Globant SA

NYSE:GLOB

Earnings Call Transcript 2022-Q4

[Arturo Langa, IR]

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 Urthiague, Chief Financial Officer; Patricia Pomies, Chief Operating Officer; and Diego Tartara, Global Chief Technology Officer.

Before we begin, I would like to remind you that some of 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 the SEC.

Please note that we follow IFRS accounting rules in our financial statements. During our call today, we will report non-IFRS or adjusted measures, which is how we track performance internally and the easiest way to compare Globant to our peers in the industry. You will find a reconciliation of IFRS and non-IFRS measures at the end of the press release we published on our Investor Relations website announcing this quarter's results.

I'd now like to turn the call over to Martin Migoya, our CEO.

[Martin Migoya, Co-Founder and 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 Globant'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 isn't 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-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, health care and many other B2B disciplines. Vertic 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 Vertic, 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. Globant 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+ streaming platform, and we sponsored the Qatar 2022 FIFA World Cup.

The Globant brand was on the field and on the screens for every much, 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 engage with the World Cup across different platforms and devices. We made the most of this partnership by hosting the Globant Tech Summit in Doha during the cap.

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. Globant 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, Globant was also named Company of the Year in global digital transformation services by Frost & 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 fun experience, boost loyalty, increase revenue streams and develop smart venues. We're already working with top players in the sports and entertainment sector like LaLiga and the L.A. 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 Bard from Google have made a 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 open 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 will be ready in the next weeks. You can register to join the wait list 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 Globant'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 Augoor, which applies AI to make the coding process faster, more creative and effective. And with MagnifAI, 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 moats 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 Urthiague, will share more later on. We have a strong confidence in Globant's fundamentals through our studios, we're adaptable to providing the clients what it needs in different landscapes. Globant 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 account 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 Globers 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, Globers has become a growth vehicle and a center for knowledge, deep expertise and nonstop 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 3 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.

[Diego Tartara, Global Chief Technology Officer]

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 a 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 Globant 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.

Globant 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 of complex creative work through generative AI that frees up valuable time and resources for teams. Our Globant X products, Augoor, GeneXus and MagnifAI 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 Glober becomes an AI adviser.

Upon completing the training, each one of our agile pots 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 low-code 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 low-code 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 Martin have built earlier, we are increasingly optimistic and ambitious about the runway of this product.

Now let's go through how Globant 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 Reinvention Studio.

This quarter, we also released a stand-alone tech trans report focusing on opportunities in this space. A new liquid fund is disrupt in the sports worth. The fun experience now goes far beyond the live match as they now interact with their favorite clubs and events through multiple touch points in mobile apps and social media. This creates the need for small technologies and to ensure a seamless positive digital 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.globant.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 Be Healthy, a Global Tech product that offers a recognition and reward program using the Apple Watch. Be healthy helps its users live healthier lives and have control over the data with a strong privacy protection built into every upper product. We are working closely with Rio (ph), 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, Rio wanted to create an immersive experience in a virtual funnel fest in the metaverse. In record time, Globant built a proposal and designed a 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 Rio.

We were able to showcase the power of the metaverse for FIFA World up 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 chat bot 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-machine (ph) 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 and boarding platform to streamline development and integration that will help reduce costs, 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 efficient customer experience. We are leveraging our expertise in the area that includes work for close lines, sports teams, resorts and theme parks.

Also in Europe, we're working with PAC, additionally native logistics company that specializes in same-day delivery. Its platform provides real-time tracking, route optimizations and automated delivery notifications. They able to maintain a fleet of professional drivers and couriers to ensure that their customers receive the highest quality of service. global disaster in the evolution of the recurrent platform by building new cost and building management systems.

Pickup drop of points, software development kits in multiple languages for faster retail integration among others. We are also advising them and looking ahead in areas that include IoT and metaverse, help impact the 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 Pomies, our COO.

[Patricia Pomies, COO]

Thank you, Diego, and hello, everyone. I'm happy to be with you again to discuss the transformation 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 World 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 continued 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 $185,000 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 of 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 Globant 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 remained 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 hiring, 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 Globant's global-centric value proposition of giving both career growth and flexibility.

To nurture a positive culture that develops talent is critical to listen continuously to our Globers. We have a deep and regular evaluations of our working mode to assess our Globers engagement so that we can adapt accordingly. We closed the year in Q4 asking Globers how they fought 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 the Net Promoter Score to determine our employees would recommend Globant to friends, contact 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 of 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 adopted throughout the organization.

