Earnings Call Transcript - CINT Q2 2025

Eduardo Galvao, Director of Investor Relations

Welcome to CI&T Earnings Call for the Second Quarter of 2025. I am Eduardo Galvao, Director of Investor Relations at CI&T. Presenting our results with me today are Cesar Gon, our Founder and CEO; Bruno Guicardi, Founder and President for North America and Europe; and Stanley Rodrigues, our CFO. This event is being recorded. The presentation is available on the company's Investor Relations website, and the replay will be available shortly after the event is concluded. Some of the matters we'll discuss on this call, including our expected business outlook, are forward-looking statements. They are subject to known and unknown risks and uncertainties, which could cause actual results to differ from those expressed on this call. We caution you not to place undue reliance on these forward-looking statements as they are valid only as of the date when made. During this presentation, we'll comment on certain non-IFRS financial measures to evaluate our business. Please refer to the reconciliation tables of non-IFRS measures in the earnings release for more details. At this time, I'll pass it on to Cesar Gon to begin our presentation.

Cesar Nivaldo Gon, CEO

Thank you, Galvao, and good afternoon, everyone. Today, companies demand more than innovation. They want measurable business impact. AI may be overhyped to some, underhyped to others. But one thing is clear, technology investments must deliver strategic returns. That's where CI&T stands out. We adapt constantly to meet our clients' needs, powered by two engines, our expert teams and our specialized AI platform, CI&T FLOW. Together, they orchestrate mission-critical projects in real-time, delivering fast execution, higher quality and a strong return on investment. We call this Tech Integrated Business Solutions, seamlessly combining business transformation with technology and AI. It gives leaders the clarity and predictability they need, and it's deepening our partnerships, especially with our largest clients. We believe the future belongs to companies that unite business and technology into one integrated strategy. The strength of this approach is reflected in our results, which I'm pleased to share with you now. Now let's review our second quarter 2025 financial highlights. Our strategy of embedding deeply with large clients and delivering clear value has allowed us to maintain our momentum and deliver strong performance. Our revenue reached $117.2 million, which represents an organic growth of 12.3% at constant currency compared to the same period last year. On the profitability front, our adjusted EBITDA margin was 18.4%. As expected, this represents a sequential improvement from the first quarter, underscoring our commitment to operational excellence and disciplined cost management. Furthermore, our adjusted profit margin stood at a healthy 10.4%. This solid financial foundation allowed us to continue investing in the key pillars of our growth, particularly in our AI-first offerings, which are reshaping what's possible for our clients. These are just a few examples of our strategy in action. I will now turn it over to Bruno to discuss our offerings and talented strategy that brings these results to life.

Bruno Guicardi, President for North America and Europe

Thank you, Cesar. It's a pleasure to be here to talk about our AI initiatives. Our ability to achieve true enterprise-wide adoption has been a key differentiator for CI&T. Through a structured approach, we have successfully scaled AI across our entire organization. This positions us ahead of the market, allowing us to guide our clients with proven experience, not just theory. Our AI-powered platform, CI&T FLOW, has been central to this success and has become a significant factor in our go-to-market strategy, proving instrumental in both landing new clients and expanding our relationships with existing ones. We channel this expertise into three core offerings: unlocking measurable business impact with hyper-efficient teams, driving AI-led modernization, and empowering clients with a safe and compliant AI-first transformation. Now let me show you a concrete example of hyper-efficiency in practice. Our hyper-efficiency offering answers our clients' critical challenges, how to innovate faster, adapt to change, and drive growth. Our approach is not about a tool, but a powerful combination of three core elements. First, our adaptive teams, which bring the right expertise and a collaborative mindset. Second, our processes, which are designed from start to finish with AI at the center; and third, our AI-powered technology orchestrated by our CI&T FLOW platform. The results of this integrated approach are tangible and significant. As you can see, we are delivering efficiency gains of over 50% across the entire digital creation cycle for major clients in industries like insurance, retail, and consumer goods. This is achieved through a powerful partnership between our people and AI. We augment our expert teams with AI agents, allowing them to focus on how to add value strategically while AI accelerates complex tasks. This is about more than just speed. It's about delivering a superior value proposition, enabling our clients to achieve their business goals with greater quality and predictability. We ended the second quarter with over 7,600 CI&Ters, a growth of more than 22% year-over-year. This deliberate expansion ensures we have the capacity and skills to meet the increased demand for our AI-first solutions. Stability is just as important as growth, and our voluntary attrition rate remains at a healthy 10.6%. This industry-leading retention directly reflects our culture, which fosters growth, learning and impact. Together, this growth and stability create a powerful people platform that enables us to deliver on our promises and drive sustainable growth for the company. Now I will pass it on to Stanley to comment on our financial performance.

