CI&T Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 17, 2023

There are 20 speakers on the call.

Operator

Good morning. Welcome to Ciante Earnings Call for the Q3 of 2023. I am Eduardo Galvao, Head of Investor Relations at Ciante, and it's a pleasure to be here again to talk about our operating and financial results. With me on today's call are Cesar Gon, Founder and CEO Bruno Vicari, Founder and President for North America and Europe and Stanley Rodriguez, our CFO. This event is being recorded, and all participants will be in a listen only mode during the company's presentation.

Operator

After that, there will be a question and answer session for analysts and investors. If you would like to submit a question, please send it via e mail to investorscint.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 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 Reports on Form 20 F. These risks and uncertainties could cause actual results to differ materially from those expressed on this call.

Operator

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 will 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 of our quarterly highlights, followed by some of our business cases. We'll then talk about our people and our quarterly financial results.

Operator

Now I invite Cesar Goun to begin her presentation.

Speaker 1

Thank you, Eduardo. Good day, everyone. It's great to be here again to talk about our results and achievements. Based in London for the past few months, I have superbly positioned you for global travel. I've had the opportunity to visit many CIMT teams around the globe.

Speaker 1

This is a routine I've always valued. I'm now able to resume in this post pandemic world. Our team's spirit, rich global culture, enthusiasm for our vision and plans are truly heartening. These trips have been focused on introducing cienergyflow, our AI platform for hyperdigital in cities like New York, London, Sao Paulo and Melbourne. These events presented our value prop of radically enhanced productivity and customer experience through AI.

Speaker 1

It's been remarkable to witness the evolution of our platform since its July launch.

Operator

We

Speaker 1

are proud to report that over 20 of our largest clients are now engaged with more than 2,000 active users from CINT and our co build clients utilizing the beta version of CI and T Flow. We are at the beginning of this exciting differentiation journey, yet the early results have been very promising. Now let me comment on our operating and financial performance.

Speaker 2

Our

Speaker 1

net revenue reached BRL 529,000,000 in the Q3 of 2023 compared to BRL 5 59,000,000 in the Q2 last year. The number of flights with annual revenue above BRL 1,000,000 in the last 12 months continues to expand, reaching BRL 187 in this quarter and serving as a strong growth driver once the overall market conditions improve.

Speaker 3

The

Speaker 1

adjusted EBITDA margin reached 18.5% in the Q3 of 2023, which demonstrate our commitment to maintaining a lean organizational structure and optimizing our operation during a period of lower growth. In addition, we generated BRL254 1,000,000 in cash from operating activities in the 9 months of 2023. This strong cash generation further strengths our financial position and provide us with the the flexibility to invest in strategic initiatives that will drive future growth. Stanley will deep dive into these figures later. Now let's take a look at some examples of our client engagements and business highlights for the quarter.

Speaker 4

Franklin Templeton is one of the world's largest investment managers with millions of clients based in over 150 countries worldwide. Their U. S. Sales teams approached CIMP as they were restricted by the need to use several different systems in order to prepare for client meetings, which was taking approximately four hours for each meeting. We wanted to reduce this in order to allow for quality and valuable face to face time with our clients and ultimately support their sales flow.

Speaker 4

Our solution is the creation of digital bootcase, a user friendly iPad application that not only improves efficiency for the sales team, but enhances their clients' meeting experience. We turn product data into usable information that can be presented quickly and accurately in just a few taps. The project itself was delivered with an agile approach, tapping into our best in class engineering, integrating several internal systems and secured using Okta authentication, with CINT teams struggling 6 time zones and 5 different languages. For the sales teams at Franklin Templeton, it's been a real game changer, driving efficiency by reducing meeting prep time from hours to minutes, improving client relationships and the speed of sales, and at the same time, as providing a 100% sustainable paperless solution.

