Earnings Call Transcript - CINT Q1 2022

Eduardo Galvao, Head of Investor Relations

Good morning, everyone. Welcome to CI&T First Quarter 2022 Results Conference Call. I am Eduardo Galvao, Head of Investor Relations at CI&T. I am glad to be here again to talk about our quarterly results. Today, we have with us Cesar Gon, Founder and CEO; Bruno Guicardi, Co-Founder and President for North America and Europe; and Stanley Rodrigues, our CFO. This event is being recorded. This event is being broadcast live and may be accessed through the company's Investor Relations website at investors.CI&T.com, where the presentation is also available. 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 and, as such, are subject to known and unknown risks and uncertainties, including but not limited to, those factors described in our earnings release and discussed in the Risk Factors section of our annual report on Form 20-F and other reports we may file from time to time with the SEC. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place undue reliance on those forward-looking statements because 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 appendix for more details. Our agenda for today includes an update on our financial highlights and recent events, followed by some of our successful business cases and a few highlights. We'll then talk about our people and ESG strategy and deep dive on our quarterly financial results. After the presentation, there will be a Q&A session. Now, I'm pleased to invite Cesar Gon to begin our presentation.

Cesar Gon, Founder and CEO

Thanks, Eduardo. Good day, everyone and thank you for joining us today. We are excited to initiate 2022 with a strong revenue growth in the first quarter, which demonstrates the resilience and consistency of our engagements with long-term clients. Digital transformation has been enabling companies to unlock their business potential, increasing sales and improving profitability. And demands for our services remain strong in all industry verticals we operate. We also have been disciplined to onboard new clients every quarter to guarantee sustainable long-term growth. Our hire machine continues to operate at full speed. That said, let's dive into our Q1 main figures. Our net revenue growth in the first quarter of 2022 was 66% year-over-year or 75% in constant currency. By the way, this is our 23rd quarter of consecutive net revenue growth. The main factors contributing to our higher growth base continue to be the expansion of our engagements with existing clients, the addition of 60 new clients in our portfolio, reaching 110 clients with annual revenue above BRL1 million and our programmatic M&A strategy. We ended the quarter with more than 6,400 CI&Tiers, a net addition of 2,700 employees in the last 12 months. That's a 71% growth in our headcount. Once again, I want to express my gratitude to our CI&Tiers across the globe that have been dedicated to make this happen. We will deep dive into our financial results shortly. Now let's take a look at three recent success stories with NuVasive, Audi, and eDOCS, the launch of our crypto powerhouse and some additional highlights. NuVasive, a global leader in spine technology innovation, sought CI&T's help in improving its sales process in Japan, a key region for the company. NuVasive partners with leading surgeons to transform spine surgery, support providers to advanced care and design an enhanced experience that changes patient lives. Depending on the case and the doctors' preferences, surgical requirements can be complex and involve sales representatives and NuVasive's customer service team. CI&T and NuVasive collaborated to create a cross-functional multicultural team with professionals from China, the United States, and Japan. A critical first step was to understand the journey of sales reps and customers. We used a human-centric design to approach it in order to better understand the issues the group faced and map out their challenges. The result was a digital solution shaped by user needs which helped with application adoption, drove immediate value for the end user roles and could scale with NuVasive Japan's growing business. As a result, approximately 65% of orders are processed in five minutes or less, which is a significant improvement compared to the prior semi-manual process, showing approximately a 30% improvement in order efficiency for sales representatives and customer service team members and an increase in the number of orders processed per day owing to the ability to easily and quickly register, locate products and place orders. These successful results motivated NuVasive to scale this enhanced sales experience in multiple geographies with different regulations, delivering even more value to its surgeons, providers, and, most importantly, patients. Audi is one of the most iconic car brands in the world. Somo, part of the CI&T family, is Audi of America's Digital Agency of Record and plays a key role in the evolution of its myAudi app. A huge milestone in this journey has been the development of Audi's premium charging experience for EV owners or PCE, for short. Our brief was to build a solution empowering each one of our customers to manage their charging experience through the myAudi app. This included customers enrolling in the PCE program, charging their car at designated charging stations, and viewing their energy credit balance and charging history. In partnership with Audi of America and displaying flawless product leadership, we delivered a fully working digital product in just eight weeks. Collaborating closely with Audi's global app teams, we overcame many technical challenges. The solution requires complex API integration to add customized calls to action for EV customers in America. Meanwhile, numerous back-end connections were set up to allow the myAudi app to communicate seamlessly with third-party applications. Our focus now is on scaling the product with new functionality. Currently, development is in the plug-in charge phase which enables drivers to begin a charging session by simply plugging the charger into their car. Customer engagement with PCE is thriving with an impressive 78% enrollment rate and over 80,000 completed charging sessions to date. Somo and Audi of America continue to innovate together to cement the brand's status as a leader in electric transformation. eDOCS, an education and technology leader, has digital transformation as a key enhancer for growth. Its digital journey started in the financial and administrative areas and the first core business digital initiative was in CME, an own solution that supports