Globant S.A. Q4 FY2021 Earnings Call

Good day, and welcome to Globant’s Fourth Quarter 2021 Earnings Conference Call. I'm Amit Singh, Head of Finance for the U.S. and Global Head of Investor Relations. All participants on this call will be in listen-only mode. After today's presentation, there'll be an opportunity to ask questions. Please note this event is being recorded and streamed live on YouTube. By now, you should have received a copy of the earnings release. If you have not, a copy is available on our website investors.globant.com. Our speakers today are Martin Migoya, Co-Founder and Chief Executive Officer; Juan Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer; and Diego Tartara, Global Chief Technology Officer. Before we begin, I would like to remind you that some of the comments on our call today may be deemed forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures which is how we track performance internally and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our Investor Relations website announcing this quarter's results. I'd now like to turn the call over to Martin Migoya, our CEO.

Thanks, Amit, and hello, everyone. I'm happy to be back after another strong quarter and full year. Globant continues to deliver solid performance, and we aim to surpass the expectations of our stakeholders and clients. As we look back over the past 19 years since we started the company, 2021 stands out. This was one of our most transformative years ever. Our Q4 2021 revenue reached $379.8 million. This represents a year-over-year growth of 63.3% and an 11.1% growth over Q3. For 2021, we became a $1 billion revenue company for the first time ever. The top line reached nearly $1.3 billion, representing 59.3% year-over-year growth. This is the strongest annual revenue growth since our IPO. Our CFO, Juan Urthiague, will go into detail later in the call. These strong results have been made possible by the team of talent we have cultivated. I've never been more proud of our Globers. They are creative and adaptable. They work together as one team across 18 countries. Our business fundamentals are stronger than ever. We're in a position to capture the significant market opportunity in front of us. As we know, reinvention and transformation is not an end-to-end process. It is a constant state of adaptability to grow in the face of challenges. This time, a full adoption of digital transformation is here. The IDC has forecasted global spending in the sector to exceed $10 trillion over a five-year period. We aim to be the partner of choice for our clients and to help them bridge the gap between the innovation opportunities and actionable transformation. We are executing this strategy through the pillars of growth that I've laid out in 2021, our geographic expansion, our reinvention studios, and our growing platforms. First, our geographic expansion. Globant's footprint continues to grow throughout the regions where we work. Lately, we added two new countries to our Latin America operations, Costa Rica, and Ecuador. This solidifies our already strong presence in the region. In Europe, we have recently announced our expansion to Germany, Austria, and Switzerland. In North America, we continue to expand our local presence throughout the United States and Canada. We are reaching new clients and hiring more talent in all those regions to lead this growth. We have also brought on new talent and expertise through strategic M&A. In 2021, we incorporated five new companies into the Globant family. These companies have combined operations in 12 countries. Their talent has reinforced our capabilities in multiple spaces from Blockchain to digital sales and marketing, AI, Salesforce, and more. As we look to the major trends of the near future, we are already working on consolidating our capabilities in these spaces. A major transformation for how brands relate to consumers will be brought on by Web 3.0. Web users in the first generation of the Internet were exclusively receivers of information. They later became content creators as consumers and participants in the second phase. In this new phase, they will become owners. Through Blockchain technology and decentralization, Web 3.0 puts the user in the driver's seat. They will have more autonomy in their consumption, creation, and interface with the Internet. This is actually part of a larger change. Throughout the digital and cognitive revolutions, the focus has shifted towards the consumer. This is a huge opportunity for Globant, as we have built our core business around these revolutions for the past two decades. In this era, the most successful brands are the ones that can apply the right technology to improve relationships with our stakeholders. A major way that people will experience this new face of the web will be the Metaverse. Organizations will have new spaces and platforms where they can extend their presence, offering, and creativity. They will be able to maximize engagement with their customers and employees. Last year, Globant launched the Metaverse Studio to guide companies in taking advantage of these opportunities. Although many will see the potential, they need a partner with the technology and expertise for best-in-class execution. Globant believes that these and other trends in AI, machine learning, and teamwork agility will have a strong influence on our world in 2022 and beyond. We have done a deep dive on many of them in our trend report 2022. I encourage you to check it out at trends.globant.com. We also continue to develop our product and platforms offering under Globant X. The goal is to keep expanding our existing products such as StartmeUp, Augmented Testing, and Augmented Coding, among others. At the same time, we will continue to add new offerings to our product portfolio. For example, Globant X is developing an MVP of a new platform, Project-Yard. Yard is a diagnostic tool that aims to reduce the carbon emissions and operational costs of digital products and services. It identifies solutions by designing leaner digital services as it measures the energy consumption of software. It pinpoints areas where energy emissions and cost can be optimized by up to 25%. We believe technological innovation is a force for good. However, we are mindful of the potential side effects that come from misuse or excess. We see several concerning examples in our society, from texting and driving to cyberbullying to Internet security and privacy, just to mention a few. So, as you may remember from last quarter, we launched our Be Kind Tech Fund. We will support and fund start-ups that develop apps that provide solutions to these challenges. Today, we are proud to announce three world-renowned ecosystem partners: Endeavor, New Lab, and Lafka. Thanks to their extensive networks, we will be able to engage with a greater number of high-quality entrepreneurs and startups. We have already received dozens of submissions, and we continue to be open to receiving applications from startups at bekindtechfund.com. I'd be happy to see our team's effort generating greater recognition of Globant's brand identity. For the first time in 2022, Finance has recognized Globant among the top 10 strongest IT service brands in the world. The report studies marketing investment, stakeholder equity, and business performance. It showed an estimated 31% growth in Globant's brand value over the last year. This is great news for us, and we hope to continue improving our positioning moving forward. With that, I pass it over to Diego Tartara, our CTO, to comment on our studios and clients. Thank you very much, and I look forward to seeing you soon.

