
37
|
|
|
|
6,981
|
|
|
|
2,354
|
|
|
|
11,167
|
|
|
|
83,005
|
|
Additions related to business combinations (note 24)
|
|
|
—
|
|
|
|
5
|
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48
|
|
Additions
|
|
|
7,055
|
|
|
|
719
|
|
|
|
1,083
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,065
|
|
|
|
18,922
|
|
Transfers
|
|
|
6
|
|
|
|
845
|
|
|
|
9,596
|
|
|
|
—
|
|
|
|
6,420
|
|
|
|
—
|
|
|
|
(16,867
|
)
|
|
|
—
|
|
Disposals
|
|
|
(353
|
)
|
|
|
(229
|
)
|
|
|
(2,005
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,587
|
)
|
Translation
|
|
|
(36
|
)
|
|
|
(8
|
)
|
|
|
(88
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(132
|
)
|
Values at end of year
|
|
|
30,053
|
|
|
|
7,142
|
|
|
|
41,904
|
|
|
|
37
|
|
|
|
13,401
|
|
|
|
2,354
|
|
|
|
4,365
|
|
|
|
99,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at beginning of year
|
|
|
14,609
|
|
|
|
3,694
|
|
|
|
20,421
|
|
|
|
13
|
|
|
|
389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,126
|
|
Additions
|
|
|
4,641
|
|
|
|
832
|
|
|
|
5,529
|
|
|
|
8
|
|
|
|
220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,230
|
|
Disposals
|
|
|
(346
|
)
|
|
|
(224
|
)
|
|
|
(1,868
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,438
|
)
|
Translation
|
|
|
(31
|
)
|
|
|
(6
|
)
|
|
|
(85
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(122
|
)
|
Accumulated at end of year
|
|
|
18,873
|
|
|
|
4,296
|
|
|
|
23,997
|
|
|
|
21
|
|
|
|
609
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,796
|
|
Carrying amount
|
|
|
11,180
|
|
|
|
2,846
|
|
|
|
17,907
|
|
|
|
16
|
|
|
|
12,792
|
|
|
|
2,354
|
|
|
|
4,365
|
|
|
|
51,460
|
|
Property and equipment as of December 31, 2017 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
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at beginning of year
|
|
|
18,097
|
|
|
|
5,117
|
|
|
|
29,723
|
|
|
|
34
|
|
|
|
6,981
|
|
|
|
2,354
|
|
|
|
3,899
|
|
|
|
66,205
|
|
Additions related to business combinations (note 24)
|
|
|
116
|
|
|
|
55
|
|
|
|
3
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
192
|
|
Additions
|
|
|
5,244
|
|
|
|
324
|
|
|
|
2,275
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,687
|
|
|
|
17,530
|
|
Transfers
|
|
|
98
|
|
|
|
477
|
|
|
|
1,431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,006
|
)
|
|
|
—
|
|
Disposals
|
|
|
(166
|
)
|
|
|
(222
|
)
|
|
|
(152
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(428
|
)
|
|
|
(968
|
)
|
Translation
|
|
|
(8
|
)
|
|
|
59
|
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
Values at end of year
|
|
|
23,381
|
|
|
|
5,810
|
|
|
|
33,275
|
|
|
|
37
|
|
|
|
6,981
|
|
|
|
2,354
|
|
|
|
11,167
|
|
|
|
83,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at beginning of year
|
|
|
11,219
|
|
|
|
3,136
|
|
|
|
15,921
|
|
|
|
4
|
|
|
|
249
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,529
|
|
Additions
|
|
|
3,529
|
|
|
|
717
|
|
|
|
4,658
|
|
|
|
9
|
|
|
|
140
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,053
|
|
Disposals
|
|
|
(133
|
)
|
|
|
(218
|
)
|
|
|
(149
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(500
|
)
|
Translation
|
|
|
(6
|
)
|
|
|
59
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44
|
|
Accumulated at end of year
|
|
|
14,609
|
|
|
|
3,694
|
|
|
|
20,421
|
|
|
|
13
|
|
|
|
389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,126
|
|
Carrying amount
|
|
|
8,772
|
|
|
|
2,116
|
|
|
|
12,854
|
|
|
|
24
|
|
|
|
6,592
|
|
|
|
2,354
|
|
|
|
11,167
|
|
|
|
43,879
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 14 – INTANGIBLE ASSETS
Intangible assets as of December 31, 2018 included the
following:
|
|
Licenses and internal
developments
|
|
|
Customer
relationships
|
|
|
Non-compete
agreement
|
|
|
Total
|
|
Useful life (years)
|
|
|
5
|
|
|
|
1 - 4
|
|
|
|
3
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at beginning of year
|
|
|
27,381
|
|
|
|
10,153
|
|
|
|
586
|
|
|
|
38,120
|
|
Additions related to business combinations (note 24)
|
|
|
—
|
|
|
|
173
|
|
|
|
—
|
|
|
|
173
|
|
Additions from separate acquisitions
|
|
|
3,480
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,480
|
|
Additions from internal development
|
|
|
6,104
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,104
|
|
Translation
|
|
|
(8
|
)
|
|
|
570
|
|
|
|
—
|
|
|
|
562
|
|
Values at end of year
|
|
|
36,957
|
|
|
|
10,896
|
|
|
|
586
|
|
|
|
48,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at beginning of year
|
|
|
17,325
|
|
|
|
8,844
|
|
|
|
586
|
|
|
|
26,755
|
|
Additions
|
|
|
8,556
|
|
|
|
757
|
|
|
|
—
|
|
|
|
9,313
|
|
Impairment loss recognised in profit or loss (note 4.7)
|
|
|
306
|
|
|
|
—
|
|
|
|
—
|
|
|
|
306
|
|
Translation
|
|
|
(8
|
)
|
|
|
295
|
|
|
|
—
|
|
|
|
287
|
|
Accumulated at end of year
|
|
|
26,179
|
|
|
|
9,896
|
|
|
|
586
|
|
|
|
36,661
|
|
Carrying amount
|
|
|
10,778
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
11,778
|
|
Intangible assets as of December 31, 2017 included the
following:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
|
|
Licenses and internal
developments
|
|
|
Customer
relationships
|
|
|
Non-compete
agreement
|
|
|
Total
|
|
Useful life (years)
|
|
|
5
|
|
|
|
3 - 10
|
|
|
|
3
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Values at beginning of year
|
|
|
18,591
|
|
|
|
9,634
|
|
|
|
586
|
|
|
|
28,811
|
|
Additions related to business combinations (note 24)
|
|
|
7
|
|
|
|
517
|
|
|
|
—
|
|
|
|
524
|
|
Additions from separate acquisitions
|
|
|
3,429
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,429
|
|
Additions from internal development
|
|
|
5,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,355
|
|
Translation
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
1
|
|
Values at end of year
|
|
|
27,381
|
|
|
|
10,153
|
|
|
|
586
|
|
|
|
38,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated at beginning of year
|
|
|
11,935
|
|
|
|
2,499
|
|
|
|
586
|
|
|
|
15,020
|
|
Additions
|
|
|
5,391
|
|
|
|
1,684
|
|
|
|
—
|
|
|
|
7,075
|
|
Impairment loss recognised in profit or loss (note 4.11)
|
|
|
—
|
|
|
|
4,708
|
|
|
|
—
|
|
|
|
4,708
|
|
Translation
|
|
|
(1
|
)
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
(48
|
)
|
Accumulated at end of year
|
|
|
17,325
|
|
|
|
8,844
|
|
|
|
586
|
|
|
|
26,755
|
|
Carrying amount
|
|
|
10,056
|
|
|
|
1,309
|
|
|
|
—
|
|
|
|
11,365
|
|
NOTE 15 – GOODWILL
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cost
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
98,926
|
|
|
|
65,180
|
|
Additions related to new acquisitions (note 24)
|
|
|
6,244
|
|
|
|
33,699
|
|
Translation
|
|
|
(324
|
)
|
|
|
47
|
|
Balance at end of year
|
|
|
104,846
|
|
|
|
98,926
|
|
NOTE 16 – TRADE PAYABLES
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Suppliers
|
|
|
6,137
|
|
|
|
7,258
|
|
Advanced payments from customers
|
|
|
291
|
|
|
|
—
|
|
Expenses accrual
|
|
|
11,150
|
|
|
|
4,382
|
|
TOTAL
|
|
|
17,578
|
|
|
|
11,640
|
|
GLOBANT
S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 17 – PAYROLL AND SOCIAL SECURITY TAXES PAYABLE
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Salaries
|
|
|
4,434
|
|
|
|
5,069
|
|
Social security tax
|
|
|
7,548
|
|
|
|
6,755
|
|
Provision for vacation, bonus and others
|
|
|
46,181
|
|
|
|
28,378
|
|
Directors fees
|
|
|
315
|
|
|
|
216
|
|
Other
|
|
|
57
|
|
|
|
54
|
|
TOTAL
|
|
|
58,535
|
|
|
|
40,472
|
|
NOTE 18 – BORROWINGS
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Bank and financial institutions (note 26)
|
|
|
—
|
|
|
|
6,011
|
|
TOTAL
|
|
|
—
|
|
|
|
6,011
|
|
NOTE 19 – TAX LIABILITIES
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
4,526
|
|
|
|
3,328
|
|
Periodic payment plan
|
|
|
28
|
|
|
|
13
|
|
VAT payable
|
|
|
1,208
|
|
|
|
861
|
|
Software Promotion Law - Annual and monthly rates
|
|
|
523
|
|
|
|
231
|
|
Wage withholding taxes
|
|
|
558
|
|
|
|
279
|
|
Other
|
|
|
556
|
|
|
|
541
|
|
TOTAL
|
|
|
7,399
|
|
|
|
5,253
|
|
NOTE 20 – PROVISIONS FOR CONTINGENCIES
The Company is subject to legal proceedings
and claims which arise in the ordinary course of its business. The Company has recorded a provision for labor and regulatory 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:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Reserve for labor claims
|
|
|
678
|
|
|
|
49
|
|
Reserve for regulatory claims
|
|
|
2,184
|
|
|
|
1,130
|
|
TOTAL
|
|
|
2,862
|
|
|
|
1,179
|
|
Roll forward is as follows:
|
|
As of December 31,
|
|
Reserve for labor claims
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
49
|
|
|
|
1,138
|
|
|
|
650
|
|
Additions
|
|
|
926
|
|
|
|
187
|
|
|
|
1,343
|
|
Recovery
|
|
|
—
|
|
|
|
—
|
|
|
|
(344
|
)
|
Utilization of provision for contingencies
|
|
|
(222
|
)
|
|
|
(1,288
|
)
|
|
|
(400
|
)
|
Foreign exchange
|
|
|
(75
|
)
|
|
|
12
|
|
|
|
(111
|
)
|
Balance at end of year
|
|
|
678
|
|
|
|
49
|
|
|
|
1,138
|
|
|
|
As of December 31,
|
|
Reserve for regulatory claims
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
1,130
|
|
|
|
807
|
|
|
|
—
|
|
Additions
(1)
|
|
|
1,144
|
|
|
|
340
|
|
|
|
—
|
|
Additions related to business combinations (note 24)
|
|
|
—
|
|
|
|
—
|
|
|
|
817
|
|
Utilization of provision for contingencies
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
—
|
|
Foreign exchange
|
|
|
(90
|
)
|
|
|
15
|
|
|
|
(10
|
)
|
Balance at end of year
|
|
|
2,184
|
|
|
|
1,130
|
|
|
|
807
|
|
|
(1)
|
Certain of our non- U.S. subsidiaries are currently under
examination by the 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 plus penalties and interest for employment taxes for those
years. Our subsidiaries filed protests of these proposed assessments with the IRS which have been sent to the Office of Appeals
within the IRS for further examination.
|
NOTE 21 – ADVANCES TO ACQUIRE BUILDINGS
On December 4, 2015, our Argentine subsidiaries
Sistemas Globales S.A. and IAFH Global S.A., entered into a Purchase Agreement with IRSA Inversiones y Representaciones Sociedad
Anónima (“IRSA”) to acquire four floors representing approximately 4,896 square meters in a building to be constructed
in a premium business zone of the City of Buenos Aires, Argentina.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
In consideration for the property the subsidiaries
agreed to pay IRSA the following purchase price: (i) AR$ 180,279 on the date of signing of the purchase agreement, equivalent to
18,779 at such date; (ii) 8,567 during a three-year term beginning in June 2016; and (iii) the remaining 3,672 at the moment of
transfer of the property ownership, after finalization of the building.
As explained in note 4.4, during the years
2018 and 2017, the Company estimated the future use of some tax credits and concluded that the value-added tax related to the advance
payments to IRSA which amounted to 363 and 1,660, respectively, will not be recoverable and were included as advances to suppliers
paid to IRSA.
As of December 31, 2018 and 2017,
28,799 and 25,498 are included in these consolidated financial statements as other receivables non-current.