educational institutions in their digital learning strategies with content, platforms, and methodology. Promising first results motivated eDOCS to reach out to CI&T to leverage the company's digital capabilities. Our partnership began with the mission to strengthen the work already started in digital education with a strong loyalty to students and their engagement with online studies and to the agility in expanding the company's brand portfolio. eDOCS established the foundation for its digital ecosystem. Through a collaborative effort between CI&T and eDOCS, we ran a strategic discovery using best-in-class human-centric design to listen and learn from students, educational institutions, and professors. From there, we supported eDOCS in developing its new platforms using intentional architecture to bolster the business, specifically the virtual classroom and the student app. Both initiatives were developed in an integrated roadmap with a backlog and system integration. With this distinctive approach, we can prioritize the most relevant features working towards the same goal: to improve the student experience and enhance eDOCS' capabilities to scale a single platform for its different educational brands. The project reduced complaints about accessing the content by 67% and increased access through mobile apps by 40%. Currently, the virtual classroom supports peaks of 133,000 simultaneous accesses, allowing eDOCS brands to have 750,000 out of its 800,000 students as active users with daily stability. With 100% of the student's journey available online, this story demonstrates a vision where anyone from any part of the country can easily access quality education at any time or on any device. Leading companies like eDOCS rely on CI&T to expand and implement their strategies. Throughout the history of technology, there have been significant moments that transformed businesses and industries globally. The advancements in cryptocurrencies, blockchain, and Web3 represent such a pivotal moment that can help our clients succeed in this evolving environment. At CI&T, we have a strong focus on crypto and Web3, where we assist our clients in discovering and capitalizing on opportunities provided by these technologies, leveraging a team with extensive global expertise. We are also committed to developing the next generation of professionals who can help integrate current businesses and technologies into this new landscape. CI&T enables our clients to test ideas on how cryptocurrency and Web3 can foster new business models, engage customers in innovative ways, access new global markets, and reposition their organizations within a new framework of value and adaptability. Our initiatives have empowered financial services clients to explore new offerings related to digital assets and financial protocols, while also helping consumer products clients enhance customer engagement through NFTs and smart contracts. Furthermore, we've supported our clients in accelerating growth with teams well-versed in these new technologies. Web3 signifies a major shift, affecting various areas from finance to art, collectibles, rewards, and gaming. Many still view it as confined to finance, but it is rapidly permeating numerous sectors. This transformation is reminiscent of the changes we witnessed during the internet's rise in the '90s. Analysts suggest that we are currently at a similar adoption stage for Web3 as we were with the internet around 1997. Companies lacking a Web3 strategy risk falling behind. We have observed a surge in crypto and Web3 initiatives over the last year, driven by new business use cases and innovative consumer engagement methods. Some analysts predict that over 20% of enterprises will be integrating Web3 applications in the next two years, alongside unique challenges. At CI&T, our expertise in crypto and Web3 enables us to enhance the impact we bring to our clients, merging our deep knowledge with evolving workforce skills to explore possibilities and gain familiarity with the varied technologies needed to realize these advancements. I am excited to see the new ways we can help our clients seize opportunities and illuminate the future. The last few months have been full of recognitions, starting with the great place to work ranking for best IT companies to work for. CI&T was the third GPTW in the tech field in Brazil. We were also named a leader in application development and scaled agile and digital customer experience services for representing innovative strength and competitive stability. According to the definitions of ISG Information Services Group, a leading global consulting and technology company, market analysis, future projections, and inspections by ISG's global consulting team were the basis of the report. After completing a rigorous evaluation program, marking the highest standards of technical delivery on the Acquia platform, CI&T was honored to receive recognition as one of Acquia's first certified practices. The program awards these certifications to organizations with a proven record of technical achievement and a commitment to driving transformative business engagements on the Acquia platform. Finally, our investor Advent was awarded by LVCA. The awards goal is to showcase best-in-class examples of private capital activity in Latin America. Advent International received the 2022 award for gender and diversity for its investment in CI&T. CI&T Future Ready Beauty and Wellness Forum was a half-day virtual event exploring digital beauty and wellness trends to accelerate learning and help guide business decisions. The event brought together industry leaders and experts at the forefront of beauty and wellness initiatives to explore how digital is helping brands connect with their consumers. The event elevated CI&T's name recognition within the beauty and wellness category by showcasing our thought leadership. Guests included business leaders from Pinterest, Johnson & Johnson, ScentBird, IPC, and more. In May, we launched our first ESG report. This initiative shows our journey in diversity, inclusion, governance, and environment. We are glad to have what to share and to be committed to a better world through increasing employment opportunities. As for highlights, we have 40% of diversity representatives globally, including women, black people, people with disabilities, and LGBTQIA+ following the UN sustainable development goals. We selected six main goals to pursue that have more sense related to our business model. You can find the complete report on our investors website on our ESG page at CI&T.com. Now, I invite Bruno to talk about our people and ESG strategies.