Speaker 5

C6 Bank, a CINT client, is the 1st bank in Brazil to launch a product to both calculate and have the ability to offset a customer's carbon footprint. The carbon footprint product serves as a driver for sustainable consumption a pivotal role in operationalizing the project's development, delivering it in a remarkably short timeframe, exceeding client expectations in terms of both outcome and quality. To make the carbon footprint product viable, it was necessary to create an architecture that guaranteed an end to end board integration with multiple partners, allowing the calculation access to the carbon credit marketplace and purchase of carbon offsets. As a result of the project, C6 Bank customers now have access to 3 innovative features: Calculation of their carbon footprint, which considers their card purchases and instant transfers. The ability to purchase VeriCertified carbon credits to offset their carbon footprint directly through the app, and evolving valuable consumption tips and guidance on adopting sustainable practices.

Speaker 5

Since the launch in March 2023 up until May 19, 2023, C6 Bank has made the product freely available to 100% of more than 25,000,000 individuals and companies' customers.

Speaker 6

In the vibrant city of Melbourne, where urban living meets coastal charm, Hobson's Bay City Council has taken a giant leap forward with a groundbreaking partnership. 3 years ago, they introduced Android and iOS applications that provided residents with notifications such as bin schedules, local news, as well as guidance on recycling. But challenges arose as the apps coder base aged. That's when C and T partnerships stepped in. Together, they devised a plan to upgrade the React Native app, also migrate the legacy JavaScript server code to TypeScript, streamline notifications For residents, the results were transformative.

Speaker 6

Location specific information and services, reliable bin collection notifications, enhanced community engagement through feedback and tips, and a convenient lookup feature for bin disposal. And for Hobbson Bay City Council, they streamlined processes and data management, also improved user experiences, fostering community connection, and reduced call center volumes, facilitating easier resident council interactions. The new app is a shining example of how thoughtfully designed digital products can make a significant impact on a community.

Speaker 7

Welcome to our latest update. We have gathered the most recent information and insights from our leadership team to share with you.

Speaker 8

In August, Professor Julian Birkinshaw and renowned professor at the London Business School authored a paper in partnership with CINT that explores how artificial intelligence is reshaping the world of business. This paper in our website.

Speaker 9

For information security management, helping organizations safeguard their data, comply with regulations and manage risks. Achieving this certification demonstrates our commitment to cybersecurity and competitiveness in the market, enhancing our resilience against security threats and incidents. All of this aligns seamlessly with the principles we cherish at CINT. We've upheld our commitment to safeguarding our data, implementing stringent controls and maintaining top notch infrastructure to shield our entire organization from any external threats. This certification is a testament to CI and T's unwavering commitment to excellence and security.

Speaker 9

We are now better equipped than ever to navigate the challenges of the digital landscape.

Speaker 10

Santee Flow made a breakthrough with its release in Asia Pacific, North America and Europe. In China and U. K, we are promoting Santee Flow in keynote speeches, events and meetings. In the United States and Australia, leaders and guest speakers discussed the current state of AI adoption in enterprises, indispensable metrics for hyper productivity and the potential of the human touch in AI development to foster inclusivity. Internally, more than 2,000 users have access to CNT Flow, and more than 20 clients are already using this technology.

Speaker 10

Around the world, CNT Flow is gathering a community of pioneering users and co builders of this solution for a hyper digital world.

Speaker 11

Services group, proudly announced their partnership with Empadera, a startup dedicated to diversity, equity and inclusion. This collaboration aims to break the cycle of exclusion in the Brazilian workforce. Together, they are working on an innovative platform that revolutionizes the recruitment and selection process. It identifies diverse talents, nurtures their technical and behavioral skills, and connects them with the most fitting job opportunities. The platform transforms goal of making their tomorrow by empowering communities.

Speaker 7

And up to date on our latest developments and achievements.

Speaker 10

In the fast paced world of AI, our priority is to foster the power of collective intelligence and knowledge sharing. We believe that collaboration between AI and human intelligence is the key to trailblazing in this new frontier. In our DNA, we are always ahead creating and trying with new methods and technologies. With AI, wouldn't be different. Our upskilling and res killing programs facilitate continuous learning by enabling global teams to share the best of human intelligence with the exponential capacity of AI, focusing ventured valuable content to foster the flow mindset globally, bringing together partners, clients and our people to explore the potential of this new technology.

