Globant S.A.

Good day, and welcome to Globant's fourth quarter 2022 earnings conference call. I am Arturo Langa, Investor Relations Officer at Globant. All participants on this call will be on listen-only mode. After today's presentation, there will 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 our 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 Urtiaga, 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 our 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 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 Martín Migoya, our CEO.

Thank you, Arturo, and good afternoon, everyone. I'm happy to be with you again to share our Q4 2022 and full year results. This was Globan's strongest year ever in sales, geographic presence, and brand worldwide. In 2023, we see the AI revolution accelerating and shaping organizations as they adapt to new landscapes. With the recent expansion of foundation models and generative AI, it has become clear that we have a massive new opportunity for us and for our clients. Although AI is finally going mainstream, this is not new for Globant. We have been investing in developing our AI capabilities and expertise for more than six years now. I will share more with you later. In the meantime, I invite you to see how AI can impact our daily lives by listening to part of my speech read by a tech-to-speech AI engine that emulates my voice. There will be a notice at the bottom of the screen when this happens. In any case, see you all after these remarks. In Q4, our revenue was $490.7 million, representing 29.2% year-over-year growth. For the full year of 2022, total revenue was $1.8 billion, our best year ever. This represents 37.3% year-over-year growth, one of the highest annual growth in our history as a public company. Throughout the year, we continue to deliver quarterly growth rates above industry benchmarks. In 2022, we made a big move in our global expansion by setting up a new business region in Asia-Pacific. We now have presence in Australia, Hong Kong, Singapore, and the Philippines. We believe there is a huge potential in this region, so we expect to continue expanding our business throughout the year. A month ago, we announced our arrival in Denmark with the acquisition of Vertic. They are a creative consultancy in the life science, healthcare, and many others B2B disciplines. Vertec brings an impressive array of new customers such as Eli Lilly and GE Healthcare. We're excited to have them on board to consolidate our global digital marketing network. With Vertec, we will continue developing our local expansion by entering into Northern Europe. We also expanded in areas where we already operate by opening new offices in Canada and Italy. Globan is now in over 25 countries across five different continents. We have become a truly global organization that can offer reinvention at scale with diverse talent worldwide. 2022 was a big year for our global brand recognition too. We announced our partnership with FIFA to develop their FIFA Plus streaming platform and we sponsored the Qatar 2022 FIFA World Cup. The Globan brand was on the field and on the screens for every match, seen all over the world. We estimate that up to 300 million people were reached by our brand during the course of our sponsorship. And FIFA estimates that more than 5 billion people engaged with the World Cup across different platforms and devices. We made the most of this partnership by hosting the Global Tech Summit in Doha during the Cup. We had a great talk with clients, partners, and an expanding community. This happened at an important time for us as we are growing our business in Asia Pacific. This year, we will be global sponsors of the Women's World Cup in Australia and New Zealand. This will give us another opportunity to focus on a region that is moving towards a knowledge economy. Also, I'm thrilled to see our brand keeps growing. Global was once again recognized in brand finance global report of the top IT service brands. This time, we became the eighth strongest brand worldwide. During 2022, Globan was also named company of the year in global digital transformation services by Frost and Sullivan, the fastest growing IT services company by Gartner market share, and a major industry 4.0 player by Everest Group. Moving on to studios, I'm thrilled to say that we have created the Sports Reinvention Studio. It will be the hub for our solutions for the top sports organizations, helping them reinvent fan experience, boost loyalty, increase revenue streams, and develop smart venues. We're already working with top players in the sports and entertainment sector, like La Liga and the LA Clippers. And now we are consolidating these efforts to take full advantage of future opportunities. In the AI space, tools like ChatGPT from OpenAI and BART from Google have made the large language model technology available to everyone for the first time. This improves the generation of text, music, and video for the benefit of millions of end users and opens up huge opportunities for organizations. It also creates more chances to further incorporate AI into the business, as well as generating new value through AI apps. We are very optimistic for long-term growth because the demand for AI is growing fast. Spending is expected to reach $300 billion by 2026. It is quickly becoming an essential part of software. Every digital product will have an AI layer. We believe that large language models can simplify software development creation, moving our industry forward. I'm proud to share that we have made a major update to our low-code platform, GeneXus. Through the combination of deterministic symbolic AI with large language model technology, GeneXus can now create unprecedented enterprise software solutions in record time. Let me explain how this works. The software creation process involves many different profiles of professionals, each using their own programming languages and unique interactions, from designers to developers to testers. GeneXus steps into the process with its AI assistant by providing a common layer to bridge the understanding gap. It now allows the use of natural language as common input for each of the profiles. In a nutshell, with GeneXus, if you can talk, you can start creating your digital product. The beta version of GeneXus Next will be ready in the next weeks. You can register to join the waitlist through the QR on the screen. This AI assistant is a big step forward in using AI for business solutions. AI has been a key part of Globin's value offering for many years, supported by our AI studio, our AI manifesto, and company-wide AI training. In addition to GeneXus, we are revolutionizing the industry with Augur, which applies AI to make the coding process faster, more creative, and effective. And with Magnify, that speeds up testing so that companies can launch products faster. We want to be the go-to partner for organizations that want to fully unleash the power of AI. The solutions and tools we provide can simplify decision-making, create more personalized experience, and enable creativity. We're making these moves because we know AI well, and we are ready to take advantage of this opportunity. We understand that macroeconomic conditions are uncertain, and geopolitical events and supply chain issues have affected some decision-making processes from our clients, especially by the end of 2022. We experienced some long closing cycles during the end of last year and early 2023, but we are seeing now initial signs of a positive change on those trends. So we expect a healthy year-over-year performance given the current market. Our CFO, Juan Urtiaga, will share more later on. We have a strong confidence in Globan's fundamentals. Through our studios, we are adaptable to providing the clients what it needs in different landscapes. Globan offers a mix of services and products to help clients seek business reinvention and efficiencies. We work with organizations to improve their operations using platforms like Salesforce, SAP, and Oracle. We enhance customer experiences and go-to-market strategy to improve business outcomes. And we deliver revolutionary solutions through the latest technologies like AI, blockchain, metaverse, and more. According to IDC, digital transformation spending will reach $3.4 trillion in 2026. The United States accounts for nearly 35% of the worldwide total and will surpass the 1 trillion mark in 2025. We are eager to grow our market share as this space continues to expand. Globant is celebrating its 20th anniversary this year. We have come a long way from four founders in a bar to a global team of 27,000 people. I have never been prouder than I am now. We are a team of entrepreneurs. our Glovers continue to work on unparalleled innovation for some of the most beloved brands in the world, helping them hack the challenges of their businesses. In these first 20 years, Globach has become a growth vehicle and a centre for knowledge, deep expertise and non-stop growth mindset. Reflecting on the past three years, including the unparalleled impact of the pandemic, it's remarkable to see that Globant has grown our top line by almost three times and has welcomed a similarly increase in our employee base. Throughout this period, we have maintained our commitment to delivering exceptional profitability and returns to our shareholders. With the dedication of our teams and our ever-evolving offering, we are ready to face the challenges and continue our growth in 2023 and beyond. And with that, I'll turn it over to Diego Tartara, our CTO. Thank you, thank you very much.

