EX-99.1 2 tv496457_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

  Globant S.A.
   
  Condensed interim consolidated financial
statements as of March 31, 2018 and for the three
months ended March 31, 2018 and 2017

 

 1 

 

 

GLOBANT S.A.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (UNAUDITED)

(in thousands of U.S. dollars, except per share amounts)

 

      Three Months Ended 
   Notes  March 31, 2018   March 31, 2017 
Revenues (1)  4.4   119,712    88,742 
Cost of revenues (2) (4)  7.1   (74,543)   (55,494)
Gross profit      45,169    33,248 
              
Selling, general and administrative expenses (3) (4)  7.2   (31,199)   (24,255)
Net impairment (losses) gain on financial assets      (11)   360 
Profit from operations      13,959    9,353 
              
Finance income  8   2,353    2,085 
Finance expense  8   (3,244)   (2,135)
Finance expense, net      (891)   (50)
              
Other income, net (5)      14    1,728 
Profit before income tax      13,082    11,031 
              
Income tax  6   (2,941)   (2,175)
Net income for the period      10,141    8,856 
              
Other comprehensive income, net of income tax effects             
Items that may be reclassified subsequently to profit and loss:             
- Exchange differences on translating foreign operations      171    160 
- Net change in fair value on financial assets measured at FVOCI      (6)   7 
Total comprehensive income for the period      10,306    9,023 
              
Net income attributable to:             
Owners of the Company      10,170    8,867 
Non-controlling interest      (29)   (11)
Net income for the period      10,141    8,856 
              
Total comprehensive income for the period attributable to:             
Owners of the Company      10,335    9,034 
Non-controlling interest      (29)   (11)
Total comprehensive income for the period      10,306    9,023 
              
Earnings per share (6)           
Basic      0.29    0.26 
Diluted      0.28    0.25 
Weighted average of outstanding shares (in thousands)             
Basic      35,429    34,682 
Diluted      36,549    35,583 

 

(1)Includes transactions with related parties for 691 and 1,800 for the three months ended March 31, 2018 and 2017, respectively.
(2)Includes depreciation and amortization expense of 993 and 1,102 for the three months ended March 31, 2018 and 2017.
(3)Includes depreciation and amortization expense of 3,512 and 2,596 for the three months ended March 31, 2018 and 2017.
(4)Includes share-based compensation expense of 661 and 278 as cost of revenues and 2,208 and 599 as selling, general and administrative expenses for the three months ended March 31, 2018 and 2017, respectively.
(5)Includes as of March 31, 2017 the gain of 1,727 related to the remeasurement at fair value of the call and put option over non-controlling interest explained in note 5.3.3.
(6)As of March 31, 2018 and 2017, 25 and 718, respectively, potential ordinary shares are anti-diluted and therefore excluded from the weight average number of ordinary shares for the purpose of diluted earning per share.

 

The accompanying notes 1 to 19 are an integral part of these condensed interim consolidated financial statements

 

 2 

 

 

GLOBANT S.A.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF MARCH 31, 2018 AND DECEMBER 31, 2017 (UNAUDITED)

(in thousands of U.S. dollars)

 

   Notes  March 31, 2018   December 31, 2017 
ASSETS             
Current assets             
Cash and bank balances  4.4   35,589    52,525 
Investments  4.2   9,450    8,147 
Trade receivables (1)  4.4   91,324    80,078 
Other receivables  4.4   19,130    14,357 
Other financial assets      800    873 
Total current assets      156,293    155,980 
Non-current assets             
Other receivables      32,663    31,736 
Deferred tax assets      15,247    13,186 
Investment in associates      1,550    1,550 
Other financial assets (2)      555    555 
Property and equipment  9   43,764    43,879 
Intangible assets  10   11,863    11,365 
Goodwill      98,743    98,926 
Total non-current assets      204,385    201,197 
TOTAL ASSETS      360,678    357,177 
LIABILITIES             
Current liabilities             
Trade payables      7,069    11,640 
Payroll and social security taxes payable      36,999    40,472 
Borrowings  12   6,007    6,011 
Other financial liabilities  18   10,864    10,664 
Tax liabilities      7,068    5,253 
Other liabilities      139    20 
Total current liabilities      68,146    74,060 
Non-current liabilities             
Other financial liabilities  18   9,688    18,574 
Provisions for contingencies  14   1,358    1,179 
Total non-current liabilities      11,046    19,753 
TOTAL LIABILITIES      79,192    93,813 
Capital and reserves             
Issued capital      42,850    42,271 
Additional paid-in capital      93,965    86,728 
Other reserves      (1,088)   (1,253)
Retained earnings      145,828    135,658 
Total equity attributable to owners of the Company      281,555    263,404 
Non-controlling interests      (69)   (40)
Total equity      281,486    263,364 
TOTAL EQUITY AND LIABILITIES      360,678    357,177 

 

(1)Includes balances due from related parties of 457 and 463 as of March 31, 2018 and December 31, 2017, respectively (note 17).
(2)Includes the fair value of convertible notes of 100 (note 17.1) and the fair value of the call option on minority interest of 455 as of March 31, 2018 and December 31, 2017 (note 5.3.3.)

 

The accompanying notes 1 to 19 are an integral part of these condensed interim consolidated financial statements

 

 3 

 

 

GLOBANT S.A.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (UNAUDITED)

(in thousands of U.S. dollars except number of shares issued)

 

   Number of
Shares
Issued (1)
   Issued
capital
   Additional
paid-in
capital
   Retained
earnings
   Foreign
currency
translation
reserve
   Investment
revaluation
reserve
   Attributable
to owners of
the Parent
   Non-
controlling
interests
   Total 
Balance at January 1, 2017   34,647,643    41,576    62,790    105,119    (961)       208,524    36    208,560 
Issuance of shares under share-based compensation plan (note 11.1)   44,732    54    441                495        495 
Issuance of shares under subscription agreement (note 11.2)   34,309    41    1,119                1,160        1,160 
Share-based compensation plan           1,587                1,587        1,587 
Other comprehensive income for the period, net of tax                   160    7    167        167 
Net income for the period               8,867            8,867    (11)   8,856 
Balance at March 31, 2017   34,726,684    41,671    65,937    113,986    (801)   7    220,800    25    220,825 

 

   Number of
Shares
Issued (1)
   Issued
capital
   Additional
paid-in
capital
   Retained
earnings
   Foreign
currency
translation
reserve
   Investment
revaluation
reserve
   Attributable
to owners of
the Parent
   Non-
controlling
interests
   Total 
Balance at January 1, 2018   35,226,764    42,271    86,728    135,658    (1,226)   (27)   263,404    (40)   263,364 
Issuance of shares under share-based compensation plan (note 11.1)   462,629    555    3,349                3,904        3,904 
Issuance of shares under subscription agreement (note 11.2)   19,870    24    851                875        875 
Share-based compensation plan           3,037                3,037        3,037 
Other comprehensive income for the period, net of tax                   171    (6)   165        165 
Net income for the period               10,170            10,170    (29)   10,141 
Balance at March 31, 2018   35,709,263    42,850    93,965    145,828    (1,055)   (33)   281,555    (69)   281,486 

 

(1)All shares are issued, authorized and fully paid.