Bruno Guicardi, Co-Founder and President for North America and Europe

Thanks, Cesar. Good morning, everyone. It's a pleasure to be here with you again. We concluded the first quarter of 2022 with more than 6,400 CI&Tiers, which represents a net addition of 2,700 employees in the last 12 months. In the first quarter alone, we onboarded around 400 trainees from the best Brazilian universities through NextGen, a program we have been running for more than two decades. In addition to that, we added around 300 people from Somo, an acquisition we concluded in January this year. Somo has teams in the U.K., the U.S., and Colombia, diversifying our global footprint and expanding our presence in strategic regions such as the U.S. and Europe. We will leverage Somo's Colombian footprint as a beachhead to further diversify our talent pool and expand in Latin America. We are committing time and energy to promote CI&T as an employer of choice in the region. Our goal is to be one of the most attractive companies for digital talent in that geography. We believe it has a powerful competitive advantage because of its culture alignment and time zone proximity with the U.S. market, the biggest market worldwide. Today, I'd like to comment on the working environment that we have created at CI&T, which gives us a competitive edge on the supply side. The CI&T culture has been built by our people throughout our 27-year history. It is generally strong and nurtured daily by our values, processes, and actions. At the center is trust, which unites the elements of our culture and gives cohesion to what we believe and do, making it a joint construction. We foster autonomy and accountability, diversity and inclusion. We encourage our people to trailblaze new paths and build new knowledge collectively and we promote a continuous learning and development mentality. This great environment stems from processes and methodologies we have been honing and streamlining for more than two decades. CI&T is about people and we take this very seriously. Trust and care for each other enables everything we do. Markedly, our incredible growth that is only achievable by the continuous personal growth of each one of our team members. Our commitment to clients is held by the chain of trustful relationships among our CI&Tiers and our amazing collaboration, which makes us one of the top places to work globally is built on respect and care we extend to each other. Last week, we published our first ESG report detailing our initiatives, results, and ambitions on the environmental, social, and governance front. This is a critical milestone for CI&T. ESG is part of our foundation and we are very proud of the work we've been doing and we will continue to do. We can see our communities and society as a whole as one of the stakeholders we work for. The world is different for all of us, and we're super excited to share how we're doing our part. Our ESG strategy is driven by a vision to create equitable advancement opportunities for everyone, provide educational and workforce development experiences for underrepresented groups, and reduce our environmental impact to create a more sustainable future. In 2020, we reviewed how we organize internally around ESG to accelerate impact. We designed this new governance to include all involved agents, action groups, the ESG team, business units, and human resources. Our ESG strategy is guided by a global ESG committee that has the direct participation of our board members. And here, you have a few examples that show we are on the right track. Currently, 40% of our CI&Tiers are part of at least one of our diversity groups and we expect to move steadily to higher levels of diversity inclusion as we move forward, taking advantage of our rapid growth. In the last four years, our social initiatives positively impacted 22,000 people throughout several projects, including partnerships with many NGOs. Last year, we made an important step towards our sustainability strategy. We conducted the first inventory of greenhouse gas emissions in our Brazilian operations. Based on this initial assessment, we will be able to monitor and set up targets to reduce and compensate for our emissions. I invite you to download and read our ESG report available on the Investor Relations website and through the QR code you see in this presentation. Now, I'd like to invite Stanley to comment on our financial performance.