Thanks, Martin, and hello, everyone. It's good to be back. I'm eager to share with you some important updates regarding our studios, interesting new projects with clients, and our plans to leverage AI and other relevant trends. I'll begin with the focus on AI introduced by Martin. At Globant, AI has been a main part of our services to clients as well as our own internal processes for almost a decade. That's why we see the recent accelerated adoption of AI tools by the general public as an opportunity. To respond, we are driving home our offering of AI applications to our community. The global proposal is focused on three main areas in this space. First, driving better outcomes. We are using AI to unlock the power of information analysis and big data so that our clients can make informed and agile business decisions ahead of their competition. Second, elevating the customer experience by personalizing smart interactions through AI. Glovent has experience in boosting customer loyalty and satisfaction in this space. And finally, accelerating performance. We harness the power of AI to automate processes, increase efficiency, augment complex creative work through generative AI that frees up valuable time and resources for teams. Our global tech products, Augur, GeneXus, and Magnify, are key accelerators for this. As a people-based organization, we're going to double down on our AI expertise by providing an additional company-wide training to ensure that every Glover becomes an AI advisor. Upon completing the training, each one of our agile pods will have an AI expert who will consistently ensure that our solutions include the latest AI technology. In the AI space, GeneXus has proven to be a great partner to invigorate our offering. Upon the acquisition, we were able to quickly integrate our companies to create better low-code and no-code solutions. Last month, we launched GeneXus 18, a new version of the local platform that increases productivity and simplifies the development of apps and systems. It allows organizations of any size and industry to explore new business models and provide new experience to their customers through elevated software architecture. GeneXus 18 also brings local software solutions to the development of super apps, a key growth area for the industry, and a lucrative goal for many top brands. Combined with the new features which Martín unveiled earlier, we are increasingly optimistic and ambitious about the runway of this product. Now, let's go through how Globon continues to share its knowledge and expertise, not only via the solutions we create for our clients, but with the broader tech community. In our new tech trends reports released this week, we focus on four impactful trends that will empower organizations to successfully navigate and excel in this disruptive era. artificial intelligence, the metaverse, blockchain and foundational technology. Recognizing the significant potential of our recently launched sports re-invention studio, this quarter we also released a standalone tech trends report focusing on opportunities in this space. A new liquid fun is disrupting the sports world. The fun experience now goes far beyond the live match, as they now interact with their favorite clubs and events through multiple touchpoints in mobile apps and social media. This creates the need for smart technologies and to ensure a seamless positive physical experience. It creates both a challenge and an opportunity for new revenue streams. Both the 2023 tech trends and the sports reinvention trend reports can be found at reports.global.com. Now, I'd like to share with you how we are working to change the game for our clients. Globant is partnering with OMANTEL, the leading telecommunication company in Oman, to offer an activity-based incentive wellness program for their customers called Sehati. This program leverages BeHealthy, a GlobantX product that offers a recognition and reward program using the Apple Watch. BeHealthy helps its users live healthier lives and have control over their data with the strong privacy protection built into every Apple product. We are working closely with VRIO, the Latin American division of DIRECTV. With more than 10 million subscribers, it is the leading digital entertainment service in the region. Having the right to stream FIFA World Cup, Brio wanted to create an immersive experience in a virtual fan fest in the metaverse. In record time, Globan built a proposal and designed the full event experience. Social media influencers, clients, and press were invited to participate using VR headsets while watching a live FIFA World Cup game transmitted by Brio. we were able to showcase the power of the metaverse for FIFA World Cup live streaming, while creating engaging and interactive experiences that can be monetized in the metaverse economy. Additionally, we created an omnichannel experience that included the largest chatbot in Latin America, reaching 30 million messages during the World Cup. We also developed a mobile app with 630,000 active users and an improved web service. This experience was a solid first milestone for the Sports Reinvention Studio. In North America, we're working with Roche, one of the global leading biotech companies. The company works with partners who bring AI platforms and algorithms focused on oncology image analysis. Until now, the onboarding of these new partners has been done manually, which is time-consuming, costly and not scalable. We're partnering with Roche to build a self-service onboarding platform to streamline development and integration that will help reduce cost, increase efficiency and allow the platform to quickly scale to hundreds of algorithms. In Europe, we're working with PortAventura World, a leading destination resort in the southern region with more than 5.3 million visitors in 2022. We have become their digital partner to design and implement a new client application to gain a competitive advantage through a digital customer experience. We are leveraging our expertise in the area that includes work for cruise lines, sports teams, resorts, and theme parks. Also in Europe, we're working with PAK, a digitally native logistics company that specializes in same-day delivery. Its platform provides real-time tracking, route optimizations, and automated delivery notifications. They also maintain a fleet of professional drivers and couriers to ensure that their customers receive the highest quality of service. Globant is assisting PAC in the evolution of their current platform by building new cost and billing management systems, pickup drop-off points, software development kits in multiple languages for faster retail integration, among others. We are also advising them in looking ahead in areas that include IoT and metaverse, helping PACs stay ahead of the competition and provide their customers with the best delivery experience. As always, we look forward to enhancing our relationships with our clients by bringing the latest technologies into their businesses. With that, I turn it over to Patricia Pomis, our COO.