Thank you, Martin, and hello again, everyone. It's good to be back. As Martin mentioned, a major pillar of our growth strategy is our new industry Reinvention Studio, which we announced last year. This is the next step in the evolution of our signature studio model. Instead of focusing on a specific technology or trend, this new studio seeks to transform the industries themselves. This widens the scope of our work and increases the potential upside. Each Reinvention Studio is supported by the expertise of our digital studios in areas such as the Metaverse, Data and AI, Blockchain, and much more. I'd like to double-click today on the Life Sciences industry Reinvention Studio. Its goal is to provide organizations with technology-driven solutions to face challenges in the healthcare value chain. These stakeholders include patients and relatives, healthcare professionals, public and private players, institutions, academia, pharmaceutical and medical device companies, among many others. Globant has appointed Agustin Lamas as Managing Director for this new studio. Building on his experience as a pharmaceutical executive at AstraZeneca and GSK, we're happy to have Agustin on board as we reinvent this industry. The Life Sciences studio will be a hub of modern design thinking, combining bioscience talent with our digital expertise across other industries. Now, some remarks on the ongoing work with our clients. Continuing our focus on Life Sciences, last quarter, we started a partnership with Abbott, a leading multinational healthcare and medical device company. Our teams integrated with trust to understand their challenges, and we are redesigning their analytics platform solutions. The new data platform will allow for faster, more efficient data processing, enabling more intuitive decision-making. In the same industry, we are also working with Vyaire Medical to help with modernizing and redesigning their ventilator interface design. Vyaire is a global leader in respiratory diagnostics, ventilation, anesthesia delivery, and patient monitoring segments. We're also working with them on redesigning their UX and their medical incubator screening interfaces. As Martin explained, the Metaverse is a concept that is quickly becoming a reality, and one of the reasons we created our Metaverse Studio. In December 2021, we formed a partnership with Pixel Links, a leading music Metaverse gaming platform. Pixel Links is developing a new virtual world ecosystem that will allow artists to launch their own interactive environments and monetize them through NFTs, social music experiences, and virtual performances. Our expertise in the Metaverse, Blockchain, and gaming, along with their deep knowledge of the industry, allows us to accelerate the reinvention of the music industry together. We're also proud to be working with Dapper Labs, the creator of the world's most successful digital collectible Blockchain apps, including NBA Top Shot and CryptoKitties. We're helping them optimize their processes as we automate the creation of NFTs. We have a long track record of working with companies as we bring our technological expertise to education. We have recently been collaborating with EVERFI. EVERFI enables private, public, and social sector organizations to respond to some of today's most pressing challenges through education, activating community engagement that scales, delivered as a service. Through its technology and learning platform, EVERFI has reached more than 45 million learners globally, while also delivering critical insights to its corporate partners so they can measure and amplify the impact of their educational programs. We partnered with them to build their brand-new onboarding and enrollment platform. We are building a more robust scalable foundation that integrates with third-party sources of information and eliminates data mismatches while keeping rostering as a core service. It is extremely important for companies to remain human-centric as they embrace technology to improve their processes and services. The implementation of conversational interface is a great example of this. This past year, we've begun an exciting engagement with Tavisca, a cxLoyalty Technology Platform, which is a division of JPMorgan Chase. Tavisca and cxLoyalty build products and solutions that empower some of the world’s leading customer engagement and loyalty programs, transforming the way brands engage and reward their most loyal customers. The first project called Chatbot recently went live. It helps them improve their service offering and relationship with customers to meet business goals. In the food and beverage space, Danone has partnered with Globant for its transformation into a data-driven company. By applying AI, we are empowering them to have a higher and more insightful level of understanding of their shoppers and consumers and improve the route to market. We're working with gentle methodologies and modernization of their platforms, enhancing their capacity to respond to context changes and to capture the new opportunities that emerge from shifts in consumer behavior. Thank you everyone for your time again. I look forward to Globant's continuous expansion of the array of expertise to keep delivering superb 360 digital transformation. With that, I'll hand it over to Pat, our COO.