Our strategy is to provide adverse personal and career growth opportunities at Globant. As you remember, last year, we launched our open career platform, where Globers can find a 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 upskill and other skilling 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 lovers 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 Globers to work from any destination up to 90 days per year. This has enabled over 1,700 globals to work remotely in more than 65 destinations worldwide. Of course, we still believe that offices are a great word of foster culture. So we are very excited to be opening the workplace of the future. In the past year, Globant has opened brand new offices in London, Mexico City, Santiago, Pontalti and Uruguay (ph). Each one was particularly designed with our Globers in mind that an emphasis on co-creation sustainability and teamwork.

And finally, some important updates on Globant's kind concept aimed at making our global community a more sustainable, giving equitable and healthy place through the commitment of our Globers. And our Code You Future program we publicly commitment to grant 15,000 technology training scholarship 2025. In Q4, we offered 1,000 new scholarship for an eight month training to people in Latin America.

We'll receive over 30,000 applications. 50% of this scholarship will be allocated to women and nonbinary people. We also continue our work in Globant Labs. Its purpose is to focus our propane initiatives to help our community in line with our big kind pillars. We are committed to this project because we are firm believers that technology is an enabler to create new solution for the more significant problems of humanity, fostering innovation and delivering inclusive opportunities.

Our BeKind, Tech Fund continues to support the start-ups aim and of mitigating the adverse effect of technology. Spanish went to capital firms and London-based entrepreneurial organization, E2E have joined the funds former ecosystem. So we announced our 1 million investment in Polemix, the first platform to introduce web technology to the world of ideas and opinions. The start-up mission is to upgrade how people support and oppose opinion leaders, disrupting the eco 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.

[Juan Urthiague, CFO]

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 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 positive 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 service 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 offering 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 billion, up 37.3% year-over-year. This strong growth was mainly driven by approximately 32% organic growth despite having a 2 percentage point 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 LaLiga tech partnership among others, and also a noticeable recovery in our Travel & 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 SG&A to meet our EBIT targets. As of 4Q 2022, SG&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 diluted EPS for this quarter was $1.40, 30.8% year-over-year based on 43.1 million average diluted shares for the quarter. Our full year 2022 adjusted EPS of $5.08 came in $0.02 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 maintained 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 organizations and restructuring, lead us to expect a sequential decrease in Q1 2023 revenues relative to Q4 2022.

Though a healthy year-over-year performance given the current market, we expect to go back to positive quarter-over-quarter 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 time, 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 diluted 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 billion or 16% year-over-year growth. This guidance figure considers a neutral FX 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.

[Arturo Langa, IR]

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 meet 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 Tien-Tsin Huang from JPMorgan. Tien-Tsin, please go ahead. Your line is open.

[Tien-Tsin Huang, JPMorgan]

Thanks, Arturo. I appreciate the time as always. So again, 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 seen there for the first quarter as well as for the full year, a little bit more detail. Thanks.

[Martin Migoya, Co-Founder and CEO]

Sure. I will take the first portion of the question. Thank you, Tien-Tsin, for the question. And I take the first portion and then we'll let Juan to complement. I think that the relationship with Disney is extremely healthy. We have had 2022 with a very healthy growth of about 35%, right, year-over-year. So we have had like a growth with this account for many, many years. I think that the -- all the announcements is still very soon to understand what's going on in the winners of these announcements.

We expect to have some hit 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 complement.

[Juan Urthiague, CFO]

Sure. Hi, Tien-Tsin. So in addition to that, what we are seeing is a very strong travel and services sector. A very strong or a recovery in -- on a very strong sorry, health care sector. When we are 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 laying off a large number of people.

And then there is a little bit on the backlog and the size of the backlog. But we are already seeing a good recovery heading into Q2, 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.

[Tien-Tsin Huang, JPMorgan]

All right. Great. And then just as my quick follow-up, just to build on what you just said, I think 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 in mid-February now. So it sounds like you're seeing real activity and change to the positive side at this point in the quarter?

[Martin Migoya, Co-Founder and CEO]

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 kind of very happy when we start seeing that recovery happening, right and I don’t know.

[Juan Urthiague, CFO]

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 where it's 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.

[Tien-Tsin Huang, JPMorgan]

Very good. Thank you.