Speaker 10

We are also supporting the journey of valuable brands around the world to add this technology to their business, changing uncertainty into confidence. Our Impact AI events held in Australia and the United States brought together business and tech leaders from companies like Wells Fargo, Amazon and BlackRock to collaborate, exchange ideas, foster partnerships and navigate the expanding ecosystem of AI technology.

Speaker 1

I think the challenge with this revolutionary moment is that they tended to thrive in the fertile environment of start ups and digital natives. But normally, it takes years to have an impact a relevant impact in the brownfield setting of large established enterprise. In a nutshell, these advance need to become enterprise ready. So they need to reach a level of maturity where the potential of the new technology can be translated into customer value within a framework of reliability, security and privacy, factors that are non negotiable for large successful

Speaker 12

companies.

Speaker 13

We truly believe that you can't improve the things that you can't measure. And how does it do that? It does that by collecting a lot of data points. It collects data points by connecting to the systems that you already use, like your CICD, your Jira, your Bitbucket, your GitHub and all that.

Speaker 12

So our goal with CNT Flow is to dramatically reduce the lead time from innovation to production. So we allowed organizations to put value generation product in the hands of the users earlier.

Speaker 11

We aim to make their tomorrow more sustainable and socially responsible while generating long term positive impact for all our multiple and diverse stakeholders. Our digital solutions for sustainability offer was born from our firm commitment to lead the way in transformation. Using our years of experience with social and environmental projects, we offer solutions that promote sustainable business practices, inclusivity and environmentally responsible value chains. With 1 of Latin America's biggest educational solutions companies, we created an entirely accessible application for people with visual disabilities. Our approach has helped our client understand the importance of prioritizing Similarly impactful, with one of our clients, we created a platform to help in the reduction of carbon emissions and waste generation in the clients' value chain.

Speaker 11

Our approach proves that it's possible to have a positive social and environmental impact while remaining profitable. We believe that by creating value for society, investors and clients, we can do good, make a difference and lead the world's most critical sustainable digital projects.

Speaker 14

Marketing North America and Global Proms. I was very honored to be featured in Forbes. The article talks about something that's very close to my heart and has women in leadership. I talked about the new findings that show that women lead profits increase. A lot of this is because women introduce new ideas and perspectives, problem solving, we bring different ideas, lived experience to the table of overall health and tech presentation.

Speaker 14

So beyond my work at CIMT, I'm very passionate about giving back to the community and specifically really being and helping be a mentor to the next generation of leaders. When I talked about women in leadership, it's not focused on women who are the highest levels of the company. It really can be any one leader at any level. So as part of our strategy of Global Digital Specialist brand, it is important that we're building to model today, that we are staying ahead of the future, staying ahead of the trend.

Speaker 12

I'm David Bacon. I'm the Director of Design at CINT here in Melbourne, Australia. Infinity Lab is an online workshop to help clients and partners better understand digital inclusion and accessibility. It involves a series of digital based exercises designed to help build empathy for people with disabilities, whether they've been permanent, temporary or situational. Disability will affect most people in some form throughout their life.

Speaker 12

So retaining a customer for life means catering for their changing needs. Designing for Inclusivity not only our products and experiences to more people and a wider range of abilities, it also reflects how people really are. All humans are growing, changing and adapting to the world around them every day. Product should reflect this diversity. Accessibility, regardless of who you are, is critical to allow people to collaborate, people to do their job, people to take part in society.

Speaker 1

I hope you enjoyed our selection of client stories, news and highlights. Now I would like to invite Bruno to discuss our global talent strategy.

Speaker 15

Thank you, Sasser, and good morning, everyone. It's a pleasure to be here again. Throughout this year, we have diligently balanced the supply and demand of skills with prevailing market conditions, keeping a streamlined organization structure, while preparing ourselves to resume growth in the near term. We ended up the quarter with 6,100 CITs and our voluntary attrition rate continues in a downward trend. Above all, our leadership turnover rate remains at 4%, which plays a vital role in the continuity of our high quality service delivery and our ability to develop a new generation of our organizational culture.