NOTE 22 – RELATED PARTIES BALANCES AND TRANSACTIONS
22.1 – Related parties
The Company provides software and consultancy
services to certain WPP subsidiaries and other related parties. WPP was a shareholder of the Company with significant influence,
until it sold its shares of the Company on June 20, 2018. The Company also provides software services to Morgan Stanley, which
holds a share over 5% on the Company. Outstanding receivable balances as of December 31, 2018 and 2017 are as follows:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Grey Global Group Inc.
|
|
|
—
|
|
|
|
104
|
|
Group M Worldwide Inc
|
|
|
—
|
|
|
|
44
|
|
JWT
|
|
|
—
|
|
|
|
77
|
|
Kantar Retail
|
|
|
—
|
|
|
|
23
|
|
Mercado Libre S.R.L.
|
|
|
440
|
|
|
|
9
|
|
TNS
|
|
|
56
|
|
|
|
206
|
|
Morgan Stanley Investment Management Inc.
|
|
|
497
|
|
|
|
—
|
|
Total
|
|
|
993
|
|
|
|
463
|
|
During the year ended December 31,
2018, 2017 and 2016, the Company recognized revenues for 5,937, 5,590 and 6,462, respectively, as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Added Value
|
|
|
—
|
|
|
|
13
|
|
|
|
790
|
|
Burson Marsteller
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
Grey Global Group Inc.
|
|
|
472
|
|
|
|
1,238
|
|
|
|
1,182
|
|
Group M Worldwide Inc
|
|
|
102
|
|
|
|
521
|
|
|
|
822
|
|
IBOPE Argentina
|
|
|
—
|
|
|
|
—
|
|
|
|
244
|
|
JWT
|
|
|
204
|
|
|
|
1,043
|
|
|
|
919
|
|
Kantar Group
|
|
|
216
|
|
|
|
791
|
|
|
|
674
|
|
Kantar Retail
|
|
|
39
|
|
|
|
93
|
|
|
|
93
|
|
Ogilvy & Mather Brasil Comunication
|
|
|
82
|
|
|
|
1,677
|
|
|
|
611
|
|
JP Morgan Chase & Co.
|
|
|
1,784
|
|
|
|
—
|
|
|
|
—
|
|
JP Morgan Chase S.A.
|
|
|
48
|
|
|
|
—
|
|
|
|
—
|
|
JP Morgan Services Argentina S.R.L.
|
|
|
1,503
|
|
|
|
—
|
|
|
|
—
|
|
TNS
|
|
|
8
|
|
|
|
30
|
|
|
|
579
|
|
Morgan Stanley Investment Management Inc.
|
|
|
964
|
|
|
|
—
|
|
|
|
—
|
|
Young & Rubicam
|
|
|
—
|
|
|
|
—
|
|
|
|
366
|
|
Mercado Libre S.R.L.
|
|
|
515
|
|
|
|
143
|
|
|
|
100
|
|
Mirum Inc.
|
|
|
—
|
|
|
|
41
|
|
|
|
—
|
|
Coretech
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
Total
|
|
|
5,937
|
|
|
|
5,590
|
|
|
|
6,462
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
22.2 – Loan agreement to Collokia
On May, 5, 2017, the Company and Collokia
LLC, signed a loan agreement whereby the Company provides a financing facility of 100. Interest on the entire outstanding principal
balance is computed at an annual rate of 2.8%. Collokia shall repay the loan in full within 18 months from the date that this agreement
has been signed off. The Company has the right to convert any portion of the outstanding principal into preferred units of Collokia.
As of December 31, 2018 and 2017, the carrying amount of the loan agreement amounted to 106 and 100, respectively, and was
included as other financial assets current and other financial assets non current, respectively.
22.3 – 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,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and bonuses
|
|
|
5,140
|
|
|
|
4,507
|
|
|
|
4,432
|
|
Total
|
|
|
5,140
|
|
|
|
4,507
|
|
|
|
4,432
|
|
The remuneration of directors and key executives
is determined by the Board of Directors based on the performance of individuals and market trends.
During 2016, the Company granted 260,000
and 82,500 share options at a strike price of $29.01 and $32.36, respectively.
During 2017, the Company granted 12,836
and 62,162 restricted stock units at a grant price of $34.96 and $37.00, respectively.
During 2018, the Company granted 115,000
and 6,000 share options at a strike price of $46.00 and $50.92, respectively.
During 2018, the Company granted 93,000,
10,000 and 4,054 restricted stock units at a grant price of $46.00, $50.92 and $45.50, respectively.
NOTE 23 – EMPLOYEE BENEFITS
23.1 – Share-based compensation
plan
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 June 2012, the Company decided to replace
its Stock Appreciation Rights ("SAR") program with a new share-based compensation program. The 2012 share-based compensation
agreement was signed by the employees on June 30, 2012, considering the actual grant dates of the SARs to employees.
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 (seven years after the effective date).
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
All options vested on the date of modification
of the plan or all other non-vested options expire within seven years after the effective date or seven years after the period
of vesting finalizes.
In July 2014, the Company adopted a new
Equity Incentive Program, the 2014 Plan.
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.
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).
Under this share-based compensation plan,
during the year 2018 and 2017, other share-based compensation agreements were signed for a total of 221,000 and 85,000 options
granted, respectively.
During the year 2017, 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 at 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, 2018 and 2017:
|
|
As of December 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Number of
options
|
|
|
Weighted
average
exercise price
|
|
|
Number of
options
|
|
|
Weighted
average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of year
|
|
|
2,155,851
|
|
|
|
23.02
|
|
|
|
2,658,595
|
|
|
|
22.21
|
|
Options granted during the year
|
|
|
221,000
|
|
|
|
46.45
|
|
|
|
85,000
|
|
|
|
39.69
|
|
Forfeited during the year
|
|
|
(78,716
|
)
|
|
|
36.89
|
|
|
|
(249,035
|
)
|
|
|
30.08
|
|
Exercised during the year
|
|
|
(511,668
|
)
|
|
|
13.76
|
|
|
|
(338,709
|
)
|
|
|
15.63
|
|
Balance at end of year
|
|
|
1,786,467
|
|
|
|
27.96
|
|
|
|
2,155,851
|
|
|
|
23.02
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The following shows the evolution of the
RSUs for the years ended at December 31, 2018 and 2017:
|
|
As of December 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Number of
RSU
|
|
|
Weighted
average
grant price
|
|
|
Number of
RSU
|
|
|
Weighted
average
grant price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of year
|
|
|
164,859
|
|
|
|
37.58
|
|
|
|
—
|
|
|
|
—
|
|
RSU granted during the year
|
|
|
564,995
|
|
|
|
46.29
|
|
|
|
254,328
|
|
|
|
37.07
|
|
Forfeited during the year
|
|
|
(30,783
|
)
|
|
|
44.14
|
|
|
|
(2,538
|
)
|
|
|
36.59
|
|
Issued during the year
|
|
|
(163,233
|
)
|
|
|
43.13
|
|
|
|
(86,931
|
)
|
|
|
36.11
|
|
Balance at end of year
|
|
|
535,838
|
|
|
|
44.70
|
|
|
|
164,859
|
|
|
|
37.58
|
|
The following tables summarizes the RSU
at the end of the year:
Grant date
|
|
Grant price
($)
|
|
|
Number of Restricted
Stock Units
|
|
|
Fair value at
grant date ($)
|
|
|
Expense as of December
31, 2018 ($)
(*)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
36.30
|
|
|
|
1,500
|
|
|
|
54
|
|
|
|
18
|
|
|
|
|
37.00
|
|
|
|
93,228
|
|
|
|
3,449
|
|
|
|
2,068
|
|
|
|
|
42.00
|
|
|
|
6,750
|
|
|
|
284
|
|
|
|
109
|
|
|
|
|
43.42
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
46.00
|
|
|
|
407,750
|
|
|
|
18,757
|
|
|
|
3,038
|
|
|
|
|
50.92
|
|
|
|
10,000
|
|
|
|
509
|
|
|
|
28
|
|
|
|
|
52.74
|
|
|
|
4,000
|
|
|
|
211
|
|
|
|
8
|
|
|
|
|
55.07
|
|
|
|
4,000
|
|
|
|
220
|
|
|
|
23
|
|
|
|
|
56.87
|
|
|
|
6,000
|
|
|
|
341
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
533,228
|
|
|
|
23,825
|
|
|
|
5,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non employees RSU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
38.21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
46.00
|
|
|
|
2,174
|
|
|
|
100
|
|
|
|
65
|
|
|
|
|
57.39
|
|
|
|
436
|
|
|
|
25
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
2,610
|
|
|
|
125
|
|
|
|
106
|
|
Total
|
|
|
|
|
|
|
535,838
|
|
|
|
23,950
|
|
|
|
5,384
|
|
The following tables summarizes the share options at the end
of the year:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Grant date
|
|
Exercise
price ($)
|
|
|
Number of stock
options
|
|
|
Number of stock
options vested as
of December 31,
2018
|
|
|
Fair value at
grant date ($)
|
|
|
Fair value vested
($)
|
|
|
Expense as of
December 31,
2018
(*)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
0.95
|
|
|
|
1,103
|
|
|
|
1,103
|
|
|
|
6
|
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
0.71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
170
|
|
|
|
|
1.40
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2.48
|
|
|
|
1,304
|
|
|
|
1,304
|
|
|
|
5
|
|
|
|
5
|
|
|
|
10
|
|
|
|
|
3.38
|
|
|
|
13,223
|
|
|
|
13,223
|
|
|
|
44
|
|
|
|
44
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2.71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
12.22
|
|
|
|
24,999
|
|
|
|
24,999
|
|
|
|
65
|
|
|
|
65
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
10.00
|
|
|
|
281,037
|
|
|
|
281,037
|
|
|
|
935
|
|
|
|
935
|
|
|
|
569
|
|
|
|
|
13.20
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
22.77
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
221
|
|
|
|
221
|
|
|
|
18
|
|
|
|
|
28.31
|
|
|
|
372,707
|
|
|
|
228,270
|
|
|
|
2,581
|
|
|
|
1,582
|
|
|
|
1,487
|
|
|
|
|
29.34
|
|
|
|
15,972
|
|
|
|
15,290
|
|
|
|
103
|
|
|
|
103
|
|
|
|
6
|
|
|
|
|
34.20
|
|
|
|
13,500
|
|
|
|
9,375
|
|
|
|
116
|
|
|
|
81
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
29.01
|
|
|
|
222,500
|
|
|
|
92,500
|
|
|
|
1,534
|
|
|
|
638
|
|
|
|
580
|
|
|
|
|
32.36
|
|
|
|
455,612
|
|
|
|
190,300
|
|
|
|
3,659
|
|
|
|
1,542
|
|
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
43.42
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
|
38.16
|
|
|
|
30,000
|
|
|
|
10,000
|
|
|
|
273
|
|
|
|
91
|
|
|
|
91
|
|
|
|
|
36.30
|
|
|
|
15,000
|
|
|
|
3,750
|
|
|
|
127
|
|
|
|
32
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
44.97
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
358
|
|
|
|
—
|
|
|
|
175
|
|
|
|
|
46.00
|
|
|
|
180,000
|
|
|
|
—
|
|
|
|
3,636
|
|
|
|
—
|
|
|
|
1,167
|
|
|
|
|
55.07
|
|
|
|
10,000
|
|
|
|
—
|
|
|
|
241
|
|
|
|
—
|
|
|
|
48
|
|
|
|
|
50.92
|
|
|
|
6,000
|
|
|
|
—
|
|
|
|
134
|
|
|
|
—
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
1,692,957
|
|
|
|
901,151
|
|
|
|
14,038
|
|
|
|
5,345
|
|
|
|
6,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non employees stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
6.77
|
|
|
|
22,170
|
|
|
|
22,170
|
|
|
|
35
|
|
|
|
35
|
|
|
|
—
|
|
2013
|
|
|
12.22
|
|
|
|
22,170
|
|
|
|
22,170
|
|
|
|
52
|
|
|
|
52
|
|
|
|
—
|
|
2014
|
|
|
10.00
|
|
|
|
22,170
|
|
|
|
22,170
|
|
|
|
43
|
|
|
|
43
|
|
|
|
—
|
|
2016
|
|
|
39.37
|
|
|
|
27,000
|
|
|
|
13,500
|
|
|
|
248
|
|
|
|
124
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
93,510
|
|
|
|
80,010
|
|
|
|
378
|
|
|
|
254
|
|
|
|
62
|
|
Total
|
|
|
|
|
|
|
1,786,467
|
|
|
|
981,161
|
|
|
|
14,416
|
|
|
|
5,599
|
|
|
|
6,134
|
|
|
(*)
|
Includes social security taxes.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Deferred income tax asset arising from the recognition of the
share-based compensation plan amounted to 4,731 and 5,772 for the years ended December 31, 2018 and 2017, respectively.
23.2 - Share options exercised and RSU vested during the
year:
|
|
As of December 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Number of
options exercised
|
|
|
Exercise
price
|
|
|
Number of
options exercised
|
|
|
Exercise
price
|
|
Granted in 2006
|
|
|
9,900
|
|
|
|
0.95
|
|
|
|
4,600
|
|
|
|
0.95
|
|
Granted in 2007
|
|
|
200,000
|
|
|
|
0.71
|
|
|
|
—
|
|
|
|
—
|
|
Granted in 2007
|
|
|
616
|
|
|
|
1.40
|
|
|
|
800
|
|
|
|
1.40
|
|
Granted in 2010
|
|
|
1,793
|
|
|
|
2.48
|
|
|
|
1,623
|
|
|
|
2.48
|
|
Granted in 2010
|
|
|
19,732
|
|
|
|
3.38
|
|
|
|
22,377
|
|
|
|
3.38
|
|
Granted in 2011
|
|
|
6,031
|
|
|
|
2.71
|
|
|
|
26,194
|
|
|
|
2.71
|
|
Granted in 2012
|
|
|
—
|
|
|
|
—
|
|
|
|
1,651
|
|
|
|
6.77
|
|
Granted in 2012
|
|
|
—
|
|
|
|
—
|
|
|
|
3,991
|
|
|
|
7.04
|
|
Granted in 2013
|
|
|
—
|
|
|
|
—
|
|
|
|
2,395
|
|
|
|
14.40
|
|
Granted in 2014
|
|
|
66,146
|
|
|
|
10.00
|
|
|
|
149,337
|
|
|
|
10.00
|
|
Granted in 2014
|
|
|
3,769
|
|
|
|
13.20
|
|
|
|
1,918
|
|
|
|
13.20
|
|
Granted in 2015
|
|
|
111,843
|
|
|
|
28.31
|
|
|
|
90,787
|
|
|
|
28.31
|
|
Granted in 2015
|
|
|
3,000
|
|
|
|
34.20
|
|
|
|
—
|
|
|
|
—
|
|
Granted in 2015
|
|
|
1,200
|
|
|
|
29.34
|
|
|
|
9,911
|
|
|
|
29.34
|
|
Granted in 2016
|
|
|
18,750
|
|
|
|
29.01
|
|
|
|
18,750
|
|
|
|
29.01
|
|
Granted in 2016
|
|
|
68,888
|
|
|
|
32.36
|
|
|
|
4,375
|
|
|
|
32.36
|
|
Balance at end of the year
|
|
|
511,668
|
|
|
|
|
|
|
|
338,709
|
|
|
|
|
|
The average market price of the share amounted to 52.82 and
38.77 for year 2018 and 2017, respectively.