[Juan Urthiague, CFO]

Very welcome. Thank you, Tien-Tsin.

[Arturo Langa, IR]

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

[Ashwin Shirvaikar, Citi]

Thank you and appreciate the opportunity. Martin, you started obviously speaking about AI. So let me direct my first question there. And you cast this as an opportunity, which I can see in many different ways for content creation 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, AI doesn't kind of go implement itself and do things in a 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?

[Martin Migoya, Co-Founder and CEO]

Yeah, absolutely. Look, I could be talking about this for the next 24 hours. So I would try to be very, 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 1.5 months 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 CCP was like a massive marketing campaign, pushing like a new way of creating applications like 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 like in a generic way, answer 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 breaches with the regular calculator -- I don't know how to say that in English, sorry.

[Diego Tartara, Global Chief Technology Officer]

Calculus.

[Martin Migoya, Co-Founder and CEO]

Calculus. And now we are using calculators and we are using computers to accelerate that design. Well, the same thing happened now. We have some tools to develop software with Augoor, with GeneXus, with all the things connected with MagnifAI, we accelerated the way of developing software, came ChatGPT 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 paid on new paradigms that we just learned a month ago, not Globant. 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 and consumers who 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 answers your question, but -- it's a question of $1 million basically.

[Ashwin Shirvaikar, Citi]

Absolutely. I guess the next question is, if you can talk about M&A impact and FX impact for 1Q and full year, what should we put in, what should we assume? [Multiple Speakers]

[Juan Urthiague, CFO]

Sure. I'll take it. So on the first quarter, we guided 17.1% growth, of which around 5 percentage points are coming from the recent acquisitions that we did or the positions that we did during 2022. For the full year, out of the 16% that we guided, about 4 percentage points come from the deals that we closed in 2022. And for the time being, we're assuming a neutral FX scenario. So we are not assuming any gain or any loss coming from FX.

[Ashwin Shirvaikar, Citi]

Understood. Thank you, all.

[Juan Urthiague, CFO]

You are welcome.

[Arturo Langa, IR]

Thank you, Ashwin. The next question comes from the line of Bryan Bergin from Cowen. Bryan, please go ahead. Your line is open.

[Bryan Bergin, Cowen]

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 and 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?

[Martin Migoya, Co-Founder and CEO]

Yeah. I would say the slowdown in 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 or?

[Bryan Bergin, Cowen]

Yes.

[Martin Migoya, Co-Founder and CEO]

Right? And the type of projects, look, they come in very different flavors as we always said, the projects that we do are always connected to connecting with consumers, accelerating that process. Now we are heading into the digital marketing side. We're heading to the back office and I would say, all the ERP/CRM implementation, which is the back end of the company's. 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 back-end projects. The three of them has been 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 projects. So there's no correlation there that I see specifically to your question.

[Bryan Bergin, Cowen]

Okay. And then just shifting over to margins. So can you just -- Juan, can you talk about the biggest factors in that 15% to 17% range as you think about utilization as you go through '23? And anything on the pricing and just curious how you get to the lower end versus the higher end of that range?

[Juan Urthiague, CFO]

Yeah. Clearly, the -- whatever we are seeing for Q1 in terms of revenues and in terms of margins, we mentioned 15% to 16% because as we have a slight decrease in revenues, 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 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 on the one that we have right now, which is around 81%, 82%, that's the target that we are targeting for next year. And I think that's basically what we are including in that assumption of 15% to 17% range for operating income next year or actually this year 2023.

[Bryan Bergin, Cowen]

Yeah. Okay. Thank you very much.

[Juan Urthiague, CFO]

Thank you.

[Arturo Langa, IR]

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

[Arvind Ramnani, Piper Sandler]

Hi. Thanks for my – thanks for taking my question. I had a question on the -- just overall like bill rate increases that you've seen over the last couple of years, maybe it was 10%, 15%, you're saying it's maybe low to mid-single digits. And when I think of like late -- and M&A has like four components have driven overall growth. How do you say like volumes are trending? Like, if you have to take out FX, M&A and bill rates and like if you had volumes.

[Juan Urthiague, CFO]

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 in our low to mid-single digit pricing for this year because there is still inflation though coming down around the world.