Thank you, Diego, and hello, everyone. I'm happy to be with you again to discuss the transformational work we are doing for our clients and the evolving value proposition we offer to global talent. Let's kick off with our clients. Our largest account, the Walt Disney Company, grew by 26.6% year over year and 8.5% quarter over quarter. The rest of our accounts collectively grew by 29.5% year-over-year and 6.8% quarter-over-quarter. Our 100-square strategy continues to show results. We now have 13 accounts bringing in more than $20 million in revenue. In addition, we have 259 clients that provide more than $1 million of annual revenue compared to 185 one year ago. Regarding geographical distribution of our revenue, in Q4, 61.7% of our revenue came from North America, 22.7% from Latin America, 11.9% from EMEA, and 3.7% from Asia and Oceania. While all regions saw revenue growth, we are seeing more geographic diversification of our revenue sources. For Q4, revenue in EMEA and APAC regions grew 43.8% and 110.5% respectively year-over-year. We have a stronger emphasis on growing in markets that are relatively new to global, such as Asia-Pacific. Our strong organic growth coupled with our strategic execution of M&A were key to driving these positive results. North America, the source of 62% of our revenue, grew by 24.8% year over year and 2% quarter over quarter. We continue to focus on the Net Promoter Score to ensure that our clients are both satisfied with our services and promoting us within their networks. As of Q4, the Net Promoter Score reached 79, up from 76 Q4 of last year. This remains high above the technology industry benchmark range that goes between 40 and 61. Through this exercise, we estimate that 81% of our clients are recommending us to their community. Now, regarding our people. We are now a proud team of over 27,000 Globers worldwide. Considering the current business environment, we have moderated our pace of hirings and we are taking advantage of the trends in attrition. Our annual attrition is currently at 16.7%, the lowest in two years and 180 basis points below Q3's annual figure. We credit this to Globan's Glober-centric value proposition of giving both career growth, and flexibility. To nurture a positive culture that develops talent, it's critical to listen continuously to our Glovers. We have deep and regular evaluations of our working mood to assess our Glovers' engagement so that we can adapt accordingly. We closed the year in Q4 asking Glovers how they felt on everything from rewards and benefits to a career path and mental health among other areas. Within this assessment, we had a specific focus on a Net Promoter Score to determine if our employees would recommend Globant to friends, contacts and former colleagues. It resulted in an employee net promoter score of 64, far above the industry benchmark of 30 to 40. Additionally, over 95% of respondents said that they feel they are treated equally and fairly. This is regardless to gender, age, race, disability, or sexual orientation. 85% of respondents indicate that they feel their leaders strongly care about their well-being. We celebrate this result of showing how our corporate values are being adapted throughout the organization. Our strategy is to provide diverse personal and career growth opportunities at Globant. As you remember, last year we launched our Open Career Platform, where Globers can find new career opportunities within the company. with exposure to new skill sets, salaries, and a job title. So far, 10,000 Globers have made use of this portal, and over 2,000 have already found new opportunities at Globant in new industry or geographies. Our upskilling and reskilling platform at Globant University also continues to grow. We have empowered it with AI to give a more valuable and a personal experience. Our employees get tailored and recommended upskilling courses based on their profile and their interests. We are also using this technology to strengthen social and collaborative learning throughout the whole organization by connecting experts global with peers who are looking for their expertise. We are now offering more than 3,600 different learning experiences. I would like to highlight a particular course from the platform of the Green IT Training. It is targeted at IT professionals with the goal of mitigating the carbon footprint of the industry. We recognize that our sector has a great potential in the fight against climate change. So far, more than 5,000 Globers have been trained and we look forward to incorporating the principles into our product offering to our clients as well. Flexibility continues to be at the core of our offering. Our work-from-anywhere policy allows Glovers to work from any destination up to 90 days per year. This has enabled over 1,700 Glovers to work remotely in more than 65 destinations worldwide. Of course, we still believe that offices are a great way to foster culture, so we are very excited to be opening the workspace of the future. In the past year, Globan has opened brand new offices in London, Mexico City, Santiago, Punta del Este, and Ushuaia. Each one was particularly designed with our Globers in mind, with an emphasis on co-creation, sustainability, and teamwork. And finally, some important updates on Globan's Be Kind concept, aimed at making our global community a more sustainable, giving, equitable, and healthy place through the commitment of our Globers. Under our COTIO Future program, we publicly commitment to grant 15,000 technology training scholarship by 2025. In Q4, we offer 1,000 new scholarships for an eight-month training to people in Latin America. We'll receive over 30,000 applications. 50% of these scholarships will be allocated to women and non-binary people. We also continue our work in Global Labs. Its purpose is to focus our pro bono initiatives to help our community in learning with our Be Kind pillars. We are committed to this project because we are firm believers that technology is an enabler to create new solutions for the more significant problems of humanity, fostering innovation and delivering inclusive opportunities. Our big-kind tech fund continues to support the startups' aim of mitigating the adverse effects of technology. Spanish venture capital firm CEAIA and London-based entrepreneurial organization E2E have joined the fund's partner ecosystem. we announced our 1 million investment in Polemics, the first platform to introduce Web3 technology to the world of ideas and opinions. The startup mission is to upgrade how people support and oppose opinion leaders, disrupting the echo chambers cultivated by traditional social media platforms. We look forward to seeing the development of this fund, its partner, and its mission. And with that, I will hand it over to Juan, our CFO. Thank you.