Thanks, Diego. Hello again, everyone. Before I delve into discussing our talented Globers, I want to reflect on the strength of our operations and our performance with our clients. The Walt Disney Company continues to be our largest client, growing this quarter at 69.1% year-over-year, and 7.1% quarter-over-quarter. We continue to be very well-diversified within Disney and serve a multitude of its business verticals. The rest of our accounts collectively grew by 62.6% year-over-year and 11.6% quarter-over-quarter. Our 100 square strategy continues to advance. Over the last 12 months, we had 12 accounts that brought in more than $20 million of revenue compared to $7 from last year. We also had 185 customers with more than $1 million of annual revenue compared to 129 one year ago. In Q4, 63.9% of our revenues were from North America, 23.5% from Latin America, and 10.7% in Europe, and 1.9% in Asia. As you know, we think of our clients as our partners, and having longstanding and strong relationships is directly tied to our focus on quality. The Net Promoter Score is a value that we have been measuring for quite some time to keep a close eye on how our customers perceive our quality of service. There is no official benchmark for this score, but most available benchmarks position scores generally between 30 and 40 for our industry. I am very pleased to share with you that our scores have been consistently above 60, well over the existing benchmarks. Our score was 64 for the last 12 months. As Martin said, 2021 was a major year of growth and achievement for Globant. We are now a worldwide team of 23,526 Globers, with 22,167 being technology, design, and innovation professionals. 1,594 of the new hires in the quarter were IT professionals, up 45% year-over-year. Every year, we have more geographical diversity, offering our clients a truly global delivery structure, as we now have Globers in 18 countries. Colombia and Argentina are nearly tied as our largest talent markets with a bit over 5,300 Globers each. In 2021, India saw the highest growth with headcount up 94% year-over-year. We remain confident that we can continue bringing strong talent, and we envision a robust hiring process moving forward. Globant's attrition rate is currently 18.7%. As you know, our talent markets remain competitive, and there has never been a better time to work in the IT sector. For us, this is an opportunity. It drives us to continuously improve our employees' experience, benefits, and opportunities to make Globant their place to work in the industry. We have seen that our efforts and the value proposition we provide to employees is leading to a stabilization of the attrition rate. Our structure has always respected work-life balance and family support. Now, we are going further. We want to enable our talent to feel in control of their own career path and their lives, and we have taken steps to provide that through three unique initiatives. The first one is ensuring that every Glober has a clear path to leadership. Advancing in one's career is a highly sought-after goal, and providing a consistent structure that allows that to happen within the same company fosters a stronger commitment to our vision and our future. Secondly, we are now offering Globers flexibility to work from anywhere in the world for up to 30 days out of the year, even in places where we don't have an office. For Globers who choose locations with Globant offices, they are encouraged to interact with local Globers and experience our revamped office offering. It's a win-win because we grant employees the flexibility they seek, and we also ensure a globally cohesive team. Finally, we have a new platform, Open Career, that gives Globers the keys to their own career path. This platform acts as a career marketplace and talent placement accelerator within the company itself, allowing Globers to apply to any of our open positions on any project we have. We want to allow them to find more exciting challenges within the company without needing to look elsewhere. It is our way to promote autonomy, flexibility, and opportunities worldwide. I also want to share exciting new updates to our Be Kind initiative. This is now an enduring part of Globant's identity. Our Globers have taken ownership of it and made it their own. Not only are we fulfilling its promise, but we are expanding it to have an even greater impact. As you know, Be Kind has four pillars: Be Kind to your peers, to the planet, to humanity, and to yourself. Under Be Kind to your peers, we reaffirm our commitment to diversity, equality, and inclusion. We recognize that we work in the most dynamic and promising job sector in the world. By promoting inclusion in the sector at large, we are building a brighter future for the industry. Along with our goal to achieve gender parity, we are setting a new target. We will grant 15,000 technology scholarships by 2025. Through thought leadership, community involvement, and mentorship, we want to inspire up to 2 million young people to enter these ten fields. For Be Kind to the planet, we became carbon-neutral in 2021. We are also following reduction trajectories in line with the science-based targeted standard, aligned with the Race to Zero initiative. We aim to save 10 million tons of CO2 emissions through our digital sovereignty strategy. We want to train our Globers on digital sovereignty to educate our world-class clients while designing their digital services and products. Our Be Kind to humanity pillar inspired the Be Kind Tech Fund, which Martin described earlier. We will seed and support startups that address the misuse of technology. Within the company, we have the initiative of Be Kind Labs, designed to help Globers with inspiring ideas and transform them into real projects. For Be Kind to yourself, we have launched a new company wellness plan, partnering with experts in mindfulness and mental health. Our objective is for the program to reach and influence 100% of our Globers. I am proud to see that these impacts in ESG are being recognized. For 2022, Globant has been included in the S&P Global Sustainability Yearbook. To be included, companies must be ranked within the top 15% of their industry in key ESG metrics. As awareness grows for our efforts to improve our company and our sector's community, we look forward to more such recognition as we grow. With that, I'll turn it over to Juan to discuss our financials.