Stanley Rodrigues, CFO

Thank you, Bruno, and good morning, everyone. Nice to be here again with you. Let's dive into our first quarter 2022 figures. We ended the quarter with a net revenue of BRL491.9 million, a 66% growth compared to the first quarter of '21. Our most recent acquisition, Somo, contributed ten percentage points to our net revenue growth and the net revenue in constant currency grew 75.3% in the period. This strong performance reflects our consistent net revenue retention rate that represents the revenue expansion from existing clients, combined with the addition of new logos every quarter. In the first quarter of 2022, we added 16 new logos that will foster the continuity of our growth in the coming years. Our adjusted EBITDA was BRL86.1 million, an increase of 26% over the same quarter last year. The EBITDA margin was 17.5% in the quarter as planned. It's worth mentioning that we have a planned seasonal effect in our results in the first quarter when we have the annual salary adjustments for employees in Brazil, while the price readjustments in our contracts occur throughout the year. Therefore, by design, we usually have higher margins in the second half of the year. It's also worth mentioning that seasonality in 2020 and 2021 were affected by the pandemic, changing the typical patterns in our business. Another important factor is related to our general and administrative expenses. Naturally, we've stepped up the level of our G&A expenses in connection with our IPO and the compliance required as a public company. Most of these items are fixed expenses and will be diluted as we grow during the next quarter and over the years, providing us with an operating leverage on our margins going forward. Finally, our adjusted net profit was BRL33.5 million, a decrease of 16% compared to the first quarter of '21 due to higher financial expenses as we incurred new debt last year to finance the extra acquisition, as well as higher depreciation and amortization from M&A. These items were partially offset by lower income tax expenses based on the corporate reorganization conducted last year post our IPO. Another important highlight in the quarter is our diversification in terms of geography, industry, and revenue by clients. With the acquisition of Somo, we now have 7% of our revenue coming from Europe, totaling 52% of our revenue coming from mature economies and 48% from LATAM. Analyzing the performance of our industry verticals, TMT gained relevance and became our top three vertical while we are also fostering new verticals such as retail, logistics, and automotive, among others. Lastly, our top one client revenue share reduced from 24% in the first quarter of '21 to 15% in the first quarter of 2022, while our top 10 client share decreased from 73% to 51% in the same period. We expect this trend to continue based on our revenue growth for 2022 and the onboarding of new logos. My final comment on our growth engine: our net revenue retention rate for 2022 is pointing to be above the 128% of 2021, boosted by the expansion of our existing engagements. This is a key factor for us to review our net revenue guidance for the current year. Our go-to-market strategy, based on presenting our value proposition of delivering business impact in short cycles to new clients, has been fruitful, as you can see in the right-hand chart. In the first quarter of 2022, we successfully increased the number of clients with annual revenue above BRL1 million from 94 clients in Q4 '21 to 110 in this quarter. The number of clients with revenues above BRL5 million grew from 43% to 53% over the same period, building a solid cohort for the coming years. I will now pass it back to Cesar to conclude the presentation. Thank you for your attention. It's always nice to be here with you.

