Earnings Call Transcript - CINT Q1 2025

Eduardo Galvao, Director of Investor Relations

Hello. Welcome to CI&T Earnings Call for the First Quarter of 2025. I am Eduardo Galvao, Director of Investor Relations at CI&T. Joining 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 and all participants will be in a listen-only mode during the company’s presentation. After that, there will be a Q&A session. If you’d like to submit a question, please send it via email to investors@cint.com. 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. Our agenda for today includes an overview of our quarterly highlights, followed by some of our business cases. We’ll then talk about our people and our financial results. At this time, I’ll pass it on to Cesar Gon to begin our presentation. Cesar, please.

Cesar Gon, Founder and CEO

Thank you, Galvao, and good afternoon, everyone. The software development industry is evolving rapidly due to advancements in AI and changing client expectations. Companies are seeking partners who can not only understand technology but also align it with their business strategies to achieve transformative results. CI&T has been a trusted partner in digital transformation for decades. With our CI&T FLOW platform, we are enhancing relationships with existing clients and unlocking new business opportunities. CI&T FLOW embodies our 30 years of expertise in building digital solutions, acting as a powerful platform that accelerates AI adoption and promotes enterprise-wide collaboration and knowledge sharing. Our emphasis has been on delivering integrated solutions that combine technology with business transformation, enabling our clients to excel in an AI-driven landscape. We envision a world where technology is ubiquitous, with business providing it meaning and impact. At CI&T, we ensure that technology drives business and vice versa, because the future of business is technology, and the future of technology is business. This presents a significant opportunity that CI&T is well-placed to seize over the next decade by continually transforming the synergy between business and technology. Now, let’s discuss our financial highlights for the first quarter of 2025. In a dynamic business landscape, I am pleased to report that CI&T continues to show resilience in performance and above-average revenue growth. In the first quarter of 2025, we achieved a net revenue of US$110.9 million, translating to an organic net revenue growth at constant currency of 13.7% year-over-year. Our adjusted EBITDA for the quarter rose by 15.2%, reaching $19.6 million, with an adjusted EBITDA margin of 17.6%, which is strong given the typical seasonality of our business. This margin reflects our operational efficiency and demonstrates our capacity to generate substantial cash flow. We are proud of our progress in AI initiatives, driving efficiency, enabling impactful use cases, and delivering measurable results. Our commitment to innovation keeps us well-prepared to meet the evolving needs of our clients. Now let’s look at some inspiring client success stories that illustrate the diverse and powerful applications of AI. These are just a few examples of the value we provide to our clients. Now I’d like to invite Bruno to share insights into our global delivery model, the evolution of our offerings, and our talent strategy.

Bruno Guicardi, Founder and President for North America and Europe

Thank you, Cesar, and good afternoon, everyone. I’m excited to share our progress regarding our people in this first quarter of the year. We entered Q1 with 7,400 employees, a 21.6% increase compared to Q1 2024. This growth demonstrates our commitment to strengthen our teams and cultivate the next generation of leaders in technology. As part of our next-gen program, we successfully onboarded 420 trainees. This initiative not only enriches our organizational culture but also prepares today’s AI professionals for the challenges they will face in the future. Another group of trainees will join us in Colombia in the second half of this year, broadening learning and growth opportunities for young talents in the region. These trainees will undergo comprehensive AI training and become billable in the second half of the year. Our focus on attracting and developing high potential individuals is vital to our ongoing success. By fostering a culture of innovation and continuous learning, we ensure that our teams are well equipped to drive value for our clients and contribute to our collective growth. I’m excited to announce the launch of our 2024 Global ESG Report, which underscores our commitment to transparency and sustainable practices. As the video illustrated, we achieved significant milestones in 2024 that reflect our ongoing dedication to ESG principles. In addition, last year we introduced our new environmental policy and engaged 3,700 community members through our volunteer programs. We’re also proud of the third edition of the Black Leadership Career Acceleration Program, which supports the development of professionals of color. This report reaffirms our dedication to building a sustainable and innovative future. It highlights how we transform challenges into opportunities, creating value for both our business and society. We invite you to explore the report and join us in our commitment to sustainability and inclusion. Now let me share some insights into some of our services powered by Generative AI. One offer we see significant traction is in monetization of legacy systems. These platforms are holding clients back and preventing them from adapting quickly to an ever-changing business environment. By leveraging AI, we greatly reduce risks and errors while exponentially accelerating modernization efforts. Another key offering is our AI Professional Services. This program provides clients with a safe and compliant Generative AI platform, together with services to help them establish an adoption roadmap, training, and coaching programs, ensuring they can fully scale AI across the organization, harnessing its potential while minimizing risks. We are also unlocking efficiency through AI-first augmented teams. This approach enhances productivity and delivers significant business outcomes, allowing our clients to operate with greater agility and effectiveness. We are at the forefront of this transformation. We have industry-leading AI adoption, with more than 85% of our employees already utilizing our AI-powered CI&T FLOW platform daily to modernize systems, create agents, and drive tangible results for our clients. Now, I’d like to invite Stanley to share our financial results from this quarter.