The following tables summarizes the RSU vested during the year
2018:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(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, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Number of RSUs
vested
|
|
|
Grant price
|
|
|
Number of RSUs
vested
|
|
|
Grant price
|
|
Granted in 2017
|
|
|
500
|
|
|
|
36.30
|
|
|
|
37,546
|
|
|
|
34.96
|
|
Granted in 2017
|
|
|
45,906
|
|
|
|
37.00
|
|
|
|
49,385
|
|
|
|
37.00
|
|
Granted in 2017
|
|
|
2,671
|
|
|
|
38.21
|
|
|
|
—
|
|
|
|
—
|
|
Granted in 2017
|
|
|
2,250
|
|
|
|
42.00
|
|
|
|
—
|
|
|
|
—
|
|
Granted in 2018
|
|
|
107,463
|
|
|
|
45.50
|
|
|
|
—
|
|
|
|
—
|
|
Granted in 2018
|
|
|
4,443
|
|
|
|
53.29
|
|
|
|
—
|
|
|
|
—
|
|
Balance at end of the year
|
|
|
163,233
|
|
|
|
|
|
|
|
86,931
|
|
|
|
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
23.3 - 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.
The Company estimated the following assumptions
for the calculation of the fair value of the share options:
Assumptions
|
|
Granted in
2018 for
2014 plan
|
|
|
Granted in
2017 for
2014 plan
|
|
|
Granted in
2016 for
2014 plan
|
|
Stock price
|
|
|
46.45
|
|
|
|
39.69
|
|
|
|
31.89
|
|
Expected option life
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Volatility
|
|
|
40
|
%
|
|
|
19
|
%
|
|
|
20
|
%
|
Risk-free interest rate
|
|
|
3.00
|
%
|
|
|
2.00
|
%
|
|
|
1.95
|
%
|
See Note 4 for a description of the assumptions.
NOTE 24 – BUSINESS COMBINATIONS
24.1 Acquisition of Huddle Group
On October 11, 2013, the Company entered
into a Stock Purchase Agreement to purchase 86.25% of the capital interests of Huddle Investment LLP, a company organized and existing
under the laws of England ("Huddle UK"). Huddle UK owned, directly or indirectly, 100% of the capital stock and voting
rights of the following subsidiaries: Huddle Group S.A., a corporation (
sociedad anónima
) organized and existing
under the laws of the Republic of Argentina; Huddle Group S.A., a corporation (
sociedad anónima
) organized and existing
under the laws of the Republic of Chile; and Huddle Group Corp., a corporation organized and existing under the laws of the State
of Washington.
The aggregate purchase price under the
Stock Purchase Agreement was 8,395. Such purchase price was payable to the Sellers in seven installments. Such payments were made
as follows:
|
-
|
On October 21, 2013 and November 4, 2013, the Company paid
a total of 3,436 including interest.
|
|
-
|
Second installment: On April 21, 2014, the Company paid
a total of 2,156, including interests.
|
|
-
|
Third
installment:
Based on the gross revenue and gross profit achieved by the Huddle Group for the year 2013, the Company paid on April 22, 2014,
861.
|
|
-
|
Fourth installment: On October 25, 2014, the Company paid
870, including interests.
|
|
-
|
Fifth installment: On April 2, 2015, the Company paid 647,
including interests.
|
|
-
|
Sixth installment: On March 31, 2016, the Company paid
187, including interests.
|
|
-
|
Seventh installment: On October 19, 2018, the Company paid
115, including interests.
|
The consideration transferred for Huddle Group acquisition was
calculated as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As of December 31, 2018 and 2017 and for
the three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Purchase price
|
|
Amount
|
|
Down payment
|
|
|
3,019
|
|
Installment payment
|
|
|
5,117
|
(a)(b)
|
Total consideration
|
|
|
8,136
|
|
|
(a)
|
Net present value of future installment payments including
interest.
|
|
(b)
|
The outstanding balance as of December 31, 2017 amounted
to 110, classified as current. As of December 31, 2018, the consideration was fully settled.
|
Minority interest purchase agreement
On October 11, 2013, the Company entered
into a Stock Purchase Agreement to purchase an additional 13.75% of the capital interests of Huddle UK, which was amended on October
23, 2014. The consideration for the purchase of the minority interest amounted to 650 and was payable in three installments. Such
payments were made as follows:
|
-
|
First installment: the amount of 100 was paid on October
23, 2014.
|
|
-
|
Second installment: the amount of 225 was paid on February
28, 2015.
|
|
-
|
Third installment: On January 22, 2016, the Company granted
11,213 treasury shares at a price of $27.2 per share to Mr. Spitz to cancel the remaining liability of 305. The Company withholds
the remaining amount of 20 as an escrow.
|
As a consequence of this amendment, a call
and put option were recalled and the Company increased its percentage of shares in Huddle UK to 100%. The carrying amount of the
non-controlling interest was adjusted to reflect this transaction. The difference between the amount by which the non-controlling
interest was adjusted, and the fair value of the consideration paid was recognized directly in equity and attributed to the owners
of the parent.
24.2 Acquisition of Clarice Technologies
On May 14, 2015 ("closing date"),
Globant España S.A. acquired Clarice Technologies PVT, Ltd ("Clarice"), a company organized and existing under
the laws of India. Clarice is an innovative software product development services company that offers product engineering and user
experience (UX) services and has operations in the United States and India. As of the closing date, the total headcount of Clarice
was 337 employees distributed in India and United States. The purpose of the acquisition is related to the benefit of expected
synergies, revenue growth, future market development and the assembled workforce of Clarice.
On August 5, 2015 the Company changed the
legal name of Clarice to Globant India Private Limited ("Globant India").
The aggregate purchase price under the
Stock Purchase Agreement ("SPA") amounted to 20,184.
On May 16, 2017, the Company signed an amendment to the SPA.
Based on this amendment, purchase price may be subject to adjustments based on the future performance of Clarice and was payable
to the sellers as follows:
|
1.
|
First Closing
: As of the closing date, the
sellers transferred 10,200 shares representing 76.13% of the shares to the Company for an aggregate consideration of 9,324 paid
by the Company to the sellers on May 14, 2015.
|
|
2.
|
Staggered Acquisition
: The remaining 23.87%
of the shares shall be transferred to the Company and the remaining purchase price shall be paid to each of the Sellers in three
tranches, in the following manner, provided that the remaining purchase price paid out to each of the sellers shall be the higher
of the following:
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
|
2.1
|
Fair Market Value of such shares, calculated in accordance with the methodology prescribed by the
Reserve Bank of India by an appointed chartered accountant; or
|
|
2.2
|
The consideration as detailed below:
|
|
2.2.1
|
The second share transfer tranche, comprising 1,249 shares
representing 9.32% of the shares of Globant India was transferred by the sellers to the Company on July 15, 2016. Based on the
targets achieved by Globant India for the period between May 15, 2015 and May 15, 2016, the Company paid on July 15, 2016, 4,208
and recognized as of December 31, 2016 a gain of 418 arisen on the remeasurement of the liability, included in "Other income,
net".
|
|
2.2.2
|
The third Share transfer tranche, comprising 920 of the shares representing 6.87% of the shares
of Globant India, was transferred by the sellers to the Company on March, 2018. Based on the targets achieved by Globant India
for the period between January 1, 2017 and December 31, 2017, the Company paid on March 2018, 3,128.
|
|
2.2.3
|
The fourth share transfer tranche comprising the transfer of 550 shares representing 4.11% of the
shares of Globant India was transferred by the sellers to the Company on March 14, 2019. Based on the targets achieved by Globant
India for the period between January 1, 2018 and December 31, 2018, the Company paid on March 14, 2019, 3,135.
|
|
2.2.4
|
The fifth share transfer tranche comprising the transfer of 277 shares representing 2.07% of the
shares of Globant India shall be transferred by the sellers to the Company no later than on January 31, 2020, in consideration
for payment of the minimum share price for such shares, defined as 970.78 per share for this tranche, plus an amount of 1,316,
subject to the achievement of certain targets by Globant India.
|
The Company has concluded that as in the same
SPA all parties have agreed the transfer of the 100% of the shares of Clarice in different stages, the transaction should be considered
as one, and therefore the Company has accounted the acquisition for the 100% of the shares of Clarice and the consideration involved
is the sum of the amount paid at closing date and the installments payables in years 2016, 2017, 2018, 2019 and 2020.
The consideration transferred for Globant India
acquisition was calculated as follows:
Purchase price
|
|
Amount
|
|
Down payment
|
|
|
9,324
|
|
Installment payment
|
|
|
2,483
|
(a)
|
Contingent consideration
|
|
|
8,377
|
(a)
|
Total consideration
|
|
|
20,184
|
|
|
(a)
|
As of December 31, 2018 and 2017 included 3,127
and 3,119 as Other financial liabilities current, and 1,527 and 4,497 as Other financial liabilities non-current, respectively.
|
On February 23, 2017, the Company signed an
amendment of the SPA with one of the shareholders where they agreed on the acquisition of the shares held by the employee for an
amount of 600 and the termination of the employment agreement.
As a consequence of the amendments to the SPA
and remeasurement of the fair value of the contingent considerations, the Company recorded a loss of 1,173 and a gain of 418 as
of December 31, 2017 and 2016, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Clarice sellers' subscription agreement
On May 14, 2015, the Company signed two agreements whereas agreed
to issue to the subscribers, as detailed below, and the subscribers agree to subscribe from the Company the number of shares set
forth below:
First agreement
First tranche
The first tranche for 38,984 common shares were subscribed by two
employees and their spouses for a total amount of 800.
Second and third tranches
Regarding second tranche, on July 25, 2016,
the Company issued 20,896 common shares for an amount of 800.
Regarding the third tranche, the Company will
issue additional shares at a price equal to the volume weighted average trading price ("VWAP") (derived from the trading
price of the shares as quoted in the NYSE) for the 60-trading period ending on the second trading day prior to the third tranche
issue date. Such numbers of shares will be allocated among the subscribers in the proportion in which they were allocated in the
First tranche. The number of the third Tranche shares to be issued to each of the subscribers shall be the lower of (i) 80% of
the maximum amount of shares that such subscriber is eligible to purchase under applicable law and (ii) the quotient obtained by
dividing 200 by the third tranche 60-day VWAP.
Total estimated amount is 400 for third tranche.
Second agreement
First tranche
The first tranche for 4,873 common shares was subscribed by one
employee for a total amount of 100.
Second and third tranches
Regarding second tranche, on July 25, 2016,
the Company issued 2,612 common shares for an amount of 100.
Based on the amendment to the SPA signed on
February 23, 2017, third tranche was canceled and no shares were issued.
As of December 31, 2016, 23,508 shares
were issued for a total amount of 900.
Both agreements are forward contracts to issue
and sell a variable number of shares for a fixed amount of cash, thus according to IAS 32, the Company recorded a financial liability
and a financial asset for the shares to be issued and the payment to be received, respectively, for an amount of 400 and 800 as
of December 31, 2018 and 2017, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
24.3 Acquisition of Dynaflows
On October 22, 2015, the Company acquired from
Alfonso Amat, Wayra Argentina S.A., BDCINE S.R.L., Laura A. Muchnik, Facundo Bertranou, Mora Amat and Fabio Palioff (jointly "the
Sellers) 9,014 shares, which represents 38.5% of the capital stock of Dynaflows S.A. Before this acquisition, the Company had 22.7%
of the capital stock of Dynaflows and classified it as investment in associates. Through this transaction, the Company gained the
control of Dynaflows S.A. As a consequence, the Company accounted for this acquisition in accordance with IFRS 3 as a business
combination achieved in stages and as such, the Company remeasured its previously held equity interest in Dynaflows at its acquisition
date fair value and recognize the resulting gain for an amount of 625 in Other income and expense, net.
The aggregate purchase price under the Stock
Purchase Agreement ("SPA") amounted to ARS 13,316 (1,402) and 414, payable in two installments, as following:
- The first installment amounted to ARS 13,316
(1,402) paid at the closing date.
- The second installment amounted to 414 paid
on April 22, 2016.
On the same date, the Company made a capital
contribution of 868 (ARS 8,250) to Dynaflows by issuing 9,190 shares.
After both agreements and considering the previous
equity interest held by the Company of 22.7%, the Company held the 66.73% of participation in Dynaflows.