Speaker 15

And in the Q3 of 2023, we made progress by introducing some key initiatives. For instance, we hosted a month of people visibility since September, welcomed a fresh cohort of students into our Career Acceleration for Black People program and provided inclusive leadership training. Additionally, we organized numerous workshops, training sessions and events centered around enhancing cultural awareness and promoting emotional well-being. Now let's shift our focus to our environmental initiatives. CIT is fully committed to championing social and environmental responsibility.

Speaker 15

Our primary objective revolves around generating a positive and lasting impact on society and environment. This quarter brought forth exciting news. In our 1st year on the Public Emissions Registry, the leading platform for reporting corporate greenhouse gas emissions in Latin America, the Brazilian GHG protocol awarded us the Golden Seal of Quality. In our sustainability journey, we achieved a significant mile this year by publishing our greenhouse gas emissions inventory in our ESG report. Since then, we have diligently strived to comprehend minimize emissions and infusing environmental and sustainability responsibility across our organization.

Speaker 15

Leveraging initiatives such as our ESG powerhouse and collaborative projects with our business units, we actively integrate sustainability into every aspect of our operations. Our commitment involves consistently refining our approach to environmental matters and in alignment with industry best practices. Now I invite Stanley to give you more details about our financial performance.

Speaker 16

Thank you, Bruno, and good morning, everyone. I'm glad to be here once more sharing our financial results with all of you. In the Q3 of 'twenty three, our net revenue was BRL529.1 million and it compares to BRL559 1,000,000 in the Q3 2022. The variation in net revenue was mainly due to the unexpected budget replanning of our top one client and part of our acquired portfolio. For the 9 months 2023, our net revenue increased to BRL1.7 billion, up 9.9% at constant currency compared to the same period of last year.

Speaker 16

When analyzing our revenue distribution by geography, North America is our largest market accounting 44% of our total revenue in the 9 months of 2023. This is a testament to the strong presence and success we have achieved in this region. Latin America is another significant market for us representing a substantial share of 41% in our total revenue. Europe follows with a revenue share of 10%, while Asia Pacific holds a 5% share. In terms of verticals, the Financial Services segment continues to be our primary source of revenue, contributing 29% to our total revenue in the 9 months of 2023.

Speaker 16

Additionally, the consumer goods sector is a significant contributor accounting for 20% of our total revenue exemplifying our ability to deliver transformative solutions in this industry. The technology and telecommunications vertical contributes 18% to our revenue, showcasing our proficiency in meeting the unique needs in this rapidly evolving sector. Finally, our revenue share from our top one client improved to 10% today from 16% in the 9 months of 2022 and the top 10 clients revenue share improved to 42% from 52% in the same period. This is due to a variety of factors including the cautious approach in the enterprise spending environment as well as the successful onboarding of new logos. Most importantly, as we look forward, it represents the diversification of our revenue streams as we expand our client base and enter into new geographic regions and industries.

Speaker 16

Talking about diversifying our client base, throughout the last 12 months, we have successfully onboarded 40 new clients that are generating revenue exceeding BRL1 1,000,000. We are excited to share that these new clients will serve as a catalyst for our growth as these engagements expand and gain traction over time. The consistent net revenue retention rate of approximately 123% over the past 5 years is a strong indicator of the value we provide to our clients. This rate exemplifies our ability to not only retain new clients but also expand our engagement with them over time. This aspect plays a pivotal role in ensuring our sustainable growth trajectory.

Speaker 16

Moving forward, we will continue to prioritize both the acquisition of new clients and the nurturing of existing relationships. Now let me detail our financial performance for the Q3 'twenty three and the 9 months 'twenty three. Our adjusted EBITDA was BRL98 1,000,000 in the Q3 'twenty three compared to BRL105 1,000,000 in the Q3 2022. The EBITDA margin was 18.5%. Analyzing the results year to date, the EBITDA increased to BRL328 1,000,000 versus BRL290 1,000,000 in the 9 months 2022, up 13.2 The EBITDA margin rose to 19.2% in the 9 months 'twenty 3 from 18.4% in the 9 months 2022.