Thank you and good afternoon, everyone. I hope you're all doing well. Let me start by summarizing the results of our fourth quarter and full year 2021. I will then discuss our guidance for the first quarter and the full year 2022. We are delighted with our overall results for the fourth quarter of 2021. As our business continued to show robust momentum, revenues for Q4 were $379.8 million, representing 63.3% year-over-year growth and 11.1% sequential growth. Globant continues to deliver industry-leading growth, and we expect this trend to continue for the foreseeable future. We estimate organic revenue growth for Q4 was around 54.5% year-over-year. As discussed earlier, demand for our end-to-end digital services and platforms is much stronger now than it was before the start of the COVID-19 pandemic. At this time, we are not witnessing any material impact from COVID-19 on our business. We feel confident in delivering robust levels of growth in the upcoming years. Turning now to profitability, our adjusted gross profit for the period increased to $149.7 million, representing a 39.4% adjusted gross margin compared to $92 million and a 39.6% adjusted gross margin in the fourth quarter of 2020. Adjusted operating income for the quarter amounted to $63.6 million or 16.7% of revenues compared to $37.9 million or 16.3% of revenues for the fourth quarter of 2020. The demand and pricing environment continue to be strong, offsetting the ongoing inflation in the labor market. We also continue to drive SG&A efficiencies with our increasing size. In addition, we continue to generate an increasing amount of revenues from services, products, and platforms that support our revenue growth and employee growth linearity. Together, this will help us maintain our healthy adjusted operating margin profile and continue making the required investments in the company to seize the attractive market opportunity in front of us. Our IFRS effective tax rate for the quarter was 23.4%, largely in line with our guidance. Adjusted net income for the fourth quarter totaled $45.8 million, representing a 12.1% adjusted net income margin compared to $27.6 million, or an 11.9% adjusted net income margin for the fourth quarter of 2020. The adjusted net income for Q4 implies 65.7% year-over-year growth, above our Q4 revenue growth rate. Adjusted diluted EPS for this quarter was $1.07 based on 42.8 million average diluted shares for the quarter compared to $0.68 for the fourth quarter of 2020 based on 40.9 million average diluted shares. Adjusted EPS for Q4 implies a solid 58.3% year-over-year growth. Moving on to the balance sheet, our cash and cash equivalents, and short-term investments as of December 31, 2021, amounted to $460.4 million. During the fourth quarter, we generated strong free cash flow of $47.9 million versus $20.7 million in the fourth quarter of last year. During this quarter, we paid $64.2 million for acquisitions. Currently, our credit facility is fully undrawn. We also continue to successfully execute our capital allocation strategy with integrations of recently acquired companies going as planned. Now let's look at the full year 2021 performance. Revenues for 2021 were $1,297.1 million, implying a solid 59.3% year-over-year growth. This represents our strongest year-over-year revenue growth since becoming a public company. We estimate our 2021 organic revenue growth to be about 45% year-over-year. Our M&A deals from 2021 also continued to perform strongly with cross-selling of services creating synergies. Adjusted gross profit for 2021 was $512.7 million or 39.5%, an increase of 40 basis points year-over-year. Adjusted operating profit for 2021 was $214.3 million or 16.5% adjusted profit from operations margin compared to $124 million or 15.2% adjusted profit from operations margins for the last year. This represents an increase of 130 basis points, driven primarily by the improvement in gross margins and the SG&A efficiencies achieved during 2021. During 2021, we also continued to invest heavily to capture the significant opportunities in front of us. Adjusted net income for 2021 was $158.4 million or 12.2% adjusted net income margin compared to $90.6 million or 11.1% adjusted net income margin for the previous year. Adjusted net income increased 74.9% year-over-year, solidly above our 2021 revenue growth rate. Adjusted diluted EPS for 2021 was $3.76 based on 42.1 million average diluted shares for the year compared to $2.28 for the last year based on 39.7 million average diluted shares. During 2021, we generated strong free cash flow of $102.6 million versus $47.4 million during 2020, an increase of 116.6% year-over-year and implying free cash flow to adjusted net income of 65%. During the year, we paid $144.5 million for acquisitions. Now I would like to talk about our guidance for Q1 2022 and the full year 2022. As discussed, the demand environment remains robust. Based on current visibility, we expect Q1 2022 revenues to be at least $395 million or 46.2% year-over-year growth. At this point, we do not expect any FX impact on our first-quarter revenues. Q1 adjusted operating margin is expected to be in the 16% to 17% range. The IFRS effective tax rate is expected to be in the 22% to 24% range for Q1 2022. Adjusted diluted EPS is expected to be at least $1.16 assuming a $2.9 million average diluted shares outstanding for the quarter. For the full year 2022, we expect revenues to be at least $1,751 million or 35% year-over-year growth. We currently assume no FX impact over our full year 2022 revenues. For 2022, we expect our adjusted operating margins to be in the 16% to 17% range, while we continue to strongly invest in training programs, cutting-edge technologies, and expanding our sales coverage to further develop our business. The IFRS effective tax rate is expected to be in the 22% to 24% range for the full year 2022. Finally, we expect our adjusted diluted EPS to be at least $4.86 for the full year 2022, assuming a $43.1 million average diluted shares outstanding for the full year. Thanks everyone for participating in the call for your coverage and support.