 

The accompanying notes 1 to 19 are an integral part of these condensed interim consolidated financial statements.

 

 4 

 

 

GLOBANT S.A.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands of U.S. dollars)

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
Cash flows from operating activities          
Net income for the period   10,141    8,856 
Adjustments to reconcile net income for the period to net cash flows from operating activities:          
Share-based compensation expense   1,769    877 
Current income tax   4,927    2,411 
Deferred income tax   (1,986)   (236)
Depreciation of property and equipment   2,512    2,115 
Amortization of intangible assets   1,993    1,583 
Allowance for doubtful accounts   11    (360)
Allowance for claims and lawsuits   179    99 
Gain on remeasurement of valuation of call and put option over non-controlling interest (note 5.3.3)       (1,727)
Accrued interest   158    150 
Net gain arising on financial assets measured at FVPL   (276)   (90)
Net gain arising on financial assets measured at FVOCI   (35)   (1)
Exchange differences   855    (168)
Changes in working capital:          
Net increase in trade receivables   (12,926)   (12,604)
Net increase in other receivables   (6,669)   (4,374)
Net decrease in trade payables   (1,424)   (294)
Net (decrease) increase in payroll and social security taxes payable   (3,412)   701 
Net increase (decrease) in tax liabilities   218    (420)
Utilization of provision for contingencies       (1,000)
Cash used in operating activities   (3,965)   (4,482)
Income tax paid   (1,040)   (2,320)
Net cash used in operating activities   (5,005)   (6,802)
Cash flows from investing activities          
Acquisition of property and equipment (1)   (4,425)   (4,941)
Proceeds from disposals of property and equipment and intangible assets   127     
Acquisition of intangible assets (2)   (2,537)   (1,285)
Proceeds (payments) related to forward and future contracts   297    (230)
Acquisition of investments measured at FVTPL   (34,233)   (41,976)
Proceeds from investments measured at FVTPL   34,334    44,849 
Acquisition of investments measured at FVOCI   (7,298)   (4,899)
Proceeds from investments measured at FVOCI   6,108    250 
Acquisition of business, net of cash (3)       (5,769)
Seller financing   (9,043)   (1,971)
Net cash used in investing activities   (16,670)   (15,972)

 

 5 

 

 

GLOBANT S.A.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands of U.S. dollars)

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
Cash flows from financing activities          
Proceeds from the issuance of shares under the share-based compensation plan   3,758    495 
Proceeds from subscription agreement   875    1,160 
Repayment of borrowings   (4)   (62)
Cash provided by financing activities   4,629    1,593 
Interest paid   (43)   (6)
Net cash provided by financing activities   4,586    1,587 
           
Effect of exchange rate changes on cash and cash equivalents   153    94 
Decrease in cash and cash equivalents   (16,936)   (21,093)
           
Cash and cash equivalents at beginning of the year   52,525    50,532 
Cash and cash equivalents at end of the year   35,589    29,439 

 

(1)For the three months ended March 31, 2018 and 2017, included 140 and 45 of acquisition of property and equipment financed with trade payables, respectively. During the three months ended March 31, 2018 and 2017 the Company paid 1,264 and 478 related to property and equipment acquired in 2017 and 2016, respectively. Finally, for the three months ended March 31, 2018 and 2017 included 778 and 714 of advances paid.
(2)For the three months ended March 31, 2018 and 2017 included 22 and 73 of acquisition of intangible assets financed with trade payables. During the three months ended March 31, 2018 and 2017, the Company paid 344 and 7 related to intangible assets acquired in 2017 and 2016, respectively.
(3)

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
Supplemental information          
Cash paid       5,800 
Less: cash and cash equivalents acquired       (31)
Total consideration paid net of cash and cash equivalents acquired       5,769 

 

The accompanying notes 1 to 19 are an integral part of these condensed interim consolidated financial statements

 

 6 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

NOTE 1 – COMPANY OVERVIEW

 

Globant S.A. is a company organized in the Grand Duchy of Luxembourg, primarily engaged in building digital journeys that matter to millions of users through its subsidiaries (hereinafter the “Company” or “Globant Lux” or “Globant Group”). The Company specializes in providing innovative software solutions services by leveraging emerging technologies and trends.

 

The Company’s principal operating subsidiaries and countries of incorporation as of March 31, 2018 were the following: Sistemas UK Limited and We are London Limited in the United Kingdom; Globant LLC in the United States of America (the “U.S.”); Sistemas Globales S.A., IAFH Global S.A. and Dynaflows S.A. in Argentina; Sistemas Colombia S.A.S. in Colombia; Global Systems Outsourcing S.R.L. de C.V. in Mexico; Sistemas Globales Uruguay S.A. and Difier S.A. in Uruguay; Globant Brasil Consultoria Ltda. in Brazil; Sistemas Globales Chile Asesorías Limitada in Chile; Globant Peru S.A.C. in Peru; Globant India Private Limited in India; PointSource Ltd. in Belarus and Software Product Creation S.L. in Spain.

 

The Globant Group provides services from development and delivery centers located in United States (San Francisco, New York, Seattle, Raleigh, Chicago and Dallas), Argentina (Buenos Aires, Tandil, Rosario, Tucumán, Córdoba, Resistencia, Bahía Blanca, Mendoza, Mar del Plata and La Plata), Uruguay (Montevideo), Colombia (Bogotá and Medellín), Brazil (São Paulo), Peru (Lima), Chile (Santiago), México (México City), India (Pune and Bangalore), Spain (Madrid) and United Kingdom (London) and it also has client management centers in United States (San Francisco, New York, Boston and Miami), Brazil (São Paulo), Colombia (Bogotá), Uruguay (Montevideo), Argentina (Buenos Aires) and the United Kingdom (London). The Company also has centers of software engineering talent and educational excellence, primarily across Latin America.

 

Substantially all revenues are generated in the U.S. and United Kingdom through subsidiaries located in those countries. The Company´s workforce is mainly located in Latin America and to a lesser extent in India and U.S.

 

The Company's registered office address is 37A, avenue J.F. Kennedy, L-1855, Luxembourg.

 

NOTE 2 - BASIS OF PREPARATION

 

The accompanying condensed interim consolidated statement of financial position as of March 31, 2018, the condensed interim consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the three months ended March 31, 2018 and 2017 and the explanatory notes to the condensed interim consolidated financial statements are unaudited and are prepared for interim financial information. These condensed interim consolidated financial statements are prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting.