So in terms of pricing, as I said, low to mid-single-digit expected for the year 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, it's a stable FX scenario. We have seen the dollar appreciate a little bit over the last few weeks -- I'm sorry, depreciate over the last few weeks. But it's been going up and down depending on whatever happens with 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 4 percentage points. It doesn't include any other deal that we hopefully make close during the rest of the year. And so the rest is volume basically.

[Arvind Ramnani, Piper Sandler]

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

[Juan Urthiague, CFO]

Maybe let me just give like an overview of the last few years, and then I will maybe Martin or Diego talk a little bit of what we are seeing into -- or what are the needs that we are seeing from the market and that help us believe that we are leaving 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 now that given the current market, I think it's a very good number as well. When we look into what's happening, I think the conversation with customers are not changing, Martin the needs that they have.

[Martin Migoya, Co-Founder and CEO]

Yeah. I mean the trends about needing technology and to put the things, the back end, the front end digital marketing efforts, everything in order is something that we are very -- that we are seeing it very clear. Very basic projects. So for example, 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 as companies understand that there's new ways of interacting with technology and computers, they will -- their customers who are requesting those companies to behave like that. And that will trigger like a new wave of -- we have been talking about 3 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 treat again, a new set of conversational interfaces. People would 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 complement on that?

[Diego Tartara, Global Chief Technology Officer]

Just to complement that. I think that every now and then given a new technology, a certain situation, we're being asked, 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 so far consumption will continue to grow, will continue to grow.

It's just 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 10s, 12% around that. Nowadays, we're seeing over 60%, over 60% and continue growing. I think every single industry will follow that powder. And that's what makes us think that there's a long and healthy way for us into the future.

[Arvind Ramnani, Piper Sandler]

Perfect. And if I can just one quick follow-up on that. Just with this, we have seen this trend before, right? The cloud comes and you made money on cloud, but big revenue streams came from analytics and a changing business workflow and kind of building a front-end consumer apps, like you've already always taken as a tech trend and like built an entire ecosystem of revenue based around like a single technology theme.

Have you finally, like you've talked about AI for the last 50 years, AI has been around for a long time. But are we at a point where this new way 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 at least qualitatively, how do you compete as generative to some of the things, whether it's mobile or cloud or something else?

[Diego Tartara, Global Chief Technology Officer]

Something, we received. And honesty, I think it's 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 is marketing. Now everyone knows about AI, everyone has gone to ChatGPT and tried a few things.

And even though I think that -- I mean, into the model behind ChatGPT is amazing. It's very good. It's a point to 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 I think it's exactly to your point, I think, yes, moving forward, we will see much more revenue coming from that technology.

[Arvind Ramnani, Piper Sandler]

Terrific. Thank you.

[Diego Tartara, Global Chief Technology Officer]

Welcome.

[Arvind Ramnani, Piper Sandler]

Thank you so much.

[Arturo Langa, IR]

Thank you, Arvind. The next question comes from Moshe Katri from Wedbush. Moshe, please go ahead.

[Moshe Katri, Wedbush]

Hey. 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 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 takeouts. Is that something that you're seeing as well? Was this something that you would consider 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.

[Martin Migoya, Co-Founder and CEO]

Thank you, Moshe, for question. And 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. So this is not something new for us. And of course, what we do and the projects we do that our 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 would 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 and/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 will be -- it won't be in 1 month. It will be across many years. So to your question, I believe that there's a shift and Globant is absolutely ready and catching those opportunities and fighting with our competitors in that space and being fortunately, very, very successful.

So I know Diego, if you want to complement that?

[Diego Tartara, Global Chief Technology Officer]

That's okay.

[Moshe Katri, Wedbush]

All right. Understood. And then shifting to Disney, this is probably the top -- the biggest topic in terms of conversations with investors. What's embedded in terms of growth in that mid-teens 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 onboard.

[Juan Urthiague, CFO]

I'll take the first part of the numbers, and I will then let the team here to chip in. So in terms of growth is assumed for Disney at this point. Although, 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 head into Q2 and a more stable scenario. Now for the full year, we are seeing -- or we're assuming a low-teens number as you mentioned. That's an assumption that is embedded in the guidance right now. As for the type of -- of the type of projects that we will be working with Disney.

[Diego Tartara, Global Chief Technology Officer]

No, we will keep on working on the same stuff. And again, there's projects that are on the media side and the payment 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 efforts. Now on these projects, we are having like a big like 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 have always been the case with Disney. I'm not really concerned about the future of the relationship.

[Moshe Katri, Wedbush]

Understood.