Cesar Gon, Founder and CEO

Thank you, Stanley. We are excited about the opportunities that lie ahead. Based on current market conditions and our existing engagements for the year, we are increasing our guidance for the full year of 2022. We expect our net revenue in the second quarter of 2022 to be at least BRL530 million, a 68% growth compared to our net revenue of BRL315 million in the second quarter of 2021. For the full year of 2022, we expect our net revenue to be at least BRL2.3 billion or $442 million, a 59% growth compared to our net revenue of BRL1.44 billion in 2021. This guidance contemplates 11 months of Somo acquisition, concluding in late January 2022, contributing to around 11 percentage points of the revenue growth in the year. In addition, we estimate our adjusted EBITDA margin to be at least 20% for the full year of 2022. This guidance assumes an average exchange rate of BRL5.2 to the U.S. dollar for the full year. To summarize today, I would just recall that we have been expanding our growth pace in recent years based on a combination of three growth forces: a domain-driven digital strategy as a core component of our offering, our growth unit business architecture fostering a scalable and tempered organizational model, and a programmatic approach for M&A as an enduring new capability focused on a flow of selective and strategic acquisitions. Digital is a secular demand in a corporate world, and CI&T will continue to expand aggressively throughout this decade. We are designed for adaptability, change, and innovation, either for ourselves or for our clients. Such an essential thing in uncertain times. Maybe I would say for all times. That's what we had today. Thank you all for your interest in CI&T and for attending our call today. We now conclude our presentation and may begin the Q&A session.

Eduardo Galvao, Head of Investor Relations

Thank you, Cesar. We'll now begin the question-and-answer session. First question comes from Ashwin from Citibank.

Ashwin Shirvaikar, Analyst

Congratulations on the strong growth and revenue numbers. I would like to know more about your second quarter guidance and get your thoughts on the remainder of the year as well. Should we anticipate margin improvements to continue to occur each quarter as you manage both SG&A and wage increases throughout the year? Or do you foresee ongoing challenges with wage inflation?

Stanley Rodrigues, CFO

Ashwin, this is Stanley. Thank you for your question. Good question. This helps to understand the seasonality typical in our business. As you said, in the first quarter, we have salary adjustments on the Brazil salary payroll. And exactly what happens throughout the year is we will have price adjustments in our contracts. Naturally, our margins will step up. On average, we have the 20% guidance that we are providing in EBITDA throughout the year, and that's exactly as we described what we expect to happen.

Ashwin Shirvaikar, Analyst

Understood. And then Cesar, you referred to M&A as a programmatic approach to M&A. Does this mean that having completed a couple of acquisitions here, you are becoming more comfortable with M&A as a regular contributor? And could you talk perhaps about the M&A pipeline and the available valuations?

Cesar Gon, Founder and CEO

Ashwin, thank you for your question. I think we are very excited with our M&A strategy. I think Dextra and Somo are two very concrete examples that we can really speed up our organic growth by adding capabilities, especially reputation in new geographies in the verticals. I think this macro environment plays in favor of our M&A strategy and I see a strong pipeline. Basically, I see two main perspectives that are improving. One is, I think, the founders, and we look carefully for very good founder-led companies. They seem more willing to discuss a deal or a transaction at this moment. As you mentioned, I think there is more space for pricing discussions in better terms. I think if you combine both, it makes us very confident that we will continue our strategy of combining our main source of value creation, organic growth, with a very programmatic and I would say strong M&A strategy.

Eduardo Galvao, Head of Investor Relations

Our next question comes from Puneet from JPMorgan.

Puneet Jain, Analyst

Quick question on demand. Cesar, I heard relatively encouraging comments on the demand environment and what you are seeing in your business. How do we reconcile that with concerns around inflation, oil prices, macro concerns broadly, and how much visibility do you have on the sustainability of these demand trends over the next few quarters?