 

Consequently, all of the disclosures required in accordance with International Financial Reporting Standards (IFRS) for annual financial statements are not included herein, hence, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements in the year ended December 31, 2017 included in our 2017 Form 20-F filed within the Securities and Exchange Commission. In the opinion of management, these unaudited condensed interim consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair representation of financial results for the interim periods presented.

 

The financial information as of December 31, 2017 presented in these unaudited condensed interim consolidated financial statements is derived from our audited consolidated financial statements for the year ended December 31, 2017.

 

The results of operations for three months ended March 31, 2018 are not necessarily indicative of the results for the full years. The Company believes that the disclosures are adequate to make the information presented not misleading.

 

These condensed interim consolidated financial statements were approved for issue by the Board of Directors on May 9, 2018, which is the date that the condensed interim financial statements were available for issuance.

 

 7 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

NOTE 3 - BASIS OF CONSOLIDATION

 

These condensed interim consolidated financial statements include the unaudited condensed interim consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries. The basis of consolidation and subsidiaries included are the same as for the Company’s audited consolidated financial statements for the year ended December 31, 2017.

 

NOTE 4 – ACCOUNTING POLICIES

 

These unaudited condensed interim consolidated financial statements have been prepared using the same accounting policies as used in the preparation of our audited consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards and interpretations effective as of January 1, 2018, as described below.

 

4.1 – Application of new and revised International Financial Reporting Standards

 

·Adoption of new and revised standards

 

The Company has adopted all of the new and revised standards and interpretations issued by the IASB that are relevant to its operations and that are mandatorily effective at March 31, 2018 as described in note 2.1 to the Company's consolidated financial statements as of December 31, 2017. The impact of the new and revised standards and interpretations mentioned on these condensed interim consolidated financial statements is described as follows.

 

The Company has initially adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers from January 1, 2018.

 

IFRS 9 Financial Instruments

 

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial instruments: Recognition and Measurement. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale. The adoption of IFRS 9 has not had a significant effect on the Company's accounting policies related to financial liabilities. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.

 

Under IFRS 9, on initial recognition, a financial assets is classified as measured at: amortised cost; Fair Value through Other Comprehensive Income (FVOCI); or Fair Value through Profit or Loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

 

A financial asset is measured at amortised cost if both of the following conditions are met and is not designated as at FVTPL:

 

1)it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and

 

 8 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

2)its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

A financial asset is measured at FVOCI if both of the following conditions are met and is not designated as at FVTPL:

 

1)it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
2)its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

All financial assets not classified as measured at amortised cost or FVOCI as described above, are measured at FVTPL.

 

The following table explains the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company's financial asset as at January 1, 2018.

 

  Original classification
under IAS 39
  New classification
under IFRS 9
Cash and cash equivalents Loans and receivables   Amortised cost
Trade receivables Loans and receivables   Amortised cost
Other receivables Loans and receivables   Amortised cost
Investments      
Mutual funds Held for trading   FVTPL
LEBACs (1) Available for sale   FVOCI
Other financial assets      
Foreign exchange forwards and future contracts Held for trading   FVTPL
Financial assets related to business combinations FVTPL   FVTPL
Convertible notes Loans and receivables   Amortised cost
Call option on minority interest FVTPL   FVTPL

 

(1)As described in note 27.8 to the Company's consolidated financial statements as of December 31, 2017, LEBACs were initially classified as held-to-maturity investments (HTM). Under IAS 39, HTM were measured at amortised cost using the effective interest method, less any impairment. However, during December, 2015, the Company sold some of those LEBACs and consequently, changed the classification of the remaining LEBACs to Available-for-sale investments, since it was not permitted to classify investments as held-to-maturity in accordance with IAS 39. Changes in the carrying amount of AFS financial assets relating to changes in foreign currency rates, interest income calculated using the effective interest method were recognised in profit or loss. Other changes in the carrying amount of AFS financial assets were recognized in other comprehensive income. Consequently, under IFRS 9 LEBACs continue to be measured on the same basis than it was under IAS 39.

 

 9 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

All financial assets and financial liabilities continue to be measured on the same basis as is previously adopted under IAS 39.

 

Additionally, IFRS 9 replaces the 'incurred loss' model in IAS 39, with an 'expected credit loss' model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. The Company's financial assets that are subject to IFRS 9's new expected credit loss model are: cash and cash equivalents, trade receivables, other receivables, convertible notes and other financial assets related to business combinations. However, the change in the impairment methodology under IFRS 9 did not have any impact on the Company's consolidated financial statements. Impairment losses related to trade and other receivables are presented separately in the statement of profit or loss. As a result, the Company reclassified an impairment gain that amounted to 360, recognised under IAS 39, from Selling, general and administrative expenses, to Net impairment (losses) gain on financial assets in the statement of profit or loss and other comprehensive income as of March 31, 2017.

 

IFRS 15 Revenue from Contracts with Customers

 

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Company has adopted IFRS 15 using the cumulative effect method (without practical expedients) with the effect of initially applying this standard recognised at the date of initial application, however, as per the management of the Company's assessment, no effect had to be recognised at January 1, 2018. The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Company's services are set out below.

 

Under IFRS 15, an entity recognises revenue when or as performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

 

The Company’s services are mainly performed under both time-and-material and fixed-price contracts. For revenues generated under time-and-material contracts, revenues are recognised as services are performed with the corresponding cost of providing those services reflected as cost of revenues when incurred. The majority of such revenues are billed on an hourly, daily or monthly basis whereby actual time is charged directly to the client. The Company's performance obligations are the hours performed. The Company has assessed that these performance obligations are satisfied over time and that the method currently used to measure the progress towards complete satisfaction of these performance obligations continue to be appropriate under IFRS 15.

 

The Company recognises revenues from fixed-price contracts is recognized in the accounting periods in which services are rendered. The Company has assessed that these performance obligations are satisfied over time, applying the input method by recognizing revenue on the basis of the Company’s efforts to the satisfaction of the performance obligation relative to the total expected inputs to the satisfaction of the performance obligation. Accordingly, the method used to measure the progress towards complete satisfaction of these performance obligations continue to be appropriate under IFRS 15.

 

 10 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

·New accounting pronouncements

 

The new accounting pronouncements issued during the three months ended March 31, 2018 and the new and revised IFRSs that have been issued but are not yet mandatorily effective are described in note 2.1 to the consolidated financial statements as of December 31, 2017.