The consideration transferred for Dynaflows
acquisition was calculated as follows:
Purchase price
|
|
Amount
|
|
Down payment
|
|
|
1,402
|
|
Installment payment
|
|
|
414
|
|
Total consideration
|
|
|
1,816
|
(a)
|
|
(a)
|
As of December 31, 2018 and 2017 the consideration was fully settled.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Minority interest purchase agreement
On October 22, 2015, the Company entered into
a Shareholders Agreement (the "Minority Interest SHA") with Alfonso Amat and Mora Amat (the "non-controlling shareholders")
to agree on a put option over the 33.27% of the remaining interest of Dynaflows effective on the third or fifth anniversary from
the date of acquisition, pursuant to which the non-controlling shareholders shall have the right (the "Put Option") to
sell and the Company shall purchase all, but not less than all the shareholder's non-controlling interest. The aggregate purchase
price to be paid by the Company upon exercise of the Put Option shall be equal to the price resulting from valuing the Company
at the following:
In case the put option is exercised in the
third anniversary, 50% of the total of: 1) eight (8) times EBITDA multiplied by 0.50 according to the Company's most recent audited
annual financial statements at the time of the delivery of such exercise of the Put Option; plus 2) four (4) times Revenue multiplied
by 0.50 according to the Company's most recent audited annual financial statements at the time of the delivery of such exercise
of the Put Option.
In case the put option is exercised in the
fifth anniversary, the total of: 1) eight (8) times EBITDA multiplied by 0.50 according to the Company's most recent audited annual
financial statements at the time of the delivery of such exercise of the Put Option; plus 2) four (4) times Revenue multiplied
by 0.50 according to the Company's most recent audited annual financial statements at the time of the delivery of such exercise
of the Put Option.
The Company implemented the IFRIC Interpretation
DI/2012/2 "Put Options Written on Non-controlling Interests" issued in May 2012 that requires a financial liability initially
measured at the present value of the redemption amount in the parent's consolidated financial statements for written puts on non-controlling
interest. Subsequently, the financial liability was measured in accordance with IAS 39 and IFRS 9.
On October 26, 2018, the non-controlling shareholders
exercised such option and the Company paid a total amount of 1,186 based on the EBITDA and Revenue of Dynaflows for the twelve
months ended on September, 2018. Given that the exercise of the option occurred earlier than expected, a gain of 1,611 was recognized
as of December 31, 2018 and disclosed as Other income, net.
As of December 31, 2017, the Company has
recognized as non-current other financial liabilities the written put option for an amount of 2,797, equal to the present value
of the amount that could be required to be paid to the counterparty discounted at an interest rate of 3.5%. Changes in the measurement
of the gross obligation were recognized in profit or loss.
Pursuant to the shareholder's agreement, the
Company also agreed on a call option over non-controlling interest effective after the fifth anniversary from the closing date
till the sixth anniversary from the closing date pursuant to which the Company shall have the right to purchase and the non-controlling
interest shareholders shall sell all but not less than all the shareholder's non-controlling interest then owned by the non-controlling
shareholders. The Company calculated the fair value of call option on the grant date using the Black-Scholes option pricing model.
The Black-Scholes model requires the input of highly subjective assumptions, including the maturity, exercise price, spot, risk-free
and standard deviation. See Note 4 for a description of the assumptions.
As of December 31, 2018, the call option was derecognized and
a loss of 455 was recognized as Other income, net.
The carrying amount of the non-controlling
interest was adjusted to reflect this transaction. The difference between the amount by which the non-controlling interest was
adjusted, and the fair value of the consideration paid was recognized directly in equity and attributed to the owners of the parent.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(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, 2017, the Company has
accounted for the call option at its fair value of 455 in a similar way to a call option over an entity's own equity shares and
the initial fair value of the option was recognized in equity.
24.4 Acquisition of WAE
On May 23, 2016 (closing date), Globant España
S.A. acquired 100% of shares of We Are London Limited (WAE UK), a company organized and existing under the laws of England and
Wales and 100% of shares of We Are Experience, Inc. a corporation organized and existing under the Laws of the State of New York,
United States (WAE US) (jointly WAE UK and WAE US are WAE). WAE is a service design consultancy, specialized in three distinct
but complementary service offerings - Research, Strategy and Creative. Total headcount of WAE was 40 employees with operations
in United States and United Kingdom. The purpose of the acquisition is related to the benefit of expected synergies, revenue growth,
future market development and the assembled workforce of WAE.
The aggregate purchase price under the Stock
Purchase Agreement (SPA) amounted to 19,851, of which 12,131 relates to WAE UK and 7,720 relates to WAE US Such purchase price
may be subject to adjustments based on the future performance of WAE and is payable to the sellers as follows:
1.
Up-front payment:
As of
the closing date, the Company paid an aggregate consideration of 8,500 to the sellers.
2.
First earn-out payment:
On August 16, 2017, the Company paid an amount of 5,000 to the sellers.
3.
Second earn-out payment:
Not later than August 20, 2018, the amount of 5,000, provided that such amount shall be reduced in proportion to the percentage
of targets achievement by WAE during the period commencing on June 1, 2017 and ending on May 31, 2018. However, the Company and
the sellers of WAE have entered into discussions concerning circumstances that may have impacted the calculation of targets on
the base of which the final amount of Year 2 Deferred Consideration should have been calculated. For that reason, in July, 2018,
the Company and the sellers of WAE signed a final settlement in order to avoid future claims on this matter. As of December 31,
2018, the Company recognized a loss arising from the settlement agreement that amounted to 1,038 and is disclosed as Other income,
net. In July, 2018, the Company paid a total amount of 1,867.
Additionally, the Company shall pay to the
sellers an amount of 575 in cash on the first earn-out payment date and/or the second earn-out payment date related to the corporation
tax saved by WAE UK prior to such date as a result of any deduction obtained under income tax law applicable to United to Kingdom
attributable to the exercise of the stock options plan granted by WAE UK to the option holders. This amount is considered by the
Company as part of the consideration amount. On October 2017, the Company paid 436 in cash related to the corporation tax saved
to be reimbursed to the sellers.
Finally, as part of the total consideration
the Company computed the working capital adjustment defined in the SPA. Total adjustment amounted to 1,357.
Acquisition-related charges amounting to 515
have been excluded from the consideration transferred and have been recognized as an expense in profit or loss in the current year,
within the Professional services line item.
The fair value of the consideration transferred
for WAE acquisition at the acquisition date was calculated as follows:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Purchase price
|
|
Amount
|
|
Down payment
|
|
|
8,500
|
|
Working capital adjustment
|
|
|
1,352
|
|
Installment payment
|
|
|
551
|
(a)
|
Contingent consideration
|
|
|
9,448
|
(a)
|
Total consideration
|
|
|
19,851
|
|
(a) As of December 31, 2017 included 924 as Other financial
liabilities current, related to Year 1 Deferred Consideration payment. As of December 31, 2018, the consideration was fully
settled.
24.5 Acquisition of Difier
On November 14, 2016, the Company entered into
a Stock Purchase Agreement ("SPA") with 3Cinteractive corp. ("3C") to purchase the 100% of the capital stock
of Difier S.A., a Uruguayan company ("Difier"). Difier is engaged in the business of providing information technology
services to 3C, who has been and remains the only customer of Difier.
The aggregate purchase price under the SPA
amounted to 25 and was paid as of the closing date. Jointly with this SPA, the Company signed with 3C a consulting services agreement
representing a customer relationship, to provide software services in the United States and other jurisdictions for the following
four years. The fair value of this agreement was recognized as an intangible asset as of the date of acquisition for an amount
of 652, which originated a gain for a bargain business combination of 225 included in "Other income, net" as of December 31,
2016.
Acquisition related expenses were not material
and were recognized directly as expense.
24.6 Acquisition of L4
On November 14, 2016 ("closing date"),
Globant LLC acquired 100% of shares of L4 Mobile, LLC ("L4"), a limited liability company organized and existing under
the laws of the State of Washington, United States. L4 offers the digital product consulting, design, development and quality assurance
services necessary to build and manage robust digital products. Total headcount of L4 was 90 employees with operations in United
States. The purpose of the acquisition is related to the benefit of expected synergies, revenue growth, future market development
and the assembled workforce of L4.
The aggregate purchase price under the Stock
Purchase Agreement ("SPA") amounted to 20,388.
On January 30, 2018, the Company signed an
amendment to the SPA. Considering this amendment, purchase price may be subject to adjustments based on the future performance
of L4 and is payable to the seller as follows:
Up-front payment
: As of the
closing date, the Company paid an aggregate consideration of 11,000 to the seller.
|
1.
|
First earn-out payment:
On February 15, 2017, the Company paid an aggregate consideration of 990 to the sellers.
|
|
2.
|
Second earn-out payment:
On February 15, 2018, the Company paid an aggregate consideration of 1,850.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
|
3.
|
Third and forth earn-out payment:
Not later than February 15, 2019, the amount of 1,160,
provided that such amount shall be reduced in proportion to the percentage of targets achievement by L4 during the period commencing
on January 1, 2018 and ending on December 31, 2018. Not later than February 15, 2020, the amount of 1,160, provided that such
amount shall be reduced in proportion to the percentage of targets achievement by L4 during the period commencing on January 1,
2019 and ending on December 31, 2019. However, as of December 31, 2018, the Company remeasured the fair value of the contingent
consideration related to these earn-outs, considering the non achievement of targets established by the Share Purchase Agreement.
Gain arising from the change in fair amounted to 1,848 and is disclosed as Other income, net.
|
The fair value of the consideration transferred
for L4 acquisition at the acquisition date was calculated as follows:
Purchase price
|
|
Amount
|
|
Down payment
|
|
|
11,000
|
|
Working capital adjustment
|
|
|
817
|
(a)
|
Contingent consideration
|
|
|
8,571
|
(a)
|
Total consideration
|
|
|
20,388
|
|
(a) As of December 31, 2017 included 1,845 as Other financial
liabilities current and 1,803 as Other financial liabilities non-current. As of December 31, 2018, the fair value of the contingent
consideration was zero.
Acquisition related expenses were not material and were recognized
directly as expense.
24.7 Acquisition of Ratio
On February 28, 2017, Globant LLC acquired
100% of shares of Ratio Cypress, LLC ("Ratio"), a limited liability company organized and existing under the laws of
the State of Washington, United States. Ratio offers design, development and quality assurance services necessary to build and
manage robust digital products and video streaming solutions for major media companies. Total headcount of Ratio was 45 employees
with operations in United States.
The purpose of the acquisition is related to
the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Ratio.
The aggregate purchase price under the Stock
Purchase Agreement ("SPA"), amended on March 2, 2018, amounted to 9,529. Such purchase price may be subject to adjustments
based on the future performance of Ratio and is payable to the seller as follows:
|
1.
|
Up-front payment:
As of the closing date, the Company paid an aggregate consideration of 5,800 to the seller.
|
|
2.
|
First earn-out payment:
On February 15, 2018, the Company paid the aggregate consideration 1,669 to the sellers.
|
|
3.
|
Second earn-out payment:
On February 15, 2019, the Company paid the aggregate consideration of 2,019, to the sellers.
|
|
4.
|
Third earn-out payment:
Not later than February 15, 2020, the amount of 865, considering
the targets achievement by Ratio during the period commencing on January 1, 2019 and ending on December 31, 2019.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The fair value of the consideration transferred
for Ratio acquisition was calculated as follows:
Purchase price at acquisition date
|
|
Amount
|
|
Down payment
|
|
|
5,800
|
|
Working capital adjustment
|
|
|
(97
|
)
|
Contingent consideration
|
|
|
3,826
|
(a)
|
Total consideration
|
|
|
9,529
|
|
|
(a)
|
As of December 31, 2018 included 1,992 and 851 as Other financial liabilities current and
non-current, respectively. As of December 31, 2017 included 1,666 and 2,216 as Other financial liabilities current and non-current,
respectively.
|
Acquisition related expenses were not material
and were recognized directly as expense for each period.
24.8 Acquisition of PointSource
On June 1, 2017, Globant LLC acquired 100%
of shares of PointSource, LLC ("PointSource"), a limited liability company organized and existing under the laws of the
State of Florida, United States. PointSource offers digital solutions to its customers which include design, digital strategy,
development and marketing services. Total headcount of PointSource was 97 employees with operations in United States.
The purpose of the acquisition is related to
the benefit of expected synergies, revenue growth, future market development and the assembled workforce of PointSource.
The aggregate purchase price under the Stock
Purchase Agreement ("SPA") amounted to 28,629.
On May, 2018, the Company signed an
amendment to the SPA, pursuant to which a new fixed-payment was established, in replacement of previous payment subject to
targets achievements. The amended purchase price is payable to the seller as follows:
|
1.
|
Up-front payment:
The Company paid the first payment of 15,500 in two installments:
|
|
a.
|
As of the closing date, the Company paid an aggregate consideration of 3,100 to the seller.
|
|
b.
|
On June 7, 2017, the Company paid the second portion of the first payment for a total amount of 12,400.
|
|
2.
|
First earn-out payment:
On February 22, 2018, the Company paid the aggregate consideration of 2,206 to the sellers.
|
|
3.
|
Second earn-out payment:
On February 28, 2019, the Company paid the aggregate consideration of 750 to the sellers.
|
|
4.
|
Third earn-out payment:
Not later than February 29, 2020, the fixed-amount of 1,450 and
1,198 subject to the achievement of targets during the period commencing on January 1, 2019 and ending on December 31, 2019.
|
Additionally, as part of the total consideration
the Company computed the working capital adjustment for a total amount of 3,756.