Cesar Gon, Founder and CEO

Thank you, Puneet. Great to see you. Well, I think you can see demand for our services remains strong. I believe uncertainty is the best soil for digital strategies and for CI&T value brought of combining strategies, design, and engineering in a very pragmatic way to generate concrete results in a very short time. I'd like to highlight that 86% of our demand comes from large, brick-and-mortar traditional winning companies and only a portion of our demand comes from digital native players. I think this profile gives us a part of the resilience we have in looking ahead and seeing the trends. If you look at the main verticals we are exposed to, especially financial services, the competition among traditional financial institutions continues to create a lot of demand for us; we are playing both sides of this battle. We see a lot of crypto and blockchain use cases around trading and custody. There are tremendous opportunities in open banking, not only regulatory but new platforms to take advantage of a whole new batch of information available. In another industry, we are seeing a lot of growth in retail with massive investment around e-commerce, omnichannel, marketplace strategies, and use cases around combining sales journeys in-store and online, same-day delivery, and online purchases of goods with pickup in-store. So plenty of opportunities for companies to explore digital and faster growth in response to a more complex economic environment. Data, advanced analytics, and machine learning algorithms are now core parts of any strategy around digital. I don't see companies reducing investment around this because this is the real future, the real way to stay relevant.

Puneet Jain, Analyst

No, that's good to know. Are you seeing any changes in client priorities or how they think about outsourcing to certain regions after the geopolitical issues in Eastern Europe? Are you seeing any changes in how clients outsource and maybe more work coming towards Latin America as a result of that?

Cesar Gon, Founder and CEO

Yes. I think you are right. These geopolitical threats in Eastern Europe highlight how stable Latin America is and how important the region is for the global sourcing of tech talent. For CI&T, we are very competitive in the largest and most developed market in Latin America, which is Brazil. As Bruno mentioned, we are diversifying our strategy. But ultimately, Latin America is now in the spotlight for global sourcing of tech and digital, and I think we can take advantage of that too.

Eduardo Galvao, Head of Investor Relations

So the next question comes from Arturo Langa from Itau.

Arturo Langa, Analyst

Congratulations on the results. I guess on the back of the last question, Cesar, where do you see the life cycle of digital in your clients? What inning are we? When you walk into your clients and see their infrastructure, do you still find a lot of monolithic websites or legacy systems? How far away do you see maybe traditional brick-and-mortar companies from implementing the necessary system architectures and design practices to be up-to-date with best-in-class sort of digital transformation journeys? Are we still in the first, second inning? Or have you seen companies really make progress in the past years in terms of rolling out those system architectures?

Cesar Gon, Founder and CEO

Thank you. Great to see you, Arturo. Thanks for the questions. I will start with the first one, and Bruno can help me with the second. Digital transformation is a long journey. We are seeing, I would say, the beginning of this, really a combination of two main forces. One is the growing number of technology possibilities that companies can use. The second trend is consumer behavior. Society is changing at such speed that companies need to react continually to that. This puts a lot of pressure on really taking advantage of the new technological possibilities. In terms of the curve of technology adoption, we see part of the challenges, perhaps the most visible part, is migrating to the cloud and establishing digital architectures and processes and practices that will allow companies to operate digitally effectively. But there are two more redesigns traditional companies need to face: one is the management system, and the second is the leadership challenge. Companies need to evolve their leadership style, moving from less centric command-and-control to digital leadership, which fosters collaborative co-creation. This third channel is essential in this transformation. I believe that we are not in the first or second inning but just at the beginning of the game when it comes to the transformation of traditional companies into digital leaders. I think Bruno could help you with the people and headcount question.

Bruno Guicardi, Co-Founder and President for North America and Europe

Thank you for the question, Arturo. Yes, you can expect the people growth to follow revenue, right? So it's a very linear relation there. We do have, especially in Q1, a bigger number because we onboard usually our training program, which is a common occurrence. Our strategy is to grow our own people. We focus on junior to mid-level positions and invest in them so they can grow within our value proposition. We grow faster than the industry, which means we promote them within. We plan to maintain this linear growth and continue to be competitive despite the current hiring pressures. In Q1, the growth is even more pronounced due to our onboarding of trainees. The rest of the year, you can expect a very linear relationship between revenue and hiring.

Eduardo Galvao, Head of Investor Relations

Our next question comes from Victor Domita from Goldman Sachs.

Unidentified Analyst, Analyst

Two questions from us. The first is, if you could give us more color on how the early stages of the integration of Somo are going and how the initial contact with their clients are going. And our second question would be how you believe your guidance for margins could change if the U.S. dollar exchange rate remains at lower levels, maybe closer to the current level of BRL5 rather than BRL5.2 assumed in the guidance if that could be a relevant change.