 

 11 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

4.2 Investments

 

   March 31, 2018   December 31, 2017 
Mutual funds (1)   7,740    7,620 
LEBACs (2)       527 
LETEs (2)   214     
T-Bills (2)   1,496     
TOTAL   9,450    8,147 

 

(1)Measured at fair value through profit or loss.
(2)Measured at fair value through other comprehensive income.

 

4.3 Derivative financial instruments

 

The Company enters into foreign exchange future and forward contracts. Further details are disclosed in note 5.3.1. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss.

 

4.4 Main variations

 

·Revenues

 

The following tables present the Company’s revenues disaggregated by type of contracts, by revenue source regarding the industry vertical of the client and by currency. The Company provides technology services to enterprises in a range of industry verticals including media and entertainment, travel and hospitality, professional services, technology and telecommunications, banks, financial services and insurance and consumer, retail and manufacturing, among others. The Company understands that disaggregating revenues into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenues may be affected by economic factors. However, this information is not considered by the chief operating decision-maker to allocate resources and in assessing financial performance of the Company. As noted in the business segment reporting information in Note 15, the Company operates in a single operating and reportable segment.

 

By Type of contract  March 31, 2018   March 31, 2017 
Time and material contracts   101.825    82.772 
Fixed-price contracts   17.887    5.970 
TOTAL (1)   119.712    88.742 

 

By Industry Vertical  March 31, 2018   March 31, 2017 
Media and Entertainment   29,275    22,052 
Travel & Hospitality   20,816    16,338 
Banks, Financial Services and Insurance   26,003    17,493 
Technology & Telecommunications   16,963    12,136 
Professional Services   12,267    9,244 
Consumer, Retail & Manufacturing   10,668    8,752 
Other Verticals   3,720    2,727 
TOTAL (1)   119,712    88,742 

 

By Currency  March 31, 2018   March 31, 2017 
USD   102,331    78,606 
EUR   6,044    5,220 
ARS   5,296    2,063 
GBP   1,677    1,360 
Others   4,364    1,493 
TOTAL (1)   119,712    88,742 

 

 12 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

·Cash and bank balances

 

   March 31, 2018   December 31, 2017 
Cash and bank balances (2)   35,295    51,632 
Time deposits   294    769 
Cash to be deposited       124 
TOTAL   35,589    52,525 

 

·Trade receivables

 

   March 31, 2018   December 31, 2017 
         
Accounts receivable   74,801    71,846 
Unbilled revenue (1)   17,084    8,841 
Subtotal   91,885    80,687 
Less: Allowance for doubtful accounts   (561)   (609)
TOTAL   91,324    80,078 

 

·Other receivables current

 

   March 31, 2018   December 31, 2017 
Tax credit - VAT   4,181    3,984 
Tax credit - Software Promotion Regime   5,739    4,813 
Income tax credit   2,327    2,869 
Other tax credits   117    153 
Advances to suppliers   622    155 
Prepaid expenses (3)   5,307    1,931 
Loans granted to employees   31    186 
Other   806    266 
TOTAL   19,130    14,357 

 

(1)The increase is mainly due to the expansion of the scope and size of the Company´s engagements, the increase in its key client base primarily through its business development efforts and referrals from its existing clients during the three months ended March 31, 2018. Additionally, there's an increase as a result of the acquisitions of Ratio and PointSource on February 28, 2017 and June 1, 2017, respectively.
(2)The decrease is mainly due to the earn-out payments of the acquisitions of Clarice, L4 Mobile LLC, Ratio Cypress LLC and PointSource LLC during the period ended March 31, 2018. Additionally, the Company paid bonuses to its employees during the period ended March 31, 2018.
(3)The increase is due to the payments in advance related to office rentals during the three months ended March 31, 2018.

 

 13 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

NOTE 5 – CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

 

The Company is exposed to a variety of risks: market risk, including the effects of changes in foreign currency exchange rates, and interest rates and liquidity risk.

 

These unaudited condensed interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual audited financial statements; they should be read in conjunction with the Company’s annual audited consolidated financial statements as at December 31, 2017. There have been no significant changes in the risk management assessment or in any risk management policies since the year end.

 

5.1 - Financial instruments that are not measured at fair value

 

Except as detailed in the following table, the carrying amounts of financial assets and financial liabilities, included in the condensed interim consolidated statement of financial position as of March 31, 2018 and December 31, 2017, approximate to their fair values.

 

   March 31, 2018   December 31, 2017 
   Carrying
amount
   Fair value   Carrying
amount
   Fair value 
Financial Assets                    
Non-current assets                    
Other receivables                    
Guarantee deposits   1,443    1,320    1,347    1,226 
Tax credit - VAT   2,110    1,858    2,025    2,096 
Income tax credits   2,117    2,046    2,129    2,059 
Tax credit - Software Promotion Regime   63    61    132    45 
Other tax credits   154    88    105    56 
    5,887    5,373    5,738    5,482 

 

5.2 - Fair value measurements recognized in the consolidated statement of financial position

 

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into a three-level fair value hierarchy as mandated by IFRS 13, as follows:

 

·Level 1 fair value measurements are those derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities.

 

·Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

 

·Level 3 fair value measurements are those derived from unobservable inputs for the assets or liabilities.

 

 14 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

   As of March 31, 2018 
   Level 1   Level 2   Level 3   Total 
Financial assets                    
Mutual funds (1)       7,740        7,740 
LETEs (2)       214        214 
T-Bills (2)       1,496        1,496 
Call option on minority interest           455    455 
Convertible notes       100        100 
                     
Financial liabilities                    
Contingent consideration           15,883    15,883 
Put option on minority interest           2,797    2,797 
Foreign exchange forward contracts       83        83 

 

   As of December 31, 2017 
   Level 1   Level 2   Level 3   Total 
Financial assets                    
Mutual funds (1)       7,620        7,620 
LEBACs (2)       527        527 
Foreign exchange forward contracts       73        73 
Call option on minority interest           455    455 
Convertible notes       100        100 
                     
Financial liabilities                    
Contingent consideration           23,905    23,905 
Put option on minority interest           2,797    2,797 

 

(1)Measured at fair value through profit or loss.
(2)Measured at fair value through other comprehensive income.

 

There were no transfers of financial assets between Level 1, Level 2 and Level 3 during the period.

 

The Company has applied the market approach technique in order to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities.

 

5.3 - Level 3

 

5.3.1 - Foreign exchange futures and forwards contracts

 

During the three months ended March 31, 2018 and 2017, the Argentinian subsidiaries, Sistemas Globales S.A. and IAFH Global S.A. have acquired foreign exchange futures contracts with SBS Sociedad de Bolsa S.A. (SBS) in U.S. dollars, with the purpose of hedging the possible decrease of assets’ value held in Argentine Pesos due to the risk of exposure to fluctuations in foreign currency. The foreign exchange futures contracts were recognized, according to IFRS 9, as financial assets at fair value through profit or loss. For the three months periods ended March 31, 2018 and 2017 the Company has recognized a gain of 73 and a loss of 112, respectively.