Stanley Rodrigues, CFO

Thank you, Bruno, and good afternoon, everyone. I'm happy to walk you through the results of another strong quarter for CI&T. In the second quarter of 2025, our revenue was $117.2 million, an increase of 8% from the same period last year. When adjusting for currency fluctuations, our organic revenue growth at constant currency was 12.3% year-over-year. This marks our third consecutive quarter of double-digit organic growth at constant currency. This consistent and predictable performance underscores the resilience of our business model and reinforces our confidence in achieving our full year guidance. Our consistent growth is supported by a resilient and diversified business model anchored in our two most representative regions, North America and Latin America. In the second quarter, revenue from LatAm increased by 26% year-over-year, and we see continued momentum there in both landing new logos and expanding our existing partnerships. North America grew by a solid 7%, showing consistent performance on top of a relevant base from 2024. In addition, revenue from our top 10 clients grew by 12% compared to the same period last year. This growth demonstrates our ability to expand within our largest accounts by consistently delivering efficiency and tangible business results. This chart clearly shows our land and expand strategy in action. We expanded our high-potential cohort of clients in the $5 million to $10 million range from 11 clients in 2024 to 15 over the last 12 months. This growth is a key leading indicator, building the pipeline for our next generation of strategic accounts, fostering sustainable growth. For the second quarter of 2025, adjusted EBITDA was $21.5 million, marking a 3.1% year-over-year growth. This corresponds to an adjusted EBITDA margin of 18.4%. In the first half of 2025, our adjusted EBITDA grew 8.5%, and the adjusted EBITDA margin was 30 basis points higher compared to the same period last year. Cash generated from operating activities for the first half of 2025 amounted to $33.7 million, achieving an 82% cash conversion from adjusted EBITDA to operating cash. Our strong financial position provides the flexibility to pursue opportunities that enhance our competitive standing and create long-term value for our stakeholders. In this context, we have a share buyback program in place, and we remain active. Finally, adjusted profit recorded $12.2 million in the second quarter of 2025 compared to $12.5 million in the same period last year. This led to an adjusted net income margin of 10.4%. In the first half of 2025, the adjusted profit was $21.8 million, a 4.3% increase over the first half of 2024. Our adjusted diluted earnings per share was $0.09 in the second quarter of 2025, a 3.6% increase compared to the second quarter of 2024. Now I invite Cesar to comment on our business outlook.

Cesar Nivaldo Gon, CEO

Thank you, Stanley. Based on our consistent performance over the past quarters and the strong commercial momentum we are carrying into the second half of the year, we are confident in our outlook. In the third quarter of 2025, we expect net revenue to be at least $124.4 million. This represents a strong sequential step-up and a year-over-year growth of at least 10.5% at constant currency. For the full year of 2025, we are narrowing our range and raising the lower bound of our revenue guidance, now expecting organic revenue growth at constant currency between 10.5% and 15%. This means our midpoint has also increased to 12.75%. Assuming the FX rate of BRL 5.50 to the dollar for the remainder of the year, we expect our revenue growth at constant currency to be around 210 basis points above our reported revenue growth. In addition, we are maintaining our adjusted EBITDA margin guidance in the range of 18% to 20%. This increased confidence is the direct result of our strategy in action, a robust commercial pipeline, continued expansion with our largest clients, and AI-first offerings that deliver tangible value, accelerating our growth. To conclude, I want to express my deep appreciation to our CI&Ters around the world. Your commitment to innovation and to delivering value to our clients is what makes these results possible. This concludes our presentation. We will now begin the Q&A session. Thank you.

Eduardo Galvao, Director of Investor Relations

The first question comes from Puneet Jain from JPMorgan.

Puneet Jain, Analyst

Can you talk about the adoption of CI&T FLOW among your clients and internal stakeholders? Like of the $120 million or so of quarterly revenue, how much of those projects or revenue include some portion of FLOW-driven services?