Speaker 16

These results demonstrate our strategic focus on optimizing our SG and A expenses. Through a systematic and disciplined approach, we have actively identified operational optimization opportunities resulting in a reduction of these expenses. This has helped to offset the impact of our gross margin reflecting our commitment to maintaining financial resilience and efficiency. It is important to note that we have adopted a cautious approach throughout this year recognizing the need to navigate the current market dynamics with prudence, while preparing our resumption of more aggressive growth in the coming years. As we continue to adapt and refine our strategies, we are confident in our ability to position ourselves for sustained growth and long term success.

Speaker 16

Our adjusted net profit was BRL45 1,000,000 in the quarter versus BRL60 7,000,000 in the Q3 2022 mainly due to higher net financial expenses, which I will explain in more details. In the Q3 2023, net financial expenses were BRL20 1,000,000, BRL13 1,000,000 higher than third quarter 2022 as a result of 3 factors lower foreign exchange gains in the comparable period, which is a non cash effect, a derivative gain from an interest rate swap that benefited our results in the Q3 2022 and higher debt position as part of our M and A strategy. The foreign exchange variation and derivative results tend to balance out throughout the year. Our adjusted net profit in the 9 months 2023 increased by 10.5% to BRL176 1,000,000 from BRL159 1,000,000 in the same period of 2022. Finally, our cash generated from operating activities rose to BRL254 1,000,000 in the 9 months 2023 from BRL29 1,000,000 in the same period in 2022.

Speaker 16

And our free cash flow excluding the CapEx of our net operating cash flow increased to EUR163 1,000,000 substantially above our cash consumption of €81,000,000 in the 9 months 2022. The consistent generation of strong cash flow empowers us to continue investing in strategic initiatives that will further drive our growth and enhance our competitive advantage, while simultaneously maintaining flexibility in our capital allocation priorities. Now, I invite Cesar back to comment on our business outlook.

Speaker 1

Thank you, Istane. While enterprise spending sentiments remain cautious, we are glad to be supporting a growing number of clients with their core digital initiatives as they design and prepare their AI investments for the years ahead. For the Q4 of 20 23, we expect our net revenue to be in the range of BRL 5.19 million to BRL 5 40,000,000 on a reported basis. The midpoint of this guidance range indicates stable sequential revenue. For the full year of 2023, we are narrowing the range within the previous guidance.

Speaker 1

Now we expect our 2023 FX neutral net revenue growth to be in the range of 4% to 5% compared to last year. Finally, we are maintaining our expectations for the adjusted EBITDA margin of at least 19%. In such a volatile year, we have focused on maintaining our solid profitability, generating a significant amount of cash and evolving the AI capabilities of our team as we resume our solid growth trajectory. Thank you for attending our call today. We now conclude our presentation, and we'll begin the Q and A session.

Operator

All right. We'll now begin the question and answer session. I will announce each participant's name. The first question comes from Ashwin Shrivankar from Citi.

Speaker 3

Thank you, Eduardo, and good morning, everyone. Appreciate the comments. Let me start with maybe asking about the step down the top client. Is that more in nature of furloughs, temporary steps, things like that? Or is there something greater with regards to something else going on with regards to the client?

Speaker 3

And are there any indications of when spending at the client might come back to a more normalized level?

Speaker 17

Good day, Ashwin, and thank you for your question. Great to see you. Well, I think as Stanley mentioned, it was an expected budget replanning for our top one client. And as now we believe this, we have a very stable situation. That's what we are foreseeing.

Speaker 17

This top one client has been with us for more than 10 years now. So I think it's we are still, I think, the most strategic partner for digital. And I think it's just a result of a very volatile year they decide to adjust budget and that's why we saw this decline. So now we foresee a stable situation.

Speaker 3

I see. Okay. Okay. And as you think more broadly past the one client, any early thoughts that you can give us as to how you're planning for 2024? What we've heard from others is a slow start to the year with the hope that higher backlogs should convert in later parts of the year.