Thank you, Juan. Thank you very much. The first question today comes from Tien-Tsin Huang from JPMorgan. Tien-Tsin, please go ahead.

Thanks, Amit. Appreciate it. Nice results again here. I'll ask maybe if you don't mind just on visibility. I know I've asked that in the past, but it's appropriate here, since you're giving '22 guidance for the first time. Just curious on visibility, how it stands? How does it compare to this time last year and especially in the second half of '22 in your ability to replenish your backlog and whatnot? Any thoughts there would be great? Thank you.

Okay. Good. Thank you, Tien-Tsin. How are you? There is pretty good visibility as always in our numbers for the quarter, and the year looks great in terms of the quality of the relationships that help with our customers, and I believe as compared to the first quarter last year we are seeing pretty solid demand on the table. We're seeing pretty much the same strength as we were seeing last year, but there are always caveats in terms of how the world will evolve concerning the amount of investment, so on and so forth, but we are not feeling that yet in demand. In terms of visibility and expansion of the business, this is what we are seeing. In terms of being able to fulfill the demand and concrete the backlog, it's still extremely healthy, and we're seeing our ability to recruit still intact, attrition under control, and the growth is going down a little bit, and I believe that we won't have any problems moving forward, nor challenges. Of course, there are always challenges, but I feel we won't have any issues with fulfilling the backlog and the demand we are seeing ahead.

Okay. That's great. Just my quick follow-up then for Juan. I know we talked about margins a lot, and of course, everyone is aware of all the supply issues on the labor front. So you gave a pretty wide range 16% and 17%. You did the midpoint of that in '21, which way might it lean, what factors should we be considering in terms of where you might land in that range?

Thank you, Tien-Tsin. Also, I just wanted to add to Martin's answer in the previous question. If you'll remember over the last two quarters, we've been talking about 2022, and now we're more in the 25 plus 2.5% guidance for initial guidance for 2022. Now, we have significantly raised that number to 35%, which is roughly 32.5% organic plus 2.5% coming from the acquisitions that we have already done. So, in a way, I think that is a result of the level of confidence and the visibility that we have into 2022. Now, moving into where operating margin is going to land, I think our expectation is like it happened during 2021, being able to offset cost inflation, which are happening and will happen, with pricing and utilization, as we did during 2021, where we were able to increase our gross margin for the year around 40 basis points. So we do expect at this point to land hopefully in the middle and upper part of the operating income guidance.

Okay. Good. And thanks for pointing it out. I mean anything north of 30 is a big upgrade, but it does speak to the confidence and the visibility. So, thanks, guys.

Thank you, Tien-Tsin.

Thank you, Tien-Tsin.

Thank you very much, Tien-Tsin. So the next question comes from the line of Ashwin Shirvaikar from Citi. Ashwin, please go ahead.

Hey, guys. Good afternoon. Congratulations on the solid print and equally solid outlook. I guess, I just wanted to start perhaps with a question on your point that you just made of the sharp increase in outlook from what you said last time, and maybe to delve into that. Is that driven by bringing on new clients, is that driven by sharp ramps in your order book that you're seeing? What has led to the sharp increase that you're seeing?

Thank you, Ashwin, for the question. It's a combination of factors. One is that we have completely removed the cautiousness that we used to have in our guidance over the last two years. We believe that COVID is pretty much behind us and we have to guide where we feel that we're going to land and hopefully exceed by a little bit, so we removed a little bit of the conservatism that maybe was embedded over the last two years. I think not just by us, but for many companies in the market. It's the right time to get rid of that. On top of that, as Martin said at the beginning, we continue to see strong relationships continuing and expanding for 2022, how Disney for instance performed during 2021, how our top five, top 10, and 11 to 20 accounts performed. We are seeing multiple areas of growth. We closed the year with over 12 accounts above $10 million, which is a significant increase compared to last year. Actually, that number is higher. Just give me one second. I want to give you that number. So I think it's an important number, and together with that, we continue to see our top accounts becoming larger and expanding those strategic relationships in line with the 100 square program that we have in place. We closed the year with 12 accounts over $20 million and with 22 accounts over $10 million. That is a significant increase compared to last year and I think it's clear proof of how we are able to penetrate those accounts, how we are able to become more strategic in the type of relationships that we have and of course, at the end of the day, this is what is giving us the confidence to increase our guidance relative to where it was a couple of quarters ago.

