CI&T Q1 2025 Earnings Call Transcript

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May 13, 2025

There are 11 speakers on the call.

Operator

strategy.

Speaker 1

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 ended Q1 with 7,400 employees, a 21.6% increase compared to Q1 twenty twenty four. This growth demonstrates our commitment to strengthen our teams and cultivating the next generation of leaders in technology. As part of our NextGen program, we successfully onboarded 420 trainees.

Speaker 1

This initiative not only enriches our organizational culture, but also prepare 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 a 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.

Speaker 1

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 professions of color. This report reaffirms our dedication to building a sustainable innovative future.

Speaker 1

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 modernization of legacy systems. These platforms are holding clients back and preventing them from adapting quickly to an ever changing business environment.

Speaker 1

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 road map, training, and coaching programs, ensuring they can fully scale AI across the organization, harnessing its potential while minimizing risks. We're also unlocking efficiency through AI first augmented teams. This approach enhances productivities and delivers significant business outcomes, allowing our clients to operate with greater agility and effectiveness.

Speaker 1

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 scientific 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.

Speaker 2

Thank you, Bruno, and good afternoon, everyone. In the first quarter of twenty twenty five, CING achieved net revenue of $110,900,000 which represents a 4.9% increase compared to $105,700,000 in the first quarter of twenty twenty four. 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 to 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.

Speaker 2

Now let's review our revenue breakdown by geography and industry verticals for the first quarter of twenty twenty five. 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%.

Speaker 2

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 twenty twenty four. This robust performance illustrates the effectiveness of our proprietary CINT 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.

Speaker 2

Currently, we have 10 clients generating over 10,000,000 in revenue and 13 clients within the 5 to $10,000,000 range. This robust performance demonstrates our effective land and expand strategy, us to deepen our partnerships and capture greater wallet share. In this quarter, we recorded an adjusted EBITDA of $19,600,000 which is a 15.2% increase compared to $17,000,000 in the first quarter of twenty twenty four. The adjusted EBITDA margin improved to 17.6% in the first quarter twenty five, 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.

Speaker 2

Importantly, cash generating from operating activities was $19,600,000 in the first quarter twenty twenty five, 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 $9,600,000 in the first quarter twenty five, up from $8,400,000 in the first quarter twenty four. The adjusted net profit margin rose to 8.7% in the first quarter twenty five compared to 8% in the first quarter twenty four. This improvement was primarily driven by lower SG and A expenses along with reduced net finance costs.

Speaker 2

Our adjusted diluted earnings per share was 0.07 in the first quarter twenty twenty five, 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.

Operator

Thank you, Stanley. In the second quarter of twenty twenty five, we expect our reported net revenue to be at least USD 115,500,000.0, 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 twenty twenty five compared to BRL 5.21 to the U.

Operator

S. Dollar in the

Speaker 3

second quarter of twenty twenty four.

Operator

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 9% 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 a secure expansion of our top 10 clients in our two largest markets, The U. S.

Operator

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 CINT and drive our success. This brings us to the end of our presentation and we may now begin the Q and A session.

Operator

Thank you.

Speaker 4

All right. We'll now begin the q and 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.

Speaker 4

The first question comes from Vito Tomita from Goldman Sachs. Hi, Vito.

Speaker 5

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?

Speaker 5

And our second question would be on the solid year on year margin expansion this quarter. You cited some SG and A efficiency initiatives that help it supports that margin expansion. If you could give us a bit more color on those, it would be great. Thank you.

Speaker 3

Thank you. Thank you, Victor. I can get the first one and Stanley can can address the second. In terms of demand environment in in the commercial activity, I think the the demand remains stable despite this ongoing macro uncertainty in in all the regions we are playing, especially US and Brazil. I think as as they always mentioned, stability continues to to create a favorable environment for our strategy of replacing underperforming competitors with our AI driven solutions.

Speaker 3

And secondly, in terms of commercial activity, we have now 30% higher commercial a higher commercial pipeline versus the same period last year that allow us to be very confident in our growth guidance. Stanley, can get the margin? Thank

Speaker 2

you for the question. Since last quarter last year, first quarter last year, we had improved basically all the basically, we've maintained all the costs while the business grew significantly with regard to SG and A, which is your question. Also in the first quarter last year, we had some costs related to restructuring and that they are not occurring this year. So I would say mainly those two items in general terms are recording this efficiency that you see in SG and A.

Speaker 5

Very clear. Thank you very much.

Speaker 4

Our next thank you, Vito. Our next question comes from Gustavo Farias from UBS. Gustavo, go ahead.

Speaker 6

Hi, guys. Thanks for taking my questions. Two as well. 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 beat 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.

Speaker 6

And also considering that results from tech peers in The U. S. Mainly have come, let's say, less than feared. How can we expect how do you see the demand? Is there any upside for growth considering the full year?

Speaker 6

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 update as well on the capital allocation priorities for the year. Do you see any M and As on the radar or R and D continues to be a priority for capital allocation? Thank you.