Stanley Rodrigues, CFO

Thank you, Bruno, and good afternoon, everyone. In the first quarter of 2025, CI&T achieved net revenue of $110.9 million, which represents a 4.9% increase compared to $105.7 million in the first quarter of 2024. When adjusted for currency fluctuations, our organic net revenue growth at constant currency was 13.7% year-over-year. This growth can be attributed to our focused internal initiatives aimed at enhancing client relationships and expanding our service offering. Our strategic emphasis on AI and digital transformation continues to drive new business opportunities and deepen engagements with our existing clients. Now, let’s review our revenue breakdown by geography and industry verticals for the first quarter of 2025. Our two main markets reported healthy growth on a year-over-year basis. Revenue from Latin America grew by 11%, while revenue from North America increased by 12%. These figures highlight our strong presence and growth potential in key markets. In terms of industry verticals, revenue from Financial Services increased by 25% and Retail and Industrial Goods grew by 32%. This performance reflects our strategic focus on industries that are prioritizing digital transformation and modernization. Notably, our top 10 clients’ revenue grew by 7.2% compared to the first quarter of 2024. This robust performance illustrates the effectiveness of our proprietary CI&T FLOW platform, which has proven instrumental in delivering innovative solutions that meet our clients’ evolving needs. We have been successfully onboarding high-profile clients, showcasing our ability to expand our engagement with top-tier organizations. Our commitment to nurturing these relationships has led to significant revenue contributions from our top clients. Currently, we have 10 clients generating over $10 million in revenue and 13 clients within the $5 million to $10 million range. This robust performance demonstrates our effective land-and-expand strategy, allowing us to deepen our partnerships and capture greater wallet share. In this quarter, we recorded an adjusted EBITDA of $19.6 million, which is a 15.2% increase compared to $17 million in the first quarter of 2024. The adjusted EBITDA margin improved to 17.6% in the first quarter of 2025, up from 16.1% in the same quarter last year. This improvement was primarily driven by lower selling, general and administrative expenses, reflecting our ongoing commitment to operational efficiency and cost management. Importantly, cash generated from operating activities was $19.6 million in the first quarter of 2025, representing a 100% cash conversion from adjusted EBITDA into operating cash. This strong cash conversion highlights our ability to generate cash from our operations, providing us with the flexibility to invest in strategic initiatives and support our growth. Adjusted net profit increased by 14.2% to $9.6 million in the first quarter of 2025, up from $8.4 million in the first quarter of 2024. The adjusted net profit margin rose to 8.7% in the first quarter of 2025, compared to 8% in the first quarter of 2024. This improvement was primarily driven by lower SG&A expenses along with reduced net finance costs. Our adjusted diluted earnings per share was $0.07 in the first quarter of 2025, marking a 16.6% increase from the previous year. This growth in adjusted diluted earnings per share demonstrates our ability to translate increased profits into shareholder value. Additionally, our free cash flow to adjusted net income ratio stood at an impressive 151.6%, underscoring our strong capacity to generate cash flow from our operations. Now, I invite Cesar back to comment on our business outlook.

Cesar Gon, Founder and CEO

Thank you, Stanley. In the second quarter of 2025, we expect our reported net revenue to be at least US$115.5 million, equivalent to an 11.9% year-over-year increase on a constant currency basis and 6.5% growth in reported revenue. This estimate assumes an average FX rate of BRL5.79 to the U.S. dollar in the second quarter of 2025, compared to BRL5.21 to the U.S. dollar in the second quarter of 2024. For the full year of 2025, we are reaffirming our guidance. We expect our net revenue growth at constant currency to be in the range of 10% to 15% year-over-year. In addition, we estimate our adjusted EBITDA margin to be in the range of 18% to 20%. This outlook is supported by a solid commercial pipeline, strong sales conversion, and the secure expansion of our top 10 clients in our two largest markets, the U.S. and Brazil, along with ramp-ups of high potential new accounts. To conclude, I want to express my heartfelt appreciation for the dedication and resilience of our team. Your commitment to our vision has been truly inspiring. As we look ahead, our ability to collaborate, innovate and transform will continue to define CI&T and drive our success. This brings us to the end of our presentation and we may now begin the Q&A session. Thank you.