Equity purchase agreement
On June 1, 2017, the Company signed an equity
purchase agreement to have the option to acquire the 100% of the shares of PointSource Limited Liability Company (PS Belarus),
a company established in accordance with the laws of the Republic of Belarus and totally owned by Christopher L. Hugill, Chief
Executive Officer (CEO) of PointSource.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Additionally, PointSource and PS Belarus are
parties in a subcontractor agreement, dated as of July 1, 2015, pursuant to which PS Belarus performs services to PointSource as
an independent contractor. Considering that the Company owned 100% of PointSource which is the only customer of PS Belarus and
that the CEO of PointSource is the wholly-owned shareholder of PS Belarus, the Company concluded that has the control over PS Belarus
and has to consolidated in 100% as the following factors are met:
(a) PointSource has power over PS
Belarus;
(b) PointSource has the ability to
use its power over PS Belarus to affect the amounts of its return as it is the only customer.
The fair value of the consideration transferred
for PointSource acquisition was calculated as follows:
Purchase price at acquisition date
|
|
Amount
|
|
Down payment
|
|
|
15,500
|
|
Working capital adjustment
|
|
|
3,756
|
|
Contingent consideration
|
|
|
9,373
|
(a)
|
Total consideration
|
|
|
28,629
|
|
|
(a)
|
As of December 31, 2018 included 746 and 1,040 as Other financial liabilities current and
non-current, respectively. As of December 31, 2017, included 2,200 and 7,261 as Other financial liabilities current and non-current,
respectively.
|
Acquisition related expenses were not material
and were recognized directly as expense for each period.
24.9 Acquisition of Small Footprint
On August 20, 2018, Globant España S.A.
(sociedad unipersonal) and Globant LLC signed a pre-closing Asset Purchase Agreement (“APA”) with Small Footprint Inc.,
a corporation organized and existing under the laws of the State of North Carolina, United States, pursuant to which Globant España
acquired 100% of shares of Small Footprint S.R.L., a limited liability company organized and existing under the laws of Romania,
and Globant LLC acquired the assets and properties used or held for use in connection with the business of Small Footprint Inc.
Both transactions were treated as a single business combination according to IFRS 3. The closing date took place on October 15,
2018, which is the date the Company acquired control over Small Footprint.
The purpose of the acquisition is related to
the benefit of expected synergies, revenue growth, future market development and the assembled workforce of Small Footprint.
The aggregate purchase price under the APA
amounted to 7,397. Such purchase price may be subject to adjustments based on the future performance of Small Footprint and is
payable to the seller as follows:
|
1.
|
Up-front payment:
As of the closing date, the Company paid an aggregate consideration of 4,331 to the seller.
|
|
2.
|
First earn-out payment
: On March 1, 2019, the Company paid the aggregate consideration of 3,066 to the sellers.
|
|
3.
|
Second earn-out payment:
Not later than February 15, 2020, the amount of 2,110 considering
the billable headcount target achievement by Small Footprint during the period commencing on January 1, 2019 and ending on December
31, 2019, which was identified as an arrangement that includes remuneration of former owners of the acquiree for future services
and consequently, it was excluded from the business combination and will be recognized in expense during the required service period.
|
|
4.
|
Third earn-out payment
: Not later than February 15, 2021, the amount of 1,610 considering
the billable headcount target achievement by Small Footprint during the period commencing on January 1, 2020 and ending on December
31, 2020 which was identified as an arrangement that includes remuneration of former owners of the acquiree for future services
and consequently, it was excluded from the business combination and will be recognized in expense during the required service period.
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The fair value of the consideration transferred
for Small Footprint acquisition at the acquisition date was calculated as follows:
Purchase price at acquisition date
|
|
Amount
|
|
Down payment
|
|
|
3,840
|
|
Working capital adjustment
|
|
|
488
|
|
Contingent consideration
|
|
|
3,029
|
|
Total consideration
|
|
|
7,357
|
|
Acquisition related expenses were not material
and were recognized directly as expense for each period.
24.10 Outstanding balances
Outstanding balances of financial liabilities
related to the abovementioned acquisitions as of December 31, 2018 and 2017 are as follows:
|
|
As of December 31, 2018
|
|
|
As of December 31, 2017
|
|
|
|
Other financial
liabilities -
current
|
|
|
Other financial
liabilities - non
current
|
|
|
Other financial
liabilities -
current
|
|
|
Other financial
liabilities - non
current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huddle Group
|
|
|
—
|
|
|
|
—
|
|
|
|
110
|
|
|
|
—
|
|
Clarice
|
|
|
3,127
|
|
|
|
1,527
|
|
|
|
3,119
|
|
|
|
4,497
|
|
Subscription agreement
|
|
|
400
|
|
|
|
—
|
|
|
|
800
|
|
|
|
—
|
|
Put option on minority interest of Dynaflows
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,797
|
|
WAE
|
|
|
—
|
|
|
|
—
|
|
|
|
924
|
|
|
|
—
|
|
L4
|
|
|
—
|
|
|
|
—
|
|
|
|
1,845
|
|
|
|
1,803
|
|
Ratio
|
|
|
1,992
|
|
|
|
851
|
|
|
|
1,666
|
|
|
|
2,216
|
|
PointSource
|
|
|
746
|
|
|
|
1,040
|
|
|
|
2,200
|
|
|
|
7,261
|
|
Small Footprint
|
|
|
3,070
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
9,335
|
|
|
|
3,418
|
|
|
|
10,664
|
|
|
|
18,574
|
|
The significant inputs are disclosed in note 28.9.1.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
24.11 Purchase Price Allocation
As of December 31, 2018 and 2017, fair values
of the assets acquired, liabilities assumed and goodwill or bargain gain determined at the date of acquisition in the business
combinations are as follows:
|
|
2018 acquisitions
|
|
|
2017 acquisitions
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
191
|
|
|
|
2,151
|
|
Investments
|
|
|
—
|
|
|
|
5
|
|
Trade receivables
|
|
|
1,066
|
|
|
|
3,170
|
|
Other receivables
|
|
|
45
|
|
|
|
2,893
|
|
|
|
|
|
|
|
|
|
|
Non current assets
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
48
|
|
|
|
192
|
|
Intangibles
|
|
|
173
|
|
|
|
524
|
|
Other receivables
|
|
|
—
|
|
|
|
151
|
|
Goodwill
(1)
|
|
|
6,244
|
|
|
|
33,699
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
—
|
|
|
|
(3,310
|
)
|
Tax liabilities
|
|
|
—
|
|
|
|
(22
|
)
|
Payroll and social security
|
|
|
—
|
|
|
|
(1,295
|
)
|
Other liabilities
|
|
|
(410
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
|
7,357
|
|
|
|
38,158
|
|
|
(1)
|
As of December 31, 2018, 6,244 is not deductible for tax purposes. As of December 31, 2017, 33,699,
is deductible for tax purposes.
|
Goodwill has arisen because the
consideration paid for these acquisitions included amounts in relation to the benefit of expected synergies, revenue growth,
customer relationships, future market development and the assembled workforce of acquired companies. Only the customer
contracts are recognized as intangible, in the acquisitions of Pointsource and Small footprint. The other benefits are not
recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
The fair values of the receivables acquired
do not differ from their gross contractual amount.
Acquisition related expenses were not material
and were recognized directly as expense for each period.
24.12 Impact of acquisitions on the results
of the Company
The net income for the year ended December 31,
2016 includes 2,312 attributable to the business generated by WAE. Revenue for the year ended December 31, 2016 includes 7,475
related to the business of that company. Had the business combination been effected at January 1, 2016, the consolidated revenue
of the Company would have been 326,175 and the net profit for the year ended December 31, 2016 would have been 35,739.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The net income for the year ended December 31,
2016 includes a loss of 7 attributable to the business generated by Difier. Revenue for the year ended December 31, 2016 includes
444 related to the business of that company. Had the business combination been effected at January 1, 2016, the consolidated
revenue of the Company would have been 324,229 and the net profit for the year ended December 31, 2016 would have been 36,095.
The net income for the year ended December 31,
2016 includes a gain of 823 attributable to the business generated by L4. Revenue for the year ended December 31, 2016 includes
3,422 related to the business of that company. Had the business combination been effected at January 1, 2016, the consolidated
revenue of the Company would have been 335,307 and the net profit for the year ended December 31, 2016 would have been 37,014.
Had the three business combinations made in
2016, as described above, been performed on January 1, 2016, the consolidated revenue of the Company would have been 339,999
and the net profit for the year ended December 31, 2016 would have been 35,354.
Directors consider these "pro-forma"
numbers to represent an approximate measure of the performance of the Company on an annualized basis and to provide a reference
point for comparison in future periods.
The net income for the year ended December 31,
2017 includes a gain of 812 and 383 attributable to the business generated by Ratio and Pointsource, respectively, determined based
on the information available as of June 30, 2017. Revenue for the year ended December 31, 2017 includes 4,188 and 2,108 related
to the business of Ratio and Pointsource, respectively, computed also with the information available as of June 30, 2017. Since
then, the business of the two entities were fully integrated within the business of our subsidiary Globant LLC; furthermore, during
the last semester of 2017 both entities were formally merged into our subsidiary Globant LLC. Consequently, it has not been possible
to determine a reasonable estimate of the total amounts related to the revenue and net income attributable to the separate businesses
of Ratio and Pointsource for the full year included in the consolidated income for the year ended December 31, 2017.
As explained in note 24.9, on October 15, 2018,
the Company purchased the assets of Small Footprint Inc. and the shares of Small Footprint S.R.L. From the acquisition date and
onwards, the business of Small Footprint Inc. was fully integrated within the business of the Company's subsidiary Globant LLC.
Consequently, it has not been possible to determine a reasonable estimate of the total amounts related to the net income attributable
to the separate business of Small Footprint as of December 31, 2018. Had the business combination been effected at January
1, 2018, the consolidated revenue of the Company would have been 523,114 and the net profit for the year ended December 31,
2018 would have been 52,910.
NOTE 25 – 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 financial information 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The following table summarizes revenues by
geography, based on the customers' location:
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
United States of America
|
|
|
400,029
|
|
|
|
322,658
|
|
|
|
258,388
|
|
Canada
|
|
|
7,061
|
|
|
|
2,956
|
|
|
|
2,535
|
|
Subtotal North America
|
|
|
407,090
|
|
|
|
325,614
|
|
|
|
260,923
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Spain
|
|
|
30,298
|
|
|
|
23,831
|
|
|
|
12,929
|
|
Netherlands
|
|
|
1,023
|
|
|
|
69
|
|
|
|
159
|
|
United Kingdom
|
|
|
12,970
|
|
|
|
9,996
|
|
|
|
10,305
|
|
Luxembourg
|
|
|
1,109
|
|
|
|
1,000
|
|
|
|
961
|
|
Germany
|
|
|
623
|
|
|
|
1,540
|
|
|
|
2,478
|
|
Sweden
|
|
|
—
|
|
|
|
1,317
|
|
|
|
1,251
|
|
Italy
|
|
|
—
|
|
|
|
—
|
|
|
|
718
|
|
Others
|
|
|
217
|
|
|
|
731
|
|
|
|
505
|
|
Subtotal Europe
|
|
|
46,240
|
|
|
|
38,484
|
|
|
|
29,306
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
India
|
|
|
1,063
|
|
|
|
673
|
|
|
|
1,132
|
|
Indonesia
|
|
|
1,686
|
|
|
|
—
|
|
|
|
—
|
|
Others
|
|
|
318
|
|
|
|
27
|
|
|
|
133
|
|
Subtotal Asia
|
|
|
3,067
|
|
|
|
700
|
|
|
|
1,265
|
|
Latin America and others
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina
|
|
|
24,241
|
|
|
|
14,886
|
|
|
|
10,216
|
|
Brazil
|
|
|
238
|
|
|
|
358
|
|
|
|
2,344
|
|
Colombia
|
|
|
5,362
|
|
|
|
3,553
|
|
|
|
3,177
|
|
Chile
|
|
|
21,246
|
|
|
|
19,243
|
|
|
|
13,425
|
|
Uruguay
|
|
|
529
|
|
|
|
231
|
|
|
|
84
|
|
Mexico
|
|
|
11,949
|
|
|
|
7,418
|
|
|
|
966
|
|
Perú
|
|
|
1,718
|
|
|
|
2,627
|
|
|
|
852
|
|
Others
|
|
|
630
|
|
|
|
325
|
|
|
|
298
|
|
Subtotal Latin America and others
|
|
|
65,913
|
|
|
|
48,641
|
|
|
|
31,362
|
|
TOTAL
|
|
|
522,310
|
|
|
|
413,439
|
|
|
|
322,856
|
|
One single customer accounted for 11.3% and
10.2% of revenues for the years ended December 31, 2018 and 2017. However, no single customer accounted for 10% or more of
revenues for the year ended December 31, 2016.
The following table summarizes non-current
assets other than deferred taxes as stated in IFRS 8, paragraph 33.b, by jurisdiction:
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(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,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Argentina
|
|
|
70,349
|
|
|
|
69,511
|
|
Spain
|
|
|
46,803
|
|
|
|
38,454
|
|
United States of America
|
|
|
58,083
|
|
|
|
57,071
|
|
Brazil
|
|
|
1,512
|
|
|
|
1,870
|
|
Uruguay
|
|
|
781
|
|
|
|
555
|
|
Luxembourg
|
|
|
4,353
|
|
|
|
5,316
|
|
Colombia
|
|
|
12,942
|
|
|
|
7,997
|
|
México
|
|
|
6,121
|
|
|
|
3,460
|
|
India
|
|
|
4,159
|
|
|
|
2,206
|
|
Chile
|
|
|
874
|
|
|
|
1,037
|
|
Other countries
|
|
|
1,176
|
|
|
|
534
|
|
TOTAL
|
|
|
207,153
|
|
|
|
188,011
|
|
NOTE 26 – BORROWINGS
26.1 – Bank and financial institutions
The principal balances of outstanding borrowings
under lines of credit with banks and financial institutions were as follows:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Banco Santander Rio (Argentina)
|
|
|
—
|
|
|
|
4
|
|
HSBC Bank and Citibank - Syndicated loan (United States)
|
|
|
—
|
|
|
|
6,007
|
|
TOTAL
|
|
|
—
|
|
|
|
6,011
|
|
Such balances were included as current borrowings in the consolidated
statement of financial position.