Cesar Nivaldo Gon, CEO

Thank you, Puneet. I can answer this one. Basically, our adoption, the adoption of CI&T teams regarding CI&T FLOW, is reaching 90% of our team. So we can, as a proxy, say that 90% of our revenue now has some influence of AI and CI&T FLOW. This is not directly related to business use cases relating to Generative AI, but we can say that now basically everything we do, 90% is somehow boosted by artificial intelligence and FLOW.

Puneet Jain, Analyst

No, that's great to hear. It seems like it's definitely higher than a lot of your peers. Another question, like are you seeing any differences in AI adoption across different verticals? It seems like financial services was very strong in the quarter, retail, not quite as much. So what would you attribute the differences in growth rates across verticals to?

Cesar Nivaldo Gon, CEO

Financial services are clearly leading in investments related to AI mainly due to the impressive return on investment from increased efficiency. In Brazil, we notice the emergence of a new customer experience driven by chatbots and WhatsApp, which is becoming a popular trend. Consumers are moving away from traditional digital channels like apps and websites to engage with products and services via WhatsApp and AI. This trend is significant and is generating a lot of demand for creating a new layer of customer experience informed by AI. Similarly, there is considerable activity in retail regarding AI, focusing on both efficiency and enhancing customer experience. However, there is still a foundational work needed in retail and consumer goods, as companies must update their legacy systems to build robust data architectures before they can truly benefit from AI. This necessity creates what we refer to as horizontal demand for AI, aimed at accelerating application modernization, cloud migration, and various data engagements to set up a foundation for a future dominated by AI. About 30% to 40% of our demand is vertical, aimed at enhancing customer experience journeys, upgrading chatbots, and supporting AI-first transformation initiatives with an emphasis on AI adoption. Additionally, there's an increasing number of use cases focusing on personalization through AI. Many advancements are occurring in this arena, and it's clear that financial services have a distinct advantage.

Eduardo Galvao, Director of Investor Relations

Our next question comes from Vitor Tomita from Goldman Sachs.

Vitor Tomita, Analyst

So a couple of questions from my side. The first one is on the guidance that you increased. Was that in part due to the year being halfway done, allowing you to have more visibility, which enables you to be less conservative? Or is demand from customers shaping up generally better than expected, being surprisingly positive? And thinking across regions on that line, are there some regions where you are now more optimistic or less optimistic than before in terms of demand compared to earlier in the year?

Cesar Nivaldo Gon, CEO

Sure. Great to see you here, Vitor. I think in terms of our guidance, this new outlook is supported by two factors. The first is our consistent performance in the first half of the year. So we delivered ahead of our initial expectations. The second is the current solid commercial pipeline for Latin America and North America. To give you a data point, the pipeline now is 25% higher than in the same period last year with a healthy conversion rate. So basically, we did a very strong and consistent Q1 and Q2, and we have a very strong pipeline that increased our confidence in our forecast and guidance. Regarding regions, we continue to bet a lot on North America and Latin America, which represent 90% of our revenue. We see stability from Q3 and Q4 for the Europe and APAC regions, with maybe a small increase in the last quarter for these emerging regions and good prospects for 2026.

Eduardo Galvao, Director of Investor Relations

Our next question comes from Gustavo Farias from UBS.

Gustavo Farias, Analyst

So I'd like to start off by asking about the revenue growth. If you could break it down between the components of new engagements, both new clients and the ramp-up of current clients, and also the price component of what comes from the price increase? Secondly, we've seen some sequential improvement in LatAm, which was very positive in our view. I'd like to compare it to your view from last quarter. There has been some volatility in IT budgets. Just wanted to know your view on that, if it has improved or how you see the overall landscape in the industry?

Cesar Nivaldo Gon, CEO

Thanks, Gustavo. Regarding our growth, 90% is expansion inside our current portfolio, and 10% is contribution from recently acquired clients. This is basically our land and expand ratio, and we are maintaining the same pace this year. Regarding regions, particularly Latin America, we grew 26% year-over-year this quarter in reported revenue. This growth is driven by a surprisingly fast AI adoption in Brazil, both among customers, consumers, and enterprises. I see a unique pace in financial services, even compared to more developed markets like the U.S. So this could explain the attraction we have in Brazil and in financial services.

Eduardo Galvao, Director of Investor Relations

Our next question comes from Bryan Bergin from TD Cowen.