Eduardo Galvao, Director of Investor Relations

All right. We’ll now begin the Q&A session. I’ll announce each participant’s name. Once you hear your name, please unmute your line and ask your question. Then, when you’re done, please mute your line. The first question comes from Vitor Tomita from Goldman Sachs. Hi, Vitor.

Vitor Tomita, Analyst

Hello and thanks for taking our questions. Two questions from our side. The first one would be more on the, given all the further shift in macro perspectives globally, if you have any updates on how clients are feeling about IT investment, I guess, both in the U.S. and in Brazil? And our second question would be on the solid year-on-year margin expansion this quarter. You cited some SG&A efficiency initiatives that help and support that margin expansion. If you could give us a bit more color on those, it would be great? Thank you.

Cesar Gon, Founder and CEO

Thank you, Vitor. I can get the first one and Stanley can address the second. In terms of the demand environment in the commercial activity, I think the demand remains stable despite this ongoing macro uncertainty in all the regions we are playing, especially the U.S. and Brazil. I think, as I always mentioned, stability continues to create a favorable environment for our strategy of replacing underperforming competitors with our AI-driven solutions. And secondly, in terms of commercial activity, we have now 30% higher commercial pipeline versus the same period last year. That allows us to be very confident in our growth guidance. Stanley, can you get the market?

Stanley Rodrigues, CFO

Thank you for your question. Since last quarter, we have effectively maintained our costs while the business experienced significant growth regarding SG&A, which is your inquiry. Additionally, in the first quarter of last year, we incurred some restructuring costs that are not present this year. Therefore, primarily these two factors contribute to the efficiency observed in SG&A.

Vitor Tomita, Analyst

Very clear. Thank you very much.

Eduardo Galvao, Director of Investor Relations

Thank you, Vitor. Our next question comes from Gustavo Farias from UBS. Gustavo, go ahead.

Gustavo Farias, Analyst

Hi, guys. Thanks for taking my questions, too. So, the first one, if you could comment on the demand side, I’d like to double click. And considering that you have driven, delivered a bit on the guidance for Q1 in terms of constant currency growth, considering also that you are growing headcount and you commented there is more to come in the second quarter? And also considering that results from tech peers in the U.S. mainly have come, let’s say, less than a few years, how can we expect, how do you see the demand? Is there any upside for growth considering the full year? Is this year still considered a transition year for IT budgets in your vision? That’s my first question. And the second question, if you could comment on an update as well on the capital allocation priorities for the year. Do you see any M&As on the radar or R&D continues to be a priority for capital allocation? Thank you.

Cesar Gon, Founder and CEO

Thank you, Gustavo. To begin with your first question, we do see a more favorable environment. The upper end of our guidance reflects our expectation to leverage the current commercial momentum, including our strong pipeline and client growth trends. Conversely, the lower end of our guidance represents a cautious outlook due to ongoing macro volatility. Looking at overall demand, there is a significant trend in what we refer to as horizontal demand. We estimate that about half of our demand stems from legacy and application modernization, cloud migration, and various data projects where our clients are laying the groundwork for an AI-driven future. Additionally, we observe considerable trends in vertical demand, which includes enhancing customer engagement and developing new digital products. We are also witnessing the initial wave of AI-first transformation initiatives aimed at accelerating our clients' adoption of AI. Moreover, there is an increasing number of business use cases emerging around AI and Generative AI, particularly in hyper-personalization. While we are actively monitoring our pipeline, we must keep in mind the existing macro volatility in our forecasts. Regarding your second question about capital allocation, our main focus remains on R&D for our AI-first transformation, specifically with CI&T and CI&T FLOW as our key differentiators. In terms of M&A, we are continuing to explore market opportunities, but we are setting a very high standard due to the challenges smaller companies face in scaling client relationships necessary for effective AI transformation. Thus, our M&A strategy aims at targets that can enhance our U.S. footprint, attract high-potential clients, and importantly, provide client engagements where we can identify significant opportunities to scale CI&T and AI solutions.

Stanley Rodrigues, CFO

Well, besides R&D, as you already mentioned, I would add the share buyback program that we currently have in place. So, as we envision this high cash generation that we see for 2025, we see that is always a good way to provide a return to shareholders via those share buybacks that prevents also dilution from our stock-based compensations and so on. And also paying down debt, this is also, we’ve been executing all the debts, all the schedules for payments of our debts.