Cesar Gon, Founder and CEO

Well, I can start with the Somo question. There are very low-hanging fruits on presenting CI&T's scale and global capabilities to the current portfolio of Somo, and we are doing that. We are beginning to really operate with their customers in different geographies and with different capabilities. There is also the opportunity to leverage their vertical expertise; Somo is specialized in the auto and utility industries, especially in the U.K. So I think things are progressing really well. I think we will see Somo continue to support and deliver the excellent quality of services they provide for their customers and now have the global opportunity of participating in the CI&T platform.

Stanley Rodrigues, CFO

Regarding margins going forward due to forex, our guidance is based on a 5.2% average exchange rate going forward. A good proxy for you to understand the dynamics is for each $0.40 in the exchange rate variation, we will see a one percentage point variation in our EBITDA. So this is a good reference for you to understand the variations going forward.

Eduardo Galvao, Head of Investor Relations

Our next question comes from Jason from Bank of America.

Jason Kupferberg, Analyst

In terms of geographic diversification, which region is growing faster and where do you see more opportunities? In other words, where do you expect your revenue breakdown to be in the next three to five years?

Cesar Gon, Founder and CEO

I can comment on that. Basically, we are seeing our main source of growth coming from the U.S.A., and we are also seeing Europe with a good trend, especially after acquiring Somo. We expect more demand coming from Europe in the coming years. So by the end of this year, we are forecasting that 56% of our revenue will come from developed countries. This will gradually increase as we grow faster in these regions.

Jason Kupferberg, Analyst

I wanted to follow up on the wage inflation point. Do you expect to be able to pass 100% of the wage inflation on to your customers during the course of the year? And can you also just comment on voluntary employee attrition in the quarter and how that trended versus the prior quarter?

Bruno Guicardi, Co-Founder and President for North America and Europe

The wage inflation is a known issue in Brazil and is already regulated by contracts. So that part is not a concern for us, and yes, we do expect to pass that along throughout the year as there is strong demand and limited supply for our services. As for voluntary attrition, it is a little higher than our historic levels but still in a very healthy place at 16%. The increase was attributable to some competitive pressure around M&A, especially from Somo and Dextra, which contributed to a bump in attrition, but we are still very comfortable with our overall numbers.

Jason Kupferberg, Analyst

Maybe just one quick follow-up. Just on the revenue guidance raise for the year, could you highlight one or two callouts primarily driving that, either by vertical or geography?

Cesar Gon, Founder and CEO

Sure, I can address that. The main verticals driving our growth are financial services, retail, TMT, and consumer goods. Our demand is primarily coming from traditional brick-and-mortar companies, which is a strong indicator of our growth potential moving forward.

Bruno Guicardi, Co-Founder and President for North America and Europe

Overall, we have a solid growth plan for the future, and our expansion into both traditional industries and digital natives reflects that.

Eduardo Galvao, Head of Investor Relations

We have a follow-up question from Arturo from Itau.

Arturo Langa, Analyst

Just on the back of the question regarding hiring. I saw some expansion to other LATAM countries, I think Colombia stood out. Just to think about expansion from a headcount perspective to other countries in the region, where should we think about that maybe in one to two years looking forward in terms of percentage?

Bruno Guicardi, Co-Founder and President for North America and Europe

You can expect a gradual diversification towards other countries in Latin America that are not Brazil. We will still maintain our strong position in Brazil but will diversify our strategy further with other regions, starting with Colombia as a beachhead from the Somo acquisition.

Eduardo Galvao, Head of Investor Relations

All right. That concludes our Q&A session. Thank you all for attending our event today. I now would like to invite Cesar to proceed with his closing remarks.

Cesar Gon, Founder and CEO

Thanks, Eduardo, Stanley, Bruno for joining me today. Thank you all for participating in our call. As you noted, demand for our services remains strong and we are very confident we will have another strong year. Again, I want to thank all CI&Tiers, clients, investors, and partners for their continued support. I'm looking forward to seeing you all in a couple of months. Bye.

Eduardo Galvao, Head of Investor Relations

Thank you all. Bye.

Bruno Guicardi, Co-Founder and President for North America and Europe

Thank you.

Stanley Rodrigues, CFO

Thank you very much.