That makes sense. My other question is about the expected growth and margins as we progress through the quarters. Additionally, could you clarify your previous comment? Does the caution you mentioned relate to the fact that your clients, such as those in the theme park sector of Disney, are seeing a resurgence in travel client volume?

When considering travel performance and the recent results from Disney, it's clear that not just these two sectors are showing strong growth. Essentially, almost every industry has experienced significant growth. We believe there are various areas, customers, and industries that will contribute to our growth. We expect margins to remain stable over the year without major fluctuations between quarters at this stage. However, we need to monitor how different currencies influence the dollar. Operating in 18 countries may affect our costs. Generally, a strong dollar benefits Globant. We'll see how this evolves in the future. Martin, would you like to add anything?

No. Fine. I think it’s great.

And on the cadence?

The guidance for Q1 has been strong at 46% year-over-year, with approximately 41% coming from organic growth and the remaining 5% from acquisitions made in 2021. For the full year, we are projecting a 35% growth rate, with an estimate of 32.5% being organic. As the year progresses, we hope to provide updates, but at this point, we are confident in this guidance. We are also addressing the consolidation issues from previous quarters. Thank you, Ashwin. It's great to see you.

Thank you, Ashwin.

Thank you, Ashwin.

Thank you for your questions, Ashwin. Now let's go to Bryan Bergin from Cowen. Bryan, please.

Hi, all. Good to see you. Thank you. I wanted to dig into the global diversification efforts that you're making, so curious how you're thinking about the onsite or the end market mix, how that might have evolved, and whether that's an added lever for you that you may consider raising or should we expect this to remain relatively consistent and what I'm talking about is kind of end market in the U.S., end market in Western Europe.

Hello. It's great to see you again. Currently, our operations consist of 95% offshore and 5% onsite. We are exploring ways to adjust this ratio, as we've been reducing our onsite presence due to significant growth during COVID. The location of our teams wasn't a concern; it allowed us to move personnel across various countries without issues. On the onsite side, we are observing a rising demand for our services. Although things aren't fully back to normal yet, we are gradually seeing increased demand, which is leading us to hire more personnel. Additionally, this may impact our acquisitions or those companies with local operations. These are the factors we anticipate will influence our direction moving forward.

Okay. Thanks. And then just a follow-up on attrition here. So it looks like it's stabilized quarter-over-quarter, just based on what you've seen here through January, do you think that's reached the plateau? Maybe just talk about how you see that progressing in 2022 and how that might compare as well across some of your key regions?

Hello. I hope you are doing well. I believe we are going to experience something quite similar to what we announced this quarter, and we have been expanding rapidly. We now have over 23,000 employees, and our hiring has been significant, with more than 6,000 new employees added last quarter. I expect the upcoming quarters to follow a similar trend or even exceed it. We are not concerned about demand or our hiring process, which makes us very proud. We are also expanding our locations with our "Globant Everywhere" strategy, aimed at finding the right talent and supporting their career growth with us. Currently, we anticipate reaching between 15 and 17 in terms of workforce, and we are closely working on this. We are in the process of hiring teams, and I believe we will see this normalizing in about two or three quarters. The demand has indeed been extremely high.

Just a clarification, 6,800 people is our additions for the year, not for the quarter.

That's a big quarter.

Yeah. Great quarter.

Thanks a lot, Bryan. Now, the next question comes from Maggie Nolan from William Blair. Maggie, please.

Hi. How are you? I wanted to ask about some of the conversation that's been had around pricing and the revenue guidance. Obviously, pricing is a contributor to that strong guidance there, and you've noted that the increase is more than offsetting the above-average wage inflation. So when we're looking on kind of a multi-year basis, should we think about some of those pricing increases having to moderate in the coming years?

I think at the end of the day, pricing is also related to the value that they are, and of course with what is happening in the labor market, right? During 2021, we saw a strong labor market with a lot of demand that enabled pricing discussions that in our case helped us offset that cost pressure that we saw in 2021. Getting into 2022, the year starts again with strong demand. Also, there is a strong demand for talent that will imply cost pressure for most companies, and our expectation at this point in time is that we will be able to offset again that increase on price negotiations, eventually with some utilization improvement. So what we do, we think that and we are targeting to maintain or to offset cost increases, with that we are adding more value to our employees, to our customers, we are expanding our value proposition. We are becoming more strategic in many of the accounts that we are servicing as shown by how we are growing with those accounts, and we believe all that combined should help us offset whatever happens on the labor market.