Bryan C. Bergin, Analyst

Can you hear me? Great. I have two questions. First, regarding EBITDA, can you discuss the factors influencing the EBITDA margin on a year-over-year basis for the second quarter and how we can achieve the guidance for fiscal '25? It looks like currency exchange headwinds might be affecting this, but I'm interested in your comfort level within the 18% to 20% range. Secondly, could you talk about your hiring intentions for the second half of the year after seeing good hiring in the first half and how you plan to close out the year?

Stanley Rodrigues, CFO

Bryan, thank you for the question. Regarding your first question, I can handle that one. EBITDA, we haven't delivered. We improved sequentially, delivering 18.4% of adjusted EBITDA in the second quarter. And basically, we have a seasonality built into our business throughout the quarters. In the first quarter, we have a salary increase. Typically, we pass on prices and improve margins throughout the year. Additionally, we have been investing in hiring in the first half, preparing ourselves for the demand that lies ahead in the second half. Those resources, when they mature and become billable in the second half, will also improve gross margin and EBITDA. Another driver is efficiency gains from AI that we are experiencing at the G&A level, together with disciplined cost management. We continue to balance these strategic investments in hiring, training, and in our AI platform to support our growth. Typically, looking ahead, we expect our margins to continue improving in the second half due to the combination of all those factors. We are very confident in our ability to deliver this full year adjusted EBITDA margin guidance of 18% to 20%.

Cesar Nivaldo Gon, CEO

Just to complement on the staff growth, Bryan. Most of that staff growth is coming from our trainee program, where we hired around 500 people at the beginning of the year. As Stanley mentioned, we will start billing these new hires in the second half of the year. So that accounts for the higher rate of people growth and revenue growth that you see there. We are very excited about this trainee program because it will be the first generation that we are enabling to work with AI, so there won't be an adaptation or learning curve in their case. They will be the first native AI developers. We're super excited to put that into action.

Eduardo Galvao, Director of Investor Relations

Our next question comes from Luke Morison from Canaccord.

Lucas Lincoln Morison, Analyst

I got a couple here for you. It's great to see your largest client continuing to grow really strongly; it's a testament to the strength of that relationship. Could you maybe just share what's working particularly well with that customer? And if possible, clarify what does constant currency look like with that client today? And then across the rest of your top 10 clients today, are you seeing similar momentum and/or potential? And again, would it be possible if you could also just frame constant currency growth within that group?

Cesar Nivaldo Gon, CEO

Sure. Hey Luke, great to see you here. We see very solid and consistent growth among our largest clients. We had sequential growth in 8 out of 10 of our top clients. Our top client, a very large financial organization, performed particularly well, allowing us to expand across several business units. We credit that to our ability to demonstrate the kind of differential productivity and effectiveness of CI&T FLOW and our AI approach. By driving efficiency and leveraging AI adoption across the board, we are experiencing exceptional expansion. We see similar patterns in different areas of our largest clients, where everyone is now looking to be more effective and realize the concrete benefits of adopting AI. As for constant currency, I can share that for the top client, we experienced year-over-year growth of 92%. The top 10 clients overall grew by close to 12% year-over-year. If we look at the existing cohort of top 10 clients, they had a growth of 23% year-over-year.

Stanley Rodrigues, CFO

What I can add here, Luke, is that the existing top 10 clients grew by 23% year-over-year, which is another significant data point.

Lucas Lincoln Morison, Analyst

Excellent. Very good insights. And then maybe just a follow-up. Can you speak to any differences between your U.S. client base and how that's trending relative to Brazil today? Are you seeing any differences in spending patterns or project types, maturity in terms of adopting AI? And are there any signs of macro caution or tariff-driven instability in either market with all the recent geopolitical events taking place?

Cesar Nivaldo Gon, CEO

Sure. I can start here, and Bruno, feel free to add on. I see that especially in financial services in Brazil, where we have a very competitive environment. There has been a lot of investment and a strong sense of urgency regarding artificial intelligence adoption. I see solid moves in the U.S., but perhaps not at the same pace as in Brazil. In the U.S., we are more exposed to consumer goods, which has a different dynamic. It's exploiting the benefits of AI but in a different manner than pure tech businesses like financial services.

Bruno Guicardi, President for North America and Europe

If I may add, Luke, if you divide the opportunity into two sides, one is internal efficiency that Gen AI can bring. That has a little difference regionally or even vertically; everyone is looking to seize that opportunity. But I think what's different is that we will see massive investments in Generative AI when there is consumer pressure. Once consumers begin to demand a different way to interact with brands and organizations, the level of investment will increase significantly. We haven't reached critical mass yet, but when that happens, the investment will speed up dramatically. While it's hard to predict precisely when this will occur, whether in 6 months or 18 months, it's only a matter of time.