Speaker 3

Thank you, Gustavo. Let me let me start with your first questions. Yes. We we also recognize a better environment. And what I can say is is that the high end of our our guidance assumes that we capitalize with the curing commercial momentum, as I mentioned, our strong commercial pipeline and also, client growth trends we are seeing.

Speaker 3

But the low end of our guidance reflects, let's say, a more prudent approach given that we still see some macro volatility. And if I double click in the way I see demand overall, we continue to see a big trend regarding what we call horizontal demand. Maybe half of our our, we we can estimate half of our our demand is basically legacy and application modernization, cloud migration, several data engagements where companies, our clients are preparing the foundation for a future AI driven world. And we see a lot of trends also what in what we call vertical demand. So improving customer experience, to to engage new customers, really build new digital products.

Speaker 3

We also see what I can call the first wave of AI first transformation programs where we design a comprehensive program to help our clients to really accelerate their adoption of AI and also a a growing number of business use case around AI and generative AI folks, especially on on hyper personalization. So this is the way I see. I think it's it's we we we are paying attention. We are capturing our pipeline, but still, I I believe we still need to to to consider that we have some macro volatility in our in our forecast and estimations. Starting, answer your second questions regarding capital allocation.

Speaker 3

Yes. Our priority is r and d in our AI first transformation. So turning CIT and CIT flow in in our main drive for for differentiations. And but we also we of course, in terms of m and a, we continue to scan the market for opportunities. But I I I would like to to mention that with we are doing that with a very high bar.

Speaker 3

The reason for for elevated for this elevated threshold is clear. Due to the AI disruption, many smaller companies are struggling to scale client relationships to the level required for meaningful AI transformation. So but with that in mind, our M and A focus continues to be on targets that can expand, especially our US presence bringing bringing in high potential clients. And, critically, we are looking for companies that offer the kind of client engagements where we can clearly see room for scaling CI and T AI solutions, and that's a very high bar. Stalin, if you if you want to to add something.

Speaker 3

Well,

Speaker 2

besides R and D, as you already mentioned, yes, 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.

Speaker 6

Thanks, Cesar and Stanley.

Speaker 4

Thank you, Gustavo. Our next question comes from Ryan Bergen from TD Cowen. Ryan, go ahead.

Speaker 7

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.

Speaker 7

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.

Speaker 3

Thank you, Brian. Great to see you, man. Oh, let me, well, first, I think, as you know, our our first our top one client is a very large financial service organization. So we are really, expanding different business in areas of this client powered by CIT flow and our ability to demonstrate superior results across the board. So it's a very strong and long term relationship that we are forcing now in in in boosting with AI.

Speaker 3

In terms of our, our top 10 clients, I think if you exclude, the top one, we still see a very a very strong growth among our one to nine clients. I think it's around 11%. Maybe Galval and Istani 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 of our clients, especially the large and low tenure ones.

Speaker 7

Okay. And then a follow-up on Gen AI and client expectations and how that's evolving. You know, you mentioned, you know, hyper efficiency as one of the the offerings you're you've leaned into most. Can you just talk about productivity assumptions from clients and how much it is kind of a pull motion from expecting this productivity versus how much is is CINT pushing into the client base to to obviously differentiate competitively? Talk about that dynamic.

Speaker 7

And and I'm more so interested about more of the mature clients that are adopting and and and, you know, generate Gen AI solutions.

Speaker 3

I think it's 100% CIT pushing for that. I think we we anticipate that. I think we were very pioneers on creating CIT flow and launching our initiative. I think we are ahead of our peers and and the average market in general for what we can see and what our clients are are telling us. So I think by now, have a very concrete ways to showcase the numbers we are getting and the evolution of this productive 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 we improve the skill of our teams to be AI boosted teams.

Speaker 3

So it's 100%, let's say, pushed by CINT. And and and the respond response from our clients is amazing. I think that's why we are now starting what I mentioned this AI first transformation is kind of we learn a lot in terms of how to convert a team in an AI based team, how to approach adoption of AI that is a nontrivial 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 it's a it's a amazing moment where we we can, really support our clients in not only capturing productivity.

Speaker 3

Remember, productivity or or hyper efficiency is just the chapter one. We still have customer experience in hyper personalization and also the powerful act of revolutionizing decision making and business models. I think we are really moving in a very good pace And I think our clients recognize that.

Speaker 7

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

Speaker 2

Yes. I can Brian can take that one. Well, as you already mentioned, we have that seasonality, which is mainly with regard to the salary increase that we have in the first quarter every year. And throughout the year, as we pass prices forward and etcetera, this those margins will grow. So you should expect the same type of pattern that you saw in previous years.

Speaker 4

Thank you all. Thank you, Brian. Our next question comes from Punai Jain from JPMorgan. Punai, go ahead.

Speaker 8

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, US based clients or, Latin America based clients, especially the clients you have in Brazil? Like, is there, like, any difference in behavior, spend patterns, across those clients?

Speaker 3

Thank you, Puneet. I can start, and maybe we're looking at more colors regarding The US market. Our guidance is is basically support 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, pipeline now is 30% higher than the same period last year.