Thank you and good afternoon, everyone. It's great to be here again. We're extremely proud of the solid results we delivered today. We ended 2022 on a high note, with a 37.3% year-over-year growth, the second highest annual growth rate in revenues since becoming a publicly listed company, while delivering another strong year of profitability and cash generation. Testament of that was the consistent above-industry growth posted throughout the year, with average quarter-over-quarter growth rates above 6.6%, throughout 2022. As a digital transformation service company, we understand that the current macroeconomic environment may be causing some of our clients to moderate their demand for our services and delaying the closing of new deals. We strongly believe that the mid- and long-term demand for digital transformation remains intact. Our pipeline remains very solid and it is the highest in the company's history. We have seen no change in the discussion regarding the long-term strategy of our clients. Technology continues to be at the front and center. Additionally, talent remains scarce and companies continue to face challenges to find their technology ranks. According to leading survey data from leading financial institutions and industry research firms, digital transformation investments are expected to be a top priority across companies in 2023. We will keep optimizing our talent pool, utilization and cost structure and adapt our service offerings to meet the changing demands of our clients. Let's now review our solid Q4 and 2022 results. We are very proud of the positive top-line growth we were able to deliver. 2022 revenues ended at $1,780,000,000, up 37.3% year over year. This strong growth was mainly driven by approximately 32% organic growth despite having a 2% points FX headwind. Our revenues for Q4 were also very strong at $490.7 million, representing a 29.2% year-over-year growth. On a sequential basis, our revenues for the fourth quarter of this year increased 6.9%. Q4 revenue growth was 30.9% year-over-year in constant currency, 1.7 percentage points above our headline figure. We estimate inorganic contribution to year-over-year growth at approximately 6 percentage points in the fourth quarter. When we look at our revenue breakdown, we see several factors at play. Let me bring them to life. First, with our top account, we ended a very strong 2022 and Q4. We are seeing very strong growth in our media vertical on the back of strong deals closed in the second half of 2022, including La Liga Tech Partnership, among others, and also a noticeable recovery in our travel and hospitality and healthcare division, but partially offset by our professional services, high-tech and BFSI verticals. We do expect a more stable performance in Q1 in our professional services and our BFSI verticals, and incremental growth in the short term. We continue to deliver on profitability. Adjusted gross profit margin for the year stood at 39.2%, among the highest in the industry. Our adjusted gross profit for 2022 increased to $697.6 million, representing a 36.1% annual increase. Adjusted operating margin for the year stood at 16.3%, relatively unchanged on an annual basis. We are actively working on our SCNA to meet our EBIT targets. As of Q4 2022, SC&A over sales stood at 18%, which compares to 18.7% as of last year. Adjusted operating income for the quarter amounted to $79 million, or 16.1% of revenues, flat quarter over quarter. Regarding below the line items, our IFRS effective tax rate for the quarter was 21.8%, largely in line with our guidance. Adjusted net income for the full year 2022 totaled $217.7 million, representing 12.2% adjusted net income margin, flat year-over-year. Adjusted net income for the fourth quarter was $60.1 million, representing 12.3% adjusted net income margin. Adjusted Delivery DPS for this quarter was $1.40, 30.8% year-over-year, based on 43.1 million Average Delivery Shares for the quarter. Our full year 2022 Adjusted DPS of $5.08 came in 2 cents above our guidance of $5.06 per share. Adjusted EPS for full year implies a strong 35.1% year-over-year growth. We continue to execute on our financial strategy, focusing on balance sheet management and capital allocation. We believe that our financial position is well suited to support our growth in 2023, to pursue attractive opportunities both organically and inorganically. As of December 31, 2022, our cash and cash equivalents and short-term investments totaled $340.9 million. Our credit facility of $350 million remains undrawn. We maintain a net cash position, which, in conjunction with our organic cash flow generation, should provide ample funding for our growth plans in the short term. In the fourth quarter 2022, we achieved strong free cash flow generation, with free cash flow north of $80 million. Now, let's talk about our business going forward. I would like to share with you our initial outlook for the first quarter and for the full year 2023. We remain focused on achieving a solid revenue growth and strong profitability. Heading into 2023, we will focus on expanding our business while aiming at stable margins. We will also focus on managing closely our cost structure in order to scale it in line with the business performance. Let me start with our Q1 expectations. We currently expect Q1 revenues of at least $470 million, or 17.1% year-over-year growth. Over the last part of Q4 2022 and the beginning of Q1 2023, we experienced elongated closing cycles and delayed ramp-up of closed deals. These market conditions, combined with customer-specific situations in some of our top accounts, such as reorganizations and restructuring, lead us to expect a sequential decrease in Q1 2023 revenues relative to Q4 2022, though a healthy year-over-year performance even in the current market. We expect to go back to positive QoQ growth already in Q2, reaching a total top line similar or slightly above Q4 2022. This is the result of the recovery in some of our top accounts and the closing of a number of large-sized deals. In line with Q1 revenues and also due to the cost impacts resulting from FX appreciation in emerging markets, we implemented measures to contain our expenses in the short term, which will partially offset the effect on our margins. We expect our adjusted operating income margin in the 15% to 16% range for the first quarter of 2023. IFRS effective income tax rate is expected to be in the 22% to 24% range. Our adjusted EPS for Q1 is expected to be at least $1.27, assuming 43.2 million average alluded shares outstanding for the quarter. Now let's move towards the full year guidance. We continue to be very positive about the growth opportunity for Globant and our industry. Regarding our full year 2023 outlook, we are building in some conservatism considering the signals that we see from a more moderated start of the year. Our outlook does not consider neither a significant recession nor a strong recovery over the course of the year. Based on current visibility, we are providing our full year 2023 guidance of $2,065,000,000 or 16% year-over-year growth. This guidance figure considers a neutral effects outlook. For the full year, we expect our adjusted operating margin in the 15% to 17% range. 2023 IFRS effective income tax rate is expected to be in the 22% to 24% range. Finally, our adjusted diluted EPS for 2023 is expected to be $5.70, assuming 43.4 million average diluted shares for the year. Thanks everyone for participating in the call, for your coverage and support.

Thank you, Juan. Hi, everyone. It's good to see you. So as we go through the question and answer section of this call, I will call your name. And at this point, please unmute your line and ask your questions. Please mute your line after your question is done. And we would also ask you to limit yourself to one question and one follow-up. So with that in mind, our first question comes from the line of Qinxing Huang from JP Morgan. Qinxing, please go ahead. Your line is open.

Hey, thanks, Arturo. I appreciate the time, as always. So, yeah, a lot of good detail about the outlook and everything here. So I figured I'd ask on the top account, Disney looked like a pretty strong fourth quarter. I heard the restructuring and some things changing that might create a slow start to the year. So can you just comment on visibility for the top account and maybe the top 10 in general and what you've assumed there for the first quarter as well as for the full year? A little bit more detail.