Okay. Great. That makes sense. And then it was great to hear some of the things you're doing on the talent side, and you can definitely see how that will help with retention at the organization. I was interested in the dynamic of creating a path to leadership and how you kind of balance that with the fact that an inherent differentiator for Globant has been the fact that you are kind of a horizontal organization and an agile organization compared to some IT incumbents, so can you reconcile those two concepts for me?

Yes, of course, I am more than happy to go deeper there. While we launched this initiative of augmented leadership inside Globant, it is a strategy to help our leaders to be the 360 leaders in the way we are living right now in the middle of this context. So I think that is a new thing, that when you get into Globant you are not going to stop your career path. You continue your career and we are helping with that. I already mentioned about the Globant University many, many times, but that has been a very successful initiative. On the other side, we just launched this platform, in fact, we launched it, I think two years ago, that is the open career platform is the best. I think that we have launched because each Glober can now decide in which project they can have their experience, and they can change and move their career path as they want, and the leaders are going to help them grow faster. This is a unique platform, I mean because that means that when you are inside Globant, you are not going to stay forever in the same project, the same industry. We are now doing this kind of thing that probably our competitors are looking for the Globers, and now we are offering them to be inside Globant, keeping our talent within the company and helping them gain different experiences, so that has a main impact on our organization. Also, as you know, the Be Kind to yourself initiative has helped a lot in terms of how we are helping our Globers develop their own health and their mind. We have this concept of having together spirit, mind, and body. So we are helping them understand that this is not only a place where you work, it is also a place where we are taking care of each of them and their families. We have been able to understand the situation that has changed. Some of them are working from home, as many of us. Some others are starting to go to the offices, and in the middle of all that, I mean how I'm going to continue developing my career. So I think that is a really huge differentiation from other competitors.

Thank you, congratulations.

Thank you.

Thank you, Maggie.

Thank you very much, Maggie. Next, let's go to Arturo Langa from Itau. Arturo, please.

Hi. Good afternoon, everyone. Congratulations on the results and thanks for taking my question. Just a couple. I think the first one is housekeeping, but Juan, I believe you mentioned that from the full year ‘22 guidance, about 32 percentage points should be organic growth? I just wanted to clarify that. And then my second question is regarding going back to geographic expansion. Maybe if you can talk about your expectations, particularly in Europe and Asia, in terms of maybe headcount growth and revenue growth. And then just detail a little bit the rationale behind the expansion in Germany, Austria, and Switzerland. That caught my interest. It seems like a new and exciting geographic footprint to expand into. So those would be my questions. Thank you.

Thank you, Arturo. So on the 35% full year guidance that we provided, we estimate 32.5% to be organic, the remaining 2.5% coming from the acquisitions that we closed in 2021. As for the geographic expansion, I don't know, Diego if you want to discuss a little bit our strategy.

Regarding geographic expansion, we anticipate both organic and inorganic growth. We see promising opportunities, particularly with the Reinvention Studio and its collaboration with headquarters for major pharmaceutical companies, as well as other projects set to launch soon in southern Germany, Switzerland, and France. I expect to see strong growth in those areas, likely with onsite personnel, which is generally the hiring method in Europe and differs from the approach in the U.S. We aim to boost local headcount, which is usually beneficial. As for Asia, the situation is more complex. We have two options to consider — organic and inorganic growth — and we are evaluating both. It's still early to provide a definitive answer, but we are confident in our plans for this year.

Yeah. On the organic side, as you can see by the numbers from Asia, we are having new customers in that region, which is why the revenue number has been trending up in Asia, but as Diego said, we look into Asia as a big opportunity we have to explore either more organically or with M&A or with both. We are analyzing that.

Perfect. Thank you, and congratulations.

Thank you.

Thank you, Arturo.

Thank you very much, Arturo. Next, let's go to Diego Aragao from Goldman Sachs. Diego, please.

Yes. Hi, everybody. Good to see you all. First, congrats on the results. So it seems that you had a great acceleration in the revenue for IT consulting in the fourth quarter. And if I'm not mistaken, it moved from 68,000 in the last 12 months as of the third quarter to 69.3 for the year-end. So this means that the fourth quarter was very strong and apparently driven by solid performance within existing clients, right? So just wondering if this came from a specific client or maybe it was just a trend you saw among different clients. Thank you.

Thank you, Diego, for the question. As we were discussing at the end of 2021, pricing discussions have been happening throughout the year. And of course, what you get is a combination of new customers, new projects, changes in pricing in existing customers, and different levels of utilization, and they all have been at different points in time. It's not that you negotiate and all the prices change on the same date. So what you saw during the year was an evolution, and we have been able to expand our pricing, but at the end of the day, again, this is not just because you go on and raise your prices. It is related to the value you are adding. It is related to how strategically you become. And I think it's a good number, that one we saw in 2021 because the mix has not changed. So it's basically an increase in value and effectively an increase in rates. That's what happened throughout 2021. And still early in the game, but we are confident that it's a possibility for 2022.