 

 15 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

These futures contracts have daily settlements, in which the futures value changes daily. Sistemas Globales S.A. and IAFH Global S.A. recognize daily variations in SBS primary accounts, and the gains or losses generated by each daily position through profit or loss. Thus, at the closing of each day, according to the future price of the exchange rate U.S. dollar – Argentine peso, the companies perceive a gain or loss for the difference. As future contracts have daily settlements, hence fair value as of March 31, 2018 and December 31, 2017 was zero.

 

Pursuant to these contracts, Sistemas Globales S.A. and IAFH Global S.A. are required to maintain collaterals in an amount equal to a percentage of the notional amounts purchased until settlement of the contracts.This ensures minimal funding, in case SBS has to transfer funds to “Mercado a Término de Rosario S.A” (ROFEX) if losses are generated by daily settlements. This amount must also remain restricted during the term of the contracts, and invested in mutual funds in order to generate a return. As of March 31, 2018, collaterals regarding the transactions are restricted assets for an amount of 125 in LETEs included as investments. As of December 31, 2017, collaterals regarding the transactions are restricted assets for an amount of 473 in LEBACs included as investments.

 

During the three months ended March 31, 2018, the subsidiaries Sistemas Globales S.A., IAFH Global S.A. and Sistemas Globales Uruguay S.A., have acquired foreign exchange forward contracts with HSBC and Citibank in U.S. dollars, with the purpose of hedging the possible decrease of assets’ value held in Argentine Pesos and Uruguayan Pesos, due to the risk of exposure to fluctuations in foreign currency. Those contracts were recognized, according to IFRS 9, as financial assets at fair value through profit or loss. During the three months ended March 31, 2017, the subsidiary Globant LLC, has acquired foreign exchange forward contracts with Bridge Bank in rupees currency, with the purpose of hedging the risk of exposure to fluctuations in that currency within the Group. Those contracts were recognized as financial assets at fair value through profit or loss. For the three months periods ended March 31, 2018 and 2017, the Company has recognized a a gain of 70 and loss of 118, respectively.

 

5.3.2 - Contingent consideration

 

The acquisition of Clarice, described in note 23 to the consolidated financial statements as of December 31, 2017, included a contingent consideration agreement which is payable on a deferred basis and which will be subject to reduction upon the occurrence of certain events relating, among other things, to the acquired company’s capacity.

 

As of March 31, 2018 and December 31, 2017, the nominal value of contingent consideration related to Clarice amounted to 3,947 and 6,291, respectively. The potential undiscounted amount of all future payments that the Company could be required to make under this agreement was between 1,316 and 3,947 as of March 31, 2018 and 2,193 and 6,578 as of December 31, 2017. The fair value of the contingent consideration arrangement of 3,792 and 6,098 as of March 31, 2018 and December 31, 2017, respectively, was estimated by discounting to present value using a risk-adjusted discount rate.

 

 16 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

The acquisition of WAE (jointly We are London Limited and We are Experience, Inc.), described in note 23 to the consolidated financial statements as of December 31, 2017, included a contingent consideration agreement which is payable on a deferred basis and which will be subject to reduction upon the occurrence of certain events relating, among other things, to the acquired company’s gross revenue and gross profit.

 

As of March 31, 2018 and December 31, 2017, the nominal value of contingent consideration related to WAE amounted to 829. The potential undiscounted amount of all future payments that the Company could be required to make under this agreement was 816 as of March 31, 2018 and December 31, 2017. The fair value of the contingent consideration arrangement of 823 and 816 as of March 31, 2018 and December 31, 2017, respectively, was estimated by discounting to present value using a risk-adjusted discount rate.

 

The acquisition of L4, described in note 23 to the consolidated financial statements as of December 31, 2017, included a contingent consideration agreement which is payable on a deferred basis and which will be subject to the occurrence of certain events relating, among other things, to the acquired company’s gross revenue and gross profit.

 

As of March 31, 2018 and December 31, 2017, the nominal value of contingent consideration related to L4 amounted to 1,899 and 3,750, respectively. The potential undiscounted amount of all future payments that the Company could be required to make under this agreement was between 1,566 and an unlimited maximum amount as of March 31, 2018 and 4,320 and an unlimited maximum amount as of December 31, 2017. The fair value of the contingent consideration arrangement of 1,816 and 3,648 as of March 31, 2018 and December 31, 2017 was estimated by discounting to present value using a risk-adjusted discount rate.

 

The acquisition of Ratio Cypress LLC (Ratio), described in note 23 to the consolidated financial statements as of December 31, 2017, included a contingent consideration agreement which is payable on a deferred basis and which will be subject to the occurrence of certain events relating, among other things, to the acquired company´s gross revenue and gross margin.

 

As of March 31, 2018 and December 31, 2017, the nominal value of contingent consideration related to Ratio amounted to 2,255 and 3,923, respectively. The potential undiscounted amount of all future payments that the Company could be required to make under this agreement was between 1,578 and an unlimited maximum amount as of March 31, 2018 and 2,746 and an unlimited maximum amount as of December 31, 2017. The fair value of the contingent consideration arrangement of 2,166 and 3,882 as of March 31, 2018 and December 31, 2017 was estimated by discounting to present value using a risk-adjusted discount rate.

 

The acquisition of PointSource LLC (PointSource), described in note 23 to the consolidated financial statements as of December 31, 2017, included a contingent consideration agreement which is payable on a deferred basis and which will be subject to the occurrence of certain events relating, among other things, to the acquired company´s gross revenue and gross margin.

 

As of March 31, 2018 and December 31, 2017, the nominal value of contingent consideration related to PointSource amounted to 7,421 and 9,626, respectively. The potential undiscounted amount of all future payments that the Company could be required to make under this agreement was between 2,968 and an unlimited maximum amount as of March 31, 2018 and 3,850 and an unlimited maximum amount as of December 31, 2017. The fair value of the contingent consideration arrangement of 7,286 and 9,461 as of March 31, 2018 and December 31, 2017 was estimated by discounting to present value using a risk-adjusted discount rate.

 

 17 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

5.3.3. Put and call option on minority interests

 

As described in note 23 to the consolidated financial statements as of December 31, 2017, on October 22, 2015, the Company entered into a Shareholders Agreement (the “Minority Interest SHA”) with the “non-controlling shareholders” to agree on a put option over the 33.27% of the remaining interest of Dynaflows.

 

The expected payment is determined by considering the possible scenarios. The significant unobservable input used is forecasted Revenue Growth Rate of Dynaflows at the time of the delivery of such exercise of the put option.