Sure, I will take the first portion of the question. Thank you, Dijin, for the question. And I take the first portion, and then I will let Juan to complement. I think that the relationship with Disney is extremely healthy. We have had 2022 with very healthy growth of about 35%, right, year over year. So we have had a growth with this account for many, many years. I think that all the announcements, it's still very soon to understand what's going on in the inners of these announcements. We expect to have some heat during Q1. but then coming back again during the rest of the year. So this is kind of what we know right now. I understand that the account is still very healthy. We believe that This relationship we have with Disney is very profound, and we can help them to make many of the savings they have in mind. And I think that's pretty much the picture. But I don't know, Juan, if you want to compliment.

Oh, sure. Hi, Tinjin. So in addition to that, what we are seeing is a very strong travel and services sector, a very strong recovery in a very strong health care sector. When we're looking into the Q1 number, as Martin said, it implies a decrease in the case of our top account, driven by all the changes that were discussed. also there is some impact coming from tech companies that as we all know they have been delaying projects and even you know laying off a large number of of people and then there is a little bit on the on the you know backlog on the size of the backlog but we are already seeing a good recovery heading into Q2, you know, close deals that will translate into a good recovery into Q2 numbers. And I think it's going to be driven again by travel and hospitality, by healthcare, a recovery on BFSI, a recovery on professional services. We will still have some hits coming from technology.

All right, great. Then just as my quick follow up, just to build on what you just said, I think, you know, to get back to sequential growth in the second quarter, it sounds like you've seen some positive changes recently. You mentioned a very strong pipeline. I think you also mentioned some potential closing of some larger deals as well. So can you tell us a little bit more? We're in mid-February now, so it sounds like you're seeing real activity and and change to the positive side at this point in the quarter?

Yeah, it's difficult to answer that question. We are seeing some signals of recovery. That's for sure. We are seeing some early, very early, I would say, large contracts that are coming into the pipeline and also some large contracts that we are closing. So for the first time, we are seeing, like, a recovery in many of the news that we have had during the last, I would say, nine months. So we are seeing some kind of turning point. Look, this is a very early signal. That doesn't mean that it will represent what's going to happen during the rest of the year. But we got, like, you know, kind of... very happy when we start seeing that recovery happening, right?

Because the backlog continues to build, and that kind of gives us comfort on the second quarter numbers. And then, of course, for the rest of the year, the assumption that we have is that things will continue in the same way that we are seeing now. We are not assuming a big recovery of the economy. We are not assuming a meaningful crisis. We're just a continuation of the change in the trend that we have seen over the last three, four weeks in terms of bookings, in terms of closing of deals, and new deals coming into the pipe.

Very good. Thank you. You're welcome. Thank you, Tianxin.

Thank you, Tianxin. So the next question comes from the line of Ashwin Shivakar from Citi. Ashwin, please go ahead. Your line is open.

Um, thank you. And appreciate the opportunity. Martin, you started obviously speaking about AI. So let me get my first question there. And you cast this as an opportunity, which I can see in many different ways for content creation and, and other factors as well. But As a company, you do have over 80% time and material and very people dependent. So how do you think of that in the long run? Obviously, at the end of the day, you know, AI doesn't kind of go implement itself and do things, you know, generative AI. But how do you think of that? And are there other opportunities along the way as I look at, say, for example, corporate or enterprise level data sets. Many of them are not at the start where they ought to be. So maybe that's also an opportunity. Can you talk about that whole thing?

Yeah, absolutely. Look, I could be talking about this for the next 24 hours, so I would try to be very short. But listen, this change on the AI tools is not something new that we are seeing. I mean, we have been experimenting with tools which are pretty similar to what's going on right now with ChatGPT, which is the most relevant thing that happened in the last month and a half. for some time now. And we have always seen this kind of, at the end of the day, a change on the tools or an evolution on the tools that we are using to develop software or to create experiences or to create content should happen. And it happened. And now we are seeing that, of course, humans will keep on being extremely needed, like before, but now they will have tools to be more efficient. But at the same time, a new set of new applications based on AI Basically, what happened with ChatGPT was a massive marketing campaign pushing a new way of creating applications, a new way of understanding how to interact with consumers, with interfaces in general. And that will yield like a massive set of new applications based on AI, based on large language models that can learn about your company, that can learn about your transactions, that can start answering questions on those transactions, answering questions that before were extremely difficult to get. And all those trends only accelerate the need of what we do and only accelerate the need of creating new studios, like creating, I would say, AI-specific models to answer in a certified way. Because right now, the models are answering in a generic way, answering in a certified way, specific knowledge in certain domain areas of expertise. And I believe there's a change in the tools. Before we were making bridges with the regla de calculo, I don't know how to say that in English. Sorry? Calculus. Calculus. And now we are using calculators, and we are using computers to accelerate that design. Well, the same thing happened now. We had some tools to develop software with Augur, with GeneXus, with all the things connected with Magnify. We accelerated the way of developing software. came chat GPT and copilot came into the game. We accelerated again. And I believe that those things will keep on trending up. But the people using those tools are still in charge of making things happen. And I believe that this trend will keep on going and keep on growing. And the need of new applications based on new paradigms that we just learned a month ago, not global. We have been playing with this a long time ago. But the public in general has learned new things and new ways to interact with computers. consumers will start requesting that from the companies that we serve. So I see like a massive trend going up on that side too. I hope that answered your question, but it's the question of a million dollars, basically.

Absolutely. I guess the next question is if you can talk about M&A impact and FX impact for one Q and full year, what should be put in, you know, what should be assumed?

Sure. I'll take it. So, you know, on the first quarter, you know, we guided 17.1% growth, of which around five percentage points are coming from the recent acquisitions that we did or the acquisitions that we did during 2022. For the full year, out of the 16% that we guided, about four percentage points come from the deals that we closed in 2022. And for the time being, we're assuming a neutral effect scenario. So we're not assuming any gain or any loss coming from effects.

Understood. Thank you all.

You're welcome. Thank you.

Thank you, Ashwin. The next question comes from the line of Brian Bergen from Cohen. Brian, please go ahead. Your line is open.

Hi, everybody. Good to see you. First question I have is, are there certain types of projects and programs that you've seen delayed and reassessed? Or was it broadly slower across the portfolio in client decision making? And if it was certain types of engagements that were commonly pushed, can you just talk about how that's affected your workforce planning for 2023?