On November 1, 2018, Globant LLC, the Company's
U.S. subsidiary, entered into an Amended and Restated 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
amends and restates the existing Credit Agreement dated as of August 3, 2017, which provided for a secured revolving credit facility
under which the Company may borrow up to 40,000 in advances. Under the A&R Credit Agreement, Globant LLC may borrow (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 may request increases of the maximum amount available under the revolving
facility in an aggregament amount not to exceed 100,000. The maturity date of the facilities is 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 LIBOR plus
1.75%. Globant LLC’s obligations under the A&R Credit Agreement are 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 also 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 2.50 to 1.00; Globant LLC or any of its subsidiaries shall not incur in any indebtedness; Globant LLC or any of
its subsidiaries shall not assume any Lien; restricted payments not to exceed 10,000 per year; advances to officers, directors
and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed 50 outstanding at
any time; 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.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
On December 19, 2017, Globant LLC has borrowed
6,000 under the original credit facility. This loan matured on July 23, 2018 and was included as a current borrowing as of December
31, 2017. As of December 31, 2018, the Company has not borrowed any loan from the A&R Credit Agreement.
Movements in borrowings are analyzed as follows:
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the beginning of year
|
|
|
6,011
|
|
|
|
217
|
|
|
|
548
|
|
Borrowings related to business combination (note 24)
|
|
|
—
|
|
|
|
—
|
|
|
|
250
|
|
Proceeds from new borrowings
(1)
|
|
|
—
|
|
|
|
22,000
|
|
|
|
—
|
|
Payment of borrowings
|
|
|
(6,163
|
)
|
|
|
(16,293
|
)
|
|
|
(584
|
)
|
Accrued interest
|
|
|
152
|
|
|
|
95
|
|
|
|
41
|
|
Foreign exchange
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
(38
|
)
|
TOTAL
|
|
|
—
|
|
|
|
6,011
|
|
|
|
217
|
|
|
(1)
|
The Company, through its Argentine subsidiary, Sistemas
Globales S.A. and IAFH Global S.A., entered into 6 loan agreements with Santander Rio for a total amount of $16,000. These loans
matured before December 31, 2017. On December 19, 2017, Globant LLC has borrowed $6,000 under the credit facility mentioned above.
This loan matured on July 23, 2018.
|
NOTE 27 – OPERATING AND FINANCE LEASES
The Company is obligated under various operating
leases for office space and office equipment. Total lease expense incurred under these leases was approximately 16,335; 13,972
and 12,032 for the years ended December 31, 2018, 2017 and 2016, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
The undiscounted amounts of future fixed minimum
annual lease commitments are as follows at December 31, 2018:
Year
|
|
Amount
|
|
|
|
|
|
2019
|
|
|
16,051
|
|
2020
|
|
|
14,097
|
|
2021
|
|
|
8,356
|
|
2022
|
|
|
6,500
|
|
2023 onwards
|
|
|
10,218
|
|
Total
|
|
|
55,222
|
|
NOTE 28 – FINANCIAL INSTRUMENTS
28.1 - Categories of financial instruments
|
|
As of December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
77,606
|
|
|
|
52,525
|
|
Financial assets measured at FVPL
|
|
|
4,050
|
|
|
|
7,620
|
|
Financial assets measured at FVOCI
|
|
|
4,585
|
|
|
|
527
|
|
Other financial assets
(2)
|
|
|
895
|
|
|
|
1,428
|
|
Assets measured at amortised cost
|
|
|
160,963
|
|
|
|
126,171
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Other financial liabilities
(1)
|
|
|
12,765
|
|
|
|
29,238
|
|
Amortised cost
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
17,578
|
|
|
|
11,640
|
|
Payroll and social security taxes
|
|
|
58,535
|
|
|
|
40,472
|
|
Borrowings
|
|
|
—
|
|
|
|
6,011
|
|
Tax liabilities
|
|
|
7,399
|
|
|
|
5,253
|
|
Other liabilities
|
|
|
44
|
|
|
|
20
|
|
(1) As of December 31, 2018,
other financial liabilities include 3,070, 3,873 and 2,844 related to contingent liability arisen in Small Footprint, Clarice and
Ratio acquisitions, respectively, which are measured at fair value (see note 28.9.1).
(2) As of December 31, 2018,
other financial assets include foreign exchange forward contracts of 44 measured at fair value through profit and loss, convertible
notes of 106 measured at fair value through profit and loss, financial asset related to the acquisition of Clarice of 400 which
is measured at fair value through profit and loss, and 345 of guarantee payments related to the future lease of a property under
construction measured at amortised cost
.
28.2 - 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, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(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
28.9.4.
28.3 - Foreign currency risk management
The Company undertakes transactions denominated
in foreign currencies; consequently, exposures to exchange rate fluctuations arise.
Except in Globant Brasil Consultoría
Ltda. (formerly TerraForum Consultoría Ltda.), Globers S.A. and We are London Limited, the subsidiary's functional currency
is the U.S. dollar. In 2018, 86% 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 Argentine peso, Uruguayan peso, Brazilian Real, Mexican peso, Peruvian Sol and Colombian peso. Operating
expenses are also significantly incurred in Indian Rupee and Great Britain Pound.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Foreign exchange sensitivity analysis
The Company is mainly exposed to Argentine
pesos, Colombian pesos and Indian rupees.
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, 2018 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
|
|
|
10,147
|
|
|
|
30
|
%
|
|
|
(3,462
|
)
|
|
|
10
|
%
|
|
|
(587
|
)
|
|
|
Colombian pesos
|
|
|
(7,148
|
)
|
|
|
10
|
%
|
|
|
630
|
|
|
|
10
|
%
|
|
|
(738
|
)
|
|
|
Indian rupees
|
|
|
492
|
|
|
|
10
|
%
|
|
|
(47
|
)
|
|
|
10
|
%
|
|
|
46
|
|
|
|
Total
|
|
|
3,491
|
|
|
|
|
|
|
|
(2,879
|
)
|
|
|
|
|
|
|
(1,279
|
)
|
The following sensitivity analysis includes
costs incurred in foreign currencies during the year ended December 31, 2018 and adjusts their translation for the year ended December
31, 2018 for changes in U.S. dollars against the relevant foreign currencies.
|
|
|
|
|
|
|
Gain/(loss)
|
|
Account
|
|
Currency
|
|
Amount
|
|
|
% Increase
|
|
|
Amount
|
|
|
% Decrease
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
Argentine pesos
|
|
|
(127,599
|
)
|
|
|
30
|
%
|
|
|
29,446
|
|
|
|
10
|
%
|
|
|
(12,760
|
)
|
|
|
Colombian pesos
|
|
|
(69,944
|
)
|
|
|
10
|
%
|
|
|
6,359
|
|
|
|
10
|
%
|
|
|
(6,994
|
)
|
|
|
Indian rupees
|
|
|
(20,533
|
)
|
|
|
10
|
%
|
|
|
1,867
|
|
|
|
10
|
%
|
|
|
(2,053
|
)
|
|
|
Total
|
|
|
(218,076
|
)
|
|
|
|
|
|
|
37,672
|
|
|
|
|
|
|
|
(21,807
|
)
|
The estimated effect in net income for the
year ended December 31, 2018 due to a 30% increase in the U.S. dollar against the Argentine peso is a gain of 25,984 and such
effect due to a 10% decrease in the U.S. dollar against the Argentine peso is a loss of 13,347.
The estimated effect in net income for the
year ended December 31, 2018 due to a 10% increase in the U.S. dollar against the Colombian peso and Indian rupees is a gain
of 6,989 and 1,820, respectively, and such effect due to a 10% decrease in the U.S. dollar against the Colombian peso and Indian
rupees is a loss of 7,732 and 2,007, respectively.
Depreciation of the Argentine Peso
During 2018, the Argentine peso experienced
a 102.2% devaluation from 18.60 Argentine peso per U.S. dollar to 37.60 Argentine peso per U.S. dollar. As explained in note 28.9.4,
the Argentine's subsidiaries 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 costs and expenses.
During 2017 and 2016, the Argentine peso experienced
a 17% and a 14% devaluation, respectively, from 15.84 and 13.910 Argentine peso per U.S. dollar to 18.60 and 15.84 Argentine peso
per U.S. dollar, respectively.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
28.4 - 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 of 1.75% and at variable rates from 1.78% at 2.8%, respectively. The Company does not use derivative
financial instruments to hedge its risk of interest rate volatility.
28.5 – Liquidity risk management
The Company's primary sources of liquidity
are cash flows from operating activities and borrowings under credit facilities. See note 26.1.
Management monitors rolling forecasts of the
Company's liquidity position on the basis of expected cash flow.
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
|
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial liabilities
|
|
|
9,347
|
|
|
|
3,418
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,765
|
|
TOTAL
|
|
|
9,347
|
|
|
|
3,418
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,765
|
|
28.6 - Concentration of credit risk
The Company derives revenues from clients in
the U.S. (approximately 77%) and clients related from diverse industries. For the years ended December 31, 2018, 2017 and
2016, the Company's top five clients accounted for 32.0%, 28.9% and 33.7% of its revenues, respectively. One single customer accounted
for 11.3% and 10.2% of revenues for the years ended December 31, 2018 and 2017. However, no single customer accounted for
10% or more of revenues for the years ended December 31, 2016.
28.7 - 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,
2018 and 2017, approximate to their fair values.
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Carrying amount
|
|
|
Fair value
|
|
|
Carrying amount
|
|
|
Fair value
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantee deposits
|
|
|
1,681
|
|
|
|
1,539
|
|
|
|
1,347
|
|
|
|
1,226
|
|
Tax credit - VAT
(*)
|
|
|
356
|
|
|
|
326
|
|
|
|
2,025
|
|
|
|
2,096
|
|
Income tax credits
|
|
|
1,259
|
|
|
|
1,153
|
|
|
|
2,129
|
|
|
|
2,059
|
|
Tax credit - Software Promotion Regime
|
|
|
749
|
|
|
|
686
|
|
|
|
132
|
|
|
|
45
|
|
Other tax credits
|
|
|
170
|
|
|
|
157
|
|
|
|
105
|
|
|
|
56
|
|
|
|
|
4,215
|
|
|
|
3,861
|
|
|
|
5,738
|
|
|
|
5,482
|
|
(*)
Net of allowance for impairment
of tax credits.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
28.8 - 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.
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, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
—
|
|
|
|
4,050
|
|
|
|
—
|
|
|
|
4,050
|
|
Bills issued by the Treasury of the Argentine Republic ("LETEs")
|
|
|
—
|
|
|
|
1,015
|
|
|
|
—
|
|
|
|
1,015
|
|
Bills issued by the Treasury Department of the U.S. ("T-Bills")
|
|
|
—
|
|
|
|
3,493
|
|
|
|
—
|
|
|
|
3,493
|
|
Capitalizable bills issued by the Treasury of the Argentine Republic ("LECAPs")
|
|
|
—
|
|
|
|
77
|
|
|
|
—
|
|
|
|
77
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
44
|
|
|
|
—
|
|
|
|
44
|
|
Convertibles notes
|
|
|
—
|
|
|
|
106
|
|
|
|
—
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
9,767
|
|
|
|
9,767
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
As of December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
—
|
|
|
|
7,620
|
|
|
|
—
|
|
|
|
7,620
|
|
Bills issued by the Argentine Central Bank ("LEBACs")
|
|
|
—
|
|
|
|
527
|
|
|
|
—
|
|
|
|
527
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
|
73
|
|
|
|
—
|
|
|
|
73
|
|
Call option on minority interest (see note 24.3)
|
|
|
—
|
|
|
|
—
|
|
|
|
455
|
|
|
|
455
|
|
Convertibles notes
|
|
|
—
|
|
|
|
100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
23,905
|
|
|
|
23,905
|
|
Put option on minority interest (see note 24.3)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,797
|
|
|
|
2,797
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
There were no transfers of financial assets
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.
28.9 Level 3
28.9.1 Contingent consideration
As explained in note 24.2, the acquisition
of Clarice included a contingent consideration agreement which was payable on a deferred basis and which will be subject to the
occurrence of certain events relating to the acquired company's capacity.
As of December 31, 2017, the Company remeasured
the fair value of the contingent consideration related to Clarice described above, considering the new targets established by the
amendment signed on May 16, 2017 to Globant India Private Ltd. (formerly Clarice Technologies PVT Ltd.) Share Purchase Agreement
dated on May 14, 2015. Loss arising from the change in fair value amounted to 1,173 and includes a loss arising from the change
in fair value of the contingent consideration for an amount of 1,401.
As of December 31, 2018 and 2017, the
nominal value of contingent consideration related to Clarice amounted to 3,947 and 6,291, respectively. The potential undiscounted
amount of all future payments that the Company could be required to make under this agreement was between 1,316 and 3,947 as of
December 31, 2018 and 2,193 and 6,578 as of December 31, 2017. The fair value of the contingent consideration related
to Clarice arrangement of 3,873 and 6,099 as of December 31, 2018 and 2017, respectively, was estimated by discounting to
present value using a risk-adjusted discount rate.