Speaker 3

Are you consistent? And are there things that you can say that provide higher visibility into forward comments?

Speaker 17

Sure. I think, Ashwin, a good way to see the current demand environment for our services, I think there is a question for us acting in different directions. The first one is macroeconomic and the devices, I think, pointing to still a cautious spending of our clients. But there is a second force that is the new tech revolution driven by AI. I think this is pushing our clients and every single company to increase their investments around digital to capture efficiency first and then prepare the company for inexorable customer behavior disruption that is going to happen because of the competitive environment in a world powered by AI.

Speaker 17

So macro constraining, AI pushing demand and our recommendation is simple, capture efficiency with CI and T flow, of course, opening budget and a space for playing the new customer experience game. If we how we translate that to our this demand equation to our environment, I think if we exclude the variations that Stavrin mentioned, we are observing new demand indicating growth across the board. So we are confident on delivering a very stable and strong Q4, marking what I believe is the start of our standard sequential growth through 2024 and accelerating as we progress in the year. That's our current visibility under the current market conditions.

Speaker 3

Understood. Thank you all.

Operator

Thank you, Ashwin. Our next question comes from Ernesto Gonzalez with Morgan Stanley. Ernesto, please go ahead.

Speaker 18

Hi. Thank you for taking our question. It's an international expansion. Just to see how it's doing relative to your expectations. And anything you can comment going into year end and into 2024 would be great.

Speaker 18

Thank you.

Speaker 17

Bruno, why don't I hand this one?

Speaker 15

So not sure if I got the question, but can you repeat like you're interested in seeing how the revenues outside Latin America are going? That's

Speaker 18

Yes. How they're doing relative to your expectations for the year? Have you seen any improvements in demand and trends? Or anything you can comment going into year end and 2024?

Speaker 15

Yes. We don't see a lot of differences in demand across regions, Ernesto. Like that's it looks like very similar across the board, right? So with some sectors a little softer than others, like mainly the tech sector itself, which was a relevant one for us, softer than others, but still strong in the CPG, financial services. So it's more like a by the cohort of clients like a traditional big Fortune 1,000 clients still growing stable, right, in a smaller tech companies software.

Speaker 15

But that's across the board, doesn't have any difference across regions. And so that's what I've seen everywhere.

Operator

Our next question comes from Puneet Jain with JPMorgan. Puneet, please go ahead.

Speaker 19

Hey, thanks for taking my question. I have a question for Stanley, like on margins. Like obviously, you are doing like a lot of cost cutting this year, including cuts in SG and A. Is that margin upside sustainable? And what are you seeing on pricing or expect for gross margin as we move into next year?

Speaker 16

Hi, Pune. Thank you for the question. What we've seen in this quarter, I would say that this is the lowest it's a transition phase, a quarter of transition. It's the bottom of a moment that is changing coming from this depressed market in overall and heading to transitioning through a stabilization and heading to a growth period again as we calculate. And in terms of the margins, of course, we see margins regaining to our track record in the next quarters.

Speaker 16

And with regard to sustainability, we see everything fairly sustainable and what everything that we've been managing in terms of cash, in terms of margins, in terms of cost is everything has been fairly sustainable. And mainly, we've been preparing ourselves to regain growth. And for example, taking the opportunities of especially towards AI, I think we did a great move really at speed and with a strong strategy towards optimization and later down the road to capture all the consumer experience that is it will really drive further growth. And we've been focusing on that and cost and cash management all combined, everything fairly sustainable and we'll continue in that path.

Speaker 19

Got it. And then are you seeing any differences across regions or across verticals as it relates to clients' willingness to start initiating projects specifically in AI area?

Speaker 17

I think that is Okay. Yes, it's a question, but I compliment you.