Yeah, I would say the slowdown on decisions happened pretty much across many different industries. Of course, accentuated on high tech, I would say. And then the projects, I think you asked about the type of projects? Yes. And the type of projects, look, they come in very different flavors. As we always said, the projects that we do are always connecting with consumers, accelerating that process. Now we are heavy into the digital marketing side. We're heavy into the back office and, you know, I would say all the ERP slash CRM implementation, which is the backend of the companies. Those projects will keep on going. The three types, the digital marketing, the, I would say, digital transformation, connecting with consumers type, and of course the backend projects, the three of them has been, you know, continuing. What I would say is like the slowdown does not connect with the type of project. It connects more with the general uncertainty that we are living in the market rather than the type of project. So there's no correlation there that I see specifically to your question.

Okay. And then just shifting over to margins. Juan, can you talk about the biggest factors in that 15% to 17% range as you're thinking about utilization as you go through 2023 and anything on the pricing end? Just curious how you get to the lower end versus that higher end of that range.

Yeah. Clearly, whatever we are seeing for Q1 in terms of revenues and in terms of margins, You know, we mentioned 15% to 16% because we have a slight decrease in revenues. You know, we have like negative operating leverage, and that is having an impact on the full year number. We are seeing also a recovery in terms of margins as the year goes by and the revenues start to grow again. We are assuming basically that costs and pricing will offset each other, and they should both be, you know, somewhere in the low to mid single-digit number in dollar terms. Utilization, we think we should be able to maintain it at similar levels than the one that we have right now, which is around 81%, 82%. That's the target that we are pushing. targeting for next year. And I think that's basically what we're including in that assumption of 15 to 17% range for operating income next year, or actually this year, 2023.

Okay. Thank you very much.

Thank you. Thank you. Thank you, Brian. Our next question comes from Arvind Ramani from Piper Sandler. Arvind, please go ahead. Your line is open.

Hi, thanks for taking my question. I have a question on the overall build rate increases that you've seen. Over the last couple of years, maybe it was 10, 15%. This day you're seeing it's maybe lower to mid-single digits. And when I think of volume, build rate and FX and M&A as four components that drive overall growth, how do you say... volumes are trending. Like, if you have to take out FX, M&A, and Bill Raid. Yeah, yeah. And just purely at volumes.

Sure, I'll take that question. So the assumption, I mean, over the last two years, in 2021, we grew revenue per head close to 12%, 13%. 2022, it was around 8% to 9%. And given the current scenario that we are all living and until we see a stronger recovery, I think it's right to assume low to mid single-digit pricing for for this year because there is still inflation though coming down around the world so in terms of pricing as i said you know low to meet single digit expected for the year as of as of today with the current information In terms of FX, the assumption that we have for this year and that we're including our numbers is a stable FX scenario. You know, we have seen the dollar appreciate a little bit over the last few weeks. Sorry, depreciate over the last few weeks. But, you know, it's been going up and down depending on whatever happens with, you know, interest rates and inflation news and all that. In terms of M&A, as I mentioned before, for the full year, the assumption that is embedded in our numbers is whatever we did up until now, which is about four percentage points. It doesn't include any other deal that we hopefully may close during the rest of the year. And so the rest is volume, basically.

That's helpful. And just a quick follow-up. You know, I mean, this year, in many areas, the transition year or year of digestion, right, you had like abnormally high volume-based growth over the last couple of years. This year, it is what it is, whether it's 15, 17, 20, it doesn't really matter. We always talk about a 20 percent secular grower right over the next three years like what gives you the confidence that you you you get back to that secular 20 growth and i'm not looking for guidance for the next couple of years or anything but you know just the more normalized growth like what's going to get us there from a underlying driver's perspective to get to the normalized growth

Maybe let me just give an overview of the last few years and then I will let maybe Martín or Diego talk a little bit of what we are seeing into or what are the needs that we're seeing from the market and that help us believe that we are living a secular trend in our business. Over the last few years, we did the IPO in 2014. If you look at the CAGR 2014 to 2020, it was around 27%. 2021, we grew 59%. Amazing. 2022, a very strong growth again, 37%. And we are starting this year with a 16% growth, you know, that given the current market, I think it's a very good number as well. When we look into what's happening, you know, I think the conversation with customers are not changing. I mean, Martin, the needs that they have and

Yeah, I mean, the trends about needing technology and to put, you know, the things, the back ends, the front ends, digital marketing efforts, everything in order is something that we are seeing it very clear. Very basic projects, like, for example, you know, a big streaming platform that we have as a customer. We have a project in which they need to connect the different platforms that still have different user bases to connect into a single user base. Those are projects which are extremely needed, and they won't go away, and they will keep on growing and growing. So that secular need of technology is still there. And I believe that... You know, as companies understand that there's new ways of interacting with technology and computers, their customers will start requesting those companies to behave like that. And that will trigger like a new wave of – we have been talking about three massive trends like Web 3.0, AI, and metaverse. Well, those three things will keep on going. And AI right now is in the center of the discussion because of things that are happening. That will trigger, again, a new set of conversational interfaces. People will like to talk with smart companies. People don't like to talk with call centers that are automated that don't know what to answer. People like to talk with smart companies. And that's a massive trend. And that's something that will keep on going. So I don't know percentages, and I will never talk about percentages towards the future in this specific question that you made, but I believe that the trend of every year needing more and more technology, more complex stuff to be done is there. So I don't know, Diego, if you want to compliment on that.

Just to compliment that, I think that every now and then, given a new technology, certain situations were being asked, you know, like, is there a continuity to your business? And In all honesty, first of all, we continue to have very good conversations when it comes to revenue growth type of deals that were the ones that were kind of slowing down lately. But the most important thing is that even though there are certain technologies that made our lives easier, our works makes us much more efficient, Software consumption will continue to grow, will continue to grow. Only one example that showcases this, 20 years ago, even less than 20 years ago, the portion of the cost of a car that was about software was low tens, 12% around that. Nowadays, we're seeing over 60%, over 60% and continue growing. I think every single industry will follow that pattern. And that's what makes us think that there's a long and healthy way for us into the future.