As described in note 24.4, the acquisition
of WAE (jointly We are London Limited and We are Experience, Inc.) included a contingent consideration agreement which was payable
on a deferred basis and was subject to the occurrence of certain events relating to the acquired company's gross revenue and gross
profit.
As of December 31, 2017, the Company remeasured
the fair value of the contingent consideration realted WAE described above. Gain arising from the change in fair value of the contingent
consideration amounted to 3,850 and is included as Other income, net.
As of December 31, 2017, the nominal value
of contingent consideration related to WAE amounted to 829 and such amount was related to Year 1 Deferred Consideration payment.
The potential undiscounted amount of all future payments that the Company could be required to make under this agreement was 816
as of December 31, 2017. The fair value of the contingent consideration arrangement of 816 as of December 31, 2017 was
estimated by discounting to present value using a risk-adjusted discount rate.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
During 2018, the Company and the sellers of
WAE have entered into discussions concerning circumstances that may have impacted the calculation of targets on the base of which
the final amount of Year 2 Deferred consideration should have been calculated. For that reason, in July, 2018, the Company and
the sellers of WAE signed a final settlement in order to avoid future claims on this matter. Loss arising from the settlement agreement
amounted to 1,038 as of December 31, 2018 and was disclosed as Other income, net. In July, 2018, the Company paid a total
amount of 1,867.
As described in note 24.6, the acquisition
of L4 included a contingent consideration agreement which is payable on a deferred basis and which will be subject to certain events
relating to the acquired company's gross revenue and gross profit.
As of December 31, 2017, the Company remeasured
the fair value of the contingent consideration related to L4 described above, considering the new targets established by the amendment
signed on January 30, 2018 to the SPA dated on November 14, 2016. Gain arising from the change in fair value of the contingent
consideration amounted to 4,058 and is included as Other income, net.
As of December 31, 2017, the nominal value
of contingent consideration related to L4 amounted to 3,750. The potential undiscounted amount of all future payments that the
Company could be required to make under this agreement was between 4,320 and an unlimited maximum amount, given that such payment
may be increased proportionally to the targets achievements, as of December 31, 2017. The fair value of the contingent consideration
arrangement of 3,653 as of December 31, 2017 was estimated by discounting to present value using a risk-adjusted discount
rate.
As of December 31, 2018, the Company remeasured
the fair value of the contingent consideration related to L4 described above, considering the non achievement of targets established
by the Share Purchase Agreement. Gain arising from the change in fair value amounted to 1,848 and is included as Other income,
net.
As described in note 24.7, the acquisition
of Ratio, included a contingent consideration agreement which is payable on a deferred basis and which will be subject to certain
events relating to the acquired company's gross revenue and gross margin.
As of December 31, 2018 and 2017, the
nominal value of contingent consideration related to Ratio amounted to 2,860 and 3,923, respectively. The potential undiscounted
amount of all future payments that the Company could be required to make under this agreement was between 2,570 and an unlimited
maximum amount, given that such payment may be increased proportionally to the targets achievements, as of December 31, 2018
and between 2,746 an unlimited maximum amount, given that such payment may be increased proportionally to the targets achievements,
as of December 31, 2017. The fair value of the contingent consideration arrangement of 2,844 and 3,876 as of December 31,
2018 and 2017 was estimated by discounting to present value using a risk-adjusted discount rate.
As of December 31, 2018, the Company remeasured
the fair value of the contingent consideration related to the acquisition of Ratio. Loss arising from the change in fair value
amounted to 654 and is included as Other income, net.
As described in note 24.8, the acquisition
of PointSource, included a contingent consideration agreement which was payable on a deferred basis and which was be subject to
certain events relating to the acquired company's gross revenue and gross margin.
As of December 31, 2017, the nominal value
of contingent consideration related to PointSource amounted to 9,626. The potential undiscounted amount of all future payments
that the Company could be required to make under this agreement was between 3,850 and an unlimited maximum amount, given that such
payment may be increased proportionally to the targets achievements, as of December 31, 2017. The fair value of the contingent
consideration arrangement of 9,461 as of December 31, 2017 was estimated by discounting to present value using a risk-adjusted
discount rate.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
On May 2018, the Company signed an amendment
to the SPA with the former shareholders, pursuant to which a new fixed-payment was established, in replacement of previous payments
subject to targets achievement. As of December 31, 2018, the fixed-payment amounted to 1,786 and is included in other financial
liabilities. As a consequence, the Company remeasured the fair value of the liability related to PointSource described above. Gain
arising from the change in fair value of the liability amounted to 5,506 and is included as Other income, net.
As described in note 24.9, the acquisition of Small Footprint included
a contingent consideration agreement which is payable on a deferred basis and which will be subject to the occurrence of certain
events relating to the acquired company's gross revenue, gross margin and billable headcount.
As of December 31, 2018, the nominal amount
of the contingent consideration related to Small Footprint amounted to 3,066. Such amount was paid on March 1, 2019. The fair value
of the contingent consideration arrangement of 3,070 as of December 31, 2018 was estimated by discounting to present value
using a risk-adjusted discount rate.
The following table shows the results from
remeasurement of the contingent considerations described above:
|
|
For the year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Gain on remeasurement of the contingent consideration of PointSource
|
|
|
5,506
|
|
|
|
—
|
|
|
|
—
|
|
(Loss) gain on remeasurement of the contingent consideration of Clarice
|
|
|
—
|
|
|
|
(1,173
|
)
|
|
|
418
|
|
Gain on remeasurement of the contingent consideration of L4
|
|
|
1,848
|
|
|
|
4,058
|
|
|
|
—
|
|
Gain on remeasurement of the contingent consideration of WAE
|
|
|
—
|
|
|
|
3,850
|
|
|
|
—
|
|
Loss on remeasurement of the contingent consideration of Ratio
|
|
|
(654
|
)
|
|
|
—
|
|
|
|
—
|
|
TOTAL
|
|
|
6,700
|
|
|
|
6,735
|
|
|
|
418
|
|
28.9.2 Put and call option on minority interests
As described in note 24.3, on October 22, 2015,
the Company entered into a Shareholders Agreement (the "Minority Interest SHA") with the "non-controlling shareholders"
to agree on a put option over the 33.27% of the remaining interest of Dynaflows.
On October 26, 2018, the non-controlling shareholders
exercised such option and the Company paid a total amount of 1,186 based on the EBITDA and Revenue of Dynaflows for the twelve
months ended on September 30, 2018. As of December 31, 2018, a gain of 1,611 was recognized as Other income, net, given that
the exercise of the option occurred earlier than expected.
As described in note 24.3, the Company also
agreed on a call option over non-controlling interest. The fair value of the call option on minority interest of 455 as of December 31,
2017 was estimated by using the Black & Scholes method considering the EBITDA and Revenue of the Dynaflows's most recent audited
annual financial statements at the time of the delivery of such exercise of the call option to present value using a risk-adjusted
discount rate.
As of December 31, 2018, the call option
was derecognized and a loss of 455 was recognized as Other income, net.
As of December 31, 2017 and 2016, the
Company recorded a gain of 1,727 and 2,981, respectively, related to the remeasurement at fair value of the put and call option
described above.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
28.9.3. 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
|
|
|
|
Call option on
minority interest
|
|
|
Contingent
consideration
|
|
|
Put option on
minority interest
|
|
December 31, 2016
|
|
|
319
|
|
|
|
23,314
|
|
|
|
4,388
|
|
Fair value remeasurement
(1)
|
|
|
136
|
|
|
|
(6,878
|
)
|
|
|
(1,591
|
)
|
Acquisition of business
(1)
|
|
|
—
|
|
|
|
13,199
|
|
|
|
—
|
|
Payments
(2)
|
|
|
—
|
|
|
|
(5,990
|
)
|
|
|
—
|
|
Interests
(1)
|
|
|
—
|
|
|
|
260
|
|
|
|
—
|
|
December 31, 2017
|
|
|
455
|
|
|
|
23,905
|
|
|
|
2,797
|
|
|
|
Financial Assets
|
|
|
Financial liabilities
|
|
|
|
Call option on
minority interest
|
|
|
Contingent
consideration
|
|
|
Put option on
minority interest
|
|
December 31, 2017
|
|
|
455
|
|
|
|
23,905
|
|
|
|
2,797
|
|
Fair value remeasurement
(1)
|
|
|
—
|
|
|
|
(6,700
|
)
|
|
|
(1,611
|
)
|
Reclassification to amortised cost
(1)
|
|
|
—
|
|
|
|
(1,778
|
)
|
|
|
—
|
|
Derecognition of call option
(1)
|
|
|
(455
|
)
|
|
|
—
|
|
|
|
—
|
|
Acquisition of business
(1)
|
|
|
—
|
|
|
|
3,029
|
|
|
|
—
|
|
Payments
(2)
|
|
|
—
|
|
|
|
(8,947
|
)
|
|
|
(1,186
|
)
|
Interests
(1)
|
|
|
—
|
|
|
|
258
|
|
|
|
—
|
|
December 31, 2018
|
|
|
—
|
|
|
|
9,767
|
|
|
|
—
|
|
(1) Non-cash transactions.
(2) Cash transactions included in investing activities in the Consolidated
Statement of Cash Flows.
28.9.4 Foreign exchange futures and forward contracts
During the years ended December 31, 2018,
2017 and 2016, the Argentinian subsidiaries, Sistemas Globales S.A. and IAFH Global S.A. acquired foreign exchange futures contracts
with 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 years ended December 31,
2018, 2017 and 2016 the Company recognized a gain of 594, and a loss of 421 and 1,126, respectively.
These futures contracts have daily settlements,
in which the futures value changes daily. Sistemas Globales S.A. and IAFH Global S.A. recognize daily variations in SBS primary
accounts, and the gains or losses generated by each daily position through profit or loss. Thus, at the closing of each day, according
to the future price of the exchange rate U.S. Dollar – Argentine peso, the companies perceive a gain or loss for the difference.
As future contracts have daily settlements, hence fair value as of December 31, 2018, 2017 and 2016 was zero.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Pursuant to these contracts, Sistemas Globales
S.A. and IAFH Global S.A. are required to maintain collaterals in an amount equal to a percentage of the notional amounts purchased
until settlement of the contracts. As of December 31, 2018 and 2017, IAFH Global S.A. held a 10% of the value of those collaterals
in LETEs and LEBACs, respectively, in SBS primary account. This ensures minimal funding, in case SBS has to transfer funds to "Mercado
a Término de Rosario S.A" (ROFEX) if losses are generated by daily settlements. This amount must also remain restricted
during the term of the contracts. As of December 31, 2018 and 2017, both collaterals regarding the transactions are restricted
assets for an amount of 975 and 473 in LETEs and LEBACs, respectively, included as investments.
During the year ended December 31, 2017,
the subsidiary Globant LLC, acquired foreign exchange forward contracts with Bridge Bank in rupees currency, with the purpose of
hedging the risk of exposure to fluctuations in that currency within the Group. Those contracts were recognized as financial assets
at fair value through profit or loss. For the year ended December 31, 2017 the Company recognized a gain of 118.
During 2018, the subsidiaries, Sistemas Globales
S.A., IAFH Global S.A., Sistemas Colombia S.A., Sistemas Globales Chile Asesorías Ltda. and Sistemas Globales Uruguay S.A.,
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 Argentine Pesos, Colombian Pesos, Chilean pesos and Uruguayan pesos, due to the risk of exposure to fluctuations
in those foreign currencies. Those contracts were recognized, according to IFRS 9, as financial assets at fair value through profit
or loss. For the year ended December 31, 2018 and 2017, the Company recognized a gain of 1,714 and 34, respectively. During
2017, the Argentine subsidiary, Sistemas Globales, entered into foreign exchange forward contracts with HSBC in U.S. dollars at
a specified price with the purpose of reducing the risk of exposure to fluctuations in foreign currency. As of December 31,
2018 and 2017, the foreign exchange forward contracts that were recognized as financial assets and liabilities at fair value through
profit or loss were as follows:
|
|
Foreign currency
|
|
|
Notional foreign
|
|
|
Fair value assets /
|
|
Settlement date
|
|
rate from contracts
|
|
|
currency rate
|
|
|
(liabilities)
|
|
January 31, 2019
|
|
|
40.06
|
|
|
|
39.67
|
|
|
|
26
|
|
February 28, 2019
|
|
|
41.54
|
|
|
|
41.17
|
|
|
|
15
|
|
April 30, 2019
|
|
|
44.44
|
|
|
|
44.30
|
|
|
|
3
|
|
Fair value as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2019
|
|
|
44.26
|
|
|
|
44.30
|
|
|
|
(1
|
)
|
May 31, 2019
|
|
|
45.74
|
|
|
|
45.92
|
|
|
|
(5
|
)
|
May 31, 2019
|
|
|
45.69
|
|
|
|
45.92
|
|
|
|
(6
|
)
|
Fair value as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
Foreign currency
|
|
|
Notional foreign
|
|
|
Fair value assets /
|
|
|
|
rate from contracts
|
|
|
currency rate
|
|
|
(liabilities)
|
|
Less than 3 months
|
|
|
18.05
|
|
|
|
18.95
|
|
|
|
73
|
|
Fair value as of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
73
|
|
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(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.
NOTE 29 — CONTINGENCIES
On February 10, 2012, Federación Argentina
de Empleados de Comercio y Servicios (''FAECYS'') filed a lawsuit against our Argentine subsidiary, Sistemas Globales S.A., in
which FAECYS demanded the application of its collective labor agreement to the employees of that subsidiary. According to FAECYS's
claim, Sistemas Globales should have withheld and transferred to FAECYS an amount of 0.5% of the gross monthly salaries of Sistemas
Globales' employees.