[Martin Migoya, Co-Founder and CEO]

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 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 in with that. And that's why during Q1, we are seeing that deceleration while they're doing their planning. In any case, the relationship is as strong as ever and stronger than ever, and we just have a little bit less visibility in certain areas.

[Moshe Katri, Wedbush]

That’s great. Thank you.

[Martin Migoya, Co-Founder and CEO]

Welcome. Thank you so much, Moshe.

[Arturo Langa, IR]

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

[Surinder Thind, Jefferies]

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

[Martin Migoya, Co-Founder and CEO]

That's a great question. The first thing is, I would tell you is, the amount of round 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 come to my mind and not making a deep measurement about it, which is very difficult, by the way, but two or three projects that comes to my mind that are connected directly with our 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 has been, I think it has positioned Globant 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 World Cup is seen by 4 billion people. The women work at is seen by 4 -- 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 have seen that the things 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 on the space like LaLiga or L.A. Clippers are also extremely -- has been extremely profitable. So we're happy with those things. And although they were very difficult to decide, and I cannot tell you that there were easy decisions, but we're happy with the outcome.

[Juan Urthiague, CFO]

Just to add not only for FIFA, but also for every marketing event or every event that are conference that we organized, there is, of course, a track we follow what are the leads that were generated from that. We try to measure the return on the projects that are generated from there and then compare with initial investment. In this case, as Martin said, it's a little bit more difficult because it's such a big event.

But again, these projects that we already spoke about, plus the fact that, as we know, we launched our new market, which is basically MENA plus APAC region recently, 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.

[Patricia Pomies, COO]

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

[Surinder Thind, Jefferies]

That’s helpful. And then the related question on capital here is have we thought about share repurchases? Even where the stock price is or is there -- does that enter into the equation at any point or is it just another thought at this point?

[Juan Urthiague, CFO]

No, 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.

[Surinder Thind, Jefferies]

Thank you.

[Arturo Langa, IR]

Thank you, Surinder. For the next question, Maggie Nolan from William Blair. Maggie, please go ahead. Your line is open.

[Margaret Nolan, William Blair]

Thank you. Hi. Juan, you referenced some SG&A initiatives and 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 '23?

[Juan Urthiague, CFO]

Yeah. Thank you. Good to see you again. It's been a while. So 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 SG&A 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 you know 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 SG&A. 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. And until we see a strong recovery ahead of us, and we can then accelerate on the investment side.

[Margaret Nolan, William Blair]

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

[Martin Migoya, Co-Founder and CEO]

Yeah. Sure. We're always open for strategic things that we find in the market. We are exploring the pipeline is 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 also, I would say that has to do with specific customers or specific sectors that we want to tackle.

So the reinvention studios that 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 rationales are exactly the same as last year, and we expect to keep on growing on the M&A side during 2023.

[Margaret Nolan, William Blair]

Thank you. Great to see you all.

[Martin Migoya, Co-Founder and CEO]

Thank you, Maggie.

[Arturo Langa, IR]

Thank you, Maggie. Our next question comes from Thomas Blakeley from KeyBanc. Thomas, your line is open. Please go ahead.

[Martin Migoya, Co-Founder and CEO]

Hello. Hello?

[Arturo Langa, IR]

Well, in that case, let's move on to the next participant. Our last question comes from Phani Kanumuri from HSBC. Phani, please your line is open. Go ahead.

[Phani Kanumuri, HSBC]

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

[Juan Urthiague, CFO]

First, thank you. Good to see you. First time we meet. So we see Europe performing strongly, 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 LaLiga. So Europe, we have -- we show strong levels of growth. We are seeing North America probably most kind of stable or slightly growing in Q1, but then showing already a recovery into Q2.

And then LatAm 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.

[Phani Kanumuri, HSBC]

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

[Juan Urthiague, CFO]

No. Look, we target 3% to 3.5% of revenues in stock-based compensation. And that number, we believe, is the right number for the time being. On top of that, 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.

[Phani Kanumuri, HSBC]

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

[Patricia Pomies, COO]

Thank you.

[Juan Urthiague, CFO]

Thank you very much.

[Arturo Langa, IR]

So thank you, everybody that will be it for the Q&A session for today. I would like to turn the mic now to Martin for some closing remarks.

[Martin Migoya, Co-Founder and CEO]

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

[Patricia Pomies, COO]

Bye.