Terrific. And if I can just do one quick follow-up on that. Just with this, we have seen this trend before, right? Like cloud comes and you made money on cloud, but big revenue streams came from analytics and you know, a changing business workflow and, you know, kind of building like front-end consumer apps. Like you're already always taking like a tech trend and like built an entire ecosystem of revenue base around like a single technology theme. Are we finally like, we've talked about AI for the last like 50 years, like AI has been around for a long time, but are we at a point where this new wave of AI is going to be as big as what cloud did to your revenues? And if you can provide metrics, great. If you can't, at least qualitatively, how do you compare this generative AI to some of the things, whether it's mobile or cloud or something else? I think it sounds very similar.

In all honesty, I think AI has been there for a long time. We have business in AI. We created the studio six years ago. We even built our own technologies. I think, like Martin said, I think what ChatGPT brings, and it's amazing for us, it's a big opportunity. It's marketing. Now, everyone knows about AI. Everyone has gone to ChatGPT and tried a few things. And even though I think that, I mean, Da Vinci, the model behind ChatGPT is amazing. It's very good. It's a point of leap forward in terms of what it brings to the table. This is actually an evolution. And we've been part of that evolution. And actually, we are very ready to bring this everywhere. But the thing is, exactly to your point, I think, yes, moving forward, we will see much more revenue coming from that technology.

Terrific. Thank you.

Sure. Welcome. Thank you, Arvind. Thank you so much.

Thank you, Arvind. The next question comes from Moshe Khatri from Wetbush. Moshe, please go ahead.

Yeah, thanks. So I have two, one probably a bit more broad based regarding the pipeline and the other one is more focused on Disney. So, you know, you indicated that your pipeline is at record levels. Some of your peers are talking about a pivot in terms of the nature of the work, in terms of what's really in demand. And the focus seems to be on cost optimization and cost stakeouts. Is that something that you're seeing as well? Would this something that you would consider? that are kind of focusing on, given the fact that in the past you focused more on transformation? So that's kind of the broad kind of big picture question about the pipeline.

Thank you, Moshi, for the question. Listen, I don't think in the past we were not doing cost-saving projects. I mean, we have been doing a lot of different things with our customers, including saving billions of dollars for our customers, not just on the back end, also on the front end. this is not something new for us and of course what we do and the projects we do that are digital transformation has a lot to do with costs so we have seen some kind of shift of interest of the customers of course And we are playing that. And I think that that will be the mood for the whole year. And the question is how you answer to that question. All these new technologies that are bringing new ways of doing things can also save a lot of money if you do the things right. I mean, teams can be smaller or it can be the same size and do much more things than before. Efficiencies are changing. So I believe that all those things still needs to be articulated and brought to execution, although things are not happening right now. I mean, people are using those tools to accelerate the way that they do things. and they are starting to use our tools to accelerate the way they do things, still that needs to go much deeper. And companies need to appropriate that saving because of the efficiencies that are happening. So we need to help our customers to go through that process. And that's a long process. And it won't be in one month. It will be across many years. So to your question, I believe that there's a shift And Globan is absolutely ready and catching those opportunities and, you know, fighting with our competitors in that space and, you know, being, fortunately, very, very successful. So I know, Diego, if you want to compliment that.

That's okay. It is.

All right, understood. And then shifting to Disney, this is probably the top, you know, the biggest topic in terms of conversations with investors. What's embedded in terms of growth in that mid-teens, you know, number that you provided for the year? I think 400 basis points, you said, was from M&A. Is that... I mean, should we assume that Disney grows somewhere in the low teens for the year? And then it will be helpful if you kind of give us a refresher in terms of the different parts of Disney that you're dealing with. Where are we seeing growth? Obviously, you have park, Disney parks and some of the other elements just to get us kind of an update on some of the different variables in Disney that you're dealing with in the context of obviously a new management team that's coming on board.

I'll take the part of the numbers, and I will then let the team here to chip in. So in terms of growth that is assumed for Disney at this point, what we are seeing in the short term, we are expecting a sequential decrease in Q1, driven by what we explained during the call, changes of people, changes of projects, changes of priorities. But we're already seeing a recovery heading to Q2 and a more stable scenario. Now, for the full year, we are assuming a low team's number, as you mentioned. That's an assumption that is embedded in the guidance right now. As for the type of projects that we will be working with... No, we will keep on working on the same stuff.

And again, there's projects that are on the media side, entertainment side. There's projects that are on the park side. Parks are performing extremely well. Media is where they're concentrating some of the cost-cutting effort. Now, on those projects, we are having a big involvement in... be part of the savings, actively part of the savings. So I think that relationship, as I said, relationship is extremely healthy, and that's the most important part of all this story. Now, they go from some ups and downs, as has always been the case with Disney. I'm not really concerned about the future of the relationship.

To add a little bit more on top of that, I think that given the managerial changes and the strategy behind it, there's a strategy that is about returning control to the creative part of Disney. What we do know is Parks will remain strong, and we're in a very good position there. In fact, it was our first client for many years. We are also seeing demand in the enterprise sector as well within Disney. That's another good thing. And what is happening now is that budgets are shifting with that, and that's why during Q1 we're seeing that deceleration while they're planning. In any case, the relationship is a strong one. as ever and stronger than ever. And we just have a little bit less visibility on certain areas.

That's great. Thank you. Welcome. Thank you so much, Moshe.

Thank you, Moshe. Our next question comes from Surrender Thind from Jefferies. Surrender, please go ahead. Your line is open.

Thank you. I guess two capital-related questions here. The first one I'd like to ask is just about the advertising spend. how do you actually measure the return that you're getting from the spend that you have for brand recognition? Let's say the work that you did at FIFA. Is the goal here to drive a lot of new introductions with new logo clients? How should we think about the timeframe that you're looking at that and how you're measuring it?