Lucas Lincoln Morison, Analyst

Excellent. Very helpful insights. And maybe just to the last part of that question, are you seeing any impact from tariff-driven instability?

Bruno Guicardi, President for North America and Europe

No, not particularly. Our clients are somewhat protected from that. We have significant exposure, especially in financial services and consumer goods. However, a majority of our consumer goods portfolio is in food and beverage, which typically has a more local supply chain. Therefore, while no one is 100% protected, we are not currently feeling a strong impact from the tariffs.

Eduardo Galvao, Director of Investor Relations

Our next question comes from Maria Clara from Itau.

Maria Clara Infantozzi, Analyst

So the first one is related to the revenue growth of CI&T. We have heard from some channel checks that the evolution of AI is having a deflationary impact on top-line growth trends of this industry going forward. I wanted to check if you agree with this information and share your thoughts on how you see the volume and price evolution in the following quarters? My second question is related to utilization rates. You have been accelerating hiring, so how do you think about the potential for improvement ahead?

Cesar Nivaldo Gon, CEO

Sure. Thank you for your questions. Regarding the first question, we don't see a shortage of demand in this fragmented IT services market. Instead, there is a significant difference in performance among the players, creating a massive opportunity. We believe we are at the forefront of productivity and effectiveness using AI to streamline the production of digital solutions. We are capitalizing on this edge to replace underperforming competitors. Regarding pricing models, I think the rise of AI in IT services will open space for more flexible value-based pricing models, closely tied to business outcomes. We see the need to gradually monetize the intellectual property embedded in these new agent architectures. We anticipate a gradual shift from traditional models to these new models. This development is an important midterm opportunity for translating superior performance into margins while strengthening partnerships with clients by offering more pricing model options. I see this as good news for the industry, and companies capable of executing confidently will capture more value.

Bruno Guicardi, President for North America and Europe

If I can add to the volume discussion, Maria Clara, thanks for the question. While we see some immediate efficiency lenses and internal uses of Gen AI, the real tsunami of volume will emerge when we have consumer-facing agents and different experiences replacing traditional mobile apps and websites. This will require a complete rewrite of digital experiences and is expected to cause a massive uptick in volume ahead of us. Not to mention, productivity increases will tip the balance between packaged solutions and custom-built software. I believe the market is underestimating the potential future demand because it's not visible today, but massive growth is coming, and we're excited about it. Utilization rates continue to be very high, around 85% to 89%. Our delivery processes are solid and well-established. It's not coincidental that 90% of our growth comes from our existing portfolio; keeping clients satisfied ensures they keep buying more and increasing wallet share.

Eduardo Galvao, Director of Investor Relations

We have a follow-up from Bryan Bergin from TD Cowen regarding client behavior around Generative AI and Agentic work. Clearly, you're gaining traction with FLOW. Have any clients thought they could do it themselves and then circled back to CI&T because it was too complex and they needed help? If so, how broad-based has it been? And has this behavior differed between design agency activity and pure software development?

Cesar Nivaldo Gon, CEO

I can start this one. Thank you, Bryan, for your question. Many clients are afraid of the complexity they need to develop if they want full-stack competence around AI. Some clients strategically envision themselves as future tech-based companies, aiming for greater internal tech and AI capabilities over the long term. We cater to both types; we help clients expand their capabilities with CI&T's full-stack AI and tech expertise while assisting others in internalizing new capabilities and methodologies to speed up AI adoption. FLOW is designed not just for coders but also for non-coders across various departments like HR, marketing, and finance. We are reskilling all professionals with AI possibilities to enhance their problem-solving capabilities, with significant opportunities in either direction.

Eduardo Galvao, Director of Investor Relations

All right. That concludes our Q&A session. Cesar, back to you to proceed with your closing remarks. Thank you all.

Cesar Nivaldo Gon, CEO

Sure. Thanks, Galvao, Bruno, Stanley. Thank you all for joining us today. I'd like to extend my sincere appreciation to all CI&Ters around the world. We are almost 8,000 CI&Ters now, and I'm always amazed by your dedication. Again, amazing results this quarter, and let's keep pushing. A special thank you as well to our clients for choosing CI&T as a partner for co-creating this exciting new area of AI-driven innovation. Stay well. See you soon.