Speaker 16

Yes. I would say that we have 20 of the biggest clients already into Flow platform, doing all the experimentation, initiating the trajectory on top of optimization and but some clients already willing to jump to the next phase, which is towards consumer experience. Cesar, you may add

Speaker 17

your Sure, Javier. I think CI and T Flow helps CI and T go to market strategy in 2 ways, Pune, I think in 2 different timeframes. The first is efficiency, productivity. So it's already happening and we are replacing competitors based on concrete gains around tech efficiencies leveraged by CI and GFlow. This is the main opportunity for now in 2024 and I see a big opportunity for many years ahead because it's not a sprint, it's a 10 year marathon around the revolution in software development, and software engineering boosted by AI.

Speaker 17

The second opportunity is the demand associated with the advent of new business use case by industry, by vertical. It's already happening, but it's still in the early days. And I believe it will be relevant, really relevant in terms of revenue in 2025. So as the technology gains some maturity and stability and the competition environment reshape, it's natural that customer will have to increase their investment in hyper personalization and new customer experience, natural language experience, all based on AI. So this is a big shift, but probably from 2025 on.

Operator

On. Our next question comes from Carlos de la Garreta with Itau CBA.

Speaker 2

Can you hear me?

Operator

Yes.

Speaker 2

Sorry, I'm not sure my video is working. I'm connected from mobile. Thank you. Good morning. Thanks for taking the call and the question.

Speaker 2

I have 2 on my end, very quick ones. The first one, if you can talk about the utilization rate and its evolution, how do you see that going forward? And secondly, if you can comment on how is the, let's say, the digesting of the acquisitions that you made in 2022? I mean, it was at least 4 of them. So if you can talk about that, give us some color at a qualitative level, that will be very helpful.

Speaker 2

Thank you.

Speaker 15

I'll take that one. Carlos, thanks for the question. Utilization rate has been high as we've been adjusting the workforce, right, according to demand. So it kept high, and we are forecasting that as we kind of resume growth, we'll continue high and we already have a couple of 100 positions open. So we see some potential growth in the near future, right?

Speaker 15

So that's a metric that we track very closely. And so even in the previous quarters when the low demand was hitting, the utilization ratio is still very high, right? To your second question, what was that again? Sorry, Carlos. Second question was around?

Speaker 15

Digesting the acquired Digesting the Yes. So we're very happy with the speed of that integration and so on how the we already kind of really seamlessly integrate the business teams and the delivery teams across the board with all the acquired companies. Low lights in that process is actually some of the acquired companies have a bigger exposure in tech. As I mentioned before, that's a segment that has a soft demand right now. But in the highlights, we've already seen the thesis of those acquisitions working, right?

Speaker 15

So we have many clients that were coming from those smaller companies that had under $1,000,000 type of engagements, scaling rapidly to $5,000,000 $10,000,000 engagements, kind of really tapping into the scale of CertainT and the complementary capabilities of CRNT and reaching a completely different level of engagement and relevance for those clients. So that we're very happy to see that happening already. We see that in U. S, in EMEA. So we have many cases.

Speaker 15

So we feel like that's going forward, we'll still continue to it's a long term gain for us. The M and A, we'll continue to look for more opportunities to do this in 2024 and maybe the second wave of M and As coming as soon as we see kind of market conditions and prices coming to that as long as they make sense, we'll resume that activity.

Speaker 2

Thank you, Bruno. And as a follow-up to that, I guess, the last comment you just made like what would be the conditions or the metrics that you would be looking at to assess that the outlook for M and A is getting better?

Speaker 15

We've been looking at pricing, right? So the private market is kind of already reflecting the reality of public markets. And of course, we're looking at for companies for assets that are doing well, right? So we want to see that resilience on the target companies as well, companies that are that we navigate in the soft demand environment. So those are the I think with the main two things we want to see there before moving forward with M and A processes.

Speaker 2

Appreciate it. Thank you.

Speaker 17

Thank you.

Operator

Thank you, Carlos. We have two questions here that we've got by e mail. The first one is regarding CNT Flow. How do you expect it to contribute to winning new clients or expanding the relationship with existing ones?

Speaker 17

Sure. I can get this one. Again, we are very excited with the early results. As I mentioned before, more than 20 of our largest clients on the team, more than 2,000 people from CIG and clients onboarding the platform. And we are now reaching a large number of use cases for efficiency in the platform.