 

Changing the significant unobservable input used in the reasonably possible alternative assumptions would have the following effects:

 

   Increase (Decrease) in
unobservable input
   Increase (Decrease) in put
option
 
Forecasted Revenue Growth Rate   5%   (316)
    (5)%   (506)

 

As described in note 23 to the consolidated financial statements as of December 31, 2017, the Company also agreed on a call option over non-controlling interest. The fair value of the call option on minority interest was estimated by using the Black & Scholes method considering the EBITDA and Revenue of the Dynaflows' most recent audited annual financial statements at the time of the delivery of such exercise of the call option to present value using a risk-adjusted discount rate.

 

The expected payment is determined by considering the possible scenarios. The significant unobservable inputs used are: (i) forecasted EBITDA and Revenue of Dynaflows’s most recent audited annual financial statements at the time of the delivery of such exercise of the call option, and (ii) risk-adjusted discount rate.

 

Changing one or more of the significant unobservable inputs used in the reasonably possible alternative assumptions would have the following effects:

 

   Increase (Decrease) in
unobservable input
   Increase (Decrease) in call
option
 
Risk-adjusted discount rate   0.25%   3 
    (0.25)%   (3)
Forecasted EBITDA & Revenue   5%   (20)
    (5)%   22 

 

 18 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

As of March 31, 2017, the Company recorded a gain of 1,727 related to the remeasurement at fair value of the put and call option described above.

 

Reconciliation of recurring fair value measurements categorized within Level 3 of the fair value hierarchy:

 

   Financial Assets   Financial Liabilities 
   Call option on
minority interest
   Contingent
consideration
   Put option on
minority interest
 
December 31, 2017   455    23,905    2,797 
Payments       (8,118)    
Interests       96     
March 31, 2018   455    15,883    2,797 

 

   Financial Assets   Financial Liabilities 
   Call option on
minority interest
   Contingent
consideration
   Put option on
minority interest
 
December 31, 2016   319    23,314    4,388 
Fair value remeasurement   136    (6,878)   (1,591)
Acquisition of business       13,199     
Payments       (5,990)    
Interests       260     
December 31, 2017   455    23,905    2,797 

 

NOTE 6 – INCOME TAXES

 

Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The effective tax rate calculated for the three months ended March 31, 2018 and 2017 was 23% and 20%. The higher effective tax rate for the Company during the three months ended March 31, 2018 is explained mainly by the variation of the Argentine Peso during the three months ended March 31, 2018 that caused that the profit before income tax includes a non taxable foreign exchange loss of 3,588. Whereas, the variation of some Latin America countries currencies, during the three months ended March 31, 2017 has caused that the profit before income tax of the related subsidiaries’ in local currency includes a taxable foreign exchange gain of 1,780, driven by accounts receivable expressed in U.S. dollars, decreasing the current income tax for the period.

 

The adjusted effective tax rate after detracting the effect of the exchange differences would have been 18% for the three months ended March 31, 2018 and 24% for the three months ended March 31, 2017. The lower adjusted effective tax rate is explained by the decrease of the tax rates in United States and Argentina as a result of the tax reforms in those countries, explained in note 3.7 to the consolidated financial statements as of December 31, 2017.

 

 19 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

NOTE 7 – COST OF REVENUES AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

7.1. Cost of revenues

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
Salaries, employee benefits and social security taxes (1)   (69,320)   (50,286)
Share-based compensation expense (2)   (661)   (278)
Depreciation and amortization expense   (993)   (1,102)
Travel and housing   (1,518)   (1,874)
Office expenses   (474)   (269)
Professional services   (1,321)   (1,458)
Recruiting, training and other employee expenses   (207)   (154)
Taxes   (49)   (73)
TOTAL   (74,543)   (55,494)

 

(1)The increase is mainly due to headcount incorporated as a result of the acquisitions of Ratio and PointSource on February 28, 2017 and June 1, 2017, respectively.
(2)The increase is mainly due to the Restricted Stock Units (RSU) expense that began to be granted on April, 2017.

 

7.2. Selling, general and administrative expenses

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
Salaries, employee benefits and social security taxes (1)   (12,370)   (10,123)
Share-based compensation expense (2)   (2,208)   (599)
Rental expenses   (3,793)   (3,204)
Office expenses   (2,933)   (2,742)
Professional services   (2,836)   (2,259)
Travel and housing   (1,160)   (1,125)
Taxes   (1,477)   (1,395)
Depreciation and amortization expense (3)   (3,512)   (2,596)
Promotional and marketing expenses   (910)   (212)
TOTAL   (31,199)   (24,255)

 

(1)The increase is mainly due to headcount incorporated as a result of the acquisitions of Ratio and PointSource on February 28, 2017 and June 1, 2017, respectively.
(2)The increase is mainly due to the Restricted Stock Units (RSU) expense that began to be granted on April 2017.
(3)The variation is mainly due to the increase in amortization of intangible assets.

 

 20 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

NOTE 8 – FINANCE INCOME / EXPENSE

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
Finance income          
Interest gain   72    69 
Gain arising for held-for-trading investments   276    320 
Gain arising for available-for-sale investments   35    1 
Foreign exchange gain   1,970    1,695 
Subtotal   2,353    2,085 
           
Finance expense          
Interest expense on borrowings   (43)   (6)
Loss arising for held-for-trading investments       (230)
Foreign exchange loss   (2,865)   (1,569)
Other interest   (187)   (213)
Other   (149)   (117)
Subtotal   (3,244)   (2,135)
TOTAL   (891)   (50)

 

NOTE 9 – PROPERTY AND EQUIPMENT

 

Property and equipment as of March 31, 2018 included the following:

 

   Computer
equipment
and software
   Furniture
and office
supplies
   Office
fixtures
   Vehicles   Buildings   Lands   Properties
under
construction
   Total 
Useful life (years)   3    5    3    5    50                
Cost                                        
Values at beginning of year   23,381    5,810    33,275    37    6,981    2,354    11,167    83,005 
Additions   1,086    153    76                1,208    2,523 
Disposals   (18)   (21)   (120)       (1)           (160)
Transfers       234    3,710                (3,944)    
Translation   (3)   (1)   (4)                   (8)
Values at end of period   24,446    6,175    36,937    37    6,980    2,354    8,431    85,360 
                                         
Depreciation                                        
Accumulated at beginning of year   14,609    3,694    20,421    13    389            39,126 
Additions   1,012    183    1,280    2    35            2,512 
Disposals   (1)   (4)   (28)                   (33)
Translation   (3)   (1)   (5)                   (9)
Accumulated at end of period   15,617    3,872    21,668    15    424            41,596 
Carrying amount   8,829    2,303    15,269    22    6,556    2,354    8,431    43,764 

 

 21 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

Property and equipment as of December 31, 2017 included the following:

 

   Computer
equipment
and software
   Furniture
and office
supplies
   Office
fixtures
   Vehicles   Buildings   Lands   Properties
under
construction
   Total 
Useful life (years)   3    5    3    5    50                
Cost                                        
Values at beginning of year   18,097    5,117    29,723    34    6,981    2,354    3,899    66,205 
Additions related to business combinations   116    55    3    3            15    192 
Additions   5,244    324    2,275                9,687    17,530 
Transfers   98    477    1,431                (2,006)    
Disposals   (166)   (222)   (152)               (428)   (968)
Translation   (8)   59    (5)                   46 
Values at end of year   23,381    5,810    33,275    37    6,981    2,354    11,167    83,005 
                                         
Depreciation                                        
Accumulated at beginning of year   11,219    3,136    15,921    4    249            30,529 
Additions   3,529    717    4,658    9    140            9,053 
Disposals   (133)   (218)   (149)                   (500)
Translation   (6)   59    (9)                   44 
Accumulated at end of year   14,609    3,694    20,421    13    389            39,126 
Carrying amount   8,772    2,116    12,854    24    6,592    2,354    11,167    43,879 

 

NOTE 10 – INTANGIBLE ASSETS

 

Intangible assets as of March 31, 2018 included the following:

 

   Licenses and
internal
developments
   Customer
relationships
   Non-compete
agreement
   Total 
Useful life (years)   5    2 - 10    3      
Cost                    
Values at beginning of year   27,381    10,153    586    38,120 
Additions   2,215            2,215 
Translation       571        571 
Values at end of period   29,596    10,724    586    40,906 
                     
Amortization                    
Accumulated at beginning of year   17,325    8,844    586    26,755 
Additions   1,801    192        1,993 
Translation       295        295 
Accumulated at end of period   19,126    9,331    586    29,043 
Carrying amount   10,470    1,393        11,863 

 

 22 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

Intangible assets as of December 31, 2017 included the following:

 

   Licenses and
internal
developments
   Customer
relationships
   Non-compete
agreement
   Total 
Useful life (years)   5    3 - 10    3      
Cost                    
Values at beginning of year   18,591    9,634    586    28,811 
Additions related to business combinations   7    517        524 
Additions   8,784            8,784 
Translation   (1)   2        1 
Values at end of year   27,381    10,153    586    38,120 
                     
Amortization                    
Accumulated at beginning of year   11,935    2,499    586    15,020 
Additions   5,391    1,684        7,075 
Impairment loss recognised in profit or loss       4,708        4,708 
Translation   (1)   (47)       (48)
Accumulated at end of year   17,325    8,844    586    26,755 
Carrying amount   10,056    1,309        11,365 

 

NOTE 11 - CAPITAL AND RESERVES

 

11.1. Issuance of common shares

 

During the period ended March 31, 2018, 359,448 common shares were issued after vested options arising from the 2012 and 2014 share-based compensation plan were exercised by some employees. Options were exercised at an average price of 10.45 per share amounting to a total of 3,758.

 

During the period ended March 31, 2018, 112,035 Restricted Stock Units (RSU) were granted to certain employees and directors of the Company and 103,181 RSUs were vested at an average price of 45.42 per share amounting to a total of 4,686. A total amount of 4,540 of such vested RSUs corresponds to a provision for bonus given to employees that was payable in RSUs and was included in the opening balance of additional paid in capital.

 

During the period ended March 31, 2017, 44,732 common shares were issued after vested options arising from the 2012 and 2014 share-based compensation plan were exercised by some employees. Options were exercised at an average price of 11.06 per share amounting to a total of 495.

 

As of March 31, 2018, 26,017,285 common shares of the Company's share capital are registered and quoting in the New York Stock Exchange.

 

 23 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

11.2. Subscription agreement

 

On February 22, 2018, the Company issued 12,265 common shares for a total amount of 541 as part of the subscription agreement stated in the stock purchase agreement signed with Pointsource´s sellers, explained in note 23 to the consolidated financial statement as of December 31, 2017.

 

On February 16, 2018, the Company issued 7,605 common shares for an amount of 334 as part of the subscription agreement signed with Ratio´s sellers, explained in note 23 to the consolidated financial statement as of December 31, 2017.

 

On March 1, 2017, the Company issued 34,309 common shares for a total amount of 1,160 as part of the subscription agreement stated in the stock purchase agreement signed with Ratio´s sellers explained in note 23 to the consolidated financial statements as of December 31, 2017.

 

NOTE 12 - BORROWINGS

 

   As of 
   March 31, 2018   December 31, 2017 
         
Current   6,007    6,011 
TOTAL   6,007    6,011 

 

Movements in borrowings were as follows:

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
         
Balance at the beginning of year   6,011    217 
Payment of borrowings   (47)   (68)
Accrued interest   43    6 
Foreign exchange       5 
Balance at the end of the period   6,007    160 

 

On August 3, 2017, Globant LLC, our U.S. subsidiary, entered into a secured revolving credit facility with HSBC Bank USA, N.A. and Citibank N.A., with HSBC Bank USA, N.A. acting as administrative agent. Under this credit facility, Globant LLC may borrow up to $40.0 million in advances accruing interest at LIBOR plus 1.75%. This credit facility is guaranteed by Globant S.A. and Globant España S.A. and is secured by Globant LLC's now owned and after-acquired assets. This facility matures on August 2, 2022 and includes the following covenants: delivery of certain financial information; reports on any legal actions, complying with tax payments; maintain an asset coverage ratio of no less than 1.10; Globant LLC's capital expenditures limited to 5% the Company's consolidated annual revenue per year; restricted payments not to exceed 10,000 per year; Globant LLC's annual revenue is to remain at no less than 60% of the Company's consolidated annual revenue and Globant LLC's net intercompany payable outstanding with Argentine affiliates is to be no more than five months of billings from Argentina.

 

 24 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

On December 19, 2017, Globant LLC borrowed 6,000 under this credit facility. This loan matures on May 21, 2018, and is included as a current borrowing.

 

NOTE 13 – SHARE-BASED COMPENSATION - EMPLOYEE BENEFITS

 

13.1. Movements in share options during the period

 

The following reconciles the share options outstanding at the end of the three months ended March 31, 2018 and 2017:

 

   March 31, 2018   March 31, 2017 
   Number of
options
   Weighted average
exercise price
   Number of
options
   Weighted average
exercise price
 
                 
Balance at the beginning of year   2,155,851    23.02    2,658,595    22.21 
Options granted during the period   20,000    44.97         
Forfeited during the period   (41,944)   38.69    (87,706)   27.40 
Exercised during the period   (359,448)   10.45    (44,732)   11.06 
Balance at end of period   1,774,459    25.44    2,526,157    22.22 
                     
13.2 Movements in restricted stock units during the period
                     
The following reconciles the RSU outstanding at the end of the three months ended March 31, 2018:
                     
   March 31, 2018         
   Number of RSU   Weighted average
grant price
         
                 
Balance at the beginning of year   164,859    37.58           
RSU granted during the period   112,035    45.81           
Forfeited during the period   (8,035)   43.43           
Issued during the period   (103,181)   45.42           
Balance at end of period   165,678    37.99           

 

NOTE 14 – CONTINGENCIES

 

As of March 31, 2018 and December 31, 2017, the Company recorded reserves for lawsuits claims and other disputed matters for a total amount of 1,358 and 1,179, respectively.