Gustavo Farias, Analyst

Thanks, Cesar and Stanley.

Eduardo Galvao, Director of Investor Relations

Thank you, Gustavo. Our next question comes from Bryan Bergin from TD Cowen. Bryan, go ahead.

Bryan Bergin, Analyst

Hey, guys. Good to see you. Thanks for the time. First question on your top 10 clients, so I wanted to see if you could dig in more about the trends you’re experiencing with some of your largest clients. So, if we look at what you report in U.S. dollars, obviously, that top client number is very impressive from a year-over-year growth standpoint. But if we think about just the overall top 10 client portfolio, is it possible to talk about what constant currency growth is there just so we can kind of separate some of the effects? And again, just give us some of the puts and takes about some of those close client relationships at the top?

Cesar Gon, Founder and CEO

Thank you, Bryan. Great to see you, man. Well, first, I think, as you know, our top one client is a very large Financial Service organization. So, we are really expanding different business scenarios of this client, powered by CI&T FLOW and our ability to demonstrate superior results across the Board. So, it’s a very strong and long-term relationship that we are enforcing now in boosting with AI. In terms of our top 10 clients, I think if you exclude the top one, we still see a very strong growth among our one to nine clients. I think this is around 11%. Maybe Galvao and Stanley can help me with this. So, we are seeing the whole pack of large customers evolving, not only the top one, but of course, we are very happy with the trust and the evolution of our partnership with all our clients, especially the large and low data ones.

Bryan Bergin, Analyst

Could you provide an update on how client expectations regarding Gen AI are changing? You mentioned that hyper-efficiency is a key offering for you. Can you elaborate on how clients perceive productivity and the extent to which they are seeking this from you compared to how much CI&T is actively promoting it to differentiate itself in the market? I'm particularly interested in insights regarding more established clients who are adopting Gen AI solutions.

Cesar Gon, Founder and CEO

I think it’s 100% CI&T pushing for that. I think we anticipate that. I think we were very pioneers on creating CI&T FLOW and launching our initiative. I think we are ahead of our peers and the average market in general for what we can see and what our clients are telling us. So I think by now we have very concrete ways to showcase the numbers we are getting and the evolution of this productivity gains as we add more agents to our platform, as we reinvent the methodology of building digital solutions end-to-end, as we reskill or improve the skill of our teams to be AI-boosted teams. So it’s 100%, let’s say, pushed by CI&T and the response from our clients is amazing. I think that’s why we are now starting what I mentioned, this AI-first transformation. It’s kind of, we learn a lot in terms of how to convert a team into an AI-based team, how to approach the adoption of AI, which is a non-trivial challenge. So by now we are helping our clients to start their journey with the learnings of our own two and a half years journey around AI. So I think it’s an amazing moment where we can really support our clients in not only capturing productivity; remember productivity or hyper-efficiency is just that chapter one. We still have customer experience in hyper-personalization and also the powerful act of revolutionizing decision-making in business models. I think we are really moving at a very good pace and I think our clients recognize that.

Bryan Bergin, Analyst

Okay. Okay. If I could just fit one more in here on margin. So understanding you have seasonality in the first quarter, can you comment on gross margin expectations as you move through 2025?

Stanley Rodrigues, CFO

Yes, I can take that one. As you mentioned, we experience seasonality primarily due to salary increases in the first quarter every year. Throughout the year, as we implement price increases and other measures, those margins will improve. Therefore, you should anticipate a similar pattern to what has been observed in previous years.

Bryan Bergin, Analyst

Okay. Thank you all.

Eduardo Galvao, Director of Investor Relations

Thank you, Bryan. Our next question comes from Puneet Jain from JPMorgan. Puneet, go ahead.

Puneet Jain, Analyst

Hey. Thanks for taking my question. I also wanted to ask about this year, especially around the second half of this fiscal year, like what’s your visibility right now on second half and are you seeing any differences across U.S.-based clients or Latin America-based clients, especially the clients you have in Brazil? Like, is there any difference in behavior, spend patterns across those clients?

Cesar Gon, Founder and CEO

Thank you, Puneet. I can start and maybe Bruno can add more colors regarding the U.S. market. Our guidance is basically supported by what I mentioned, a very solid pipeline. So we have a strong visibility and we are considering our current very strong sales conversion. As I mentioned, the pipeline now is 30% higher than the same year last year. We also consider the secure expansion in our top 10 clients as it’s happening now and it’s in both our largest market, the U.S. and Brazil. And also, we are still leveraging ramp ups in a very high potential customer we acquired last year where we are still increasing the demand between there. So I don’t see any significant difference now between Brazil and the U.S., but maybe Bruno can have more problems regarding the U.S.