That's a great question. The first thing I would tell you is... The amount of brand recognition we got from that appearance on the World Cup is massive. Thanks God we are Argentinians and we got awarded the World Cup. So we are very happy for that. But not just that. I mean, in general, the connection with our customers and with potential customers has been great. I would say that as far as I know, connecting just two or three projects that comes to my mind and not making a deep measurement about it, which is very difficult, by the way, but two or three projects that come to my mind that are connected directly with spending that specific investment. paid the whole thing, the whole investment. So all the rest needs to be upside. So I'm very positive about that idea. I think it has positioned Globan in a place which, number one, we deserve, and number two, we were due. And we needed to do something like that. So we found that. We were very lucky. And I hope that this relationship with FIFA will keep on expanding. This year, we will have the Women's World Cup. And the Women's World Cup, the Men's World Cup is seen by 4 billion people. The Women's World Cup is seen by 2 billion people, half. which is still a lot. And you have a great audience here in the U.S. So we have like a very, I would say that the initial project has already paid the full investment. Now we are seeing that the things that are coming with FIFA and with other customers will be upside for us in the future. And the relationship, I think, is great. And other things that we have done in the space, like La Liga or LA Clippers are also extremely, you know, has been extremely profitable. So, you know, we're happy with those things. And although they were very difficult to decide, and I cannot tell you that they were easy decisions, but we're happy with the outcome.

Just to add, not only for FIFA, but also for every marketing event or every event or conference that we organize, there is, of course, a track. We follow what are the leads that were generated from that, and we try to measure the return on the projects that are generated from there, and then compare with the initial investment. In this case, as Martin said, you know, it's a little more difficult because it's such a big event. But again, these projects that he already spoke about, plus the fact that, you know, as we know, we launched our new market, which is basically MENA plus APAC region recently, you know, being the World Cup played in MENA, I think it was great also to make a lot of connections into a region that is going to be investing heavily in technology over the next few years.

Also the one that is going to happen now in Australia, right? The Women's World Cup is putting us in Australia. We just opened some office there and we have a beautiful family there of Glovers. So I think that is a perfect moment to be also near that area and open new leads there also.

That's helpful. And then the related question on capital here is, have you thought about share repurchases? given where the stock price is? Does that enter into the equation at any point? Or is it just an afterthought at this point?

Not at this point. I mean, we see opportunities to keep on expanding organically into countries where we are not there, keep on adding talent development centers that we may need for the future. And on top of that, we are seeing a very interesting and attractive market for potential acquisitions. So we do see uses of the cash that we have and that we generate. And at this point, we think that that's the right thing to keep on doing to expand our business.

Thank you.

Thank you, Sir Inder. For the next question, Maggie Nolan from William and Bear. Maggie, please go ahead. Your line is open.

Thank you. Hi. Juan, you referenced some SG&A initiatives in your talking points. Is there anything you can detail on those? And then would they be material enough that we'd see an inflection point from them at any point in 2023? Yeah.

Thank you. Good to see you again. It's been a while. So, you know, what we are doing, given that we are living in a I would say a more challenging market. We need to be careful how we spend money. We need to be careful, not just on SCNA, but also in terms of CAPEX. So what we are doing is looking into every investment that we are doing, making sure that it makes sense. maybe not doing some things that we may have done last year or the year before when the market was booming for everyone. And what we will try to do is being able to maintain our margins by being careful in how we operate on the SCNA. I mean, we will keep on investing, we will keep on expanding, increasing our sales coverage, but we need to be careful in how we spend the money until we see a strong recovery ahead of us and we can then accelerate on the investment side.

Okay, great. Thank you. And then to follow up on the on the last question, you know, how are you thinking about your willingness to do M&A in 2023? And can you talk about, you know, your strategic objectives there, maybe weaving in some of the recent acquisitions that you've done in the last several months?

Yeah, sure. We're always open for strategic things that we find in the market. We are exploring the pipelines very deep, very wide. Things are around geographic expansion, about expanding capabilities to new places. and to new not to new places to new knowledge places and um and also i would say that has to do with specific customers or specific sectors that we want to tackle so the reinvention studios that diego has been talking many times around how we do acquisitions that has to do with getting deeper expertise on certain industries, or how we go deeper into Europe, or how we go deeper into EMEA, sorry, into MENA, how we go deeper into... areas of knowledge that we didn't have before. The rationals are exactly the same as last year, and we expect to keep on growing on the M&A side during 2023. Thank you.

Great to see you all. Thank you, Maggie.

Thank you, Maggie. Our next question comes from Thomas Blakely from KeyBank. Thomas, your line is open. Please go ahead. Hello, hello. Tom, your line is open. Well, in that case, let's move on to the next participant. Our last question comes from Fanny Kanamuri from HSBC. Fanny, please, your line is open. Go ahead.

Yeah, thanks for taking my question. So my question now is more related to geographical diversification. So in terms of your guidance, you know, how are you seeing the demand geographically? Are you seeing more demand in the Europe or, you know, what's your growth rate expectations according to geography?

First, thank you. Good to see you. First time we meet. So, you know, we see Europe performing strongly, you know, both from organic customers that are expanding together with the impact of some of the acquisitions that we did last year and the great partnership that we're doing that we did with La Liga. So Europe will show strong levels of growth. We are seeing North America probably more stable or slightly growing in Q1, but then showing already a recovery heading into Q2. And then LATAM, you know, is going to have a softer start of the year and a good recovery in quarter two and onwards. So that's the overall situation. And then, of course, we have MENA and APAC, which are the new regions that you should see growth because we are just there and we are closing deals and starting to work. So the comparison is easier. So in summary, strong Europe. North America getting better as we go by. LATAM will start slow but will then recover and you will see strong APAC and MENA.

Okay, sure. And, you know, looking at the adjusted shares for 2023 at 43.4, does it mean that your share based compensation will be lower this year? Or how do you see this going forward?

Now, look, you know, we target three to three and a half percent of revenues in stock-based compensation. And that number, you know, we believe is the right number for the time being. On top of that, you know, sometimes we use shares for some of the acquisitions that we make. Typically, we pay part in cash, part in shares. And you should expect a similar trend for 2023 compared to the last few years.

Okay. Yeah. Thank you. Thanks for taking the questions.

Thank you.

Thank you very much. Thank you. So thank you, everybody. That will be it for the Q&A section for today. I would like to turn the mic now to Martin for some closing remarks.

So thank you very much, guys, for being here today. Thank you very much for your coverage and support. I'm looking forward to see you in the next quarter. Bye-bye.