 

On April 16, 2018, the lower court dismissed the complaint filed by FAECYS.

 

 25 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

Except for the above mentioned, as of the date of issuance of these condensed interim consolidated financial statements, no significant changes have occurred with respect to the contingencies included in note 28 to the consolidated financial statements for the three years in the period ended December 31, 2017.

 

NOTE 15 – SEGMENT INFORMATION

 

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding on how to allocate resources and in assessing performance. The Company’s CODM is considered to be the Company’s chief executive officer (“CEO”). The CEO reviews information presented on an entity level basis for purposes of making operating decisions and assessing financial performance. Therefore, as of March 31, 2018, the Company has determined that it operates in a single operating and reportable segment.

 

The Company provides services related to application development, testing, infrastructure management and application maintenance.

 

 26 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

The following table summarizes revenues by geography:

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
North America          
United States of America   92,592    69,939 
Canada   1,534    64 
Subtotal North America   94,126    70,003 
Europe          
Spain   6,196    5,454 
Ireland   15     
United Kingdom   2,369    2,816 
Luxembourg   323    253 
Germany   151    590 
Sweden       792 
Others   33    75 
Subtotal Europe   9,087    9,980 
Asia          
India   223    128 
Others   174    27 
Subtotal Asia   397    155 
Latin America and others          
Argentina   5,685    2,737 
Brazil   3    303 
Colombia   1,190    1,073 
Chile   4,926    3,435 
Uruguay   233     
Mexico   3,376    213 
Perú   633    788 
Others   56    55 
Subtotal Latin America and others   16,102    8,604 
TOTAL   119,712    88,742 

 

The revenues by geography were determined based on the country where the sale took place.

 

As of March 31, 2018 and 2017, the measurement of profit from operations is based on 13,959 and 9,353, respectively, as presented in the statements of profit or loss and other comprehensive income.

 

 27 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

The following table summarizes non-current assets other than deferred taxes as stated in IFRS 8, paragraph 33.b, by jurisdiction:

 

   March 31, 2018   December 31, 2017 
         
Argentina   70,492    69,511 
Spain   38,421    38,454 
United States of America   57,186    57,071 
Brazil   2,041    1,870 
Uruguay   581    555 
Luxembourg   4,400    5,316 
Colombia   8,026    7,997 
Mexico   3,268    3,460 
India   3,098    2,206 
Chile   1,051    1,037 
Other countries   574    534 
TOTAL   189,138    188,011 

 

NOTE 16 – SEASONALITY OF OPERATIONS

 

Due to seasonal nature of the geographic segments, higher revenues and operating profits are usually expected in the second half of the year than in the first six months. In the fiscal year ended December 31, 2017, 46% of revenues accumulated in the first half of the year, with 54% accumulating in the second half.

 

NOTE 17 – RELATED PARTIES BALANCES AND TRANSACTIONS

 

The Company provides software and consultancy services to certain WPP subsidiaries and other related parties.WPP is a shareholder of the Company. Outstanding trade account balances as of March 31, 2018 and December 31, 2017 are as follows:

 

   March 31, 2018   December 31, 2017 
         
Grey Global Group Inc.   165    104 
Group M Worldwide Inc   40    44 
JWT   41    77 
Kantar Retail   15    23 
Mercado Libre S.R.L.   43    9 
TNS   153    206 
Total   457    463 

 

 28 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

During the three months ended March 31, 2018 and 2017, the Company recognized revenues, as follows:

 

   Three Months Ended 
   March 31, 2018   March 31, 2017 
         
Added Value       13 
Ogilvy & Mather Group   64    472 
Grey Global Group Inc.   279    287 
Group M Worldwide Inc   56    195 
J. Walter Thompson Company   120    382 
Kantar Group   122    280 
Kantar Retail   24    23 
Mercado Libre S.R.L.   23    119 
Mirum Inc.       24 
TNS   3    5 
Total   691    1,800 

 

17.1 Loan agreement to Collokia

 

On May, 5, 2017, the Company and Collokia LLC, signed a loan agreement whereby the Company provides a financing facility of 100. Interest on the entire outstanding principal balance is computed at an annual rate of 2.8%. Collokia shall repay the loan in full within 18 months from the date that this agreement has been signed off. The Company has the right to convert any portion of the outstanding principal into preferred units of Collokia. As of March 31, 2018, the fair value of the loan agreement amount to 100 and is exposed as other financial assets non current.

 

NOTE 18 – BUSINESS COMBINATION

 

Outstanding balances included as other financial liabilities as of March 31, 2018 and December 31, 2017 are as follows:

 

   As of March 31, 2018   As of December 31, 2017 
   Other financial
liabilities -
current
   Other financial
liabilities - non
current
   Other financial
liabilities -
current
   Other financial
liabilities - non
current
 
Related to Business Combinations                    
Huddle Group   111        110     
Clarice   3,048    1,505    3,119    4,497 
Subscription agreement   800        800     
Put option on minority interest of Dynaflows       2,797        2,797 
WAE   940        924     
L4   924    892    1,845    1,803 
Ratio   1,436    730    1,666    2,216 
PointSource   3,522    3,764    2,200    7,261 
Total   10,781    9,688    10,664    18,574 

 

 29 

 

 

GLOBANT S.A.

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(amounts are expressed in thousands of U.S. dollars, except where expressly indicated that amounts are stated in thousands of other currency)

 

Impact of acquisitions on the results of the Company

 

The net income for the period ended March 31, 2017 includes a gain of 234 attributable to the business generated by Ratio. Revenue for the period ended March 31, 2017 included 1,096 related to the business of that company. Had the business combination of Ratio been effected at January 1, 2017, the consolidated revenue of the Company would have been 90,612, the net income for the period ended March 31, 2017 would have been 5,496 and earnings per share would have amounted to $0.16 and $0.15.

 

NOTE 19 – SUBSEQUENT EVENTS

 

The Company evaluated events occurring after March 31, 2018 in accordance to IAS 10, Events after the reporting period, through May 9, 2018, which is the date that these condensed interim consolidated financial statements, were made available for issuance.

 

 30