Bruno Guicardi, Founder and President for North America and Europe

Thank you for your question, Puneet. We are observing notable differences in purchasing behaviors between the U.S. and Brazil at this time. As Cesar mentioned in the previous question, we are witnessing the onset of a new era in Gen AI. We have moved beyond the pilot phases seen in 2024, with clients becoming increasingly confident in scaling Gen AI opportunities. I anticipate this trend will accelerate in the coming years, marking the start of a significant revolution. To echo Cesar's point, we are exceptionally positioned to meet this demand, staying ahead of competitors in terms of the impact we are creating for our clients. We can demonstrate our progress with concrete stories and data that reflect our growth potential, which is evident in our pipeline—now 30% higher than last year. This growth grants us the confidence needed to pursue future opportunities effectively.

Puneet Jain, Analyst

That’s great color. And then on Gen AI, like, I totally understand that there is, like, so much opportunity that’s ahead. My question is, like, more, like, on the structural level. Like, why is that IT services companies will necessarily be beneficiaries of this opportunity compared to the software companies or pure-play private companies that are leading with, like, an AI platform? Like, what is it that companies like yourself, your peers bring to the table that others can’t in this evolving ecosystem?

Bruno Guicardi, Founder and President for North America and Europe

Yes, that’s a great question, Puneet. We believe that this would provide a significant advantage for us. Currently, choosing a standardized solution that serves multiple clients is more cost-effective than building software from scratch. However, as productivity goals continue to advance rapidly, developing custom software is likely to become more economical. Our prediction, supported by some analysts in the industry, is that there will be a shift towards more personalized software solutions. Clients will have less reason to rely on packaged solutions and software providers, as they will prefer the ability to customize and adapt software to their needs independently. This trend will significantly benefit service companies, as the demand for custom software is expected to rise. We are already seeing clients weigh the pros and cons of building versus buying software. When considering the productivity gains associated with custom software development, it becomes clear that this is the preferred direction for the future, and we anticipate it will drive demand for our services going forward.

Puneet Jain, Analyst

Thank you.

Bruno Guicardi, Founder and President for North America and Europe

Thank you.

Eduardo Galvao, Director of Investor Relations

Thanks, Puneet. Our next question comes from Maria Clara from Itaú. Maria Clara, please go ahead.

Maria Clara, Analyst

Hi, everyone. Thanks for taking my question. I would like to ask you guys to better explore about the SG&A trends. This was the main positive surprise when we compared to our numbers. Should we expect this space of operating leverage to be a reality throughout the year? If you could please comment about if the structural profitability of this business could be positively revised, given this operating leverage tailwind, it would be very interesting to hear your opinion? Thank you so much.

Stanley Rodrigues, CFO

Maria Clara, thank you for your question. Well, SG&A, we’ve been operating on a very stable platform. Of course, let’s say, or we don’t expect growth except by the S of SG&A, meaning we are investing in sales. So for that portion, you would expect growth throughout the year. But everything said, we are very in line to deliver what we are guiding in terms of EBITDA, 18% to 20%. So you shouldn’t expect any tailwind, as you mentioned, to go above the whatever we already guided the market, right? So everything is already compounded into that number. And we, of course, from the operational side, we have been experiencing margin gains, small margin gains from AI, I would say in terms of coming from this efficiency that we are also taking advantage of in the operation. So some gross margin gains combined with that SG&A, as I mentioned, but at the same time, taking into consideration that we are investing in the growth side, meaning the sales, as I mentioned, and also in people. So all balanced, we are aiming for the EBITDA that you saw. So you have some ups and downs in the whole equation, but the EBITDA will translate everything.

Maria Clara, Analyst

Great. Very clear. Thank you.

Eduardo Galvao, Director of Investor Relations

Thank you, Clara. That concludes our Q&A session. I now invite Cesar to proceed with his closing remarks. Cesar?

Cesar Gon, Founder and CEO

Thanks, Galvao. Thank you, Bruno and Stanley. Thank you all for joining us today. I’d like to extend my sincere appreciation for all CI&T peers around the world for the dedication and accomplishments this quarter. And a special thank you for as well for our clients for choosing CI&T as a partner in co-creating this exciting new area of AI-driven innovation. Stay well. See you soon. Bye.