Speaker 17

We have now a round of 30 AI agents. So this is basically fulfilling our value blocks that is we started with our foundation that we're going to handle privacy, security, going to be make AI enterprise ready. On top of that, we boast the teams with AI agents towards tech efficiency and this powered by AI team can tackle traditional digital demand with hyper productivity or even working on new AI business use case. So this is the 3 layers of the value prop, enterprise readiness, efficiency and experience. And in terms of the way we are seeing the demand being generated by that is basically tackle productivity, so replacing poor performance competitors based on concrete, the most tradable gains around tech efficiency and open space, budget space and creating the AI teams that can tackle the opportunities around experience.

Speaker 17

So basically, a huge push around our current portfolio and we it's the main focus in this initial beta launch of Flow and from next year on, we will onboard new clients in the platform. Right now, it's available only for CIG, current clients and we are preparing everything in terms of capabilities and the technology to scale from next year on.

Operator

Okay. The second question is considering the strong cash generation this year, what are the priorities for capital to be deployed?

Speaker 16

Well, I can take that one. Thank you for the question. Well, on top of that cash generation, we may bear in mind that usually traditional or we have the seasonality of generating a stronger cash in the second half of the year. And we are deploying that cash. We're allocating that cash mainly in 3 areas.

Speaker 16

First, we have our debt service. So we are paying down debt in order to prepare our balance sheet for this more the next strategic inorganic moves that we are we will make in

Operator

the near

Speaker 16

future. 2nd one towards R and D and we have this great opportunity towards AI and we as I mentioned, we are investing timely with the proper timing and in the proper scope in that area as well. And the third would be, we are we've been promoting a share repurchase, for example. We see that we have a great opportunity with the price out there, and it's a way to return the value our shareholders as we have no dividend policy here. And as well, we have some M and A obligations that we may use those repurchase shares to comply with those obligations.

Speaker 16

So mainly those three areas for capital allocations.

Operator

Thank you, Stanley. There's just another question that came up by email on how do you foresee the evolution of our organizational structure in response to client demands and artificial intelligence?

Speaker 15

You can take that one. So we think the next to Cesar's point before, right, so the next 10 years, I think, will completely reshape our industry, right? So we're very happy with the pace we're learning. And so we're not thinking of there's no amount of hiring that can be done to actually get people that know what that's going to happen. Like It's for the scale that the new demand will bring.

Speaker 15

We have to retrain our whole staff and the game will be who kind of learns faster, right? So that's where we're dedicating our efforts and to really move fast. Today, we have more than 2,000 people. It's like almost like a third of the company already exposed to either our AI powerhouses, one of those 22 clients that we mentioned that are already using Flow. So we have a third of the company learning and exposing and contributing to what we need to do and what we need to reformulate the software development, what needs to be done.

Speaker 15

And so we're very happy with the speed and we're kind of upgrading conditions and investments kind of to Sanity Flow is now open to 100% of the staff. So we get even more and more people joining it and kind of helping clients to figure out how to kind of really reformulate their whole software development processes. And this is going to happen in the next year, the next 2, next 3, next 10. We'll be always changing there with immense potential for gains in speed and in productivity. And of course, just applying those tools to the external world, we're going to capture a lot of potential for hyper personalization and hyper experimentation, kind of creating completely different user experiences for our clients, our clients' customers.

Operator

All right. That concludes today's Q and A session. I'll now invite Cesar to proceed with his closing remarks. Cesar, please.

Speaker 17

Eduardo, thank you all for participating in our call. Thanks, Eduardo, Stanley and Bruno. Once again, I want to thank you all CIO and peers around the world for the hard work and achievements in the quarter. And a special thanks for our clients that are selecting CI and T to co build this amazing new chapter of innovation powered by artificial intelligence. Stay well.

Speaker 17

See you in the next quarter.

Speaker 2

Thank you.

Operator

Thank you all for attending today.

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Earnings Conference Call
CI&T Q3 2023
00:00 / 00:00