On April 16, 2018, the lower court dismissed the complaint filed
by FAECYS, and such decision was subsequently confirmed by the court of appeals.
NOTE 30 — CAPITAL AND RESERVES
30.1 Issuance of common shares
On December 31, 2018, 511,668 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 13.76 per share amounting to a total of 7,040.
On December 31, 2018, 564,995 Restricted
Stock Units (RSU) were granted to certain employees and directors of the Company. During 2018, 163,233 RSUs were vested at an average
price of 43.13 per share amounting to a total of 7,040 (non-cash transaction). A total amount of 4,995 of such vested RSUs corresponds
to a provision for bonus given to employees that was payable in RSUs and was included in the opening balance of additional paid
in capital.
On October 16, 2018, the Company issued 16,315
common shares for a total amount of 960 as part of the subscription agreement with Small Footprint's sellers signed on October
15, 2018, pursuant to which the Company agreed to issue to the subscribers and the subscribers agree to subscribe from the Company
a certain amount of shares. For the second tranche due on March 1, 2019, the Company may require the subscribers to apply up to
an amount of 25% of the first-earn out payment.
On July 20, 2018, the Company issued 18,692
common shares for a total amount of 982 as part of the subscription agreement with WAE's sellers signed on May, 23, 2016, pursuant
to which the Company agreed to issue to the subscribers and the subscribers agree to subscribe from the Company restricted common
stock up to an amount of 30% of the Purchase Price.
On June 12, 2018, the Company issued 9,120
common shares for a total amount of 400 as part of the subscription agreement stated in the stock purchase agreement signed with
Clarice´s sellers, explained in note 24.2.
On February 22, 2018, the Company issued 12,265
common shares for a total amount of 541 as part of the subscription agreement stated in the stock purchase agreement signed with
Pointsource´s sellers, as part of the business combination explained in note 24.8.
On February 16, 2018, the Company issued 7,605
common shares for an amount of 334 as part of the subscription agreement signed with Ratio´s sellers, as part of the business
combination explained in note 24.7.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
On December 31, 2017, 338,709 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 15.63 per share amounting to a total of 5,296.
On December 31, 2017, 254,328 Restricted
Stock Units (RSU) were granted to certain employees and directors of the Company. During 2017, 86,931 RSUs were vested at an average
price of 36.11 per share amounting to a total of 3,141 (non-cash transaction).
On August 17, 2017, the Company issued 34,219
common shares for a total amount of 1,435 as part of the subscription agreement stated in the stock purchase agreement signed with
WAE´s sellers, as part of the business combination explained in note 24.4.
On June 1, 2017, the Company issued 84,953
common shares for a total amount of 3,100 as part of the subscription agreement stated in the stock purchase agreement signed with
PointSource´s sellers, as part of the business combination explained in note 24.8.
On March 1, 2017, the Company issued 34,309
common shares for a total amount of 1,160 as part of the subscription agreement stated in the stock purchase agreement signed with
Ratio´s sellers, as part of the business combination explained in note 24.7.
On December 31, 2016, 243,915 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 7.64 per share amounting to a total of 1,863.
On November 14, 2016, the Company issued 70,380
common shares for an amount of 2,970 as part of the subscription agreement stated in the Stock Purchase Agreement signed with L4's
sellers, explained in note 24.6.
On July 25, 2016, the Company issued 23,508
common shares for an amount of 900 as part of the subscription agreement signed with Clarice’s sellers, explained in note
24.2.
On May 23, 2016, the Company issued 75,221
common shares for an amount of 2,550 as part of the subscription agreement stated in the Stock Purchase Agreement signed with WAE's
sellers, as part of the business combination explained in note 24.4.
On January 22, 2016, the Company granted 11,213
treasury shares at a price of $ 27.2 per share to Mr. Spitz to cancel the remaining liability of 305, related to the acquisition
of the minority interest of Huddle Group. The Company withholds the remaining amount of 20 as an escrow.
On April 30, 2015, the Company granted to one
employee 30,000 common shares to be carried out in two tranches: 15,000 shares delivered during April 2015 and the remaining 15,000
shares were delivered on April 1, 2016. Shares were granted at a price of 21.01 per share amounting to a total of 315 per year.
30.2 Public offerings
On August 2, 2016, the Company applied to the
Luxembourg Stock Exchange for listing on the Official List of the Luxembourg Stock Exchange and for the admission to trading on
its regulated market of 34,594,324 existing common shares, issued in registered form, with a nominal value of US$ 1.20 each, representing
the entire share capital of the Company at that moment. The fees estimated in connection with the listing of the common shares
amounted to 162 and are including within professional services.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
On August 11, 2016, the Company applied to
the Luxembourg Financial Sector Supervisory Authority (Commission de Surveillance du Secteur Financier) (the “CSSF”)
in its capacity as competent authority, for the approval of the Company’s prospectus, which was approved by the CSSF on August
11, 2016.
On June 20, 2018, the Company and WPP Luxembourg
Gamma Three S.à r.l. (the “Selling Shareholder”) entered into an underwriting agreement with Goldman Sachs &
Co. LLC and J.P. Morgan Securities LLC relating to the offer and sale of an aggregate of 5,815,259 common shares of the Company,
nominal value $1.20 per share, plus, at the option of the Underwriters, an additional 872,289 common shares pursuant to an option,
at a public offering price of $52.00 per common share. On June 21, 2018, the Underwriters exercised their option to purchase an
additional 872,289 common shares.
As of December 31, 2018, 32,496,961 common
shares of the Company's share capital are registered with the SEC and quoted in the New York Stock Exchange.
NOTE 31 — APPROPRIATION OF RETAINED
EARNINGS UNDER SUBSIDIARIES´ LOCAL LAWS
In accordance with Argentine and Uruguayan
Law, the Argentine and Uruguayan subsidiaries of the Company must appropriate at least 5% of net income for the year to a legal
reserve, until such reserve equals 20% of their respective share capital amounts.
On December 29, 2017, Argentine Law No. 27,430
amending the income tax law was enacted. According to the amendments, for fiscal years beginning on or after January 1, 2018 the
distribution of dividends is now subject to a 7% withholding for 2018 and 2019 and 13% withholding for 2020 onwards. The Equalization
Tax, which levied distributions made out of previously untaxed income, was eliminated.
On December 23, 2013, the Argentine
government adopted a new double taxation treaty with Spain, which applied retroactively from January 1, 2013. According this
treaty, the tax applicable on dividends distributed by our Argentine Subsidiaries to the Spain Holdco, is limited to 10% on
the gross amount of dividends distributed.
As of December 31, 2018, the legal reserve
amounted to 765 for all Argentine subsidiaries and as of that date was fully constituted.
As of December 31, 2018, the legal reserve
amounted to 42 for the Company's Uruguayan subsidiary and as of that date was fully constituted.
According to the ByLaws of Sistemas Colombia
S.A.S., the Colombian subsidiary of the Company must appropriate at least 10% of the net income of the year to a legal reserve
until such reserve equal 50% of its share capital. As of December 31, 2018, there was a legal reserve of 0.4 that was fully
constituted.
Under Spanish law, the Spanish subsidiaries
of the Company must appropriate 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, 2018, the legal reserve amounted to 7,922 for all Spanish subsidiaries.
In accordance with Brazilian Law, there is
no requirement for limited liability companies to allocate profits for the creation of a legal reserve. The Company's Brazilian
subsidiary did not have a legal reserve as of December 31, 2018.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
Under Luxembourg law, at least 5% of our net
profit per year must be allocated to the creation of a legal reserve until such reserve has reached an amount equal to 10% of our
issued share capital. If the legal reserve subsequently falls below the 10% threshold, at least 5% of net profit must be allocated
toward the reserve. If the legal reserve exceeds 10% of our issued share capital, the legal reserve may be reduced in proportion
so that it does not exceed 10% of our issued share capital. The legal reserve is not available for distribution. As of December 31,
2018, the legal reserve amounted to 437. Dividends paid by the Company 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.
In accordance with Peru corporate law, the
Peruvian subsidiary 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 capital stock. As of December 31, 2018, there was no legal reserve constituted.
According to Mexican Law, the Mexican subsidiary
of the Company must appropriate at least 5% of net income of the year to a legal reserve, until such reserve equals the fifth portion
of their respective share capital amounts. As of December 31, 2018, the legal reserve amounted to 68 for the Company's Mexican
subsidiary.
Regarding India Law, the Companies Act, 2013
does not mandate any fixed quantum of profits to be transferred / allocated to the reserves of a company. As of December 31,
2018, the legal reserve amounted to 17 for the Company's Indian subsidiary.
In UK there is no requirement for the UK´s
Company subsidiary to allocate profits for the creation of a legal reserve. As of December 31, 2018, there was no legal reserve
constituted.
In Chile there is no requirement for the Chilean
subsidiary of the Company to allocate profits for the creation of a legal reserve. As of December 31, 2018, there was no legal
reserve constituted.
According to French law, a minimum of 5% of
the profit of the year must be allocated to a reserve account named "legal reserve", until such reserve amounts 10% of
the share capital of the French subsidiary of the Company. As of December 31, 2018, there was no legal reserve constituted.
In accordance with the law of Belarus, the
Belorussian subsidiary must allocate an amount up to 25% of annual payroll reserve fund for salaries. The source for creating this
fund is the profit remaining at the disposal of the company after paying taxes and other obligatory payments. As of December 31,
2018, there was no legal reserve constituted.
In the United States there is no requirement
for the Company's U.S. subsidiary to allocate profits for the creation of a legal reserve. As of December 31, 2018, there
was no legal reserve constituted.
According to Romanian Companies Law, the Romanian
subsidiary of the Company has the obligation to allocate each year at least 5% of its profit to a reserve fund, until the value
of the fund is at least 20% of the Romanian Company's share capital of the company. As of December 31, 2018, the reserve fund
of the company was of Romanian Leu ("RON") 56.
In Canada there is no requirement for the Canada's
Company subsidiary to allocate profits for the creation of a legal reserve. As of December 31, 2018, there was no legal reserve
constituted.
GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
NOTE 32 – SUBSEQUENT EVENTS
The Company evaluated transactions occurring
after December 31, 2018 in accordance to IAS 10 ‘Events after the reporting period’.
32.1 Acquisition of Avanxo
On January 17, 2019, the Company entered into
a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of Avanxo (Bermuda) Limited (“Avanxo”),
pursuant to which the Company agreed to purchase all of Avanxo’s share capital subject to the terms and conditions set forth
in the Purchase Agreement. Avanxo is a cloud consulting and implementation company headquartered in Bermuda, with operations in
Brazil, Mexico, Colombia, Peru, Argentina and the United States.
The Agreement contains customary representations,
warranties, covenants, indemnities and conditions to closing, including non-objection to the Acquisition by the Colombian antitrust
authority (Superintendencia de Industria y Comercio). The transaction closed on February 1, 2019.
Under the terms of the Purchase Agreement,
the total consideration payable by the Company to Avanxo’s shareholders, assuming a debt-free and cash-free balance sheet,
is $48,557. Such purchase price may be subject to a working capital adjustment, reduction for uncollected accounts receivables
and the amounts of the Earn-Out Payments (as defined below) that become due and payable.
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Up-front payment:
On February 1, 2019, the Company paid an aggregate consideration of 40,939 to the seller.
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Earn-out payments:
the remaining amount of 7,618 will be payable in two installments, at
the end of each of the years ending December 31, 2019 and 2020, and is subject to upwards or downwards adjustment based on Avanxo’s
achievement of specified revenue, gross margin and operating margin targets for each of the years ending December 31, 2019 and
2020 (the “Earn Out Payments”) that apply only to certain sellers.
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At the Company's sole option, the Company will
be entitled to pay a portion of the Total Consideration through the issuance and delivery of common shares, as follows: (i) up
to $865,323 of the amount payable on the closing of the Acquisition and (ii) at the time of payment of any Earn Out Payments, up
to 25% of such Earn Out Payment. The number of common shares that may be issued and delivered to Avanxo´s selling shareholders
will be determined based on the volume weighted average trading price for the 60 calendar day period prior to closing of each share
subscription. Common shares issued pursuant to the exercise of this option will be subject to a 12-month lock-up period. These
common shares are expected to be issued in reliance on the exemption from registration provided by Regulation S under the Securities
Act of 1933, as amended.
As of the date of issuance of these consolidated
financial statements due to the recent of this acquisition, the accounting for this acquisition is incomplete; hence, pursuant
the guidance in paragraph B66 of IFRS 3, the Company has not included in this footnote the following disclosures as required by
such standard, as follows:
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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.
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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.
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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.
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GLOBANT S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018 and 2017 and for the
three years in the period ended December 31, 2018
(amounts are expressed in thousands of U.S.
dollars, except where expressly indicated that amounts are stated in thousands of other currencies)
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The amount of revenues and profit or loss of the acquired subsidiary 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 subsidiary 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.
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32.2 Loan agreement with Wolox
On January 4, 2019 ("issuance date"),
Globant España S.A. and Wolox, LLC (Wolox), agreed into a convertible promissory note purchase agreement whereby Globant
España S.A. provides financing facility for 1,800. Interest on the entire outstanding principal balance is computed
at an annual rate equal to Libor plus 2%. Wolox shall repay the loan in full within 18 months from the date as of the issuance
date. Globant España S.A has the right to convert any portion of the outstanding principal into fully paid and nonassessable
membership interest of Wolox.
NOTE 33 – APPROVAL OF CONSOLIDATED
FINANCIAL STATEMENTS
The Consolidated Financial Statements were
approved by the Board of Directors on March 22, 2019.
Martín Migoya
President