Perfect. Thank you, Juan. And maybe just a quick question here on the platform business, right? Can you just help us quantify the size of this business today and how fast it has been growing? Thank you.

Thank you for the question. The Globant X initiative continues to evolve, and through some of the platforms we already acquired in the past, which are performing great, and some of our own platforms that are maturing and continuing that evolution. We're still not talking about or disclosing any differentiating in those factors and in those two components, but the growth is steady and solid in both segments, in the segment of the companies we acquired, and in the segment of the platforms we are developing for ourselves. For example, on the Augmented Coding side, we're about to release the second version of our original idea, and that is expected to have a pretty large impact on many of our customers where we are using it. We are really creating something very interesting on the Globant X side and on the platform business, but we are not right now able to disclose or separate the revenues coming from there. I know that it would be an advantage but we are not doing so.

Yeah. It will be great. Thank you, Martin, for that. Thank you.

No problem.

Thank you very much, Diego. Next, let's go to Surinder Thind from Jefferies. Surinder, please?

Hi, guys. A question about the push-pull between onsite delivery and expansion of your global delivery footprint. Can you talk about maybe what you expect for longer-term targets as we look out a few years at this point? And then as onsite delivery perhaps increases, how does that impact margins?

So, yeah, I'll take it. Long term, as we have said in the past, we expect the business in India to become a larger part of our total headcount or lower delivery centers. We expect Latin America to become slightly smaller, and we also expect Eastern Europe to grow larger as part of the business. Of course, given the circumstances, maybe we're not particularly pushing that region very fast as we speak. That's in terms of the geographic mix, and the 5% that we have onshore needs to evolve and become around 10 or 12% over time. But it's not going to happen in a day or year, it will be an evolution, and we want to do it healthily; we don't want to grow the U.S. or the UK or Continental Europe at the expense of significantly impacting our margins. We want to make it in a way that the offshore business offsets any impact that the growth in the onshore markets may bring. So I don't expect that growth onshore to be meaningful for the margins, because it's going to be slow but steady. I expect India to be a larger part of our business, as we've been saying for the last several years, and I do expect Latin America to be smaller while Eastern Europe should be somewhat larger than what it is today, which is small at around 2% of our headcount.

And then just a clarification, when you talk about getting to maybe a 10 or 11 or 12% onsite model, is that kind of a five-year type target, or can you give a timeframe?

I believe a five-year timeline is reasonable. We've seen significant changes over the past few years, particularly due to the COVID situation, which had a major impact on our offshore business. However, as things return to normal, we are looking to expand. Our goal is to increase our presence in Germany, Switzerland, and France, and we've experienced substantial growth in Spain this year, alongside further expansion in the UK. In the U.S., we are now establishing a stronger foothold in Canada. I think aiming to double the percentage of our onsite personnel within five years is logical, as this aligns with our business growth, which we expect will accelerate once normalcy returns.

Got it. And then a question on M&A here given the really strong growth that you're seeing. How does that potentially change in the near term your strategy, is it unchanged at this point, are you willing to maybe get a bit more aggressive to capture more of the market when things are in flux at this point? How should we think about M&A spend?

I would say that the M&A strategy will remain focused on three regions: Asia, Europe, and the Americas in general, North and South America. The strategy would be to keep doing them, but of course, valuation has been pretty crazy in a crisis situation during the last few months, and we want to be very careful with the kind of deals we do and how we use our cash, so on equity. So we will continue to win them; they will be connecting to a new geography, for example, to go to Germany, or to go to Asia, or to go to some of the countries we are interested in expanding. They will continue to be based on the platform business that we want to build. They will continue to focus on how we develop and keep on developing our main delivery centers in the countries where we are located. Those are the three axes that will be the central tool of the M&A strategy. Pretty much, they didn't change, but yes, of course, we want to be very sure that we are acquiring companies that make sense and we are paying fair value for those acquisitions, and not jumping in like crazy.

Thank you. Thank you very much, Surinder. Next, let's go to Aravind Ramnani from Piper Sandler. Aravind, please. I think Aravind, you're on mute. Let's move to Walter from Santander. Walter, please go ahead.

Sorry, guys, my question has already been answered, so thank you for the results and rates results again. Thank you very much.

Thank you, Walter.

Thank you.

All right. Perfect. Thank you. And so that will be all for the Q&A session today. Thank you very much everyone for joining the call. I'll now pass the call to Martin to provide the closing comments. Martin, please.

Thank you very much, Amit. Thank you to each of you for being there, for supporting us, for providing the right analysis for our company, analysis for our company, and really looking forward to seeing you soon in the next quarter. Thank you so much.

Thank you.

Bye-bye.