Speaker 3

We we we also consider the secure expansion in our top 10 clients as it's happening now, and in both our largest market, The US and Brazil. And also, we are still leveraging ramp ups in very high potential customer we acquired last year where we are still increasing the the demand, the teams there. So I I don't see any any significant difference now between Brazil and The US, but maybe Bruno can add more comments regarding specifically US.

Speaker 9

Thanks for your question, Pune. Yep. We don't we don't wanna see a lot of differences in in purchase purchase patterns, between US and and and Brazil at this point. We see us as Caesar kind of put it put in the the previous question. We see, like, the the beginning of this new new era of of Gen AI.

Speaker 9

I think, we're past the pilots and the exploration that was 2024. I think we we see clients, you know, more confident moving forward and target taking GenAI to, you know, to scale, opportunities. So and I think we're gonna see this accelerating in in the in the following years. It's just the beginning of a major, you know, revolution. So and again, to to Caesar's point, I think we're very well positioned.

Speaker 9

We're uniquely positioned to capture that demand. We're ahead of the curve, way ahead of the pack in terms of what we're creating in terms of impact for clients and can prove that with Stories, with real data, with real impact. And, we know that kind of a, what reflects in pipeline and and and a higher, a higher pipeline than 2024, and that that what gives us the confidence that that we're gonna we're gonna get that growth.

Speaker 8

That's great color. And then on GenAI, like, I totally understand that there is, like, so much opportunity that's ahead. My question is, like, more, like, on, like, the structural level. Like, why is that IT services companies will necessarily be beneficiaries of this opportunity compared to, like, 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 table that others can't in this evolving ecosystem?

Speaker 9

That's that's a great question, Puneet. That that that actually we think that will be a a great, you know, tailwind for us. Because if look at the way the buy versus build comparison today, right, it's cheaper to just go with one standardized solution that fits many clients. Right? So but when when productivity goals, you know, continues to group to to continues to improve exponentially, you know, building will be much cheaper.

Speaker 9

So what we what we predict and and some analysts in the industry also agree with us is that will be a shift towards more custom software. Right? So people there's no reason why a client will be dependent on a package solution, a software provider, and and and base their, their future into the hands of their provider, that ability to adapt and adjust to their needs, when you can do it yourself, right? So we see that, that will be a big tailwind for services companies, because more and more software will be just custom software, right? So that's what we're seeing some, real case scenarios with our clients right now, like some they're analyzing build versus buy and kind of when they will be factoring the productivity increases that we're going to have on the customer on the custom software build side, you kind of conclude that that's the way to go for the future.

Speaker 9

And we think that will be a great source of demand for us going forward.

Speaker 8

Thank you.

Speaker 9

Thank you.

Speaker 4

Thanks, Puner. Our next question comes from Maria Clara from Itau. Maria, Clara, please go ahead.

Speaker 10

Hi, everyone. Thanks for taking my question. I would like to ask you guys to better explore about the s g and a trends. This was the main positive surprise when we compared to our numbers. Should we expect the space of operating leverage to be a reality throughout the year?

Speaker 10

If you could please comment about the 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.

Speaker 2

Maria Claudia, thank you for your question. Well, SG and A, we've been operating in a very stable platform of course, let's say, or we don't expect growth except by the S of SG and A, meaning we are investing on sales. So for that portion, you would expect a 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 for to go above the whatever we already guided the market, right?

Speaker 2

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 coming from this efficiency that we are also taking the advantage in the operation. So some gross margin gains combined with that SG and 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.

Speaker 10

Great. Very clear. Thank you.

Speaker 4

Thank you, Clara. That concludes our q and a session. I now invite Cesar to proceed with his closing remarks. Cesar?

Speaker 3

Thanks, Calvo. Thank you, Bruno and and Stanley. Thank you all for joining us today. I would like to extend my sincere appreciation for all CIN tiers around the world for the dedication and accomplishments this quarter. And a special thank you for as well for our clients for choosing CINT as a partner in co creating this exciting new area of AI driven innovation.

Speaker 3

Stay well. See you soon. Bye.

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Key Takeaways

  • Ended Q1 with 7,400 employees, a 21.6% increase YoY, and onboarded 420 trainees under the NextGen program, with further expansion planned in Colombia.
  • Published the 2024 Global ESG Report, highlighting a new environmental policy, engagement of 3,700 community volunteers, and the third edition of the Black Leadership Career Acceleration Program.
  • Reported Q1 net revenue of $110.9 million, up 4.9% reported and 13.7% at constant currency, with strong growth in Latin America (+11%), North America (+12%), financial services (+25%), and retail/industrial goods (+32%).
  • Achieved adjusted EBITDA of $19.6 million (+15.2%), a margin of 17.6%, 100% cash conversion from EBITDA to cash from operations, and adjusted net profit of $9.6 million (+14.2%) with EPS of $0.07 (+16.6%).
  • Reaffirmed Q2 net revenue guidance at ≥$115.5 million (11.9% CC growth) and full-year 2025 targets of 9–15% revenue growth at constant currency and 18–20% EBITDA margin, supported by a 30%-larger sales pipeline and top-client expansion.
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Earnings Conference Call
CI&T Q1 2025
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